Markson v Cutler

[2007] NSWSC 1515

CITATION:	Markson v Cutler & anor [2007] NSWSC 1515
HEARING DATE(S):	17-21 December 2007
JURISDICTION:	Equity Division Expedition List
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	21 December 2007
DECISION:	A deposit less than 10% was not accepted. Agent did not have authority to accept 5% deposit. Court should not readily decline to act on unchallenged evidence. Failure to afford party in default opportunity to rectify is not unconscionable. Deposit to be returned. Agent failed to communicate relevant information and disobeyed instructions. Agent to indemnify purchaser in respect of costs.
CATCHWORDS:	CONVEYANCING – deposit – whether deposit less than 10% accepted. - AGENCY – real estate agent – whether authorised to accept less than 10% deposit. - AGENCY – duties – real estate agent – to communicate relevant information to principal – to assiduously endeavour to elicit best offer – to obey instructions. - EVIDENCE – cross-examination – significance of absence of cross-examination in case conducted on affidavit evidence. - EQUITY – estoppel – promissory estoppel – whether failure to afford party in default an opportunity to rectify breach is unconscionable – whether loss of such opportunity is relevant detriment. - EQUITY – relief against forfeiture – deposit – Conveyancing Act s 55(2A). - COSTS – where defendant succeeds on plaintiffs’ claim – where cross-defendant responsible for litigation – whether cross-defendant should indemnify plaintiff.
LEGISLATION CITED:	(NSW) Civil Procedure Act 2005, s 98 (NSW) Conveyancing Act 1919, ss 54A, 55(2A) (NSW) Uniform Civil Procedure Rules, Rule 42.1
CASES CITED:	Allied Pastoral Holdings v Federal Commissioner of Taxation [1983] 1 NSWLR 1 Blackman v Thompson [1994] ANZ Conv R 279 Brien v Dwyer (1978) 141 CLR 378 Browne v Dunn [(1893) 6 R 67 Di Bello v De Costi Seafood (Holdings) Pty Ltd [2005] NSWCA 267 Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 First Energy (UK) v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194 Frank v Brown [2000] NSWSC 290; (2000) 10 BPR 18 Greenwood v Harvey [1965] NSWR 1489 Hadley v Baxendale [(1854) 9 Exch 341; (1854) 156 ER 145 Iannello v Sharpe [2007] NSWCA 61; (2007) 12 BPR 23,887 Josland v Mullaley Properties (1994) NSW Conv R 55-695 Legione v Hateley (1983) 152 CLR 406 New Zealand Tenancy Bonds Ltd v Mooney [1986] 1 NZLR 280 Ocean City Realty Ltd v A & M Holdings Ltd (1987) 36 DLR (4th) 94 Paric v John Holland Construction Pty Ltd [1984] 2 NSWLR 505 Peterson v Maloney (1958) 84 CLR 91 Precision Plastics Pty Ltd v Demir (1975) 132 CLR 362 Proton Investments Pty Ltd v Vahekin Pty Ltd (1991) NSW Conv R 55-452 Provan v HCL Real Estate Ltd [1993] ANZ Conv R 144 Raffoul v Esanda Ltd [1970] 3 NSWR 8, 14; Kramer v Cooper [1975] 2 WWR 1 Rama Corporation Limited v Proved Tin & Gem Investments Limited [1952] 2 QB 147 Rossdene Pty Ltd v Carolina Corporate Properties Pty Limited [1987] ANZ Conv R 401 Sorrell v Finch [1977] AC 728 Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Weber v Land and Business Agents Board (1986) 40 SASR 312 Text: Dal Pont Law of Agency
PARTIES:	Maxwell Daniel Markson (plaintiff/first cross-defendant) Mark Edward Cutler (first defendant/first cross-claimant) Michele Louise Cutler (second defendant/second cross-claimant) Vameba Pty Ltd (second cross-defendant)
FILE NUMBER(S):	SC 2851/07
COUNSEL:	D H Murr SC w J E Armfield (plaintiff/first cross-defendant) M J Neil RFD QC w B J Sharpe (defendants/cross-claimants) R S Sheldon w J B Spinak (second cross-defendant)
SOLICITORS:	Jeffrey Hinde & Associates (plaintiff/first cross-defendant) Neil Lawson & Co Lawyers (defendants/cross-claimants) TressCox Lawyers (second cross-defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EXPEDITION LIST

BRERETON J

Friday 21 December 2007

2851/07 Maxwell Daniel Markson v Mark Edward Cutler & anor

JUDGMENT (ex tempore)

1 HIS HONOUR: On 17 April 2007, the plaintiff Maxwell Daniel Markson as purchaser, and the defendants Mark Edward Cutler and Michele Louise Cutler as vendors, executed and exchanged contracts for the sale of the Cutlers' house at 6 Lola Road, Dover Heights for a price of $5.1 million. The cross-defendant Vameba Pty Limited was the agent through whom the sale was negotiated; its relevant officers were Mr Michael Finger and his daughter, Ms Samantha Finger. On its face, the contract provided for a payment of a 10 per cent deposit, and also contained a Special Condition 41, to the effect that if the vendor, at the request of the purchaser or otherwise, accepted a deposit less than 10 per cent, then the amount paid should be deemed to be a payment on account of a full 10 per cent deposit and the balance of the 10 per cent was due and payable under the contract, but the vendor would forebear from requiring payment of it until the earlier of completion or default. Before Mr Markson executed the contract, Mr Finger told him that the Cutlers had agreed to accept a five per cent deposit, as Mr Markson had requested; accordingly, he tendered payment of five per cent only, which Mr Finger accepted. The Cutlers say that any such statement and acceptance by Mr Finger was not only unauthorised but contrary to their express instructions that a full 10 per cent deposit was required. A few days later, on 23 April 2007, the Cutlers learnt that one Brian Farrell from New York was prepared to pay at least $5.5 million for their property. They scrutinised the contract, and on 24 April they learnt that only a five per cent deposit had been paid. Having taken advice, they determined on 27 April to terminate the contract for incomplete payment of the deposit. On 2 May 2007, the Cutlers exchanged contracts to sell their home to Mr Farrell for $5.5 million.

2 Mr Markson sues for specific performance and, alternatively, for return of the deposit. The Cutlers oppose the claim for specific performance; ultimately they consented – albeit only in final submissions – to the return of the deposit; and, in any event, they cross-claim against Vameba for damages for breach of contract, negligence and breach of the fiduciary duty.

3 Both counterparts of the contract plainly stipulate for a 10 per cent deposit. Nothing in either counterpart refers to five per cent. Save for the agent's Sale Advice Notice of 24 April 2007, no document records agreement to accept a five per cent deposit. In order to succeed in his claim for specific performance, Mr Markson must prove an acceptance by or on behalf of the Cutlers of a five per cent deposit.

4 Clause 41 of the Special Conditions was, I think, intended to operate in the following way – bearing in mind that it was prepared before any particular purchaser had been identified and, in the case of this particular contract, in anticipation of an auction. Consistent with ordinary conveyancing practice in New South Wales, the form of the contract provides for a deposit of 10 per cent of the price unless otherwise stated; but – particularly in larger residential sales – it is now commonplace for parties to agree on a five per cent deposit. It has also been commonplace for vendors’ solicitors to endeavour to preserve the ability of the vendor to forfeit a full 10 per cent on default, notwithstanding that only five per cent is paid. This has led to debate as to whether a provision having that effect is a penalty; and it now appears settled by the decision of the Court of Appeal in Iannello v Sharpe [2007] NSWCA 61; (2007) 12 BPR 23,887, that an obligation to pay the second five per cent on default would in those circumstances be unenforceable as a penalty.

5 When Clause 41 was inserted – only some three weeks after the decision in Iannello – what was contemplated was that a figure of less than 10 per cent might be inserted in the “deposit” panel on the front page, in which case Clause 41 would have work to do. In other words, when Clause 41 spoke of the vendor accepting – at the request of the purchaser, or otherwise – a deposit which was less than 10 per cent, it was speaking of an acceptance on the face of the contract in the deposit panel on the cover page. It would operate if it were agreed to insert, for example, five per cent and not 10 per cent in that panel. It contemplated an acceptance of less than 10 per cent in the contract, rather than dehors the contract. There was no such acceptance in this case.

6 Although that conclusion is dispositive, I propose to address the other arguments which have been skilfully advanced by Mr D H Murr SC for Mr Markson, who submitted that Mr Finger, on behalf of the Cutlers, accepted at Mr Markson’s request a deposit less than 10 per cent – namely one of 5 per cent – for the purposes of Clause 41. I do not have the slightest doubt that Mr Finger told Mr Markson that the Cutlers had agreed to accept five per cent – so much is common ground between them – nor that Mr Markson tendered payment of five per cent on that basis, genuinely believing the Cutlers to have so agreed. In that context, the primary issue is whether the Cutlers were bound by what Mr Finger said and did.

7 There is no doubt that Mr Finger had the usual authority of a real estate agent acting for a vendor on a sale. However, appointment as a real estate agent does not confer authority to bind the vendor to anything. A real estate agent has authority to find a purchaser, not to bind the vendor to terms with the purchaser. So much is made clear by high authority, such as Brien v Dwyer (1978) 141 CLR 378, 387 (Barwick CJ), 395 (Gibbs J); Peterson v Maloney (1958) 84 CLR 91, 94-5; and Sorrell v Finch [1977] AC 728, 753. Moreover, that an agent is authorised to receive a deposit – and, similarly, that the contract directs payment of the deposit to the agent – does not confer on a real estate agent authority to bind the vendor in dealings in respect of the deposit, but only authority to receive it in accordance with the terms of the contract [Brien v Dwyer (agent's purported acceptance of a post-dated cheque did not bind vendor); New Zealand Tenancy Bonds Ltd v Mooney [1986] 1 NZLR 280; Rossdene Pty Ltd v Carolina Corporate Properties Pty Limited [1987] ANZ Conv R 401, 404; Josland v Mullaley Properties (1994) NSW Conv R 55-695; Proton Investments Pty Ltd v Vahekin Pty Ltd (1991) NSW Conv R 55-452].

8 Accordingly, it is only if Mr Finger or his firm had express or ostensible authority to accept a five per cent deposit that the Cutlers would be bound by his conduct. So far as ostensible authority is concerned, an agent cannot by its own acts cloak itself with authority wider than the usual authority of an agent of the relevant class; some holding out or representation by the principal to cloak the agent with the relevant authority is required. The agent cannot create its own authority. Insofar as the judgment of Bergin J in Frank v Brown [2000] NSWSC 290; (2000) 10 BPR 18,119 at [58]-[61] – which was invoked by Mr Murr – suggests otherwise, it would seem, with the greatest respect, to be inconsistent with well-established principle [New Zealand Tenancy Bonds Limited v Mooney, 284; Rama Corporation Limited v Proved Tin & Gem Investments Limited [1952] 2 QB 147; Di Bello v De Costi Seafood (Holdings) Pty Ltd [2005] NSWCA 267, [24]-[25]; First Energy (UK) v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194 (Steyn LJ)]. Accordingly, no matter what Mr Finger himself did or said during and before 17 April, that could not confer on him ostensible authority wider than a real estate agent’s usual authority, unless he was held out as having that wider authority by the Cutlers. No representation or conduct by the Cutlers, to Mr Markson or generally, has been identified that would cloak Mr Finger or his firm with ostensible authority wider than the usual scope of a real estate agent's authority.

9 For Mr Markson, it has been argued that a distinction is to be drawn between authority to bind a vendor, and authority to communicate a vendor's position. There is no doubt that a real estate agent generally, and in this case Mr Finger in particular, has authority to communicate the negotiating position of his principals, in this case the Cutlers; but a communication of a negotiating position is not one that gives rise to legal relations; it is not the communication of an offer capable of immediate acceptance. It is true that, in some cases, authority to communicate – for example by signing a letter on behalf of a principal – may carry with it ostensible authority to bind – that is, to make an offer contained in that letter [First Energy (UK) v Hungarian International Bank Ltd]. But even that depends upon the context, and a letter on a company’s letterhead signed by an executive officer is quite distinct from a letter from a real estate agent who does not ordinarily have authority to make a binding contract.

10 Accordingly, even if my view of the intended function of Clause 41 is incorrect, and it contemplates a separate acceptance dehors or under the contract, rather than on the face of the contract, such acceptance required more than mere communication of a negotiating position; it required an act which would bind the vendor to something other than or additional to the term contained in the contract, in substance equivalent to variation of a contract. Authority to communicate the negotiating position of the vendor to the purchaser does not include authority to vary a contract. In short, if the contract contemplated the vendor might choose to accept a deposit other than 10 per cent, that does not confer on the agent authority to make that decision. The agent’s acceptance of a five per cent deposit could only bind the vendor if he were authorised to do so, and a real estate agent does not, absent special circumstances, have such authority.

11 Accordingly, that leaves for determination whether Vameba was expressly authorised by the Cutlers to accept a five per cent deposit on their behalf. In that respect, there is a substantial conflict in the evidence. Mr Markson did not deal directly with the Cutlers, and his evidence cannot bear directly on what authority the Cutlers gave their agent. Mr Finger's evidence – substantially supported by that of Ms Finger – is to the effect that Mr Finger was expressly authorised by the Cutlers to accept a five per cent deposit; Mr and Mrs Cutlers' evidence is to the contrary.

12 On Mr Markson’s claim, the onus of proving that Vameba had the requisite authority falls on Mr Markson as plaintiff who seeks to enforce the contract dependent on proof of that authority. The resolution of the conflict depends on an evaluation of which version reaches the standard of being more probable than not. It is important to understand that when a Court decides contested questions of fact as on this issue, the circumstance that one version is ultimately preferred does not involve the Court in finding that the other version was false, let alone deliberately so, but simply that on the probabilities, based on the evidence taken as a whole, one emerges as the version which is more probably than not correct.

13 I am unable to be persuaded that the Cutlers expressly authorised Mr Finger to convey to Mr Markson that they would accept, or had accepted, a five per cent deposit. On this issue, I prefer the evidence of Mr and Mrs Cutler to that of Mr and Ms Finger. I will not at this point recite in detail the evidence of each of them, nor the analysis which in the course of the hearing has been undertaken and has been the subject of cross-examination. However, the main reasons for my conclusion are these. First and foremost, a comparison and analysis of Mr Markson's evidence of the events of 17 April, with that of Mr and Mrs Cutler and that of the Fingers, shows a very substantial degree of correlation and synchronisation between the version of Mr Markson and that of the Cutlers, while Mr Finger’s version is quite discrepant. As there is absolutely no reason for supposing the slightest degree of co-operation between Mr Markson and the Cutlers – quite the contrary – this is a very telling consideration.

14 The second matter which is telling is Mr Cutler's email of very early in the morning, about 2am on 18 April, to a friend, in which he recorded with some excitement that he had just sold the property, and that a 10 per cent deposit was in the account; this speaks very strongly in favour of the Cutlers' version that they had not authorised acceptance of five per cent, and against the Fingers' version that the circumstance that only five per cent had been paid had been carefully explained to them only a couple of hours earlier that evening.

15 Thirdly, while the evidence of Mr and Ms Finger as to the events of about 10:00pm on 17 April, when they attended at 6 Lola Place, was the subject not only of contradiction but of firm challenge – a challenge which at least in some respects exposed considerable improbabilities in the Fingers' version (and I mention, only for example, what I find to be the high degree of improbability that Ms Finger, not having seen the contract previously, became aware – as she claims – of the content of Special Condition 41, but no other Special Condition, in the course of Mr Cutler flicking through and initialling Special Conditions in the contract that evening), the Cutlers' version of events that evening was not the subject of cross-examination at all.

16 Submissions have been made as to the significance of that circumstance. As Hunt J explained in Allied Pastoral Holdings v Federal Commissioner of Taxation [1983] 1 NSWLR 1 (at 16), the rule of practice known as the rule in Browne v Dunn is necessary for two reasons: to give the witness the opportunity to deal with the contrary evidence or the inferences to be drawn from it; and to allow the relevant party the opportunity to call evidence either to corroborate the witness’s explanation, or to contradict the inference sought to be drawn. And as Samuels JA explained in Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 (at 587), the rule has two aspects: the first is a rule of procedural fairness, which is the aspect with which Hunt J was concerned in Allied Pastoral; the significance of that aspect is much reduced in a case, such as the present, conducted on affidavits or witness statements, where each party knows in advance what the other party's version will be and in what respects he or she stands to be contradicted. However, the rule’s second aspect is concerned with the weight or cogency of evidence, in that while a court is not bound to accept evidence that is unchallenged by cross-examination, failure to act on such evidence without good reason may be erroneous, and the court is entitled to accept it with greater assurance than otherwise [Paric v John Holland Construction Pty Ltd [1984] 2 NSWLR 505, 507].

17 In other words, apart from the natural justice aspect of the rule in Browne v Dunn, unchallenged evidence will be accepted more readily than challenged evidence and, indeed, a court should not readily decline to act on unchallenged evidence, unless it is glaringly improbable [Precision Plastics Pty Ltd v Demir (1975) 132 CLR 362, 370-1]. This second aspect of the rule is still of application in cases conducted on affidavit and witness statement. The fact that the Fingers' version has been challenged, and with effect, as to the meeting on the evening of 17 April, whereas the Cutlers' version has not been challenged, is therefore one of the significant considerations in my decision to prefer the Cutlers' version.

18 These are the main – but not the only – reasons why ultimately I prefer the Cutlers' version. It follows that I conclude that the Cutlers did not give express authority to Mr Finger to accept a five per cent deposit, and that his purported acceptance of that sum and what he said to Mr Markson about it was not only without authority but contrary to instructions.

19 However, Mr Markson next invokes the doctrine of promissory estoppel, of the type described by the High Court in Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, to support the contention that the Cutlers are estopped from disputing that there is a binding and enforceable agreement to accept a five per cent deposit. The elements of such an estoppel were catalogued by Brennan J, as the later Chief Justice then was, as follows (at 428-429):

In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.

20 There are two fundamental problems with accommodating the present facts to these legal concepts. The first is element (2) in Brennan J's list, namely, that the defendant has induced the plaintiff to adopt the relevant assumption or expectation. As the case was put by Mr Murr SC, the relevant assumption or expectation was that a five per cent deposit was payable and no more. The Cutlers themselves did not induce Mr Markson to adopt that assumption or expectation. The way in which it was induced was by the act of their supposed agent, which was unauthorised in that behalf. I do not see how a party can be bound by the act of its unauthorised agent, for the purposes of the second element of Walton Stores v Maher. In this respect the case is distinguishable from Legione v Hateley (1983) 152 CLR 406, in which a party was held bound by the representations of a solicitor's secretary as to the deferral or extension of time for settlement. Gibbs CJ and Murphy J said (at 421-2):

It is of course clear that neither the solicitors, nor Miss Williams, had any actual authority from the vendors to make any representation to the purchasers that the vendors' rights would be kept in abeyance. But the vendors had authorized the solicitors to act for them in completing the sale. Within reasonable limits, the solicitors, having been entrusted by the vendors with the conduct of the negotiations, must be treated as having the authority which, within the course of the negotiations, they purported to exercise: cf Crabb v Arun District Council 53, at p193. "The solicitor is to be regarded as the alter ego of the client and the rights of the other party to the contract cannot be made to depend upon the diligence or lack of diligence exhibited by the solicitor in his dealings with his client": Sargent v ASL Developments Ltd 54, at p659; see also at p649. It was of course the conduct of the vendors that gave the solicitors ostensible authority to act on their behalf. The authority extended to actions carried out in the ordinary course of business by such members or employees of the firm as ordinarily acted for it. When the solicitors selected or permitted Miss Williams to speak on their behalf, in their capacity as solicitors for the vendors, her words bound the vendors. It was no doubt to be expected that if Miss Williams was employed as a secretary, she would promptly communicate the conversation to a member of the firm, who, if he wished to resile from what she had said, could have informed the purchasers' solicitors accordingly. Similarly one would have expected the solicitors to communicate promptly with the vendors — the fact that the vendors were in Queensland does not mean that they were incommunicado — and, again, to inform the purchasers' solicitors of any change of attitude. If there was any lack of diligence on the part of the vendors' solicitors — and we do not suggest that there was — that cannot affect the position of the purchasers.

21 As their Honours found, the lawyers had been entrusted by the vendors with the conduct of the negotiation and the completion of the matter, and "within reasonable limits" the solicitors could bind their client within the scope of the actions carried out in the ordinary course of business of the solicitor's firm and its employees – which, relevantly, included fixing the time for an appointment for settlement. The same cannot be said of a real estate agent in connection with making or verifying the terms of a contract for the sale of land, in relation to the deposit or otherwise, which is simply not in the ordinary course of the agent's business – but, as is uncontroversial, stands outside the usual scope of an agent's authority.

22 I have considered also whether, for the purposes of the second element, it can be said in this case that, though the Cutlers did not actively induce Mr Markson to adopt the assumption or expectation, they should be held to have done so on the basis that, knowing of it, they stood by while Mr Markson acted to his detriment. In this connection, it was submitted that it must have been apparent to the Cutlers, once they learnt that only 5 per cent had been paid, that Mr Markson was labouring under a misapprehension; yet they stood by while he acted to his detriment over the next several days, in that while he could have topped up the deposit to 10 per cent, if informed of the problem, so that thereafter the contract would not have been terminable, he did not do so. I am unable to accept, however, that the Cutlers knew or ought to have known that Mr Markson was labouring under such a misapprehension. All they knew was that only five per cent had been paid: why, they did not know. In those circumstances, I do not think it can be said that even in that way that they induced Mr Markson to adopt the assumption that only a five per cent deposit was payable.

23 The second reason why the facts cannot be accommodated to a promissory estoppel is that it is not unconscionable for a vendor, having a right to terminate a contract, not to do so immediately but to wait some little time before doing so, even if it would be possible for the other party to rectify the breach in the meantime. Notice of a breach, or the grant of an opportunity to rectify it, is not a precondition to termination in the absence of specific statutory or contractual requirement. While by waiting too long, at least with the requisite knowledge, the party otherwise entitled to terminate may be taken to have made an election to affirm, it is not unconscionable to wait some time before terminating at least in the absence of conduct by the other to its further detriment in the meantime. Mere omission to rectify the breach is not such conduct as would render the vendor’s silence unconscionable; there is no detriment in failing to rectify a default. Mere failure to rectify a breach is not relevant detriment, and mere failure to afford a party in default an opportunity to rectify is not unconscionable.

24 Having reached those conclusions on authority and estoppel, it is unnecessary to resolve the issue as to whether any term about a five per cent deposit would be unenforceable for want of writing, under (NSW) Conveyancing Act 1919, s 54A.

25 That brings me to the claim by Mr Markson for relief under Conveyancing Act, s 55(2A). It can be noted, first of all, that Mr Markson has at all times been ready, willing and able to complete the contract. It can secondly be observed that the Cutlers will benefit greatly from the termination of the contract, to the extent that they will secure a price (from Mr Farrell) $400,000 higher than they would have had from Mr Markson. And it also can be noted that Mr Markson is in every sense an innocent victim of the misstatements, albeit unauthorised, of the Cutlers' agent. Ultimately, each of Mr and Mrs Cutler conceded in cross-examination that it would be fair for the deposit to be returned to Mr Markson. In my view, the whole of the deposit together with such interest as has been earnt from its investment should be returned to Mr Markson.

26 That then brings me to the cross-claim against Vameba. A consequence of the conclusions I have so far reached is that the Cutlers will be at liberty to complete the Farrell contract at $5.5 million, and thus will apparently suffer no loss. However, insofar as concerns the claim brought in contract, damage is not the gist of the action. In any event, lest I be wrong on the question of authority, it is desirable that I at least express some conclusions on the cross-claim, albeit in less detail that might otherwise have been the case.

27 Essentially, the cross-claim was put on two bases. The first was that the agent failed to use reasonable endeavours to obtain the most advantageous available offer for the property. As Dal Pont explains in Law of Agency (at [11.10]), as a general rule every agent is bound to communicate, with his or her principal, information material to the agency; in the case of a real estate agent this includes everything known to the agent in respect of the subject matter of the agency that would be likely to influence the conduct of the principal [Ocean City Realty Ltd v A & M Holdings Ltd (1987) 36 DLR (4th) 94, 98 (British Columbia Court of Appeal, Wallace JA)]. The real estate agent's duty is to act assiduously and diligently at all times to obtain the most advantageous offer reasonably available in the circumstances. I express the duty that way having regard to the various ways in which it has been expressed in the cases referred to by Dal Pont, including Raffoul v Esanda Ltd [1970] 3 NSWR 8, 14; Kramer v Cooper [1975] 2 WWR 1, 2; Greenwood v Harvey [1965] NSWR 1489, 1492; Weber v Land and Business Agents Board (1986) 40 SASR 312, 316; and Blackman v Thompson [1994] ANZ Conv R 279, 280; see Dal Pont (at [11.19]). The duty extends to all facts known to the agent that may affect the value of the property, so that a failure to disclose the interest of a potential purchaser is a manifest breach [Provan v HCL Real Estate Ltd [1993] ANZ Conv R 144, 145-6 (Rolfe J)]. It must all the more strongly be a breach to mislead the principal as to the interest of a potential purchaser.

28 In this case, in the course of 16 and 17 April, the agents had received communications from Mr Harvey Fross from Hong Kong. He had indicated that he thought the property was inferior to the adjacent 8 Lola Place, which had earlier sold for $4.8 million, and would sell "closer to $4 million". He requested and was sent a contract. He had arranged appointments to inspect the property on Thursday 19 April and Saturday 21 April. As it transpires, it can be concluded that he would probably not have paid $5 million, but that was not known on 17 April.

29 Mr Brian Farrell, of New York, had also endeavoured to contact the agents. He was unsuccessful in making contact with Mr Finger, but spoke with Ms Finger on 17 April at about 11.00am. Her version of the conversation, which for present purposes I am content to accept, is set out in her affidavit sworn 26 July 2007:

Brian said:

Hi my name is Brian Farrell and I am calling from New York. I have seen the property at 6 Lola Road on the internet. My fiancé is Australian and we are looking at moving back to Sydney next year. We would like to buy a property before we arrive, however we are in no rush as we want to make sure it’s the right property. It’s hard to look at properties on the internet and make decisions. What are your expectations on this property?

I said:

We haven’t yet held an open inspection of the property. The first inspection is on Thursday so there hasn’t been an opportunity for feedback. The most recent sale in the street was number 8 Lola Road and that property sold for $4.8m. That is the only guide we have at the moment.

Brian said:

I have looked at the floor plan and the upstairs is too small for us. We would need to extend and renovate the house to suit our needs. Would the owners consider offers prior to auction?

I said:

We haven’t started inspections so the owners haven’t received any feedback yet. If they received an offer above their expectations they would look at it.

Brian said:

Could you please send me through a copy of the contract so I can have a look over it?

Brian then gave me his email address and his phone number in New York and advised the time difference so I would not call at an odd hour.

I emailed through a copy of the contract to Brian and never heard anything back.

30 Significantly, Mr Farrell requested that he be sent a copy of the contract. Ms Finger endeavoured to send him a copy of the contract. Unfortunately, she incorrectly transcribed his email address, so that he did not receive it. Ms Finger sent the email, attaching the contract, but incorrectly addressed, at 11.07am on 17 April.

31 The discussions with Mr Harvey Fross had commenced on 16 April, but there were email communications between Ms Finger and him at 11.11am and 11.17am on 17 April. At that stage, Mr Markson had not made his first formal offer of $4.5 million. Indeed, at that time he had just finished inspecting 6 Lola Place, and had conveyed to Mr Finger an indication that he proposed to make an offer of $4.5 million. While the interest of Mr Markson emerged and increased over the remainder of the day, there was no follow up of Mr Harvey Fross, and there was no follow up of Mr Farrell.

32 By late on the evening of 17 April, the position was that an extensive auction marketing campaign was in place and had commenced, with a date for auction fixed. An apparently attractive offer – the best price ever achieved in Lola Place – had been received from Mr Markson, with a deadline for acceptance by midnight that night. Indeed, it was an offer of $300,000 more than had been achieved for the apparently superior 8 Lola Place. A decision was therefore required as to whether the Cutlers should accept an apparently very attractive offer and abandon the auction, or whether they should proceed with the auction campaign and risk losing the attractive offer from Mr Markson.

33 In light of the duties to which I have referred, in that situation the agent was duty bound to obtain and put before the Cutlers all reasonably available relevant information to place them in the best informed and advised position to decide which course to take. That needs to be judged in the context that, at least insofar as the agent’s running sheet (DX09) records, the three expressions of interest so far had come from Mr Harvey Fross, Mr Farrell and Mr Markson. Mr Harvey Fross had set up arrangements to inspect the property in the next couple of days. In the light of Ms Finger's own version of her conversation with Mr Farrell, I am unable to accept that Mr Farrell had expressed disinterest in the property; indeed, the conversation to which she deposes is plainly one in which he expresses interest. Agents must understand that purchasers will often understate their level of interest and enthusiasm, in order to get the best price from the purchaser's perspective; and an experienced agent would necessarily be aware of that. In a property of this character, priced around $5 million, the financial consequences of competition are potentially very considerable, in that the interest of either of the potential purchasers other than Mr Markson might have increased the price by one or more hundreds of thousand of dollars.

34 In those circumstances, the agent’s duty to obtain all reasonably available relevant information to enable the purchaser to make an informed decision required at least a follow up call to Mr Farrell and Mr Harvey Fross to inform them that another purchaser (Mr Markson) had made an offer of $5 million, in order to see whether the other would be prepared to better that figure. Lest it be suggested that it was unreasonable to ring Mr Farrell at 3:00am or 5:00am US time, there was practically no downside in doing so, and hundreds of thousands of dollars were potentially at stake. And while I accept that Mr Harvey Fross may not have been prepared to pay even as much as $5 million, the fact that he was not contacted – in circumstances where an appointment to inspect the property on his behalf had been made and it was not known what his limit was – is evidence that the agent did not act assiduously and diligently to achieve the most advantageous offer on the evening of 17 April. Moreover, not only was no phone call made, but if I am to accept Mr Finger's evidence in cross-examination (transcript p 202), the Cutlers were told that “the man from New York” was not interested and had a limit of $4.7 million, yet the evidence reveals no basis whatsoever for such a representation.

35 In my opinion, therefore, there was a breach of Vameba’s duty as agent assiduously and diligently to elicit the most advantageous offer in the circumstances.

36 As things have transpired, no loss has resulted from that breach, and only nominal damages for breach of contract will be appropriate. Had it been otherwise, and had I upheld Mr Markson's claim for specific performance, a question would have arisen as to the assessment of damages. In light of the conclusions I have reached, there will not be an inquiry into damages, but it may be of assistance, lest the case go further, that I outline the approach which I would have adopted, if relevant, to the assessment of damages.

37 It would be wrong to proceed on the basis that if Mr Farrell and Mr Harvey Fross had been contacted that evening, the property would necessarily have sold for $5.5 million as it ultimately did. It may have sold to Mr Farrell pre-auction; Mr Markson might have increased his offer; it may have gone to auction; it may not have sold at auction at all; or it may have sold for less than $5.1 million or up to $5.75 million at auction. What was lost was an opportunity of obtaining a better price than $5.1 million. Having regard to the various possibilities to which I have adverted, including the slight possibility that it would not have achieved even $5.1 million at auction, and at the far end that the slight possibility it might have achieved as much as $5.75 million, and bearing in mind that on an assessment of a lost chance, the Court has to do the best it can, I think an appropriate figure to adopt for the purpose of comparison is $5.35 million. I would therefore have awarded damages of $250,000.

38 The other basis upon which the agent's breach of duty is put is that he disobeyed his instructions by conveying an acceptance of a five per cent deposit. Notwithstanding that a different onus of proof applies on the cross-claim to that which applies on the claim, for the same reasons that I was not persuaded that the Cutlers did authorise Mr Finger to accept 5 per cent, I am affirmatively satisfied on the cross-claim to the requisite standard that they gave him instructions that they insisted on 10 per cent.

39 It is, of course, fundamental that an agent must adhere to and obey his principal's instructions. In those circumstances, a breach of duty, both in contract and in tort, is established. Once again, as I have concluded that the Cutlers were entitled to terminate the sale contract and resell to Mr Farrell, no loss will be occasioned and the case will be one for nominal damages only. But had that contract been enforceable against the Cutlers, the measure of their damages would have been the difference between the position in which they would have been had the agency contract been performed, and the position in which they actually were, as a result of Vameba’s breach. Had Mr Finger obeyed his instructions, he would have obtained a 10 per cent and not a 5 per cent deposit. However, on the relevant assumptions, the contract would have been enforceable and Mr Markson would have been ready willing and able to perform it, so no occasion for forfeiting the deposit would have arisen. Accordingly, the loss would be limited to half the interest on the difference between the 5 per cent and 10 per cent deposit.

40 Mr M J Neil RFD QC, for the Cutlers, argued that had a 10 per cent deposit been demanded, no contract would have been made, because Mr Markson would not have been able to raise the 10 per cent deposit in time, and thus the Cutlers would have proceeded to sell to Mr Farrell, or at least had the opportunity of securing a better price. I do not think that such loss naturally and reasonably flowed from the particular breach concerned, for the purposes of the first limb of Hadley v Baxendale. As discussed in argument, the position is rather akin to a situation where a doctor negligently fails to warn a patient of risk A involved a procedure, which the patient would if warned not have accepted, but which does not materialise; where risk B (of which there was no duty to warn) materialises, even though the patient would not have undergone the operation if warned of risk A, she is not entitled to recover damages in respect of risk B. One way of putting it is that the loss was outside the scope of risk created by the particular breach in question. Accordingly, were it necessary to award other than nominal damages for this particular breach, the appropriate measure would have been half the interest on the difference between a 5 per cent and 10 per cent deposit during the period of its investment.

41 I will hear counsel, if they wish, on the appropriate relief, but subject to that I propose to make the following orders:

(1) Order pursuant to Conveyancing Act s 55(2A) that the deposit of $255,000 and all interest accrued thereon be repaid by the defendants to the plaintiff;

(2) Order that the Amended Statement of Claim be otherwise dismissed.

42 On the first cross-claim:

(3) Declare that the first cross-claimants, the Cutlers, have validly terminated the contract dated 17 April 2007 between the first cross-claimant and the cross-defendant to the first cross-claim, Mr Markson;

(4) Order that the plaintiff withdraw caveat AD078920 by 21 January 2008;

(5) Reserve liberty to apply by arrangement with my Associate or, if she is not available, to the vacation judge, for any further order in respect of caveat AD078920.

(6) On the second cross-claim, give judgment that the cross-defendant pay the cross-claimant the sum of $100.

43 Although it is correct that the plaintiff has succeeded in part, in obtaining return of the deposit under s 55(2A), the amendment which claimed that relief was a late one, raised only by the Amended Statement of Claim filed at the commencement of the hearing on 17 December 2007 (although it had been foreshadowed in the written submissions); evidence and argument on it occupied all of 10 minutes during a five day hearing; and although it was traversed in the Defence, it cannot be regarded as having formed any significant part of the litigation. I do not think it justifies any departure from the position which follows from the dismissal of the plaintiff's main claim, that the plaintiff should pay the defendants’ costs.

44 So far as the second cross-claim by the Cutlers against Vameba is concerned, not only was it entirely reasonable that that cross-claim be brought in the context of this litigation, so that the same facts had to be litigated only once, but the Cutlers were faced with the situation that their agent was apparently giving evidence supportive of Mr Markson's case, and in order to cover their position it was necessary that they bring that cross-claim lest they fail against Mr Markson, particularly on the question of ostensible authority. Ultimately, I have found that the Cutlers were entitled to succeed on that cross-claim; that the damages are nominal as a result of the rejection of the Fingers' evidence, is not a reason for disentitling the Cutlers to their costs of that cross-claim.

45 (NSW) Civil Procedure Act 2005, s 98, confers on the Court a general discretion as to costs. The Uniform Civil Procedure Rules, r 42.1 provides that costs should follow the event unless there is some reason for making another order. The effect of the orders I have so far proposed will accord with that.

46 The question arises as to whether the second defendant Vameba should indemnify the plaintiff Mr Markson in respect of the costs which Mr Markson must pay the Cutlers. It is apparent, for the reasons I have already given, that the real cause of the litigation was the misstatement by Mr Finger to Mr Markson of the position as to a five per cent deposit. Vameba and its conduct was the cause of the litigation, and that is strong reason why the costs of the litigation should ultimately be borne by it. The fact that Mr Markson and Vameba are not directly in suit does not prevent the Court from making a costs order against a cross-defendant in that situation. Moreover, if it were necessary to find some basis upon which Vameba could be liable to the plaintiff, then on the findings I have so far made, Mr Markson would have established a case of breach of warranty of authority against Vameba. In my opinion, the justice of the case requires that Vameba, whose conduct was the fundamental cause of the litigation, indemnify Mr Markson in respect of the costs which Mr Markson must pay the Cutlers.

47 Accordingly, the costs orders will be:

(1) Order that the plaintiff pay the defendants' costs;

(2) Order that the second cross-defendant, Vameba, pay the cross-claimant's costs of the second cross-claim;

(3) Order that the second cross-defendant pay the plaintiff's costs, including the costs which the plaintiff must pay the defendants.

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