Vernea v Hocking Stuart (Hawthorn) Pty Ltd
[2003] VSC 489
•12 December 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
No. 5917 of 2002
| JOHN JACOV VERNEA & NADIA VERNEA | Plaintiffs |
| v | |
| HOCKING STUART (HAWTHORN) PTY LTD | Defendant |
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JUDGE: | SMITH J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 to 28 October 2003 | |
DATE OF JUDGMENT: | 12 December 2003 | |
CASE MAY BE CITED AS: | Vernea v Hocking Stuart | |
MEDIUM NEUTRAL CITATION: | [2016] VSC 489 | |
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Principal and Agent – sale of real estate – breach of retainer by agent resulting in loss of property of principal/vendor – assessment of damages.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D. Collins S.C & Mr R. P. Phillips | Foster Hart Lawyers |
| For the Defendant | Mr P. Riordan | Phillips Fox |
HIS HONOUR:
The Proceeding
By a writ issued on 7 June 2002, Andrea Maule sought orders against John Vernea and Nadia Vernea for specific performance of a contract of sale of the property at 4 Burne Court Kew. The contract was alleged to have been entered into on about 20 November 2001. Ms Maule was the purchaser and the Verneas the vendors.
The Verneas raised a number of issues in their defence, including the following:
•on 14 November 2001 they instructed the agent that the property was no longer for sale;
•on 15 November 2001, they terminated the agent's authority to sell the property and advised the agent that a contract signed on 14 November 2001 was no longer valid;
•as at 20 November 2001, the date of the alleged contract, the agent did not have authority to sell or obtain a purchaser for the property;
•alternatively, the contract signed by Ms Maule was no more than a counter offer which was never accepted by them.
Arising out of the defence of the Verneas, Ms Maule also sued Hocking Stuart (Hawthorn) Pty Ltd (Hocking Stuart) as the Verneas’ agent for breach of warranty of its authority. She claimed damages on the basis that if Hocking Stuart did not have authority, and the court found that she had no right to specific performance, she would suffer loss and damage. Alternatively, she claimed damages for misleading and deceptive conduct. Hocking Stuart’s response was that it had authority to sell the property.
The Verneas issued third party proceedings against Hocking Stuart claiming an indemnity against it for any damages and costs which Ms Maule might obtain against them and damages generally, alleging breach by Hocking Stuart of the terms of the agency agreement. Hocking Stuart filed a defence in the third party proceedings and a counter claim seeking payment of commission of $9,375 and advertising fees of $9,680 and costs of preparing the property for auction of $2,728.60.
By terms of settlement dated 8 May 2003, the proceeding between Ms Maule and the Verneas was settled. Pursuant to the settlement the proceeding was dismissed with no order as to costs, as was Hocking Stuart's notice of contribution against the Verneas. Under the terms of settlement executed by all parties, the Verneas acknowledged that the alleged contract of sale was binding and enforceable and the date of settlement under that contract was extended from 31 January 2002 to 22 July 2003. The Verneas agreed not to seek interest from Ms Maule on the balance of the purchase monies payable under the contract for the period 31 January 2002 to 22 July 2003. They agreed to each bear their own costs of the proceedings between them. The terms of settlement also included terms preserving the rights of the Verneas and Hocking Stuart in the proceedings between them.
What remains for determination is the third party proceeding filed by the Verneas against Hocking Stuart and the counter claim in that proceeding filed by Hocking Stuart against the Verneas.
The Issues in the claim of the Verneas
The Verneas allege that Hocking Stuart breached the agency agreement by committing them, without authority, to an unconditional sale of 4 Burne Court for $750,000 with a settlement date of 31 January 2002. They seek damages of $250,000 being the difference between the contract price and the present value of the property.
It is common ground that the question of liability is to be determined by considering whether between 2.25 pm on 16 November 2001 and 4.00 pm on 20 November 2001, the Verneas gave Hocking Stuart instructions and authority to commit them to an unconditional sale of the property on the above terms.
As to damages, the questions in issue are:
•the time at which the value of the property should be assessed (at the time of the alleged breach, settlement of Ms Maule's claim or judgment in the third party proceeding),
• the value of the property at the relevant time.
The witnesses
Direct evidence of dealings between the Verneas and Hocking Stuart was given by Dr and Mrs Vernea and by Messrs Coutinho, Richards and Walker for Hocking Stuart. All had a very strong interest in winning the proceedings and their evidence must be approached with care. In addition, Mrs Vernea, who it is common ground handled the substantial property investments[1] that she and her husband held at the time, clearly felt wronged by what had occurred. Her sense of outrage and desire to win may well have caused her to reconstruct some of the events – in particular, her alleged lack of awareness of ongoing attempts by Hocking Stuart to sell the property after the initial unsuccessful auction. Dr Vernea’s evidence was difficult to assess because his manner is somewhat unusual. But he was more credible. He was not closely involved in events and left decisions essentially to his wife and did not share her outrage. It was also to his credit that he was concerned about the honesty of the strategy proposed by Hocking Stuart on 14 November 2001 to which reference will be made in due course. I note, however, that Mrs Vernea did not appear to feel any such concern.
[1]They owned 10 residential properties at the time.
As to the Hocking Stuart representatives, they had a financial interest and their reputations were under attack. Mr Walker did not advance matters in his evidence because of a remarkable absence of memory of events. Mr Richards had only recently commenced work with Hocking Stuart in 2001 and was in his late teen years. Mr Coutinho was in charge. Both were outwardly confident and persuasive but I have come to the conclusion that they should not be believed on critical aspects of their evidence.
A matter of concern in relation to Messrs Coutinho and Richards was a lack of concern on their part when it was demonstrated that they took an expansive view of their authority. They did not seem troubled about making changes to the written authority given to them by the Verneas without ensuring the oral or written approval of the Verneas[2] or troubled about Mr Richards obtaining signatures on 18 November 2001 to a contract relating to another property, 4 Mayfield Avenue after the approval for use of the contract had been withdrawn a few days earlier and without obtaining the approval of the Verneas. My adverse assessment of them was reinforced by some frank evidence from Mr Richards that the strategy for the sale of 4 Burne Court during the negotiations with the Maules included the false assertion that there was another purchaser when such a purchaser did not exist. Mr Coutinho came across as a person who believed that he knew what was best for the client and that the client should, and would, follow his direction.
[2]For example, adding an obligation to pay maintenance charges. I will refer again to this issue in considering the counter claim. Another example of the expansive view was engaging solicitors without authority from the client.
The Verneas called two witnesses who I am satisfied were independent and generally reliable. They were Ms McInness, a letting agent who became involved in letting 4 Burne Court for the Verneas. The other was Mr Maule, a solicitor and the husband of Ms Maule, the purchaser, who negotiated with Hocking Stuart on her behalf. In the case of Mr Maule, a challenge was mounted on the accuracy of his recollection of facts and sequences. I am satisfied, however, that the sequence of events and their substance, as described by him, should be accepted. In particular , I am satisfied that his account of critical events on 20 and 21 November should be accepted and that of Messers Coutinho and Richards rejected.
Save for some aspects to which I refer below, I have concluded that I should accept the evidence of the Verneas where it conflicts with that of the Hocking Stuart witnesses. One reason for reaching that conclusion was the support for their evidence on critical aspects given by Mr Maule and Ms McInnes.
The authority issue
I turn to the evidence of the salient events and my conclusions about that evidence. Before doing so I should note that there is one proposition on which I have no doubt – the Verneas were never prepared to sell the property for less than $850,000. In their minds, having regard to the original purchase cost and the cost of improvements made, it was not worth their while to sell it for anything less than that price. Further they were under no pressure to sell. I turn to the facts.
The initial attempt to sell - On 20 August 2001, the Verneas executed in favour of Hocking Stuart
•an auction authority for 4 Burne Court, the auction to be held on 20 October 2001 and
•an exclusive sale authority for 4 Mayfield Road.
Later, on 18 September 2001, Mrs Vernea executed an auction authority in favour of Hocking Stuart for 4 Mayfield Road, for an auction to be held on 10 November 2001. On 20 October 2001, the auction of 4 Burne Court was held. The property was passed in, the highest bid being $660,000. There was an indication later of $680,000. The property remained on the market and was advertised at $750,000 and "Open for inspections" were held. There is an issue as to the extent to which the Verneas authorised this post auction activity. The conclusion I have reached is that they acquiesced in it on the basis that if the agent could obtain a buyer at $850,000 then they would sell, but it was entirely at the cost of the agent. This conclusion is supported in part by the fact that the agent agreed not to charge them for post-auction advertising. In the meantime they engaged Ms McInnes to find a tenant for the property.
Events of 14 November 2001 - On 14 November 2001, Mr Maule confirmed by e-mail an offer made orally the previous day to Mr Walker of Hocking Stuart to purchase 4 Burne Court. The detail of the offer was set out in an e-mail sent by Mr Maule to Mr Richards at 9.01am. The price offered was $705,000. The offer was subject, inter alia, to the sale of the Maule home at 13 Hilda Street for $1,150,000 within 21 days of signing the contract and settlement was to be 90 to 120 days depending on the timing of the sale of the Maules’ existing property.
On the same day, in the late afternoon, the Verneas attended the offices of Hocking Stuart and met Mr Coutinho and Mr Richards. They signed a form of contract of sale for 4 Burne Court. It contained a sale price of $750,000 and was dated 14 November 2001. It did not include any details of a purchaser or of a deposit. They also executed a form of contract of sale for 4 Mayfield Avenue Camberwell. It also contained a sale price. It did not contain any details of a purchaser. The Verneas were asked, but refused, to execute an exclusive leasing authority in favour of Hocking Stuart for 4 Burne Court and 4 Mayfield Avenue.
There is an issue as to whether the Verneas were told of the offer of Stephen Maule. I am satisfied that they were not. There is also an issue as to the purpose for which the contract was executed.
The Hocking Stuart position is that, at all times after the post-auction discussions, and up to 20 November 2001, the Verneas wished to sell the property for $750,000 and the contract that was signed reflected that position. A major difficulty with that scenario is to find an explanation for the Verneas’ refusal to sell at that price when they had the opportunity to do so and their decision instead to fight the purchaser’s action. The Verneas are not people who would behave in such a bizarre fashion. The Verneas, on the other hand, maintain that their intention always was not to sell below $850,000 and that the contract they signed did not reflect that intention. There is an explanation for their signing the contract – an explanation that reflects badly on all concerned.
Mrs Vernea gave evidence that Mr Coutinho asked them to sign the two contracts, for the prices of $750,000 and $650,000 respectively, so that he could use them to go to the under-bidder and show the under-bidder that the vendors wanted to sell. He would get the under-bidder to sign the contract but then he would go to other people, two or three, and effectively conduct an auction in his boardroom with the aim of getting their price or more. She said that they emphasised that the contract they signed was just for that day and that no one else would sign it. She denied that she signed because she was prepared to sell the properties for the prices stated.
Dr Vernea’s account was that they met with Mr Coutinho and Mr Richards to discuss the strategy for a final attempt to sell the two properties or to do something else like leasing them. He said that Mr Coutinho said that he would speak to the prospective buyer who was at the auction and persuade him to pay $750,000. To do that he said he needed a document signed by them to show that they were serious at that figure. He said he would show that to the prospective buyer and, if the buyer agreed, he would get the buyer to make out his own proposal and fill in a sale form. He said he would give them back their signed form and use the one signed by the buyer to show it to other prospective buyers and get them to make offers and he would then get them in and have a sort of auction in the boardroom. Dr Vernea said the contract was only to be enforced that day and night; after that Mr Coutinho had indicated he would not need that form and he would return it to them.
In cross-examination Dr Vernea said that Mr Coutinho said that the document would not be used as a real contract. It would be used to show that they were serious at selling at that price, but it was not to be used as a contract. He agreed that the purpose was to give the impression to a buyer that they would sell for $750,000. He denied that they would be bound if the under bidder signed before midnight. He said that Mr Coutinho said that the under bidder would fill in another form and the form that he signed would not be used as a contract. He said that Mr Coutinho told them that the under bidder was prepared to pay more than $690,000 and that he might be able to persuade him to pay $750,000 and to make that offer. He said that no other terms were mentioned. He said that the contract he signed was a sample. Asked why he wrote the letter on the next day he said because until that day they had trusted Mr Coutinho. Whatever he said they had agreed with. When he did not contact them about what had happened with the under bidder, he said they began to have doubts. He also felt that what they were doing was “cheating”. He said that the price of $750,000 was being used for the purpose of selling for $850,000 and it occurred to him that this might not be “very honest” and that he was implicated in it.
The fact that the contract was not, in fact, shown to the Maules during the negotiation might be said to cast doubt on the Verneas’ evidence that Mr Coutinho said that it would be used to get the under bidder to put in a signed offer. That conclusion, however, assumes that Mr Coutinho intended to do what he told the Verneas he would do. That should not be assumed. The signing of the contract, however, is consistent with the principal feature of the strategy which was to create a bidding process with the property effectively on the market at the price set out in the contract. The fact that both contracts were to be used as dishonest negotiating tools was in fact confirmed by Mr Richards. Asked how this could be done, he said that it confirmed to Mr Maule that if he would pay $750,000 he could buy the property. He also said that as part of the strategy they were telling Mr Maule that they had someone else wanting to buy the property and that the first in got the property. Put that this was a lie he agreed. He said that he lied to get the best price for his client. Put that he would lie to achieve an outcome, he said that he was not lying now but agreed that he had lied to Mr Maule. He said that the strategy was that they would say they had another buyer out there and a commitment from the Verneas at the price shown on the contract.
Accepting Mr Maule's evidence, he was not shown the document prior to 20 November 2001. This may have happened because Hocking Stuart was told that it had been withdrawn. Alternatively, they may have changed their plans or in fact had a different strategy - to use the contract as an apparently genuine contract to bind both parties. I prefer an explanation of improvised and changing tactics directed to securing a sale.
The specific question in issue is what passed between the Verneas and Mr Richards and Mr Coutinho in discussing the signing of contract. My clear impression of Mrs Vernea and Dr Vernea was that they did not then and do not now fully understand the precise purpose of the contract.But the frank testimony of Mr Richards confirms that the intention at that time was that the signed contract was no more than a negotiating tool. In addition, as I have already stated, one thing in this case is crystal clear - that there was no way Dr and Mrs Vernea were prepared to sell the property for less than $850,000.
Events from 14 November to 20 November 2001 - Mrs Vernea gave evidence, which I accept, that on the night of 14 November 2001 or the next morning, she spoke to Mrs Steele, the wife of her solicitor about the contract she and her husband had signed the previous day. Mrs Steele in turn contacted her husband. She conveyed his advice to the Verneas that they should surrender the contract. Mrs Vernea also spoke to Ms McInness.
Ms McInness gave evidence that Mrs Vernea rang her on the morning of 15 November 2001. She had been approached after the 4 Burne Court auction by Mrs Vernea to let that property. She had asked the Verneas for a copy of the agent’s authority a day or two after the auction but one was not produced. On 15 November 2001, Mrs Vernea came into the office of Ms McInness and told her that she had signed a contract of sale prior to a purchaser signing it. Ms McInnes advised Mrs Vernea to write a letter to Hocking Stuart cancelling the contracts. She gave evidence that she gave some guidance as to the content of the letter. Dr Vernea typed the letter on his computer at home and sent it by fax to Hocking Stuart at 10.28 am. It stated
"Dear Glen
We wish to cancel the advertising for both properties (4 Mayfield Avenue, Camberwell and 4 Burne Court, Kew), as we have not instructed your office to do any advertising after the auctions.
Please note that the sale contracts we signed were just for yesterday 14th November 2001, until 12.00 pm, and they are no longer valid.
As we did not receive a copy of the authorities for sale of the houses, please send us copies of the sale authorities for both houses."
There is an issue as to whether that letter was received by Hocking Stuart on 15 November 2001 but not that it was sent. As it is common ground that the letter was received by Hocking Stuart on the next day, the issue as to receipt of the letter on 15 November 2001 is academic.
There is also an issue as to whether Mrs Vernea contacted Hocking Stuart and spoke to Mr Coutinho and Mr Richards about withdrawing the contract. It is not necessary to resolve that issue in light of what occurred the next day.
Mr Maule was told by Hocking Stuart during the morning of 15 November 2001 that the offer of $705,000 was rejected. He was not shown a document signed by the Verneas and a counter offer was not put to him on their behalf. Later that day he made an offer of $ 725,000 subject to the sale of the Maule home for $1.175 million. There is an issue as to whether this offer was communicated to the Verneas. I am satisfied that it was not. Mr Maule requested an inspection. That evening he spoke to Mr O'Donohoe, a real estate agent, whom he had known for a number of years, and asked him to inspect the property and tell him whether the price offered was a fair price.
On 16 November at about 10.00 am, Mr O'Donohoe arrived to inspect 4 Burne Court for the Maules. Mrs Vernea was present. She knew Mr O’Donohoe. There is an issue as to whether Mrs Vernea’s evidence should be accepted that she told Mr O'Donohoe that the house was not for sale. He gave evidence that she did not make that statement. I accept his evidence. I think it likely that she would not have made such a statement to Mr O'Donohoe. I do not accept her evidence that she was not aware of the ongoing advertising and attempt to sell the property. I am satisfied that she and her husband were content to allow Hocking Stuart to continue to try to sell the property, while another agent tried to let it for them, in the hope that Hocking Stuart would find a buyer prepared to offer $850,000.
In the afternoon, Mrs Vernea attended the office of Ms McInness and showed her a copy of the letter of 15 November 2001. It was faxed from the office of Ms McInness to Hocking Stuart at 2.25 pm and received by Hocking Stuart. That much is common ground. I note that Hocking Stuart did not answer the letter. At about 3.00 pm, she rang Mr O'Donohoe and questioned him about the value of the property. There is an issue as to whether she also asked him to obtain an increase in the price to $750,000. He was unsure of the conversation. He did recall that she asked him whether the purchaser would pay $750,000 and that he refused to discuss the matter. In the end the evidence did not support the conclusion that that was the price she wanted – the point sought to be made by Hocking Stuart. Mr Maule gave evidence that he spoke to Mr O'Donohoe who advised him that he thought the price he had offered was about right.
On 17 November 2001, 4 Burne Court was again advertised - for $750,000. An “Open for Inspection” was held. At about 3.00 pm, Mr Richards telephoned the Verneas and spoke to Dr Vernea. For Hocking Stuart, it is said that Dr Vernea said that they were still selling the property for $750,000. Dr Vernea denied making any such statement. I accept the evidence of Dr Vernea. Mr Richards' account, once subjected to cross-examination, did not support his evidence in chief. Rather, Dr Vernea told him that he, Mr Richards, would need to speak to Nadia.
Mr Richards also gave evidence that he later spoke to Mrs Vernea. The Verneas agree that Mrs Vernea spoke to Mr Richards that evening. There is an issue as to what was said – in particular, whether she told him that she did not want to sell at the offered price but would sell for $750,000. I have no doubt, however, that Mrs Vernea had no intention of selling the property for less than $850,000 and made no such statements. I have come to the conclusion that Mr Richards is mistaken in that aspect of his recollection of this event.
On 19 November 2001, according to Mr Maule, Mr Coutinho told him that his offer of $725,000 was rejected. Mr Maule contacted Hocking Stuart and increased his offer to $750,000 subject to the sale of 13 Hilda Street for $1.2 million and a settlement date in March 2002.
According to Mr Coutinho and Mr Richards, they met with the Verneas at their home at approximately 5.00pm, gave them a set of contracts with conditions and obtained their acceptance of the conditional offer. The Verneas deny that any of those events occurred. In my view, the evidence of Mr Coutinho and Mr Richards is a reconstruction.
Events of 20 and 21 November 2001 - It is here the accounts diverge most significantly. According to Mr Maule, at approximately 10.00 am, on 20 November 2001 Mr Walker informed him that the conditional offer had been accepted. Mr Walker said he would fax the proposed special conditions to Mr Maule. He did so at 10.28 am. Prior to receiving the fax, Mr Maule had not received or been shown anything in writing. The proposed conditions were contained on a photocopy of pages from the document signed by the Verneas on 14 November 2001 but the date appearing on the document was now 19 November 2001. About 15 to 20 minutes after receiving the fax, Mr Maule contacted Mr Coutinho and said that the conditions were acceptable and that they could proceed on that basis.
The Hocking Stuart account is that shortly after it had advised Mr Maule that the offer had been accepted, Mrs Vernea rang Mr Richards to say that they were not prepared to proceed with the sale subject to conditions. He also said that he arranged to meet her at 3.00 pm the following day and arranged for flowers to be sent to her.
Mr Maule gave evidence that about one hour after his conversation with Mr Coutinho, Mr Coutinho telephoned him and told him that the Verneas had changed their minds about the conditional offer. Probably in this conversation, if not the earlier conversation as well, Mr Maule asked Mr Coutinho "what do I need to offer to buy the property". He said that he was told that he needed to make an unconditional offer on a fairly quick settlement period - like 30 days. Because of the difficulties of such a short period he responded with an offer of $750,000 with settlement on 31 January 2002 - a settlement period of about 70 days. He gave evidence that, probably shortly prior to lunchtime, he was told that the offer was acceptable and a representative of Hocking Stuart would be around to obtain his wife’s signature.
At approximately 4.00 pm that day, a representative of Hocking Stuart attended on Ms Maule and obtained her signature. The document signed was the document that had been signed by the Vernea's on 14 November 2001. Significantly, in the middle to late afternoon, Mr Maule was told, he thought by Mr Walker, that the agents were meeting with the vendors in the afternoon on the following day and that the contract would be confirmed at that time.
Mr Richards and Mr Coutinho gave evidence that following the signing of the contract by Ms Maule, Mr Richards delivered the contract to Mrs Vernea with another bunch of flowers and that she did not express any objection to the fact that the property had been sold.
Ms McInness’ account of events, however, was that she received written leasing instructions from the Verneas at 12.26 pm on 20 November 2001 and had forwarded lease documents to the tenant at 12.45 pm. She then contacted Hocking Stuart and told them that a tenant had been obtained for 4 Burne Court and it was no longer for sale. She was told by the Hocking Stuart’s representative that the property had in fact been sold. She gave evidence that she conveyed the Hocking Stuart information to Mrs Vernea and told her that if the property had been sold that would jeopardise the lease.
Mrs Vernea also said that she was told by Ms McInness that Hocking Stuart had told her that the property was sold. She said she was extremely distressed and contacted Hocking Stuart to protest and maintain that they were not prepared to sell the property for less than $850,000. She went to the Hocking Stuart office and a member of staff contacted Mr Coutinho for her. She said that he told her not to be upset and that he would tell the lady that it was a mistake and fix things up. She said that later he rang and said that he was with the lady that he had a big "headache" and would ring her later. She said that, soon after, Mr Richards came to her home. He was very upset, complaining about what they had done to prepare the house for sale ( at their cost) and that all they were being paid was 1.25 percent. She said that she ordered him to leave the house telling him that the house was not for sale. She said they were both crying at that point. Later that day she said that Mr Coutinho rang back and said that everything would be all right and that they should come and see him the next day and to go out and enjoy the Christmas party they were going to that night. He assured her that everything was going to be all right. She said that they arranged to see him the next day at 3.00 pm. She said that they left to go to the Christmas party at about five or six o'clock and returned at about midnight. On their return, she found a bouquet of flowers with a note attached to them.
"Look forward to meeting you at 3.00 pm tomorrow, I'm sure we can sort things out. Kind regards Paul and Glenn "
It is not disputed that a meeting had been arranged for 3.00 pm the next day. It is common ground that the reference in the note to Paul and Glenn was a reference to Mr Richards and Mr Coutinho respectively.
There is a dispute as to whether the flowers were delivered during the period between the alleged notification to Mr Maule of the change of mind and the making of the unconditional offer (the Hocking Stuart allegation) or during the evening while the Verneas were attending a dinner (their allegation). I prefer their account. It is supported by what transpired between the Maules and Hocking Stuart.
Very late on this day, or early on the following day, 21 November 2001, Ms McInness received documents from Hocking Stuart containing a copy of the alleged contract of sale and letters dated 19 November 2001 which referred to an unconditional sale of the property on that day. There was no unconditional sale that day. Mr Coutinho maintained in his evidence that these documents came into existence on 20 November 2001 after Ms Maule had signed the contract.
Turning to 21 November 2001, Mr Richards and Mr Coutinho maintained that nothing occurred that day. They had to maintain this position because on their account the property was sold the previous day. Their evidence is incorrect. Much happened on that day.
Mr Maule’s evidence was that on 21 November 2001, he rang Hocking Stuart several times in the late afternoon because the promised confirmation of the purchase had not been received. He was concerned to know what was going on. He gave evidence that he was told that neither Mr Walker or Mr Coutinho were available. His calls were not returned. He also gave evidence that later, at about 6.30 pm, he received a phone call from his wife saying that they had the property. He said that Mr Richards had delivered a signed copy of the contract to their home with a hamper of toiletries shortly after 6.00 pm.
The Verneas also gave evidence of significant activity. Mrs Vernea gave evidence that Mr Coutinho rang her in the morning and asked that they meet at 5.30 pm rather than 3.00 pm. She and Dr Vernea gave evidence that, around lunchtime, Dr Vernea came in with a yellow envelope which had been sent by Hocking Stuart by courier. It contained a contract and some letters, in particular letters dated 19 November 2001 asserting that an unconditional sale had occurred on that day. Dr and Mrs Vernea gave evidence that they contacted their solicitor, the late Mr Steele, and he told them to come to see him in hospital, which they did. They maintained that the house had been sold without their authority. They also gave evidence that they attended the offices of Hocking Stuart at 5.30 pm and spoke with Mr Coutinho and Mr Richards. Their evidence, which I accept, was that Mr Coutinho said that they would feel sorry for Ms Maule because she had been left by her husband who was living with his girlfriend. I note that he had no proper basis for that assertion. They were told that Ms Maule had been very upset when told that the conditional offer had been refused and very happy when told the unconditional offer had been accepted. They also gave evidence that Mr Coutinho said that the contract was now nothing to do with him, that it was something between them and the purchaser, that he would be a witness and that the worst that would happen to him was that he would be told he was a "naughty naughty boy" and receive a slap on the wrists or the hand. Mrs Vernea told Mr Coutinho that he had to fix it and that they would fight it in court. Mr Coutinho badly misjudged her resolve.
Accepting as I do the evidence of Mr Maule, the sequence of events described by Mr Coutinho and Mr Richards is flawed on critical matters. It is an essential part of their account that the transaction was amicably finalised by 4.00 pm on 20 November 2001. If that were so, there was no reason why Ms Maule would be told that the sale would be confirmed the next day and no reason why Mr and Ms Maule would not know until after 6.00 pm the next day that the sale had been confirmed. On the other hand, the Maule account confirms the Verneas’ account that there was no sale on the 20th, that Hocking Stuart did not have authority to sell the property for $750,000 on the 20th and that there were discussions between the Verneas and Mr Coutinho and Mr Richards at about 5.30 pm on 21st November 2001 about the possible sale of the property.
Subsequent events - Mr Maule gave evidence that, shortly after lunch on 22 November 2001, he received a phone call from Mr Steele, the solicitor who was acting for the Verneas. He said that Mr Steele said in substance that his clients were concerned about the contract, were going to allege that there was, in fact, no contract and something to the effect that the agents' authority had been withdrawn prior to Ms Maule signing the contract. He contacted his wife, told her of the conversation and asked her to speak to Mr Coutinho and Mr Walker about the contract and the sale when she took the $2000 deposit cheque around that afternoon, as had been intended.
The Verneas thereafter refused to complete the contract until the action for specific performance was settled in April this year.
The authority issue – Conclusion
For the foregoing reasons, I accept the evidence of Dr and Mrs Vernea that they did not authorise Hocking Stuart at any time to sell 4 Burne Court for $750,000.
The facts I have outlined above raise a number of other factual issues which have not been pursued by the parties and which it is not necessary to determine in the circumstances. I refer, in particular, to the issue of the reason for the letters delivered on 20 or 21 November 2001 being dated 19 November 2001 and the precise sequence of events on 20 November 2001.
Damages
The parties accept that in assessing the damages payable to the Verneas, it is necessary to assess the difference between the value of the property and the price received - $750,000. They took different positions, however, as to the date to be chosen at which the value should be assessed and the actual value.
Time of Assessment - For Hocking Stuart, it was said that the normal rule should apply and damages should be assessed at the time of the breach - 20 November 2001. The practical consequence of that position is that the Verneas could recover no more than $25,000, assuming their valuer’s opinion was accepted. For the Verneas, however, it was argued that the time for assessing the value of the property was the date of the hearing or, alternatively, the date at which the action by the purchaser was settled and on which the property was actually lost. These later dates substantially increase the difference between the value of the property and contract price. The Verneas’ valuer, Mr Welch, assessed the value of the property in April 2003 at $900,000 and in October 2003 at $1,000,000. Hocking Stuart’s valuer, Mr Pritchard, put a range of values of $850,000 - $880,000 and $890,000 - $950,000 as at those dates. When asked to state a value, he said it would be the midpoint of his ranges.
Both parties referred to the classic authorities which set out the principles to be applied.
It is common ground that the purpose of awarding damages for breach of contract is to compensate the plaintiff and to do so by placing the plaintiff so far as money can do it, in the same position he or she would have been had the contract been performed[3]. Both sides referred to passages in the judgment of Mason CJ in Johnson v Perez[4]. The Chief Justice referred to the general rule that damages for breach of contract are assessed as at the date of the breach and that the rule would yield if "in the particular circumstances, some other date is necessary to provide adequate compensation". For the Verneas, however, particular emphasis was placed on the following passage –
"As the cases to which I have referred reveal, the principles governing the assessment of damages do not permit the application of rigid rules based on categories of action. Instead, the injured party's intention and the surrounding circumstances must be considered in light of the underlying principles in order to do justice between the parties. Where mitigation is possible, an early date for assessment may be appropriate. Where mitigation concerns are not relevant and the circumstances indicate that the injured party would have retained possession of the goods had the accident not occurred, the date of the judgment is the most appropriate date for assessment. Where the circumstances indicate that the property or interest would in some other way have been converted into monetary terms between the time of injury and date of judgment, the date as at which the injury is assessed should reflect the time of the intended conversion"[5]
For Hocking Stuart, detailed legal argument was advanced with extensive reference to legal authority on issues of causation and remoteness. Those issues arise, however, only if the date of breach is selected as the date for assessment of damages. Thus the date of assessment must be determined first.
[3]Robinson v Harman (1848) 1 Ex 850, 855.
[4](1988) 166 CLR 351, 355/6.
[5]At 360, and see 357, 371 and 386, and see McElroy Milne v Commercial Electronics Ltd [1993] 1NZLR 39, 49.
In determining that date, it is necessary to consider the intention and circumstances in the light of the underlying principles in order to do justice between the parties. In this case, in light of my findings, the choice is to be made on the basis that it was the intention of the Verneas, known to Hocking Stuart, that they did not wish to sell the property but wished to retain it, remain in possession and lease it. The actions of Hocking Stuart committed them to selling the property.
Considering the events up to April 2003, when the specific performance action was settled, it may be said that in fighting the action the Verneas attempted to avoid the loss of the property and so avoid the consequences of the breach of the retainer by Hocking Stuart. I am satisfied that in doing so they acted reasonably. It could not be assumed that Ms Maule would persist to judgment. Further, the Verneas could not be certain what Hocking Stuart had done. It was reasonable to investigate the facts before capitulating. It is also relevant that it was not until the settlement of the specific performance action that the property was lost. Having regard to these matters, the value of the property should not be assessed at a date earlier than the date on which it was lost. Analogies can be drawn with cases such as those where the purchaser is unsuccessful in an action for specific performance but is awarded damages[6].
[6]Johnson v Agnew [1980] AC 367: cited in Johnson v Perez, see also Ronnoc Finance v Spectrum Network Systems Ltd (1997) 45 NSWLR 624.
The issue that remains is whether the date of valuation of the property should be the date of the settlement or the date of the hearing.
For Hocking Stuart, it was argued that it was untenable for the Verneas to argue for a date later than the date of settlement. It was argued that the Verneas, once the claim was settled, were at liberty to apply the funds by re-entering the market or otherwise as they thought fit. It was argued that by not re-entering the market, they took the risk of a rise or fall in the market and cannot now claim damages on the basis that the market has risen.
One difficulty with Hocking Stuart's argument is that the proceeds of sale of $750,000, if received in about April 2003, would have been well short of the then market value – between $100,000 and $130,000 depending on what valuation is accepted. While the Verneas appear to have had substantial assets, the difference between the contract price and the value of a comparable property would have required them to find a substantial sum to make up the difference. In my view, in those circumstances, it is unreasonable to expect the Verneas to mitigate their loss in that way. In addition, I am satisfied, on the evidence of both valuers, that while a residential property could have been obtained that was comparable in some respects, 4 Burne Court could not be replaced in the sense that a lost shipment of apples or oranges can be replaced. It was in a unique location and had had substantial and expensive recent renovations.
In my view, mitigation concerns are not in any event relevant because the situation is one where the Verneas would have retained the property and would still have been in possession of the property at the date of recording any judgment but for the breaches of Hocking Stuart. In those circumstances, I am satisfied that that is the appropriate date for assessment of the value of the property they would otherwise still have.
The value of the property - It remains to determine the present value of the property. As to the valuer’s evidence, Mr Welch is more experienced than Mr Pritchard. Both valuers saw the value of the land itself as the major contributor to the value of the property. A major point of difference between them, however, was that Mr Welch placed particular value on the fact that 4 Burne Court was at the end of a court, and, therefore, in a quiet location and was very close to Xavier College as well as other schools. He describes it as in the heart of Kew and ripe for redevelopment. I am also satisfied that Mr Pritchard did not take into account four sales in the relevant area. They were in and between December 2001 and December 2002 but are nonetheless of value in estimating values in November 2001 and April 2003. In cross-examination, he said he took them into account but did not refer to three of them because he did not think them helpful. As to the other sale he acknowledged that it was an omission. Views no doubt may differ, but I found the analysis of Mr Welch more persuasive and consider the above matters on which he relied relevant to the assessment of value. I am satisfied that his opinion should be preferred.
Accordingly, damages should be assessed in the sum of $ 250,000.
Other Matters - counter claim
It is common ground that Hocking Stuart is entitled to be paid $7,700 for advertising the property. In light of the conclusions I have reached, the counter claim for commission must fail. As to the counter claim for the maintenance work done in preparing the property for sale, I am satisfied that Hocking Stuart in fact agreed to bear the cost of that work. That was the evidence of the Verneas. While such an agreement was disputed by Mr Coutinho, it is common ground that at no time were any quotations submitted to the Verneas for their approval. It is true that the agent’s authority document carried on it a statement that supports the Hocking Stuart position, but it is clear that it was placed there after the meeting and was not signed or initialled by the Verneas. I am satisfied that it and other matters were written on the authority without the knowledge or approval of the Verneas.
Hocking Stuart is, therefore, entitled to recover $7,700 for advertising expenses. That amount should be set off against the damages to which the Verneas are entitled of $250,000.
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