Butcher v Harkins [2001] NSWSC 15 | Case summary

Butcher v Harkins [2001] NSWSC 15 | Case summary | Zoe

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G Moore (P) COUNSEL : W Hodgekiss (D in 2580/97 & CD 2733/98) J Gooley (D1 & CC in 2733/98) SOLICITORS : Williams Woolf & Zuur (P) Murray Stewart & Fogarty (D1 & CC in 2733/98) CATCHWORDS : CONTRACT - termination for breach - what constitutes essential term - whether stopping of payment on cheque constituted repudiation CONVEYANCING - refund of deposit - scope of discretion under s 55(2A) of Conveyancing Act TRADE PRACTICES - misleading and deceptive conduct - representation as to future matter - whether real estate agents' brochure was misleading - whether plaintiffs should have obtained their own survey Family Law Act 1975 (Cth) s 87 LEGISLATION CITED : Real Property Act 1900 (NSW) ss 74J, 74O Conveyancing Act 1919 (NSW) ss 55(2A), 66T, 66X, 66W Academy of Health v Power [1973] VR 254 Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 Auty v Thompson (1903) 5 NZGLR 541 Brien v Dwyer (1979) 53 ALJR 123 Central Railway Co of Venezuela v Kisch (1867) LR 2 HL 99 Commonwealth of Australia v Verwayen (1990) 170 CLR 394 Demagogue v Ramensky (1992) 39 FCR 31 Derry v Peek (1889) 14 App Cas 337 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Edgar v Farrow Mortgage Services Pty Ltd (1992) ATPR (Digest) 40-096 Emma Silver Mining Co v Grant (1879) 11Ch D 918 Finucane v NSW Egg Corporation (1988) 80 ALR 486 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) ATPR 40-850 Hornsby Building Information Centre (1978) 140 CLR 216 Hymes v Byrne (1899) 9 QLJ 154 Kennedy v Panama Mail Co (1867) LR 2 QB 580 Lewis v Cook [2000] NSWSC 191 Lezam Pty Ltd v Seabridge Australia Ltd (1992) 35 FCR 535 Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 CASES CITED : MacCormick v Nowland (1988) ATPR 40-852 Main Lodge Pty Ltd v Barque Holdings Pty Ltd (1982) NSW ConvR para 55-049 McDonald's System of Australia Pty Ltd v McWilliams Wines Pty Ltd (1979) ATPR 40-140 Mellor v Walmesley [1905] 2 Ch 164 Oakes v Turquand (1867) LR 2 HL 325 Redgrave v Hurd (1881) 20 Ch D 1 Rhone-Poulenc Agrochimie SA v Uim Chemical Services Pty Ltd (1986) ATPR (Digest) 46-010 SA Mearns v Parris Holdings Pty Ltd (1994) 6 BPR 13,677 Sabre Corporation Pty Ltd v Laboratories Pharm-a-Care Pty Ltd (1995) ATPR 41-396 Saints Gallery Pty Ltd v Plummer (1988) ALR 525 Simons v Zarton Investments Pty Ltd [1975] 2 NSWLR 30 Stanton v ANZ Banking Group Ltd (1987) ATPR 40-755 Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 Thompson v Mastertouch TV Service Pty Ltd (No 1) (1977) 29 FLR 270 Tramways Advertising Pty Ltd v Luna Park Pty Ltd (1938) 38 SR(NSW) 632 Tsekos v Finance Corporation of Australia [1982] 2 NSWLR 347 TV-AM plc v Amalgamated Television Services Pty Ltd (1988) ATPR 40-891 Verrall v Nott (1939) 39 SR (NSW) 89 White v Foran (1987) 11 NSWLR 470 Yorke v Ross Lucas Pty Ltd (1985) 158 CLR 661 DECISION : See under heading 'Conclusions'

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The proceedings 1 This is a case about a most unsuccessful home purchase. The plaintiffs are Jeffrey Butcher and Judith Radford, who were the co-purchasers. Ms Radford is Mr Butcher's de facto wife. Since Mr Butcher was the one who did most of the negotiations, I shall frequently refer to his activities, but it should be understood that Ms Radford was actively interested and Mr Butcher had her full authority. 2 There are two proceedings. The defendant in the first proceeding, which commenced on 26 May 1997, is Robert Harkins. He was the vendor to the plaintiffs of the property at 10 Rednal Street Mona Vale. The Rednal Street property is a valuable waterfront home. The plaintiffs bought the property at an auction conducted by Lachlan Elder Realty Pty Ltd, the vendor's agent, bidding in the expectation that they would subsequently be able to sell their existing home at 41 Calvert Parade Newport for a sufficient price. Subsequently the contract for their purchase of the Rednal Street property was terminated, in circumstances that I shall describe. In the first proceeding the plaintiffs claim that they are entitled to recover from Mr Harkins a deposit of $200,000 plus interest, and damages representing their legal fees as purchasers. Mr Harkins claims that he is entitled to retain the deposit. 3 In the second proceeding, which was commenced by application and statement of claim filed in the Federal Court on 26 February 1998 and was transferred to this Court on 5 June 1998, the plaintiffs sue Lachlan Elder Realty for damages for misleading and deceptive conduct. They claim that a glossy colour brochure issued by Lachlan Elder Realty prior to the auction of the Rednal Street property was misleading, because it misrepresented the location of the rear boundary in relation to the swimming pool. They also claim that Lachlan Elder Realty misled them by advising, prior to the auction of the Rednal Street property, that they would be able to sell the Calvert Parade property for a price substantially higher than the price they eventually obtained for it. Lachlan Elder Realty denies the allegations. 4 On 29 April 1998 the company filed a cross-claim against Mr Harkins in the second proceeding, to protect itself in the event that the plaintiffs succeed against it. The cross-claim alleges misleading and deceptive conduct and negligence by Mr Harkins and seeks contribution from him with respect to any verdict against the company. Originally the solicitors who acted for Mr Harkins in the preparation of the contract of sale of the Rednal Street property were joined as respondents in the Federal Court proceeding. However, the proceeding against them was settled, and on 4 June 1999 (after the Federal Court proceedings had been transferred this Court) I made orders by consent entering judgment for the solicitors, with no order as to costs. The remainder of the proceeding, together with the first proceeding, subsequently came before me to be heard together. 5 In outline submissions lodged for the purposes of the hearing, the plaintiffs contended that the Court should exercise its discretion under s 55(2A) of the Conveyancing Act 1919 (NSW) to order the repayment of the $200,000 deposit to them, if the Court determines that they are not entitled to the deposit in any event. On the first day of the hearing counsel for Mr Harkins complained that the question of reliance on s 55(2A) had not been pleaded, and submitted that it was too late to raise the matter in outline submissions just before the hearing commenced. He contended that Mr Harkins would have called additional evidence with respect to the exercise of the discretion under the section, and would have made a cross-claim for payment of the remaining $72,000 deposit, if the matter had been placed in issue in a proper fashion. Further submissions by counsel for the plaintiffs and Mr Harkins led to agreement that the statement of claim in the first proceeding be amended to raise the s 55(2A) point, and a cross-claim be filed, and that directions be given with respect to the filing of additional evidence and the issue of subpoenas within a very short timetable. I made orders accordingly. Consequently the plaintiffs' application for orders under s 55(2A) is before the Court. Additionally, Mr Harkins now has a cross-claim in the first proceeding seeking payment of the balance of the deposit in the sum of $72,000 together with damages. 6 I shall first deal with the facts generally, and then consider the claims and submissions made in the first and second proceedings respectively. Some of my findings of fact (for example, with respect to valuation evidence) are more appropriate to the latter part of the judgment, than to the general narrative, and I have dealt with them accordingly.

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Mr Harkins arranges to sell the Rednal Street property 7 Mr Harkins and his former wife purchased the Rednal Street property by a contract dated 19 December 1995. Annexed to the contract was a copy of a survey report by Mr F W Hannagan dated 4 August 1980, locating the mean high water mark for the property beyond the swimming pool. Prior to the purchase, Mr Harkins' solicitor obtained some documents from what was then the Lands Office, including a letter dated 30 May 1985 from Mr Dahlen of the Lands Office to the then owners, Mr and Mrs Pullicin, saying that in a recent inspection 'the swimming pool was found to be entirely on your freehold land'. Mr Hannagan has given evidence that on the advice of his solicitor, he relied on the survey and Mr Dahlen's letter at the time of the purchase. Subsequently, he says, Mr Pullicin offered to give him other documents relating to the Rednal Street property. 8 Mr Harkins' former wife transferred her interest in the Rednal Street property to him in about May 1988, pursuant to a deed under s 87 of the Family Law Act 1975 (Cth). Mr Harkins re-married, but he and his wife decided to sell the property and move elsewhere. 9 In about May 1996 Mr Harkins approached Lachlan Elder Realty for advice about the sale of the property. He spoke to Mr Lachlan Elder. Mr Elder expressed the opinion that $1.5 million was the current reasonable selling price. Mr Harkins entered into an exclusive agency agreement with Lachlan Elder Realty on 16 May 1996. The property was not sold at that time. 10 On 16 September 1996 Mr Harkins granted a first mortgage over the Rednal Street property, and a second mortgage over another property owned by a company of which Mr Harkins was a director, in favour of Perpetual Trustees Victoria Ltd, to secure an indebtedness of $1.933 million. 11 On 19 November 1996 Mr Harkins entered into another agency agreement with Lachlan Elder Realty, which provided for the auction of the Rednal Street property. The agreement again identified the current reasonable selling price as $1.5 million. 12 Mr Harkins had been admitted to practise as a solicitor in this State in December 1994. At the relevant time he was employed by James Dive Partners, working in the commercial rather than the conveyancing field. He arranged for another solicitor in the office to prepare a contract for sale, and he asked her to uplift the purchase file from his former solicitor. His evidence is that, at the time, he recalled having seen a sketch which indicated that the mean high water mark traversed the swimming pool. He searched his extensive files for such a document, to no avail. 13 Mr Harkins says he looked closely at the contract by which he had purchased the land, including the annexed Hannagan survey, Mr Dahlen's letter of 30 May 1985 and the permissive occupancy offer that the Lands Department had issued to him. He measured the distances shown on the sketch annexed to the permissive occupancy offer using a 100 metre tape of the kind used by surveyors, and satisfied himself that the swimming pool must be wholly within the freehold land. Relying on these measurements and knowing that he had done no significant alterations to the property, he concluded that his recollection must have been mistaken and saw no point in pursuing the matter further. He instructed his solicitor to incorporate a copy of the Hannagan survey in the draft contract. I accept Mr Harkins' evidence on these matters.

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The plaintiffs become interested in the Rednal Street property 14 During August 1996 Mr Butcher met with his accountant to formulate an investment plan to secure long-term financial security for his family. As a result of that discussion he and Ms Radford decided to make investments in properties and shares using the equity in the family home in Calvert Parade as security to finance these ventures. They sold their motor yacht in order to reduce their existing debt to a negligible level and to complete major renovations to the Calvert Parade property. In December 1996, when the renovations were substantially complete, Mr Butcher commenced making inquiries with various real estate agents in the northern beaches area, concerning the availability of potential investment properties to the value of about $800,000 to $1 million. His principal idea was to acquire a property suitable for immediate redevelopment and on-selling. However, it appears that he had an alternative plan that would involve selling the Calvert Parade property and renovating the new property after moving into it. 15 One of the agencies he approached was Lachlan Elder Realty. Most of Mr Butcher's dealings with Lachlan Elder Realty were with Gordon Spring. During December 1996 and January 1997 Mr Spring showed the plaintiffs a number of properties which did not meet their requirements. Early in February 1997 Mr Spring contacted Mr Butcher to propose an inspection of the Rednal Street property by the plaintiffs, although it was not in the price range that Mr Butcher had stipulated. Mr Spring told Mr Butcher that the property would suit him because the house was huge and had plenty of room for him to run his business from home. Mr Butcher commented that he would look at the property with an open mind, but he and Ms Radford had just finished renovating the Calvert Parade property to get it exactly the way they wanted it, and they had no plans to move. 16 The plaintiffs inspected the Rednal Street property with Mr Spring on 6 February 1997. They saw the grounds and observed a swimming pool with various improvements adjacent to it, located between the dwelling and the waterfront. Mr Spring did not show Mr Butcher a draft contract at that time, but he handed the plaintiffs a glossy coloured brochure which depicted the property. The plaintiffs allege that he said: 'These are all the details for the property. You have a full coloured brochure on the front and all the council outgoings land survey etc on the rear. That is everything you need to know.' 17 Mr Spring denies saying 'that is everything you need to know'. It seems to me likely that he used some such words, but, within their context, those words did not convey a representation that the brochure contained all the information that a purchaser would need before entering into a contract of purchase. Rather, the statement conveyed that the brochure was a very helpful document which conveniently put together in a single place the answer to some questions that purchasers typically asked.

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The selling brochure 18 The brochure handed to Mr Butcher by Mr Spring on 6 February 1997 is a single page, with colour photographs on one side and information on the other. There is a large photograph of the rear of the property, taken from Pittwater, showing boats moored there, a flat grassy area running back from the water for perhaps 10 metres, then a metal picket fence with a gate, running across the back of the property. A smaller photograph, evidently taken from the veranda, shows a depth of perhaps four or five metres from the back of the pool to the back fence. There is also a small photograph of the billiard room. At the bottom of the coloured side of the brochure the name Lachlan Elder Realty Pty Ltd appears in small print, followed by: 'All information contained herein is gathered from sources we believe to be reliable. However we cannot guarantee it's [sic] accuracy and interested persons should rely on their own enquiries.' 19 On the other side of the brochure there is a narrative, written in marketing language rather than legal language. The brochure claims that the property is set in the best position in Rednal Street, closer to the water than any other home, and says 'your privacy is guaranteed'. The property is described as having, amongst other things, 'low maintenance grounds and level lawns to the waters [sic] edge'. A diagram appears adjacent to the description. It is the survey diagram prepared by Mr Hannagan and subsequently annexed to the contract of sale. I shall describe the diagram in detail when I deal with the contract. As I shall note, the copy of the diagram annexed to the contract has some freehand additions, some of which also appear in the diagram as reproduced in the brochure. 20 The diagram shows an irregular line running across the property between the pool and Pittwater, labelled 'M.H.W.M.', and the area between that line and Pittwater is labelled 'Reclaimed Area'. In my opinion, a reader of the brochure who compared the diagram with the photographs on the other side would conclude that the 'M.H.W.M.' line was approximately the line of the fence. 21 At the bottom of the information side of the brochure, in small print, there is a clause about the quality of information, in terms almost identical to the clause at the bottom of the first page.

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Mr Butcher's investigations of the Rednal Street property 22 After their visit to the Rednal Street property on 6 February 1997, the plaintiffs discussed various options with regard to the pool and the general entertaining area between the house and the waterfront. Ms Radford expressed concern to Mr Butcher that the pool was too large and too close to the house, and suggested that it be moved to the side boundary to run along the fence on the western side of the property. 23 The plaintiffs became interested in the Rednal Street property, although the investment would be considerably more than they had contemplated. On 12 February 1997 they asked Mr Spring how much they could expect the Calvert Parade property to sell for, so they could calculate whether they could afford the Rednal Street property. Mr Butcher stressed that the proposal to buy the Rednal Street property would come to nothing 'unless the numbers stack up'. Mr Spring was very complementary about the presentation of the Calvert Parade property, and said he felt 'really comfortable' with a sale price of $1.2 to $1.3 million. Mr Butcher said he would be comfortable with $1.25 million but asked Mr Spring to obtain an opinion from Lachlan Elder. 24 Mr Spring denies saying that he felt really comfortable between $1.2 and $1.3 million but it seems to me likely that some such confident words were used. According to Mr Spring, Mr Butcher said that he wanted $1.35 million from the sale, but Mr Butcher denies this. I accept the evidence of Mr Butcher that the position he took, on the advice of Mr Spring and Mr Elder, was to expect a sale price of between $1.2 and $1.3 million, although no doubt he hoped for more. 25 On 14 February 1997 the plaintiffs met Mr Elder. They inspected the Rednal Street property and the Calvert Parade property. Mr Elder was, like Mr Spring, very complementary about the Calvert Parade property, and predicted a sale price of 'absolute dead set minimum' $1.2 million and up to $1.3 million or even more. He justified his estimate by referring to comparable sales in the area. Mr Elder denies using the words 'absolute dead set minimum', but I find that these were the words he used. I was impressed by Mr Butcher's evidence of his clear recollection of the words and his surprise that such words had been used. 26 For their inspection of the Rednal Street property they were accompanied by Paul Gillmer, an architectural designer retained by the plaintiffs. At the site, Mr Butcher told Mr Elder that he planned to turn the pool around and have it by the side boundary, to open up space for entertaining. Mr Elder was sceptical, saying the plan would be expensive to implement and the pool would encroach the mean high water mark. Mr Gillmer advised Mr Butcher that the idea of 'moving' the pool was feasible, based on the position of the high water mark indicated by Mr Butcher, in reliance on the diagram in the brochure. 27 Mr Butcher asked whether the vendor would be interested in an offer prior to auction. Mr Elder said he thought it unlikely because the sale was 'the closest thing you will get to a mortgagee in possession sale'. Nevertheless Mr Butcher made an offer for the Rednal Street property of $1.2 million, offering as an enticement a deposit of $200,000, with settlement in six months' time. Later on the same day Mr Elder told Mr Butcher that the vendor would not accept offers prior to the auction, but would consider a six-month settlement period if a $200,000 deposit was paid and released to the mortgagee. However, a confirming letter from the vendor's solicitor referred to payment of a 20 percent deposit, rather than a deposit of $200,000. Mr Butcher told Mr Elder that a 20 percent deposit was beyond his means. Mr Elder reassured him, saying there had been a misunderstanding and that he would fix it before the auction. 28 On 15 February 1997 Mr Butcher inspected the Rednal Street property with a builder, Mr Scott Hindmarch. The purpose of the visit was to inspect the property thoroughly and obtain from Mr Hindmarch some ideas for its development. Amongst other things, they inspected the pool area. Mr Butcher showed the full colour brochure to Mr Hindmarch. He asked Mr Hindmarch if it was possible for the pool to be relocated to make a larger entertaining area. Mr Hindmarch said that on the basis of the survey on the brochure, it would be possible do so because the high water mark did not affect the area to which he wanted to move the pool. He did not measure the site or inspect any sewerage diagram, expressing his opinion solely by reference to the brochure diagram, which showed the mean high water mark to be well away from the existing pool. As a result of that discussion the plaintiffs formed the view that they could carry out the proposed restructuring of the swimming pool area provided the development did not exceed either of the side boundaries or the mean high water mark. 29 Some conflicting expert evidence has been adduced as to whether the plan to relocate the swimming pool was ever feasible in view of the likely attitude of the Department of Land and Water Conservation and the Council, and if it was, whether it was rendered impossible once the true location of the mean high water mark came to been known. Mr Winnacott gave evidence on behalf of the plaintiffs, basing his view on discussions with Ms Morris of the Department of Land and Water Conservation and his extensive general experience. He expressed the opinion that no owner of the Rednal Street property would be allowed to relocate a smaller swimming pool closer to Pittwater than the present one. Mr Gill, an architect, gave contrary evidence on behalf of the defendants. I prefer the evidence of Mr Winnacott. His experience is more directly relevant to the issue. Mr Gill is an architect, not a town planner, and has seldom dealt with the Department of Land and Water Conservation on such an issue. He discussed the issues with Mr McCulloch, who is a subordinate of Ms Morris at the Department, and did not put to Mr McCulloch the precise scenario of relocating a smaller pool towards Pittwater. 30 On 17 February 1997 Mr Butcher arranged for a draft contract for the Rednal Street property to be sent to his solicitor, Mr Zuur. The plaintiffs decided they would bid at the auction, on the basis of the opinions of Mr Gillmer and Mr Hindmarch that their plans for the property were reasonable and viable. Their plans for the swimming pool area were important to them because they regarded that area as the optimum part of the property and their proposals for it as one of their main development ideas. Both advisers gave their advice in reliance on the mean high water mark being in the place indicated by Mr Butcher, who in turn relied upon the brochure. 31 The plaintiffs have given evidence that they would not have bid at the auction or contracted to purchase the Rednal Street property if they had known that the mean high water mark traversed the swimming pool. I accept that evidence. They have also given evidence that they would not have done these things if they had been aware that the Calvert Parade property might not be able to be sold for at least $1.25 million in sufficient time to enable settlement of the Rednal Street property in August 1997. I do not accept this evidence. In my opinion the plaintiffs were aware that there was a risk that the sale of the Calvert Parade property would not achieve a purchase price in the range estimated by Mr Spring and Mr Elder. They made an assessment, based on the advice of Mr Spring and Mr Elder, as to whether the price they wanted would be achieved.

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The Hannagan survey 36 Annexed to the contract was a survey by Mr F W Hannagan dated 4 August 1980. According to the narrative part of the survey, the land had a frontage of 15.24 m to Rednal Street, with depths along the sides of about 59 m to 'H.W.M.' (an abbreviation not defined in the survey). A survey diagram is annexed to the narrative description. It shows a brick house, with a back veranda facing Pittwater. There is an oblong pool in the backyard, the long sides of which are parallel with the veranda. The closest side is, roughly, less than 1 metre from the back line of the veranda. I say 'roughly' because measurements are not given, but if one assumes that the diagram is to scale (although it does not expressly claim to be), one can make an estimate by judging the relative distances. 37 Roughly 1 to 1.5 metres beyond the pool (it is roughly 2 to 2.5 metres wide) there is a line crossing from one side boundary to the other, approximately parallel with the veranda and the long sides of the pool, labelled 'M.H.W.M.' (an abbreviation not defined in the survey). It therefore appears from observation that the 'M.H.W.M.' line is roughly 4 to 5 metres from the back of the veranda. 38 The Pittwater end of the survey diagram is designated by a broken line, parallel with the 'M.H.W.M.' line and roughly 4.5 to 5.5 metres beyond it. Thus, the distance from the veranda to Pittwater is roughly 8.5 to 10.5 metres. The area between the 'M.H.W.M.' line and the broken line is labelled 'Reclaimed Area'. The diagram shows brick walls running along the side boundaries on both sides of the backyard, but no wall running across the property. The side boundary measurements, 59.13 m and 58.52 m respectively, appear to include the sides of the reclaimed area. The survey does not show any boat ramp or pontoon running into Pittwater. 39 Their are some additional 'freehand' lines and numerals on the survey diagram. The evidence indicates that the additional material was by Mr Harkins. The purpose of the additions seems to be to show calculations of areas, including the area of the house.

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The permissive occupancy materials 40 Also annexed to the contract is a document dated 2 November 1988 evidencing an offer to Mr Harkins of a permissive occupancy relating to 'reclamation, ramp, pontoon and berthing piles'. The diagram annexed to this document appears to have been drawn up after an inspection on 8 September 1983, and therefore it is later than Mr Hannagan's survey diagram. It claims to have been drawn on a reduction ratio of 1:500. 41 The permissive occupancy diagram does not show the location of the house or swimming pool, but there is a somewhat irregular line running across the back of the property described as 'Original High Water Mark'. That line is located 14.8 m from the Pittwater end of the property on one side, and 15.5m from the Pittwater end of the property on the other side. The diagram shows a wall on each side of the property, beginning at the line of the Original High Water Mark and running towards Pittwater for 4.7 m along one side boundary and for 5.4 m along the other side boundary. At a point which is, on each side, 10.1 m from the Pittwater end of the property, the wall along the side boundaries ends, and the two sides are joined by a wall running across the property parallel with the Original High Water Mark. The wall is labelled 'Solid Wall'. The area between the solid wall and the Pittwater end of the property is labelled 'Reclamation'. Running from the Pittwater end of the property into Pittwater is a 6 x 1 m ramp leading to a 5 x 2.5 m pontoon, beyond which there are 9 berthing piles. 42 I infer from the permissive occupancy materials annexed to the contract that the permissive occupancy related to the area labelled 'Reclamation', as well as the ramp, pontoon and berthing piles. Although the diagrams are not exactly the same, I infer that the 'M.H.W.M.' line shown on the Hannagan diagram is the 'Original High Water Mark' line shown on the permissive occupancy diagram. Consequently what appears to be the boundary of the property on the Pittwater side in the Hannagan diagram, designated by a broken line, is in fact the Pittwater end of the reclaimed area, over which the vendor of the property has no title but only a permissive occupancy. The vendor's title runs only to the 'M.H.W.M.'/'Original High Water Mark' line, wherever precisely that may be.

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Inferences from the contractual materials 44 The measurements from the road boundary to the mean high water mark in the deposited Plan are identical with the boundary measurements in the Hannagan survey. This suggests that the mean high water mark rose after 1919 but the submerged land was reclaimed back to the 1919 mean high water mark before Mr Hannagan surveyed the property in 1980. The effect of that process was that the reclaimed area ceased to be within the title of the registered proprietor and became subject to a permissive occupancy. 45 A very careful reader of the contract could have deduced all these things, because the Deposited Plan, the Hannagan survey and the permissive occupancy document were all annexures to the contract. Such a reader might also have observed a discrepancy between the location of the 'M.H.W.M.' line on the Hannagan survey diagram, which (as I have said) appears on the basis of relative distances to be roughly 4.5 to 5.5 metres back from Pittwater, and the location of the 'Original High Water Mark' line on the progressive occupancy diagram, which specifies the distance from the line to Pittwater as 14.8 m on one side and 15.5 m on the other. But I do not believe that such a discrepancy would put a very careful reader, let alone an ordinary reasonable reader, on inquiry as to the proper location of the mean high water mark. For one thing, it is not clear whether Mr Hannagan's diagram was drawn to precise scale. For another, one diagram shows the location of buildings and shows no solid wall, while the other diagram shows a solid wall but does not show the location of the buildings. The reasonable and even the very careful reader would infer that at least one of the diagrams was mistaken as to precise measurements not regarded by the draughtsman as material to his purpose. But any reasonable reader would infer from the contractual materials as a whole that the mean high water mark crossed the property at a point between the back side of the pool and Pittwater, and did not traverse the pool itself.

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Post-contractual investigations of the rear boundary 46 On 22 February 1997 the plaintiffs visited the Rednal Street property for a post-sale inspection, in the company of two friends, Carly O'Bryen and Joan Davis. Mr Harkins was present. 47 During the visit, Mr Butcher had a conversation with Mr Harkins. According to the evidence of Mr Butcher, the conversation was to the following effect: Mr Harkins: 'I hear from the agent that you want to move the pool.' Mr Butcher: 'It's an option I been looking at to open up the rear of the house for entertaining.' Mr Harkins: 'You won't be able to do that, you can't touch it because of the high water mark.' Mr Butcher: 'The high water mark runs across the land down beyond the pool.' Mr Harkins: 'No, I'm telling you the mean high water mark runs through the middle of the pool.' Mr Butcher: 'That can't be right, but I will check it out anyway.' 48 Mr Harkins has given a different version of this conversation. According to his version, the following was said: Mr Harkins: 'Do you still plan to attempt to relocate the pool at 90 degrees to its present location?' Mr Butcher: 'No, that was just a crazy idea. In our present house we undertook extensive renovations and made many mistakes by rushing into it and later finding that what we had done had to be changed. This was very expensive. We have now decided to live in this house for a while before we decide to do anything, if we do anything.' 49 Mr Harkins: 'It's just as well, Council would never have allowed any extensive rebuilding this close to the water. [He mentioned Pittwater Council's foreshore building policy and the privileged position here being much closer to the water than any of the neighbours.] The property may be even closer than shown. At one stage I believed that I had seen a document, possibly a permissive occupancy sketch, that showed the mean high water mark going through the middle of the pool, but I have never been able to find any such document.' 50 This evidence given by Mr Butcher was corroborated by the evidence of Ms Radford, and also by evidence of Ms Davis and Ms O'Bryen. Ms Davis says she overheard Mr Harkins saying to Mr Butcher, 'you can't touch the pool because of the high water mark', and later that the high water mark 'runs through the middle of the pool'. She says she was standing 8 to 12 feet away from them at the time. Ms O'Bryen appears to have overheard more of their conversation, though her recollection of it differs from the recollections of the others in insubstantial ways. She recalls Mr Harkins saying, 'you won't be allowed to do that, they will never let you touch it because of the high water mark', and that the high water mark 'runs through the middle of the pool'. She says she was standing approximately 6 to 8 feet away from them at the time. Both of them deny Mr Harkins' version of the conversation, which was put to them in cross-examination. 51 Mr Harkins attacked their evidence on the ground that they were too far away to overhear his conversation with Mr Butcher. He says that, given their own evidence as to where they were standing, they must have been at least 12 metres or 40 feet away from him. The evidence does not enable me to identify the precise distance between the witnesses and Mr Harkins, but on balance I reject the submission that they were too far away to hear the conversation. Nevertheless, I think it unlikely that they would have listened to every word of the conversation, since they were not directly parties to it. 52 My conclusion, on balance, is that neither the version of Mr Butcher nor the version of Mr Harkins accurately represents what was said in the conversation. Mr Harkins' version is probably closer to what was said than Mr Butcher's, because in my view Mr Butcher misunderstood what he was told. I reach this conclusion for several reasons. 53 First I find it implausible, even if (contrary to my view) Mr Harkins had an intention to defraud, that he would have behaved in the manner attributed to him by Mr Butcher. If Mr Harkins wished to conceal the true location of the mean high water mark by annexing to the contract a survey that he knew to be false, why would he tell Mr Butcher categorically, a few days after exchange of contracts, information implying that the contract was misleading? 54 Secondly, I have accepted Mr Harkins' evidence that he obtained various documents in respect of the Rednal Street property after he bought it, and it seems to me plausible that those documents might have included one of the early permissive occupancy sketches showing the mean high water mark as traversing the pool. Given that finding, it is also plausible that, while believing the Hannagan survey to be accurate, he would alert Mr Butcher to the possible existence of documents locating the mean high water mark at another point. 55 Thirdly, I accept that Mr Butcher's proposals would have given rise to issues under the Council's foreshore protection policy, especially given that the house and entertainment area were closer to Pittwater than any of the adjoining houses. I therefore find it plausible that Mr Harkins' warning would have related to the overall attitude of the Council to a development proposal, having regard to all relevant considerations, including any possible doubt about the location of the mean high water mark. 56 Ms Radford, Ms O'Bryen and Ms Davis overheard Mr Harkins say that Council would not allow extensive rebuilding of the pool, and they heard him refer to a diagram showing the mean high water mark going through the middle of the pool. None of them had any expertise in matters relating to council approvals or surveying. In their efforts to recollect the conversation, they have linked these two propositions causally. I regard it as probable that Mr Butcher made the same mistake. Although he had some experience with building and development applications, he appears to have been ill at ease with Mr Harkins, and perhaps overly suspicious. He interpreted Mr Harkins' disclosure about a possible sketch as a more positive assertion that the Hannagan survey was wrong. In my view, what they heard were separate propositions, one about the Council never allowing an extensive rebuilding proposal so close to the water, and the other about the possible existence of a sketch showing the mean high water mark traversing the pool. 57 Mr Butcher was sufficiently concerned about the location of the pool, after this conversation, that he instructed Mr Zuur to arrange for a fresh survey in order to clarify the location of the mean high water mark. On 14 March 1997 Mr Warren Bee, a surveyor, conducted a survey of the Rednal Street property, and formed the view that the rear boundary of the property did, indeed, traverse the swimming pool. 58 On 18 March 1997 Mr Butcher had a telephone conversation with Mr McCulloch, an officer of the Lands Department. In light of that conversation, on 19 March 1997 the plaintiffs' solicitor, Mr Zuur, wrote to Mr Harkins' solicitor asserting that the survey annexed to the contract was inaccurate. The letter reported that Mr Butcher had spoken to the Department of Land and Water Conservation, and had been told that the Department had no record of the pool being located on the land comprising the permissive occupancy, and any major works in relation to the pool would not be approved. The letter claimed that, as Mr Harkins alerted the plaintiffs to this fact shortly after exchanging contracts, he must have been aware of the true position prior to the making of the contract. 59 On 20 March 1997 Mr Butcher telephoned Mr Harkins. According to the evidence of Mr Butcher, the conversation was as follows: Mr Butcher: 'Hi, it's Jeff Butcher, how are you going?' Mr Harkins: 'I don't think I should be speaking to you, we have just received a letter from your solicitors stating your intention to claim damages over the discrepancies on the contract of sale of my property.' Mr Butcher: 'I was unaware of the letter being sent, although I have had discussions with my solicitor in regard to the matter. The purpose of my phone call is to discuss with you personally the matter of the survey shown in the contract being inconsistent with the survey I had done last week. I am now aware officially as I had discussed with you some weeks ago, that the mean high water mark runs through the middle of the pool which is different to what the survey shows in the contract.' Mr Harkins: 'I am aware of that, that is why I told you about it when you were at my place the other week. If this is an exercise in manufacturing claims, I wanted no part of it.' Mr Butcher: 'Why was the survey in the contract incorrect?' Mr Harkins: 'Maybe in those days the person who had it done knew who to pay.' Mr Butcher: 'But that makes the pool illegal and the Lands Department have no record of it on their lease agreement with you.' Mr Harkins: 'That's not a problem, the Council have issued a compliance certificate for the house and pool, the lease has been transferred a couple of times already and as your solicitor's letter states, the Lands Department have acknowledged that they will approve the existence of the pool on the lease.' Mr Butcher: 'That means only half the pool is under the owner's title and the other half is on Crown Land and the Council's compliance has been issued based on an incorrect survey. How did you know about the discrepancy as you were the one who made me aware of it?' Mr Harkins: 'I have in my possession somewhere, a copy of a survey which is the same as the one you had done.' Mr Butcher: 'Why wouldn't you put the correct survey in the contract showing the accurate plotting of the high water mark rather than the incorrect survey?' Mr Harkins: 'I can't remember, it must have been a flit in my concentration.' Mr Butcher: 'I have some concerns about this whole matter. As you are aware, I was wanting to significantly improve the backyard area and as a result of this, all improvements will be on Crown Land, if I have any chance of getting them approved in the first place.' Mr Harkins: 'I can assure you, under no circumstances will you ever get approval or consent to change the configuration of the pool area as it stands now. I would suggest you get proper legal advice as you need to understand the consequences of taking this any further.' 60 Mr Harkins denies that he made any reference to a survey other than Mr Hannagan's survey. In view of his evidence that he had recalled seeing a sketch showing the mean high water mark traversing the pool, it is likely that he made reference to a 'sketch' rather than a 'survey'. He also denies the other specific statements attributed to him, although he admits he may have said the sentence beginning 'That's not a problem'. He says he repeated a number of times that he would not discuss the issues, and that their respective solicitors should do so. I prefer Mr Harkins' version of the conversation to Mr Butcher's. Specifically, I reject the evidence that Mr Harkins admitted to having in his possession a survey similar to Mr Beer's survey report, and that Mr Harkins admitted to putting an incorrect survey in the contract due to a 'flit' in concentration. 61 Mr Butcher informed Mr Spring and Mr Elder (on 20 and 22 March 1997 respectively) that there was a 'problem' with the rear boundary of the Rednal Street property on 20 March 1997. Mr Elder said the problem had nothing to do with him. 62 On 15 May 1997 Mr Butcher attended by appointment at the offices of Pittwater Council, where he was assisted by Ms Hough. She showed him the Council's file pertaining to the Rednal Street property. Mr Butcher obtained access to the Council file and has exhibited it to one of his affidavits. The file shows that the Land Department sent the Council copies of permissive occupancy offers and the annexed diagrams, when offers were made. Apart from an offer in 1988 which was annexed to the contract for the sale of the Rednal Street property (an offer to Robert Harkins) there are offers to Robert and Jeanne Harkins dated 18 June 1986 and to Mr and Mrs Pullicin dated 24 May 1984. In each case it appears that the annexed diagram was the same as the permissive occupancy diagram in the contract. 63 However, the Council's file also contains a diagram, identical in general shape and format to the diagram annexed to the permissive occupancy transfers (including reference to an inspection of the land on 8 September 1983), but differing from them in one important respect. Instead of showing the 'solid wall' and the distances from the mean high water mark to Pittwater on each side of the property, this diagram shows the mean high water mark bisecting a swimming pool measuring 9.1 m by 2.4 m. 64 The file shows that in 1978 Mr and Mrs Pullicin made an application to the Lands Department to amend their permissive occupancy by adding a ramp and pontoon, completing the reclamation beyond the mean high water mark, and establishing an in-ground swimming pool partly on the reclaimed area. Council granted building approval for the pool on 15 August 1979. On 19 July 1979 the Council wrote to the Land Board Office consenting to the permissive occupancy proposal under the relevant planning ordinance. According to a letter from the Land Board Office to the Council dated 27 July 1979, the permissive occupancy of Mr and Mrs Pullicin was amended on that day to include 'the purposes of reclamation, in-ground pool and ramp/pontoon as per attached diagram', for an increased annual rent. A diagram date-stamped 4 September 1979 by the Council, which appears to have been the annexure to the letter of 27 July 1979, shows the swimming pool bisected by a line which appears to be the mean high water mark. The diagram is rather less precisely drawn than the other diagrams on the file. 65 On 30 May 1997 Mr Butcher contacted the Department of Conservation and Land Management (formerly known as the Lands Department) and spoke to Ms Kerry Morris, an inspector at the Department. Ms Morris sent him a copy of a document entitled 'Crown Land Foreshore Tenures Policy (Non-Commercial Occupations)', issued by the Department of Conservation and Land Management in November 1991. According to clause 5.3 of that document, new leases or licences will not be granted for various structures, including 'private swimming enclosures'. However, clause 7 provides protection for existing structures provided that no new structures or additions are proposed. 66 Thus, if part of the swimming pool at the Rednal Street property was beyond the mean high water mark and therefore on Crown land, the policy would permit continued use of the swimming pool for the remainder of its economic life, no 'relocation' of the pool wholly or partly on Crown land. Mr Butcher was left in no doubt by Ms Morris that the plaintiffs' plan to redevelop the pool and entertaining area could not be implemented if the mean high water mark traversed the swimming pool. 67 In my view the evidence demonstrates clearly that the plaintiffs regarded their plan for re-location of the swimming pool as an important part of their strategy for developing and then re-selling the Rednal Street property. I accept Mr Butcher's evidence that, if he had known that the mean high water mark traversed the swimming pool so that his plan for the pool could not be implemented, he would not have bid for the property at auction or agreed to a contract under which $200,000 would be released to the vendor.

[24]

The location of the rear boundary 68 One of the issues in contention between the parties is whether (as Mr Hannagan's survey represents) the mean high water mark crosses the property below the swimming pool, or crosses through the pool (as Mr Bee's survey depicts). The question was thoroughly canvassed at the hearing. Mr Bee gave evidence on behalf of the plaintiffs, supporting the conclusions drawn in his survey. Another surveyor, Mr Green, gave evidence on behalf of Mr Harkins, generally to the effect that there was ambiguous evidence as to the location of the mean high water mark in relation to the swimming pool. In their oral evidence both surveyors were taken through documentary records, mainly on the old Lands Department files. It is convenient to give my finding on the question at this point in my judgment. 69 Mr Bee's survey report dated 14 March 1997 states unequivocally that part of the swimming pool is 'standing outside the mean high water mark boundary of the land as defined in Deposited Plan 9500'. Mr Bee's survey diagram shows a line described as 'M.H.W.M. by Title' passing roughly through the centre of the pool, running parallel with the line of the veranda and the long sides of the pool. The diagram gives the measurements of the side boundaries as '59.13 (Title)' and '58.52 (Title)', but does not give any other relevant measurements. A diagram prepared by another surveyor, Mr Souter, on 10 November 1997, showing only the reclaimed area, ramp, pontoon and berthing piles, also shows the swimming pool bisected by the 'H.W.M. by title'. 70 In his oral evidence Mr Bee compared his survey diagram with Mr Hannagan's diagram by placing a transparency of one over the other. Mr Green also made comparisons between the two diagrams in his oral evidence. The major difference between the two diagrams is that Mr Hannagan recorded a shorter distance between the back of the garage (which is towards the roadside) and the front of the house. This led to his diagram showing the rear of the house as being closer to the roadside boundary than in Mr Bee's diagram. I am satisfied from the evidence as a whole that Mr Hannagan's measurement of this distance was wrong, and Mr Bee's is right. Surveying methods have improved since the time of Mr Hannagan's survey, and the improved methods employed by Mr Bee have served to expose Mr Hannagan's mistake. Consequently, if the measurements shown in Deposited Plan 9500 are used, the mean high water mark as identified by those measurements passes through the pool in the manner depicted by Mr Bee's diagram. 71 Mr Green accepted the accuracy of Mr Bee's measurements and agreed with his methodology. He accepted, in other words, that if the mean high water mark is located using the measurements in the registered deposited plan, it runs through the swimming pool in the manner shown by Mr Bee's diagram. His point was that there is substantial evidence in the Department's files and elsewhere to indicate that the mean high water mark is wrongly located by the deposited plan and should be located closer to Pittwater, beyond the swimming pool. 72 Mr Green described this other evidence as 'ambiguous'. That is, if anything, an understatement. The permissive occupancy documents that I have described point to an anomaly which Mr Bee admitted he was unable to explain. Some permissive occupancy sketches based on inspection on 8 September 1983 show the mean high water mark as passing through the swimming pool, but sketches that are otherwise identical and profess to be based on the same inspection show a solid wall but do not show the swimming pool. The anomaly Mr Bee could not explain is that at some time in the 1980s, for no very clear reason, the Department chose to abandon the sketch showing the swimming pool for the purpose of permissive occupancy offers to succeeding owners of the Rednal Street property, and instead used the sketch that does not depict the swimming pool. The latter sketches were used in the most recent permissive occupancy offers. Consequently the permissive occupancy document annexed to the contract for the sale of the Rednal Street property to the plaintiffs did not show the location of the swimming pool in relation to the mean high water mark, although it indicated that there was an available permissive occupancy in respect of the reclaimed area beyond the mean high water mark. 73 Further research on the Department's files and other documents continued even during the hearing. The report of Mr T J Paterson, Metropolitan District Surveyor for the Metropolitan Lands Office, dated 23 April 1985 was regarded as an important document. Mr Paterson recorded discussions with the owners of waterfront properties in Rednal Street, including No 10 Rednal Street (then owned by Mr and Mrs Pullicin), and an inspection of existing structures along the waterfront. He said that 'this inspection revealed that there are several variations from the authorised diagram involving additional structures and a redefined High Water Mark based on aerial photography and survey information from Water Board maps'. He said it would be appropriate to amend the existing permissive occupancies to reflect the present situation, noting that development of the foreshore facilities would require detailed consideration by various authorities and some substantial work such as dredging. He made some comments on the state of deterioration of existing structures, saying that 'the other structures including the unauthorised swimming pool and timber ramp appear to have been in place for many years and are in satisfactory condition'. 74 Referring to No 10 Rednal Street, Mr Paterson observed that 'the new interpretation of original high water mark indicates a variation from the occupancy diagram'. He referred to a larger area of reclamation on the property, on which a brick/block wall existed. He made several recommendations, including a recommendation that the permissive occupancy for No 10 Rednal Street be amended to cover a larger area of reclamation and the wall. It seems plausible that the replacement of the permissive occupancy sketch showing the swimming pool bisected by the mean high water mark with a sketch which showed the 'solid wall' but not the swimming pool, derived from Mr Paterson's recommendations. It may be that the replacement diagram omitted reference to the swimming pool because of Mr Paterson's assessment that it was an unauthorised structure but, being in a satisfactory condition, need not be demolished. He may have felt that the swimming pool should not be depicted in the diagram, lest by doing so the Department might elevate it beyond its current tenuous status. 75 On 30 May 1985 Mr Dahlen, an officer of the Lands Office, wrote to Mr and Mrs Pullicin enclosing an offer of a new permissive occupancy. The letter said: 'A recent inspection of your Permissive Occupancy revealed that the reclamation is considerably larger than authorised. The inspection also revealed the existence of nine berthing piles as opposed to the authorised seven. The swimming pool was found to be entirely on your freehold land. This office is prepared to authorise all the variations.' 76 One can only speculate as to how Mr Dahlen was able to find the swimming pool to be entirely on the freehold land, especially given his finding that the reclamation was larger than authorised. Perhaps Mr and Mrs Pullicin persuaded him to accept Mr Hannagan's survey. Be that as it may, one would expect the Department to have abandoned use of the permissive occupancy sketch showing the swimming pool bisected by the mean high water mark once Mr Dahlen's determination had been made, and apparently they did so until relatively recently. The permissive occupancy offers made for some time thereafter were offers that did not include any occupancy in respect of the swimming pool. 77 However, it appears that the Department has changed its mind as to the relationship between the swimming pool and the mean high water mark. A Department sketch drawn on 9 June 1998 on the basis of Mr Souter's survey shows the high water mark by title bisecting the swimming pool. 78 Mr Green, in his oral evidence, referred to aerial photographs which appear to show dredging in the early 1970s and perhaps a natural accretion to the land area by siltation before that time. He laid some emphasis on a sketch labelled 'Proposed Marina - W J Arnold Pty Ltd and Foreshore Reclamation'. The sketch is not dated but appears to have been prepared well before the Department's inspection in 1983. It suggests a different position for the mean high water mark than as shown in Deposited Plan 9500. Mr Green also referred to a successful claim for accretion to another lot in Deposited plan 9500, and a similar claim being made by him for a property on the same shore of Pittwater but in a different deposited plan. Ultimately he concluded that there was a good case for making such a claim in respect of No 10 Rednal Street, partly on the basis of natural accretion to the shoreline and partly on the basis that measurements in Deposited Plan 9500 were either mistaken or incompatible with external evidence. He noted that the Department is aware that early surveys sometimes contain mistakes, because the colonial surveyors tended to consider the land below the actual high bank as worthless because it was not arable, and therefore sometimes took their measurements from the actual high bank at the time of survey, rather than the mean high water mark. 79 Mr Bee explained in his oral evidence that the task of a surveyor, in preparing an identification report, is to depict the property by title. In the case of a waterfront property, title is bounded by the mean high water mark by title, which is identified by using the measurements in the registered deposited plan. The surveyor's job is to locate the street boundary by observing or marking physical reference marks such as pegs and clouts, and then to measure out the side boundaries by using the measurements in the deposited plan. The location of the mean high water mark is determined by these measurements, rather than by physical observation. Mr Green did not disagree with this approach. 80 Indeed, it seems to me that there was very little, if any, disagreement between the surveyors. What emerges from their combined evidence is that the 'documentary' mean high water mark by title passes through the swimming pool but there are good grounds for arguing that the mean high water mark should now be located in a different position beyond the pool. 81 The location of the mean high water mark can be changed by process of application requiring the consent of the Department and the relevant Council, leading to the registration of a new deposited plan and the issue of fresh certificates of title for the affected properties. The applicant must demonstrate a case for recognition of the new location, and may do so by proving there has been a physical accretion to the land by the gradual movement of the high water mark, or by proving that the survey work upon which the deposited plan was based is erroneous in some relevant respect. Mr Paterson's report indicates that the Department has recognised some re-definition of the high water mark for the purpose of granting permissive occupancies over the reclaimed areas. But that does not amount to a change of the mean high water mark by title. At the date of the hearing, no application had been made to change the mean high water mark by title. 82 Mr Hannagan's survey report purports to identify the property which is lot 14 in Deposited Plan 9500. It incorrectly depicts the relationship between the swimming pool and the mean high water mark by title. It is misleading, regardless of whether there was 'ambiguous' or even very strong evidence to support a contention that the mean high water mark by title should be changed.

[26]

The sale of the Calvert Parade property 87 The marketing of the Calvert Parade property by Lachlan Elder Realty began in mid-March 1997. Quite early in the campaign Mr Spring informed Mr Butcher that a Mr Adams had made an offer of $ 1,175, 000, but that offer was rejected. 88 Arrangements were made for the Calvert property to be put to auction on 22 April 1997. Just prior to the auction date, a Mr Elliott made an offer of $ 1,075,000. At the last minute, Mr Butcher decided to postpone the auction, due to lack of interest by prospective purchasers, and also because the problems with the rear boundary of the Rednal Street property made him uncertain as to whether the sale of the Calvert Parade property should proceed. 89 Nevertheless, Lachlan Elder Realty continued their selling efforts. The proposed auction of the property was re-scheduled for 13 May 1997. The asking price was set at $1.3 million. Mr Elliott increased his offer to $1,125,000, but the offer was rejected. The auction was again postponed, and the matter was listed for private sale for a price on application. 90 Early in June 1987 Mr Spring told Mr Butcher that Mr Elliott was prepared to offer $1.15 million. However, the next day Mr Spring informed Mr Butcher that Mr Elliott had purchased elsewhere. Several days later, Mr Spring informed Mr Butcher that a Mr Shanahan had offered $ 1,050,000. On 23 June 1997 Mr Spring informed Mr Butcher that Mr Shanahan and his wife had signed a contract for the purchase of the Calvert Parade property for $1.1 million and had included a cheque for the deposit. Mr Butcher and Mr Spring discussed the matter and Mr Butcher expressed his frustration that the current offer was less than offers previously rejected, but that he felt obliged to sell so that he would be able to settle the purchase of Rednal Street if it was required. 91 On 24 June 1997 Mr Butcher wrote to Mr Spring explaining that the plaintiffs would happily accept the offer to purchase for $1.1 million, subject to some issues about leaving personal belongings on the property, and on the basis that the plaintiffs be given access to $75,000 out of the deposit. The letter stated that 'due to my obligations elsewhere, access to these funds are paramount'. On the same day the plaintiffs exchanged contracts for the sale of the Calvert Parade property to Mr and Mrs Shanahan. The purchase price was $1.1 million and the deposit was $110,000. The agent was Lachlan Elder Realty. The contract was subject to the statutory cooling off period of five business days, which expired on 2 July 1997. 92 Special condition 30 of the contract required the purchasers, forthwith upon the request by the vendors, to authorise the release to the vendors of the deposit paid under the contract. The clause provided that the money released was to be used only by the vendors in the payment of deposit for the purchase by them of another property. The vendors warranted that the deposit would be held in trust by a stakeholder pending completion of the vendors' purchase, and the vendors undertook to notify the purchasers' solicitor of the name of the stakeholder. In its terms, special condition 30 did not authorise the plaintiffs to use Mr and Mrs Shanahan's deposit to pay the balance of deposit on the Rednal Street property in the sum of $72,000. This is because, under the contract for the sale of the Rednal Street property, all deposit moneys were to be released immediately to Mr Harkins for payment to his mortgagee. Nevertheless the plaintiffs relied on special condition 30 to obtain $75,000, to cover their cheque for $72,000 to Mr Harkins, in circumstances that I shall explain. It is not clear to me on the evidence whether Mr and Mrs Shanahan consented to this use. 93 There is evidence that on 25 June 1997 Mr Butcher instructed Mr Zuur to explore with Perpetual Trustees whether the sum of $72,000 could be paid into their solicitor's trust account rather than being credited to Mr Harkins' mortgage account immediately. The evidence does not indicate whether Perpetual Trustees received any such request, or if they did, whether they agreed to it.

[27]

Payment of the balance of deposit of $72,000, and Mr Harkins' purported termination 94 The exchange of contracts for the sale of the Calvert Parade property triggered the plaintiffs' obligation to top up the deposit for Rednal Street by paying an additional $72,000. Under the contract, the $72,000 was to be paid on the date of exchange of contracts. 95 By letter dated 2 July 1997 Mr Zuur wrote to the solicitor for the purchasers of the Calvert Parade property. He noted that the contract of sale of that property became unconditional at the expiry of the previous day, and requested that the agent be authorised to release $75,000 of the deposit to the vendors in accordance with special condition 30 of the contract. The letter said that the deposit was to be applied by the vendors to fulfil deposit requirements in a related purchase matter. On the morning of 3 July 1997 the purchasers' solicitor sent the requested authority to the agent by facsimile. 96 Mr Harkins discovered that contracts had been exchanged without payment of the $72,000, and at 4:46pm on the 2 July 1997 his solicitor transmitted by facsimile to Mr Zuur a 'Notice of Termination of Contract'. The notice set out the text of clauses 2, 34.1 and 9 of the Rednal Street contract, and asserted that 'in consequence of your default under Special Condition 34.1 of the Contract' the plaintiffs as purchasers had 'forfeited to the Vendor the deposit of $272,000 ... and that the Contract is entirely at an end so far as it relates to the sale and purchase of the property ...'. 97 On 2 July 1997 Mr Zuur wrote to Mr Harkins' solicitor stating that steps were being undertaken to make the $72,000 available pursuant to the Rednal Street contract. Mr Butcher formed the view that he should pay the $72,000 to Mr Harkins without prejudice to his claim in the first proceeding, and to any contention that the notice of termination was invalid. He prepared a personal cheque in the sum of $72,000, marked 'Not Negotiable', and at about 8:45pm on 2 July 1997 he and a friend called at the Rednal Street property. His friend handed the cheque to Mr Harkins personally. Mr Harkins attempted to return the cheque and said 'I am afraid it is too late for that'. But Mr Butcher's friend did not take back the cheque, and left. 98 On the following morning Mr Butcher arranged with Lachlan Elder Realty to pick up a bank cheque from them for the sum of $75,000, which was to be released from the deposit on the Calvert Street property. At 9 am on the same day, he arranged with his bank, the Commonwealth Bank at Narrabeen, to meet payment of the personal cheque for $72,000, on the basis that he would be depositing a bank cheque for $75,000 that morning. Ms Gibbon, the bank manager, told Mr Butcher that there would be no problem, because any request by Mr Harkins for a special clearance of the cheque for $72,000 would not arrive until the next morning. 99 At 10 am on 3 July 1997 Mr Butcher received a call on his mobile telephone from Ms Gibbon. They had a conversation as follows: Ms Gibbon: 'Mr Harkins is at the counter. He has informed our staff that he is a solicitor and he is demanding immediate payment of this cheque. What do you want me to do and where are you with the bank cheque?' Mr Butcher: 'I am about to pick it up in Mona Vale and I'm not far away.' Ms Gibbon: 'Do you want me to ask Mr Harkins to wait until you get here or if you are too far away, provided you are on your way with the bank cheque, I can ring Mona Vale and get approval to pay him now.' Mr Butcher: 'Do nothing, I have to ring my solicitor. I'll ring you back in one minute.' 100 Mr Butcher then rang Mr Zuur, who gave him certain advice. He then rang Ms Gibbon again on his mobile telephone and told her: 'I've spoken to my solicitor and under the circumstances I am going to stop the cheque until there is further clarification. Tell him [referring to Mr Harkins] that I have put a stop payment on the cheque and I'll see you shortly.' 101 About 20 minutes later, Mr Butcher arrived at the bank and deposited a bank cheque in the sum of $75,000 into his personal bank account. 102 Mr Harkins' solicitor sent a facsimile letter to Mr Zuur at 6:10pm on 3 July 1997. The letter asserted that the contract for the sale of the Rednal Street property was at an end because payment had been stopped on the $72,000 cheque. 103 On 4 July 1997 Mr Zuur wrote to Mr Harkins' solicitor asserting that: · the notice of termination purportedly given by Mr Harkins on 2 July 1997 was defective for a number of reasons; · Mr Harkins had presented himself at the counter of the Commonwealth Bank at Narrabeen and had demanded immediate payment of the $72,000 cheque; · Mr Butcher had formed the view that there was a likelihood that Mr Harkins was attempting to have the $72,000 paid to himself rather than to his mortgagee, notwithstanding the requirements of special condition 34.2 of the Rednal Street contract; · Mr Butcher directed the bank to stop payment of the cheque until such time as the behaviour of Mr Harkins could be clarified; and · the wrongful notice of termination given by Mr Harkins, and his attempt to convert the $72,000 cheque to his own use, amounted to a repudiation of the contract.

[32]

Did Mr Harkins make any misrepresentation with respect to the location of the mean high water mark? 116 The subject matter of the contract of sale was a property in Rednal Street described, in the contract, by reference to the documentary title. Being held under the Torrens system, the documentary title of the property was identified by reference to a lot and deposited plan number and a folio identifier. By the contract of sale Mr Harkins as vendor promised to transfer to the plaintiffs as purchasers the title to lot 14 in Deposit Plan 9500, evidenced by Folio Identifier 14/9500. Mr Harkins was bound, therefore, to transfer to the plaintiffs a good Torrens title to a property having the measurements of lot 14 in Deposit Plan 9500, subject to the provisions of the contract. 117 The law recognises that in some circumstances, accretion or erosion may change the physical dimensions of a property bounded on one or more sides by water: Peter Butt, Land Law (3rd ed, 1996), p 46-7; and see JE Moore, 'Land by the Water', (1968) 41 ALJ 532. As Professor Butt explains, the boundary of such land changes to reflect a change to the position of the water's edge, provided that certain conditions have been met. Those conditions are that the change in the position of the water's edge must have been so slow and gradual as to be in a practical sense imperceptible, and must have resulted from natural processes (such as natural silting-up as opposed to artificial reclamation). These principles apply to Torrens title land: Verrall v Nott (1939) 39 SR (NSW) 89, 99; Auty v Thompson (1903) 5 NZGLR 541. 118 If a change by accretion or erosion can be shown to have occurred, the Registrar-General can be requested to amend the specified dimensions to reflect the change. Presumably the power to do so is found in s 12 of the Real Property Act 1900 (NSW). The evidence in the present case indicates that the process by which the Registrar-General will respond favourably to such an application is by registration of a new deposited plan. Mr Green gave evidence that, at least as a matter of practice, the Registrar-General will require the consent of the relevant Council and the Surveyor-General, before acting. Obviously consent is unlikely unless there is clear evidence of change by accretion or erosion satisfying the legal requirements outlined by Professor Butt. 119 The result is that the dimensions of the land to which the registered proprietor has title may, over time, come to be different from the dimensions shown on the deposited plan. Where the change has been produced by accretion, the dimensions of the land to which the registered proprietor has title are greater than shown on the register. If an accretion has occurred and the registered proprietor subsequently transfers the land, the transferee will normally acquire title to the augmented land even though no application has been made to the Registrar-General to recognise the accretion. 120 It appears that the instrument of conveyance may reserve the accretion to the transferor, in the case of land held under old system title: Mellor v Walmesley [1905] 2 Ch 164; Butt, at 47-8. Whether that can happen in the case of Torrens title land is a difficult question, which I need not attempt to resolve here. Any purported exclusion of the accretion must be unequivocal, and there is no suggestion in this case that Mr Harkins purported to exclude any accretion from the transfer which, by the contract of sale dated 18 February 1997, he promised to make. The mere specification of the title by reference to the lot and deposited plan number did not amount to an unequivocal intention to exclude the accretion, according to the cases cited by Professor Butt, p 48 footnote 259. 121 A survey identification report, such as Mr Hannagan's report, serves to locate the land and its improvements by recourse to physical reference points and registered title dimensions. Such a report does not purport to identify any accretion at the water boundary of a waterfront property. So much is clear from the evidence of Mr Bee. The waterfront boundary is depicted merely by applying the dimensions shown on the registered deposited plan to physical reference points at the street boundary. The expression 'mean high water mark' is used by modern surveyors (though not always, with consistency, by the surveyors of earlier times) to refer to the water boundary ascertained in this fashion. Consequently the diagram in Mr Hannagan's report purported to depict, by the letters 'M.H.W.M.', the location of the mean high water mark by registered title of lot 14, in relation to Pittwater, the reclaimed area and improvements on the land (including the swimming pool). The report did not purport to represent anything about any possible title by accretion to any part of the reclaimed area shown on the diagram. 122 By annexing Mr Hannagan's report to the contract, Mr Harkins as vendor brought into play clause 10.1, which provides that the purchaser cannot make a claim, objection or requisition or rescind or terminate in respect of, inter alia, 'everything else the substance of which is disclosed in this contract'. That is the contractual significance of annexing Mr Hannagan's report. Additionally, by making the report available to the proposed purchaser in a draft contract, Mr Harkins as vendor made a representation as to the truth and accuracy of the contents of the report, just as the annexure of a s 149 certificate to a draft contract may be seen as a representation by the vendor to the purchaser that the zoning of the property is as set out in the certificate: Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112, 131; generally, see Academy of Health v Power [1973] VR 254, 263-4; Simons v Zarton Investments Pty Ltd [1975] 2 NSWLR 30, 36; RP Meagher, WMC Gummow and JRF Lehane, Equity Doctrines and Remedies (3rd ed, 1992), paras [1312]-[1314]. 123 Special condition 26 of the contract stated that the purchaser acknowledged and agreed that, in entering the contract, he relied only on the warranties and representations of the vendor set out in it, and relied entirely on his own inquiries and inspection of the property. In my opinion, that clause did not qualify the representation by Mr Harkins to which I have referred. The clause must be construed in the contractual matrix of facts and surrounding circumstances, which include the fact that the draft contract had Mr Hannagan's survey report and other documents annexed to it. There is nothing to indicate that these documents were annexed in order to exclude the implied representations that would otherwise arise from their distribution by the vendor. Clause 26 might have stipulated that no warranty or representation was implied with respect to the annexed documents, but it did not do so. In the circumstances, the clause is to be construed consistently with the proposition that the vendor made representations of accuracy by annexing documents to the contract, by treating the clause as referring to warranties and representations arising outside the contract and its annexures, and reliance on inquiries in respect of matters not addressed by the annexures. 124 Consequently Mr Harkins represented, by annexing Mr Hannagan's survey report to the draft contract which he made available to the plaintiffs' solicitor, that the survey report was accurate in what it purported to do. Since the survey report did not purport to do anything with respect to title arising by accretion but not reflected in a registered deposited plan, there was no representation by Mr Harkins concerning title by accretion. There was, however, a representation by him that the mean high water mark identified by applying the registered plan measurements for lot 14 from fixed reference points at the street boundary was located beyond the swimming pool and did not traverse it. 125 I have found that Mr Hannagan's report was inaccurate in showing the mean high water mark at a position beyond the swimming pool. The correct position of the mean high water mark in a survey identification report for lot 14 is the position shown in Mr Bee's report, in which the mean high water mark is depicted as traversing the pool. Consequently, by making available to the plaintiffs' solicitor a draft contract annexing Mr Hannagan's report, Mr Harkins misrepresented the location of the mean high water mark in relation to the pool. 126 It is irrelevant that, at the time of preparation of the draft contract, Mr Harkins may have become entitled as registered proprietor to some additional land by accretion, even if the additional land brought the water-side boundary beyond the swimming pool. He made no representation about title by accretion. In my opinion, it cannot be suggested that the representation in fact made by him, by the distribution of the draft contract annexing Mr Hannigan's report, was rendered misleading by his omission to address the question of title by accretion: cf Emma Silver Mining Co v Grant (1879) 11Ch D 918, 935; Central Railway Co of Venezuela v Kisch (1867) LR 2 HL 99, 114; Oakes v Turquand (1867) LR 2 HL 325. As I have said, title by accretion passes to the transferee in the normal case without any express conveyance, and so the question of availability of such title is not a matter for ordinary conveyancing inquiries, upon which one would expect representations to be made. 127 I should add that some of Mr Green's evidence suggested that the registered proprietor of lot 14 may have plausible grounds for contending that Deposited Land 9500 was incorrect when it was registered in 1919. If a survey mistake could be established to the satisfaction of the Surveyor-General and the Registrar-General (and presumably also the Council), a new, correct deposited plan could be registered. It seems to me, however, that potential rectification of the measurements shown in the existing registered plan is not relevantly different from replacement of the existing registered plan by a new plan reflecting title by accretion. The representation implied by distribution of an identification survey report is a representation based upon the measurements shown on the existing registered plan, regardless of whether those measurements were correct when made. Therefore the existence of evidence to show that a mistake was made in the initial survey for the deposited plan would not overcome the misrepresentation arising out of mistaken presentation of boundaries in an identification survey report which relies on measurements in the registered plan.

[33]

The colour brochure 128 A broadly similar analysis applies to the representation made by distribution of the colour brochure. While the brochure contains some advertising 'puffery' and the photographs include some items which were not part of the sale, it was a document prepared to provide specific information to prospective purchasers, to assist them in preparing for the auction. It contains express and implied factual assertions which are capable of constituting representations. 129 It is clear from the evidence that Mr Harkins made Mr Hannagan's report available to Lachlan Elder Realty for the purpose of preparation of the brochure. Mr Elder gave evidence that he relied upon the survey that had been sent to him by Mr Harkins or Mr Harkins' solicitors, and did not know that there may have been an error in it. Mr Harkins gave evidence that he saw the brochure and said that it was 'fine', and did not say anything to Lachlan Elder Realty that might suggest that the diagram could be incorrect. When Mr Spring and others distributed the brochure containing Mr Hannagan's diagram to potential purchasers they made a representation as his agents, binding him as principal, that the information in the brochure was accurate and materially complete, having regard to the nature of the brochure as a marketing document. 130 Although Mr Hannagan's diagram was separated in the brochure from his narrative report, I reject submissions to the effect that the diagram on the brochure should be seen only as a sketch diagram of property. In my view potential purchasers would be likely to assume that the diagram in the brochure had been taken from an identification survey report. They would treat the reference to a 'reclaimed area', when read together with information in the brochure about a permissive occupancy fee, as implying that there was an area of Crown land subject to a permissive occupancy between the mean high water mark and Pittwater. They would take the diagram to depict the location of the mean high water mark by reference to the dimensions of lot 14 in the registered plan. They would not interpret the diagram as implying any representation to which title by accretion, or through correction of a mistake in the register, would be relevant. It follows that when the staff of Lachlan Elder Realty distributed the brochure with his authority, Mr Harkins made a misrepresentation to potential purchasers with respect to the location of the mean high water mark in relation to the swimming pool.

[34]

Were Mr Harkins' misrepresentations fraudulent? 131 Counsel for the plaintiffs launched an attack on the credibility of Mr Harkins as a witness. It seems to me that my finding on fraud depends upon whether I accept counsel's criticism of Mr Harkins' evidence. 132 The key component of Mr Harkins' evidence on the question of fraud is his version of his recollection of inconsistent sketches. His evidence is that the Hannagan survey report was consistent with his documentational permissive occupancy and with the letter of Mr Dahlen, but in the back of his memory he could recall a document, differently dated, which showed the mean high water mark going through the swimming pool. He says he endeavoured to find such a document but failed to do so. Then he checked the measurements on the documents he had, and decided that his recollection must have been mistaken. Therefore he used Mr Hannagan's survey report, which was subsequently discovered to be wrong. 133 Mr Harkins' evidence is criticised on several grounds. First, it is said that he presented as a very uncomfortable witness, especially when cross-examined in relation to his conversation with Mr Butcher on 22 December 1997. I agree that Mr Harkins seemed to be uncomfortable in the witness box. I think it likely that he and Mr Butcher were ill at ease with one another, and that aspect of their relationship may have been reflected in Mr Harkins' evidence. I did not gain the impression from his demeanour that he was evasive or that he told untruths. 134 Then, counsel asks, why did Mr Harkins raise the issue at all if he had convinced himself that the mean high water mark was located beyond the swimming pool? Mr Harkins said, in effect, that he wanted to raise the matter precisely because of his worry about having seen the earlier document. I have previously considered the competing versions of the conversation on 22 February, and I have given my reasons for preferring, for the most part, Mr Harkins' version to Mr Butcher's. 135 Next, counsel says that the denial by Mr Harkins of Mr Butcher's version of the conversation of 20 March 1997 is unconvincing. I have also dealt with that conversation, giving my reasons for preferring Mr Harkins' version. 136 Counsel submits that the evidence of Mr Harkins as to why he sought to cash the cheque for $72,000 on 3 July 1997 lacks credibility. In counsel's submission, since Mr Harkins had purported to terminate the Rednal Street contract on the previous day, there was no possible reason for him to satisfy himself whether or not there was money in the account to meet the cheque at 9:30 am the next morning. Essentially Mr Harkins' evidence is that he presented the cheque for encashment because he believed that there were insufficient funds in the account to permit payment of the cheque and if that were established, it would be some evidence of bad faith on the part of Mr Butcher. He said that if the cheque was met on presentation, then he would have control of the funds, and that would be helpful for him as well. Given what had become a bitter confrontation in which Mr Butcher was alleging fraud by Mr Harkins, I do not find Mr Harkins' explanation implausible. 137 Finally, counsel criticised the evidence of Mr Harkins as to why he wrote some figures on his copy of Mr Hannagan's survey report. In the end, Mr Harkins' evidence was he could not recall why he wrote the figures on the document, but they seemed to relate to areas. I do not regard that evidence as suggesting that he was an unreliable witness. 138 All in all, I have decided that there is no good reason for disbelieving Mr Harkins' evidence as a whole. 139 In order to establish fraud, the plaintiffs must show that a false representation has been made knowingly, or without belief in its truth, or in reckless disregard of its truth or falsity: Derry v Peek (1889) 14 App Cas 337, 374. The plaintiffs have failed, in my view, to establish fraud in this sense. Accepting, as I do, the evidence of Mr Harkins, I find that he believed in the truth of Mr Hannagan's identification survey report, and did not know it to be false. He did not behave in reckless disregard of the truth or falsity of the survey report, because he endeavoured to find a document that he believed to be inconsistent with it, and he checked the report against the documents that he had. One of those documents, Mr Dahlen's letter, was a statement by a public official that the swimming pool was entirely on the freehold land of the Rednal Street property. I cannot see how, in those circumstances, the allegation of fraud can be made out.

[37]

Misleading or deceptive conduct 142 Civil liability for a breach of s 42 of the Fair Trading Act 1987 (NSW) can arise even where the person who engages in the relevant conduct is not aware that the conduct is misleading. A fortiori, where conduct involves the supply of information and the person who engages in it is silent in circumstances where the failure to speak renders the conduct misleading: Demagogue v Ramensky (1992) 39 FCR 31. 143 In the present circumstances, it might be argued that Mr Harkins should have disclosed all his doubts in the contract, annexing whatever documentation he could, and giving his best account of his recollection of the documents he could not find. In my view, however, it would have been reasonable for a person in the shoes of Mr Harkins, at the time, to have decided on the course of action which he adopted, since he was unable to satisfy himself that there was any substance to his uncertain recollection: cf Demagogue at 32 per Black CJ. Conversely, if he had made disclosures such as I have suggested, while nevertheless annexing the Hannagan survey report as the primary disclosure document, the likelihood is that his conduct would still have been regarded as misleading. 144 Nevertheless, the fact is that the Hannagan survey report was incorrect in depicting the mean high water mark as located beyond the swimming pool, and by authorising the distribution of that report and the brochure that included the diagram, Mr Harkins engaged in conduct that was misleading. 145 In order for the plaintiffs to succeed in the claim based on this misleading conduct, they must show that the loss of which they complain was loss suffered by the conduct in contravention: Fair Trading Act, s 68. In my opinion, the evidence demonstrates, as I have said, that the relocation of the swimming pool was an important part of Mr Butcher's plans for the Rednal Street property. I accept his evidence that he would not have proceeded to bid at the auction had he known the location of the mean high water mark given the impact that this information would have had upon his plans. Mr Harkins' distribution of an incorrect survey diagram, and Mr Butcher's reliance upon it, led to Mr Butcher bidding and becoming the successful bidder at the auction. 146 Consequently the ingredients of liability under s 68 for contravention of s 42 of the Act are made out on the facts, but for one matter. Section 42 only applies to conduct 'in trade or commerce'. The plaintiffs submit that the conduct of Mr Harkins was in trade or commerce. 147 They point to evidence that the Rednal Street property was sold to reduce the debt of Mr Harkins' family trust. The entire mortgage debt was a debt owed by the defendant's family trust, and the total purchase price on the sale of the Rednal Street property was to be applied to the mortgage. Moreover, the $200,000 released to the mortgagee was also applied to the mortgage. There is also evidence that Mr Harkins was indebted to his family business at the time of the contract of sale. 148 However, it seems to me that the conduct of Mr Harkins in selling his domestic residence was intrinsically not conduct in trade or commerce, even though the proceeds of sale were to be applied otherwise than to himself. Moreover, it is significant that the proceeds of sale were to be applied to a family trust rather than in connection with or in the course of some business enterprise. The words 'trade or commerce' are very broad, but they must have some limits, so as to exclude purely domestic transactions. My conclusion, therefore, is that the claim to relief based on the Fair Trading Act is unsuccessful.

[38]

Was the contractual obligation to pay $72,000 an essential term of the contract? 149 The starting point is to observe, as a general proposition, that a requirement to pay a deposit is an essential term of a contract for sale, and therefore the deposit must be paid strictly on the date stipulated: Brien v Dwyer (1979) 53 ALJR 123. This has been held to be so even where the contract provided for payment of a ten percent deposit by two instalments, with the second instalment being due on a date later than the date of the contract: Main Lodge Pty Ltd v Barque Holdings Pty Ltd (1982) NSW ConvR para 55-049. However, the question whether, in a particular case, a contractual obligation of any kind (including an obligation to pay a deposit) is an essential term is a question of construction of the contract: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, 430-1. In Tramways Advertising Pty Ltd v Luna Park Pty Ltd (1938) 38 SR(NSW) 632 at 641-2 Jordan CJ said: 'The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor: If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight.' 150 In my opinion, the obligation of the purchasers to pay the additional $72,000 was an essential term of the Rednal Street contract. The first page of the contract stated that the deposit was $272,000, twenty percent of the purchase price. Clause 2.1 stated that the obligation to pay the deposit 'on the making of this contract' was an essential provision. Clause 2.1 was qualified by clause 34.1. The provision of clause 34.1 that part of the deposit in the sum of $200,000 was payable on the date of the contract is consistent with clause 2.1, with the result that the obligation to pay the $200,000 was an essential term. Under clause 34.1 the remainder of the deposit in the sum of $72,000 was payable on the earlier of the 'date the Purchasers exchange contract' for the sale of the Calvert Parade property and the 'date of completion' of the Rednal Street property. The provisions of clause 34.1 with respect to the $72,000 are inconsistent with a requirement of clause 2.1 that the deposit be paid on the making of the contract. Clearly they qualify that requirement. The question is whether they also qualify the stipulation of clause 2.1 that the obligation to pay the deposit is an essential term. 151 Clause 34.1 uses the words 'date of completion', whereas the words 'completion date' are used elsewhere in the contract. Thus, the front page of the contract stipulates that the 'completion date' is the date which is six months after the date of the contract. Clause 15, headed 'completion date', states that the parties must complete by the completion date, 'being a fixed but inessential date', and if they do not do so, a notice to complete may be served by the appropriate party. If 'date of completion' in clause 34.1 means 'completion date', then the obligation to pay the $72,000 on the date of completion (if it has not been paid earlier) is an obligation to pay that amount six months after date the of the contract - that is, to pay it on 18 August 1997. 152 In my opinion, when clause 34.1 stipulates payment of the $72,000 on the 'date of completion', it requires that payment of this amount be made as part of the settlement money paid on the actual date of completion, rather than on 18 August 1997. The latter construction would ignore the commercial realities of conveyancing finance. It would oblige the purchasers to arrange for special funding in the sum of $72,000, because that amount would not have become available from the deposit on exchange of contracts of the sale of the Calvert Parade property, nor as part of the settlement money payable on the completion of the purchase of the Rednal Street property. It is unlikely that such an arrangement would have been intended. The use of the words 'date of completion', rather than 'completion date', confirms this construction. 153 The obligation to pay the $72,000 on the date of actual completion of the contract was clearly an essential term, in my view. If the vendor had been told, prior to the making of the contract, that he could not insist on payment of the $72,000 as part of the remainder of the purchase price due on settlement, but would need to issue a notice to complete in respect of that amount after the settlement day, he would not have entered into the contract. 154 Thus, consistently with clause 2.1, the obligations in clause 34.1 to pay $200,000 on the date of the contract and to pay the remaining $72,000 on the date of completion if it has not been paid earlier, are essential terms. The question is whether the only other remaining payment obligation in clause 34.1, namely the obligation to pay the $72,000 on the date of exchange of contracts for the sale of the Calvert Parade property, if it is sold before the date of completion of the Rednal Street contract, can be other than an essential term. In my opinion, the obligation to pay on exchange of contracts for the sale of the Calvert Parade property is not a separate obligation, but is an integral part of the payment structure prescribed by clause 34.1 as a whole. It cannot be isolated and regarded as an inessential term, when the remainder of the payment obligations in clause 34.1 are clearly of an essential nature. 155 The plaintiffs contend that this construction cannot have been intended, because the sale of the Calvert Parade property would necessarily involve a cooling off period of five business days, having regard to s 66X of the Conveyancing Act 1919 (NSW). They could not realistically hope to obtain the release of any part of the Calvert Parade deposit until the expiration of the cooling off period. The intention underlying clause 34.1, they submit, was to require them to pay the remaining $72,000 before settlement only if they could do so out of the Calvert Parade deposit, and if the obligation to pay the $72,000 on the date of exchange was taken literally as an essential obligation, they would be forced to pay that sum before they had access to the Calvert Parade deposit. 156 However, the statutory provisions with respect to the cooling off period admit of some exceptions. It would have been open to the plaintiffs, having already contracted in terms of clause 34.1, to negotiate with the Calvert Parade purchaser for the purchaser to provide a certificate complying with s 66W of the Conveyancing Act, or to insist that the property be sold only by public auction or on the same day as a public auction (see s 66T) . Given those exceptions to the requirement for a cooling off period, one cannot conclude that the parties to the Rednal Street contract intended to make an allowance for a cooling off period. They stipulated, in precise and unambiguous terms, for payment of the $72,000 on the date of exchange of the Calvert Parade contract. Having agreed to that stipulation, it was up to the plaintiffs to protect themselves as best they could, either by seeking to avoid the requirement for a cooling off period or by arranging for interim finance so they could pay the $72,000 on the day that it was due.

[39]

Did Mr Harkins waive his right of termination by demanding payment of the plaintiffs' cheque? 157 The plaintiffs contend that Mr Harkins waived his right of termination for non-payment of the $72,000 on the due date of 24 June 1997, when he attended the Commonwealth Bank at Narrabeen on 3 July 1997 and demanded the encashment of the plaintiffs' cheque. The concept of waiver was explored by the High Court in Commonwealth of Australia v Verwayen (1990) 170 CLR 394. In my opinion none of the senses in which the concept of 'waiver', as opposed to estoppel or election, may now be used is appropriate to the present case : Lewis v Cook [2000] NSWSC 191. 158 In my opinion there was no estoppel against Mr Harkins, or election by him, in this case. Although he attempted to take steps which would have operated to the detriment of the plaintiffs and would very probably have given rise to an estoppel if he had succeeded, the fact is that his attempts failed when Mr Butcher stopped payment of the cheque. 159 The plaintiffs claim that Mr Butcher was justified in stopping payment of the cheque having regard to clause 34.2, which provided that the deposit moneys were to be released to the vendor 'for payment to the Vendor's mortgagee'. The plaintiffs contend that Mr Harkins' conduct, in purporting to cash the cheque by presenting it personally to the bank, gave rise to a justified apprehension on the part of Mr Butcher that Mr Harkins would not apply the proceeds of the cheque for payment to his mortgagee. I regard the plaintiffs' contention as implausible. A much more likely explanation of the conduct of Mr Harkins, and in my opinion the explanation that Mr Butcher adopted at the time, was that in the tactical poker game that had developed between the combatants, Mr Harkins was calling Mr Butcher's bluff by demanding immediate payment, being aware that Mr Butcher would probably not have been able to organise funds to cover the cheque at the commencement of business on 3 July. Moreover, as a matter of construction clause 34.2 does not require the purchasers to see to the application of the deposit money by the vendor to his mortgagee.

[46]

The colour brochure 168 I have found that when Lachlan Elder Realty distributed the colour brochure with his authority, Mr Harkins made a representation that the mean high water mark was located beyond the swimming pool. In my opinion, however, no equivalent misrepresentation was made by Lachlan Elder Realty. Both sides of the brochure contained two propositions to the following effect: · the information contained in the brochure had been gathered by Lachlan Elder Realty from sources which they deemed or believed to be reliable, and · Lachlan Elder Realty could not guarantee the accuracy of the information and interested persons should rely on their own inquiries. 169 Those propositions went to the position of Lachlan Elder Realty, but did not purport to affect the position of their principal, Mr Harkins, who therefore cannot take advantage of them. The two propositions were part of the representations made by Lachlan Elder Realty when staff of the company distributed the brochure. Their effect, as regards the location of the mean high water mark in relation to the swimming pool, was to say to prospective purchasers: 'Here is a diagram showing that the mean high water mark is located beyond the swimming pool. It is a diagram provided to us from a source that we believe to be reliable. However, we cannot vouch for the accuracy of what is shown in the diagram, and if the matter interests you, you should rely on your own inquiries.' 170 The plaintiffs gave evidence that they were confused as a result of reading the brochure, and Mr Butcher said that he did not read the propositions to which I have referred. The question whether the distribution of the brochure amounted to misleading conduct by Lachlan Elder Realty is to be assessed, as I have said, by reference to the effect that the conduct would be likely to have had on the identified class of persons to whom it was directed. In my opinion, the class of potential purchasers of waterfront homes in a price bracket above $1 million, independently advised by their own solicitors, would be unlikely to be misled by the brochure read as a whole, including the two propositions set out above: McDonald's System of Australia Pty Ltd v McWilliams Wines Pty Ltd (1979) ATPR 40-140. 171 Here the diagram included in the brochure was supplied by the vendor, in circumstances where the company had no reason to doubt its accuracy. The company did not contribute to the inaccuracy of the diagram by its own conduct. That important fact distinguishes this case from Argy v Blunts & Lane Cove Real Estate Pty Ltd 26 FCR 112, where the purchaser was misled when, through the fault of a real estate agent, a document was not transmitted correctly by facsimile. Similarly, the present case is distinguishable for that reason from MacCormick v Nowland (1988) ATPR 40-852, where the misleading information supplied by the real estate agent was based on his own guesses (and cf Thompson v Mastertouch TV Service Pty Ltd (No 1) (1977) 29 FLR 270, where it was found that the misleading statement had been made recklessly).

[47]

Other allegations of misleading and deceptive conduct 172 There is no evidence that either Mr Spring or Mr Elder made any representations to the plaintiffs with respect to the location of the mean high water mark in relation to the swimming pool. On the other hand, there is evidence that Mr Elder warned Mr Butcher on 14 February 1997 that his proposal to move the swimming pool may encroach the high water mark. 173 Paragraph 19(a) of the statement of claim alleges that throughout the period from 1 February to 18 February 1997 the company failed to advise the plaintiffs that the brochure was inaccurate with respect to the location of the mean high water mark in relation to the swimming pool. I reject this contention. 174 Failure to advise is capable of constituting misleading or deceptive conduct, where the defendant remains intentionally silent ( Edgar v Farrow Mortgage Services Pty Ltd (1992) ATPR (Digest) 40-096), and where there is an obligation to make disclosure ( Rhone-Poulenc Agrochimie SA v Uim Chemical Services Pty Ltd (1986) ATPR (Digest) 46-010, at 53,047; Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) ATPR 40-850 at 49,153) . 175 Neither Mr Spring or Mr Elder was aware of any deficiency in Mr Hannagan's diagram until they were informed by Mr Butcher on 20 and 22 March 1997 that he had discovered a problem. In my opinion, Lachlan Elder Realty could reasonably be expected to rely upon the documents provided to them by Mr Harkins' solicitors, without any duty to undertake independent inquiries to verify information that was, on its face, reasonable to rely upon. There was nothing in the draft contract for sale and accompanying documentation to give rise to any cause for concern with respect to the mean high water mark. There was nothing in the information provided to the company which would imply the existence of any title by accretion, nor suggest any duty of inquiry on its part on that matter. 176 Moreover, if the company had undertaken inquiries by recourse to the records of the Council and the Department of Land and Water Conservation, nothing would have been discovered that would have demonstrated the inaccuracy of Mr Hannagan's survey diagram. While some records are inconsistent with the diagram, others (especially Mr Darlen's letter of 30 May 1985) support the view that the swimming pool was wholly located on the freehold land. The true position would have come to light (as, indeed, it did come to light) only by obtaining a fresh identification survey report. It cannot be contended, in my view, that Lachlan Elder Realty had any duty to commission a fresh survey or to advise potential purchasers to do so, given that the brochure warned readers to rely on their own inquiries.

[48]

Other aspects 177 Since my conclusion is that Lachlan Elder Realty did not engage in misleading or deceptive conduct in the matter alleged by the plaintiffs, it is unnecessary for me to deal with submissions on two matters that would arise if I had formed the contrary view. 178 The first is whether, on the evidence, the brochure could be said to have induced the plaintiffs to bid at the auction on 18 February 1997. Ms Radford gave evidence that she did not rely on the brochure, but the effect of the Butcher's evidence, when considered together with the evidence of Mr Gillmer and Mr Hindmarch, is that the brochure and in particular the diagram in the brochure was an important influence on his decision to bid. 179 By the time the auction was held, the plaintiffs' solicitors had a copy of the contract of sale and had explained its terms and conditions to them. That fact leads counsel for Lachlan Elder Realty to submit that if there was any reliance upon the Hannagan diagram by Mr Butcher, it must have been reliance on the full diagram and survey report annexed to the contract, rather than on the diagram which was part of the brochure. 180 Were it necessary do so, I would find against Lachlan Elder Realty on this point. While in many cases the misleading effect of a brochure can be cancelled by the submission of an accurate draft contract upon which the purchaser is advised, the question whether the misleading brochure induced the purchaser to bid must depend on an assessment of all of the facts. In this case the contract was made available only just before the auction, after Mr Butcher had made all his plans and had inspected the property with the assistance of experts. It is true that he did not investigate the proposal to move the swimming pool, which would have required the approval of the Council, but the proposal was clearly an important part of the attraction that the property held for him, and his development of the proposal relied specifically on the diagram in the brochure. 181 The second question is whether, if I had found that the company distributed a misleading brochure, I should find that it acted as Mr Harkins' agent so that, while Mr Harkins may have some liability, the company is not liable for misleading or deceptive conduct. It is clear that, in distributing the brochure and marketing the property, the company was acting as the agent of Mr Harkins. The information about the location of the mean high water mark was supplied by Mr Harkins and the company did no more than to pass that information on, making it clear by the wording of the 'disclaimer' that it was not the source of the information. In those circumstances it is probable, in my view, that the company would not have engaged in misleading conduct even if the content of the brochure had been misleading (contrary to my finding): Yorke v Ross Lucas Pty Ltd (1985) 158 CLR 661; Saints Gallery Pty Ltd v Plummer (1988) ALR 525; Lezam Pty Ltd v Seabridge Australia Ltd (1992) 35 FCR 535; cf Hornsby Building Information Centre (1978) 140 CLR 216.

[49]

Did Lachlan Elder Realty engage in misleading or deceptive conduct in the sale of the Calvert Parade property? 182 The statement of claim in the second proceeding alleges that the company represented to the plaintiffs that they could expect to sell the Calvert Parade property for $1.3 million at any time, to enable them to complete the sale of the Rednal Street property by the completion date of 18 August 1997. In fact, say the plaintiffs, there is a traditional downturn in the property market for properties like the Calvert Parade property, during the months of May, June and July, which the company should have but did not take into account. Because of that downturn, the plaintiffs say that they could not reasonably have expected to sell their property for $1.3 million unless they exchanged contracts prior to the end of April 1997. In fact the company did not inform the plaintiffs about the traditional downturn in the market until mid June 1997, when they also advised the plaintiffs that they could not expect the purchase price of more than $1.1 million. 183 In my opinion, the plaintiffs' allegations are not supported by the evidence. Several matters are significant. One is that on 12 February 1997, after he inspected the Calvert Parade property for the first time, Mr Spring completed a residential listing which stated that in his opinion the market value of the property was $1.2 million. He gave evidence, which I accept, that in forming that view he had regard to sales of other properties. Moreover, Mr Spring gave Mr Butcher a booklet showing the results of auctions for the previous five years, which gave Mr Butcher direct access to some of the information upon which his opinion was based. 184 Neither Mr Elder nor Mr Spring was a qualified valuer. Valuation evidence was given by licensed valuers for both sides - Mr O'Neill on behalf of the plaintiff and Mr Dundas on behalf of Lachlan Elder Realty. Mr O'Neill estimated that the Calvert Parade property had a value of $1.4 million on 17 June 1999. The estimate of Mr Dundas was that the Calvert Parade property had a value between $1.05 and $1.1 million as at 18 February 1997. If it were necessary for me to choose between the valuations (making some allowance for the fact that they are valuations at different dates), I would prefer the evidence of Mr Dundas to the evidence of Mr O'Neill, on the ground that the former seemed to have pursued a more thorough investigation and methodology. But it is unnecessary for me, in the view I take of the case, to reconcile the valuation opinions for the Calvert Parade property. Perhaps the more significant point to make about the valuations is that the figures are in a range from below the bottom end of the range given by Mr Elder and Mr Spring to above the top end of their range. That suggests that the estimates of Mr Elder and Mr Spring had a reasonable basis. 185 That conclusion is supported by other evidence which shows that, particularly in the volatile top end of the residential property market, the selling price sometimes exceeds the price estimate given by the agent and even the price desired by the owner. That suggests that a sale of the Calvert Parade property at significantly above Mr Dundas' valuation would be a practical possibility, especially having regard to the high standard of presentation of the property. 186 It is true that both Mr Spring and Mr Elder were enthusiastic about the presentation of the Calvert Parade, both giving an estimated range of $1.2 to $1.3 million and creating the impression of a real prospect that even more my be achieved. The agency agreement entered into between the plaintiffs and the company a few days after the auction on 18 February 1997 contained the statement that the agent's opinion as to the current reasonable selling price was $1.3 million. It is clear, however, that the figures given on behalf of the company in the agency agreement and orally were estimates rather than valuations. That was the evidence of Mr Marcolongo and Mr Abercrombie, and Mr Butcher conceded in evidence that the figure of $1.3 million was an 'indication' rather than a guarantee. 187 In my view, while there is some evidence that the specialised market in highly priced waterfront properties turned down in the winter months (especially during the school holidays), and some of the agents took their holidays at that time, the evidence as a whole does not show that there was a downturn of such significance that a vendor required to sell during those months would have to accept a discount to the price otherwise obtainable. Mr Elder's evidence, which I accept, is that the principal slowing down was caused by prospective vendors choosing not to list their properties in the winter months and especially during the school holidays. His evidence was that these factors did not affect the purchasers, only the amount of properties available. 188 Mr Elder informed Mr Butcher in mid-June 1997 that activity in the northern beaches market would slow down during the winter months, but he did not say that there may be a downturn in buyer interest during the months of May, June and July. 189 As to the allegation that the company continued until early June to represent that the Calvert Parade property could be sold for $1.3 million, it must be remembered that in April and May 1997 Mr Spring transmitted to Mr Butcher the offers of Mr Adams and Mr Elliott, which were rejected by Mr Butcher. Another offer was made by Mr Elliott in early June, also rejected, and Mr Shanahan's offer later in June was initially rejected as well. Although the evidence does not show that Mr Spring advised Mr Butcher to accept any of these offers, it implies that Mr Spring did not hold the opinion that the plaintiffs could except to sell the Calvert Parade property for $ 1.3 million at any time. The best offer was from Mr Adams at $1.175 million. Mr Spring did not categorically advise against acceptance, though it is true that his attitude was that it would be sensible to wait and see a better offer emerge. However it was Mr Butcher who decided to reject the offer. 190 It appears, with the benefit of hindsight, that the price estimates given by Mr Elder and Mr Spring in February 1997 were significantly over-optimistic. But, there was a reasonable basis for those estimates in the statistics of comparable sales, confirmed by the valuation evidence before the Court. In my opinion the estimates were given honestly. There is no substance to the allegation that the agents were aware that there would be a substantial downturn in the market in May, June and July. In those circumstances counsel for Lachlan Elder Realty submits that there is no evidence of misleading and deceptive conduct within the meaning of s 52 of the Trade Practices Act (citing Stanton v ANZ Banking Group Ltd (1987) ATPR 40-755 at 48,193; Sabre Corporation Pty Ltd v Laboratories Pharm-a-Care Pty Ltd (1995) ATPR 41-396). I agree. 191 I should say something more on the question of honesty. During the hearing I was somewhat concerned about the position of conflict of interest in which Lachlan Elder Realty was placed. They were acting for Mr Harkins with regard to the auction of the Rednal Street property. It was in their interest, so as to earn that commission, to encourage the plaintiffs to bid. When the plaintiffs made it clear that they would need to sell the Calvert Parade property and realise a certain price for it, in order to be able to afford to bid for the Rednal Street property, Mr Elder and Mr Spring no doubt saw the opportunity to earn another commission. Therefore, their self-interest strongly pointed towards giving a rosy estimate of the achievable purchase price for the Calvert Parade property, although they were aware that the plaintiffs were looking for more balanced advice and would rely on it. 192 After reviewing all of the evidence, however, I have concluded that these facts do not affect the outcome of this case. In the first place, their interest in earning commissions does not appear to have led Mr Elder and Mr Spring to give unreasonable or unjustifiable pricing advice. In the second place, Mr Butcher was well aware of Lachlan Elder Realty's interest in negotiating successful sales of both properties, and yet he chose to seek to rely upon the advice of Mr Elder and Mr Spring.

[50]

The plaintiffs' losses 193 In the statement of claim in the first proceeding the plaintiff seeks orders which would have the effect of requiring Mr Harkins to return the deposit of $200,000. In the second proceeding the plaintiff seeks to recover from Lachlan Elder Realty damages in the following categories: · interest on the deposit of $200,000; · agent's commission and advertising costs, and conveyancing costs in respect of the sale of the Calvert Parade property; · legal and valuation costs in respect of the first proceeding and some collateral proceedings; · reimbursement of rental, removal expenses and storage of personal effects incurred during the period until they acquired their property at Panima Street Newport; · loss of the value of the Calvert Parade property, on the basis of O'Neill's valuation of $1.4 million; · interest. 194 Included in the claim for reimbursement of rental expenses is a claim for rental of factory premises for the plaintiffs' carpet cleaning business, which they conduct through a company, the shares in which are held by them equally. They say that while they were living in the Calvert Parade property, they were able to conduct the company's business from that property, and the company did not pay rent to them personally. They say that their departure from the Calvert Parade property was caused by the misleading conduct of Lachlan Elder Realty, and therefore they claim the factory rental as damages. 195 As at 3 June 1998, when Mr Butcher swore an affidavit which annexed the relevant receipts, the plaintiffs' total claim for losses was $471,412.37. In the view I take of the matter, the plaintiffs are entitled to the return of the $200,000 deposit, but they are not entitled to recover damages from Lachlan Elder Realty. It is therefore unnecessary for me to make specific findings about the quantum of damages. 196 In case the matter goes further and I am shown to be wrong in my conclusions, I should make some observations on the question of damages. Mr Butcher has given evidence, which I accept, that but for his dealings with Mr Harkins and Lachlan Elder Realty, he would still own the Calvert Parade property. It seems to me that all of the categories of damage relied upon by the plaintiffs would be available against Lachlan Elder Realty if I had found that the company engaged in misleading or deceptive conduct. I include rental with respect to the factory premises, having regard to the facts to which I have briefly referred. Moreover, I accept the plaintiffs' evidence on defining the losses in the various categories. I was unimpressed by some oral evidence given by Mr Barden, who seems to have had a serious falling out with Mr Butcher, and I reject it, to the extent that it is inconsistent with the evidence of Mr Butcher.

Butcher v Harkins

At a glance

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Judgment (53 paragraphs)

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Legislation Cited (5)

Cases Cited (13)

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