106 In final submissions the plaintiffs accepted that the claim for damages should be reduced by $7,227 to the extent interest was recovered from the second defendant for dishonour of the first deposit cheque.
107 As noted earlier in these reasons the defendants argued that because Mr Coyne had agreed with Mr Farrell to share fifty per cent of any profit, only fifty per cent of the damages claimed could be allowed. That submission is without substance. The fact that the plaintiffs will have to account to Mr Farrell for a portion of the damages they receive does not affect their entitlement to damages.
108 The principal amounts in issue were the amounts claimed at items 2, 9, 10, 11, 12, 13 and 14 being costs incurred by the plaintiffs in pursuing an appeal to the Land and Environment Court. The filing fee was paid by cheque dated 7 May 2008. The appeal was filed on 19 May 2008. This was before the council had determined the development application. The appeal was filed on the basis that there had been a deemed refusal of the application. The costs in the Land and Environment Court were incurred whilst the contract was still on foot. The hearing had been completed before 2 October 2008. Mr Coyne gave evidence that the reason for pursuing the appeal was that "Mr Calabro's actions through the early part of the contract gave us some concern about his willingness to [complete] and we thought it was in all parties' best interests if we had a DA in the event we needed to have a subsequent sale".
109 In final submissions the plaintiffs argued that the costs of the Land and Environment Court appeal were consequential losses arising from the plaintiffs' attempts to mitigate their loss arising from Mrs Calabro's breach of contract in not providing the deposit in accordance with standard condition 2. I do not accept that. The costs of the appeal were not caused by Mrs Calabro's breach of contract in failing to pay the deposit, but by Mr Coyne's apprehension that the contract would be repudiated. The breach in failing to pay the deposit was remedied by the provision of the third cheque for the deposit on 15 August 2008. It is clear that the plaintiffs continued to incur expenses in connection with the Land and Environment Court appeal after that day. At that point there was a breach, but it had been remedied.
110 Had the plaintiffs elected to bring the contract to an end for Mrs Calabro's failure to pay the deposit, then it would be correct to say that the plaintiffs incurred the costs of the Land and Environment Court proceedings in an attempt to mitigate their loss so as to put themselves in the best position in order to market the property for further sale. Such costs would form part of damages for loss of bargain arising from termination of the contract. But damages for loss of bargain following a repudiation are only recoverable if the repudiation is accepted and the contract terminated (Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 260-261). As events proved the plaintiffs were correct in their assessment that Mrs Calabro might ultimately fail to complete. But they did not bring the contract to an end when the first two cheques for the deposit were not met. Rather, they insisted on the defendants continuing to perform the contract. The expenses they then incurred were not by way of mitigation of the effects of the only breach of contract which had then occurred. Nor did they arise from termination of the contract following Mrs Calabro's repudiation of it.
111 Most of the expenses connected with the appeal to the Land and Environment Court were incurred before Mrs Calabro repudiated the contract on 23 September 2008. The costs incurred after that date were incurred in carrying through the appeal which the plaintiffs had determined to do prior to Mrs Calabro's repudiation of the contract. In my view, the incurring of those costs was not caused by the defendant's breach. Sums totalling $76,321.68 claimed in items 2, 9, 10, 11, 12, 13 and 14 are not recoverable.
112 The other item of damages in dispute was the sum of $3,132.38 for conveyancing costs on the 2009 sale claimed in item 15. There was no issue that the costs were incurred on the conveyance and were properly incurred. The defendant argued that those costs would have been incurred in any event had the contract with Mrs Calabro proceeded.
113 Clearly the costs incurred on the 2009 sale would not have been incurred had Mrs Calabro completed the purchase. The plaintiffs did not claim as part of their damages the legal costs they incurred on the sale to Mrs Calabro. The plaintiffs correctly took the view that the costs incurred in the attempted sale to Mrs Calabro were not recoverable as they would have been incurred had the purchase been completed. The costs incurred in the 2009 conveyance was an additional expense which would not have been incurred had Mrs Calabro performed her contract.
114 The plaintiffs are entitled to recover as damages the sums totalling $922,598.62 claimed in items 1, 3-8 and 15-30.
115 The plaintiffs made two claims for interest in respect of the dishonour of the first and second deposit cheques. Both cheques were drawn by the second defendant. It is admitted on the pleadings that cheque numbers 1046 and 1047 contained directions by the second defendant to the National Australia Bank to pay the sum of $645,500 to the plaintiffs' solicitors, Comino Prassas, on behalf of the plaintiffs. The plaintiffs denied the claim to interest from 6 May 2008 until the third cheque was honoured on 20 August 2008 because the defendants say the plaintiffs were never entitled to the deposit. That submission was made on the basis that the defendants were entitled to avoid the contract for sale for misrepresentation. I have rejected that claim.
116 Section 76 of the Cheques Act 1986 (Cth) provides that where a cheque is dishonoured the holder may recover as damages from any person liable on the cheque the sum ordered to be paid by the cheque, and the amount of any interest that, in accordance with the regulations, is payable in respect of that sum.
117 Because the cheque was ultimately replaced by a cheque that was honoured, the plaintiffs do not claim from the second defendant the sum of $645,500 ordered to be paid by the cheque. The amount of interest calculated in accordance with the regulations is recoverable as liquidated damages pursuant to s 76(3). The parties agreed that the amount of interest calculated in accordance with the regulations from 7 May to 20 August 2008 was $14,454.
118 As noted earlier in these reasons, the plaintiffs accept that if these damages are recovered from the second defendant, her claim for damages against Mrs Calabro should be reduced by half of that sum, namely $7,227, to avoid double recovery. Had the contract been performed, the interest on the deposit would have been shared between the parties equally. If the judgment against the second defendant is satisfied, the plaintiffs must allow half of the sum recovered against their claim for damages against Mrs Calabro.
119 The plaintiffs also claim interest against Mrs Calabro in the sum of $18,569.17 being interest on the sum of $645,500 at the rate of ten per cent per annum for the period from 7 May to 20 August 2008. When the summons was filed on 16 May 2008 part of the relief sought was an order that Mrs Calabro pay the deposit of $645,500 due under the contract. The proceedings thus included a claim for the recovery of money and enlivened the power of the court to include interest in an amount for which judgment is given on the money then sought to be recovered. Such interest may be ordered even though the deposit was paid after the proceedings were commenced (Civil Procedure Act 2005 (NSW), s 100(2)). The rate of interest of ten per cent is based on the interest rates in schedule 5 to the Uniform Civil Procedure Rules.
120 I see no reason that the plaintiffs should not be entitled to recover interest under s 100 of the Civil Procedure Act, both on the damages to which they are entitled and on the amount of the deposit for the period from 7 May to 20 August 2008. They are not entitled to double recovery of interest on the deposit. They are entitled to the interest claimed of $14,454 from the second defendant and to interest of $18,569.17 from the first defendant. To the extent they recover those sums from either defendant, they are not entitled to recover from the other.
Other claims of Mrs Calabro
121 Mrs Calabro sought relief against forfeiture of the deposit. But the forfeited deposit is brought to account in assessing the difference between the original sale price and the ultimate sale price. If Mrs Calabro obtained relief against forfeiture of the deposit the damages would be increased by the amount of the deposit. She is not entitled to that relief.
122 Mrs Calabro's cross-claim against the vendors and Malouf Real Estate will be dismissed. An issue in the hearing was the value of the subject property at 6 May 2008. This was an issue on Mrs Calabro's cross-claim for damages against the vendors and Malouf Real Estate for misrepresentation and misleading and deceptive conduct if it were held that the claim was made out, but for some reason it did not justify rescission. The question of value also arose on Mrs Calabro's claim against Malouf Real Estate if she failed against the vendors and it were held she was entitled to damages for the difference between the sale price and the value of the land at the time of purchase. As Mrs Calabro failed on these claims, the valuation questions do not arise. The valuation evidence was also relevant to the claim that Mr Malouf represented that the subject property was worth at least $6 million and compared favourably with recent sales in Vaucluse above $6 million. Ultimately that claim was not pressed.
123 In case I am wrong in my conclusions and the valuation evidence becomes relevant I will briefly state my conclusions in respect of it. Three valuers gave evidence: Mr Field of National property Valuers NSW Pty Ltd, Mr Sukkar of Landmark White and Mr Bird of Kohler Bird. Mr Field had valued the property for the National Australia Bank on 29 August 2008. He assessed its then current market value to be $5 million. On 14 November 2008 he prepared a retrospective valuation as at 6 May 2008. He valued the property as at 6 May 2008 also at $5 million. Mr Sukkar and Mr Bird both valued the property as at 6 May 2008 at $6.25 million. All were agreed that there was a serious decline in value for prestige properties in Vaucluse in 2008, although they differed as to the timing of the drop in the market.
124 Mr Bird had considerably more experience than either Mr Field or Mr Sukkar. All valuers used a direct comparison method in arriving at their figures. The variance between Mr Field on the one hand and Messrs Sukkar and Bird on the other is well outside normal parameters. The differences are largely due to the properties each valuer chose as relevant comparable sales and the adjustments made in respect of such sales. Mr Field also said that a key point of difference was that, according to him, the market peaked at the end of 2007, was falling at the beginning of 2008, then plateaued, before falling sharply after August 2008 in response to the global financial crisis. The evidence did not indicate statistically significant sales in the relevant market, i.e., prestige properties in Vaucluse or nearby areas, from which such trends could be precisely drawn. Evidence was led of the media sale prices of properties in the eastern suburbs over the relevant periods, but the figures did not provide a basis for extrapolating prices in the relevant market.
125 Having heard the three valuers in conclave, I consider that Mr Bird was not only the most experienced valuer, but his evidence is the most reliable. He said, and I accept, that comparable sales were showing very strong results well into 2008.
126 I prefer Mr Bird's evidence to that of Mr Field. Mr Field was combative. His answers were not always responsive. Despite his protestations to the contrary, I consider that he was compromised by a perceived need to defend his valuation of August 2008. He was strikingly self-assured. He professed an exceptional memory. I found it difficult to accept his assertions that in 13 to 14 years of practice he had done some 10,000 valuations in the eastern suburbs, or his modified assertion that he had done or supervised 10,000 valuations. His curriculum vitae shows that for a substantial part of that time up to 1999 he was not valuing residential properties in the eastern suburbs. For the ten years up to 2009 valuing residential properties was one only of many aspects of his work. I thought Mr Field lacked impartiality.
127 Mr Field relied in part on the sale of the subject property in December 2007 to the vendors, but noted that the result was "considered favourable to the purchaser at the time". Mr Bird observed that no agent was involved in the sale, it did not reflect true arm's length market value, was below market value and was opportunistic compared to comparable sales in the same street and the immediate surrounds.
128 Mr Field referred to a property in Vaucluse Road which sold for $5.6 million in July 2008. I accept Mr Bird's analysis of that property as being of lesser appeal to the market, being on a small, steep block with limited yard.
129 Mr Field relied on a sale of a property in Wentworth Road, Vaucluse in March 2008 for $5.35 million. I accept Mr Bird's evidence, which was substantially confirmed by cross-examination of Mr Field, that despite a comparable prestige street location, the land had no views and was of significantly lower value.
130 Mr Field also relied on the next-door property purchased by the plaintiffs in March 2007 for $4 million. (The sale reflected land value only. The valuations of the subject property were also based on land value as it would be expected that any purchaser would demolish the existing building and rebuild.) The adjacent property was slightly larger than the subject property, but on an irregularly shaped block. It was not regarded as a relevant comparable sale by Mr Bird. He was not cross-examined on this. Cross-examination of Mr Field showed that there was only a limited harbour view from living areas of the building to be built on the adjacent property.
131 Mr Bird and Mr Sukkar provided evidence of comparable sales that supported their assessment of a market value for the subject property of $6.25 million.
132 An assessment of what sales are truly comparable and what adjustments shou+ld be made for timing, size of block, views, other aspects of position, and, where relevant, quality of the residence, involve subjective judgments. There was limited information on which to judge such comparisons. To a considerable degree, an assessment of each valuer's subjective judgment depends on an assessment of his experience, impartiality and reliability. I consider that Mr Bird is to be preferred in these respects.
133 For these reasons, I consider that the market value of the subject property on 6 May 2008 was $6.25 million. This also accords with Mr Calabro's evidence. He was a willing buyer. After the "contest" on 6 May 2008 he thought he had caused his wife to pay $180,000 too much for the property.
Cross-claim by Malouf Real Estate against the plaintiffs
134 Malouf Real Estate accepts that if the plaintiffs terminated the contract for sale of the property to Mrs Calabro, they are not entitled to commission. The only remaining question between Malouf Real Estate and the plaintiffs is its claim that the plaintiffs indemnify it in respect of its costs of the proceedings. That claim is made pursuant to clause 20 of the Agency Agreement set out at para [7] above. Malouf Real Estate was joined to the proceedings as a cross-defendant to a cross-claim brought by Mrs Calabro. The costs incurred by Malouf Real Estate in defending the claim brought by Mrs Calabro against it are costs against which it is entitled to be indemnified by the plaintiffs if the claim brought by Mrs Calabro was brought notwithstanding that Malouf Real Estate properly performed or exercised its powers, duties or authorities under the agreement. The plaintiffs submitted that Mrs Calabro's claim against Malouf Real Estate arose from the procedures adopted on 6 May 2008 whereby both prospective purchasers would be invited to make their best offer with a view to the vendors exchanging contracts with the potential purchaser who made the better offer. The plaintiffs submitted that the making of those arrangements was not part of the "powers, duties or authorities of the Agent under [the] agreement." If it were, the plaintiffs submitted that the claims against the Agent did not arise out of the proper performance of such powers, duties or authorities.
135 Clause 29 of the Agency Agreement contained an acknowledgment by the plaintiffs that they had been given a copy of a consumers guide entitled "Agency Agreements for the Sale of Residential Property". Neither that guide nor a document entitled "Marketing Action Plan" described the kind of process for extracting the best offers of prospective buyers that Mr Malouf arranged for 6 May 2008. The consumers guide to Agency Agreements stated that the Agency Agreement must state the services the agent would provide for the vendors. Clause 7 of the Agency Agreement stated that the sale of the property was to be advertised or otherwise promoted. Neither the Agency Agreement nor the marketing action plan referred to the type of closed envelope process suggested by Mr Malouf to Mr Calabro.
136 However, clause 1 of the Agency Agreement stated that the plaintiffs gave the agent the exclusive selling rights to the property for a specified period in consideration of the agent promising to use its best endeavours to sell the subject property. The procedure arranged by Mr Malouf for 6 May 2008 was the fruit of his best endeavour to sell the subject property for the best obtainable price. In arranging the procedures carried out on 6 May 2008 Mr Malouf was making those best endeavours. He was exercising the powers, duties or authorities of Malouf Real Estate under the agreement.
137 The plaintiffs also submitted that he did not properly exercise those powers, duties or authorities. Counsel for the plaintiffs submitted that the reason the matter proceeded to litigation was because Mr Calabro formed the view that he should have been told that the Mulhams had not provided a cheque for the deposit. Counsel submitted that Mr Malouf had not properly performed the powers, duties or authorities of the Agent under the agreement because he had changed the rules halfway through the process by allowing the procedure to go ahead when Mr Mulham had not provided a cheque for the deposit. I do not accept that submission. For the reasons given above at para [79] Mr Malouf was not obliged to tell Mr Calabro that the Mulhams had not provided a cheque. Nor was the omission of that information the reason for the institution of these proceedings. To the contrary, Mr Calabro caused his wife to affirm the contract after Mr Malouf had confirmed that the Mulhams had not provided a cheque for the deposit. The reason for Mr Calabro causing his wife to continue to defend the proceedings was that he learned that Mr Field had valued the property at only $5 million, that the plaintiffs had purchased the property for only $4.5 million only months before they sold it, and he learned of the special conditions which the Mulhams had attached to their contract.
138 In my view, Mr Malouf acted properly in carrying out his duty to his client to achieve the best price for the property. In so doing Malouf Real Estate was sued by Mrs Calabro. It is entitled to an indemnity under clause 20 of the Agency Agreement from the plaintiffs against the costs and expenses it incurred in defending that claim. The primary liability for those costs will fall on Mrs Calabro. But the plaintiffs are nonetheless liable to indemnify Malouf Real Estate in respect of the costs it has incurred on the indemnity basis.
Conclusions and orders
139 For these reasons I conclude that the plaintiffs are entitled to damages against the first defendant for the sum of $922,598.62. There is a question as to the time from which interest on those damages should run. The loss was not crystallised until the sale of the property in 2009. A number of the costs were incurred before that time including costs incurred in the attempted sale of the property in late 2008. On the other hand, the plaintiffs remained entitled to occupation of the property until the completion of the sale in 2009. The first defendant did not contend that the plaintiffs' damages should be reduced by the value of those rights of occupation. I conclude that interest should run on the sum of $909,500 (being the difference between the sale price to Mrs Calabro and the price achieved in 2009 less the deposit) from the time of completion of the sale in 2009. That reflects the fact that the plaintiff had the benefit of ownership of the property up to the completion of the sale in 2009. I have refused the claim for damages in items 2 and 9-14 of the schedule. Interest on the expenses in items 3-8 and 15-30 of the schedule of damages should run from the time those expenses were paid. Interest will be recoverable at the rates prescribed pursuant to schedule 5 to the Uniform Civil Procedure Rules.
140 In addition the plaintiffs are entitled to interest in the sum of $18,569.17 against the first defendant for the late payment of the deposit.
141 The plaintiffs are entitled to liquidated damages against the second defendant in the sum of $14,454 representing interest at the prescribed rates from 7 May to 20 August 2008 from the dishonour of the first cheque for the deposit. The plaintiffs are entitled to interest against the second defendant pursuant to s 100 of the Civil Procedure Act at the rates prescribed in Schedule 5 to the Uniform Civil Procedure Rules on the sum of $14,454 from 20 August 2008. To the extent the plaintiffs recover such damages and interest from the second defendant, their right to recover interest of $18,569.17 from the first defendant will abate. Likewise, the plaintiffs' claim for damages against the first defendant will abate to the extent of 50 per cent of the amount recovered from the second defendant.
142 The first cross-claim of Mrs Calabro against the plaintiffs will be dismissed. The second cross-claim of Mrs Calabro against Malouf Real Estate will be dismissed. The third cross-claim of the plaintiffs against Malouf Real Estate will be dismissed. The fourth cross-claim of Malouf Real Estate against the plaintiffs will be dismissed to the extent it claims commission. But Malouf Real Estate is entitled to an order that the plaintiffs indemnify it against the costs and expenses incurred by it in defence of the second cross-claim. If that indemnity is fully satisfied the plaintiffs will be subrogated to the right of Malouf Real Estate to recover its costs from Mrs Calabro.
143 I will hear the parties on costs. Prima facie, and subject to any offers of compromise, the position on costs is as follows. The plaintiffs are entitled to their costs of the proceedings against the first defendant on the ordinary basis from Mrs Calabro, and are entitled to their costs of their claim against the second defendant from it. Mrs Calabro will be liable to pay the plaintiffs' costs of the first cross-claim on the ordinary basis. Mrs Calabro will be liable to pay the costs of Malouf Real Estate of the second cross-claim on the ordinary basis. Malouf Real Estate will be entitled to its costs against the plaintiffs of the third cross-claim on the ordinary basis. Unless there is agreement, I will hear argument as to whether the plaintiffs should be indemnified by Mrs Calabro in respect of costs payable by the plaintiffs to Malouf Real Estate in respect of the third cross-claim. Malouf Real Estate will be entitled to its costs of the fourth cross-claim from the plaintiffs on the ordinary basis.
144 I direct that counsel for the plaintiffs and Malouf Real Estate bring in short minutes of order in accordance with these reasons at a time to be arranged. I will then hear any arguments on costs.