Hocking Stuart (Hawthorn) Pty Ltd v Vernea & Anor [2005] VSCA 129

3 This appeal raises the question as to the date as at which damages should be assessed for breach of contract by an estate agent which sold a property without the vendors' authority. The facts may be shortly stated.

4 The vendors and respondents to the appeal, John Vernea and Nadia Vernea, were sued in this proceeding by Andrea Maule ("the purchaser") who sought specific performance of a contract of sale made on 20 November 2001 under which they sold to her the property situate at and known as 4 Burne Court, Kew for $750,000. Settlement was due under the contract of sale on 31 January 2002. The contract of sale was said to have been entered into when the vendors' agent, Hocking Stuart (Hawthorn) Pty Ltd ("the agent"), obtained the signature of the purchaser to the form of contract of sale which had been previously executed by the vendors.

5 The vendors defended by asserting that on 20 November 2001 when the contract of sale was signed, the agent had no authority to conclude the transaction. There was also a third party claim brought by the vendors against the agent seeking damages for breach of the terms of its authority. The purchaser later joined the agent as defendant, seeking damages for breach of warranty of authority. On 8 May 2003, the proceeding between the vendors and the purchaser was settled on terms which included an acknowledgement that the contract of sale made on 20 November 2001 was binding and extending the date for settlement to 22 July 2003.

6 The issues between the vendors and the agent, therefore, went to trial in October 2003 and judgment was, on 19 December 2003, entered for the vendors against the agent in the sum of $242,300 plus $6,780 being damages by way of interest. By notice of appeal dated 3 January 2004, the agent appeals against so much of this judgment as represents the assessment of damages and interest.

7 The amount of damages awarded by the primary judge represented the difference between the contract price of $750,000 and the value of the property as at October 2003, the date of trial,[1] which value his Honour found to be $1M. From the difference of $250,000, his Honour deducted $7,700 for advertising expenses incurred by the agent.

8 The point at issue in this appeal is whether the damages should have been calculated by comparing the contract price of $750,000 with the value of the property as at the date of trial or with its value at some other date. On behalf of the agent, the following alternative dates and valuations were offered. First, the date of breach, 20 November 2001, or a date shortly after that date, on which date the value of the property was $775,000. Second, May 2003, being the date of the settlement of the purchaser's proceeding at which date the value was $900,000. Other dates which might be relevant for this purpose are 22 July 2003, the date of the settlement of the contract of sale and 19 December 2003, being the date of the judgment against the agent. In each case it is the date rather than the value which is presently in issue.

9 It was common ground that the guiding objective of an award of damages for breach of contract is to award the respondents an amount of money that will, as nearly as money can, put them in the same position as if the contract had been observed[2]. As a general rule, the assessment is undertaken as at the date of breach, although this rule is not universal;[3] the Court will depart from it whenever it is necessary to do so in the interests of justice.[4] Although we were referred to a number of authorities dealing with the circumstances in which the general rule was departed from, none of them was in point. In my view, the proper approach, in the circumstances, is to analyse the obligations between the parties and the breach and its consequences in the light of these principles.

10 In this case, the vendors, on 20 August 2001, executed an exclusive auction authority in writing in favour of the agent, authorising it to offer the property for sale by auction on 20 October 2001 and, if the property be not sold at auction, the authority should continue for a further period.[5] The property was passed in at auction for $660,000 and it remained on the market. The vendors were content that this should be so on the basis that they would sell for $850,000 if this could be obtained. Meantime, they retained another agent to obtain a tenant in the event that such a sale could not be achieved.

11 On 20 November 2001, the agent obtained the signature of the purchaser to this contract of sale after altering it, without authority, to provide for the payment of a preliminary deposit of $2000 with the balance due in 40 days and for payment of the balance upon settlement on 31 January 2002 or earlier by agreement. This was the document relied upon by the purchaser in her claim for specific performance and the document which was ultimately acknowledged to be binding upon the parties in the Deed of Settlement of 8 May 2003. His Honour found that on this date the vendors had revoked the authority of the agent so that its act in obtaining the signature was in breach of the contract between them. As at the date of breach, therefore, the vendors were faced with the real risk that they would be obliged to complete the contract of sale in accordance with its terms on 31 January 2002 and abandon their intention to let the property. So much was not challenged before this Court.

12 His Honour then characterised the period from that date up to May 2003 as a period in which the vendors sought to avoid this consequence by resisting the purchaser's claim for specific performance. The position of the agent on this matter was that the contract of sale was valid and binding and that the vendors should have completed it in January 2001.

13 As to assessment of damages, his Honour found that, at the date of breach, it was the intention of the vendors, known to the agent, that they did not wish to sell the property and that they wished to lease it. In fact the lease was submitted to the tenant about 12.45 pm on 20 November, some hours before the purchasers executed the contract of sale and was returned signed by the tenant at about 4.12 pm on the same day.

14 The primary submission put by counsel on behalf of the agent was that damages should be assessed on or shortly after the date of breach. This, it was put, is in accordance with the general rule. His Honour found that it was reasonable for the vendors to resist the claim of the purchaser for specific performance and so defer completion of the contract until at least May 2003. He gave two reasons for this: first, that it could not be presumed that the purchaser would persist to judgment; and, second, the vendors could not be certain what the agent had done. Accordingly, it was not until the May 2003 settlement that the property was lost to them.

15 His Honour's finding that the vendors acted reasonably in refusing to complete the contract of sale procured by the agent and in maintaining this position until May 2003 was challenged by counsel for the agent. It was put that the two reasons offered by the trial judge could not be sustained. Counsel for the vendors submitted that this challenge was not set out in the notice of appeal and that, in any event, this was not put to their client in cross-examination at trial. It is, of course, correct that the claimant, in this case the vendors, bears the evidentiary and ultimate onus of proving their loss and damage. Upon appeal, however, the appellant must satisfy the Court that the finding of fact is vitiated by error. The first reason offered by his Honour was a plausible one. It may well be that the purchaser of a residential property would not be prepared to await many months until trial and judgment before taking possession. The second reason was sought to be justified by counsel for the vendors undertaking a recitation of many suggested acts of misconduct and duplicity on the part of the agent. To the extent that these matters were not the subject of specific findings by his Honour it is not possible for this Court to undertake this task. The transcript of the evidence at trial which was included in the appeal book did not include that of the agent's witnesses nor was there before us any pleadings between the purchaser and the vendors or any other material which might point us to the conclusion that it was reasonable at any particular time before 8 May 2003 for the vendor to conclude that their case against the purchaser was hopeless. In the circumstances, I would not be minded to revisit his Honour's conclusion that the vendors acted reasonably in resisting the claim of the purchaser until at least that date.

16 The position, then, is that, following the wrongful act of the agent in having the purchaser execute the contract of sale, the vendors were faced with an assertion that their property had been sold and that they were obliged to give possession notwithstanding any arrangement made with the prospective tenant. Had they accepted at this time the validity of the contract of sale they would have recovered from the purchaser $750,000, or thereabouts, and from the agent damages in the sum of about $25,000 on the basis that the property was then worth $775,000. This was at a time when they had made it clear to the agent that they would not sell for less than $850,000. I add immediately that this expectation may have been unrealistic as there is no evidence of the existence of a prospective purchaser at that price. The significance of their intention is that, had there been no breach of contract, they would not have sold the property for $775,000; they would have retained it and let it to a tenant.

17 It is necessary to note that the property at Burne Court had been purchased by the vendors in early 1994 as their home. Between that date and March 2001, the date they moved from the property, and afterwards, they had carried out extensive refurbishment and renovation works such that his Honour found that it was not worth their while to sell for less than $850,000 and that their circumstances were such that they were under no pressure to sell at all.

18 I conclude from this that the general rule that damages be assessed as at the date of breach would not do justice to the claim of the vendors. They were entitled to resist the purchaser's claim until it was clear that the property was lost to them. Accordingly, it is appropriate that the date for the assessment of damages be deferred until that time.[6] Before us it was not contended that, in such an event, the date for assessment should be earlier than 8 May 2003; the issue is whether the damages should be assessed as at the date of trial.

19 The submissions put to the trial judge were predicated on the fact that the vendors, having accepted the loss of the property in May 2003, might then have gone into the market and purchased a replacement for it. The measure of their loss was, then, the difference between the cost of their so doing compared with the proceeds of sale under the settlement. On behalf of the vendors it was put, and accepted by his Honour, that this task was rendered difficult by two factors. The first was the difficulty of finding a comparable property and, second, the fact that the cost of a comparable property in May 2003 would be about $900,000 plus transaction costs against which they were to receive from the purchaser in July 2003 only $750,000, or thereabouts. It would be unreasonable to expect them to outlay a further sum of over $150,000 for the purpose. Accordingly, the argument went, the time for valuation should be as at the date of trial.

20 In order to assess this submission it is necessary to return to the fundamental objective of an award of damages. Let it be assumed that the agent had performed its contract with the vendors. Then they would have had the property in 2001 and thereafter, subject to any decision to sell it. As things turned out, in May 2003, they accepted that the property was lost to them and that they should receive the price of $750,000. In order to put them in the supposed position that the contract had not been breached, it may be assumed either that they would go into the market with their $750,000 to purchase an equivalent property or that they would have accepted the loss and retained the purchase price. In the first case their loss is the difference between the cost of the replacement property and the sum of $750,000 received by them. In the second, it is the difference between the value of the property lost and the sum of $750,000 received. In principle, the loss in each case would be the same because the case presented was that the cost of purchasing an equivalent property was equal to the value of the property lost. The only difference would arise because, in the first case, it would be necessary to allow a reasonable time for the vendors to find a replacement property and, further, to take into account the transaction costs of the purchase.

21 His Honour found as a fact that the intention of the vendors was to retain the property. This finding is consistent with his further finding that they would have sold for $850,000 in November 2001 because no such offer was then available. It may be supposed that, as the market moved after that date, so too would they have adjusted their asking price. In these circumstances, an award of damages should be predicated on the first hypothesis - that the vendors in May 2003, armed with the expectation that they would receive the balance of the contract price of $750,000 on 27 July 2003, would have gone into the market to purchase a replacement property. The valuation evidence accepted by the trial judge shows that the cost of such a purchase would have been $900,000 in April 2003 and $1M in October 2003. There is, in my opinion, no justification for postponing the assessment to the date of trial.

22 Neither of these figures quite meets the scenario which I consider appropriate, namely the purchase of an equivalent property a reasonable time after 8 May 2003. There is, moreover, no evidence which would enable this Court to determine what is a reasonable time or what the price might be at that time. The only evidence which bears upon this are the two charts tendered through the vendors' valuer, Mr Welsh. These show that the median house price in Kew in December 2000 was about $470,000 and that in June 2003 it was $798,000.

23 The principal transaction cost in any event would be stamp duty which , we were told, would have been $49,500 on a sale of $900,000 in April 2003.

24 In these circumstances, notwithstanding that I consider that his Honour fell into error in assessing the damages as at the date of trial, I would not disturb his award of damages. Given the sales trends disclosed in the evidence, the probability is that the price of a replacement property in June 2003 would have been in the order of $950,000. This amount, plus transaction costs would mean that the vendors would have required about $1M to make the purchase. Accordingly, the appeal should be dismissed.

[1] The trial commenced on 17 October 2003 and concluded on 28 October 2003.

[2] Wenham v Ella (1972) 127 CLR at 454; Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 at 355, per Mason CJ.

[3] Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 at 355, per Mason CJ.

[4] Johnson v Agnew [1980] AC 367 at 400-1, per Lord Wilberforce; Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 at 356, per Mason CJ.

[5] There was controversy between the parties as to this period, but no finding was made by the trial judge.

[6] Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 at 360, per Mason CJ.