Pedersen v Larcombe & Anor

Barnes v Addy (1874) 9 Ch App 244 CASES CITED : - Chan v Zacharia (1984) 154 CLR 178 - Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 - Maguire v Makaronis (1997) 188 CLR 449

Melville Roy Pedersen (Plaintiff) PARTIES : Markus Edward Larcombe (First Defendant) Varinya Pty Ltd (Second Defendant)

COUNSEL : K.J. Ryan (Plaintiff) M.A. Bradford (Defendants)

SOLICITORS : Symons Cottee (Plaintiff) Booth Brown Samuels & Olney (Defendants)

1 In 1991 the Plaintiff, Mr Pedersen, inherited a property in Pine Street, Manly ("the Property"), from his mother. It is a two-storey duplex, comprising two self-contained flats. Mr Pedersen's mother had rented out the flats for many years and, after her death, Mr Pedersen continued to do so. In 1999, he engaged the First Defendant, Mr Larcombe, a licensed real estate agent, as managing agent for the Property. 2 In January 2006 Mr Larcombe, then an employee of L.J. Hooker Manly, suggested to Mr Pedersen the possibility of selling the Property. Mr Pedersen was then eighty-five years of age, very hard of hearing, and in ill health. 3 Mr Pedersen decided that he wanted to sell the Property for the best price obtainable. He engaged Mr Larcombe. There is a dispute as to the scope of the engagement. Mr Larcombe made enquiries of two developers as to whether they were willing to purchase the Property. One of them made an offer of $800,000, the other offered $850,000. 4 Mr Larcombe did not advertise the Property for sale nor did he market it in the usual way. In March 2006, he offered to purchase it for $900,000, less the commission which he would have received had he sold the Property to a third party. Mr Pedersen agreed. 5 On 20 April 2006, Mr Pedersen entered into a contract to sell the Property to the Second Defendant, Varinya Pty Ltd, a company controlled by Mr Larcombe, for the sum of $880,200. The contract was completed on 1 June 2006. Varinya rented the Property out for a short time, put it back on the market in April 2007 and, on 10 May 2007, granted an option to a third party to purchase it for $1.935M. The option was exercised and that sale was completed on 13 July 2007. In short, in the space of a year Varinya had bought and sold the Property for a profit of about $1M, i.e. about 120%. 6 Mr Pedersen found out about the sale of the Property by Varinya and commenced these proceedings in October 2007.

7 By his Statement of Claim, Mr Pedersen alleges that:

he engaged Mr Larcombe to make enquiries as to the existence of prospective purchasers for the Property;

Mr Larcombe advised that the Property was worth about $900,000;

in advising Mr Pedersen as to the value of the Property, Mr Larcombe was under a fiduciary duty:

not to place himself in a position of conflict of interest and duty;

failed to advise Mr Pedersen properly as to the true market value of the Property;

failed to recommend a proper marketing strategy, including an advertising campaign, so as to attract prospective purchasers;

purchased the Property through Varinya at a price which was less than its then current market value, i.e. about $1.5M;

preferred his own interest and that of Varinya to the interest of Mr Pedersen. 8 Mr Pedersen claims:

an order that Varinya, as a knowing participant in Mr Larcombe's breach of fiduciary duty, account to him for the profit derived by it from the sale of the Property for $1,935,000;

in the alternative, equitable compensation against Mr Larcombe for breach of fiduciary duty, being the difference between the market value of the Property at the time of sale to Varinya ($1.5M) and the sale price to Varinya ($880,200), i.e. $619,800;

in the alternative, equitable compensation against Varinya for knowing participation in Mr Larcombe's breach of fiduciary duty, in the amount of $619,800. 9 In the alternative, Mr Pedersen alleges that:

Mr Larcombe represented to him in January, March and April 2006 that the market value of the Property was around $900,000;

the representation was misleading and deceptive or was made without reasonable grounds, in breach of s 42 Fair Trading Act 1987 (NSW);

Mr Pedersen relied upon the representation in selling the Property to Varinya at a price which was $619,800 below its market value. 10 Mr Pedersen claims damages against Mr Larcombe under s 68 Fair Trading Act . 11 In the alternative, if it is found that Varinya, not Mr Larcombe, made the representation, Mr Pedersen claims damages against Varinya for breach of s 52 Trade Practices Act 1974 (Cth) in sum of $619,800. 12 By his Defence, Mr Larcombe says that:

Mr Pedersen did not engage him to make enquiries as to the existence of prospective purchasers for the Property but, rather, requested him "to make contact with some developers to ascertain what they would pay for the Property" ;

Mr Larcombe carried out that request and advised that only one developer was prepared to buy the Property and that developer offered $850,000;

Mr Pedersen did not engage Mr Larcombe to market the Property in the ordinary way and Mr Larcombe was under no duty to do so;

prior to the exchange of contracts Mr Pedersen signed a consent form under s 49 Property, Stock and Business Agents Act 2002 (NSW) and obtained independent legal advice about the sale to Varinya before proceeding with it;

if the Property was sold to Varinya at a price less than the then market value (which Mr Larcombe denies) Mr Pedersen knew and accepted that fact prior to exchange of contracts with Varinya, whereby no breach of fiduciary duty can arise;

the market value of the Property at the time of sale to Varinya was about $960,000, so that in any event Mr Pedersen has suffered no loss by reason of the sale to Varinya. 13 The issues may be summarised thus:

what, if any, fiduciary duty did Mr Larcombe incur as a result of that engagement;

did Mr Larcombe breach his fiduciary duty or did Mr Pedersen give knowing consent to what Mr Larcombe did;

what was the market value of the Property at the time of sale to Varinya;

did Mr Larcombe misrepresent to Mr Pedersen the market value of the Property.

The significance of credit and similar prior conduct

14 There is no selling agency agreement in writing between Mr Pedersen and Mr Larcombe, or with L.J. Hooker Manly, the real estate agency firm of which Mr Larcombe was an employee. Mr Pedersen says that Mr Larcombe never suggested that he sign one. Mr Larcombe denies that assertion and says that Mr Pedersen declined to sign an agency agreement when Mr Larcombe suggested it. 15 There was no file relating to the sale of the Property opened by Mr Larcombe or L.J. Hooker Manly. Indeed, the principals of L.J. Hooker Manly, Mr Vicq and Mr Reynhout, were not told by Mr Larcombe that he was engaged in any way in the sale of the Property. 16 The only direct evidence as to the terms of Mr Larcombe's engagement is that of Mr and Mrs Pedersen and Mr Larcombe. That evidence is founded on their recollection of discussions. There are few contemporaneous documents which assist. Accordingly, the credit and reliability of recollection of the three principal witnesses is critical to a determination of the factual issues. 17 I refer to this aspect of the case at the outset to explain the significance of evidence tendered by the Plaintiff as to Mr Larcombe's dealings with two other persons, Ms Gledhill and Mr Alle. I admitted the evidence under s.97 of the Evidence Act 1995 (NSW). 18 Mr K. Ryan of Counsel, who appears for Mr Pedersen, submitted that Mr Larcombe had taken advantage of Mr Pedersen's age and infirmity and of the position of trust in which Mr Larcombe was placed as managing agent and agent for sale. Mr Ryan submitted that Mr Larcombe's dealings with Ms Gledhill and Mr Alle showed a pattern of behaviour, particularly as to what was said or not said by Mr Larcombe in order to induce them to sell the properties to him. If that evidence were admitted and accepted, Mr Ryan said, it would support Mr Pedersen's account of what Mr Larcombe had said to him. 19 Mr Bradford of Counsel, who appears for Mr Larcombe, opposed admission of the evidence on the ground that it was irrelevant, i.e. that it had no probative value, and that Mr Larcombe had been given inadequate notice of the proposed tender of the affidavits of Ms Gledhill and Mr Alle. 20 For the purpose of determining their admissibility, I examined the affidavits, with some initial scepticism. One transaction was some six years prior, and the other some three years prior, to the transaction with Mr Pedersen. However, there was sufficient similarity in the alleged facts of all transactions to found a submission that they disclosed a pattern of behaviour on Mr Larcombe's part, through Varinya, in purchasing property from elderly people for whom he had been managing agent for some time, without testing the market in the usual way by advertising or a marketing campaign, and then selling it a short time later at a considerable profit. I determined that the evidence had probative value, bearing upon what Mr Larcombe had done in his dealings with Mr Pedersen. 21 The affidavits of Mr Gledhill and Mr Alle had been provided to Mr Larcombe's solicitors a week before they were tendered. They complied with the requirements of Reg 5 of the Evidence Regulation 2005 (NSW). Mr Pedersen's solicitor gave a satisfactory explanation as to why the affidavits had not been served earlier, in compliance with the Court's directions. He said, and I accepted, that the evidence of Ms Gledhill and Mr Alle had come to light only very recently. 22 Mr Bradford said that he would have difficulty dealing with the "tendency evidence" at such short notice. I directed that the evidence of Ms Gledhill and Mr Alle be deferred until towards the end of the trial, which was listed for five days. I was satisfied that Mr Larcombe would then have had reasonable notice of the evidence, for the purposes of s 97(1)(a) of the Evidence Act . In the event, Mr Larcombe responded in detail to the evidence of Ms Gledhill and Mr Alle in an affidavit sworn on 29 September 2008. The evidence of Ms Gledhill and Mr Alle was taken and they were cross examined by Mr Bradford. 23 In case I am wrong in admitting the "tendency evidence", I will form a conclusion as to the disputed facts of the case without referring to or relying upon the "tendency evidence", in the first instance. I will then examine the tendency evidence to see how it bears upon the conclusion which I have reached.

24 As I have recounted, Mr Pedersen was eighty-five years of age at the time of the sale of the Property in 2006. He is, and was then, in poor health, suffering considerable pain, loss of mobility, loss of sleep, and loss of concentration. His hearing is, and was then, considerably impaired. I accept his evidence, and that of Mrs Pedersen and his son, Robert, that Mr Pedersen found it very difficult to deal with discussions of any length or complexity. In particular, I accept the evidence of Mrs Pedersen that throughout his dealings with Mr Larcombe in 2006, Mr Pedersen was ill and in considerable pain and was easily upset by any difficulty in the transaction. 25 Mr Pedersen says that he and Mrs Pedersen went to see Mr Larcombe in the L.J. Hooker Manly office in January 2006. There were some questions about maintenance of the Property. During that discussion, Mr Pedersen says, Mr Larcombe asked him if he wanted to sell the Property. Mr Pedersen said that he had not thought about it but asked what price he could get. Mr Larcombe said that he should get $900,000. Mr Larcombe then said that he could approach some developers to confirm that value. Mr Pedersen went home and worked out that, if the market value of the Property was $900,000, the rental return he was getting on the Property was too low. 26 Mr Pedersen says that shortly afterwards he and his wife returned to the L.J. Hooker office and saw Mr Larcombe. Mr Pedersen told Mr Larcombe that he was prepared to sell the Property for $900,000 and asked Mr Larcombe to put it on the market for sale. Mr Pedersen says that he expected that Mr Larcombe would advertise the Property for sale in the normal way. He says that Mr Larcombe did not ask him to sign an agency agreement with L.J. Hooker nor did he discuss advertising or marketing strategy. 27 Mrs Pedersen's evidence corroborates Mr Pedersen's evidence. Indeed, if anything, her evidence is more precise and she has a clearer recollection of events. Mrs Pedersen says that she particularly remembers that at the first meeting in the L.J. Hooker office, Mr Larcombe, having suggested $900,000 as the market value of the Property, looked down at the floor and, as if talking to himself, said that he would check the price with some developers. Mrs Pedersen confirms that at the second meeting Mr Pedersen asked Mr Larcombe to put the Property on the market for sale and that nothing was said at either meeting about an agency agreement or an advertising strategy. She says that she expected that Mr Larcombe would advertise the Property for sale in the normal way: T 125.28-126.39. The clear inference from the evidence of Mr and Mrs Pedersen, if it is accepted, is that Mr Pedersen did not ask Mr Larcombe just to find a buyer at $900,000 but, rather, to find a buyer at the best possible price. 28 Mr Larcombe gives a very different account. He says that there was only one meeting, not two, in January 2006 at L.J. Hooker's office. Mr Larcombe says that he drew attention to problems with maintenance of the Property, particularly the presence of a large camphor laurel tree which, Mr Larcombe, told Mr Pedersen, was causing concern to the neighbours. Mr Larcombe asked Mr Pedersen if he wanted to sell the Property. Mr Pedersen said that he would consider it. Knowing that Mr Pedersen was "an experienced property dealer" who had entered into a "sophisticated arrangement" for the commercial development of a property at Stanmore, Mr Larcombe asked if Mr Pedersen would like him to work out what he thought a developer would pay for the Property. 29 In his affidavit of 30 May 2008, Mr Larcombe says that he then told Mr Pedersen that he thought a developer would pay around $800,000 for the Property, and asked whether Mr Pedersen would like him to contact a number of developers to get a better idea of the price they would pay. Mr Pedersen agreed. Mr Larcombe suggested that "alternatively, you could sign an agency agreement and we could advertise it" . Mr Pedersen said: "No, just see what happens from here, give me an idea what they would pay" . 30 In his oral evidence in chief, Mr Larcombe gave a different version of this evidence. He said that he had not given any estimate of the market price of the Property at his meeting with Mr and Mrs Pedersen in the L.J. Hooker office; rather, he had gone back to his office after the meeting, worked out some figures and telephoned Mr Pedersen a day or so later. In that telephone conversation, he gave Mr Pedersen a figure "around about the 800 to 900 (i.e. dollars)" . It was in that telephone conversation that he suggested that Mr Pedersen sign an agency agreement and work out advertising schedules and other details. Mr Pedersen responded: "No, just leave it, just see what you can do for me for the time being and get back to me" . 31 It is significant that in his affidavit Mr Larcombe says that he never at any time told Mr Pedersen that he thought that the Property was worth about $900,000, yet in his oral evidence he says that he gave the figure "about the 800 to 900" . It is significant that his affidavit evidence did not refer to the telephone conversation which he recounted in his oral evidence. 32 It is significant, also, that Mr Larcombe was at pains to emphasise in his affidavit that he formed the impression the Mr Pedersen "was an experienced and astute investor and dealer in real estate" , and that shortly before 2006 Mr Pedersen had engaged in a "sophisticated arrangement" with a developer for the development of a block of units at Stanmore. Clearly, this evidence was given for the purpose of demonstrating that Mr Pedersen, far from being vulnerable at the hands of Mr Larcombe, was thoroughly experienced in real estate dealings, was able to take care of himself, and had directed Mr Larcombe to pursue enquiries with developers rather than simply relying upon him to find a buyer for the Property at the best price. 33 The picture which Mr Larcombe endeavoured to paint of Mr Pedersen was far from the truth, as Mr Larcombe must have known. The so-called "sophisticated arrangement" with a developer in respect of a block of units at Stanmore had been a straightforward agreement, supervised on behalf of Mr Pedersen by one of his sons, Robert, an experienced financial adviser. The agreement was that a developer would, at its own cost, renovate a small block of units which Mr Pedersen had inherited, sell the units on behalf of Mr Pedersen as vendor and pay a percentage of the profits to Mr Pedersen. Robert's unchallenged evidence was that his father was at that time so ill and confused that he did not have a real understanding of the transaction. 34 Mr Larcombe managed only two rental properties for Mr Pedersen, the Property and another unit at Manly. There was no evidence of extensive property dealings, or share trading, or frequent commercial transactions on the part of Mr Pedersen which could have led a reasonable person to conclude - particularly in view of Mr Pedersen's age and infirmity - that in January 2006 Mr Pedersen was "an experienced and astute investor and dealer in real estate" . Mr Larcombe's endeavour to maintain this characterisation of Mr Pedersen throughout the trial reflects adversely on Mr Larcombe's credit. 35 Mr Larcombe endeavoured to suggest that Mr Pedersen was anxious to sell the Property in January 2006 because he did not wish to be bothered with the problems which a camphor laurel tree on the Property was causing neighbours. I accept the evidence of Mr Pedersen's son, Brad, and Mrs Pedersen, supported by contemporaneous correspondence, that the problem with the camphor laurel tree had been resolved in 2003, well before the discussions in January 2006. However, it is quite possible that in January 2006 Mr Larcombe raised the spectre of further problems with a camphor laurel tree in order to facilitate the suggestion that Mr Pedersen should sell the Property so as to avoid any further worries about its management and maintenance. 36 I do not regard Mr Larcombe as a witness whose credit may be accepted unless it is corroborated by other reliable evidence or is inherently probable. I have formed that view having regard to Mr Larcombe's evidence as a whole. I have already referred to several unsatisfactory aspects of his evidence and I will draw attention to other unsatisfactory aspects as I progress through the narrative of events. 37 I accept the evidence of Mr and Mrs Pedersen as to what was said in their discussions with Mr Larcombe in January 2006. Their evidence is clear, consistent and inherently probable. I was particularly impressed with the evidence of Mrs Pedersen who was firm and unshaken in her recollection of what was said in the January meetings by Mr Larcombe. Mr Pedersen, because of his difficulty in hearing and his general infirmity, was less precise in his evidence but equally convincing. 38 I accept that Mr Larcombe mentioned the figure of $900,000 in the first meeting and referred to "developers" only as a means of confirming whether that figure was in the vicinity of the right market price. Once Mr Pedersen had decided to sell the Property, it is inherently likely that he would want the best price for it, regardless of whether that price was paid by a developer or a residential purchaser. I reject Mr Larcombe's suggestion that Mr Pedersen was interested only in selling to a developer because he was an "experienced and astute investor and dealer in real estate" . 39 I reject the suggestion that, because Mr Pedersen was interested only in selling to a developer, he did not want to sign an agency agreement. It is inherently probable that, because Mr Pedersen wanted to obtain the best price for the Property, he would want to test the market in the usual way, i.e. by advertising in accordance with a marketing strategy, which would necessitate an agency agreement. 40 I reject Mr Larcombe's suggestion that Mr Pedersen did not want to sign an agency agreement because he was "very frugal" (Mr Larcombe's affidavit, 30 May 2008, para 7) and wished to save money on advertising. Mr Pedersen acceded without demur to Mr Larcombe's later suggestion that the purchase price of $900,000 which Mr Larcombe offered for the Property be reduced by the agent's commission which Mr Pedersen would have had to pay had Mr Larcombe sold the Property to a third party pursuant to an agency agreement. Mr Pedersen agreed to this suggestion even though there was no agency agreement and even though Mr Larcombe had carried out no advertising of the Property and had done nothing at all in the way of normal marketing. This ready compliance by Mr Pedersen with Mr Larcombe's suggestion indicates that he was the very opposite of a frugal, astute and experienced property dealer. 41 I find, as alleged in paragraph 5.1 of the Statement of Claim, that in January 2006 Mr Larcombe undertook to Mr Pedersen to ascertain the existence of any prospective purchasers for the Property. The scope of the undertaking included communicating to Mr Pedersen any offers received from prospective purchasers found by Mr Larcombe. I reject Mr Larcombe's assertion in his Defence that the engagement was merely to "contact some developers and ascertain what they would pay for the Property" . 42 I find that there was no written agency agreement entered into because Mr Larcombe himself did not require, or even suggest, such an agreement. However, I infer that it was understood and accepted by Mr Pedersen and Mr Larcombe that if Mr Larcombe found a purchaser for the Property at a price which Mr Pedersen was willing to accept, Mr Larcombe would be paid the usual selling agent's commission. That is why Mr Pedersen agreed to deduct the selling commission from the price which Mr Larcombe offered for the Property. 43 I find that there was no restriction placed by Mr Pedersen on the means by which Mr Larcombe was to ascertain prospective purchasers for the Property. I accept that Mr Pedersen expected that the Property would be advertised and marketed in the usual way, and I find that he would have had no objection to paying for advertising and marketing expenses incurred. 44 The facts so far found would result in the conclusion that Mr Larcombe himself was engaged by Mr Pedersen as an agent for sale of the Property. However, Mr Larcombe was an employee of L.J. Hooker Manly. Mr and Mrs Pedersen went to see Mr Larcombe twice in the offices of L.J. Hooker Manly. If they had thought about the matter - and they did not, trusting Mr Larcombe and leaving matters entirely to him - they would have expected to sign an agency agreement with L.J. Hooker Manly. For reasons which I will explain in the course of the following analysis of evidence, I infer that Mr Larcombe did not request Mr Pedersen to sign an agency agreement with L.J. Hooker Manly because, even in January 2006, he never intended to disclose to the principals of the firm that the Property was for sale on the open market; he had already formed the desire to acquire the Property for himself, through Varinya, if he could. 45 Mr Larcombe does not plead by his Defence that whatever he did in his dealings with Mr Pedersen he did pursuant to some engagement or contract between Mr Pedersen and L.J. Hooker Manly, and only in his capacity as an employee or agent of that firm. He admits (Defence, para 3) that he was "consulted" in his own capacity. In these circumstances Mr Larcombe does not, and could not, contend that even if he undertook to find and introduce purchasers for the Property to Mr Pedersen, he himself was not thereby brought into a direct relationship of agency with Mr Pedersen. His relationship of agency with Mr Pedersen is not diminished by the fact that it was undertaken by Mr Larcombe in breach of his fiduciary duties to his employer. 46 I find that Mr Larcombe undertook for reward to find and communicate to Mr Pedersen offers for the purchase of the Property at the best possible price and that Mr Larcombe thereby constituted himself an agent of Mr Pedersen for the sale of the Property.

47 There is no dispute as to the applicable principles of law in the present case. 48 If Mr Larcombe entered into a relationship of agency with Mr Pedersen for the sale of the Property which was unqualified by any special limitation, he thereby accepted a fiduciary position which imposed upon him a duty of loyalty, i.e. a duty to act in the best interests of Mr Pedersen in carrying out the agency. Correspondingly, Mr Larcombe could not, in carrying out his agency, place himself in a position in which his personal interest conflicted with his duty to advance the interests of Mr Pedersen. He could not even place himself in a position in which there was a significant potential for such a conflict. 49 If Mr Larcombe, or his alter ego, Varinya, has received a benefit or gain as a breach of his duty of loyalty then Mr Larcombe or Varinya must account for that benefit or gain to Mr Pedersen. Mr Larcombe and Varinya may escape liability for what otherwise would be a breach of fiduciary duty only if Mr Larcombe made full disclosure to Mr Pedersen of all relevant circumstances constituting the breach, and Mr Pedersen freely gave consent: see generally Chan v Zacharia (1984) 154 CLR 178, at 198ff; Maguire v Makaronis (1997) 188 CLR 449, at 466. 50 In the present case, I have found that Mr Pedersen did not instruct Mr Larcombe that the Property should not be advertised or marketed, nor did he limit Mr Larcombe's role to making enquiries from developers. Mr Pedersen engaged Mr Larcombe to find purchasers for the Property at the best possible price. That engagement required Mr Larcombe to undertake those activities which were best calculated to attract the interest of prospective purchasers, subject, of course, to Mr Pedersen agreeing to meet the expenses. As I have noted above, I find that Mr Pedersen would have met any reasonable advertising and marketing expenses, if he had been asked to do so.

51 Mr Larcombe admits that he did not suggest to Mr Pedersen an advertising or marketing campaign for the Property. He says - but I do not accept - that Mr Pedersen expressly said that he did not want any such advertising or marketing. 52 Mr Larcombe did not place any advertisement for sale of the Property in any newspaper or on the internet. He did not place a "For Sale" sign on the Property. He did not even place a notice of the sale in the office window of L.J. Hooker Manly - an "advertisement" which would have cost nothing. He did not open an office file for the sale. There is no record in the office of L.J. Hooker Manly that the Property was ever listed for sale. There is no sales inspection report and no written estimate of current market value. Mr Larcombe did not tell the principals of L.J. Hooker Manly, Mr Vicq and Mr Reynhout, that the Property had been placed with him for sale. 53 Mr Vicq says that when Mr Larcombe became aware that Mr Pedersen was willing to sell the Property he should have notified the principals of L.J. Hooker Manly and the sales staff, in accordance with established office practice. Mr Vicq says that one of the advantages for a vendor of following that established practice is that the sale is discussed amongst L.J. Hooker agents, and opinions on advertising, marketing and appropriate pricing are exchanged. In that way, a vendor gets the benefit of the pool of special knowledge amongst agents, which assists in obtaining the best available price for a property. 54 Mr Larcombe, as an experienced real estate agent, must have been aware of the benefit of discussing the sale of the Property with other agents in his office. His failure to disclose the prospective sale deprived Mr Pedersen of that benefit. 55 Mr Larcombe attempted to counter the evidence of Mr Vicq by asserting that he had disclosed to Mr Vicq in March 2006 that he was negotiating to purchase the Property. What in fact happened was that Mr Larcombe was negotiating with Mr Vicq for commission on the rent roll which Mr Larcombe had brought to L.J. Hooker Manly from an another agency. He told Mr Vicq that one of the properties on the rent roll, "a duplex in Pine Street" , would probably no longer be on the rent roll because he was negotiating to purchase it, so that some adjustment to commissions on the rent roll would have to be made. What he did not tell Mr Vicq was that the owner of the Property, Mr Pedersen, had placed it for sale with Mr Larcombe as an employee of L.J. Hooker Manly and that Mr Larcombe was negotiating the purchase for himself and intended to deduct from the purchase price the sale commission otherwise payable to L.J. Hooker Manly. I reject Mr Larcombe's attempt to suggest that he had adequately disclosed to Mr Vicq the transaction with Mr Pedersen. I regard this attempt as reflecting adversely on Mr Larcombe's honesty and credit. 56 Mr Larcombe approached only two local developers about the Property, Mr Lowry and Mr Manning, both of whom have given evidence. It is significant that Mr Larcombe did not merely ask the developers what they thought the Property was worth - which would have been in accordance with the instructions he says Mr Pedersen gave him - but, rather, asked them whether they would be interested in purchasing it. According to Mr Manning, Mr Larcombe told him that "he had the property for sale" . 57 Both developers inspected the Property externally. According to Mr Manning, he told Mr Larcombe that he would pay $800,000. However, in his affidavit of 30 May 2008, Mr Larcombe does not refer to Mr Manning's offer at all. He says that Mr Manning told him that he was not interested in the Property because it was too small a project. 58 Mr Lowry told Mr Larcombe that he would pay $850,000 for the Property. Mr Larcombe passed on that offer, and only that offer, to Mr and Mrs Pedersen in March 2006. He says that he told Mr Pedersen that the other developer was not interested. 59 Mrs Pedersen says that in a telephone conversation with Mr Larcombe in February or March 2006 she asked him why he was not advertising the Property. She says that he replied: "No, advertising costs too much money. It would be a waste of time and money. The way I am doing things will get you the best price for the Property" . Mr Larcombe denies this response to Mrs Pedersen's question. He says that he told Mrs Pedersen that he was not advertising the Property because Mr Pedersen had instructed him not to do so. 60 I reject Mr Larcombe's evidence. As I have said, I have found that Mr Pedersen gave no such instruction. I accept the evidence of Mrs Pedersen. It follows that I find that Mr Larcombe gave a false justification to Mrs Pedersen for his failure to advertise the Property. 61 Mrs Pedersen says that on another occasion, while the Property was still in the hands of Mr Larcombe for sale, she told him that she had been telephoned on a number of occasions over the past several years by a Mr Roger Kohler, who, she thought, was a real estate agent. Mr Kohler had said that he had clients who were interested in purchasing the Property but Mrs Pedersen had told him that the Property was not for sale. 62 Mrs Pedersen says that she suggested to Mr Larcombe that she should try to contact Mr Kohler and tell him that the Property was now for sale. She says that Mr Larcombe responded: "No, don't contact him, he is not to be trusted" . She said: "You know him, do you?" Mr Larcombe responded: "No, I know of him. He is just not trustworthy." As a result, Mrs Pedersen did not attempt to contact Mr Kohler. 63 Mr Larcombe agrees that Mrs Pedersen told him about the interest which Mr Kohler had expressed in the Property but he denies discouraging Mrs Pedersen from contacting Mr Kohler. He says, on the contrary, that he told Mrs Pedersen to contact Mr Kohler. 64 In fact, Mr Kohler is a developer who was well known to Mr Larcombe at the time and he specialised in converting flats to strata title. Mr Larcombe had had dealings with Mr Kohler in 2003 in connection with Mr Larcombe's agency for the sale of Mr Alle's property, to which I will come shortly. 65 I reject Mr Larcombe's evidence that he encouraged Mrs Pedersen to contact Mr Kohler. By the time of this conversation, Mrs Pedersen was frustrated by Mr Larcombe's failure to obtain any offer for the Property and by his failure to advertise it. It is inherently improbable that she would have refrained from contacting someone who had expressed a keen interest in the Property unless she had been dissuaded from doing so by Mr Larcombe. 66 I accept Mrs Pedersen's evidence that Mr Larcombe said that he did not know Mr Kohler but "knew of him" , and that he thought that Mr Kohler was untrustworthy. I accept that Mr Larcombe discouraged Mrs Pedersen from contacting Mr Kohler and I am satisfied that he lied to her in saying that he only "knew of" Mr Kohler when in fact Mr Kohler was well known to him and had had dealings with him. I infer that the reason that Mr Larcombe discouraged Mrs Pedersen from contacting Mr Kohler was that he wished to obtain the Property for himself and did not wish to compete for it with Mr Kohler. 67 In mid-March 2006, some six weeks after the Property had been placed in Mr Larcombe's hands, and after Mr Larcombe had done nothing more to seek purchasers than speak to Mr Lowry and Mr Manning and discourage Mrs Pedersen from contacting Mr Kohler, Mr Larcombe made an offer to Mr Pedersen of $900,000 for the Property. Believing that that was the best price he could obtain for the Property, Mr Pedersen accepted. 68 On 21 March 2006, Mr Larcombe wrote the following letter to Mr and Mrs Pedersen: "Further to my telephone conversation with you yesterday I write this letter to formalise our discussion.

We agree to pay the full price of $900,000 (less agent's fee) with a normal settlement period. As previously discussed, when you both visited my office recently, our office selling agency fee is 2.2% (including G.S.T.) of the sale price. This equates to $19,800. Therefore, the net amount to you and the amount that appears on the contract is $880,200 with no agent's fees clearly marked on the contract.

As mentioned to you yesterday, we do not want a complicated contract, just a standard contract with no delayed settlements or cooling off periods. Your solicitor will shortly be in receipt of my sales advice to him with all of the sales details to enable him to complete the contract. You too will have to contact him with your authority to prepare contracts for the sale of 39 Pine Street, Manly, if you have not already done so.

In closing, my wife and I will be contacting an architect friend for his advise [sic] on what we can do with the two units within our budget - we look forward to renovating and restoring the property."

There are several features of the letter which should be noted. 69 First, Mr Larcombe refers to discussing "our office selling agency fee" with Mr and Mrs Pedersen when they visited his office. Discussion about a selling agency fee confirms that Mr Pedersen placed the Property in Mr Larcombe's hands for sale. 70 Second, Mr Larcombe was an employee of L.J. Hooker Manly at the time of this transaction. If any selling agency fee was to be payable in respect of the sale of the Property it would be payable to Mr Larcombe's employer, not to Mr Larcombe personally. It would be dishonest of Mr Larcombe to appropriate for himself, by way of a deduction from the purchase price of the Property, a benefit which should have gone to his employer. I make this observation because it reflects adversely on Mr Larcombe's honesty and credit generally. 71 Third, Mr Larcombe said that the contract would show that no agent had been involved in the sale. However, Mr and Mrs Pedersen had gone to see Mr Larcombe in the office of his employer; they had placed the Property in his hands on behalf of L.J. Hooker Manly, not in Mr Larcombe's personal capacity. Mr Larcombe had taken it upon himself, dishonestly and without the knowledge of Mr and Mrs Pedersen, to conceal from his employer the fact that the Property had been placed with him for sale. The absence of a disclosed agent on the contract furthered Mr Larcombe's concealment of the transaction from his employer. 72 The closing paragraph of the letter, which refers to "renovating and restoring" "within our budget" with the advice of a "architect friend" and the fact that the letter is signed by Mr Larcombe on behalf of Mrs Larcombe as well, suggested that Mr Larcombe was not purchasing the Property for resale at a profit but, rather, that Mr and Mrs Larcombe were purchasing the Property as their home and intended to renovate and restore it on a limited budget. I infer that this impression was deliberately created by Mr Larcombe to disarm any suspicion that Mr and Mrs Pedersen might have that he was buying the Property for resale and was seeking to take advantage of them. 73 In fact, Mr and Mrs Larcombe never moved into the Property, and never sought to renovate or restore it. Mr Larcombe increased the rents of the existing tenants and sought development approval for the rear extension of the Property. In August 2006, he sought Mr Vicq's advice on the resale of the development. 74 On 24 March 2006 Mr Larcombe wrote to Mr Pedersen's solicitor, Mr Margiotta, as follows giving the information necessary to draw up a contract for sale. The price is shown as "$880,200 (no agents fees)" . 75 The letter, in stating the purchase price as $880,200, miss-states what was agreed with Mr Pedersen and the process by which that agreement had been made. Mr Larcombe attempts to justify that description by saying that it reflects the fact that $880,200 was to be paid to Mr Pedersen and that he would not have to pay any agent's fees out of that sum. 76 That description is a half-truth. It conceals the fact that Mr Larcombe had agreed to pay $900,000 and had suggested to Mr Pedersen that the amount of $19,800 should be deducted on account of selling agent's commission which would otherwise be payable. If that state of affairs had been disclosed to Mr Pedersen's solicitor no doubt a warning light would have flashed. 77 Section 49 Property, Stock and Business Agents Act provides: " Restrictions on licensee obtaining beneficial interest in property

(1) A real estate agent who is retained by a person (the client) as an agent for the sale of property must not obtain or be in any way concerned in obtaining a beneficial interest in the property.

(2) A real estate salesperson employed by the real estate agent must not obtain or be in any way concerned in obtaining a beneficial interest in the property.

(3) A person does not contravene this section by obtaining a beneficial interest in property if: (a) before the person obtains the interest, the client consents in writing in a form approved by the Director-General to the person obtaining the interest, and (b) the person acts fairly and reasonably in relation to the obtaining of the interest, and (c) no commission or other reward is payable to the person in relation to the transaction by which the interest is obtained, unless the client consents in writing in a form approved by the Director-General to the commission or other reward being paid.

(4) Without limiting this section, a person is considered to obtain a beneficial interest in property if: … (c) a corporation of which the person or a close relative of the person is an executive officer obtains a beneficial interest in the property, or …

(5) Without limiting this section, each of the following is considered to constitute the obtaining of a beneficial interest in property: (a) purchasing property …" 78 Mr Larcombe was a "real estate sales person" within the operation of s 49(2). He, through Varinya, was obtaining a beneficial interest in the Property, as defined in s 49(4)(c). For Mr Larcombe to agree with Mr Pedersen on a purchase price and then deduct from it the amount of his selling agent's commission was, in effect and in substance, to pay the commission on the sale to Varinya. By virtue of s 49(3)(c), neither Mr Larcombe nor Varinya was entitled to that "commission" unless Mr Pedersen agreed in writing. Mr Larcombe's letter to Mr Margiotta suggested that s 49 was inapplicable because no agent's commission at all was involved. 79 Mr Larcombe was aware that Mrs Pedersen was not comfortable with the sale. She was unhappy that he was deducting a commission from the purchase price when he had bought the Property himself without having advertised or marketed it in the usual way. In a telephone conversation with Mrs Pedersen prior to exchange of contracts, Mr Larcombe offered to withdraw from the sale if she wished. Mrs Pedersen said that the sale was not up to her but was a matter for her husband's decision. 80 However, if Mr Margiotta had been aware that the stipulated price of $880,200 was reached after deduction of commission, he could have advised Mr and Mrs Pedersen that under s 49(3)(c) of the Property, Stock and Business Agents Act Mr Larcombe and Varinya were not entitled to that commission unless Mr Pedersen expressly consented in writing. Fortified by legal advice and a statutory protection, Mr Pedersen might have taken a different view about the purchase price and Mr Larcombe's efforts in reselling the Property. 81 On 12 April 2006, Mr Larcombe sent the following letter to Mr Pedersen: "I write this letter to confirm that I would like to purchase your property at 39 Pine Street, Manly in accordance with my discussions with you and for the agreed purchase price of $880,200 net amount to you. The purchaser would be my family company Varinya Pty Ltd.

If there is any doubt in your mind and you did not wish to proceed with this sale then I would withdraw my offer and perhaps you could then offer the property for sale by public auction and advertise through the normal channels.

Alternatively, if you do wish to proceed with the sale then I would ask that you sign the enclosed Section 49 consent form and return it to me. I recommend that before you do so, you obtain independent advice about the sale.

I look forward to hearing from you." 82 The enclosed s 49 Consent Form, which referred to Varinya as the purchaser, contained the following statement: "I/we consent to you obtaining the beneficial interest in the above property" . The following statement in the Consent form had been struck out by Mr Larcombe before sending the form: "I/we consent to the payment of the commission or other reward payable to you in relation to the transaction by which the interest is obtained not being affected merely by reason of you obtaining or being concerned in the obtaining of that interest".

The deletion made it appear that the consent was inapplicable because no benefit in the transaction was being received by Mr Larcombe or Varinya by way of commission or deduction from the purchase price in an amount equal to the commission. Mr Pedersen signed the form as it had been presented to him. 83 The truth of the matter was that Mr Larcombe had agreed on a price of $900,000. He claimed to be entitled to a commission. He could either pay Mr Pedersen $900,000 and receive back $19,800 commission, or he could deduct the commission from the purchase price of $900,000. That is what he persuaded Mr Pedersen to agree to do. 84 However, neither Mr Larcombe nor Varinya was entitled to a commission of $19,800. If anyone was entitled to a commission, it was Mr Larcombe's employer, L.J. Hooker Manly. Further, Mr Larcombe did not tell Mr Pedersen that s 49 prohibited him from charging a commission and that Mr Pedersen would be entitled to refuse consent under s 49(3)(c). 85 Mr Larcombe attempted to justify sending Mr Pedersen the s 49 Consent in the form he did. He said that he had done so on the advice of his solicitor, Mr Olney. Mr Larcombe did, indeed, obtain advice from Mr Olney as to the form of the s 49 Consent which should be sent to Mr Pedersen, but he obtained that advice by concealing material facts from Mr Olney. 86 Mr Olney was called to give evidence. He happened to be in Court instructing Counsel for Mr Larcombe. 87 Mr Olney said that on 4 April 2006 Mr Larcombe telephoned him. He took a file note of the call. Mr Larcombe asked whether he needed to make a s 49 disclosure to Mr Pedersen "even though he is only managing the property and if so should he shore up his position by for example writing to the vendors suggesting he [sic] obtain independent advice" . 88 Mr Olney gave this evidence: "Q. Just stopping you there, if I may. You formed a view at that time about the necessity for that form; is that right? A. That's correct.

Q. And what was that view? A. My view was that, notwithstanding his instructions to me that he had only acted as an agent in connection with the managing of the property, having regard to the fact that section 49 of the Act had criminal sanctions in it for a breach, section 49(1), and having regard to the fact that I was unable at the time to find any decided precedent in respect of the precise meaning of the section, that the prudent thing to do was to issue the form.

Q. And did you convey that view to Mr Larcombe? A. I did.

HIS HONOUR Q. Mr Olney, did Mr Larcombe tell you in the conversation in which he sought your advice that Mr Pedersen or the vendor of the property had placed the property with his agency for sale? A. I don't recall him ever saying that to me. In fact, my file note is to the effect that he told me he had only been managing the property.

Q. If you had been told that the purchase price agreed with the vendor was $900,000 but that the commission otherwise payable of $20,000 to Mr Larcombe's agency would be taken from the purchase price so the purchase price would have been $880,000 as shown in the contract, would you have deleted the consent to payment of commission in the last page? A. My view is, your Honour, at that particular time my view is, based on my view again that the necessity for this arose out of agents making full disclosure so that people knew that they were not suddenly going to finish up at a settlement of the sale of their property and suddenly an agent takes a commission out of it as well, something comes out of left field, so to speak, my view would have been I would have made further inquiries. I would have said how is this going to be expressed in the contract. That, I think, is the important thing because if it is expressed clearly in the contract that there is a price in the contract which the vendor can expect to receive in full because of no agency in the contract, and, of course, the contract passing through the hands of the vendor's solicitor, in fact being drafted by the vendor's solicitor for that matter, I would have been satisfied with that." 89 Mr Olney's evidence in response to the last question was somewhat rambling and discursive. To my observation, he was uncomfortable about giving evidence which might be to the disadvantage of his client, and he was endeavouring not to be as direct as he might otherwise have been. 90 What emerged clearly enough was that, if Mr Larcombe had told Mr Olney the full circumstances, rather than saying only that he had been the managing agent of the Property, Mr Olney would probably not have drafted the s 49 Consent as he did. Indeed, I go so far as to say that Mr Olney could not have drafted the consent form as he did conformably with his obligation to give accurate and proper advice to his client. 91 I conclude that Mr Larcombe, in seeking advice from Mr Olney, wished to protect his position if he were later challenged by Mr Pedersen as to the sale or the deduction of the commission by being able to say that he acted in good faith on legal advice. However, I am satisfied that Mr Larcombe did not act in good faith in obtaining that advice: he did not disclose critical facts to his solicitor. This stratagem on the part of Mr Larcombe reflects adversely on his honesty and credit. 92 On 12 April 2006, Mr Larcombe wrote to Mr Margiotta as follows: "My solicitor, Mr Don Olney from Booth, Brown, Samuels & Olney of Dubbo has brought to my attention the necessity for Mr Pedersen to sign a Section 49 Consent Form for the sale of 39 Pine Street, Manly.

This is due to the fact that I have been Mr Pedersen's agent looking after his property for the last nine years and the Real Estate Act now requires the signing of this consent form compulsory.

Attached is a copy of the form that Mr Pedersen received today.

Once I receive this signed form I will be able to exchange contracts." 93 The letter is deliberately misleading. First, it suggests that Mr Olney raised s 49 with Mr Larcombe. The truth is that Mr Larcombe raised the question with Mr Olney. Second, it suggests that Mr Larcombe and Mr Olney were being cautious and over-punctilious in sending a s 49 Consent because Mr Larcombe just happened to be the managing agent of the Property. The letter did not disclose that s 49 was directly applicable because the Property had been placed with Mr Larcombe as agent for sale. 94 I conclude that Mr Larcombe sent the letter to mislead Mr Margiotta into believing that s 49 was not applicable in any way in the transaction but that, even if it was, the section had been complied with and so no issue about deduction of a commission arose.

95 I have no hesitation in concluding that, in procuring the purchase by Varinya of the Property from Mr Pedersen, Mr Larcombe breached his fiduciary duty as agent for sale in preferring his own financial interest to his duty of loyalty to Mr Pedersen. I am satisfied that, from the moment that Mr Larcombe suggested to Mr Pedersen that he sell the Property, Mr Larcombe was intent on securing the Property for himself at the lowest possible price, so that he could resell it soon as possible for maximum profit - a profit that should have been Mr Pedersen's. 96 I summarise the findings, made above, which have led me to this conclusion thus:

Mr Pedersen instructed Mr Larcombe, as an employee of L.J. Hooker Manly, to place the Property on the market at the best possible price, but Mr Larcombe did not list the Property nor did he disclose to his employer that the Property had been placed with him for sale;

Mr Larcombe did not advertise or market the Property in any way;

Mr Larcombe purported to seek the best price for the Property by enquiring of developers but he spoke to only two developers in six weeks and actively and dishonestly discouraged Mrs Pedersen from making enquiries with a third developer who had demonstrated keen interest in the Property;

Mr Larcombe offered $900,000 for the Property after a completely inadequate process of seeking prospective buyers, suggesting to Mr Pedersen that $900,000 was the best offer reasonably obtainable when he had made no reasonable attempt to get any better offer;

Mr Larcombe persuaded Mr Pedersen to pay him a selling agency commission (by deducting the amount from the purchase price) when the commission, if payable, was payable to L.J. Hooker Manly and not to Mr Larcombe personally and in any event Mr Larcombe was not entitled to that commission under s 49 Property, Stock and Business Agents Act unless Mr Pedersen expressly consented;

Mr Larcombe misled Mr Margiotta and even his own solicitor, Mr Olney, into believing that s 49 had no application to the transaction by failing to disclose that he was deducting a sale commission from the agreed price of $900,000. 97 I need hardly say that it would be impossible, on these findings, to suggest that Mr Pedersen gave fully informed and free consent to what Mr Larcombe had done. It follows that in procuring the sale of the Property to Varinya, Mr Larcombe breached his fiduciary duty to Mr Pedersen. There is no dispute that Mr Larcombe is the controlling mind of Varinya. It likewise follows that Varinya took the benefit of Mr Larcombe's breach of fiduciary duty with full knowledge of that breach. 98 The result is that Varinya is liable to account to Mr Pedersen for the profit it made from Mr Larcombe's breach of duty. Mr Larcombe is liable in equity to compensate Mr Pedersen for his loss from the transaction.

99 I turn now to consider whether the evidence as to Mr Larcombe's dealings with Ms Gledhill and Mr Alle confirm or cast doubt on the conclusions I have reached so far. 100 Ms Gledhill is ninety-three years of age. Although she is rather frail and her health is not good, her mind is perfectly clear and sharp. She has a vivid recollection of the events in question, although she is understandably a little hazy about precise dates. Ms Gledhill had, as a young woman, taken an interest in business affairs and had had some experience working in her father's real estate agency in the 1950s. She has a good appreciation of the basics of a real estate transaction. She bears no ill will to Mr Larcombe and she gave her evidence carefully and firmly. She was not shaken in cross examination. 101 Ms Gledhill was a most impressive witness and I accept her evidence without reservation. 102 For many years, Ms Gledhill had owned and rented out two properties in Fairlight, a house in Griffiths Street and a unit in Wilyama Avenue. Mr Larcombe, then a principal of Raine & Horne Manly, took over the management of those properties in 1998. 103 By late 1999, Ms Gledhill was having trouble with the tenant of the Wilyama Avenue unit, who was in arrears with rent. There was also some water damage to the unit which had to be repaired. Ms Gledhill discussed these problems with Mr Larcombe. She decided to sell the unit and placed it in the hands of Mr Larcombe's firm, Raine & Horne Manly, for sale. A Mr Frecklington was the agent in the Raine & Horne office who handled the sale. The unit was listed for a price of $480,000 and was advertised in November and December 1999. 104 According to Mr Larcombe, in December 1999 Mr Frecklington asked him whether he would be interested in purchasing the unit. Mr Frecklington has not given evidence. Mr Larcombe says that he negotiated with Mr Frecklington and offered a price of $457,000, which Ms Gledhill, through Mr Frecklington, accepted. The purchaser was to be Varinya. Contracts were exchanged on 17 January 2000. 105 Ms Gledhill says that she was not told at any time before exchange of contracts that Varinya was Mr Larcombe's company. She says that shortly before completion of the contract Mr Larcombe came to see her with some papers to sign in connection with the sale. She says that, out of curiosity, she asked him who Varinya was. Mr Larcombe told her that Varinya was controlled by himself and his wife, but that he had bought the unit for his mother to live in. Ms Gledhill was content with that explanation. She had no concerns about the purchase price. 106 Mr Larcombe says that he believed Ms Gledhill knew from the beginning of negotiations that Varinya was his company. He says that Mr Frecklington said to him "I've spoken to Ms Gledhill and she says this to you … 'Tell Mark that I won't take anything less …" : T373.43-.45. He gave this evidence: "Q. Did you not think that it would be prudent to protect, at the very least, the good name of a real estate agent to make sure that an elderly lady selling her property to the company of the agent for sale should very clearly be advised by you of that fact? A. Well, your Honour, all the things that came back to me made me feel that she definitely knew it by what Jim said to me.

Q. What did Jim say to you? A. He would say things like Ms Gledhill said to say, Mark, you know, she won't take that figure but to tell Mark she'll take this figure, and to tell Mark that there's trouble with the roof, if he takes it on I hope he realises that there's a problem there with the roof. So it is not talking to a company, it was talking to me." 107 I reject Mr Larcombe's evidence as untrue. First, it is inherently improbable that Mr Gledhill would have reminded Mr Larcombe, through Mr Frecklington, that there was trouble with the roof of the unit when it was with Mr Larcombe directly that she had been discussing the problem about the roof shortly before she decided to extricate herself from the problem by selling the unit. Mr Larcombe gives this evidence himself in his affidavit of 29 September 2008. 108 Second, Mr Larcombe's evidence as to Ms Gledhill's knowledge that Varinya was Mr Larcombe's company is uncorroborated by Mr Frecklington. 109 Third, I accept Ms Gledhill's evidence that she had no idea that Varinya was Mr Larcombe's company until she asked him directly after exchange of contracts. 110 Fourth, while Mr Larcombe was giving evidence about what Ms Gledhill had said to Mr Frecklington, I had the strong impression that he was fabricating that evidence as he went. 111 Mr Larcombe's mother never moved into Ms Gledhill's unit. Varinya carried out some repairs and placed the unit on the market for sale. Contracts for sale were exchanged on 18 December 2000 for a purchase price of $585,000, less than twelve months after Varinya had purchased the unit for $457,000. Mr Larcombe says that Varinya spent $79,000 on repairs to the unit and transaction costs, but he has produced no documentary evidence of that expenditure. I would not accept Mr Larcombe's evidence about expenditure without corroboration. 112 Mr Larcombe was given the opportunity of returning to the witness box to deny Ms Gledhill's evidence that he had told her that Varinya purchased the unit for Mr Larcombe's mother to live in. Mr Larcombe did not take up that opportunity. I accept Ms Gledhill's evidence as to what Mr Larcombe said to her. I conclude that when Ms Gledhill asked him who Varinya was, Mr Larcombe told her a lie about buying the unit for his mother in order to allay any suspicion she might have that he had purchased the unit for resale at a profit and that, as managing agent of the property and principal of the selling agent, he had taken advantage of her. 113 In about May 2007, Mr and Mrs Larcombe came to see Ms Gledhill and asked her whether she was interested in selling to them the Griffith Street house which Mr Larcombe was managing. Ms Gledhill had had no thought of selling the Griffith Street before Mr Larcombe's suggestion. She said that she would get an idea of the market value of the house from three agents, which she did. After further discussion with Mr Larcombe, he offered $830,000, which Ms Gledhill accepted. 114 Mr Larcombe approached Ms Gledhill later and proposed that from the price of $830,000 there should be deducted the amount that she would otherwise have had to pay as a real estate's selling commission. As this was a private sale without an agent, Ms Gledhill did not see why a commission should payable or should be deducted. She obtained the advice of a solicitor. She sought additional valuations of the Griffith Street house. Eventually, she declined to proceed with the sale to Mr Larcombe.

115 Mr Alle and his sister inherited a property in Fairlight in about 2001. Mr Alle was then seventy-one years of age. The property consisted of five flats which were rented out and were being managed by Mr Larcombe. 116 In June 2003, Mr Larcombe, who was then principal of Raine & Horne Manly, approached Mr Alle and suggested that he place the property on the market for sale. Mr Alle and his sister decided to sell. 117 On 30 June 2003, Mr Larcombe wrote to Mr Alle referring to his success in selling properties to developers. He enclosed an agency agreement for signature. 118 Mr Alle and his sister signed the agency agreement with Raine & Horne Manly on 6 July 2003. The agent's opinion as to asking price for the property was stated in the agency agreement as $2.3M to $2.5M. Mr Alle says that those figures were given to him by Mr Larcombe. 119 Mr Alle says that he left it to Mr Larcombe to market the property in whatever way he thought fit to achieve the best sale price. Mr Alle was quite willing to pay the reasonable costs of an advertising and marketing campaign. However, Mr Larcombe says that Mr Alle told him to approach developers and see what price he could get, before undertaking any advertising campaign. Mr Alle denies that he gave any such instruction. 120 Mr Larcombe says that he approached Mr Roger Kohler and three other developers. He did not conduct an advertising or marketing campaign. He says two of the developers were not interested in Mr Alle's property. On 16 July 2003, Mr Kohler sent a written offer of $2.3M. Another developer offered $2,250,000. 121 Mr Larcombe says that 17 July 2003 he sent to Mr Alle the following fax: "Dear Adrian,

Due to his procrastination with my negotiations with him and his unwillingness to pay any more than $2.3m I have assessed the long term investment potential of the building from a personal perspective.

My wife and I enjoy having No 41 as a management through our business and would like it to continue that way under our ownership. We are looking at the building as our long term superannuation. We think we could possibly spend a little money on the units and perhaps increase the rents through our business to make ends meet. I know the returns are poor but it seems to be that super funds are not all that they're made out to be.

Consequently we are prepared to exceed Roger Kohler's offer and pay the full $2,350,000.

Raine & Horne's selling agency commission would be deducted from both offers irrespective of who purchases the building.

My original assessment of the building's sale price was $2.3m to $2.5m for five units. However, I also qualified these amounts by saying there will have to be some adjustment to the price because of the protected tenant issue. The developers have taken a strong stance on this aspect.

The other offers received have been lower at $2.15m & $2.2m & $2.25m and another firm I approached said no because of the protected tenant - they had only bad experiences in the past.

I do apologise for Roger Kohler taking so long before making his final offer. (a long way from $1.5m he wanted to pay you originally). I guess it's for this reason that I've looked at how my wife and I can justify paying this much money for a long term investment.

During our phone conversation you mentioned a concern about me, as your agent, being the eventual purchaser. I don't see any concern as we have exhausted the other offers. However, if it becomes an issue for you then I'd naturally step aside, withdraw my offer and conclude negotiations with the developer of your choice.

Thank you and I look forward to your response." 122 Mr Alle says that he does not recollect receiving this fax. However, Mr Alle was overseas at about this time and it is possible that the fax was sent to his office during his absence. 123 What is notable about the letter to Mr Alle is that Mr Larcombe offers to purchase the property based upon what two developers have offered, rather than testing the market by an advertising or marketing campaign - just as in Mr Pedersen's case. Further, just as in Mr Pedersen's case (see paragraphs 68, 72 above), Mr Larcombe "cries poor" in making his offer, saying that he and his wife regard the property "as our long term superannuation" : "We think we could possibly spend a little money on the units and perhaps increase the rents through our business to make ends meet. I know the returns are poor … I've looked at how my wife and I can justify paying this much money for a long-term investment". 124 In fact, within four months after settlement in October 2003 of Varinya's contract to purchase Mr Alle's property for $2,303,00 - $2,350,000 less the agent's commission, as in Mr Pedersen's case - Mr Larcombe had accepted an offer to sell the "long-term investment" which he and his wife would struggle to improve, for $3M - a profit of some $700,000. 125 On 9 February 2004, Mr Larcombe wrote to Mr Olney giving instructions for the preparation of contracts for the sale of Mr Alle's property. He explained that contracts had to be exchanged by close of business the following Friday and that "I won't accept any delaying tactics" . He said: "If, in your discussion with the other solicitor, you detect an unwillingness to exchange this Friday then please advise me as I do have another interested party on the whole building or I have the individual sales to exchange" . 126 From these instructions to Mr Olney, I conclude that, after settlement of the purchase from Mr Alle, Mr Larcombe wasted no time in actively seeking purchasers for the property. Within a short time he had found several who were prepared to pay very substantially more than the purchasers that Mr Larcombe had found for Mr Alle. 127 In the event, the purchaser of the property for $3M defaulted under the contract and the property was eventually sold for $2,875,000. 128 Mr Larcombe endeavoured in his evidence to suggest that he had behaved with the utmost candour and fairness in his dealings with Mr Alle. He said that he had offered to withdraw from the purchase of the property if Mr Alle had any doubts. Mr Alle denied this conversation. 129 Mr Larcombe's dealings with Ms Gledhill and Mr Alle have these features in common with his dealings with Mr Pedersen:

he made offers to purchase property which he had been managing on behalf of the vendors;

the vendors were elderly and, in the case, Ms Gledhill and Mr Pedersen, frail and in very ill health;

because of their previous relationship with Mr Larcombe, all vendors were willing to trust him implicitly in the advice he offered about the best way to sell their property;

in the cases of Mr Pedersen and Mr Alle, Mr Larcombe says that they did not want to test the market by advertising in the normal way, but instructed him to approach developers - both Mr Pedersen and Mr Alle deny giving this instruction to Mr Larcombe;

in all cases, Mr Larcombe falsely represented to the vendor that he had long-term plans for their property: renovating Mr Pedersen's property with an architect friend, moving his mother into Ms Gledhill's unit, holding Mr Alle's property as a long-term superannuation investment - when in every case he set about reselling the property as soon as possible for a large profit. 130 These similarities in Mr Larcombe's conduct reinforce the conclusion which I have reached that, from the beginning of his dealings with Mr Pedersen, Mr Larcombe intended to secure the Property for himself for quick resale at a profit. He realised that Mr Pedersen, like Ms Gledhill, was elderly, infirm and vulnerable, and was likely to trust him, as he had been managing Mr Pedersen's properties for some time. 131 In Mr Pedersen's case, as in Mr Alle's case, Mr Larcombe made a show of strenuous effort in seeking the best price from developers - but in truth he approached only two. He justified his refusal to test the market for the Property by advertising and marketing in the normal way by suggesting that he knew developers who would be prepared to pay the highest price. It would have been easy for Mr Larcombe to approach only developers who, he knew, would not be very interested or would not be able to offer a high price. The temptation to do so would have been powerful if, as I conclude, Mr Larcombe was intent on securing Mr Pedersen's property for himself. 132 It is clear from Mr Larcombe's experience with Mr Kohler in the purchase of Mr Alle's property that Mr Larcombe recognised that Mr Kohler would be a serious bidder for Mr Pedersen's property. He therefore did not approach Mr Kohler himself to offer him Mr Pedersen's property and, when Mrs Pedersen suggested Mr Kohler, he discouraged her from approaching Mr Kohler by telling her that Mr Kohler was not to be trusted. 133 Finally, Mr Larcombe persuaded Mr Pedersen and Mr Alle to reduce the purchase price for their properties by the amount of the commission he would be entitled to charge when, in truth, he had made no endeavour to market their properties in an adequate way. As Mr Larcombe had no intention from the start of making an honest endeavour to find a purchaser for Mr Pedersen's and Mr Alle's properties at the best possible price, this deduction of a selling agent's commission from their purchase price was a double-dyed dishonesty. 134 In summary, an examination of Mr Larcombe's dealings with Ms Gledhill and Mr Alle confirms the conclusion I have reached that Mr Larcombe breached his fiduciary duty to Mr Pedersen.

135 Because Mr Pedersen succeeds in his claim for breach of fiduciary duty I do not need to deal with his alternative claims under the Trade Practices Act and the Fair Trading Act . Neither party made any detailed submission about this aspect of the case, recognising that the facts found in the fiduciary claim would determine the ultimate result in both claims.

136 As I have noted above, there is no dispute that Varinya, as the alter ego of Mr Larcombe, took the benefit of the contract for purchase of the Property and the benefit of the contract for the sale of the Property with full knowledge of Mr Larcombe's acts and omissions constituting breach of his fiduciary duty to Mr Pedersen. In that circumstance, there can be no doubt that Varinya must account to Mr Pedersen for the profits which it derived from Mr Larcombe's breach of duty, under what is known as the first limb of Barnes v Addy (1874) 9 Ch App 244, at 251-2; Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373, at 397-8. Mr Bradford of Counsel, who appears for Mr Larcombe and Varinya, did not endeavour to submit otherwise. 137 Varinya sold the Property for $1,935,000 in May 2007. Mr Pedersen is entitled to an account of the profits coming into the hands of Varinya. I will order the taking of such accounts, if Mr Pedersen so elects.

138 Likewise, Mr Bradford does not dispute that, if Mr Larcombe is guilty of breach of fiduciary duty, he is liable to make equitable compensation to Mr Pedersen. Mr Bradford did not dispute that Varinya, as an active and knowing participant in Mr Larcombe's breach of fiduciary duty, is also liable to make equitable compensation to Mr Pedersen under the second limb of Barnes v Addy . 139 Mr Bradford does not dispute that the measure of equitable compensation is the difference between the price for which Mr Pedersen sold the Property to Varinya and its true market value at that time. He does, however, dispute whether Mr Pedersen has actually suffered any loss. 140 Mr Pedersen relies on an expert opinion of a valuer, Mr P.J. McBurnie, that the market value of the Property as at the time of sale to Varinya, i.e. 20 April 2006, was $1,500,000. Mr Larcombe relies on an expert opinion of a valuer, Mr Grahame Edwards, that the market value of the Property at that time was $960,000. As Mr Pedersen sold the Property to Varinya for $900,000 (less commission), Mr Larcombe says that Mr Pedersen in fact suffered no loss for which equitable compensation could be awarded. 141 The discrepancy between the opinions of Mr McBurnie and Mr Edwards is great - it cannot be explained as a legitimate difference of opinion within a normal range of variance. Both valuations essentially found upon a consideration of comparable sales. 142 I do not need to examine the reasoning of both experts in any great depth because I am of the view that Mr Edwards' opinion is deeply flawed and unreliable, while no fault has been found in Mr McBurnie's opinion. 143 Mr McBurnie had regard to seven sales which he regarded as useful comparisons. All the properties were in Manly, not far from Mr Pedersen's property. One was in Pine Street. All were in a heritage conservation area, as was the Property. The period covered by the sales was from January 2005 to March 2006. Mr McBurnie described the character of the properties, particularly giving the dimensions of the land, and explained how the sales assisted his valuation. 144 Mr Edwards had regard to four sales which he regarded as useful comparisons. One was in a different suburb, a considerable distance from the Property and in a quite different type of environment. In his description of two other sales, Mr Edwards did not set out in his report the dimensions of the properties. In fact, they were about half the size of Mr Pedersen's property. Mr Edwards does not explain or refer in his report to the reasoning by which he concluded that these two properties were useful as comparisons. He does not explain what, if any, adjustments he made in his calculations to take into account that the two properties were half the size of Mr Pedersen's property. When asked why he had failed to state the dimensions of these two properties in his report - a fundamental piece of information in order to make any useful comparison - Mr Edwards looked extremely uncomfortable and could give no explanation at all. 145 I regard Mr Edwards' valuation as unreliable. 146 I conclude that the equitable compensation which is payable by Mr Larcombe and Varinya to Mr Pedersen, if he elects such remedy, must be assessed by reference to a market value of the Property as at 20 April 2006 of $1.5M.

147 Mr Pedersen is entitled to declarations as sought in the Statement of Claim to the effect that Mr Larcombe breached his fiduciary obligations and that Varinya knowingly assisted in that breach. Mr Pedersen is entitled an accounting of profits in the hands of Varinya and to equitable compensation from Mr Larcombe and Varinya, as he elects. 148 I will stand the proceedings over for a short time to enable Mr Pedersen to bring in Short Minutes of Order in accordance with these reasons. I will then hear the parties as to costs. - oOo -

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

Evidence Regulation 2005(NSW)

Property, Stock and Business Agents Act 2002(NSW)

Trade Practices Act 1974(Cth)

At a glance

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Judgment (89 paragraphs)

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