The plaintiffs, Scott John Young and Rowena Elise Young are husband and wife. The plaintiffs as vendors entered into a contract ("the initial contract") with the defendant, David Charles Clive Wiseman as purchaser, for the sale ("the first sale") of their home at 430 Crossmaglen Road Bonville New South Wales ("the Bonville property") for a price of $1.35M. There is no issue that the plaintiffs validly terminated the initial contract. The plaintiffs then entered into a further contract of sale ("the second contract") to sell ("the second sale") the property to Glen and Rosemarin Zacher ("the Zachers") for a price of $1.165M. The second sale under the second contract was completed. In accordance with the terms of the initial contract the plaintiffs are entitled to sue to recover either the deficiency on the resale price together with costs and expenses arising out of the purchaser's non-compliance or to sue for damages for breach of contract; see clause 9.3 of the initial contract. In this case the plaintiffs pursue the former remedy.
Much of the plaintiff's claim is admitted on the pleadings. The whole of the statement of claim is admitted except for paragraphs 14, 15, 16 and 17, which plead terms of the initial contract relating to the deposit provisions, and paragraphs 37 through to 42 inclusive which go to the issue of damages.
The affidavit material of the plaintiffs included only the front page of the initial contract. Once the contracts were admitted into evidence paragraphs 14-17 were established. There was objection to the tender of the contracts on the basis that they had not been annexed to an affidavit, and no notice of the tender of them had been given. In support of the objection it was said that had they been in the evidence of the case would have been conducted in some other way although the defendant was unable to identify any way in which the tender of the written contract would be met either by way of evidence or even to identify some kind of argument that might have been able to be mounted.
The real issue in the case is that raised by paragraphs 3 through to 7 inclusive of the defence which in short is to allege that the plaintiffs failed to take reasonable steps to achieve a resale of the property at or near the market value. It is alleged that had the plaintiffs taken reasonable actions a better price would be realised. The defence does not identify those actions, but rather simply asserts the subsequent sale to the Zachers was at an undervalue.
The cross examination of both the plaintiffs and of Mr Bird (the real estate agent who acted on the first and second sales) concentrated on what was done in preparing or marketing the property for sale after the initial contract had been terminated.
The case having now been run it can be said there are two points to the defendant's argument. The first is the matter just mentioned, that is that what occurred was a sale at less than market value.
The second was to assert or at least put that it was never the plaintiffs' intention to properly market the property or more accurately never their intention to conduct an eight week marketing campaign. The proposition being put extended to saying that the dealings with the agent and the proposed marketing campaign was engaged in simply to add what might be described as contrived legitimacy to what the plaintiffs were doing when all the time it was their intention to sell to the ultimate purchasers.
[2]
The plaintiffs' evidence
The defendant made a number of attacks on the evidence of each of the plaintiffs. The first was on the basis that their affidavits "mirrored" each other. There is no doubt similarity in the affidavit material. But it was never put to the plaintiffs that they colluded in the creation of their affidavits and that what they were saying in them was not true, save for some suggestions concerning their business figures dealt with below. There is some merit in that suggestion of the similarity of the affidavits however I consider it to be a superficial criticism. This was the evidence of a married couple who were reorganising their lives and living through what must have been to them a very trying experience, and that they gave evidence to a largely similar effect is hardly surprising.
A second basis for criticising the plaintiffs was that they had not put into evidence their business records. Yet no objection was taken to the fact that they gave hearsay evidence in their affidavits as to what their wage bills were and the fact that business had been significantly affected by the onset of the Covid 19 pandemic. It was put to them that they had sought to exaggerate the situation to improve their case. That suggestion was denied by them and there is no evidence to support the assertion being made by the defendant.
Both of these criticisms in my view gained no traction. Furthermore my assessment of the plaintiffs is entirely favourable of them. Having observed them give their evidence and the way in which they responded to questions put to them my assessment is that they were entirely honest and forthright and I accept their evidence. The submission of the defendant that the Court should treat with some circumspection evidence that could easily be verified by records that could easily be tendered is valid, however in the absence of objection, together with my favourable findings of the plaintiffs as witnesses, I accept the figures given in their affidavits.
There was a third challenge to the evidence of the plaintiffs which was to suggest that they had no intention of waiting eight weeks for the marketing campaign. The emphatic answer of Mr Young which I accept was that yes they did. What the defendant was seeking to establish almost entirely through cross examination with very little if any supporting material was that the plaintiffs even before termination were aware of the Zachers and engaged with the real estate agent in what was really put as a pretence of a marketing campaign so as to be better able to evidence that they had acted in a reasonable way so as to strengthen their subsequent claim against the defendants. Objection was taken to this line of cross examination along the lines that it was tantamount to if not actually alleging fraud something that the defendant through their counsel expressly disavowed. Thus what was trying to be established by this challenge was that the plaintiffs had not acted reasonably.
The evidence from both plaintiffs when cross-examined to this effect was convincing. I note that at the time of the plaintiffs giving the evidence the other plaintiff was out of the courtroom. Their evidence clearly established that an overture of interest was made to them by the Zachers indirectly through a relative of the Zachers. The Zachers had never inspected the property prior to termination. Mr Young considered that for all he knew the the Zachers were "tyre kickers", that is he was unaware of their level of seriousness or interest in purchasing the property. As at the date of termination he said and I accept that it was his intention to do the things that were being recommended by Mr Biggs and which Mr Bird (the expert valuer called by the defendant) agrees are the types of things to be done in remarketing the property.
I characterise the evidence of the plaintiffs on this issue to, rather than establish some lack of bona fides on their part or lack of good intention, to in fact establish the opposite. In the circumstances in which they found themselves they went about trying to obtain the best price they could and early in that process an offer that was within the range of decrease suggested by Mr Biggs in his email of 14 May 2020 ("the 14 May email") was made and they accepted it. Notably on the evidence relied upon by the defendant, whilst a sale notice was generated on 18 May it was not until 28 May that the marketing campaign actually ended as that was the date that the second contract was exchanged. It further supports the plaintiffs' reasonable conduct that the property remained on the market right up until the point that the second contract had been exchanged with the Zachers.
The plaintiff's evidence as to the matter generally outside of the matters just discussed was largely uncontested. It established the matters that were in any event evidenced by the plaintiffs chronology that was tendered without objection and was conceded to be accurate. Relevantly those matters are now set out.
On 12 March 2019 the plaintiffs exchanged contracts on a property known as 30 Rushton Avenue Moonee Beach ("the Moonee Beach property"). It was their plan to "downsize" and move to live at the Moonee Beach property rather than at the Bonville property. The Mooney Beach property purchase settled on 14 April 2019 and the property was tenanted from 24 May 2019 until February 2020. The tenant was asked to vacate in anticipation of the settlement of the Bonville sale so that the downsize plan could be affected.
The Bonville property was listed for sale on about 11 April 2019. Seven months later on 11 November 2019 the initial contract was exchanged with an approximate five month settlement period. The initial contract on its front page states the date of completion to be 17 April 2020.
Prior to that date as just noted the tenants of the Mooney Beach property vacated. Also prior to that date the plaintiffs relocated their chiropractic office from the Bonville property to a rented office in Coffs Harbour.
Also prior to that date, in early April 2020 the plaintiffs had to terminate four of their staff from their business due to the impact of Covid 19. Their business had dropped off by some 70% as a result of Covid 19.
Settlement did not occur on 17 April 2020, and the plaintiffs allowed a one week extension as they were informed the purchaser was still finalising his finance. At the end of that one week, settlement did not occur so that a notice to complete was issued. The notice to complete was issued on 27 April 2020 and required completion by 12 May 2020. That did not occur and the notice of termination was issued on 13 May 2020.
The involvement of the Zachers with the plaintiffs is perhaps best reflected in exhibits 2, 3, 4 and 5, which are text messages passing between the Zachers and the plaintiffs. The first in time is dated 27 April 2020. It shows that the Zachers texted the plaintiffs that day to tell them that their contract for sale had gone unconditional (that is, the Zachers' sale of their property) so they are in a position to discuss the plaintiff's property "should it become available". The plaintiffs replied that they had issued the notice to complete that day and will update them as they can and thanking them for their interest.
Exhibit 3 is dated 14 May 2020. It suggests there has been some communication between the earlier text and this text. In this text the plaintiffs state that the property will be remarketed from tomorrow to meet the legal requirements and that they were happy to discuss it directly. The Zachers reply was that they are keen to make an offer and queries whether the legal issues mean a quick sale would be viewed negatively. By exhibit 4 the plaintiffs say that as the house is on the market from tomorrow (15 May) they can proceed as quickly as they would like. Then by Exhibit 5 which seems to be on either the 14th or 15th of May the plaintiffs text the Zachers "all good to view-with us or on your own or with the agent it's up to you-let us know what time or times either day". In a subsequent text the Zachers state they are going to make the trip and also say it would be good to organise their agent as "you really want to stick with the arm's-length policy". In a later text the Zachers say they have seen it relisted and ask whether it is best to contact Chris or Grant, which I infer is a reference to the agent.
The defendant sought to rely on the comments relating to legal requirements, and "arm's-length" as suggesting that this whole marketing process was something of a sham. The basis for this contention is founded on texts written by the Zachers. Notably the response by the plaintiffs is that since the property is on the market they can proceed as quickly as the Zachers would like. The arm's-length suggestion comes from the Zachers. The only part of the texts coming from the plaintiffs arguably supporting this theory is Exhibit 3 which states "the property will be remarketed from tomorrow to meet our legal requirements". In my view rather than suggesting there is some nefarious sham being played out by the plaintiffs, who struck me in giving their evidence as being honest hard-working and earnest people, it suggests the plaintiffs were genuinely trying to conduct themselves in a legally appropriate way.
The evidence of Mrs Young when it was put to her that she had private discussions with the Zachers was that they were not private but that she was contacted by phone and she told them the property was back on the market. It was put to her this conversation was in April and Mrs Young said she thought it was March. That is a time obviously before termination, and perhaps was an answer that could be called on in aid of the defendant's cause. That this answer was volunteered by Mrs Young in this way and may have been against her interest, strengthens her credit. In answering this line of cross examination Mrs Young said she had never met the Zachers and she did not know who they were.
It was put to Mrs Young on the basis of Exhibit 4 that she had told Zachers that it may not be a quick sale as they needed to give the impression of a campaign; putting aside that there does not appear to be any basis for putting that proposition the answer was very forthright and direct and was to the effect that Mrs Young had told the Zachers nothing and that they had given the defendant a chance to settle and that they had received an unsolicited call from a relative of the Zachers and that she told that person that if anything happens to the sale she will let them know. Other evidence suggested this person was the brother-in-law of the Zachers. It was put to Mrs Young that she told the Zachers that a quick sale could be viewed negatively; again there is no basis for this for the evidence shows that was being said by the Zachers. In any event the answer was simply no and in evidence which I accept Mrs Young stated, in effect, that they (the plaintiffs) were making sure that they did the right thing and were trying to do everything they were told to do and they had not done this before and were under great stress.
When it was put to Mrs Young that they had never tested the market properly she replied that they had listed the property for six months initially and then allowed a long settlement. There was then Covid 19 and their business was in strife and then the defendants pulled out after dithering and that they, the plaintiffs needed to sell. Mrs Young said they (the plaintiffs) would give it eight weeks and if they could sell it straight away for the right price that is what they would do.
Both plaintiffs were also asked about Exhibit 1 which is an email dated 15 May 2020 from the plaintiffs to Mr Biggs thanking him for his detailed analysis of current market conditions and stating "it certainly isn't the ideal time to be marketing our primary residence!". It was put by the defendant that the use of an exclamation mark at the end of this sentence was of some significance and it was suggested that it was akin to a smiling face or at best good-natured frustration. Neither plaintiff agreed with that proposition. The likely author of the exclamation mark was Mr Young and he simply disagreed with what was being put. In my view there is nothing inconsistent in the plaintiff's case by the use of the exclamation mark.
Entirely consistent with Mrs Young's evidence, Mr Young also said that no offer had been made by the Zachers at the time of the text messages and he said that he wanted the Zachers to see the property. He was cross-examined on the 14 May email of Mr Biggs and stated that he understood there would be direct marketing including to all those who had previously inspected the property. There is no evidence that that did not occur, rather the evidence is that it did occur. Exhibit 1, dated 15 May, is I infer the plaintiffs' response to the 14 May email, and instructs Mr Biggs to go ahead with the marketing proposed by the 14 May email. At [26] of Mr Biggs affidavit he states that the marketing campaign was "reactivated".
Consistent with what is discussed in the reports of the experts including Mr Biggs, Mr Young referred to the media "doom and gloom" and the uncertainty in the community caused by Covid 19, and said that the Commonwealth Bank of Australia had said there could be a reduction of 20% to 30% in values. He also referred to the ABC news and said that they (the plaintiffs) were just trying to make an informed decision as to the best thing to do with a significant asset in a declining market based on information from various sources. He did not want to sell for less but also said who knew how long it would take to sell and he had a massive debt heading to a recession. He said very luckily they got a buyer out of the blue.
The evidence of the plaintiffs also set out their financial position as at the time of the termination of the contract. Apart from the challenge set out above there was no evidence to suggest that the position being set out was in any way inaccurate and I accept it. The plaintiffs were indebted in respect of the Moonee Beach property in an amount of approximately $980,000. The total debt secured over the Bonville property was approximately $1.9 million. I take that to be the total of the indebtedness in connection with both properties and any other debt they may have had. Another property had been sold in mid-2019 which had reduced their debt to that level. Mr Young at paragraph 23 of his affidavit says the sale of the Bonville property was part of the plan to reduce debt and downsize and I accept that.
At paragraph 25 Mr Young says that he was not in a position to delay the remarketing of the property due to the impact of Covid 19 on their business, the relocation of the wife's chiropractic business from Bonville to the rented premises in Coffs Harbour and the absence of rental income at that particular time from either the Mooney Beach property or the Bonville property. He does allow that they considered moving back to Bonville and either selling or letting the Moonee Beach property. That property had the best chance of being rented out quickly. It was in those circumstances they had their discussions with Mr Biggs and they decided to "give it a go and remarket to see if there was any possibility of selling".
Mr Young said or described his position as being an invidious one and states their decision was to remarket and allow an eight week period to see if there was any interest and make a decision if the property did not sell. He refers to the 14 May email. It is that email which sets out, after the termination of the initial contract, recent sales, the impacts of Covid 19 on the property market and the marketing strategy for the Bonville property. It is also by this email that Mr Biggs advises the plaintiffs that the impacts of Covid 19 and the required selling timeframe may result in a lower sale price, "perhaps in the order of a 10%-20% reduction".
[3]
The expert evidence
The defendant relied on a report of David Bird an expert valuer. The report was dated 25 October 2021 and expressed the opinion that as at a valuation date of 13 May 2020 (which is the date of termination and also the date the plaintiffs instructed their agent regarding remarketing the property) the Bonville property had a value of $1,350,000.
In addition to expressing an opinion as to the value of the property as at 13 May 2020 Mr Bird also expressed an opinion as to what marketing should have occurred to present the property to the market. In section 7.3 of his report at [2] he stated that what must be called into question is whether the period of three days could in any way be considered "proper marketing".
Mr Bird includes in his definition of market value an element of proper marketing. He defines market value at [1] of section 7.3 as being "the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arms length transaction after proper marketing and where the parties had each acted knowledgeably prudently and without compulsion". The plaintiff made the point that in fact there had been 13 days before the property was taken off the market. With respect it is unlikely the additional 10 days would alter the view expressed by Mr Bird.
In cross examination what was then put to Mr Bird was paragraph 26 of the affidavit of Christopher Briggs the real estate agent referred to above. That paragraph sets out what actually occurred with the marketing campaign for the second sale. It emerged from the cross examination that the marketing campaign outlined by Mr Biggs is one that Mr Bird considers appropriate and indeed in some respects goes beyond what he had suggested, for example using premium paid positioning on a particular website as opposed to just the usual listings (see 7.3 of his report at [6]).
Significantly in my view in answering this question as to premium paid positioning Mr Bird stated "I was anticipating a standard marketing campaign for this particular property". He was then asked about [6] of section 7.3 of his report, the effect of which is to assert a marketing period of a minimum of 2 to 3 months. When being asked about his views on the marketing campaign he stated that paragraph was a "general statement". In questions shortly after when challenged as to suggested newspaper advertising when it was put to him that the local newspaper no longer either existed or carried such advertising he stated that his comments as to marketing go to the typical property such as the subject property.
In other words the opinion being expressed as to a marketing campaign as being some 2 to 3 months is a generic one. It has no reference to the particular facts and circumstances of this particular property and the circumstances in which the plaintiffs found themselves at the time. In my view it is not enough for the defendant to show that a valuer considered the property was worth more than what it sold for to show that the conduct of the plaintiffs was unreasonable. It is but one factor that can be taken into account. Nor is it sufficient to make out that proposition to show that in the opinion of one valuer assessing the matter in a general way the marketing campaign should have been some 2 to 3 months.
The real complaint of Mr Bird was exposed as being not what the marketing campaign consisted of, but rather that it was too short. Yet when that position was tested, the evidence of Mr Bird was in my view unsatisfactory. When it was suggested to him that had the plaintiffs received on his hypothesised 2 to 3 month marketing campaign a good offer on the first day whether they should accept it he said he cannot answer that. With respect I found the answer to somewhat dodge the question; if a good offer was made on day one of a marketing campaign it is reasonable to expect that a person who puts himself forward as being skilled in marketing expertise would have an answer as to whether some other marketing device should be deployed to extract a better offer or alternatively to accept that if it was in line with the valuation.
In any event putting aside the expert evidence, common sense would suggest that if an offer acceptable to a vendor was made at some time before the completion of a proposed two or three month marketing period it would be a reasonable thing to accept it.
It is also significant that Mr Bird's report dealt with the Covid pandemic. In his report at paragraph 6.3 he provides a Covid 19 commentary. It transpired that that was largely material adopted from guidelines or protocols provided by the Australian Property Institute. In the report and in the protocol it is acknowledged that the real estate market was being impacted by the uncertainty caused by the Covid 19 outbreak. That paragraph goes on to say:
"the value assessed herein may change significantly and unexpectedly over a relatively short period of time (including as a result of factors that the valuer could not reasonably have been aware of as at the date of valuation). We do not accept responsibility or liability for any losses arising from such subsequent changes in value. Given the valuation uncertainty noted we recommend that users of this report review is a way should periodically".
The reference to a value changing significantly in my view must mean a decrease as well as an increase given the reference to losses. In other words Mr Bird accepts that due to the uncertainty of Covid 19 the value of property may change significantly and unexpectedly over a relatively short period of time. Whilst the evidence orally given by Mr Bird was to suggest that despite the fears held at the time of the beginning of the Covid period, which was March 2020, and I would note in the lead up to the termination of the first contract so that there would have been in my view a very heightened period of uncertainty at the time the plaintiff had to make the decisions that they had to make, his own report allows for the prospect that the value may lessen significantly and unexpectedly over a short period of time.
In the affidavit of Mr Biggs (a real estate agent, not a valuer) he annexes the 14 May email. Part of that email deals with the impact of Covid 19. Under that heading he notes that the Covid 19 pandemic has undoubtedly had a significant impact on the property market and refers to some data showing a drop in market activity and that expensive housing markets are slowing the fastest whilst also noting housing values appear to have remained stable though this is partly due to low volume of listings. He concludes that section by expressing the view that the impact of Covid 19 and the required selling timeframe may result in a lower sale price perhaps in the order of a 10% - 20% reduction.
Thus there is a consistency in the reports of both Mr Bird and Mr Biggs. They both allow for the fact that in the circumstances of Covid there was a prospect of the value of the property falling. The distinction between them is that Mr Bird could also be interpreted as suggesting that the fluctuation could also be positive.
There was a report of a second valuer, a Mr Munro retained by the plaintiffs. He was not cross-examined. His opinion was sought as to how much had the market been affected at the time the property was resold in April/May 2020 and also as to what were the prevailing market conditions at the time of sale. On page 3 of his report he notes that in April 2020 sale volumes were notably slowing and there was market uncertainty prevailing from March to May 2020. He expressed the view that increased market uncertainty and reduced purchaser confidence was evident. He states the reduction in supply coincides with a reduction in demand and an expected lengthening of selling periods. He says the extent of decline in values was uncertain but that market sentiment was viewed as volatile. These views were unchallenged. They are also consistent with the views of Mr Biggs and Mr Bird (though allowance is again made for the possibility on the approach of Mr Bird for property value to increase as well as allowing for the possibility of a decrease). I accept the views expressed by Mr Munro in this regard.
As to the prevailing market conditions Mr Munro notes that there was a significant shift in the way property was marketed and sold as a result of lockdowns, social distancing and government regulations. He says at page 4 that adapting to online marketing campaigns and virtual inspections and many other limitations saw buyer enquiry reduced significantly as buyers retreated from the market. He goes on to note that it had been reported by the National Australia Bank that double-digit falls in property values could be expected. He then refers to the same API material that Mr Bird referred to relating to market uncertainty. He concludes "that the market was affected in March/April/May 2020 with the Covid 19 downturn having a dramatic impact on agent activity and listings volumes". He expressed the opinion there was market uncertainty at this time in the local market place. Again these views were unchallenged and I accept them.
The conclusions and the findings that I reach based on this expert material could be shortly stated as follows:
46.1. Each of the experts acknowledges the market uncertainty existing at the time of entering the second contract as a result of Covid 19.
46.2. Each of the experts acknowledges that the effect of market uncertainty is that the values of the property could change significantly in a short period.
46.3. Each of the experts acknowledges that that change in value could be in a downward direction with only the report of Mr Bird leaving it open that there may be an increase, a view that is connected with his view in hindsight that there had not been a decrease in value.
46.4. The only expert volunteering some quantification of the potential decrease was Mr Biggs who was the person conducting the sale campaign for the plaintiffs. Notably he told them by the 14 May email at about the time the offer of the Zachers was received and prior to exchange with the Zachers that the decrease could be in the range of 10% to 20%. The decrease from the price of the initial contract of $1.35 million to $1.165 million is 13.7%, so within the range advised by Mr Biggs to the plaintiffs.
In assessing the expert evidence it is relevant to note that Mr Bird's valuation was a valuation carried out in October 2021 to determine the value of the property as at May 2020. He was conducting that valuation as he himself acknowledged in hindsight, that is knowing the actual impacts of Covid 19 in the period between May 2020 and the date of his valuation in October 2021 and having seen how the market did in fact react. For that reason I find his report provides little support for the defendant. What needs to be assessed is the reasonableness of the behaviour of the plaintiffs as at May 2020 in the circumstances in which they found themselves. In this regard, as already noted, Mr Bird allowed for the possibility of a significant change in a short period, which I infer includes a decrease in value.
[4]
The authorities
As noted above the plaintiffs seek to recover pursuant to clause 9.3.1 of the initial contract. Clause 9.3.1 was considered in Galafassi v Kelly [2014] NSWCA 190. At [152] it was said the effect of the clause is that monies payable under it are payable as liquidated damages. In this case the evidence clearly establishes a deficiency on sale subsequently of $185,000 being the initial contract price of $1.35M less the second contract price of $1.165M. The plaintiff has also claimed the reasonable costs and expenses arising from the defendant's non-compliance and some legal fees as well as interest about which there is no issue. When credit is given for the deposit monies held of $67,500 the plaintiff's claim amounts to $133,378.92.
There is no issue in this regard, that is, as to either the breach or the quantum with one exception. That exception is that the figure representing the deficiency on sale of $185,000 should be reduced by such amount as I consider appropriate. The basis on which it is said that this should occur is because the plaintiffs had a duty to take all reasonable steps to mitigate the loss caused by the defendants breach of contract and failed to act reasonably so as to mitigate their loss.
That challenge was founded on the facts that the contract was terminated on 13 May by which time there had already been contact between the plaintiffs and the Zachers with a sales notice being issued on 18 May and the second contract being exchanged on 28 May. This was said to evidence the alleged failure by the plaintiffs to properly market the property. The contention of the defendant is that the plaintiffs should not have sold the property to the Zachers at the time that they did for the price that they did but rather they should have not sold the property then, continue to market the property for anything up to 8 weeks or on the evidence of Mr Bird 2 to 3 months and at the end of that time (or during that time? depending on any offer received?) then proceeded to sell.
The nature of the vendors duty on resale in connection with clause 9.3.1 was discussed in Galafassi. The Court noted at [154] that as a matter of principle the so-called duty at common law to mitigate loss does not apply to a claim for liquidated damages. At first instance in Galafassi that approach had been taken. Another approach is to view the vendors duty to mitigate loss as arising from an implied term of the contract. At [156] this duty under the implied term was said to be "akin to the common law duty to mitigate loss". It was not argued that if one approach rather than the other was adopted the result would be any different. At [157] it was said that on either approach the purchasers bore the onus of proof that the vendors had not acted reasonably in respect of the resale.
I note in Galafassi the complaint of the defendant as to the plaintiff being unreasonable was that the resale occurred without a marketing campaign and without an auction. The trial judge found the defendant had not established that the plaintiff had not acted reasonably, and the appeal on this point failed. One matter the trial judge took into account was the evidence that a full marketing campaign would not necessarily have made a difference, as the agent had been in touch with buyers (or perhaps potential buyers) who had previously contacted him.
In Bydand Holdings Pty Ltd v Pineland Property Holdings Pty Ltd [2009] NSWSC 1159 the plaintiff claimed a loss on resale of a property following termination under the same clause 9.3 as is relied on in the present case. The defendant claimed the plaintiff had sold at an undervalue and also had not acted reasonably in accepting an offer that was less than another offer that had been made. The defendant was unsuccessful; on the latter point because, inter alia, the larger offer was subject to what the judge described as "heavy conditions", and on the former point predominantly because he preferred the plaintiff's valuer to the defendant's on the basis that the defendant's valuer was not prepared to consider what was happening in November 2008 to be a fact; see at [63]. What was happening at that time was the Global Financial Crisis. This supports the views expressed above in relation to the valuation of Mr Bird and his hindsight approach.
Further in respect of the question of valuation, in Galafassi at [166], Gleeson JA accepted that valuation evidence was relevant but not determinative of the question as to whether the plaintiff had exercised the power of resale in a reasonable manner.
[5]
Has the defendant established that the plaintiffs did not act reasonably?
To determine whether the plaintiffs acted reasonably requires a consideration of all the facts and circumstances of the case. It is relevant to consider the circumstances in which the plaintiffs found themselves. In this regard based on the findings above the position was as follows:
55.1. The plaintiffs had been planning their "downsizing" since March of 2019, and to this end had purchased the Moonee Beach property, and intended to further this plan by selling the Bonville property.
55.2. They were in debt to the amount of $1.9M, and with their major assets being revealed by the evidence to extend only to the Moonee Beach property, the Bonville property, and their business.
55.3. With the onset of Covid 19 just prior to the termination of the initial contract their business had declined by about 70%, and they had to terminate 4 long standing employees.
55.4. In anticipation of the initial contract completing, they had arranged for the tenant of the Moonee Beach property to vacate, so that the rental income from that property had ceased.
55.5. Also in anticipation of the initial contract completing they had rented an office to conduct their business, incurring a rent expense previously not incurred as it had been previously conducted from the Bonville property.
55.6. The Covid 19 pandemic had created an environment generally of great uncertainty, with lockdowns, social distancing and other restrictions.
It was in these circumstances that the plaintiffs did the following:
56.1. They encouraged the overtures being made to them by the Zachers.
56.2. They appropriately engaged with the agent. They sought his advice which was given by 14 May email, and by their email of 15 May they instructed him to proceed "ASAP" with the marketing so they could "lets see whats out there". That is, the marketing campaign was commenced, as was also evidenced by Mr Biggs affidavit at [26]. This included contacting all previous prospective purchasers.
56.3. That marketing campaign was one the defendant's expert considered appropriate, but for the time at which it ended due to the acceptance of the Zachers' offer.
56.4. There is nothing in the evidence that says that the acceptance of the Zachers offer was against the advice of Mr Biggs; indeed I would infer the position to be neutral in that regard at best for the defendants and arguably it is open to infer the agent was in favour of the sale. There is certainly no evidence that he was against it.
56.5. They did not accept the first offer of the Zachers of $1.1M. They negotiated with the Zachers to the effect of achieving a second offer of $1.15M, and a third offer of $1.165M, which they accepted.
56.6. The price agreed upon was within the range of decrease advised by Mr Biggs. That is, in a time of significant market uncertainty, the price accepted was within the price range of the selling agent.
56.7. They kept the property on the market after the price had been agreed with the Zachers until the second contract was exchanged on 28 May 2020.
Notably all the above factors are factors favourable to the plaintiffs as having conducted themselves reasonably. That of course is not the appropriate test. The onus is on the defendant to show that the plaintiffs have not acted reasonably. With respect the only factor the defendant can point to is that the sale advice for the second contract was issued only three days into the marketing period. Putting aside that the property remained on the market for a further 10 days after the sales notice, at which time the second contract was exchanged, there is no evidence that some better price would have been achieved had the marketing campaign continued for 8 weeks.
Although it is possibly speculative to say so I agree with the sentiment of the submission made on behalf of the plaintiff that had this offer of the Zachers been disregarded and an 8 week marketing campaign been engaged in as suggested by the defendant, and the Zachers offer then was lost, the plaintiffs no doubt would have been laid bare to an assertion by the defendant that they ought to have accepted the Zachers' offer.
I consider the actions of the plaintiffs to be eminently reasonable. I arrive at this conclusion without taking into account that it is obvious from the chronology that the property was not one that was likely to sell quickly given that it had taken six months to find a buyer in the previous year and only then on terms that saw a delayed settlement and one but not two extensions of the ultimate completion date. Without any disrespect intended to the defendant, viable purchases were thin on the ground.
Put another way, there is nothing that is unreasonable in the facts of this case to accept the Zachers' offer so early in the marketing campaign. It was in all the circumstances an offer within expectations and reasonable to be accepted. The sale price was within that reduction spoken of by Mr Biggs as being between 10% and 20%.
[6]
Sale at an undervalue ?
The only evidence of this sale being at an undervalue was that of Mr Bird. Whether or not the property was being sold at an undervalue must be something that needs to be assessed in the circumstances as known at the time of the sale. As discussed at [41] above Mr Bird valuation does not take that approach but rather is a valuation conducted in hindsight knowing what was not known at the time of the decision to sell.
The better evidence as to the value of the property is that contained in the 14 May email. The price achieved was within the range of reduction estimated in that email. As discussed above, that advice is in line with the unchallenged evidence of Mr Munro, and to some extent also with the views of Mr Bird.
I therefore conclude that there has not been a sale at an undervalue.
Furthermore, if that be wrong and if the valuation of Mr Bird was accepted so that the fact of undervalue is established in my view that does not amount to establishing that the plaintiffs have not acted reasonably; as noted at [54] above, it is relevant without being determinative. In this case the plaintiffs were acting in the circumstances as at May of 2020 and when those circumstances detailed above are taken into account my view is that they have acted reasonably even allowing for a finding of the sale being at an undervalue. To be clear however I do not consider that that has been established by the evidence in any event, particularly when even Mr Bird allows for significant market uncertainty meaning there could have been a significant change in value over a short period as at May 2020.
The result will therefore be a judgment for the plaintiff. The amount of the judgment will be that as calculated in the plaintiff"s amended schedule of damages of $133,378.92, subject to any application by the plaintiff for any slight variation in the amount of interest as that calculation is now five days out of date.
[7]
Orders
Judgment for the plaintiff in the sum of $133,378.92, subject to any adjustment for further interest until the date of judgment.
Subject to any further submissions made in relation to costs the defendant pay the plaintiffs' costs.
[8]
Amendments
15 March 2022 - Change of name to case
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Decision last updated: 15 March 2022