STUART EARLE (REAL ESTATE) PTY LTD v BAINES SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL SAMUELS, MCHUGH and CLARKE JJA 25 March 1988 [1988] NSWCA 149 PRINCIPAL and AGENT — appeal from District Court — breach of term implied by law that agent would execute mandate with care skill and diligence — damages — loss of opportunity to resell property after sale rescinded by purchaser on account of vendor's agent's innocent misrepresentation — no question of principle — appeal does not lie from order of District Court judge striking out third party notice — not within s128(2A) — Fraser Credits Pty Ltd v Osterberg-Olsen [1978] 1 NSWLR 121 applied although reluctantly by McHugh JA calling for legislative reassessment — no other question of principle. Samuels JA The first and second respondents, Mr and Mrs Baines, were the owners of land at Londonderry which, in August 1981, they listed for sale with the appellant, a real estate agency which, at the time, employed as a salesman the third respondent, Mr Claydon. On 22 September 1981 the vendors, Mr and Mrs Baines, exchanged contracts with a family called Van der Berg to-sell the property for $80,000, less the stamp duty, which the vendors agreed to pay by dint of a special condition in the contract, producing a net price of $78,400. Completion was to take place on 1 November 1981. In October 1981, however, the purchasers' solicitors gave notice to the vendors' solicitors that the purchasers had no intention of proceeding with the purchase because of the pooling of water on the property. The vendors' solicitors served a notice to complete expiring on 9 December 1981, and on 1 December 1981 the purchasers riposted with a notice of rescission claiming as a latent defect that the land was affected by flooding. On 15 January 1982 the vendors filed a summons for specific performance and on 26 February 1982 the purchasers cross-claimed for rescission and a return of their deposit of $8000 and interest. I should interpolate here that subsequently the summons for specific performance was, as it was put at the Bar table, transmogrified into a claim for damages and ultimately the contract for the resale of Mr and Mrs Baines' property was executed on 26 July 1982. It is admitted that in the proceeding before Wootten J in the Equity Division, that is to say the claim for damages and for rescission, the learned judge found that Mr Claydon had innocently misrepresented, there being no allegation of fraud, that the property was not subject to flooding in the curse of showing it to the purchasers. This misrepresentation, it was held, justified rescission and Wootten J made orders in favour of the original purchasers, the Van der Bergs. Mr and Mrs Baines then commenced these proceedings against Mr Claydon and the appellant seeking damages for breach of contract and for breach of duty. The amended statement of claim is not perhaps a model of clarity and concision but it does assert, amongst other allegations, a breach by the appellant of the term implied by law into every contract of agency, that the appellant would bring care skill and diligence to the performance of its mandate, a duty, I should add, which 2 UNREPORTED JUDGMENTS includes a promise of the care skill and diligence of those whom the agent employs in order to carry out the engagement to the principal. The action came on before Mahoney DCJ in November 1986 and the learned judge arrived at conclusions which he summarised in this way he found in favour of the assertion that Mr Claydon had made the statement which constituted a misrepresentation, and having then preferred the version of the Van der Bergs, he went on to hold that there had been a breach of what his Honour described as the Hedley Byrne duty of care derived from the well known case of Hedley Byrne and Co Ltd v Heller and Partners Ltd [1964] AC 465, owed by Mr Claydon and, vicariously, by the appellant. On that footing Mahoney DCJ proceeded to assess the damages in a total sum of $21,084.25. I will come in a moment to the ingredients of that total sum. The appellant, in its notice of appeal, attacks both the basis of liability which the learned judge adopted and his assessment of damages. Mr Claydon did not appeal. He appeared in person at the trial and today appeared again in person seeking an adjournment of the appeal. He said that during 1987 he and his family had been away travelling extensively in Australia and thus not in residence at his house at Pitt Town which he had let. They had returned early this year and on 4 February the notice of appeal was served on his wife. An amended notice of appeal was then posted to him in an envelope which was postmarked 14 March and notice of the hearing today - this appeared not from his evidence but from an affidavit filed on behalf of the appellant - had been given by dint of a letter which I think was dated 10 March. He had sought legal aid on 22 March. No decision whether to grant it or not, of course, has yet been made, and he sought the adjournment to enable him to obtain advice. We took the view that, bearing in mind that this appeal had been expedited - although the expedited date failed because a transcript of the judgment was not available - on the grounds of Mr Baines' hardship, it would be a proper reflection of the fairness and balance of convenience of the case if we proceeded with the appeal, but reserved the possibility of not making final orders if it seemed that a third party notice by the appellant against Mr Claydon was likely to be restored to life, that being one of the grounds which the appellant proposed to argue. I will return to that presently. One further matter which I shall mention before returning to the main narrative is that we were informed from the Bar Table, but without any objection, and we therefore take it to be the case, that on the Friday, this case having lasted a whole week before Mahoney DCJ, when it came Mr Claydon's turn to address, the judge informed him that he could not hear him on any submissions of fact or law. We do not know what the basis of this proscription was, The statement did form ground of appeal Il in the appellant's notice of appeal, but the appellant, reasonably enough, did not proceed with it since it was not a matter which was of direct concern. However, it may be of concern to Mr Claydon, and this is another matter to which I will come in a moment. I, for my own part, am extremely dubious, with all respect, that the holding of the learned judge upon which he based Mr and Mrs Baines' recovery, was sound. There can be no question that the finding was well open to him that r Claydon had made the misrepresentation asserted. Mr Whittle for the appellant did not seek to argue the contrary and, if I may say so, that was a wise concession since there was ample material to support a finding which typically encapsulates the advantage of seeing and hearing witnesses, open to the trial judge, but denied to us. URJ STUART EARLE (REAL ESTATE) PTY LTD v BAINES (Samuels JA) 3 But even so, it is difficult to see how the judge then proceeded to found upon a breach of the duty in Hedley Byrne, or why he declined to deal with the matter very much more simply by applying himself to the implied term to which I have already referred. Clearly that point was argued and the trial judge, having evinced some reluctance to imply the term asserted, nonetheless expressed the view that some implication was proper but did not go on to indicate how he himself would have formulated it. I do not think it can be doubted but that the term to which I have referred is a term to be implied by law, and again counsel did not seek to argue to the contrary. That being the case the misrepresentation amounts to a breach of the contractual duty to act with care skill and diligence and a breach of the contract of agency results. So far there is really little contest. At this point, however, the matter becomes more complex because the assessment of damages is not entirely straightforward. The learned judge, first of all, awarded the sum of $4400 as the difference between the net figure in the contract between Mr and Mrs Baines and the Van der Bergs and the figure of $74,000 which was the amount of the sale ultimately effected. This he did on the footing that the vendors were entitled to recover this differential because a consequence of the breach had been to bring about a loss of their bargain. With respect, I think in this the learned judge fell into error. I cannot see that this is a case where loss of bargain is of any relevance and the subsequent sale, and the figure at which the property was disposed of, are relevant for a different purpose to which I will now turn. The second item in the learned judge's assessment of damages was the sum of $6000 which was interest at ten per cent on $80,000 from 9 December 1981, which was the date fixed for completion in the notice to complete, and 3 September 1982 which I take it was the date of completion of the second and final contract. In my view the learned judge was correct conceptually in what he endeavoured to do. The vendors were entitled to a sum which would compensate them for the delay in which the misrepresentation and the subsequent litigation, for some part of its time, had involved them. By reason of the engagement to the Van der Bergs, which was not completed, and the subsequent litigation, they had been deprived of the opportunity to put their property back onto the market and to dispose of it earlier than they were, in fact, able to do. To translate that principle into money requires, primarily, the use of two figures. One is the sale price of the property and the second is the period during which the vendors were delayed in reselling. The argument put by Mr Cassidy, leading counsel for Mr and Mrs Baines, was that there was evidence upon which one could legitimately conclude that the price lost was $80,000 or $79,000 which was said to be a valuation made by the appellant. However, there is no evidence which satisfies me that the market was likely to have yielded a price of $79,000 at any period from September to the ultimate sale twelve months later. The price at which the Van der Bergs were prepared to buy does not, in my view, provide the missing element. I would, therefore, take $74,000 as the figure at which this property might have been sold on the market during the period in question. Next it is necessary to consider for how long the vendors were held up in disposing of their land. There can be no doubt that being committed to the Van der Bergs from September to December 1981 they could not endeavour to resell during that period. Then they are entitled to a period in which the action got 4 UNREPORTED JUDGMENTS under way and in which they were entitled to consider what their position was and whether they would persist in seeking specific performance or content themselves with an action for damages. It is not possible to be precise in such a calculation. Indeed one should not characterise it as a calculation; in almost every case it is no more than a refined conjecture. I would add another three months to the first three months period and I would therefore allow a period of six months as indicating the time during which the vendors were delayed. This then yields six months interest at ten per cent per annum on $74,000 which is $3700. But that, of course, assumes the certainty of a resale, whereas this calculation must be based upon some assessment, doing the best one can, of the chance of Mr and Mrs Baines having been able to sell their property during that period. It would seem to me that fifty per cent would be a reasonable answer, bearing in mind that the property had been on the market for a not unsubstantial period before the sale was concluded to the Van der Bergs. That would produce $1850, but in order to dispose of the spurious suggestion that this is a calculation of any accuracy, I would propose rounding off the figure to $2000 which, therefore, becomes the first element in the re-calculation. There is no dispute but that the vendors are entitled to recover as damages that which would have been in the contemplation of the parties at the time they made their contract as not unlikely to result from a breach; and thus the costs they incurred in consequence of the proceeding in Equity. Those figures are $7705 party and party costs which have not yet been paid, and a figure of $1257.25, their own solicitor and client costs which have been paid. Both of those figures are recoverable in addition to the sum of $2000 which I have just mentioned. That then leaves the question of interest. Mr Cassidy has helpfully indicated that he would be content with interest on the first of these figures, notwithstanding that that is a calculation of interest. It is really damages and is not, I think, an infringement of the rule against awarding interest on interest; plus interest on the figure of $1257 for costs that is a sum of $3257. Since I will indicate in a moment that we propose to delay making final orders and to stand this matter over for two weeks or so, what is proposed is that we should invite the parties to calculate that last amount of interest. If I may then recapitulate what appears to be the total amount of damages: firstly $2000; secondly $7705; thirdly $1257.25 - total $10,962.25, plus interest at the rates to be agreed by the parties on $3257. I have been reminded by my brother McHugh that I have not indicated the period during which interest is to be calculated. So far as the figure of $2000 is concerned, or indeed as far as both figures are concerned, I would once again accept the helpful submissions made by Mr Cassidy and order that interest on the first of those figures should run from 1 July 1982 to the date of judgment, ie II November 1986, and on the costs from 28 July 1983 until 11 November 1986. We will provide that the judgment shall take effect from the date of the judgment below. McHUGH JA: I agree with what has been said by Samuels JA. CLARKE JA: I agree with the reasons of Samuels JA. SAMUELS JA: That leaves one other thing before we come to the questions of costs, and that is the third party notice to which I referred briefly earlier. The appellant filed a third party notice seeking indemnify from Mr Claydon against any sum which it might be ordered to pay to Mr and Mrs Baines. This came URJ STUART EARLE (REAL ESTATE) PTY LTD v BAINES (Clarke JA) 5 before Ford DCJ who, in effect, struck out the third party notice. He made a conditional order and the condition remaining unsatisfied, the third party notice failed. The appellant has appealed against that order and it has been met with a submission that the order of Ford DCJ was not a ruling, order, direction or decision in an action within the terms of s128(2A) of the District Court Act so that an appeal does not lie under that provision. This subsection has been dealt with in two decisions of this Court, at least. The first, and the one usually referred to, is Fraser Credits Pty Ltd v Osterberg-Olsen [1978] 1 NSWLR 121, where it was held that no appeal lay from a refusal to set aside a default judgment, that not being a ruling or order, etc, in an action. In that case and also quite recently in Paraharalambous v Champion Spark Plug Co (Aust) Pty Ltd (unreported, Court of Appeal, 6 December 1985) the difference between actions and proceedings ancillary to actions was emphasised. In my view the order, in effect striking out a third party notice is not an order in an action but an order in a proceeding ancillary to an action. I need not, I think, recapitulate the arguments which were presented in the cases to which I have referred or the details of the judgments. It seems to me that the point is now covered by authority and that the appeal does not lie. As a result that third party notice is not on foot and there is no claim for recovery by the appellant against Mr Claydon. McHugh JA I agree with what Samuels JA has said about the incompetency of the appeal concerning the interlocutory order made by Ford DCJ. The course of authority on s128 seems to me to compel that result. The decision in the present case presses Fraser Credits Pty Ltd v Osterberg-Olsen [1978] 1 NSWLR 121 to its logical conclusion. The cases on s128 give rise to some very unsatisfactory situations. Appeals which, as a matter of justice and the ordinary practice of the courts, should come up here, are incompetent. I think the time has come for the legislature to reassess the operation of s128 of the District Court Act. Clarke JA I also agree. Final orders were made on 25 May 1988. The order, in effect striking out a third party notice is not an order in an action but an order in a proceeding ancillary to an action. The point is now covered by authority and the appeal does not lie. As a result that third party notice is not on foot and there is no claim for recovery by the appellant against Mr Claydon.