BLACKMAN v THOMPSON and ORS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KIRBY P, MAHONEY and POWELL JJA 13, 14 October 1993, 16 December 1993 [1993] NSWCA 25 TRUSTS — breach of trust — equitable relief proper to circumstances — real estate agents take advantage of withdrawal of purchaser from sale of property to acquire property for themselves — property involved in matrimonial dispute between wife and husband — trial judge (Brownie J) finds breach of duty by agents but refuses to order re-transfer of property to husband for the benefit of the wife, as sought by her — orders instead equitable compensation and return of part agent's commission — on appeal by wife (now divorced) — held: (Mahoney JA; Kirby P and Powell JA concurring): REAL PROPERTY — real estate agent — duties of — scope of duties — obligation to use information received for the exclusive benefit of the principal and not for its own benefit — obligation to account for private advantage secured by agents — obligation to return profit derived by agents — obligation in ordinary case to submit to avoidance of sale and retransfer of property — fashioning of orders appropriate to remedy breach of trust by way of avoidance of sale — equitable compensation and recovery of commission — discussion by Mahoney JA (Kirby P and Powell JA concurring) of applicable principles. (1) The real estate agents owed a fiduciary duty to the husband not to make any private profit or gain from the transaction for their own benefit and were (as conceded) in breach of that duty. Greenwood v Harvey [1965] NSWR 1489 (SC) applied; (2) It would be assumed that the wife was entitled to enforce duties of a fiduciary nature against the agents as owed to her husband; (3) In the ordinary case, retransfer of a conveyance of real property made in breach of trust will be ordered; (4) However, in the present case, as the husband was unwilling to participate in such reconveyance and as the wife expressly declined to seek relief against the husband in the appeal, such relief should be refused; (5) The remedies provided by equity against breach of trust remain flexible. Chan v Zacharia (1984) 154 CLR 178; (6) However, in all of the circumstances, the discretion of the trial judge to avoid the sale and order reconveyance would be upheld and a proposed different order, proffered for the first time on appeal, by which the wife would indemnify the husband for the retransfer should be rejected in the face of his unwillingness to participate for reasons not apparently unreasonable; (7) The equitable compensation granted by the trial judge was not shown to be wrong and would not be disturbed. Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd (1966) 84 WN (NSW) (Pt1) 399 (SC) Kirby P I agree with Mahoney JA. Mahoney JA Mr Blackman was trustee for himself and Mrs Blackman of their matrimonial home. He employed a company, Castle Cove Real Estate Agency, as agent to sell it. The house was sold and it was transferred to the two directors of 2 UNREPORTED JUDGMENTS the agent company. It is accepted that they were bound by obligations of a fiduciary nature, that they broke their obligations by what they did in acquiring the property and that in the ordinary case Mr Blackman would have been entitled to avoid the transaction and have the property transferred to him. Mrs Blackman sued the company, its directors Mr and Mrs Thompson, and Mr Blackman. She claimed: that she was entitled to avoid the transaction and have the property revested in Mr Blackman; alternatively, that she was entitled to equitable compensation because of what had happened; and that she was entitled to miscellaneous associated relief in relation to the commission paid on sale or otherwise. The trial judge Brownie J held: that Mrs Blackman was not entitled to have the transaction avoided and the property revested in Mr Blackman; that she was entitled to equitable compensation; and that she was entitled to associated relief in relation to a proportionate amount of the agent's commission on sale. Mrs Blackman has appealed to this Court against his Honour's judgment. 1. THE FACTS: There is less to this appeal than appeared at the trial. A number of matters were disputed at the trial and his Honour made findings in relation to them. His findings are not contested by the agent company, Mr and Mrs Thompson or Mr Blackman. Some of the findings are contested by Mrs Blackman. However, it is not necessary to detail all of the matters raised in this regard by Mrs Blackman because, on the view I take, most of the matters raised by her have little or no bearing on the outcome of the appeal. I shall therefore state the main matters in summary form. However, in view of the submissions that were made, it is important to deal with one matter, namely, the breach of fiduciary duty which gave rise to the relief which Mrs Blackman has sought. The company acted as a real estate agent. Its function was, within the terms of its written authority, to sell the property for Mr Blackman. Accordingly, it owed fiduciary duties to him. Whether, in principle, such or similar duties were owed to Mrs Blackman is arguable. She was not party to the contract of agency made between Mr Blackman and the company: she was merely a beneficiary having an equitable interest in the property under the deed under which Mr Blackman held it. However, no objection has been taken, or pressed on this appeal, to Mrs Blackman's right to enforce duties of a fiduciary nature against the company and Mr and Mrs Thompson, its directors. That is not an issue in the appeal. The nature and extent of fiduciary duties depends upon the circumstances: see Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 73 per Gibbs CJ and 102-193 per Mason J. A person acting as a real estate agent owes duties of a fiduciary nature to the principal: see, for example, Regier v Campbell-Stuart [1939] Ch 766 per Farwell J; Greenwood v Harvey [1965] NSWR 1489 at 1492 per Asprey J; Bowstead on Agency (15th ed), Sweet and Maxwell, 1985, pp 11-13 and Article 47, Illustrations 17 and 18. See generally the Hospital Products case at 96-97 per Mason J; Meagher Gummow Lehane. Equity Doctrines and Remedies (3rd ed), 1992, par [538] et seq. The terms of such duties were referred to in McKenzie v McDonald [1927] VLR 134 per Dixon AJ; Haywood v Roadknight [1927] VLR 512 per Dixon AJ; Georgieff v Athans (1981) 26 SASR 412 per Walters J. See also Luxford Real Estate Agency (4th ed), 1964, pp 198 et seq. URJ BLACKMAN v THOMPSON and ORS (Mahoney JA) 3 It is in my opinion important that, for the purposes of this appeal and otherwise, the nature and extent of these duties be emphasised. The argument of Mr Broun QC for Mrs Blackman suggested the serious nature of what was done by the company and its directors and the suggestion was, I think, that this was relevant in determining what should be the relief granted against them. A real estate agent employed to sell property has, of course, the duty to do what, within the terms of its contract of agency, it can reasonably do to effect a sale to the best advantage of the principal. In doing this, the agent will have the opportunity to, and may have a duty to, inform itself appropriately as to the nature and advantages of the property and the opportunities for price and profit which it offers. This knowledge and appreciation of the property it acquires for the benefit of the principal and for the purposes of the sale. The agent owes fiduciary-duties to the principal. Accordingly, it is subject to duties and restraints of particular kinds. It must use the information which it has gained for the benefit of the principal and not for its own benefit. Thus, it cannot use the knowledge or position it has as agent for its own advantage. If, contrary to its duty in this regard, it derives an advantage for itself, other than that agreed under its contract of agency, that advantage must be returned to the principal and interest may be payable upon it. If a profit is derived, that profit is to be returned to the principal. This principle is enforced strictly. Experience has shown that there may be difficulty in showing whether the profit or advantage which an agent has acquired from a property was acquired because of the agent's special position or knowledge or merely from his own efforts. To prevent argument about these matters and, I think, to deter misconduct by an agent, the law has ordinarily held that, where trust obligations exist, the person bound by such obligations is not merely forbidden to take advantage of its position or information: it may not even put itself in a position where its duty to the principal conflicts with an interest of its own; and that, if the agent acquires a benefit, that benefit must be conveyed to the principal even though the principal himself could not or would not have entered into the transaction by which it was obtained. As I have said, these principles, in their strictest form, apply where a trust relationship has been established. To what extent they apply, and with what strictness, in a relationship of a fiduciary and not of a strict trustee nature, requires consideration in the particular circumstances and there is something of a discretion to be exercised in determining the precise relief to be granted: see Chan v Zacharia (1984) 154 CLR 178 at 204- 205 per Deane J. In addition, an agent is obliged, in the exercise of its agency and the employment of the knowledge which it has gained, to act in good faith for the benefit of the principal. Accordingly, where in the exercise of the agency opportunities occur which may advantage the principal, the agent will ordinarily be obliged to bring them to the attention of the principal and will not, of course, be entitled to use them to its own advantage. It is not necessary to pursue the application of these principles to the facts of the present case: it is accepted for the purposes of this appeal that breaches of fiduciary duty were committed by the company. The duties arising from the position of a real estate agent are not limited to duties binding the agent itself. An agent may not, in breach of its duty, use the position or information it has gained for the advantage of its friends or associates. To do so will often involve not merely a breach of duty but something in the nature of concealment or fraud. For that reason, a breach for the-advantage of friends and associates may be a breach of even more serious consequences. I do 4 UNREPORTED JUDGMENTS not mean by this that all benefits which chance to be acquired by friends or associates of an agent may be set aside as infringing equitable rules of this kind. Benefits granted to friends and associates which are in reality benefits to the principal will of course fall within this principle. But the principle extends beyond concealed benefits of this kind. It is sufficient for present purposes to note that the benefits which, in the circumstances of this case, Mr and Mrs Thompson have received are accepted to be in breach of the duties which arose from the contract and circumstances of execution of the agency. It is not in contest but that what occurred would ordinarily have entitled Mr Blackman to avoid the transaction and secure a revesting of the property. (I put aside for this purpose matters which, as between Mr Blackman, the agent and Mr and Mrs Thompson, might have affected the operation of this principle). I come now to the background against which the present proceedings fell to be decided. 2. THE ISSUES: There is essentially one issue for decision in this appeal: the nature of the relief to be granted to Mrs Blackman by reason of the breaches of fiduciary duty which occurred. Mrs Blackman, in her notice of appeal, limited the relief she sought to three things: the avoidance of the sale and the revesting of the property in Mr Blackman; alternatively, the grant to her of equitable compensation; and the recovery of the relevant part of the commission on sale received by the agent company from the transaction. As I have said, the trial judge refused relief of the first kind. He awarded her equitable compensation being, in substance, a one-half share of the difference between $300,000, the value of the property as at 31 October 1985, and the value of it at 15 September 1986. The precise amount was if necessary to be settled following an enquiry by the Master. And his Honour granted the relief of the third kind. On this appeal, Mrs Blackman has again pressed her right to the avoidance of the transaction and the revesting of the property in Mr Blackman. She has not, I think, raised substantial objection to the terms of relief granted in respect of the third matter and, if her claim for relief of the first kind is refused, there is, I think, no substantial contest in relation to that matter. In respect of the second matter, equitable compensation, she has claimed compensation on a more generous basis: the submissions suggest one half of the difference in value between 31 October 1985 and the date of the judgment in these proceedings. Mr and Mrs Thompson and the agent company have opposed relief of the first kind; they have accepted that relief of the second and third kind was rightly given. It is the position of Mr Blackman which has become important in determining whether relief of the first kind should be given. Mr Blackman does not wish that the transaction be set aside. Mr Robson, his counsel, claims that, contrary to a doubt expressed by the judge, this was his position throughout the trial. At the request of the court, he tendered during the appeal a written statement of his position in the following terms: "The Fourth Respondent does not consent to a reconveyance as sought in paral A of the Notice of Appeal." Counsel informed the court that Mr Blackman did not have the money to pay to the company or Mr or Mrs Thompson his share of the purchase price of $300,000. It followed from the submissions made that he did not claim anything in relation to the difference between the price on sale $300,000 and the value of the property at a subsequent date. URJ BLACKMAN v THOMPSON and ORS (Mahoney JA) 5 The reason why Mr Blackman took this position is not completely clear. It may be merely that he believed the transaction to have been one to which he had assented or of which he had knowledge to the extent that the transaction could be effected as it was. It may be he saw no advantage in pursuing any breach of duty which took place. It has not been suggested that, since the transaction, there has been any other transaction between him and the agent company or Mr and Mrs Thompson. It is proper to note that, in his judgment, his Honour found that Mr Blackman had affirmed the transaction. Mrs Blackman contends that that finding was wrong. I am inclined to think the finding was justified. But, for purposes of considering her submissions, I shall put aside the effect of that finding. 3. CONCLUSIONS: In my opinion, the court should not order that the transaction be set aside or that the property be revested in Mr Blackman. Were it not for the position of Mr Blackman, Mrs Blackman would, on the assumptions I have made, be entitled to have relief involving the avoidance and revesting of the property. This is relief conventionally given in an ordinary case: see Seton's Judgments and Orders (6th ed), Vol 3, at 2320-2322; Spry, "Equitable Remedies" (4th ed), 1990, at 168-169; Meagher Gummow Lehane, Equity Doctrines and Remedies (3rd ed), 1992, pars [2404] and [2407]-[2418]. It may be that, in an appropriate case, a trustee who has sold in circumstances amounting to a breach of fiduciary duty by his agent may be required to accept the avoidance and retransfer of the property to him even if he does not seek that, if it is in the interest of his beneficiary that it be so. The flexibility of equitable remedies may accommodate such a position. But in my opinion this is not such a case. Mr Blackman was not a bare trustee. The trusts on which he held the property involved that he have a half interest in it and that the proceeds of sale be applied, in the specified way, partly for his benefit and partly for the benefit of Mrs Blackman. Accordingly, his wishes are to be taken into account and any inequity to him is to be weighed. There are, in addition, two matters at least which are to be taken into account. First, Mrs Blackman has made it clear in this proceeding and in the appeal that she seeks no relief against Mr Blackman. She did not, I think, mean by this that he should not take as trustee her interest in the property as far as that could be achieved. But, as I understand her submissions, it was not suggested that Mr Blackman should be obliged to pay moneys or otherwise be the subject of orders for relief of that kind. In addition, no doubt in order that she achieve that he take no active part in the appeal, Mrs Blackman specified in her notice of appeal that the appeal was brought on the basis that no relief was sought against him and that accordingly he should not take any, or any other than a formal, part in the appeal. It was stipulated that she would oppose any order for costs otherwise than by reference to such a position. Second, it is not suggested that Mr Blackman was relevantly in any way in default in connection with the transaction. What occurred was not his fault and it has not been suggested that he could or should have prevented what occurred. The breach of fiduciary duty by the defendants did not take place in the effecting of the sale of the property, as such. That was a sale at full value. It may be that the fact that Mr Thompson was an original co-purchaser was a breach in that he was a director of the agent company and otherwise associated with it. But the more substantial breach occurred when the agent was told of the other purchaser's desire to terminate the contract and Mr and Mrs Thompson took advantage of that to acquire the property for themselves. They did that by buying out the other purchaser's interest under the contract: the contract which already 6 UNREPORTED JUDGMENTS bound Mr Blackman remained on foot. He could, of course, have claimed to set aside the contract on the ground that it involved an acquisition by them in breach of their fiduciary duty. But the case has proceeded here on the basis that no wrong is alleged for which relief is sought against him. This position is an unusual one. But it is relevant in deciding whether Mr Blackman should, against his will, be forced to participate in a reconveyance of the property to him and the return of moneys to the agent and its directors. Accordingly, I do not think that the court should order an avoidance of the transaction and a retransfer of the property to Mr Blackman. Mr Broun QC recognized, I think, the difficulties involved in conventional relief of this kind and the difficulties which arose from the way in which the proceeding had been conducted in relation to Mr Blackman. He therefore submitted, as an alternative, that a special form of relief should be fashioned which would give Mrs Blackman effectively the right to buy the whole of the property. At the trial she was apparently not in a position to offer to buy the property: at least, no firm offer was made to that effect. But, it is submitted, she now can buy and it is submitted that relief should be granted avoiding the transaction and vesting the property in Mr Blackman but upon terms that (as I understand the submission) Mrs Blackman indemnify Mr Blackman against liability to repay his part of the purchase price to Mr and Mrs Thompson and that Mrs Blackman purchase from him the total interest in the property. Mr and Mrs Thompson and the company have opposed such an order. Mr and Mrs Thompson have been living in the property for the period since the purchase as their matrimonial home. This is a matter to be taken into account in the exercise of the court's discretion but as their default led to the present problem, their personal hardship cannot be a determining factor. In my opinion, Mr Blackman should not be ordered to enter into a transaction or transactions of this kind. Orders of the kind sought would involve not merely the avoidance of the impugned transaction and consequent revesting; it is, I think, accepted that it would involve the imposition of an obligation on Mr Blackman to repay to the other defendants half of the price of $300,000 and it would involve, in addition, the imposition of obligations directed to giving effect to a further and separate transaction, viz, the purchase by Mrs Blackman of the one-half interest in the property which she did not own. She was not in a position to acquire that interest at the relevant time and it is because of circumstances not connected with the previous transaction or the default of the relevant defendants that she is now in such a position. I am conscious of the need to preserve flexibility in the grant of equitable relief: Chan v Zacharia (1984) 154 CLR 178. And it is proper to mark the breach of duty involved in the acquisition by Mr and Mrs Thompson of the property in the way that they did. But, having weighed the competing interests relevant to the formulation of the appropriate remedy, I arrive at the same conclusion as did the trial judge. I do not think that relief of the kind sought is the relief appropriate in this case. Icome to the equitable compensation. Mrs Blackman's claim is essentially that she should have half of the difference between the value of the property on 31 October 1985 (when the option for sale was granted) and the present time. The judge took, for this purpose, 15 September 1986, "being a date a reasonable time after the parties had had the opportunity to consider the reasons for judgment of Cook J and prior to the completion on 13 October 1986 of the contract of 17 December 1985". URJ BLACKMAN v THOMPSON and ORS (Powell JA) 7 The assessment of equitable compensation is essentially a discretionary matter in which, in the relevant sense, the trial judge weighs the real merits of the parties and does substantial justice between them. See generally Ex parte Adamson (1878) 8 ChD 807; Nocton v Ashburton (1914) AC 932; Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd (1966) 84 WN (NSW) (Pt1) 399. In seeking to achieve an assessment of the loss which has been suffered by a breach of equitable obligations, the court may, I think, take into account the time when the breach became apparent. At the trial, there was dispute as to what happened in proceedings before Cook J in the Family Court and what then became apparent to those concerned. It was, I think, by reference, inter alia, to his conclusions in that regard that the judge fixed 15 September 1986 as the relevant date for assessment of compensation for the breach of fiduciary duty and the damage which flowed to Mrs Blackman from it. He took the view, I think, that by then Mrs Blackman could and should, for this purpose, have pressed her rights. As she was not to achieve the rescission of the sale and the reconveyance of the property, that was the date at which the damages to be recovered by her should be assessed. I see no error in principle in this. Whatever be said as to the judgment of Cook J or the Family Court proceedings, I see no other date as being more appropriate than the date chosen by the trial judge. I do not think that this part of the order should be disturbed. Accordingly, I am of opinion that the appeal should be dismissed with costs. Powell JA I have read in draft the Judgment of Mahoney AP. I agree with His Honour's reasons and the Order which he proposes Appeal dismissed with costs. Counsel for the Appellant: MD Broun QC/N Morrison Counsel for Ist, 2nd and 3rd Respondents (Real Estate Agents): IG Harrison/J Waters Counsel for 4th Respondent (former husband): J Robson Solicitors for the Appellant: White Barnes Solicitors for 1st, 2nd and 3rd Respondents: Barnetts Solicitors for 4th Respondent (former husband): Gillis Delaney Brown