MALKI v NICHOLAS & MANN REAL ESTATE PTY LTD SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL PRIESTLEY JA, HANDLEY JA and BEAZLEY JA 1 September 1998 [1998] NSWCA 285 BREACH OF FIDUCIARY DUTY Priestley JA. This is an appeal from a judgment in the District Court dismissing a claim which, as pleaded, was based on breach of fiduciary duty in the following circumstances. The plaintiff was the owner of premises at 566 Parramatta Road, Petersham. In 1993 he was trying to sell those premises. He obtained as his estate agent the first defendant, a company called Nicholas and Mann Real Estate Pty Limited. The person he dealt with in that company was Mr Taylor. The second defendant became the purchaser of the property from the plaintiff. The shareholders and directors of the second defendant were Mr Taylor and his wife, and Mr Spisevski and his wife. The two wives were shareholders and directors of the first defendant, the estate agent. Mr Taylor's wife held the estate agency licence for the first defendant. The premises were sold to the second defendant for what the trial judge found was a price of $175,000. Subsequent to the sale going through, theplaintiff learned of the relationship between the first and second defendants and commenced proceedings in which, after alleging breach of fiduciary duty, he claimed that as a consequence he had suffered loss and damage in the sum of $30,000, this figure being the difference between what he claimed was the sum of the sale price, $175,000, and the commission which he alleged was paid, of $5,000 and the true value of the property. There was no dispute at the trial about the relationship between the first defendant and the second defendant, and the consequence of that relationship that the first defendant owed a number of fiduciary duties to the plaintiff. When the proceedings began before the trial judge, he asked what the real issues in the case were. Counsel for the plaintiff said that there were three, the first, whether the sale was to an associated entity; second, whether there was informed consent to the sale; and third, whether the sale was at an undervalue. The evidence for the plaintiff at the trial consisted of his own evidence and that of two valuers. His own evidence, if accepted by the trial judge, and taken with other evidence and formal admissions obtained before the hearing, were all sufficient to enable the trial judge to find the first two issues that had been stated to him in the plaintiff's favour. However, there had been a contest clearly enough joined between the parties on the question of value, which manifested itself in the course of the evidence called in the plaintiff's case in two ways. The first was by the cross-examination of the plaintiff's two valuers, and the second was that a valuation was tendered prior to the plaintiff closing his case, which had been obtainedby the two defendants from a firm of valuers called Landmark White. It went into evidence, according to the transcript, without objection. It is not clear from the transcript 2 UNREPORTED JUDGMENTS whether it was regarded by the judge as evidence tendered by the plaintiff or the defendants. In the way the case went, however, I do not think that that matters. The fact is that it was in evidence without objection. That valuation showed a value at the relevant date in October 1993 of $170,000. The values given by the two valuers called in the plaintiff's case and cross-examined, were in their opinion around about the $200,000 mark. However, the cross-examination of those valuers weakened the plaintiff's case. It was quite effective, in my opinion, in regard to the first valuer, in that it undermined the starting point of his valuation. In regard to the second valuer it was less plainly successful, but there were a number of features of answers in cross-examination which, in my view, would leave it open to any trial judge to conclude, depending upon the judge's assessment of the witness, that his valuation was not particularly persuasive. Then, of course, there was the third valuation in evidence at a figure which, if accepted by the trial judge, meant that the plaintiff must fail on the third issue tendered. At the close of the plaintiff's case the trial judge asked counsel for the defendants whether he wanted to make an application. Counsel responded by saying: 'Our application is there's no case to meet.' On the face of it that application was not an application for judgment on the basis of findings of fact by the trial judge, but an assertion that there was no evidence before the trial judge upon which he could find for the plaintiff. Had the judge taken the application as bearing the latter meaning then it would have been wrong for him to uphold it, because there was clearly evidence before him which, if he accepted it, would have enabled him to find the valuation issue in favour of the plaintiff. However the judge's response to the way in which the application was put is set out in the transcript, and it appears quite plain, in my opinion, that what he proceeded to deal with was an application that there should be judgment for the defendants on the basis of the view of the evidence that the judge had formed. The judge then made it clear that, as things stood at that moment, he was not satisfied that the sale was at an undervalued price. He said this to counsel for the plaintiff, who responded that the plaintiff did not bear the onus of establishing undervalue. To this the judge in turn replied by saying that he would make a finding that it was not an undervalued price. By this I think he meant he would assume that the defendant had had the onus of showing the value, and acting on that basis was prepared to make a finding that on the evidence before him the price obtained had not been shown to be an undervalued one. He then said: 'If I find, which I have, subject to you convincing me otherwise, that the sale was not an undervalue, where does that leave your case?' Counsel replied, correctly in my view in light of the way the case had proceeded on the issues tendered, that in those circumstances there would be no relief available. Counsel then addressed the judge on the issues that arose from the judge's foreshadowed finding about value. After counsel finished addressing the judge delivered judgment immediately, and made a finding about the terms of the sale, which not onlywas open to him on the evidence, but accorded substantially with the plaintiff's case. On this basis he said that the true consideration the plaintiff had got for the sale was $175,000. There was an argument before us today to the effect that that was a mistake. This argument arose because the plaintiff claimed that the first defendant had charged $5,000 commission. On the evidence, however, emerging in URJ MALKI v NICHOLAS & MANN REAL ESTATE PTY LTD (Priestley JA) 3 cross-examination of the plaintiff, it was clear that the first defendant had waived any commission. Had the sale been conducted by an agent at arm's length from the purchaser on the terms upon which the property was sold, then that agent would have been entitled to commission either exactly of the sum of $5,000 or of an order so close to it that the difference would be immaterial. Thus, in my view, the judge was right to say that the true consideration the plaintiff got for the sale was $175,000. He then went on to say that that sum, after listening carefully to the evidence of the two valuers called in the plaintiff's case, was not an undervalue of the market price, so there had been no sale at an undervalue. He concluded by saying that because of that, whether or not there was a fiduciary duty owed by the first defendant to make full disclosure of the relationship between the first and second defendants, and otherwise discharge the fiduciary duties arising in the circumstances, if in any event there were no undervalue, there was no damage suffered by the plaintiff and there was no basis upon which the plaintiff could recover from either defendant. He accordingly entered judgment for the two defendants, ordering the plaintiff to pay their costs. In the appeal there was some discussion of the fiduciary duties owedby the first defendant to the plaintiff. There is no need to say any more about those than that, on the evidence as it was left before the trial judge, he was bound to find there had been fiduciary duties owed by the first defendant to the plaintiff. On the question whether the judge was bound to find there were breaches of those fiduciary duties, the position is not quite so clear, because to come to that conclusion the judge needed to find that he accepted the evidence of the plaintiff in a number of relevant respects. The way the case went he did not need to make any findings on that. For the plaintiff in the appeal, the essential thing, if the plaintiff were to have any success, was to show the Court why the judge's finding about no undervalue on the sale should be disturbed. Had the plaintiff been able to persuade the Court that there was error involved in that finding of the trial judge, then the plaintiff would have been at least entitled to have the judgment below set aside, and a new trial. It may be that further relief would have been available in this Court, but I say nothing about that because of difficulties that attend it, and which the Court has not heard argument on. It was quite clear the plaintiff could not get anywhere in the appeal unless the finding about no undervalue on sale could be set aside. On that point a number of submissions were made. The first was that there was no evidence upon which the trial judge could come to the conclusion that he did. Connected with this submission was a related submission that the judge was in error in not giving the plaintiff a chance totest the Landmark White valuation which had gone into evidence as Exhibit 1 in the way I earlier described. This pair of submissions cannot succeed in my opinion. The Landmark White valuation went into evidence without objection, and seems to me undoubtedly to have been evidence available to the trial judge to give such weight to as he saw fit, once the evidence in the case had come to an end. Nor does there appear to have been any submission made to the trial judge at the hearing to the effect that the plaintiff should be allowed to cross-examine the maker of the Landmark White valuation. Thus that basis for submitting that there was no relevant evidence before the trial judge must, in my opinion, fail. 4 UNREPORTED JUDGMENTS A further submission was that the judge had wrongly rejected the evidence of the two qualified valuers called in the plaintiff's case. In my view it was open to the judge not to accept their evidence as compelling a conclusion about valuation in excess of $175,000. In my view, upon hearing the evidence of those two valuers, it was open to the judge to say that he was not satisfied, in view of what they had said in their cross-examinations, that the value exceeded $175,000. Then there was a further submission that the judge was wrong in relying on the untested valuation of Landmark White. For the reasons already given, I do not think that if the judge did take that valuation into account there was any error involved in his doing so. The upshot is that, in my opinion, the judge's finding that $175,000 was not an undervalue of the market price of the property sold was one which could not be successfully challenged on appeal. The simple reason is thatthere was material before the judge upon which he could reach that conclusion. There is no indication anywhere in the appeal papers that in reaching that conclusion, the trial judge made any mistake, either in understanding the evidence or in where the onus lay in regard to the establishment of relevant value. In saying that, I do not mean to say that in the circumstances of the issues tendered before the trial court the defendants bore the onus of establishing value. The way the case was conducted probably left the position that the plaintiff had undertaken the burden of showing the value. But there is no need for me to be definite about that because in my opinion, whichever way the onus lay, there was material before the judge upon which it was open to him, without error, to make the finding that I have already twice stated. It follows from that that the plaintiff in the appeal cannot dislodge a factual finding by the trial judge fatal to the plaintiff's case. In the result therefore, in my opinion, the appeal should be dismissed with costs. Handley JA. I agree. Beazley JA. I agree. Priestley JA. The orders of the Court therefore are that the appeal is dismissed with costs. Orders accordingly. Counsel for the appellant: MB EVANS Solicitors for the appellant: SCARFONE and CO Counsel for the respondent: JT SVEHLA Solicitors for the respondent: CP WHITE and HETHERINGTON