Reported Decision : (2004) NSW ConvR 56-072 New South Wales Supreme Court CITATION : Paterson v Clarke [2002] NSWSC 1206 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 3424/02 HEARING DATE(S) : 9/12/02 JUDGMENT DATE : 9 December 2002 PARTIES : Fraser Laurie Paterson and Tracey Lea Paterson (P) David John Clarke (D) JUDGMENT OF : Young CJ in Eq COUNSEL : T J Morahan (P) R W Evans (D) SOLICITORS : Hozack Clisdell Lawyers (P) Fitzpatrick Teale (Melbourne) (D) CATCHWORDS : CONTRACTS [28]- Acceptance- Exchange of counterparts- Authority of estate agent. CONTRACTS [165]- Agency- Authority- Extent of real estate agent's general authority. LEGISLATION CITED : Property, Stock and Business Agents Act 1941, s 84AB(3)(4) and (6) Property, Stock and Business Agents Act 2002, s 64(1)(c) and (2) Golding v Vella (2001) 10 BPR 18,919 Harris v Fuseoak Pty Ltd (1995) 7 BPR 14,511 Kirton v Nethery (1996) 7 BPR 14,954 Petersen v Moloney (1951) 84 CLR 91 CASES CITED : Pianta v National Finance and Trustees Ltd (1964) 180 CLR 146 Pole v Leask (1860) 28 Beav 562; 54 ER 481 Presser v Caldwell Estates Pty Ltd [1971] 2 NSWLR 471 R v Higgins (1829) 3 C & P 603; 172 ER 565 Richards v Hill [1920] NZLR 724 Sindel v Georgiou (1984) 154 CLR 661 DECISION : Orders made. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Monday 9 December 2002 3424/02 – PATERSON v CLARKE JUDGMENT 1 HIS HONOUR: On 24 January 2002, the plaintiffs executed a contract in the 2000 edition of the standard form intending to effect a purchase by them of the defendant's property at 92 to 94 Yugura Street, Malua Bay. The purchase price was $950,000 with the usual 10 percent deposit. The vendor's selling agents were Fred and Carlene Franzen of Franzen Malua Bay Real Estate. For the purpose of the transaction, the contract of sale had been prepared by the defendant vendor's solicitors, Kennedy & Cooke and had the name of that firm inserted in the box for "vendor's solicitor". However, after Mr Nedwich of that firm had drafted the contract and sent it to the Franzens, the defendant says that the following occurred. There is no evidence to contradict this, and I accept that it occurred. "At about 4.00 pm on the 24 January 2002, I attended the property and found an envelope from my solicitors Kennedy & Cooke. I then went to Franzen Malua Bay Real Estate with the envelope and arrived there at about 4.15 pm. When I arrived, Fred Franzen and his wife Carlene Franzen were in the office. I had a conversation with Fred and Carlene as follows: David Clarke: I've got the envelope from Kennedy & Cooke. Carlene Franzen: The buyers are going back to Canberra." 2 Mr Clarke then said that he opened the envelope and sat down at a desk opposite Carlene Franzen who took the documents and made a phone call and appeared to be speaking to a solicitor. He noticed that she commenced to write changes onto a page in the contract. When she had finished writing she said to him, "I want you to sign here" pointing to the contract, and "I want you to sign this sheet of paper for the changes to the contract". Mr Clarke said, "When she told me to sign, I did." 3 There was then some evidence to suggest that Mr Clarke would have acted differently had he had the opportunity to consult his solicitor before agreeing to the changes but that evidence cannot affect the result because the only issues that I have to decide are (1) whether there has been a valid exchange of contracts; and (2) if so, to what orders are the plaintiffs entitled. In any event, it would not seem, as things turned out, that the addition made any difference one way or the other. 4 Mr Clarke then said that he never instructed the Franzens to exchange contracts, and he would not have signed the contract if he was told it was going to be exchanged. 5 He then said, "It was getting late in the afternoon and Carlene Franzen then said, 'We have to hurry. The buyers are going back to Canberra. We are running out of time.'" She then gave Mr Clarke a cuddle and said, "Fred will take it in." Mr Clarke then departed. 6 On 23 January, the day before, the vendor's solicitors had written the purchasers' solicitors a letter which was received by them on 24 January which so far as relevant reads as follows: "We enclose form of contract for consideration and signature if approved. Neither the submission of this contract nor this correspondence is meant to be an agreement or offer to sell. No contractual agreement or obligation shall arise as a result of this letter or submission of the contract. No contractual obligation shall be created until a formal exchange of contracts has occurred. … If you wish to exchange contracts via the document exchange we will exchange in our office and send you the counterpart by DX." 7 The defendant relies on what he says is an admission against interest in Exhibit DX02, a letter from the plaintiffs' solicitors to the solicitors acting for the defendant in this litigation. The statement is "the contract was exchanged on 24 January 2002, the date it bears. The Vendor was represented by their Agents and the Contract was exchanged at our office with Mr Clisdell's secretary Diane Field." I have inserted the names to make the admission understandable in these reasons, but otherwise I have quoted it directly. This tender as an admission made the whole of the statement evidence against all parties; R v Higgins (1829) 3 C&P 603, 604; 172 ER 565. Thus what would at first sight appear to be a self-serving statement on one side is now, in the absence of contrary evidence, evidence that I can act upon in finding what happened. Indeed, there seems little contest between the parties that if there was an exchange of contract it was by the agent exchanging with the purchasers' solicitors. The matter raised by the defendant was that this occurred in the face of the letter of 23 January 2002 which I have set out which letter contemplated an exchange between solicitors or via the solicitors' DX. 8 However, there is no doubt that the copy of the contract signed by the purchasers found its way into the hands of the vendor's solicitors. Exactly how and when this occurred is unclear. 9 The determination of these proceedings is made more difficult for me because the only witnesses called were the male plaintiff and the defendant. I did not hear a word from the solicitors, Messrs Nedwich or Clisdell, nor from the real estate agents, Mr and Mrs Franzen. 10 The defendant in his affidavit said he phoned Mr Nedwich at 7 pm on 26 January 2002, which is the Saturday night in the Australia Day weekend. The defendant says that he advised Mr Nedwich that he did not want to proceed with the sale of the property. Understandably, at that time Mr Nedwich did not know what was the status of the contract. The defendant says that he expected Mr Nedwich to make contact with him, but he never did so, and that he had no contact with Mr Nedwich until after 25 March 2002 when he received from Mr Nedwich's office a form of transfer to sign. Mr Clarke then says: "I then went and saw Mr Nedwich. I explained to him about the letter and told him he had not contacted me. He told me that he thought the contracts had been exchanged. I said, 'When and where were the contracts exchanged?' He said he was not there and did not know, and in any event it did not matter. It then appeared to me he had not acted on my instructions to him on 26 January 2002. ... I have never seen a contract signed by the Plaintiffs. I have not given any authority to the agent or my solicitors or any other person to exchange contracts on my behalf." 11 Mr Paterson says that he was advised by his solicitors and truly believes that on 18 March 2002 they submitted a stamped transfer to the vendor for approval and execution. He further says: "On or about 30 April ... [the] Solicitors received replies to requisitions on title which they had forwarded to the Vendor's solicitors on or about 6 February 2002." 12 It seems quite clear that no complaint was made at any time by Mr Nedwich that there had not been an exchange, nor indeed does it appear that that complaint was made at any time until after these proceedings were commenced. 13 The plaintiffs/purchasers filed a summons for specific performance on 3 July 2002. They had earlier issued two notices to complete to which there was no reaction. This, of course, was completely unnecessary, indeed it is rather dangerous to issue a notice to complete if one really wants specific performance, but they were issued, and as I say, there was no response to them. 14 Pleadings were ordered at an early stage of the monitoring of the case before the Registrar and the plaintiffs filed a statement of claim on 24 September 2002. No defence was filed until this morning and a document headed "Defence and Cross-claim" was tendered. There was no objection to the defence being filed, and I so ordered. However, there was an objection to the cross-claim, and I rejected it. The cross-claim in its original form in the plaintiffs' bundle of documents included claims against the agents. However, in the form in which it was handed up this morning, it was merely a claim against the plaintiffs basically for a declaration that there had never been an exchange of contracts. This was completely unnecessary as that was the very question I needed to decide to see whether the plaintiffs would succeed in the action. Accordingly, the rejection of the cross-claim for present purposes is of no moment, as the matter needs to be determined on the plaintiffs' case. 15 Mr T Morahan appeared for the plaintiffs on the hearing, and Mr R Evans for the defendant. I am indebted to them both for their clear and succinct submissions. 16 Mr Morahan's submissions were very simple but not any less attractive for that. He says that the circumstances of the execution of the contract, the payment of the deposit and exchange threw up nothing unusual. After exchange, the vendor's solicitors answered the requisitions and made no complaint about any defect in the execution of the contract or the exchange. The real estate agents were always the agents of the vendor and not of the purchasers. The purchasers at all material times were ready, willing and able to complete. They have suffered damage as a result of the defendant's failure to complete and are entitled to specific performance plus damages in addition to specific performance. He also relied on the evidence of the male plaintiff in his affidavit which was unchallenged, and which simply said: "By contract dated 24 January 2002 myself and my wife … agreed to purchase 92-94 Yugura Street, Malua Bay, ... for $950,000." 17 Mr Evans put that the agents had no authority to exchange contracts and thus there was no contract. He further puts that as an exchange was needed under conveyancing practice in New South Wales, one needed to see that there had been a ceremony conducted at a particular point in time which amounted to an exchange; thus, the fact that part of the contract signed by the purchasers found its way to the vendor's solicitors files in due course was immaterial. 18 Mr Evans submitted that the agents had no actual implied ostensible or apparent authority to exchange contracts. 19 As to actual authority, he pointed to the exclusive agency agreement signed by the defendant on 15 January 2002. This agreement provided that the agent was the sole agent in consideration of the agent promising to use their best endeavours to sell the property; that the agent was entitled to a commission if the principal entered into a contract for the sale of the property and that: "6. The agent is not authorised to enter into or sign a contract for sale on behalf of the principal." 20 Mr Evans puts great store on clause 6. However, to my mind it cannot be conclusive in solving the question of authority. This is because there is a clear distinction between making a contract and exchanging parts of a contract signed by the vendor or purchaser as the case may be. This distinction has always been taken. Thus in section 84AB(3) of the Property, Stock and Business Agents Act 1941 (now repealed and replaced in almost identical words by s 64(1)(c) of the Property, Stock and Business Agents Act 2002), the legislature has said that a real estate agent may participate in the exchange or making of contracts for the sale of residential property. Again, as was conceded in this case, solicitors have general authority to exchange contracts, but it is quite clear that apart from express authorisation a solicitor has no general authority to make a contract on behalf of the client: Pianta v National Finance and Trustees Ltd (1964) 180 CLR 146. 21 However, the sole evidence on actual authority is that of the defendant. As I have noted, he says he never instructed the agents to exchange. Of course, he never forbad it either, but it is sufficient for determining the question of express actual authority that he did not instruct the agents to exchange. There was no cross-examination on this. 22 The agents were not called, and it is a little difficult to work out in whose camp the agents are. They were the defendant's agents, yet the material would suggest that the defendant intends to sue them, so it is probably explicable why neither party called them. 23 That leaves me with the situation that the defendant's evidence probably should be accepted on this matter. I say "probably" because the actions of Mr Nedwich and his office do throw great doubt on the credibility of some of the defendant's statements, but notwithstanding this, it seems to me that I should accept the defendant on this issue. 24 As to implied actual authority, it must be remembered that when one appoints an agent to do something "there is an implied authority combined with it to do all acts which may be necessary for the purpose of effecting the object for which the express authority is given"; per Romilly MR in Pole v Leask (1860) 28 Beav 562, 574; 54 ER 481, 487. 25 The object of the agency was to sell the land or at least to find a purchaser ready, willing and able to sign a contract. The agent then had implied authority to do that which is "generally considered to be in the ordinary course of business of real estate agents in selling land" (Presser v Caldwell Estates Pty Ltd [1971] 2 NSWLR 471, 485). Does this include exchange of contracts? As I have said, I was not favoured with any evidence as to what was the normal practice of estate agents so that I have to make up my mind on this question of fact on the surrounding circumstances and general practice. 26 Mr Evans relied on Petersen v Moloney (1951) 84 CLR 91, 95 and Richards v Hill [1920] NZLR 724. However, to my mind neither of those cases, nor the illustrations given in the 16th edition of Bowstead & Reynolds on Agency (Sweet & Maxwell, London, 1996) p 128, assist in solving the present problem. 27 Section 84AB(4) and (6) of the 1941 Act and now s 64(2) of the current Act provide that a real estate agent, whilst he or she may participate in the exchange of contracts, he or she may only do so if expressly authorised to do so by the party or the party's solicitor in the circumstances that exist in the present case, but that a contract is not invalid merely because of the failure of the agent to comply with that provision. 28 That seems to me to say that as a general rule exchange of contracts by real estate agents is thought by the legislature to be within the general authority of estate agents (vide subsection (3)) but that the real estate agent, probably on pains of a criminal penalty, is not to be involved in that activity in the circumstances of this case, though such disobedience is not to affect the validity of the contract. 29 I realise that the onus of proving the contract, including the validity of the exchange, is on the plaintiff, and I am also very much aware that in Harris v Fuseoak Pty Ltd (1995) 7 BPR 14,511 at 14,521 in a passage approved by Barrett J in Golding v Vella (2001) 10 BPR 18,919 at 18,932 Allen J was scathing of the practice of estate agents exchanging contracts. His Honour said: "It is not normal conveyancing practice for an agent to exchange contracts for the sale of land. The law indeed scrutinises such conduct with suspicion. The risk is obvious - namely, that the agent will act without authority in order to give the appearance of a binding contract and hence diminish the risk that the sale will not come to contract and that he, accordingly, will lose the prospective commission." 30 But remarks of Allen J and Barrett J really go no further than to say it is not usual for the agent to exchange contracts and that it is a dangerous practice. They do not say that it is beyond the usual authority of agents or that solicitors should be wary of the practice because the exchange might not bind the vendor. 31 Accordingly, in my view, there was implied actual authority on the agent to exchange. 32 The same answer must be given to the question whether there was ostensible or apparent authority. For a while I worried that section 84AB(4) might mean that a solicitor should in the case of a contract naming another solicitor be so suspicious as to not consider that the agent had apparent authority and that in the present case the letter of 23 January reinforced this. However, it seems to me that a solicitor is entitled when dealing with an estate agent to assume that the agent is complying with his or her statutory duty and had express authority to exchange. 33 I should point out that the case is not on all fours with cases like Harris where there was a parity of exchange. In Harris the agent collected the contracts from both parties and crossed his arms and retained both copies. In the present case, Ms Field was given and retained the copy of the contract signed by the vendor and Mr or Mrs Franzen was given the copy signed by the purchasers, which he or she in due course passed on to the vendor's solicitors. In this respect, the case is similar to Golding v Vella where Barrett J held that where the agent had conducted the "exchange" but had later transmitted the contract to the opposing party's solicitor, that at least at that moment there was a binding contract. 34 There is no doubt at all that the vendor's solicitors received the purchasers' copy, the purchasers had the vendor's copy, and thereafter both parties' solicitors acted on the basis there had been a proper exchange. Any precondition that had been laid down, assuming it had been validly laid down by the vendor's solicitors' letter of 23 January, had either been waived or treated as being fulfilled. After all, it would not matter at all to the vendor's solicitors if the purchasers' copy came to them via post, the DX or been handed to them by a representative of the estate agent. 35 Accordingly, in my view there was a contract and there was exchange. 36 However, I have not yet dealt with the submission of Mr Evans that exchange is something needing ceremony. This is correct to an extent and probably the usual ceremony did take place between Ms Field and Mr or Mrs Franzen. However, one must not press the ceremony point too far, as it is quite clear on the authorities one can have exchange by mail or DX in which the vendor's solicitors receive the purchasers' part, dates the contract, and then sends on the vendor's copy, so one could even have an exchange by telephone in which there is no ceremony at all. Although this is called in the cases a constructive exchange, it is still a valid exchange: see Sindel v Georgiou (1984) 154 CLR 661, 666 and Kirton v Nethery (1996) 7 BPR 14,954, 14,955. 37 The conclusion that there was a valid contract and exchange is reinforced by the actions of the former solicitors for the vendor. As I have said, they never complained that there was no exchange. They had the purchasers' signed copy in their possession. They answered requisitions submitted to them by the purchasers' solicitors and all parties at all times acted through their solicitors on the basis that there was a contract. Because of the late filing of the defence, there was no actual pleading in reply of estoppel, but it seems to me that with the issues that were exposed before me and the way the case was run, if it were necessary to do so I would think that these actions got very close and probably over the line as to what was an estoppel. However, I do not need to go this far in view of my primary findings. 38 It follows that the plaintiffs are entitled to specific performance. The plaintiffs also claim damages in addition to specific performance. There was a late affidavit filed setting out the claim for damages. I did not receive this affidavit as it was filed too late for the defendant to have an opportunity to challenge the items. However, a case has been exposed with the possibility of damages in addition to specific performance and the Master should deal with that in due course. 39 Accordingly I order as follows: (1) I declare that there is a valid and binding contract between the parties for the plaintiffs to purchase and the defendant to sell the land contained in certificates of title folios identifier 442/211219 and 443/211219 for the sum of $950,000 in accordance with the document dated 24 January 2002. (2) I order that the same be specifically performed. (3) I refer to a Master to give directions as to the implementation of the order for specific performance, including the question of what, if any, damages should be payable to the plaintiffs in addition to specific performance. (4) Order that the defendant pay the plaintiffs' costs of the proceedings to date; consideration of further costs reserved for the Master or to the Judge on referral by a Master. (5) Exhibits should remain with the papers. (6) In order to give the defendant time to consider appealing, I will direct that any notice of motion to the Master for directions under order (3) not have a return date before the first week of the new term. ********************** Last Modified: 12/17/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.