Re Constance Vaccaro (Also Cross-Respondent) and John Howard Mann v Ronald Scott Brown and Muriel Brown (Also Cross-Claiments) [1990] FCA 429 (2 November 1990)

FEDERAL COURT OF AUSTRALIA

Re: CONSTANCE VACCARO (also cross-respondent) and JOHN HOWARD MANN
And: RONALD SCOTT BROWN and MURIEL BROWN (also cross-claiments)
No. G230 of 1990
FED No. 795

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Einfeld J.(1)

HEARING

SYDNEY
2:11:1990

Counsel and solicitors for the applicants: Mr C. Darvall QC and

Mr J.E. Thomson
instructed by Michell
Sillar McPhee Meyer

Counsel and solicitors for the respondents: Mr S.D. Robb instructed
by Moore and Bevins

DECISION

This matter commenced in the Equity Division of the Supreme Court of New South Wales. It is an application by John Howard Mann, controlling trustee of the estate of Constance Vaccaro under the Bankruptcy Act since November 1986, for a declaration that an option to purchase a guest house known as Annesley-Westwood at Bowral owned by Ronald and Muriel Brown (the Browns) was validly exercised. Mr Mann also sought an order of specific performance of a contract for the sale of this property. The Browns have cross-claimed for a declaration that there was and is no binding agreement for the sale. The matter was transferred to this Court under cross vesting legislation because it covered the same subject matter as was already before the Court in bankruptcy proceedings involving Mrs Vaccaro in which there had already been and was still pending some litigation. This matter was heard first.

2. Both matters have a long history and some peculiar features. One of them was that the debtor of whose property Mr Mann was controlling trustee, appeared as a witness for the Browns, meaning that the applicant, Mrs Vaccaro, gave evidence for the respondents, the Browns. This unusual situation arose from the fact that it was Mr Mann who, in substance, pursued this piece of litigation. Mrs Vaccaro no longer supports the actions taken on her behalf or in her name by him, and I therefore ordered earlier that he should be joined as an additional applicant. Except as a witness, Mrs Vaccaro did not participate in the proceedings, although she and her counsel and solicitor were present. Counsel declined my invitation to take an active part. The related bankruptcy proceedings, in fact, involved an application by Mrs Vaccaro to remove Mr Mann from his position, but this application has since been summarily dismissed, although it is possible that it may be recommenced if a somewhat more precise case can be formulated.
The Facts

3. In April 1986 the Browns granted Mrs Vaccaro an option to purchase Annesley-Westwood for $900,000. The option had to be exercised before 5 p.m. on 18 April 1988. Attached to the option was a contract for the sale of land, providing for a 10% deposit and the usual provision for sharing the interest on the deposit at settlement. The time allowed for completion was 35 days from the date of exercise of the option. Mrs Vaccaro operated the guest house as a tenant of the Browns from 21 April 1986 but it was her intention to convert it into a language school for teaching English to foreign, especially Asian, students. In December 1986, Mrs Vaccaro entered into a Part X arrangement with her creditors, revealing that she had debts of almost half a million dollars, including a sum of $2,500 to the Browns to whom she only ever paid one month's rent. Mr Mann's trusteeship was established by that arrangement.

4. The only substantial asset in Mrs Vaccaro's estate was the option agreement, the only other being the guest house furniture. Only if the option was exercised or sold was it possible for Mrs Vaccaro's creditors to be paid. The original creditors and Mrs Vaccaro believed that the most advantageous arrangement for the creditors would be for Mrs Vaccaro to buy the property and commence the language school, while continuing to conduct the guest house in the meantime. Mrs Vaccaro apparently persuaded the creditors that a sufficient profit would be made from the school to enable her to pay them out, and even made some suggestion that this might be done by way of bank loan presumably at the time of or after the school started. Alternatively, Mr Mann was to take steps to find a purchaser of the option. The sale price of the option would then be the source of payment of all or part of Mrs Vaccaro's other unsecured debts. In due course this came to include Mr Mann himself who over the intervening years had accrued and incurred considerable costs.

5. The present dispute arises out of events that took place just before and on Monday 18 April 1988, the expiry date of the option. It does not seem to be disputed that at that time neither Mrs Vaccaro nor Mr Mann had the 10% deposit required under the original contract attached to the option agreement. Nevertheless, at the request of Mr Mann's solicitor (Mr Mahony) on Friday 15 April, the Browns' solicitor (Mr Wakim) sent by courier to the office of Mrs Vaccaro's solicitor (Mr Katralis) a contract for the sale of the property. This contract (the altered contract) differed from the original version attached to the option agreement in several respects. The most important difference between the two contracts, and the reason this matter came before the Court, was that the altered contract provided for only a $1,000 deposit and not the original $90,000. The $90,000 was to be invested with a building society and, as usual, the interest shared equally at settlement. On the other hand, the $1,000 was to be held by the Browns' solicitor not attracting interest. Another difference was that in the altered contract the balance of the purchase price would attract interest at the rate of 18.25% per annum, calculated on daily balances, if not paid within 56 days of exercise of the option, all of which would be payable to the vendors. Nothing like this term was in the original contract. It is in connection with the circumstances leading to the supply of the altered contract that major factual issues exist.

6. As to the subsequent actions of the solicitors, there is no dispute. Mr Katralis faxed the contract to Mr Mahony at 5.20 p.m. on Friday 15 April 1988. Mr Mahony noticed the change in the required deposit but due to pressure of work did nothing about it until the Monday when he discussed it with Mr Mann and then telephoned Mr Wakim at 3.45 p.m. Mr Wakim returned the call at 4.30 p.m. Mr Mahony then told Mr Wakim that Mr Mann was on his way to exercise the option with a $1,000 cheque for the deposit. Both Mr Mahony and Mr Wakim gave evidence that Mr Wakim was taken aback, said that the $1,000 deposit was a mistake, and declared that he would not accept the documents. Mr Mann arrived at Mr Wakim's office at 4.57 p.m. When Mr Wakim refused to receive the documents, Mr Mann left them on Mr Wakim's desk. Mr Wakim immediately reported to Mrs Brown what had happened. The case primarily concerns the question of whether Mr Wakim had actual or ostensible instructions to furnish the altered contract and bind the Browns to its terms.
The legal question involved

7. One leading case dealing with the ostensible authority of a solicitor is Pianta v National Finance Trustees Limited [1964] HCA 61; (1964-65) 38 ALJR 232. In that case the solicitor in question was retained to settle written terms of sale which he could advise his clients to accept and sign. Barwick C.J. held that:

..... this does not confer on the solicitor authority to
contract on behalf of the clients to sell the land (at 234).

A case which deals more specifically with the situation in this matter is Strangas v Young (1950-1980) 1 BPR 9123. Reynolds J.A. (with whom the other two members of the NSW Court of Appeal agreed) stated at 9124:

The solicitor ..... received a normal retainer to act for
the vendor in connection with the granting of an option to
purchase. This retainer conferred implied authority
extending to all subordinate acts necessary or ordinarily
incidental to the express authority to act.

Reynolds J.A. proceeded that a solicitor had no express authority in that situation to alter an essential term so as to make a new and different contract, nor was such an alteration a matter subordinate or incidental to the express authority.

8. These cases thus support the proposition that a solicitor engaged in relation to the sale or purchase of property has authority to take all steps necessary to settle the conveyance on terms agreed by the client but no authority (unless expressly given) to agree on new terms.
Did Mr Wakim have instructions to send out the $1,000 contract?

9. The substance of Mr Mann's case is that the altered contract was an offer to vary the original contract and that that offer was accepted when the option was exercised by Mr Mann. The Browns said that they had not instructed Mr Wakim to forward a contract in terms requiring a $1,000 deposit. The Browns further asserted that the altered contract and its provision for a $1,000 deposit was a mistake on the part of their solicitor, and that the option was not exercised by the tendering of this sum with the signed documentation.

10. In support of his submission that the altered contract was not supplied by mistake, Mr Mann argued that it was in fact a commercially sound proposition. He asked for an inference to be drawn that the vendors had decided that they would be better off with a $1,000 deposit and 18.25% interest on the whole outstanding balance than with a $90,000 deposit and half of the interest on it. It was said orally and without particularisation by senior counsel for Mr Mann that this would leave the respondents some $25,000 better off, but a document to establish this sum, though foreshadowed, was never supplied. This may be because, as it seems to me, no amount would be payable unless settlement was delayed beyond the 56 days allowed, and there is no evidence that this would be likely to occur and no apparent reason why it should. Nor was it put in cross examination. Further, if settlement was delayed, the amount payable would depend upon how many days beyond 56 settlement was delayed, and there is no way of even guessing what this might have been. Nor would it be possible to compare, without known facts, the different effects of the 35 and 56 day periods and of the respective provisions for interest.

11. Mr Mann further hypothesised that the altered contract was authorised by the Browns because the latter took "pity" on Mrs Vaccaro and wanted to do her a favour. Precisely why they would have been so motivated was not made clear, especially as they were amongst Mrs Vaccaro's creditors, and their property had been tied up in litigation, apparently attracting no income and having passed the "boom" time in property values. In addition, this thesis can hardly stand together with the submission that the alterations were done to achieve a commercial advantage to the Browns. The former approach assumes that the changes were for the benefit of Mrs Vaccaro; the latter concept asserts that the Browns had themselves in mind. Perhaps it was intended to be a benefit to both, or these possibilities were alternatives, but again as none of this was put to the Browns in the witness box, there is no evidence upon which this speculation can be resolved. I return to this subject later.

12. Mr Mann does not go so far as to claim that the Browns specifically authorised the alterations in the contract submitted to Mr Katralis. The highest he put his case was that as Mr Wakim had been authorised by Mr Brown to prepare such a contract in relation to an earlier possible sale of the option to a company somewhat quaintly called Wooduck, owned by a man named Figtree, and that it had never been revoked, this authority should be taken to have been a general one applicable to Mr Mann and presumably any other potential purchaser of the property.

13. There seems no doubt that Mr Brown did negotiate and authorise the offer to Mr Figtree of a contract in this form in late 1987, and there were some discussions on the subject between a Mr Penhall, solicitor for Mr Figtree, and Mr Wakim representing the Browns. As the option still had some time to run, I am not sure what the Browns were actually negotiating to sell at the time, but my clear impression is that the instructions given in respect of the Wooduck negotiations did not consist of a general authority of the type suggested. Yet in support of this submission, Mr Mann relied on the suggestion that there was no reason why the instructions to change the terms of the contract would be valid only in respect of Wooduck because there was no commercial distinction between a contract with that company and anyone else. I reject this proposition. It was not put to the Browns in cross examination. Obviously each prospective purchaser is or could be in a different bargaining position so far as concerns a vendor. As well, more than 7 months elapsed between the Wooduck negotiations and the alleged exercise of the option by Mr Mann. During that period market factors or the Browns' personal needs and desires may also have altered. In any event, the Browns' position in regard to Mrs Vaccaro, who by now was an imminent bankrupt, and because of whose financial position they had been denied rent for their property, may well have been radically different from their attitude to Mr Figtree.

14. The question whether or not the provision of the $1,000 deposit was a mistake or was entitled to be treated as authorised is crucial to this litigation and turns largely on the evidence of Mr Wakim. I am bound to say that I found much of Mr Wakim's evidence inexplicable and unpersuasive. In respect of the contract offered to Wooduck, Mr Wakim bluntly contradicts Mr Brown's evidence. Although nothing turns on the details of this contradiction itself, and it is therefore not necessary for me to detail the evidence on the matter, Mr Brown was much more convincing about the circumstances. This inconsistency would give rise to problems in regard to Mr Wakim's credibility if this was relevantly at stake in these proceedings. As it happens, the evidence of Mr Wakim and of the Browns coincides on whether the altered contract was a mistake.

15. Mr Wakim's evidence on the altered contract was that it had been prepared for the proposed Wooduck deal 7 months earlier. That deal had never come to fruition and he had not been paid for his work on the contract but the (unsigned) contract remained on the Browns' file. When Mr Wakim was asked to send a contract out to Mr Katralis acting for Mrs Vaccaro, he opened the file, found the Wooduck contract and thought that he would save himself time and further loss of costs by simply sending it as it stood. It did require the whiting out of Wooduck's name and solicitor on the front page of the contract. Mr Wakim could not remember whether he himself or his secretary had performed this task, although the incomplete obliteration of the two names led senior counsel for Mr Mann to suggest bravely that it was probably his own work as his secretary would have been expected to do the job more competently. It is not necessary for me to resolve this piece of fascinating intrigue.

16. Apart from Mr Wakim, Mr and Mrs Brown gave evidence that the sending of the altered contract was a mistake. They said that they had not instructed Mr Wakim to send out such a contract. In fact Mr Brown said that he had agreed with a suggestion by Mr Wakim that he should not send out any contract to interests associated with Mrs Vaccaro at all. They first knew of the altered contract being sent to Mrs Vaccaro when Mr Wakim rang Mrs Brown after 5 p.m. on 18 April 1988. She had immediately expressed shock and opposition.

17. Mr Mahony's account of his telephone conversation with Mr Wakim at 4.30 p.m. on 18 April, to which I referred earlier, also confirms that Mr Wakim had no instructions to send a contract requiring only a deposit of $1,000. So does other evidence. Perhaps most significantly of all, an apparently contemporaneous file note of Mr Wakim's telephone conversation with Mr Mahony on the Monday afternoon was tendered in evidence. In it Mr Wakim actually recorded that he said "What" when Mr Mahony mentioned the $1,000. At the trial it appeared to me somewhat unreal to imagine a genuine conversation being recorded in those terms, but it was common ground that the note came from Mr Wakim's file at the point indicated by its date, apparently consistently with its always having been there. Mr Wakim was not cross examined to suggest otherwise. It is possible, as counsel for the Browns submitted, that Mr Wakim realised he had made a grave mistake and, being a solicitor, saw the need to record, and the wisdom of recording, the conversation verbatim and in direct speech. Overall, despite my initial reservations, I think that the file note should be held to corroborate the truthfulness of Mr Wakim's evidence about the conversation with Mr Mahony on April 18.

18. As I have said earlier, Mr Mann alleged that the contract was not a mistake but presented no direct evidence to support the proposition. He simply submitted that Mr Wakim was lying when he gave evidence that it was. Mr Mahony said in evidence that he did not then and still does not believe Mr Wakim's disavowal of the $1,000 deposit, although he could suggest no reason for his disbelief or motive for Mr Wakim to lie. Mr Mahony's testimony that although he had noticed the $1,000 on the Friday, it was only when he thought about it subsequently that he changed his mind, must at least give rise to suspicion that his telephone call to Mr Wakim on the Monday afternoon was intended in part to be exploratory of the possibility of error. I do not suppose that it can be put as high as a duty, but I believe that many solicitors faced with these circumstances would have asked directly if the term was intended. It is almost inconceivable to me that if told that it was not, they would disbelieve and reject another solicitor's frank admission of error in favour of an abstract, selective and strained interpretation of the contract itself.

19. To admit to another solicitor and now in Court having committed an act of substantial negligence in his professional practice is not something lightly done by any lawyer. As I see it, it is also something Mr Wakim has absolutely no reason to admit if it was not the case. He has nothing to gain by it and stands to suffer a significant loss of reputation, if not more. He has apparently already lost the Browns as clients because of it. I reject Mr Mahony's evidence on this matter and the submission that Mr Wakim was lying in this respect. I find that the contract was sent out without the instructions of the Browns and by the error of Mr Wakim.
Did Mr Mahony and Mr Mann know it was a mistake?

20. Mr Mann said that, despite his and Mr Mahony's initial reaction, he was not aware that the altered contract was sent by mistake. He submitted that it appeared to be a sound and normal commercial decision on the part of the Browns to offer a contract which would be attractive to the purchaser, but at the same time, more favourable in monetary terms to the vendor in the way he alleged it was. His counsel dismissed the initial suspicions of a mistake as being of no consequence, submitting that such a possibility is naturally considered where a contract sent out differs from the one originally offered. It was submitted that once the contract was fully considered, the possibility of its being a mistake was able to be set aside. Apart from the suggested commercial benefits, Mr Mahony gave evidence that the Browns had always been very helpful to Mrs Vaccaro in not pressing for her unpaid rent and at the earlier creditors' meetings.

21. This seems to me quite amorphous "help" in the circumstances but even if it were true at those earlier stages, the evidence is that in April 1988 this was not still their attitude. The Browns had by then sent several letters indicating that they wanted Mrs Vaccaro to vacate the premises and that they did not want to proceed with the contract because Mrs Vaccaro had, while their tenant, made substantial alterations to the property. Indeed on 11 April 1988, Mr Wakim wrote what can only be categorised as a most tendentious letter suggesting that the Browns were for this reason not bound to honour the option because the property could no longer be conveyed in the form promised. Furthermore, the Browns had refused to give an extension of time on the option on at least 2 occasions when Mr Mann had offered to pay an additional $100,000 for this concession.

22. In my opinion there was therefore no basis for Mr Mahony or Mr Mann to think that the Browns were likely to grant Mrs Vaccaro an indulgence of the kind suggested to them by the altered contract.

23. It certainly seems to me that the altered contract was not really of any benefit to the Browns. The suggestion that it gave them a commercial advantage is to my mind unsustainable for two main reasons. Firstly, by substituting the $1,000 for $90,000 as a deposit, any security the Browns might have had that the sale would or would be likely to proceed was substantially diminished if not effectively lost. Secondly, the extra interest only became payable if the purchase price was not paid within 56 days of exercise of the option. This exceeded the 'normal' time for settlement by 2 or 3 weeks and, in the absence of any evidence or available inference to the contrary, must be regarded as rather less than more likely to occur, at least in the mind of an ordinary vendor.

24. There is one other collection of facts to consider in this connection. The cheque for the $1,000 was Mr Mahony's personal cheque. He was owed a substantial amount for costs incurred in acting for Mr Mann in this matter. He was unlikely to throw away further money on a whim. He does not seem to have been willing, if he was able, to advance the balance of the $900,000 personally. The evidence shows that at the very time of these events I have related, Messrs Mahony and Mann had been talking with a Mr Horovin of Valgold Pty Ltd about the assignment of the option on the sale of the property for an apparently sufficient sum to cover at least their outstanding fees and costs. Although Mr Horovin was not called as a witness, these discussions seem to have been and, as far as I can tell from the sketchy evidence on this matter, to have always remained on the basis Valgold having to pay the required deposit of $90,000. I must say though, that there is no actual evidence of a discussion of this particular aspect of a possible deal with Valgold on April 15 or 18.

25. It is therefore likely that the purported exercise of the option on April 18 and the tendering of Mr Mahony's personal cheque for the $1,000 "deposit" was premised on a belief in Messrs Mann and Mahony in the likelihood of an early or immediate on-sale to Valgold for a price in excess of $900,000 with a 10% deposit. There is no suggestion, as might perhaps have been expected, that to secure a sale to Valgold, Messrs Mahony and Mann had offered to let Mr Horovin share in the benefits of their very small deposit. Nor do they seem to have informed Mr Horovin that instead of purchasing an assignment of the option for more than $900,000 for Mr Mann before 18 April 1988, he might have been able to purchase the property from the Browns after that date for a lesser sum such as the $900,000 itself. This serves to underline the likelihood of their belief that their "windfall" was indeed an error by Mr Wakim.
Conclusions

26. The argument that Mr Wakim had ostensible authority to offer a contract with $1,000 deposit must fail. Since there was no authority, either actual or ostensible, on the part of Mr Wakim, he could not bind the Browns by the altered contract. The purported exercise by Mr Mann of the option was thus not effective.

27. I also conclude that Mr Mahony and Mr Mann were aware that there had been a mistake. The altered contract was therefore a nullity and Mr Mann cannot enforce it: see Cheshire and Fifoot and Furmston's Law of Contract, Eleventh Edition, Butterworths, p 247. Alternatively, the application would also fail on the ground that if the altered contract constituted an offer to vary, it was not accepted or was revoked by Mr Wakim prior to its acceptance by Mr Mann.

28. The application is dismissed with costs. There is strictly no need to rule on the cross claim, but to avoid doubt, I declare that there is no binding agreement between the Browns and Mr Mann or Mrs Vaccaro for the sale of the property known as Annesley-Westwood at Bowral. There was no submission and there is no claim concerning the fate of Mr Mahony's $1,000 given by Mr Mann to Mr Wakim. Perhaps that is because the cheque was not presented and therefore that no money actually changed hands. However, I will reserve liberty to apply in respect of that matter if necessary.