Merrigan-James v James [2006] VSC 34 (9 February 2006)

Last Updated: 14 February 2006

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 8840 of 2004

MAGGIE MERIGAN-JAMES	Plaintiff
v
LESLIE THOMAS JAMES	Defendant

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JUDGE:	Hollingworth J
WHERE HELD:	Melbourne
DATES OF HEARING:	6 – 8 February 2006
DATE OF JUDGMENT:	9 February 2006
CASE MAY BE CITED AS:	Merigan-James v James
MEDIUM NEUTRAL CITATION:	[2006] VSC 34

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Contract law – de-facto property dispute – terms of settlement executed at mediation – defendant seeking to set aside terms – whether terms entered into under mutual or common mistake as to value of property – held that no mutual or common mistake –specific performance of terms of settlement ordered

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A Richardson	Orchard Cosgriff Legal
For the Defendant	Mr M Strang	Gleeson & Co

HER HONOUR:

1 This proceeding arises out of the former de facto relationship between the plaintiff and the defendant. The parties were able to agree on the division of much of their joint property, but by early 2003 had been unable to agree in relation to the following matters:

(1) The property at 55-59 Pakenham Street, Echuca, in which the plaintiff and defendant lived between January 2000 and April 2003,

(2) A Neways International (Australia) Pty Ltd distributorship business conducted under the business name of Selmag & Associates, and

(3) Some shares and personal chattels.

2 For almost two years, until April 2003, the parties had been living separately under the one roof, but the position had become untenable. Attempts to resolve the outstanding property issues without recourse to litigation were unsuccessful. In July 2003, the plaintiff issued a County Court proceeding seeking orders for the adjustment of property pursuant to Part IX of the Property Law Act 1958 ("PLA").

3 Thereafter the parties' solicitors arranged an informal mediation, which was held at the plaintiff's solicitors' offices on 9 March 2004. The plaintiff and defendant both attended the mediation with their respective solicitors. The mediation was successful and handwritten terms of settlement were signed by the parties and their solicitors that day.

4 Relevantly the terms provided for the Pakenham Street property to be auctioned by Stockdale & Leggo, with the plaintiff to receive 37.5% and the defendant to receive 62.5% of the net proceeds of sale. The Selmag business was to be transferred to the plaintiff. The parties agreed to do all such things as were necessary to give effect to the terms. The terms were agreed to be in full and final settlement of all claims under the PLA. The parties agreed to have the County Court proceeding struck out with the right of reinstatement.

5 Pursuant to the terms, on 18 March 2004 the County Court proceeding was struck out by consent with a right of reinstatement. It appears from Judge Harbison's order that she had before her a letter of consent from the defendant's solicitor to that effect, dated 16 March 2004.

6 Thereafter the defendant failed or refused to perform the terms of settlement. Accordingly, on 20 May 2004, Judge Shelton ordered that the proceeding be reinstated. It was subsequently transferred to this court.

7 When the matter came on before me for trial on 6 February 2006, both parties agreed that I ought to deal with the issues related to the terms of settlement and their enforceability as a preliminary question because, if the terms were enforceable, there would be no need for me to perform a property adjustment pursuant to Part IX of the PLA.

8 The plaintiff's claim is a very simple one. There is no dispute that the terms of settlement were signed or that they contained the terms alleged by the plaintiff.

9 Nor is there any dispute that the defendant has breached the terms. He failed or refused to sign the auction agreement which was sent to him by Rosemary Newbury of Stockdale & Leggo, notwithstanding several follow-up phone calls. He ignored a subsequent written request by the plaintiff's solicitor for him to abide by the terms of settlement or else have the proceeding reinstated. He also failed or refused to sign the documentation necessary to effect a transfer of the Selmag business, namely a Neways International distributor information change form, which the plaintiff completed and signed on 29 March 2004 and provided to him shortly thereafter.

10 Each of those breaches is continuing. The plaintiff remains ready, willing and able to perform her part of the terms.

11 During the course of the trial, the defendant abandoned defences of unilateral mistake and misleading and deceptive conduct. The defendant says that I should not enforce the terms because they were entered into under a mutual or common mistake of fact. This is the only defence now relied upon.

12 It is common ground that at the start of the mediation, the plaintiff's solicitor handed to the defendant and his solicitor a market appraisal prepared by Stockdale & Leggo. It showed a current market value of between $360,000 and $380,000, based on the assumption that the property was subdivided. I will refer to this in my reasons as the March appraisal.

13 Paragraph 46 of the amended defence, which is denied by the plaintiff, alleges:

"Further or alternatively, the parties entered into the said agreement by way of a mutual and/or common mistake insofar as both parties,

(a) had assumed that the value of the subject property was that the value assigned to it by Messrs Stockdale & Leggo, namely $360,000 to $380,000, when in fact the true value of the land was that value assigned to it by Messrs Eishold McEnry Eason, namely $280,000;

(b) had assumed that the net proceeds of the sale of the property could be calculated by having reliance on the valuation figure of $360,000 to $380,000 contained in the appraisal of Stockdale & Leggo dated 9 March 2004, when in fact, the said appraisal was inaccurate and the property was worth much less and as little as $280,000".

14 A number of issues arise:

(1) Did both parties make a relevant assumption?

(2) If so, was it fundamental to their entering into the terms of settlement? Does the assumption go to the substance of the agreement?

(3) If so, has the defendant established that it was a misapprehension or mistake?

(4) If so, is it a mistake of the type that may be a basis for equitable relief?

I note that defence counsel conceded that his client did not fall within the narrow doctrine of mistake at common law and relied only on equitable relief.

15 Before considering the March appraisal, it is desirable to consider the evidence as to prior appraisals. The plaintiff and defendant paid $156,000 when they bought the property in late 1999. About $80,000 was subsequently spent on additions and renovations.

16 Some time around 2001 or 2002, the defendant asked Rob Merlo of Rob Merlo Real Estate to do an appraisal. He said that Rob Merlo gave him an oral appraisal of $220,000. The defendant said he thought the figure was too low.

"I called Rob into the house. Both Maggie and I called him in together and he gave me a value of $220,000 and I went, 'Whoa, whoa, Rob, I'm not going to get out of it for that with what I've spent on it, mate, and if we're considering selling this, I think you've got to re-look at the figures'. I can remember that conversation vividly with Rob Merlo".

17 He pointed out to Rob Merlo how much he had spent on improvements and asked him to rethink his appraisal. Apparently, Rob Merlo then provided a written appraisal of $320,000, that is to say, an increase of $100,000 over the oral appraisal. This written appraisal was not produced to the court.

18 In January 2003, the plaintiff obtained three short written market appraisals, one from Rob Merlo and two from Stockdale & Leggo. She did so for the purposes of negotiations with the defendant. The January appraisals each contained a statement to the effect that they were not a registered valuation, but an opinion expressed by a licensed real estate agent.

19 The Merlo appraisal letter was dated 7 January 2003. It said that the property, if sold in its current format, should realise a price "in the vicinity of $300,000 to $320,000". If subdivided, then Rob Merlo estimated that the land which contained the house would fetch "in the vicinity of $260,000 to $275,000" and the vacant land should realise between $60,000 to $70,000.

20 The first Stockdale & Leggo letter was also dated 7 January 2003. In it, the real estate agent, Ms Newbury, opined that the present market value would be "in the vicinity of $290,000 to $310,000". The plaintiff sought a further appraisal on the basis of the property being subdivided. The second Stockdale & Leggo letter was dated 10 January 2003. In it, Ms Newbury said that the house component of the property would be in the vicinity of $250,000 to $260,000 and the vacant land in the vicinity of $60,000 to $65,000.

21 The defendant was present at the house when Ms Newbury attended to perform the first appraisal. The defendant showed her around and pointed out certain features of the property. He was well aware of the purpose of her visit.

22 The plaintiff said she discussed the three January appraisals with, and gave a copy of each of them to, the defendant. He denied that, although eventually conceded that he had seen the first and/or second Stockdale & Leggo appraisals under the plaintiff's clothing in her dressing room. Even if he did not see them at the time, I am satisfied he became aware of these three appraisals through his solicitors.

23 The plaintiff's solicitor sent a copy of those three appraisals to the defendant's then solicitors, Brady Kinnane & Moore, under cover of a letter dated 20 January 2003. That letter contained a proposal to settle the property dispute on the basis of taking the mean or average of the two appraisals which were on an "as is" basis, namely $305,000, and splitting the proceeds equally between the plaintiff and defendant. The defendant remembered reading this letter.

24 Around July 2003, the defendant changed solicitors. The plaintiff's solicitor sent a copy of the 20 January 2003 letter and enclosures in a letter to the defendant's new solicitor, Nicholas Rolfe. The covering letter to Nicholas Rolfe was dated 24 July 2003. The defendant agreed he had also seen this letter.

25 Shortly prior to the mediation, the plaintiff asked Ms Newbury to prepare an updated market appraisal for the purposes of the mediation. Ms Newbury did so and opined that the present market value would be "in the vicinity of $360,000 to $380,000". Her letter noted that the estimate was based on the potential to subdivide, which would be subject to council approval. As with the January appraisals, the March appraisal described itself as being not a registered valuation, but an opinion by a licensed real estate agent.

26 The plaintiff picked up the March appraisal and gave it to her solicitor shortly before the mediation began. Her solicitor, Jennifer Orchard, said she was not particularly surprised by the appraisal given the growth in the Echuca market, but could not say whether or not it was a realistic estimate. The plaintiff thought the March appraisal was a realistic one.

27 The mediation took place at the offices of the plaintiff's solicitors on 9 March 2004. It started around 1 p.m. and lasted until around 5 p.m. Present at the mediation were the mediator, Mr De Lacy, the plaintiff and her solicitor, Ms Orchard, and the defendant and his then solicitor, Mr Rolfe.

28 The mediator commenced with an introductory speech about the mediation process. Each side's solicitor then spoke about their client's case. Whilst Ms Orchard was speaking, she passed across the table a copy of the March appraisal. I accept Ms Orchard's evidence that she told those present that the plaintiff was using the appraisal as an indicative value for negotiating purposes.

29 According to the defendant, when his solicitor saw the March appraisal he raised his eyebrows, but said nothing. The defendant says that he thought the value had gone up significantly, but was pleasantly surprised.

30 The plaintiff could not recall what, if anything, was said when Ms Orchard gave the letter to the defendant's solicitor.

31 According to Ms Orchard:

"When this appraisal was produced Mr Rolfe noted on behalf of Mr James that the appraisal was based on the possibility of subdividing the block and indicated that as far as Mr James was concerned that was not an option and that the land could not be subdivided and therefore they rejected - or that the defendant rejected Ms Newbury's assessment of the market value of the property. And after some comments from both sides my client became upset and I recall that because her mother had been buried the day before so we broke away into separate rooms and negotiations proceeded from there."

32 I accept Ms Orchard's evidence in this regard and indeed generally. She was by far the most impressive and credible witness as to the events at the mediation. I will discuss shortly some of the problems with the plaintiff’s, and in particular the defendant's, evidence as to the mediation.

33 It is common ground that the joint session became heated. The defendant did not want to be at the mediation, regarded the property as his and therefore not on the table for discussion. His attitude and demeanour seem to have been, on his own admission, very angry. Apart from the usual stresses of such a mediation, the plaintiff's mother had been buried only the previous day; no doubt this was a matter of great stress to both the plaintiff and the defendant. The plaintiff became very upset during this joint session.

34 The parties and their solicitors broke out into separate rooms and the mediator moved backwards and forwards between them. It is common ground that the first settlement offer came from the defendant; it was to pay the plaintiff a flat figure of $50,000. That was rejected. A number of further offers were made in round dollar terms and were also rejected.

35 I accept Ms Orchard’s evidence that when it became clear that the parties could not reach agreement as to the value of the property, the negotiations switched from dollar figures to percentage figures. I quote again from her evidence:

"... the negotiations started on the basis that Mr James was putting monetary value to us and there was no agreement that could be reached on that basis because the parties did not agree on what the value of the property was. So negotiations started to break down so I suggested to the mediator that rather than approach the negotiations from a monetary point of view, when the parties could not agree it was pointless and that we should really leave it to the market to determine what the price of the property was and then negotiations turned to percentage basis."

36 The plaintiff's evidence was consistent in this regard. She also recalled that it was very difficult for the parties to agree on the value of the property.

37 As to how the final offer came to be made, the plaintiff and her solicitor have different recollections. The plaintiff thought that her solicitor came up with the proposal by taking the likely legal costs of going to court and deducting them from 50% of the median figure of the Merlo and March appraisals. She thought that resulted in the figure of 37.5%. In fact, it does not do so and she is mistaken in that regard.

38 The plaintiff was rather uncertain in this evidence. It is clear she was describing the process which she thought her solicitor had used to work out the final figures. It is clear that this was not a methodology that the plaintiff had thought up herself. In fact I believe that she is confused in that recollection, perhaps due at least in part to her emotional state during the mediation. Ms Orchard said that that methodology had formed the basis of the original offer to Brady Kinnane & Moore. She is right that a median figure approach had formed the basis of that original offer, although deducting of estimated costs had not been part of that offer; however, nothing of significance turns on that in my opinion.

39 As to how the final figures of 37.5% and 62.5% came about, Ms Orchard said:

"It was always Ms Merigan-James's position that she suggested that the property be sold and the proceeds divided equally. Mr James rejected that outright and my memory of the day is that he came back with an offer that was something like 30 per cent and then the negotiations went - Ms Merigan-James went to 40, he went up to 35, and because we were getting that close a compromise was reached at 37.5, being the mid point between the 35 and the 40, rather than seeing the parties walk away without any settlement."

40 Ms Orchard's credibility was not challenged in cross-examination. She was an impressive witness who gave clear, consistent and perfectly plausible evidence of the way the mediation had progressed and what had been said.

41 Even if the final percentages were worked out in the manner described by the plaintiff, rather than by Ms Orchard, they proceeded on the pragmatic, commercial basis of taking a figure somewhere between the highest and lowest real estate appraisal ranges. That is to say, it was not fundamental to the plaintiff's entry into the terms (either on her version or Ms Orchard’s version of how the final figures were arrived at) that she believed that the property was in fact worth between $360,000 and $380,000. Nor did she assume that the net proceeds could be calculated in reliance on those figures.

42 It follows that I am not satisfied that the plaintiff was operating under any relevant assumption in entering into the terms. That is sufficient in itself to dispose of the mutual or common mistake argument. But, given the amount of time spent by the parties, and out of fairness to the defendant, I turn to consider the defendant's evidence.

43 The defendant was not an impressive witness, for several reasons. First, and perhaps not uncommonly in a de facto or matrimonial dispute, he kept criticising the plaintiff in a number of quite gratuitous ways. His tone and demeanour bespoke the strong antagonism which he clearly still feels towards the plaintiff and coloured much of his evidence. Secondly, and most significantly, he has suffered for a number of years from the Murray Valley virus. He said that this has led to a profound deterioration in his memory. On occasions, he was unable even to remember evidence he had given only a short time previously. For whatever reason, much of his evidence was either vague, self-contradictory, implausible or simply inconsistent with other, more credible, evidence. He was not a witness upon whom I could place any great reliance.

44 What is clear is that the defendant regarded the property as his own and was not happy that it was even on the negotiating table. He says his lawyer pressured him into the terms of settlement. His lawyer did not give evidence.

45 In describing the process by which the defendant came to the final settlement figure, the defendant and his counsel both put forward various calculations which simply did not add up if based solely on the March appraisal.

46 At some point, the defendant said he came up with $225,000 as the figure he would get out with, if the plaintiff received 37.5% of the proceeds. The defendant said he thought he might be able to buy some property "that was not ramshackled" with such an amount and that was the sum he wanted. In fact, I doubt whether such a figure was in his mind at the time, for several reasons. It is true that $225,000 represents 62.5% of $360,000, being the lower end of the value range in the March appraisal, but that figure makes no allowance for sale or legal costs; that is to say, the defendant would not receive a net sum of $225,000. It is also clear that he did not have any specific property in mind and had no borrowing capacity. There is no evidence that he was even aware of what he could buy in Echuca with $225,000 or any lesser or greater sum. It is clear on his own evidence that what he would get from the sale would govern what he could ultimately buy.

47 I do not accept the defendant's evidence that he settled on the assumption that the property’s value was $360,000 to $380,000. It does not accord with his various explanations of the figures he said he calculated. It does not sit well with the fact that he and his lawyer were both aware of at least three other appraisals, all considerably lower than the March appraisal. He also knew from his own experience with Rob Merlo in 2001 or 2002, how "rubbery" a real estate agent's market appraisal might be. It is also contrary to Ms Orchard's clear evidence^[1], supported by the plaintiff’s evidence, which I prefer.

48 Finally, I note that it does not sit well with the letter that his current solicitors, Gleeson & Co, wrote to the plaintiff's solicitors on 14 May 2004. The defendant's solicitors said:

"We regret to advise that the terms of settlement are not reflective of a just and proper resolution of the County Court writ and, in those circumstances our instructions are to renegotiate the terms of settlement which, inter alia were based upon an excessive market appraisal by Stockdale and Leggo."

49 That letter reflects my understanding of the real attitude taken by the defendant. He felt that his previous solicitor had pressured him into settling. He was unhappy with the deal that had been struck and wanted a chance to renegotiate it; he admitted as much in court. His solicitors’ letter referred to an excessive market appraisal as merely being one of a number of things upon which the terms of settlement were based.

50 His lawyer had advised him of the significant legal costs he would face if the matter went to trial, and was pressuring him to have the matter over and done with. It is clear to me that he also wanted to be free of stress, because his doctors had told him that stress was a trigger point for his illness. No doubt these were both significant factors in him entering, albeit reluctantly, into the terms of settlement.

51 After the mediation, the defendant was, by his own admission, very angry at what had happened. He said he went to his solicitor's office straight after the mediation. At first, he said he had sacked his solicitor on the spot because he was so angry, but it is apparent from other evidence that that is simply not the case.

52 Within a day or two of the mediation, he says he rang Rob Merlo. The defendant gave differing accounts as to why he called Rob Merlo. At first, he said it was to discuss the mediation and the valuation. Later he said he had rung to ask if Rob Merlo would be prepared to conduct the auction of the property under the terms of settlement.

53 Whatever the reason for ringing, the defendant says that Rob Merlo told him that he thought the Stockdale & Leggo figure was excessive and he should get a sworn valuation. Rob Merlo suggested he get in touch with Eishold McEnry Eason Property for that very purpose. It is not clear when he first contacted that firm and with whom he first made contact. His account differed from that of the valuer, Michael Eason, in this regard. Nevertheless, it seems to have been sometime around 15 March 2004.

54 Mr Eason went out and inspected the property on 17 March 2004. It is not clear precisely when he provided his written valuation of $280,000, save that it seems to have been some time in the following week. No evidence was led as to why this valuation was not provided to the plaintiff's solicitors until 17 May 2004, approximately two months after it had been prepared.

55 Mr Eason was well aware that he had been asked to prepare the valuation for the purposes of use in family law litigation.

56 Mr Eason’s expertise was not in dispute, however his valuation was attacked on the basis that it did not take into account the potential for subdivision of the land. It is not necessary for me to determine what the true value of the property was, or to consider the rather unsatisfactory way in which Mr Eason’s evidence developed in relation to the question of subdivision and a subsequent valuation of the property by his firm of $345,000.

57 It follows from what I have said that the defendant has not satisfied me that either party, let alone that both, entered into the terms of settlement under a mutual or common mistake.

58 Even if I were wrong in relation to that, the mistake would only be one as to opinion, not as to fact. Just as courts have drawn a distinction between representations of opinion and fact in the area of misrepresentation, I would draw a similar distinction in relation to mistakes.

59 The case that appears to be most relevant, indeed directly on point, in relation to this distinction between opinion and fact, is the case of Cooper v Cooper (Preece)^[2]. As with this case, it involved a mistake between a husband and wife as to the value of the matrimonial home, which then formed the basis of a matrimonial settlement between them.

60 Whilst the Cooper decision is obviously not binding on me, the policy reasons enunciated by the Master of the Rolls, Lord Denning, and accepted by the other members of the Court of Appeal, are apposite here. I would apply them if the defendant had otherwise satisfied me that there was a mutual or common mistake.

"But in the present case there was no mistake of fact at all. There was only a mistake of opinion, namely, the value of the house. Both parties knew all the material facts. They knew the house. They knew it was very damp. They knew the amount of the mortgage. The one thing they were both mistaken about was the amount it would fetch on a sale. Both thought it would fetch about ₤4000. In fact, it fetched over ₤8000. Both were honestly mistaken. The husband did not make any misrepresentation. He honestly thought it would only fetch something in the region of ₤4000.

Now, I think it clear law that, on a contract for sale, a common misapprehension as to the value of the property is, by itself, no ground for upsetting the contract. Everyday there must be hundreds of sales in which the seller says to the buyer: ‘I think it is worth ₤x'. The buyer believes what he is told and agrees to pay the price. So long as the seller is not an expert and is expressing his honest opinion as to the value, the contract is binding. Everyday there are hundreds of cases where both parties think that an article is of high value and agree on too high a price: or is of low value and agree on too low a price. Both may be mistaken. But it is no ground for upsetting the contract. So long as both parties are honestly mistaken and neither has been guilty of misrepresentation, the contract is binding."^[3]

61 Finally, even if this were a mistake of a type in which the court might intervene on principles such as those enunciated in Solle v Butcher^[4], the defendant would be unlikely to succeed for the following additional reason. On the defendant's own evidence, he did not bother to read the whole of the March appraisal, a document which was some four sentences long, a document which he says formed the foundation of his entire agreement to the terms of settlement. Had he done so, he would have seen that it assumed subdivision (something he thought not feasible) and was not a formal valuation. In those circumstances, equity might refuse to grant relief on the basis that the party seeking relief was himself at fault in operating under a misapprehension.

62 For all of these reasons, the plaintiff is entitled to an order for specific performance. I will now hear from the parties as to the proposed form of order and as to costs.

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^[1] See paragraph [31].

^[2] (1973) CAT 425.

^[3] At p 5 and 6.

^[4] [1950] 1 KB 671.