Artistic Builders Pty Ltd v Nash

[2010] NSWSC 1442

CITATION:	ARTISTIC BUILDERS PTY LIMITED & ANOR v NASH & ORS [2010] NSWSC 1442
HEARING DATE(S):	6, 7, 8, 9, 12, 13, 14, 15, 16, 19, 22 and 23 April 2010
JUDGMENT DATE :	17 December 2010
JURISDICTION:	Common Law
JUDGMENT OF:	Hall J at 1
DECISION:	Solicitors formerly acting for the vendor company (ABC) were in breach of their duty of care under the retainer with ABC in relation to the transaction for sale of the Bankstown property. ABC suffered loss and damage as a result of NOT Lawyer’s breach of duty of care to ABC. NOT Lawyers have established a limitation of action defence under s.14 of the Limitation Act to ABC’s claim in the proceedings. Accordingly, the proceedings by ABC against NOT Lawyers are statute-barred and therefore are not maintainable. Harris & Company, in breach of their duty of care to ABC, failed to commence proceedings against NOT Lawyers within the six year period prescribed by s.14 of the Limitation Act 1969. Harris & Company do not have a basis for and, accordingly, have not established the advocate’s immunity defence pleaded by them. The claim against Harris & Company is an apportionable claim pursuant to the provisions of s.35 of the Civil Procedure Act. The appropriate apportionment of liability is determined to be: (1) Harris & Company - 60% (2) Mr White - 40%. Artistic’s claim against NOT Lawyers for costs and counsels’ fees is dismissed.
CATCHWORDS:	PROFESSIONAL NEGLIGENCE – solicitor’s negligence – sale of commercial property by company on basis of a deferred part payment to a nominee company or alternatively option of units in new development – real estate securities accepted as security – development proposal failed – securities proved valueless - DUTY OF CARE OF VENDORS’ SOLICITORS – instructed to act for two companies (here referred to as company A and company B) - scope of retainer of firm of solicitors – duty to protect vendor’s interests – advice on need for valuation of securities and of amounts owing under mortgages on properties proposed as securities – solicitor’s failure to obtain informed instructions on inquiries necessary to verify securities – failure by solicitor to provide advice as to steps required to protect vendor - CAUSATION – notional question as to what vendor would have done if properly advised – company A as vendor alleged to have had a “no transaction” case on the basis that no transaction would have been entered into if given appropriate advice including on the lack of verification in relation to the proposed securities – nature of the evidence required on the issue of causation – evidence required to establish that question – state of mind of vendor - LIMITATION OF ACTION DEFENCE – time commenced to run from date of settlement not a later date when rights conferred under a trust exercised by nominee company – proceedings against solicitors who acted for the vendor company (company A) stated barred – failure to bring proceedings in name of company A as well as the proceedings brought by company B - ADVOCATES’ IMMUNITY DEFENCE - advocates immunity defence not available to the solicitors who acted for company B in proceedings concerning mortgages – priorities – and against first mortgagee of the property sold - as failure to bring proceedings by company A cannot be “work connected” with proceedings by company B concerning the abovementioned mortgages - APPORTIONMENT – under Civil Liability Act (s.35) – between solicitors who acted for company B in the abovementioned proceedings - and counsel who was briefed to advise and draft proceedings
LEGISLATION CITED:	Civil Liability Act 2002 Fair Trading Act 1987 Limitation Act 1969 Partnership Act 1892 Professional Standards Act 1994 Real Property Act 1900
CATEGORY:	Principal judgment
CASES CITED:	Amadio Pty Limited V Henderson (1998) 81 FCR 149 Artistic Builders Pty Limited & Anor v Nash & Ors (unreported 9 April 2010) Argyropoulos v Layton & Ors (2002) 36 MVR 432 Beach Petroleum NL v Kennedy & Ors (1999) 48 NSWLR 1 Bennett v Minister of Community Welfare (1991-1992) 176 CLR 408 British Racing Drivers’ Club Limited v Hextall Erskine & Co [1996] 3 All ER 667 Capital Break Service Pty Limited v Meagher [2003] NSWCA 225 Carew Counsel Pty Limited v French (2002) 4 VR 172 Chappel v Hart (1998) 195 CLR 232 David v David [2009] NSWCA 8 Di Sante v Camando Nominees Pty Limited [2000] VSC 211 Dollar Land (Cumbernauld) Limited v CIN Properties Limited (1996) SLT 186 Duke Group Limited (In liq) v Pilmer (1999) 73 SASR 64 Environmental Systems Pty Limited v Peerless Holdings Pty Limited (2008) 19 VR 358 D’orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 Gattellaro v Spencer [2010] NSWSC 1122 Giannarelli v Wraith (1987-1988) 165 CLR 543 Gore (trading as Clayton Utz) v Montague Mining Pty Limited [2000] FCA 1214 Heydon v NRMA (2001) 51 NSWLR 1 Hanflex Pty Limited v N S Hope & Associates (1985) 2 QR 218 Hawkins v Clayton (1988) 164 CLR 539 Integrated Computer Services Pty Limited v Digital Equipment Corporation (Australia) Pty Limited (1988) 5 BPR 11,110 Keefe v Marks (1989) 16 NSWLR 713 Kenny & Good v MGICA [1999] HCA 25 Larsen v Lynch [2006] FCA 385 Longdon v Kenalda Nominees Pty Limited [2003] VSCA 128 Midland Bank Trust Co Limited v Hett, Stubbs & Kemp (A Firm) [1979] 1 Ch 384 Momentum Productions Pty Limited v Lewarne (2009) 174 FCR 268 Nationwide Building Society v Lewis [1998] Ch 482 at 490 Norwest Refrigeration Services Pty Limited v Bain Dawes (WA) Pty Limited (1984) 157 CLR 149 Pobjie Agencies Pty Ltd v Vinidex Tubemakers Pty Limited [2000] NSWCA 105 Queanbeyan Leagues Club Limited v Poldune Pty Limited [2000] NSWSC 1100 Rees v Sinclair [1974] 1 NSWLR 180 Reinhold v NSW Lotteries Corporation [2008] NSWSC 187 Rogers v Whittaker (1992) 175 CLR 475 Sellars v Adelaide Petroleum NL (1994) 179 CLR 297 Stekel v Ellice [1973] 1 WLR 198 Swingcastle Limited v Gibson [1990] 1 WR 1223 Sykes v Midland Bank Executor & Trustee Co Limited [1971] 1 QB 113 The Commonwealth v Verwayen (1990) 170 CLR 394 Toteff v Antonas (1952) 87 CLR 647 Trust Co of Australia v Perpetual Trustees WA Limited (1997) 42 NSWLR 237 Wardley Australia Limited v Western Australia (1992) 175 CLR 514 Watson v Foxman (1995) 49 NSWLR 315 Wilson v Rigg (2001) 36 MVR 451 Winnote Pty Limited v Page (2006) 68 NSWLR 531
TEXTS CITED:	Professional Liability in Australia, 2nd ed, Warmsley, Abadee and Zipser
PARTIES:	ARTISTIC BUILDERS PTY LIMITED v GREGORY NASH & ORS
FILE NUMBER(S):	SC 2001/67264
COUNSEL:	P: C R Newlinds SC/Ms P A Horvath 1-4D: J W J Stevenson SC/N Kabilafkas 11-17D: D Fagan SC/M White 18D: I Denham
SOLICITORS:	P: HWL Ebsworth 1-4D: Henry Davis York 11-17D: Yeldham Price O'Brien Lusk 18D: Moray & Agnew

OF NEW SOUTH WALES
COMMON LAW DIVISION

HALL J

FRIDAY 17 DECEMBER 2010

2001/67264

ARTISTIC BUILDERS PTY LIMITED & ANOR v GREGORY NASH & ORS

JUDGMENT

HIS HONOUR:

INDEX

Heading	Page no
PART A - INTRODUCTION (1) The parties to the proceedings (2) The plaintiffs’ claim (3) The pleadings (4) The claims against NOT Lawyers (5) The claim by ABC against Harris & Company	4 4 5 7 11 12
PART B – OVERVIEW	15
PART C – THE DISPUTE WITH ECU (1) The Bankstown property (2) A proposed joint venture (3) Disputes between ECU and Mr Chahine	21 21 22 26
PART D – EVENTS LEADING TO THE SALE OF THE BANKSTOWN PROPERTY (1) Arrangements to refinance the debt on the Bankstown property (2) Arrangements to sell the Bankstown property­	32 32 34
PART E - ACTIONS BY ECU AS MORTGAGEE	37
PART F - THE SALE OF THE BANKSTOWN PROPERTY (1) Early negotiations (2) Warnings sounded about Mr Huxley (3) Mr Chahine’s concerns about securities (4) Litigation between ECU and ABC	43 43 51 54 62
PART G - FINALISING THE TRANSACTION (1) The Queensland property – the principal security offered by the Huxley Group (2) The cross-collateralisation of securities (a) The Blackheath property (b) Security offered over the Blackheath property	64 64 78 78 89
PART H – EVIDENCE AND FINDINGS (1) Certain matters established in evidence (2) Expert evidence (3) Expert evidence on the Queensland property as security (4) Mr Chahine’s evidence and issues as to credibility (5) Issues concerning Mr Nash’s evidence (6) The evidence relating to Mr Nash’s and Mr Chahine’s competing versions of events (a) The meeting of 18 October 1999 (b) The market value of the Bankstown property – Mr Nash’s evidence (c) Telephone conversation between Mr Chahine and Mr Nash on 22 October 1999 (d) Mr Chahine’s inquiries on 4 November 1999 of Mr Nash about the trust unit and adequate security (7) The proposal for security (a) Initial proposals (b) The Queensland proposal (c) The Blackheath property	91 91 95 96 99 103 108 108 111 115 117 118 118 120 124
PART I – CONSIDERATION (1) Breach of duty (2) Causation (3) Factual matters relied upon by NOT Lawyers (4) Plaintiffs’ responses (5) Causation principles (6) Causation and risk	132 132 139 140 142 143 149
PART J – LIMITATION OF ACTIONS DEFENCE (1) The limitation defence (2) The submissions for NOT Lawyers (3) The submissions for Harris & Company (4) NOT Lawyer’s further submissions on limitations in reply to Harris & Company (5) Analysis (6) The question of ABC’s interest and loss (7) Conclusions on the limitation defence	155 155 156 161 164 167 169 170
PART K - MR KOROKNAY (1) Defence that he was not a partner (2) The evidence of Mr Koroknay (affidavit sworn 25 March 2010)	174 174 176
PART L – THE ADVOCATES IMMUNITY DEFENCE (1) The pleaded defence (2) General principles	182 182 183
PART M – APPORTIONMENT OF LIABILITY (1) Introduction (2) The statutory provisions on apportionment (3) Submissions and contentions of Harris & Company (4) Factual matters and findings relevant to the proportionate liability defence (a) Mr O’Brien’s affidavit evidence (b) Cross-examination of Mr O’Brien (5) Issues on apportionment (6) Responsibility for the failure to commence proceedings in time (7) Submissions on the appropriate apportionment (8) Consideration	189 189 190 192 194 194 197 201 203 205 207
PART N – DAMAGES (1) The damages claimed by ABC (2) The claim by Artistic (3) The evidence (4) Submissions for Artistic (5) Submissions for NOT Lawyers (6) Consideration	213 213 214 215 216 218 220
PART O – CONCLUSIONS	222

PART A: INTRODUCTION

(1) The parties to the proceedings

1 In these proceedings, the plaintiffs, Artistic Builders Pty Limited (“Artistic”) and ABC Plumbing Services Pty Limited (“ABC”) claim damages from the first to fourth defendants, the partners of a firm of solicitors, Nash O’Neill Tomco (“NOT Lawyers”).

2 The plaintiffs were represented by Mr C R Newlinds SC and Ms P A Horvath, of counsel. NOT Lawyers were represented by Mr J W J Stevenson SC and Mr Nick Kabilafkas, of counsel.

3 ABC also claim damages from Harris & Company (the 11th to 17th defendants), solicitors who formerly acted on behalf of Artistic and ABC. Harris & Company were retained for the proceedings between 21 July 2000 and 8 June 2007. ABC’s claim proceeds upon the basis that, if the limitation defence relied upon by NOT Lawyers is made out, then it claims an entitlement to damages from Harris & Company for alleged breach of duty of care in failing to bring proceedings on behalf of ABC against NOT Lawyers within the six year limitation period.

4 Harris & Company were represented by Mr D J Fagan SC and Mr M White of counsel.

5 Mr S White SC is the 18th defendant to the proceedings. He was retained by Harris & Company in June 2001 to act on behalf of ABC and Artistic. The proceedings between ABC and Mr White have been resolved.

(2) The plaintiffs’ claim

6 Artistic and ABC claim damages from NOT Lawyers in relation to work undertaken by one of the partners of the firm, Mr Greg Nash, in respect of the sale of a property, Lot 1 at 228 South Terrace, Bankstown (“the Bankstown property”).

7 Mr Albert Chahine, the sole director of ABC, the registered proprietor of the Bankstown property agreed to sell to a group of purchasers including, in particular, a Mr Gregory Huxley and a Mr David Hall (“the Huxley Group”) and subsequently to their nominee. Ultimately, the purchasing entity was Nordoc Pty Limited (“Nordoc”), a trustee company. The transaction was negotiated over a period in October and November 1999 and was completed on 12 November 1999.

8 NOT Lawyers were initially retained by Mr Chahine on behalf of ABC on behalf of ABC on about 18 October 1999. At a later point in time, NOT Lawyers also acted for Artistic (see “Pleadings” below).

9 The property was sold to Nordoc on the following bases. On settlement, ABC was to be paid $3.5 million and an additional amount of $300,000 was to be paid to Gardenview Apartments Pty Limited (“Gardenview”) (the proposed joint venture entity) to purchase the rights under Development and Building Applications and plans approved by Bankstown City Council in respect of the Bankstown property.

10 In addition to the two abovementioned amounts, the Huxley Group agreed to pay, on a staged development basis a further amount of $3.7 million as a deferred payment (or, alternatively, specified product or units in the proposed development of the property).

11 The amount of $3.7 million (together with interest) has been referred to in these proceedings as the “Delayed Payment” or the “Deferred Payment” due to Artistic. This amount was to be paid in three stages over the period of 30 months following settlement. It was to be secured by the following securities:-

(1) A second mortgage over the Bankstown property.

(2) A third mortgage over a property owned by a company, Golf Links Estate Blackheath Pty Limited ACN 071 101 187 ( “Golf Links Estate” ) at Blackheath in New South Wales ( “the Blackheath property” ).

(3) A fourth mortgage over a property owned by a company, Laguna Beach Housing and Land Pty Limited ( “Laguna” ), being 352 acres of vacant land near Proserpine in Queensland ( “the Queensland property” ).

12 As indicated above, it was agreed that Artistic would have as an alternative to the Deferred Payment the right to elect to take title to units in the completed proposed development. Originally, this was to be by way of a “Put and Call Option”. Ultimately it was agreed to be by way of “a Call Option”. On or about 28 October 1999, Mr Chahine nominated Artistic as the company to hold units in the Unit Trust and to have the benefit of the Call Option and the securities in question.

13 The monies owing by the Huxley interests were also to be the subject of corporate and personal guarantees by the directors of the purchasing entity.

14 In October 1999, Mr Chahine, as sole director of both Artistic and ABC, approached a company ICA Mortgage & Finance Pty Limited (“ICA”) for the purpose of refinancing a loan to ABC of $1.5 million by Endeavour Credit Union Limited (“ECU”) initially made on 28 April 1999 for a period of three months.

15 In a letter of 13 December 1998, the Olympic Authority stated that it was prepared to enter into negotiations with ABC with a view to executing a delivery agreement conditional upon certain responses to questions raised.

16 Mr Chahine had hoped that the proposal would involve the whole of the residential component of the building being leased out to the Authority for 99 days in August and September 2000. The agreement, however, was never concluded. Mr Chahine said “we could not deliver the finished product” (t.115) as the building had not been built.

(3) The pleadings

17 These proceedings were instituted by Artistic by Statement of Claim filed on 11 July 2001. NOT Lawyers assert that the claim is statute-barred. ABC was not joined as a party to the proceedings until 26 March 2007. ABC sues Harris & Company, as noted, above, on the basis that that firm failed to advise ABC to commence proceedings against ABC prior to the expiry of the limitation period.

18 The plaintiffs at hearing proceeded by way of the Fourth Further Amended Statement of Claim filed pursuant to an order made on 5 June 2009.

19 The first to fourth defendants, NOT Lawyers, rely upon the Defence to the Fourth Further Amended Statement of Claim filed on 12 April 2010.

20 On 23 April 2010, a reply was filed on behalf of the plaintiffs pursuant to leave granted on 22 April 2010.

21 In the Defence, NOT Lawyers admit that a retainer was entered into between the first, second and third defendants only (and deny that the fourth defendant, Mr Korotnay, was ever a party to the contract of retainer either with Mr Chahine or the plaintiffs (paragraph 4 of the Defence)).

22 The defendants, in their Defence, stated that the retainer was entered into on or about 18 October 1999 and not, as alleged, on or about 14 October 1999 and further pleaded that they did not admit that the retainer was entered into with ABC or with Mr Chahine.

23 However, as NOT Lawyer’s closing submissions indicate at [1] and [2], it was accepted that the firm’s retainer was with ABC and once it became clear that units in a trust, the South Terrace Unit Trust, were to be held by Artistic, the firm acted for that company as well.

24 The retainer, as pleaded in paragraph 10 of the Fourth Further Amended Statement of Claim asserted that the terms of it included:-

“(a) NOT would exercise all due care, skill and diligence in doing all work necessary to effect the sale of the Bankstown property ( the transaction );
(b) NOT would advise as to the appropriate legal structure for the implementation of the Transaction;
(c) NOT would also act for any entities controlled by Chahine that may ultimately be used to effect the Transaction, as and from the time that such entities were identified;
(d) NOT would act in accordance with instructions provided from time to time by Chahine, on behalf of ABC and such other entities controlled by Chahine that may ultimately be used to effect the Transaction, as and from the time that such entities were identified;
(e) NOT would advise as to the risks involved with entering into the Transaction in accordance with any particular structure that was recommended by NOT; and
(f) NOT would advise as to legal and commercial risks involved in the Transaction.”

25 In their Defence, NOT Lawyers pleaded, inter alia:-

“4 …
(b) do not admit that the retainer was entered into with ABC and further say that NOT were retained by Chahine;
(c) admit that it was a term of the retainer that NOT would do work necessary to effect the sale of the Bankstown property but otherwise do not admit 10(a);
(d) admit that NOT would advise as to the legal structure proposed by Chahine and the purchaser for the implementation of the sale of the Bankstown property but otherwise do not admit 10(b);
(e) do not admit 10(c);
(f) admit that NOT would act in accordance with instructions provided from time to time by Chahine but otherwise do not admit 10(d);
(g) admit that NOT would advise as to the relevant legal risks involved with entering into the sale of the Bankstown property in accordance with the structure proposed by Chahine and the purchaser but otherwise do not admit 10(e);
(h) admit that NOT would advise as to the relevant legal risks involved in the sale of the Bankstown property but otherwise deny 10(f);
(i) otherwise do not admit paragraph 10.”

26 In the final submissions on behalf of the plaintiffs, it was noted that there were differences between the plaintiffs and Mr Nash on the ambit of NOT Lawyers’ retainer. It was contended for the plaintiffs that NOT Lawyer’s retainer was to “do the work necessary to effect the sale of (ABC’s) property at Bankstown” and this included a requirement that Mr Nash would:-

“(a) Satisfy himself that the plaintiffs had adequate security to ensure receipt of the Delayed Payment ( 2 );

(b) Check the valuation of the Queensland Property and, at a minimum, obtain an assignment of that valuation to the plaintiffs prior to settlement of the Transaction ( 3 );
(c) Confirm the solvency status of all guarantors ( 4 ); and
(d) Confirm the quantum of any mortgages sitting ahead of (what became) Artistic’s mortgages over each of the security properties, together with negotiate [sic] capping and priority agreements with each of the mortgages ahead of Artistic ( 5 );
(e) At the very (least) to carry out a bankruptcy search in relation to Mr Hall and advise Mr Chahine as to the result of that search ( 6 ).” (The numbers above are footnote references: Plaintiffs’ Final Written Submissions , paragraph 3)

27 Mr Newlinds SC submitted for the plaintiffs that, in determining the ambit of NOT Lawyers’ retainer, the Court ought give primacy to the contemporaneous documents (which are identified in paragraph 3 of the Plaintiffs’ Final Submissions) and not by reference to the affidavit or oral evidence.

28 It was contended that NOT Lawyers’ retainer included the obligation to either carry out the steps set out in paragraph 3 of the Plaintiffs’ Final Submissions or, at least, “… to warn the plaintiffs if the steps had not been carried out (to NOT’s satisfaction) prior to settlement of the Transaction” (paragraph 13).

29 Additionally, it was argued that Mr Nash had an obligation to advise his clients to defer settlement in order that Mr Chahine and Mr Nash could “take stock” of the position as at that time. It was argued that if Mr Chahine had proceeded with the transaction notwithstanding advice on what was said to be the deficiencies then existing, he could have elected to do so on a fully informed basis and following mature reflection: paragraph 14.

30 Accordingly, the case for the plaintiff has been argued upon the basis that the pleaded obligations of NOT Lawyers required Mr Nash to exercise reasonable care and diligence, in particular, in relation to the securities for the transaction and to provide appropriate warnings and advice in relation to them.

(4) The claims against NOT Lawyers

31 In essence, the plaintiffs’ case against NOT Lawyers was that Mr Nash breached his duty to the plaintiffs in two respects.

32 Firstly, it was contended that he failed to properly advise ABC and Artistic during the course of the above transaction. In particular, it is alleged that he should have warned them that the securities being offered by the purchasers were valueless. It was also contended that Mr Nash should have undertaken proper inquiries into the securities offered by the purchasers, but that he failed to do so.

33 Secondly, it was contended that Mr Nash failed to undertake certain post-settlement steps with appropriate care and diligence. In this respect, it was alleged that certain mortgages over the Bankstown property and the Blackheath property were registered in a way which affected the priority of the mortgages under the Real Property Act.

34 It is central to ABC’s case that, but for NOT Lawyers’ alleged negligence, it would not have proceeded with the sale transaction to the Huxley interests (the “no transaction case”). In other words, it is claimed that, had Mr Nash provided appropriate advice as to the lack of evidence of security that had been proposed by the Huxley interests to secure the Deferred Payment, ABC would not have proceeded with the transaction. ABC claimed that, in those circumstances, Mr Chahine would have elected to accept the alternative of a sale of the property by ECU as mortgagee in possession.

35 In respect of the alleged breach of contractual duty and negligence, the losses claimed were:-

(1) The amount ABC claims it lost by reason of it entering into the transaction. That loss is claimed as $4.130 million together with interest.

(2) The costs incurred by Artistic in its attempt to enforce securities provided by the purchasers, being the amount of $390,000 together with interest.

(5) The claim by ABC against Harris & Company

36 As noted above, ABC also brings a separate claim against Harris & Company, solicitors, (the 11th to 17th defendants). In 2000, ABC and Artistic retained Harris & Company to act and advise in relation to the recovery of damages from NOT Lawyers as a result of the sale of the Bankstown property.

37 The present proceedings had, as also noted above, been instituted by Artistic as the sole plaintiff on 11 July 2001 against NOT Lawyers. The proceedings progressed slowly as Artistic took steps to realise its securities over the Bankstown property, the Blackheath property and the Queensland property. It was Artistic’s case that ultimately each of these properties were sold but that Artistic was not paid any of the $3.7 million owing to it.

38 ABC was not joined as a plaintiff to the present proceedings until 2007. NOT Lawyers contend that any action by ABC in tort against them expired on 12 November 2005 and that equally any action by it in contract is also statute-barred

39 ABC alleges that Harris & Company failed to advise it to commence proceedings against NOT Lawyers prior to the expiration of the limitation period.

40 In 2009, ABC joined Mr White SC, who was retained by Harris & Company in 2001. It alleged in those proceedings that Mr White was a concurrent wrongdoer in relation to ABC’s claim.

41 The claims by ABC and Artistic were defended by NOT Lawyers and Harris & Company on a number of grounds. Firstly, by disputing any breach of duty as alleged. Secondly, if breach of duty was established on the basis that there was no causal connection between any breach and the losses claimed.

42 Harris & Company, like NOT Lawyers, contended that it had not been established that Mr Chahine would have proceeded even if additional advice and warnings had been given and recommendations made for the appropriate investigation of the landed securities offered by the purchaser group. In this respect it was argued:-

(1) Mr Chahine was, at all material times, intent to do all things possible to avoid a mortgagee sale of the Bankstown property by ECU.

(2) He was under pressure of a s.57(2)(b) Real Property Act notice (the second notice issued by ECU) which was to expire on 10 November 1999.

(3) He was highly motivated to sell the Bankstown property as he considered the sale to be an extremely attractive commercial proposition.

43 In summary, Harris & Company, firstly, dispute the basis for the “no transaction” case the plaintiffs bring against NOT Lawyers and, secondly, say that ABC did not suffer any loss as a result of entering into the sale before 5 June 2002 and certainly not before 26 March 2001. As a consequence of the second point, the contention was that ABC’s claim against NOT Lawyers is not statute-barred.

44 Harris & Company also plead the defence of immunity that applies to legal representatives where the breach involves work done in court or work that is done out of court which affects the conduct of a case in court.

45 Harris & Company also plead the provisions of s.35 of the Civil Liability Act 2002 in the event of liability being established.

46 An issue of central importance in the present case is whether or not, given the pressures and the otherwise strong incentive to sell, Mr Chahine would have decided against proceeding with the sale had he been properly advised in relation to the securities.

47 The defendants submitted that Mr Chahine’s concern and fear was that, in the event that ECU entered into possession, it would not seek to obtain the best price in a mortgagee sale and that any price realised would disregard his own interests. This was argued to be an important factor and provides an insight into Mr Chahine’s state of mind. It was contended that he had the added concern that ECU would retain from the proceeds of a mortgagee sale an amount of $622,000 in respect of ECU’s claim as to a 62% share of losses that the joint venture between it and ABC had incurred and the cost of which had been paid for by ECU.

48 The defendants also relied upon the background to the transactions. This included the fact that Mr Chahine had spent a great deal of time, effort and money in preparing the Bankstown property for development. He was strongly motivated by a desire to achieve a commercial outcome in its redevelopment.

PART B - OVERVIEW

49 As at December 1998, ABC held a Development Approval in respect of the Bankstown property to erect three 10 storey residential towers comprising a mix of residential and commercial units.

50 Mr Chahine entered into negotiations with the Olympic Co-ordination Authority. A letter dated 13 December 1998 was written by the Authority to Mr Chahine in relation to “expression of interest for the provision of Olympic Media Accommodation by way of serviced apartments and residential developments on behalf of ABC Plumbing Services Pty Limited”.

51 The proposal with the Authority involved Mr Chahine’s companies entering into a lease with it to provide accommodation for media representatives expected to attend the 2000 Olympics.

52 Earlier, in April 1998, Mr Chahine had been advised by ECU that the Board of ECU had approved a financial contribution to the project of $3.65 million.

53 Following a dispute between Mr Chahine and ECU in August 1999, ECU contended that, by virtue of the joint venture arrangements, ABC was liable to contribute 62.81% of expenses and losses suffered by the joint venture that had been met by advances made by ECU to the joint venture vehicle, Gardenview. In due course, ECU advised Mr Chahine that it would retain from the proceeds of any sale of the Bankstown property, firstly, the amount of $1.5 million that had been advanced by it in 1998 and, secondly, an amount of $622,000 representing what ECU had contended was ABC’s share of the joint venture expenses and losses.

54 It was against that background that events unfolded leading to negotiations for and eventually completion of a sale transaction of the Bankstown property on 12 November 1999.

55 On 28 April 1998, ECU had agreed to lend ABC $1.5 million for three months secured over the Bankstown property. This was pursuant to a loan approval letter dated 24 April 1998 (Exhibit 19, p.21).

56 At about that time, ABC was negotiating with ECU in relation to a proposed joint venture to develop the Bankstown property in accordance with the existing Development and Building Approvals which it held at that time. The $1.5 million loan was to be repaid from the proceeds of the joint venture agreement but if that agreement was not finalised at the end of the term of the loan, then ABC was to seek to refinance the amount advanced by ECU. In the event that ABC did not or could not refinance the loan, then it undertook to place the Bankstown property on the market at a realistic price and once sold to repay the $1.5 million loan advance.

57 The loan advance was not repaid by ABC at the expiry of the three month term. In addition, the joint venture with ECU did not proceed and in August 1999, the abovementioned dispute emerged between Mr Chahine and ECU.

58 The transaction in relation to the Bankstown property as finally implemented was complex. It was in a short period of time (one month) agreed to in principle, developed in negotiations and settled. It was proposed and, in due course, agreed that the exchange of contract and the settlement of the transaction would both occur on the same day. It was not, in other words, a transaction that was conceived, developed and or completed in calm and ordered circumstances. Indeed, a number of the essential elements of the transaction were negotiated and renegotiated in the few days immediately preceding settlement as well as on the day of settlement itself.

59 In the assessment of the plaintiffs’ “no transaction” case, Mr Chahine’s relationship with ECU is a matter of importance. As stated above, the pressure, in part, came from the threat and later the commencement of possession proceedings by the existing mortgagee (ECU) in respect of the Bankstown property and the proceedings claiming joint venture losses. Those proceedings were commenced by ECU on 25 October 1999. On 26 October 1999, this Court (Bergin J, as her Honour then was) made an order for the appointment of a provisional liquidator to Gardenview and a freezing order was made which effectively imposed on ABC an obligation to retain from the proceeds of any sale of the Bankstown property in an amount of $622,000.

60 In the weeks and days leading up to the settlement on 12 November 1999, Mr Chahine was also under pressure to make significant decisions on several matters, including in particular, securities offered and to provide necessary instructions to Mr Nash.

61 In the circumstances that existed as at October 1999, there was neither time nor the opportunity (by reason of the pressure of time) for Mr Chahine to seek out other potential purchasers. The purchasing group, the Huxley Group, added to that pressure insisting upon completion of the sale within an extremely tight timetable.

62 A further circumstance concerning Mr Chahine was the fact that his financial position was such that he did not have the necessary cash flow to meet ongoing commitments.

63 From a vendor’s perspective, it was essential that the Huxley Group provide proper and adequate security for the Delayed Payment that it would be paid to Artistic. As events later revealed, the securities and guarantees provided were effectively valueless. How and why such a fundamental failure occurred with the securities and the reasons as to why they were not perceived until after settlement is a matter of central importance in the proceedings.

64 The evolving nature of the negotiations and the changes that were made to critical components of the transaction added to the pressure operating on both Mr Chahine and Mr Nash. This, in turn, brought about a limited opportunity for either of them to investigate and verify proposals being put forward by the Huxley Group. It also meant that without due and proper inquiry Mr Nash’s ability to properly explain and advise Mr Chahine in relation to the proposals made was, at the very least, limited.

65 At least in retrospect, it is apparent that the completion of such a complex commercial property transaction under pressure is one that is apt to result in risk unless appropriate precautions are taken to ensure the risk does not materialise. In the events that occurred, hurried and important decisions were made.

66 The nature and the extent of the risks associated with the securities that were offered by the purchasing group in this case could only have been properly evaluated by the taking of appropriate steps that would assist in exposing the risks. The evidence in this case demonstrated a marked absence of appropriate inquiry into certain of the securities that were offered.

67 The issue of causation in this case concerns the question whether, had appropriate advice been given to Mr Chahine, he/ABC would have called off the proposed sale thereby electing to accept the outcome of a mortgagee sale.

68 Whilst the sale to the Huxley Group presented as an attractive option, Mr Chahine had concerns about security and the people he was dealing with. Mr Chahine initially met Mr Ray J Bannon and Mr Huxley in October 1999. He had never previously dealt with them. He knew nothing about them and he had no idea of their financial status. Mr Bannon had, in fact, been bankrupted many years before. Concerns were expressed to Mr Nash (which the latter passed on to Mr Chahine) as to the reliability of Mr Huxley and Mr Hall.

69 Information received about the Huxley Group led Mr Chahine to write to Mr Nash and state:-

“Please take all necessary precautions to protect my interest.”

70 Mr Nash was himself concerned about the Huxley Group. He conveyed his concern to Mr Chahine. He warned Mr Chahine that he was suspicious that either the transaction would not proceed to a favourable settlement or the purchasers would not keep their promises after settlement. This drew Mr Chahine’s further response:-

“Please be careful; please take care; and please ensure we have all security and protection.”

71 An essential and conventional means of providing the necessary “protection” for the interests of Artistic and ABC was that of ensuring that their respective interests following settlement were protected by satisfactory landed securities. This obviously requires appropriate inquiries be undertaken and expert valuation advice obtained. In this context, the nature and the current market value of two of the three properties offered as securities needed to be established as were the nature and extent of any existing encumbrances on the properties.

72 The Queensland property was first proposed as additional security for the transaction approximately 18 days before settlement (ie, at or about 25 October 1999).

73 A central complaint made by the plaintiffs is that Mr Nash failed to obtain an up-to-date valuation in respect of that property. Instead, he pursued a course of asking for confirmation from the valuer who had undertaken a valuation of the property for Queensland solicitors some 18 months before. This proved not to be a worthwhile course of action. The plaintiffs complain that Mr Nash failed to advise Mr Chahine (and Artistic/ABC) to obtain their own valuation to establish current market value.

74 A day or so before settlement (on 11 November 1999), Mr Nash was informed that the purchaser was offering Artistic a third mortgage over the Blackheath property. The offer having been made so late, little time existed to consider the implications of the offer.

75 Against these matters, NOT Lawyers argued that Mr Chahine would have settled at all costs to avoid a mortgagee sale at the hands of ECU. Mr Chahine’s concerns were said to have centred upon the price that would be achieved in a mortgagee sale and the possible adverse impact on Mr Chahine’s credit-rating.

76 NOT Lawyers argued that Mr Chahine’s state of mind was such that he was “desperate” to settle the sale to the Huxley interests. It is said in this regard that, whilst he initially wanted a “straight sale”, it was not long before he relinquished that position and accepted a “staged sale”.

77 Further, although he wanted the Delayed Payments to be secured by first mortgage security over the Bankstown property, he was soon prepared to give ground on that matter as well and accept a second mortgage, appreciating that the lender in respect of the construction costs to the Huxley interests (estimate at about $30 million) would require a first mortgage security.

78 NOT Lawyers also relied upon the fact that, notwithstanding a warning given to Mr Chahine that Mr Huxley was said to be “very slimy” and that “suspicions” had been expressed about him, Mr Chahine was nonetheless still prepared to go ahead and do business with him.

79 In the evidence, there was reference to the Huxley interest being “the only game in town”, meaning that there was only one entity which was, at the time, a realistic prospective purchaser of the Bankstown property.

PART C – THE DISPUTE WITH ECU

(1) The Bankstown property

80 ABC purchased the property known as 228 South Terrace, Bankstown in 1993. At all relevant times, ABC was controlled by Mr Albert Chahine.

81 On 26 March 1997, Bankstown City Council approved a subdivision of the land into two separate lots. The approval permitted the construction of three 10 storey residential towers comprising 169, two and three bedroom units and a ground floor commercial area, car park and commercial facilities and a 14 storey office tower and car park on the second of the two subdivided lots.

82 On 28 April 1998, ABC took a loan on a first registered mortgage security in favour of ECU on the Bankstown land in the amount of $1.5 million. The loan was for three months secured over the Bankstown property. The finance approval letter from ECU dated 24 April 1998 recorded the loan purpose as being:-

“Refinance Suncorp Facility $1,000,000
Payment of sundry costs incurred with the development of the security property $500,000”

83 The interest rate specified was 0.50% with a Default Interest Rate of 7.19% said to be “applicable three months after the date of funding. Payable monthly in arrears and capitalised to the principal loan amount”.

84 ECU’s approval letter dated 24 April 1998 recorded “Repayments Options” in the following terms:-

“1. The amount financed will either be repaid from proceeds of a Joint Venture Agreement which is presently being negotiated between the Borrower and the Mortgagee or;
2. In the event that this Joint Venture Agreement is not finalised, then the Borrower undertakes to refinance the then total debt under commercial interest rates and terms & conditions.
3. In the event that refinance is not available, the Borrower undertakes to place the security property on the market at a realistic sale price and, once sold, repay in full the then total debt.”

(2) A proposed joint venture

85 At about the same time as the loan agreement, ABC was negotiating with ECU for a proposed joint venture to develop the Bankstown property in accordance with existing Development and Building Approvals for the construction of the three 10 storey residential towers

86 The overall plan was to develop and deliver the new building to the Olympic Co-ordination Authority on time and the Authority would lease the whole of the building for the three months during the Olympics for a total rental of approximately $6.5 million. Mr Chahine agreed in cross-examination that the conditions precedent set out in the draft Unit Holders’ Agreement were not met and, accordingly, units in the Trust were not allocated.

87 Gardenview was incorporated with a view to it being a vehicle for the proposed joint venture as the trustee of the unit trust to develop the Bankstown property as a joint venture project. There were two issued shares in the company, one of which was owned by ABC and the other by Mr David Havyatt on behalf of ECU.

88 In the period 1998/1999, ECU, apart from advancing the loan monies of $1.5 million to ABC also advanced monies to or on behalf of Gardenview in respect of project development costs. Gardenview hired professionals and incurred costs in relation to the joint venture project. Ultimately, the relationship between ECU and ABC broke down in August 1999. As noted earlier, a dispute arose between ABC and ECU as to ABC’s liability to contribute towards the monies paid by ECU to or on behalf of Gardenview. It was that dispute which led Mr Chahine to initially retain Mr Nash.

89 Mr Lachlan Paterson of Solomon Garland Partners prepared a document entitled “terms sheet” in respect of “Bankstown Centrepoint Apartments, South Terrace, Bankstown”. At this point, Mr Paterson was the solicitor for the proposed joint venturer, Gardenview. Mr Chahine said that he had had “good experience with him and I trusted him”, ie, Mr Paterson (t.127).

90 Mr Chahine said that Mr Paterson had been his solicitor for about 10 years before 1998.

91 The draft “terms sheet” included the following provision:-

“ECU agrees to pay a total of $3.65 million (calculated as a cost of their equity into a specific purpose development Trust at 37.82% as follows:-
(1) … $1.5 million to be paid into the Joint Venture trust account and
(2) … $1.5 million to ABC immediately …
(3) … (the payment of which is more fully described in clause 7(1)).”

92 ABC was to repay outstanding costs as well as the mortgage on the Bankstown property so as to leave it unencumbered. The parties agreed that the land and the work in progress completed was valued at $7.5 million.

93 The “terms sheet” document also recorded a number of “proposals” including the following:-

“1. The parties agree that the land is to be transferred into a Trust for Gardenview Apartments Unit Trust, the Trustee of which will be Gardenview Apartments Pty Limited (unitholding and shareholding to be covered in this Term Sheet and to reflect the ownership). The parties agree that, for the purposes of that Transfer, the land will be valued at $1.5 million with a subsequent re-evaluation of the land within the Trust post 1 July 1998.”

94 The fourth proposal set out in the document specified:-

“4. The unitholding in the Trust shall be ABC 62.18% and ECU shall be 37.82% , which is intended to reflect the parties’ costs going into the Joint Venture.”

95 Neither ECU nor Mr Chahine/ABC ever signed any documents recording a joint venture.

96 However, in 1998, a draft “Unit Holders Agreement” was drawn up between an ECU related entity, Endeavour Financial Services Pty Limited (EFMS), ABC and Gardenview.

97 Clause 4 of the draft agreement recorded that the units in the Trust between ABC and EFM would be:-

“(a) As to 6,218 units to ABC for a consideration of $6 million (being the agreed value of land of $7,500,000 less $1,500,000) (payable on the execution of the agreement).
(b) As to 3,782 units to EFM for a consideration of $3,650,000 which will be credited as to $1,500,000 on the execution of the agreement with the balance of $2,150,000 payable progressively towards project costs.”

98 The proposed allotment of units, accordingly, reflected the percentages of Mr Chahine’s proposed interest in the joint venture and that of ECU (approximately 62% to approximately 37% to ECU).

99 The draft Unit Holders Agreement recorded a proposed condition that the loan by the joint venture company for construction costs and related interest expenses for the development would not exceed the sum of $30 million.

100 One of the proposed conditions precedent to the Unit Holders Agreement (the fourth condition) was that Gardenview had to enter into an agreement with the Olympic Authority for the lease of the whole residential component of the project for 90 days, the whole of the rental for that period being about $6.5 million.

101 No agreement, in fact, was ever executed with the Olympic Authority.

102 A proposal was discussed that the $1.5 million loan from ECU was to be re-paid from the proceeds of the joint venture. In the event that the proposal was not finalised by the end of the term of the loan, ABC was to seek to re-finance the total amount advanced. If re-finance was not available, the proposal was that ABC would undertake to place the Bankstown property on the market at a realistic price and from the proceeds of sale the amount of $1.5 million that had been advanced by ECU to ABC would be repaid.

103 Under a proposed clause of the Unit Holders Agreement, ECU would have been entitled to terminate by 30 November 1998. In fact, it purported to terminate the joint venture in September 1999. This occurred at a time soon after Mr Chahine first met Mr Nash (t.125).

104 Clause 13(b) of the draft Unit Holders’ Agreement made provision in the event of termination:-

“13(b)(ii) An account shall be taken of all costs and expenses paid, committed or incurred by the JV Company pursuant to this Agreement up to such termination in respect of the development and subject to clause 12, ABC and EFM must bear and pay their proportion of such costs and expenses in the same proportion that they hold units in the said Unit Trust referred to in clause 4 …”

(3) Disputes between ECU and Mr Chahine

105 In the three and a half months from 1 August 1999 to 12 November 1999, there were ongoing disputes between Mr Chahine and ECU representatives concerning the ECU loan to ABC and liability for so-called joint venture losses.

106 The history of the disputes with ECU over repayment of the loan of $1.5 million and the contribution sought in respect of joint venture losses is outlined in the paragraphs that follow. That history is relevant in the sense that it provides context and background to the position of Mr Chahine/ABC in relation to the sale of the Bankstown property in the period August to November 1999.

107 As noted above, in the “overview” discussion, NOT Lawyers relied upon evidence which established that, in the months prior to 12 November 1999, Mr Chahine was under pressure to pay a contribution towards the “joint venture losses”, to refinance and to repay the ECU loan monies it had advanced to ABC.

108 In a letter of 3 August 1999 (Exhibit 4) addressed to Alex Sala of ECU (t.190), Mr Chahine said “I deny any responsibility for any monies funded to the credit of Gardenview. These were funds advanced by Endeavour Credit Union at their own risk”.

109 This letter was written about a month before Mr Chahine first consulted Mr Nash. Mr Chahine suggested in evidence that he wrote it on the advice of Mr Robertson who had earlier been employed by ECU. Mr Robertson, it appears, left ECU on or about 3 August 1999 and established a business conducted by a company, Balanced Solutions Pty Limited (t.191).

110 Mr Chahine accepted that ECU had said to him that if he could not refinance the loan then he would have to put the Bankstown property up for sale. He agreed that he told Mr Patrick O’Brien that he had no cash flow and that he could not refinance the loan (t.146).

111 When put to him in cross-examination, he agreed that in August 1999, he was in a “losing position”.

112 On 5 August 1999, Mr Chahine had written two letters to Mr Sala of ECU. In the first letter (Exhibit 2), he required ECU’s position in respect of the joint venture to be put in writing. In the event that ECU no longer was proceeding with the joint venture, then he required approval to “… institute compensation claims against third parties associated with the project …”.

113 Mr Chahine concluded the letter stating:-

“I wish to record my disappointment over the manner in which the meeting was conducted. The use of intimidating tactics and the threats to restrict my ability to fairly trade out of the current position, in respect of the mortgage to ECU, is not appreciated.”

114 In the second letter of 5 August 1999, Mr Chahine wrote:-

“I require a letter from ECU determining their position with regard to the Joint Venture Agreement.
If ECU wish to terminate the Joint Venture and may now require repayment of the mortgage provided to ABC Plumbing Service Pty Limited then I request I be allowed sufficient time, as was originally and verbally agreed by ECU, to either refinance the debt or to sell, in whole or in part, the property (IES). Either course of action will result in the full repayment of the principal debt and interest to ECU (to date I have received no formal notice from ECU).”

115 A meeting also took place in August 1999 between Mr Chahine and officers of ECU concerning ABC’s default under the mortgage with ECU and the resolution of what were termed “joint venture losses” of about $1 million.

116 ECU contended that, by virtue of the arrangements associated with the proposed joint venture, ABC was liable to pay 62.8% of the loss sustained by the “joint venture”, this amount arising from advances made by ECU to the joint venture vehicle, Gardenview.

117 In due course, ECU threatened to retain from the proceeds of sale of the Bankstown property both the amount of $1.5 million advanced in 1998 and, additionally, the amount of $622,000 which ECU contended to be ABC’s share of the joint venture losses.

118 NOT Lawyers relied upon correspondence (of 23 August 1999) to establish that as early as 4 August 1999, Mr Chahine was denying liability for a 62.18% share of the losses and his denial was not based upon the legal advice of Mr Nash as claimed by him in evidence, he not having consulted with Mr Nash until September 1999.

119 In cross-examination, it was put to Mr Chahine that he refused to agree that the losses were to be split in the proportions stated in Mr Sala’s letter. He maintained that that position was based “on the advice of my lawyer at the time I – he asked me not to admit it and I believe it was wrong” (t.151). He confirmed that the advice was given by Mr Nash. NOT Lawyers strongly contested Mr Chahine’s evidence on the matter contending that Mr Chahine had disputed from the outset that he owed any contribution to be losses claimed.

120 Whilst Mr Chahine maintained on a number of occasions that he rejected the demands of ECU to share the losses on the basis of the abovementioned percentages on the advice given of Mr Nash, there was evidence that he had, in fact, taken that position before he retained Mr Nash and had done so as early as 4 August 1999.

121 Mr Nash, in a letter dated 27 August 1999, thanked Mr Paterson for referring Mr Chahine. Mr Chahine first consulted Mr Nash on 7 September 1999. He said he asked Mr Nash at the first meeting whether ECU were “going to sell me up or not” (t.168).

122 Mr Chahine said that he was aware at this time that ECU could enforce the claim for $1.5 million (t.170). He knew that the mortgage had been for a term of three months and that the loan agreement provided that, if it was not paid within three months, that he had to refinance.

123 Mr Chahine agreed that ECU had made a “threat” that if he did not agree to its settlement conditions that ECU could sell the land by taking mortgagee in possession proceedings and then hold the balance of the money in a trust account until it was sorted out by the courts (t.171).

124 He agreed that he thought ECU’s “threat” to sell and put the sale monies in trust meant that he would have no money then to fight ECU (t.172).

125 Mr Chahine also agreed that, at his first meeting with Mr Nash on 7 September 1999, he was very unhappy with the way he had been treated by ECU and that he said to Mr Nash, “we must not let them sell the land to recover the mortgage because they won’t care about me and they’ll sell the land cheaply” (t.173). He agreed he also said something like, “I’ve spent years putting this block of land together and I don’t want to lose it now” (t.173).

126 In a letter from ECU to ABC dated 8 September 1999, Mr Sala said that, if conditions precedent had not been achieved to EFM’s reasonable satisfaction before 30 November 1999 “… to the extent that it has not already been terminated, EFM gives you notice of termination of the joint venture and the Unitholders Agreement”.

127 Mr Chahine met Mr Nash on 8 September 1999 at the offices of ECU for the purposes of negotiating a resolution to the claim by ECU that, by reason of its outlay of monies for the purposes of the proposed joint venture (paid to Gardenview) it was entitled to recover from ABC a proportion of the monies it had expended.

128 Mr Nash advised Mr Chahine that his preliminary view was that “some obligation will arise in your joint venture entity … ABC … to pay its share of the loss with the other joint venture party, ECU …”.

129 The letter went on to refer to Mr Chahine’s proposition that ABC should not be responsible for the losses as they had been incurred due to the negligence of ECU and/or of external experts (t.181).

130 Mr Nash, however, observed in his letter of advice that Mr Chahine’s assertion of negligence against its joint venture partner or professionals engaged by the joint venture was “the more difficult” at 58, t.182.

131 On 15 September 1999, Kemp Strang, solicitors, served a notice on ABC pursuant to s.57(2)(b) of the Real Property Act. The notice alleged default under a mortgage of 28 April 1998 in the amount of $1.5 million plus interest of $129,115.26.

132 In a letter dated 24 September 1999, Mr David Havyatt of ECU claimed that there had been an agreement between Gardenview, ABC and Endeavour Financial Services Pty Limited (EFMS) that if the joint venture project did not proceed, the cost of the project would be borne by ABC and EFMS in the proportion of 62.18% (ABC) and 37.82% (EFMS).

133 It is clear that by this time, the following circumstances existed and brought pressure to bear upon Mr Chahine:-

(1) The joint venture timetable had been delayed and pre-conditions had not been met.

(2) The three month mortgage for $1.5 million was overdue.

(3) ECU had written to terminate the agreement.

(4) ECU had made “threats” to exercise its right to possession.

(5) Gardenview (ECU) were pressing for ABC’s contribution to the expenditure on improvements on the property estimated at $1 million. On 10 September 1999, Gardenview was seeking advice from Mr Paterson as to whether they could lodge a caveat in respect of joint venture losses.

(6) ECU was threatening to retain from proceeds of a mortgagee sale monies to pay ABC’s share of the joint venture losses.

(7) Mr Chahine was experiencing cash flow problems. Retention of monies from the sale would deprive him of funds to embark on the litigation.

134 Mr Nash observed in a letter dated 15 September 1999 that he did not believe ABC had a cause of action against ECU on account of any alleged wrongdoing of the architects/consultants (t.195). Accordingly, as at 15 September 1999, Mr Nash’s advice on this aspect was that he was unlikely to succeed on that aspect (t.195).

135 Mr Chahine acknowledged in cross-examination that it may have been difficult to prove negligence against the architects (t.196).

136 He, accordingly, accepted, when it was put to him in cross-examination, that ECU had been claiming that ABC should bear almost 70% of the losses of the joint venture (which he was disputing) and at the same time Mr Nash was telling him that it would be difficult to succeed on the claim against him (t.196).

137 When it was put to him that he had recognised that he would have great difficulty in resisting ECU’s claim, Mr Chahine replied “I always and still believe I was liable for part of the loss” (t.196).

138 He said, however, that his position in September 1999 was that he wanted to argue that he should not have to bear any part of the losses because ECU had engaged the architects and the architects had been negligent (t.196).

PART D – EVENTS LEADING TO THE SALE
OF THE BANKSTOWN PROPERTY

(1) Arrangements to refinance the debt on the Bankstown property

139 In September 1999, initial inquiry was made by Mr Chahine directed to a possible refinancing of the ECU debt. This was followed shortly afterwards by negotiations to sell the Bankstown property.

140 In a letter of 17 September 1999, Mr Bannon, General Manager of ICA wrote to Mr Chahine thanking him for the opportunity to “… discuss your requirements to refinance … (the property)”. The letter also stated “You have asked me to obtain sufficient funds to refinance the existing debt on the land …”. Mr Bannon added that he had submitted an application to “my Lender who at present is considering the application for a loan”. The letter went on to state “it is understood that, in the event that you are unable to obtain the loan funds soon, then you will have to put the property for sale”.

141 The evidence supports the proposition that, before Mr Chahine retained Mr Nash, he had been exploring options for refinancing the ECU loans. This was contrary to the suggestion made in his affidavit that inquiries into refinancing were undertaken on advice from Mr Nash in order that evidence would be generated for use in legal proceedings. It was pointed out to Mr Chahine in cross-examination that advice of that kind was only first given by Mr Nash by letter dated 6 October 1999.

142 Mr Chahine received a letter on the subject of refinancing the loan from Mr Bannon of ICA dated 17 September 1999. He agreed that he had been wrong in suggesting in his evidence that that letter had been written on Mr Nash’s advice (t.242) (see Mr Chahine’s affidavit sworn on 30 October 2003 – Exhibit B, Tab 2, paragraph 9).

143 He was shown a document from Balanced Solutions Pty Limited signed by Mr Robertson. The letter was addressed to “Across Australia Finance” (t.243). He agreed that he gave Mr Robertson instructions to send the letter and that he asked Mr Robertson to seek finance, in this case, from Across Australia Finance (t.244), to refinance the first mortgage. He also agreed that, as early as 20 July 1999, he was looking around for a refinancing solution (the letter from Balanced Solutions dated 29 July 1999 is Exhibit 7).

836 Insofar as costs were incurred in respect of the exercise of the power of sale by Elliot & Tuthill, it was submitted that Mr O’Brien’s evidence supported the proposition that the proceedings were reasonable in all the circumstances. It was also submitted that proceedings in respect of the securities that had not been registered was also a reasonable step for the plaintiffs to take in order to mitigate what otherwise would be their losses.

(4) Submissions for Artistic

837 Mr Newlinds frankly conceded in oral submissions (transcript, p.717) that it was not possible to prove that Artistic paid the amounts claimed. He noted that no claim was being made in respect of any invoice which was in fact addressed and sent to ABC.

838 In oral submissions, Mr Newlinds stated that Artistic’s claim was as set out in appendix 3 by way of a revised claim. This related to a series of invoices from Harris & company directed to Artistic. The invoices related to the proceedings against Elliot & Tuthill and the enforcement of the securities. The invoices, the subject of Artistic’s claim, totalled $100,311.17. Mr Newlinds, in respect to this aspect of the claim by Artistic, stated:-

“… We don’t have any direct evidence that Artistic paid those invoices and the submission we make is that your Honour would infer that in circumstances where the invoices has [sic] been rendered to Artistic and paid then it has been paid by Artistic or on Artistic’s behalf in such a way that caused the loss to Artistic. This is the way we put that part of the case. It is a question to your Honour whether in the light of the very sketchy evidence that issue is open.”

839 In respect of the scheduled list of barristers’ invoices and the invoice of Mr Healey, valuer, these were not directed to either ABC or Artistic. They were directed to Harris & Company and totalled $58,688.75.

840 Mr Newlinds, in respect of these invoices, relied upon Exhibit P which was a copy of the trust statement of Harris & Company to which I have earlier referred. The trust statement was addressed to Artistic. The statement establishes the payment of invoices from the trust account maintained by Harris & Co in the name of Artistic and in that respect Mr Newlinds submitted (transcript, p.718):-

“… The submission is that prima facie, the fact that monies are held by Harris & Co on trust for Artistic is sufficient evidence for your Honour to find that those monies were Artistic’s monies … That submission, it is clear when you look at Ex P, that some of the money that comes into the trust account and is credited, comes from ABC or it is at least on ABC number cheques. In my submission, it being common place for different entities in a group to pay accounts that are really due and owing by other entities in a group, and to simply deal with that by way of loan; that would take away from the very powerful inference that Harris & Co and those instructing them were obviously satisfied that the appropriate person to be the beneficiary of the trust account was Artistic. This is a separate submission we make for the disbursements in the schedule and the amounts of about 58 thousand dollars. We probably opened that part of the case a little boldly. We have cut it back and that is as high as I can put it … Obviously it is a … question of inference and whether it is available or whether what I am asking your Honour to do is mere speculation. That is what we say on that aspect of the case against Nash, O’Neill and Tomco.”

(5) Submissions for NOT Lawyers

841 NOT Lawyers relied upon written submissions entitled “NOT’s Submissions in Reply on Artistic’s Damages Claim dated 22 April 2010.

842 In these submissions it was acknowledged that the plaintiffs’ claim, as loss to Artistic, was said to arise from the incurring of costs of pursuing the Elliot & Tuthill proceedings. NOT Lawyers accepted that, if liability is otherwise established, then these costs were recoverable – in principal – as reasonable costs of mitigation.

843 It was noted that the plaintiffs had originally “estimated” the costs as “$390,000 being 80% of the costs incurred up until 1 May 2006” being the settlement of those proceedings.

844 It was contended that the “only” evidence of the costs claimed were a bundle of accounts provided to the legal advisers of NOT Lawyers on 16 April 2010.

845 NOT Lawyers relied in the submissions upon the observations of Chernov J (with whom Buchanan JA) agreed in Longdon v Kenalda Nominees Pty Limited [2003] VSCA 128 at [33]. There, inter alia, it was emphasised that it was for the plaintiff to prove both the fact of loss arising from (in that case the defendant’s breach of contract) and the amount of the loss. Further, a plaintiff was required to establish both matters with as much certainty and particularity as is reasonable in the circumstances.

846 It was submitted that the principles stated in that case have equal application to the claim made by Artistic.

847 The submissions of NOT Lawyers on the Artistic claim did not directly take issue with the claim based upon 80% of total costs incurred but concentrated upon the issues of principle referred to in the submissions. In particular, it was contended there was no evidence as to who paid the accounts. Some were addressed to ABC and some to Artistic.

848 It was further contended that, if ABC paid any of the accounts, then the only basis on which Artistic could demonstrate loss would be if it could point to an obligation in it to repay ABC.

849 It was also submitted that, assuming ABC could establish such an obligation, then on the face of it, assuming ABC paid the costs shortly after the dates of the accounts, then ABC is now out of time to enforce any obligation of that kind.

850 It was also submitted that Artistic was not entitled to recover all of the sums it had incurred in relation to the Elliot & Tuthill proceedings. In this respect, it was contended that any such claim may only relate to costs on a party and party basis. Reliance, in this regard, was placed upon the observations in British Racing Drivers’ Club Limited v Hextall Erskine & Co [1996] 3 All ER 667 at 691 to 692.

851 In oral submissions, Mr Stevenson observed that the problem facing Artistic was that it was unable to prove who paid the invoices or accounts. Exhibit P, the trust account statement, was said to record monies coming into that account from ABC, firstly, on 13 June 2000 and again on 31 October 2000. Attention was also drawn to an entry in the trust statement dated 27 November 2000 entitled “Attorney General’s Department Supreme Repayment of Security for Cost Monies” in the amount of $50,000 credit. The entries of 30 September 2002 show ABC as having made payments as described in Exhibit P. Mr Stevenson, accordingly, submitted that so much evidence as there was suggested that ABC was paying money. If ABC was paying the fees, in effect, on account of Artistic, it was out of time to recover them from Artistic. It was submitted that there could not therefore be any liability to pay. In any event, the claim by Artistic essentially rests upon the drawing of an inference that it was in reality Artistic who paid the invoices. Mr Stevenson, however, suggested that that was a matter of “… sheer speculation and such evidence as there is in Exhibit P suggests the contrary” (transcript, 23 April 2010, p.754).

(6) Consideration

852 Apart from the documentary evidence in support of the claim by Artistic, to which I have referred, there is no other evidence to establish that Artistic paid the costs, disbursements and counsels’ fees. Further, insofar as ABC paid any of such costs, there is no evidence of any arrangement made between ABC and Artistic in respect of costs and disbursements incurred in the course of proceedings brought by Artistic.

853 The drawing of an inference depends, of course, upon the existence of evidence which permits that to do done.

854 Mr Newlinds submitted (at p.718) it is commonplace for different entities in a group to pay accounts that are actually due and owing by other members of the group to treat that arrangement by way of loan.

855 In the present case there is no evidence of any traditional group structure in which one company acts as a holding company and the other is a subsidiary of it. There is no evidence that attention was given at the time costs and disbursements were incurred or paid that Artistic would assume the obligation of reimbursing ABC.

856 Mr Newlinds submitted that a powerful inference could be drawn that Harris & Company and those instructing them “… were obviously satisfied that the appropriate person to be the beneficiary of the trust account was Artistic …” (t.718). That submission was directed, in particular, to the disbursements set out in the schedule of the claim.

857 The submission for Artistic that a loan can be inferred from the documentary evidence requires analysis. In effect, the submission as to drawing of inferences in the context of Artistic’s claim, it would seem in reality, to be a submission that the evidence would support the existence of an implied loan contract between the two companies at the time the costs and disbursements were incurred or paid.

858 In determining whether there existed an implied contract, it is essential to identify some evidence of contractual intent on the part of the companies in question. In that respect, it is necessary to examine the acts and conduct of the parties in the light of relevant or surrounding circumstances that permit a conclusion to be drawn of an implied or tacit agreement or understanding.

859 In Pobjie Agencies Pty Limited v Vinidex Tubemakers Pty Limited [2000] NSWCA 105, Mason P cited dicta of McHugh JA (as his Honour then was) in Integrated Computer Services Pty Limited v Digital Equipment Corporation (Australia) Pty Limited (1988) 5 BPR 11,110 at 117 to 118. There, his Honour cautioned against endeavouring to fit commercial arrangements into the classical analysis of contractual arrangements in terms of “offer”, “acceptance”, “consideration” and “intention to create a legal relationship”. Whilst these were said to be the benchmarks of a contract according to classical theory, nevertheless a contract may be inferred from the acts and conduct of the parties as well as or in the absence of their words. McHugh JA added:-

“… The question in this class of case is whether the conduct of the parties viewed in light of the surrounding circumstances show a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract … Care must be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances.”

860 I am not persuaded by the argument put on behalf of NOT Lawyers that ABC would be out of time to enforce any obligation against Artistic. Limitation provisions bar the remedy but not the right: The Commonwealth v Verwayen (1990) 170 CLR 394, 405. Thus, a limitation defence must be pleaded to an action. It is hardly likely that there would be any prospect of a limitation defence to enforcement being raised by Artistic to ABC.

861 I am of the opinion, in any event, that the evidence is insufficient, either expressly or as a matter of inference, to support the existence of an anterior understanding or agreement as to a loan between Artistic and ABC that Artistic would reimburse ABC in respect of costs and disbursements paid by the latter.

862 On the basis of an absence of evidence that Artistic either paid any of the costs and disbursements claimed or that ABC paid them pursuant to an agreement or understanding with ABC, the claim by Artistic must fail.

PART O - CONCLUSIONS

863 On the basis of the findings and conclusions set out in paragraph [517], I have determined that NOT Lawyers were in breach of their duty of care under the retainer with ABC in relation to the transaction for sale of the Bankstown property.

864 ABC suffered loss and damage as a result of NOT Lawyer’s breach of duty of care to ABC.

865 NOT Lawyers have established a limitation of action defence under s.14 of the Limitation Act to ABC’s claim in the proceedings. Accordingly, the proceedings by ABC against NOT Lawyers are statute-barred and therefore are not maintainable.

866 Harris & Company, in breach of their duty of care to ABC, failed to commence proceedings against NOT Lawyers within the six year period prescribed by s.14 of the Limitation Act 1969.

867 Harris & Company do not have a basis for and, accordingly, have not established the advocate’s immunity defence pleaded by them.

868 The claim against Harris & Company is an apportionable claim pursuant to the provisions of s.35 of the Civil Procedure Act.

869 The appropriate apportionment of liability is determined to be:

(1) Harris & Company - 60%

(2) Mr White - 40%.

870 Artistic’s claim against NOT Lawyers for costs, counsels’ fees and disbursements is dismissed.

871 In relation to judgment and damages, I note:-

(1) ABC’s entitlement to damages against Harris & Company is subject to the provisions of the Professional Standards Act .

(2) The maximum amount of damages that may be awarded against Harris & Company in accordance with the scheme under the Professional Standards Act is the amount of $3,500,000.

872 I direct the parties to lodge with my associate by 4.00 pm, Friday 11 February 2011:-

(1) A document setting out the calculations of damages in accordance with and to give effect to the conclusions set out above.

(2) Short minutes of order to give effect to the conclusions set out in these reasons for judgment.

873 The parties are to lodge written submissions in support of any applications for costs in accordance with a timetable to be agreed. A copy of the timetable is to be provided to my associate by 4.00 pm, Friday 4 February 2011.

874 The proceedings to be re-listed for the purpose of hearing submissions on the form of orders to give effect to this judgment. The parties are to confer and seek, by arrangement with my associate, a hearing date for that purpose.

875 Liberty to any party to apply.

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