As Bannister v Sirrom Enterprises Pty Ltd - [2016] SASCFC 153

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
AS BANNISTER & ORS v SIRROM ENTERPRISES PTY LTD
[2016] SASCFC 153
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Peek and The Honourable Justice Stanley)
22 December 2016
PROFESSIONS AND TRADES - LAWYERS - DUTIES AND LIABILITIES - SOLICITOR AND CLIENT - GENERALLY
PROFESSIONS AND TRADES - LAWYERS - DUTIES AND LIABILITIES - SOLICITOR AND CLIENT - RETAINER - EXTENT OF RETAINER
PROFESSIONS AND TRADES - LAWYERS - DUTIES AND LIABILITIES - SOLICITOR AND CLIENT - NEGLIGENCE
Appeal against a decision of a Judge of the District Court.
The appellant is a firm of solicitors trading as Minter Ellison (Minters). They appeal a judgment given against them in an action for professional liability. The respondent is a company controlled by Mr Morris. Mr Morris engaged the appellant to conduct due diligence on a proposed investment in a building business owned by Mr Manson.
Minters prepared the necessary documents to give effect to Mr Morris’ agreement with Mr Manson. While drawing those documents, Minters were told that Mr Manson would procure the licence necessary for the new company to operate lawfully. It was known that Mr Manson held a personal building licence. The agreement between Mr Morris and Mr Manson was due for completion on 5 December 2007. Mr Morris made a number of payments to Mr Manson prior to, at, and after completion of the agreement.
On completion day, it was discovered that the necessary licence had not been procured. The licence that Mr Manson held personally was not appropriate for the work that the business was to undertake. The relevant employees at Minters advised Mr Morris to delay completion. Irrespective, Mr Morris instructed them to proceed. The business failed. The business never acquired the correct licence.
At trial, the respondent claimed that Minters’ retainer extended to enquiring into Mr Morris’ personal licence. It was also argued that if the respondent had found that the licence was not appropriate then it would not have paid nor contracted with Mr Morris.
The trial Judge found that Mr Morris instructed Minters not to enquire into the builders licence prior to completion date, and so there was no duty to do so. Mr Morris’ payments to Mr Manson prior to completion were made to secure the agreement. The Judge also found that on completion day Minters ought to have advised Mr Morris to ‘abort’ the transaction. Accordingly, Minters were liable for the payments made on completion day. The Judge found that the payments made after completion day were made because Mr Morris did not take steps to attain a licence for the company. Minters were not liable for those payments.
Generally, the appellant appeals against that judgment on the ground that they fulfilled the duty owed to Mr Morris on completion day. The respondent cross appeals on the grounds that Minters owed a duty to investigate the personal licence prior to completion and that the pre and post completion payments were caused by Minter’s negligence. The respondent also cross appeals on the ground that the Judge wrongfully dismissed its claim for consequential loss.
Held per Kourakis CJ (Peek and Stanley JJ agreeing), allowing the appeal and dismissing the cross appeal:
1. The respondent’s instructions excluded the appellant from investigating the status of Mr Manson’s personal licence. After 8 October 2007, Minters understood that Mr Morris had acquiesced to Mr Manson obtaining the relevant licences. The payments made prior to completion day were Mr Morris’ attempt to seize a commercial opportunity.
2. On completion day, Minters appropriately advised Mr Morris not complete until the licence was obtained. Mr Morris instructed Minters to proceed and Minters appropriately amended the relevant documents. To abort the transaction would amount to termination, jeopardising Mr Morris’ investment up to that date.
3. The trial Judge was correct in finding that the post completion payments were caused by Mr Morris’ own failure to procure the necessary licence.
4. The respondent did not prove any special or consequential loss.
Building Work Contractors Act 1995 (SA) s 9, s 19, referred to.
Sirrom Enterprises Pty Ltd v AS Bannister & Ors [2015] SADC 100, not followed.
AJH Lawyers Pty Ltd v Hamo (2010) 29 VR 384; Astley v Austrust Limited (1999) 197 CLR 1; Badendach v Calvert (2016) ALJR 619; Capital Brake Service Pty Ltd v Meagher [2003] NSWCA 225; David v David [2009] NSWCA 8; Hawkins v Clayton (1988) 164 CLR 539; Heydon v NRMA (2000) 51 NSWLR 1; Micarone v Perpetual Trustees Australia Ltd (1999) 75 SASR 1, discussed.
Hungerfords v Walker (1989) 171 CLR 125; Rogers v Whittaker (1992) 175 CLR 479, considered.

AS BANNISTER & ORS v SIRROM ENTERPRISES PTY LTD
[2016] SASCFC 153
Full Court: Kourakis CJ, Peek and Stanley JJ

KOURAKIS CJ: This is an appeal brought by AS Bannister & Ors, a firm of solicitors trading as Minter Ellison (Minters) against a judgment given against them in a professional liability action. The respondent, Sirrom Enterprises Pty Ltd (Sirrom), is the corporate investment vehicle of its principal, Peter Morris, a property valuer and investor. Mr Morris engaged Minters to conduct due diligence on a proposed investment by Sirrom in a building and building products business.
The business to be invested in was operated by Mr Matthew Manson both personally and through several associated companies. I will refer to Mr Manson and those companies collectively as Manson. The business involved the use of ‘Smart Panels’ which are panels constructed from steel wire frames with a polystyrene core onto which concrete is sprayed to form prefabricated walls for use in the construction of buildings (the Smart Panel system and business respectively).
Minters were engaged by Morris in September 2007. The solicitors engaged were Mr Grey, a partner of the firm, a solicitor Mr Simmons and, after Mr Simmons left the firm, another solicitor Ms Briggs. Minters initially investigated the ownership of the intellectual property associated with, and the right to use, Smart Panels. Later, on Mr Morris’ instructions, they incorporated a company, Smart Panel Systems Pty Ltd, which, before its incorporation, was referred to as ‘the new company’ or ‘New Co’. I will refer to it as SPS. SPS was intended to be the corporate vehicle through which Mr Morris and Mr Manson, as principals of their related corporate entities, would embark on a joint venture in the Smart Panel business. Mr Morris and Mr Manson personally negotiated the terms on which the joint venture would proceed. They exchanged a number of iterations of a document entitled ‘Heads of Agreement’ (HOA).
The final iteration of the HOA, dated 29 September 2007, provided that Mr Morris would pay $500,000 in return for 50 per cent of the ordinary shares in SPS. Of that purchase price, $250,000 was payable on execution of the shareholders agreement and $40,000 of that amount was to be paid directly to Mr Manson. The balance of the purchase price was to be paid to SPS in two further instalments, the first in the sum of $150,000 on the delivery of the first imported Smart Panels and the second in the sum of $100,000 on the erection of those panels on a specified building project. The HOA required Manson to assign the Smart Panel business to SPS in consideration for an allocation of 50 per cent of the shares in SPS. The date fixed for completion was 5 December 2007. The parties subscribed to the final iteration of the HOA on 30 September 2007. A note on that document signed by Mr Manson acknowledged that a cheque in the sum of $40,000 was paid to Mr Manson on that same date.
Sirrom made other payments to Manson before the completion date on 5 December 2007. The total of the pre-completion payments made by Sirrom was $170,000.
The documents prepared by Minters to give effect to the HOA were a subscription agreement, an asset sale agreement, and a shareholder’s agreement. Ms Briggs drew those documents. In the course of preparing them she was instructed that Mr Manson would procure a building work contractors licence pursuant to the Building Work Contractors Act 1995 (SA) (the BWC Act) for SPS so that it could lawfully operate the Smart Panel business. I will refer to a licence granted pursuant to the BWC Act as a builder’s licence. On the day set for completion of the transaction, 5 December 2007, it was discovered that a builder’s licence had not yet been procured for SPS. Mr Morris nonetheless instructed Minters to complete the transaction. Accordingly on 5 December 2007 the agreements were executed and Sirrom paid a further $72,794.00 to Manson.
SPS traded for only a short time thereafter before it failed and was placed into liquidation. After the completion date and shortly before the failure of the business, Mr Morris discovered that the only builder’s licence held by Manson (the Manson licence) was held by Mr Manson personally and did not allow him to lawfully perform building work of the kind involved in the SPS business. Indeed, the Manson licence was limited to the construction of such things as retaining walls, fencing and carports and other minor building work like painting, brick paving, and minor repairs. The term of that licence was for the period 20 September 2007 to 11 December 2008. Mr Manson had held a similarly limited licence from 23 July 2003 but on 17 June 2007 that licence was suspended.
Sirrom made further payments to SPS or Manson between 6 December 2007 and 5 March 2008 totalling $229,000, and made further payments thereafter until 21 July 2008 of $185,200. Annexed to this judgment is a chronology of the payments.
Sirrom’s case was that Minters’ retainer extended to enquiring into the status and conditions of the Manson licence. Sirrom contended that if Minters had undertaken that enquiry, they would have discovered that the earlier Mason licence had been suspended and that the current Manson licence was limited and did not extend to the performance of work of the kind encompassed by the Smart Panel business. Sirrom claimed it would not have entered into the contractual arrangements with Manson, would not have taken up shares in SPS, and would not have made the payments it did to Manson if Minters had reported on the status of the Mason licence.
The Judge found that:
·Mr Morris instructed Mr Simmons on 8 October 2007 not to make any builder’s licence enquiries or take steps with respect to any builder’s licences because he would attend to the matter.
·In subsequent communications with Mr Simmons and Ms Briggs, Mr Morris maintained the instruction that he would procure the necessary builder’s licences.
·Accordingly, prior to the completion date Minters’ retainer did not extend to taking steps to obtain a builder’s licence or investigating the status of the Manson licence.
·The payments made by Sirrom to Manson prior to the completion date were made by Mr Morris for business reasons to secure the agreement and keep the business on foot with Manson and were not made in reliance on any advice given by Minters, or on any belief that Minters had enquired into Manson’s builder’s licence and were satisfied with the results of those searches.
As a result of the aforesaid findings, Sirrom’s claim with respect to payments made before the completion date were dismissed both because Sirrom had neither established any breach of duty nor any causative connection between the acts or omissions of Minters and the making of the payments.
The Judge also found that:
·On the completion day Minters advised Mr Morris not to proceed with completion until SPS has procured a builder’s licence.
·Mr Morris instructed Minters that he wished to proceed.
·Minters amended the transaction documentation to require Manson to make its licence available to SPS to the extent it lawfully could and to require SPS to procure a builder’s licence as soon as reasonably practicable.
Nonetheless the Judge went on to find that:
·Minters should have advised Sirrom not to complete on 5 December 2007 and should have advised Sirrom to ‘abort’ the transaction because a builder’s licence which would have allowed the company to undertake the business had not been obtained.
·Minters’s failure to so advise Sirrom was a material cause of the payment of $72,794.00 on 5 December 2007.
·However the Judge dismissed SPS’s claim with respect to the balance of the payments made thereafter because the payments made by Sirrom after the completion date were not caused by Minters’ failure to advise Sirrom not to make the payments.
·The later payments were made because Mr Morris failed to take steps to procure a licence for SPS. Those steps would have resulted in Mr Morris discovering that Mr Manson never had a licence which lawfully allowed him to conduct the Smart Panel business and that Mr Manson was not qualified to obtain a building work supervisor’s licence which would have allowed SPS to conduct the business.
The Judge rejected Sirrom’s claims for Hungerfords v Walker damages, and for the borrowing costs actually incurred by Sirrom, to fund the completion day payment of $72,794.00. The Judge therefore entered judgment for Sirrom in the sum of $72,794.00 plus interest pursuant to s 39 of the District Court Act 1991 (SA).
Minters appeals the judgment entered against it on the grounds that the Judge:
·wrongly found that the circumstances which arose on the completion day were such as to impose on Minters a duty to ascertain the status of the Manson licence and to inform Sirrom of the result of that enquiry.
·wrongfully found that the advice given to Sirrom to delay completion until SPS had obtained a builder’s licence did not adequately discharge Minters’ duty.
·erred in finding that the failure of Minters to obtain the Manson licence or to advise Sirrom to terminate the transaction was a cause of the making of the payment because Mr Morris would have proceeded with the transaction irrespective of any advice Minters may have given.
Sirrom has cross-appealed on the grounds that the Judge erred in:
·failing to find that Minters’ retainer extended to an investigation of Manson’s builder’s licence status prior the completion date.
·finding that Minters were instructed on 8 October 2007 not to undertake enquiries as to the nature and terms of the builder’s licence.
·failing to find that the payments made by Sirrom before completion were caused by Minters’ negligence.
·failing to find that the negligence of Minters caused Sirrom to make the post completion payments.
·failing to find that the plaintiff had suffered consequential loss on account of being deprived of moneys which could have been used to reduce his existing liabilities and on account of the cost of borrowings to replace moneys paid away to meet the requirements of the investment which losses were compensable in accordance with the principles in Hungerfords v Walker.
I would allow Minters’ appeal. I find that Mr Morris’ express instructions excluded the investigation of the status of the Manson licence from Minters’ retainer on 8 October 2007. Minters was not negligent in failing to investigate the status of the Manson licence before that date. From 8 October 2007 Minters reasonably proceeded on the basis that Mr Morris had acquiesced to the proposal that Manson would attend to procuring the necessary licences under the BWC Act that would allow SPS to undertake the Smart Panel business. Moreover, the payments made by Sirrom were not made on the strength of a belief that Minters had investigated the status of the Manson licence.
When, on the completion day, Minters discovered that Manson had failed to procure a builder’s licence for SPS, Mr Grey and Ms Briggs appropriately advised Mr Morris not to proceed until the licence had been procured. Sirrom has not shown that the Judge erred in finding that Mr Morris instructed Minters that he still wished to proceed with the transactions. I find that on receiving instructions to proceed with completion Minters made appropriate amendments to the documentation and gave sound advice to Mr Morris. The Judge was wrong to find that Minters were negligent in failing to advise Mr Morris to ‘abort’ the transaction as that would repudiate the agreement. To do so would have jeopardised the practical, if not legal recovery, of Mr Morris’ already substantial investment. Finally I find that, in any event, Mr Morris would not have accepted advice to terminate the transaction.
I would have dismissed Sirrom’s appeal on damages even if it had succeeded in establishing liability. Sirrom failed to prove that it had incurred any special expenses or had lost any commercial opportunity.
My reasons are ordered as follows:
Negotiations and Minters’ Engagement
Documenting the Agreement
The Transaction Documents
Completion Day
Causation – Mr Morris’ explanations
Scope and Content of a Solicitor’s Duty
Was Minters Negligent Prior to Completion Day?
Was Minters Negligent on Completion Day?
Did Minters’ negligence cause Sirrom to make the post-completion payment?
Hungerford and Lost Opportunity Damages
Conclusion
Annexure A: Chronology of Payments Made by Cross-Appellant
Negotiations and Minters’ Engagement
Mr Morris met Mr Manson for the first time in July 2007. Mr Manson explained the Smart Panel system to him. Mr Manson told Mr Morris that the wire cage and polystyrene core components of the panels were imported. He informed Mr Morris that he was seeking an investment of between $500,000 and $1,000,000 to develop the business.
Mr Manson held himself out to be an experienced builder with a building licence which allowed him to construct residential and light industrial buildings. He gave Mr Morris a business plan which identified Manson Nominees Pty Ltd, trading as Smart Panel Systems, as the company which used the Smart Panel system. The business plan claimed that the company constructed residential and commercial buildings. It claimed that Mr Manson had 12 years’ experience in the construction industry. One objective of the business plan was that the company would construct and sell 90 residential homes by 30 June 2008.
Mr Manson was accompanied from time to time by Mr Peter Erskine who was described to Mr Morris as an accountant and Mr Manson’s ‘adviser and business coach’. Mr Manson informed Mr Morris that he had a number of housing construction contracts on which he hoped to use the Smart Panel system.
Mr Morris was attracted to invest in the Smart Panel business and entered into negotiations with Mr Manson. He contacted Mr Simmons at Minters, who had worked on an earlier due diligence exercise into another, much larger, investment made by Mr Morris. On 3 September 2007, Mr Morris telephoned Mr Simmons and told him that he wanted to engage Minters to undertake a ‘bargain basement’ due diligence of the Smart Panel business. Mr Morris agreed when giving his evidence that he proposed that the cost of the due diligence be capped at $10,000 and testified that Mr Simmons responded that he was comfortable with that fee.
I pause here to observe that this exchange has no material bearing on the scope of Minters’ duty. A solicitor’s duty to his or her client is determined by the scope of the retainer, which is in turn determined by communications between them on the work to be done, and by what is implied by those communications. The standard of care required of a solicitor cannot be determined by reference to the amount charged for work. In particular, the standard is not relaxed because the solicitor has undercharged.

Mr Simmons testified that he had not previously conducted any due diligence on a building company or building business and was not aware of the provisions of the BWC Act. Nor was he aware that enquiries could be made with the State Government Office of Consumer and Business Affairs (OCBA) to discover whether a person held a licence and the nature of any conditions placed on that licence. It is surprising that Mr Simmons embarked on the due diligence of Manson’s business without knowing that building work was legislatively regulated and without familiarising himself with the legislation and its administration. He was duty bound to do so. However, whether or not his failure resulted in negligent conduct causing loss is another question.
On 3 September 2007, Mr Simmons emailed a document headed ‘legal due diligence issues’ to Mr Morris. The document set out a number of items which might be included in the proposed due diligence investigation. In the covering email Mr Simmons wrote ‘given that you’re looking for something less than that [a full blown diligence exercise], I thought we could use this as a starting point with a view to paring back a more limited scope of work’. The paring back did not take place. The precise scope of the due diligence exercise therefore must be delineated circumstantially from the parties’ communications and course of conduct after that email. Yet, as noted above, that scope cannot be narrowed on account of the reduced fee.
On the same day Mr Morris forwarded an early iteration of the HOA to Mr Simmons. The HOA referred to the conduct of a due diligence investigation over a period of 21 days from execution of the HOA. A second HOA was provided by Mr Morris to Mr Simmons on 6 September but without any significant amendment to the earlier iteration. Neither of the first two iterations were executed.
On Friday 7 September, Mr Morris and Mr Simmons visited the office of Smart Panel Systems at Seaford and inspected a prototype of the Smart Panel system. The Judge found that from that date Mr Simmons either knew or ought to have known that the Smart Panel business involved building construction work, that Manson was a builder, owned a construction company and that the only use for Smart Panels was in construction.
On 14 September 2007, Mr Morris informed Mr Simmons that he had reached agreement with Manson and had executed a ‘third’ HOA, a copy of which he attached to his email. The third HOA contemplated the incorporation of SPS as a vehicle for Mr Morris’ investment in the Smart Panel business. It provided for an initial investment by Mr Morris of $250,000, of which $40,000 would be paid directly to Manson, on execution of a ‘shareholders’ agreement’ and ‘other necessary documentation’. The third HOA contemplated that Manson would transfer all of the Smart Panel business to SPS. Manson would have an initial shareholding of 80 per cent and Mr Morris 20 per cent. The third HOA recorded that Mr Erskine would be the general manager of SPS. It provided for a ten-day period for due diligence, commencing on the date that Mr Manson countersigned that document.
It should be observed that the stipulation of a due diligence period was a proposed term of the third HOA made between Mr Morris and Manson. It was not a stipulation in the engagement of Minters. Indeed, Mr Simmons had already commenced work on the due diligence.
The Judge found, and this finding is not challenged, that Mr Simmons was not retained to, and did not in fact, provide advice on the drafting of the various iterations of the HOA. The Judge found, and again it is not challenged, that iterations of the HOA were copied to Minters for their information only.
On Wednesday, 19 September 2007, Mr Morris instructed Minters to commence basic company searches for the due diligence enquiry. He informed Minters that he would probably instruct them to prepare full documentation early in the following week. Mr Simmons informed Mr Morris that he would start with a search of Mr Manson’s existing trustee company. He asked Mr Morris to send him information on the proposed licensing arrangement which would allow SPS to use the intellectual property in the Smart Panel system. Mr Simmons noted that information would be the key documentation for the purpose of the due diligence.
On 24 September 2007, Mr Morris sent to Mr Simmons preliminary intellectual property information attached to an email which asked Mr Simmons to make further enquiries ‘to get full background info’. Mr Simmons made extensive enquiries of Mr Morris about the intellectual property on the very next day and again on Wednesday 26 September. Between 26 and 28 September 2007, Mr Simmons conducted ASIC and public records searches to ascertain the ownership of the intellectual property in the Smart Panel system. They included searches with respect to a David Smith whom he understood to be the holder of the intellectual property in the Smart Panel system.
Just before midnight on Sunday 30 September 2007, Mr Morris sent Mr Simmons an electronic version of the fourth and final HOA which both he and Mr Manson had signed that day. It was submitted to Minters for the purpose of preparing the documentation necessary to give effect to it. The HOA recited that ‘due diligence having been completed’ the parties had agreed on the terms therein appearing.
Even though the HOA did not impose any obligation on Sirrom or Mr Morris to make any payment until the formal documentation had been completed, a handwritten note on the executed agreement records that Mr Morris gave Mr Manson a cheque in the sum of $40,000 on the day of the execution of the final HOA.
On 3 October 2007, Mr Simmons conducted a search of real property associated with Mr Manson. Eventually the results to that search revealed that a caveat had been lodged over the home of Mr Manson and his wife. The caveat also revealed that Mr Manson had changed his name.
On 4 October, Mr Simmons, having decided to resign from Minters, prepared a note outlining the results of his preliminary due diligence inquiries for the purpose of handing over the file. By that note he informed Mr Grey and Ms Briggs that the note captured ‘pretty much everything’ he knew about the matter. The note stated that he was handing the ‘matter over to you guys to run with’ because he had run out of time to finalise the handover of his other files. Mr Simmons asked them to finalise the note and to send it to Mr Morris by the end of the week. A date notation on a hard copy of that electronic document shows it was printed out on 8 October 2007 which was the day on which Mr Grey met with Mr Manson to discuss the issues it raised. I return to that meeting below. It was not certain, but the evidence at trial was that the issues paper was not provided to Mr Morris until sometime around 5 November 2007. It is plain that by the time Mr Simmons prepared the note on 4 October 2007 he was aware that SPS would receive assignments of building contracts made by Manson.
On 4 October, Mr Simmons met with Ms Briggs to discuss the handover of the matter. Ms Briggs’ notes of that meeting refer to a query as to whether Manson had a building business independent of the Smart Panel business. It is reasonably clear from the notes, and more fully explained in the evidence of Ms Briggs and Mr Simmons, that that query was raised in the context of considering whether Mr Manson would be sufficiently dedicated to the new business.
There was a further handover meeting between Mr Simmons and Ms Briggs that afternoon. Ms Briggs made notes of that meeting. The notes record ‘trustee entity that carries on M’s building bus’. Mr Simmons testified that, despite his references to the building business, he did not appreciate that SPS would require a building licence. However, he accepted that he should have obtained copies of the contracts that were to be assigned to SPS. A reasonable solicitor in Mr Simmon’s position should have realised by the time of the handover to Ms Briggs that SPS would require a builder’s licence and should have provided advice on the regulatory regime.
Documenting the Agreement
Mr Grey met with Mr Morris and Mr Manson at the offices of Minters at 12.50 pm on 8 October 2007. Many of the issues set out in Mr Simmons’ handover notes were discussed, including the structure of the transaction.
One of the matters discussed was the corporate structure of SPS and whether the company should have 10,000 or 20,000 issued shares. Shortly before 5.00 pm on that afternoon Mr Erskine sent an email to Mr Morris stating:
Just one matter to consider in the formation of the new company. For the company to apply and be issued with a builders licence, the Building Work Contractors Act 1995 requires that the minimum share capital is 10,000 issued shares valued at $1 each. Note the shares do not have to be fully paid.
Mr Morris responded to Mr Erskine ‘10,000 was the number I was thinking of anyway’. Mr Morris copied the email chain to Mr Grey.
The most probable inference to be drawn from Mr Grey’s notes of the meeting of 8 October 2007 and the email exchange is that Mr Morris, Mr Erskine and Mr Grey discussed but did not resolve whether SPS should have a share capital of 10,000 or 20,000 issued shares. Mr Erskine’s information related to the corporate builder’s licence requirements of the BWC Act that affected the number of issued shares in SPS. Mr Morris’ email shows that the requirements of the BWC Act happened to coincide with his preference at that time. That email exchange expressly put Minters on notice of the BWC Act requirements. In any event, as I have earlier observed, Minters ought to have already advised Mr Morris, that SPS had to hold a builder’s licence in order to conduct the Smart Panel business.
At 6.30 pm that evening, Mr Grey spoke to Mr Morris over the telephone. On the appeal, the parties agreed, save for the notation which I have placed in parentheses, that his handwritten notes of that conversation should be read as follows:
T/A …(illegible) - Peter – 0411 - 758 281 @ 6:30pm Mon 8/10/07
1Booz Hamilton Investment opportunity
-      Discussion – what is required?
-      Kevin Dixon??
-      $50m investment.
-      PM to talk to David Hill/Deloits: arrange mtg
for later in the week
-      Timing: Oct.
2Smart Panel/New Co
-      10,000 sh – email from Peter E.
-      Don’t incorp yet just sit on details for now.
-      New cp licence – PM/PE no action – [so far or Peter]
let me know (PE’s task)
3      ASA/SH Agreement
-      progress – slow (busy)
-      drafts to circulate this week.
-      mtg next week to review/flesh out issue.
4      VALG/Valex
-      Peter want to meet later in week
-      ok (but not Thurs 11/10).
Minters contends that the handwritten note in parentheses reads ‘Peter’ and Sirrom that it reads ‘so far’. Sirrom also contends that the licence referred to on that line of the note was not a builder’s licence but an intellectual property licence.
When giving his evidence Mr Grey was taken to the email exchange about the requirements of the BWC Act and to his notes of the telephone conversation later that night. Mr Grey testified that Mr Morris had rung him. The questioning then continued:
QAnd topic No 2, you’ve made a note Smart Panel/New Co; could you just read out the dot points to ensure we’ve got your evidence about what your notes say.
AYes the first dot point is ‘10,000 shares email from Peter E’ meaning Peter Erskine. The second one is ‘don’t incorporate yet just sit on detail for now’. The third one is ‘New company licence PM/PE’ Mr Morris, Mr Erskine ‘No action so far (let me know P’s task)’.
At the point when those questions were asked the Court only had Mr Grey’s barely legible handwritten notes before it. No typed version of the notes was produced for the trial. It is clear therefore that the questioner was simply asking Mr Morris to decipher the note aloud so that the Judge and counsel could all understand how it should be read. It is apparent then that Mr Grey himself read his note to read ‘so far’ and not ‘Peter’. On my reading of the note, however, the word is Peter. The reason for Mr Grey’s different reading of it is that the top of the letter ‘t’ curves to the right rather like the letter ‘f’ would be expected to and there is a small gap between that letter and the two letters which precede it. However, it is clear to me that the preceding letters are ‘Pe’. Moreover, the word has the same appearance as words at the top and bottom of the same page which are plainly the word ‘Peter’. Ultimately, this semantic dispute does not add much to the resolution of the factual issue whether the word licence there referred to is a building or intellectual property issue. The Judge found that the discussion concerned the builder’s licence.
My finding that the word is ‘Peter’ is consistent with Mr Grey’s testimony that Mr Morris instructed him to take no action on the builder’s licence:
QWhen you made that note and in particular where it says – your notes record ‘no action’, who said that?
AWell that would have been an instruction from Mr Morris to me.
QAnd at the time of this telephone conversation on the 8^th what did you understand that instruction to mean, your firm had to do or not do?
AMy instruction was to take no action in relation to the builders licence.
QAnd for completeness, para 3 or topic 3 appears to be a reference to asset sale agreement and shareholders’ agreement?
ACorrect, yes.
QAnd could you please read out the second dash point that commences with the word draft.
ADraft to circulate this week.
QNext entry.
A‘Next meeting next week to review’ – can’t read my own writing here – ‘flesh out issues’.
QThank you. And it appears that according to your note, that this was a telephone conversation of about 10 minutes, bottom left-hand corner?
AYes, correct.
In cross-examination, Mr Grey was asked whether it was the effect of his evidence-in-chief that the topic of discussion between himself and Mr Morris and Mr Manson on 8 October 2007 was the builder’s licence. He affirmed that it was. He was specifically asked about the reference to Mr Erskine’s email and his evidence-in-chief was repeated to him. However, at no point in the cross‑examination was it put to Mr Grey that the note referred to the licensing of intellectual property.
The written notes of the meeting and the email exchange strongly support Mr Grey’s testimony that the note refers to a builder’s licence. The note of that distinct topic commences with a reference to Mr Erskine’s email about the share capital requirements for a corporate builder’s licence. A ‘new company licence’ is more apt to refer to a new builder’s licence in SPS’s name than to an intellectual property licensing arrangement. The allocation of the task to ‘Peter’ is consistent with the lead Mr Erskine had taken on the builder’s licence and inconsistent with the alternative hypothesis that the licence there referred to was an intellectual property arrangement.
On 17 October 2007, Mr Grey again met with Mr Morris, Mr Manson and Mr Erskine. His record of that meeting includes the note ‘Licence – PE/PM still reviewing’. Mr Grey testified that that note too was a reference to a builder’s licence. When taken to that note in cross-examination, Mr Grey affirmed that it referred to statutory licencing because he used the initials IP to identify intellectual property issues. It was not put to him that the builder’s licence was not discussed.
Mr Morris was not taken to the email exchange with Mr Erskine in his evidence in chief but in cross-examination he agreed that he understood the share capital requirement related to SPS procuring a corporate builder’s licence. Nonetheless in examination-in-chief and cross-examination he maintained that the references in Mr Grey’s notes could only be to intellectual property licences.
The Judge made the following findings about the notes of 8 October and 17 October 2007:
[114]The note of the meeting between Mr Grey, Mr Manson and Mr Morris of 17 October 2007 ‘Licence – PE/PM still reviewing’ is equivocal on this topic. The context suggests it more likely related to the building licence, as analysed earlier in this judgment. The suggestion under cross examination by Mr Morris that it was a reference to the intellectual property licence, is therefore to be doubted, especially given the references to building licences in the due diligence questionnaire. In light of the course of the meeting of 8 October, the telephone attendance note made that evening, and the note on 17 October 2007, it is more than likely to have related to discussions about the requirement to obtain a builders licence. All the same, this was a matter left in the hands of Morris to follow-up with Mr Erskine or Mr Manson at those points in time.
(citations omitted)
Those findings are plainly right. Mr Grey’s evidence to that effect was not directly challenged. In the notes, the references to the licence which was left to Mr Manson and Mr Erskine are in separate sections to those which record discussion of the intellectual property issues. Indeed in the notes of the 17 October meeting there is a note which reads ‘IP issue – sorted (or satisfactory to parties)’ six lines before the reference to the licence which Mr Manson and Mr Erskine were still reviewing. The intervening notes between the notes of the ‘IP issue’ and the note of the discussion which left the ‘licence’ to be attended to by Mr Manson and Mr Erskine, are on several unrelated issues.
On Monday 12 November 2007, Ms Briggs sent Mr Morris an email attaching a due diligence questionnaire based on Minters’ standard template. She asked Mr Morris to have Mr Manson complete it so that she might have a ‘better idea of the assets and condition of his business’. Ms Briggs informed Mr Morris that it would be easier to draft the asset sale and subscription agreements with that information.
Ms Briggs testified that she met with Mr Morris and Mr Manson on 15 November 2007. She went through each page of the due diligence questionnaire and the asset sale agreement with them. The meeting was referred to by Ms Briggs, and by others during the trial, as the ‘page turn’ meeting. Ms Briggs testified that during the course of the meeting Mr Manson told her that SPS would need a building work licence. Ms Briggs gave evidence that at the time she believed that Mr Manson had a builder’s licence even though he did not produce it. In that part of the template legal due diligence questionnaire which deals with regulatory and statutory authorities, Ms Briggs noted ‘company will need a builders licence’. Next to that note Ms Briggs wrote the letters ‘CP’, an initialism she used for a condition precedent. Ms Briggs testified that until that meeting she thought that SPS would only make and sell panels and not construct buildings from them. However, as I recited earlier, Mr Grey knew from at least 8 October, and Mr Simmons ought to have known even earlier, that SPS required a builder’s licence and Minters were therefore fixed with that knowledge despite Mr Simmon’s failure to communicate it to Ms Briggs.
Ms Briggs testified that once she was aware of the need for a builder’s licence she thought that it should be a condition precedent to the transaction that SPS procure an appropriate licence and she made a note to that effect. When Ms Briggs was asked whether Minters were responsible for applying for the licence, she replied ‘no, absolutely not, no’. Ms Briggs explained that she believed Mr Erskine was responsible for that task.
Ms Briggs was taken to a notation made in her handwriting on the asset sale agreement. The note was linked to the typed term ‘statutory licences’ and read ‘can’t transfer – Mats can be used but Co. will need its own.’ Ms Briggs explained that the note was a reference to a builder’s licence and recorded information given by Mr Manson.

Ms Briggs was then taken to the front page of the draft asset sale agreement on which she had made handwritten notes which included the following:
Peter Erskine details of builders licence
List of key contracts and leases.
Ms Briggs explained that she had requested Mr Manson and Mr Morris to attend to those matters at the page turn meeting. Ms Briggs’ testimony and her notes are consistent. This evidence supports the finding that the disputed notes of the 8 and 17 October meetings refer to a builder’s licence not an intellectual property licence. Ms Briggs’ testimony also shows that Mr Morris continued to instruct Minters that responsibility for compliance with the building work regulatory regime rested with Mr Manson and Mr Erskine.
On Monday 19 November 2007, Ms Briggs emailed Mr Morris informing him that to progress the drafting of the asset sale agreement she required, among other things, details of any builder’s licences held by Mr Manson or Manson Nominees and copies of key contracts including house building contracts. Ms Briggs testified that between the date of that email and 22 November 2007, when she sent Mr Morris a draft subscription agreement, Mr Morris did not respond to her request for more information. However, she testified that she received a USB from Mr Erskine shortly before the documents were finalised. The evidence shows that the USB was delivered to Minters on 28 November 2007. The USB contained a record of Mr Manson’s limited builder’s licence (BLD206425) and electronic copies of schedules to the domestic building contracts entered into by Manson in which the builder was recorded variously as ‘Smart Panel Systems’ or ‘Matthew Manson – Smart Panel Systems’.
An employee of Minters noted in an email to Ms Briggs after the USB was delivered:
Client has inconsistent information in his due diligence write up and docs provided to us. We will need to speak in morning – what time will you be here and I will be here too?
In preparing the documentation before the completion date, Ms Briggs worked on the understanding that Mr Morris would take steps to procure a licence to allow SPS to operate the business lawfully under the BWC Act. Initially she wrongly thought that the Manson licence could be transferred to SPS. Ms Briggs was later informed by Mr Manson that the Manson licence could not be transferred but that it could, in some nebulous way, be used to allow the building work to be performed on the contracts assigned to SPS.
The Transaction Documents
Minters prepared an asset sale agreement between Manson as vendor and SPS. By that agreement Mason assigned to SPS the construction and manufacturing business conducted by Manson including the manufacture, import and sale of Smart Panels. Clause 8.1 of the asset sale agreement provided that on, and with effect from, the completion date Manson would also assign to SPS the benefits, interests and burden of all Assumed Contracts. Assumed Contracts were defined to include but were not limited to all agreements, arrangements, understandings and orders entered into or made by Manson in the conduct of its business with customers or suppliers. A schedule of the Assumed Contracts included contracts which, on their face, appeared to be building contracts, and other contracts which appeared to be insurance policies or contracts for the supply of office equipment. In exchange, Manson would receive 5,000 ordinary shares in SPS. Manson indemnified SPS from and against all liability for any breach or non-performance or observance of an Assumed Contract.
By clause 5.2(i) of the asset sale agreement, Manson was required to deliver to SPS duly executed transfers of all licenses, approvals, consents, rights, registrations and other authorisations owned by, or given to, Manson relating to any aspect of the business which was capable of being transferred.
A shareholders agreement was also prepared regulating how the business of SPS would be managed and prescribing the terms and conditions of any disposal of shares.
Finally, there was a subscription agreement between SPS, Manson and Sirrom. By way of background, it acknowledged that SPS had been incorporated on 2 November 2007 and that the existing owner was Manson, who held 10,000 shares. It declared that Sirrom had agreed to subscribe for 10,000 of the 20,000 ordinary shares in SPS.[1] Completion of the subscription for shares would not occur unless certain conditions precedent were satisfied on or before the completion date. Those conditions included that:
·there be no material adverse change in general economic conditions or regulatory frameworks affecting the business;
·there be no material breach or inaccuracy in any warranty;
·the transaction documents were executed;
·Manson entered into an executive service agreement; and
·the effective transfer of business and assets to SPS from Manson.
[1] The discrepancy between the subscription agreement and earlier discussions about SPS share capital and between it and the asset sale agreement need not be explored.
The subscription agreement also recorded that as an investor Sirrom had made payments to SPS or Manson for use in connection with Manson’s business or SPS as follows:
·$40,000 on or about mid-October
·$50,000 on or about 26 October 2007
·$20,000 on or about 9 November 2007
·$10,000 on or about 16 November 2007
·$50,000 on or about 23 November 2007
The stipulated purchase price was $500,000. Sirrom was obliged to purchase shares in a first tranche of 5,000 ordinary shares for the payment to the company of $250,000 less any previous investment amount; a second tranche of 3,000 shares for the sum of $150,000 by 5 January 2008 (30 days from the date of the agreement) and a third tranche 90 days from 5 December 2007 of 2,000 shares for the price of $100,000.
Completion Day
Ms Briggs testified that on the completion day, 5 December 2007, she was informed that SPS had not obtained a builder’s licence. She and Mr Grey advised Mr Morris not to proceed with completion until the licence was obtained. They also informed him it would be unlawful for SPS to operate the business, and in particular to perform the assigned building contracts without a licence. Mr Morris did not accept the advice to postpone the settlement and instructed Ms Briggs to proceed with it. Ms Briggs testified:
Q.As best as you can recall and by reference to either direct words or words to the effect of, could you tell his Honour what was said and by whom.
A.Yes. I believe it was Kent that was doing most of the talking, sorry, Mr Grey. We were saying words to the effect, I can’t tell you the exact words, but it was words to the effect of ‘Slow down. Is there any need to do this today? Let’s wait until the company has been granted a licence. If you go ahead today then the business is going to be operating illegally’. I still had the notes in my hand as I recall from Ms Loipersberger explaining her requirements for a building licence and we went through that again with Mr Morris. Mr Morris appeared anxious but was very keen to proceed, anxious to proceed I guess, and said words to the effect of ‘Let’s do it today. Let’s do it today’.
Q.You said in your answer that you were discussing whether there was any need to do it today and to slow things down. What did you mean by that.
A.Just because Mr Morris had seemed very keen to settle, to complete on that day, we didn’t see the need for settlement or completion to occur immediately. I think Mr Morris also said that - referred to the money that he had already invested in the company.
Q.What did he say in relation to that.
A.I believe he referred to the fact that he had already invested significant funds without any agreement and so he wanted to complete today and referred to the fact that the accompanied the funds, sorry the business needed the funds, yes.
Q.Insofar as your discussions with Mr Morris in that private meeting, what did you understand his instructions to be.
A.His instructions were very clear and that was, no, he wanted to proceed today regardless.
Q.When those instructions were given, made clear to you, was anything discussed about the contracts or agreements.
A.I can’t recall whether those discussions took place at the meeting with Mr Grey regarding the contracts or whether they took place back in the meeting room. I know that we - I know that we made changes to the agreement to reflect that discussion.
Q.When you say ‘reflect that discussion’, what discussion.
A.The discussion regarding the fact that it had become apparent that the company wasn’t going to be licensed at settlement and therefore they would be operating the business illegally and the various consequences that would flow from that. So advice had been not to go ahead. It was very clear. And Mr Morris’s instructions had been to proceed. That was very clear. Then I know that we amended the contracts to reflect that position, the fact that the company was going to be unlicensed and the fact that it wouldn’t be able to carry out building business legally on completion until it had obtained its own licence.
Q.As you are sitting there today, do you recall now whether those discussions about any of the contracts occurred during the course of the private meeting or sometime later.
A.I believe that occurred sometime later.
Q.How long did the private meeting take place for.
A.I would say it was in the order of five to 10 minutes.
Q.At the conclusion of the meeting, what happened.
A.At the conclusion of the meeting, I believe I left with Mr Grey to amend the document.
In cross-examination Ms Briggs maintained that Mr Morris had been advised not to proceed:
Q.Would you agree that one of the risk matters discussed between yourself and Mr Grey and Mr Morris was that in the event the contracts or completion proceeded, Mr Manson, by virtue of him having the builder’s licence, would have some sort of leverage to his advantage over my client, Mr Morris.
A.I don’t recall that being said but our clear advice was not to go ahead on that day, that would have been one of many reasons not no go ahead with settlement.
Q.I want to suggest to you that you did not give Mr Morris advice not to go ahead on that day.
A.That’s not correct.
Q.I want to also suggest to you that completing the contracts in the manner in which was attended to subsequently was never presented to Mr Morris as not a legally effective solution.
A.It was - it was presented as not a legally effective solution.
Q.You’ve given some evidence as to there being some sort of urgency on the part of my client, Mr Morris, to complete the settlements on that day.
A.Yes.
Q.You see, would you agree with this proposition; Mr Morris was keen to complete, not desperate to complete the transaction that day.
A.He appeared to me to be very keen to complete.
Ms Briggs testified that, given those instructions, certain amendments were made to the documentation to require SPS to proceed expeditiously to obtain a licence and requiring SPS to commit a part of the payments to it under the agreements for that purpose. I deal with those amendments in greater detail below.
Mr Grey also testified that Mr Morris gave firm instructions to proceed to completion despite advice to defer it and that there were risks in completing the transaction before SPS procured a licence:[2]
[2] T965 L12-T966 L34.
AI didn’t say a lot initially. I started the meeting by saying ‘Peter we want to run through a few issues with you’ and then Ms Briggs outlined a couple of key issues that had arisen from the meeting. We just left and she summarised those. It wasn’t a particularly long meeting. She summarised it by saying ‘No.1 Mr Manson’s builder’s licence has finally turned up’, are the words I recall her to say ‘and there’s a problem, it can’t be transferred, it is a personal licence’. And so she said words to the effect of ‘You can’t use that licence’. She then went on to say the company, meaning SmartPanel Investment ‘needs its own license and it doesn’t have one’. So I recall her summarising that part of the discussion by saying ‘So you’re about to invest in an unlicensed building company’. At that point in time she then went on to discuss some consequences and she said words to the effect of ‘We have a few options. Ideally you would delay the settlement meeting to fix the issue’. By that she meant obtain a builder licence for SmartPanel ‘or you can complete the meeting today and go forward but that would be a risk’. I don’t recall the exact words at that point in time but I do recall Mr Morris’s exact words. His words were ‘This is a done deal. I’m already committed, let’s go on, don’t delay’.
QAnd how did you respond to Mr Morris when he said that.
AWords to effect of well ‘Ms Briggs is right, the ideal solution is to delay but I understand your position and we’ll move forward’.
QDid Ms Briggs say anything in response to what Mr Morris said.
ANo, I was talking at that point.
QAnd what happened next.
AWe then broke up and rejoined the meeting. So Ms Briggs, Mr Morris and I re-entered the B4 conference room and continued to what was a disrupted completion meeting.
QWhat did you do though, did you go back to your office or did you then participate for the rest of the day in the completion.
ANo, for the completion meeting I would have been in there, rejoined the meeting for a few minutes more but not more much than that due to my other priorities, being a busy afternoon. I left Ms Briggs in the room. I went back to my office one floor down because I had some other deadlines but my parting words to Ms Briggs were, and this is direct speech ‘Look, I’m available. Ring me if you need me’. This was now a priority, once the completion process - which was otherwise carefully planned - it gets your attention. I was aware there was a lot of fever about getting this moving along down the line rather than lawyers stopping it. I had to make it a priority to make sure it happened.
QPausing there, when you left Ms Briggs though, what was your instruction or direction to her, to Ms Briggs or anything assisting her in the firm about what would happen next with say documents.
AThe understanding was that we would need to amend the documents to take account of this development because there was really one principle issue and there was a legal impediment to this business legally moving forward.
Mr Morris denied that:
·Mr Manson had suggested the interim arrangement of using the Manson licence.
·he was advised that SPS could not use the Manson licence and that it would need its own licence.
·Ms Briggs told him that the interim use of the Manson licence was not a legally effective solution.
·he was advised not to complete the transaction until SPS had its own licence.
Mr Morris testified that Minter Ellison had informed him that the provision which required the Manson licence to be held on trust for the company was a satisfactory solution to the failure to obtain a building licence for the company itself.
The Judge accepted the evidence of Ms Briggs over the evidence of Mr Morris about the advice and instructions given on 5 December. His Honour found:
[81]The fact is that Ms Briggs was an impressive witness. She gave consistent evidence with poise, humility and dignity, even at those times when she was unnecessarily accused of falsification. Just why she was attacked in this egregious manner is not apparent in light of the fact that cross examining counsel conceded in his closing submission ‘there is no substantive difference as between the evidence of Grey and Morris’ and that ‘they got it right … she said two options and the second option which we took was correct’.
[82]To the extent that Mr Morris contended different advice to that deposed to by Ms Briggs was given, it cannot be accepted. It is clear from his prior correspondence that he was overly keen to settle, given that he had to this point in time prematurely advanced $170,000 to the project, which is a large measure of his commitment to it. Given that he did so without any security, as he openly acknowledged, could only have fuelled his desire to proceed.
[83]… For the reasons articulated, the evidence of Mr Morris on the topics relating to the advice he was given on 5 December 2007 cannot be accepted, in addition to the fact that at times his evidence was very much the product of reconstruction, as he himself acknowledged. It is also to be doubted because any reasonable client in his position ought to have headed the advice (whatever version is accepted) to desist. Questions of disputed facts here are best resolved by reference to objective and proven facts and the contemporaneous records.
(citations omitted)
The Judge concluded:
[122]According to her, at that stage Mr Manson and Mr Morris seemed ‘… rather dismissive of [her] concerns and had quite a cavalier attitude’. This is when she summonsed Mr Grey. They soon took Mr Morris aside so as to part him from Mr Manson and Mr Erskine, in order to furnish independent advice. That course was entirely appropriate. In general terms they advised him not to complete, and to defer or delay because of these risks, at least until SPS obtained its own building licence. Mr Morris was advised in the terms quoted earlier from Ms Briggs’ evidence, to wait until SPS was granted a licence and that if he went ahead it would be operating illegally. Ms Briggs added they wanted to ‘… impress upon him the seriousness of the issue’.
…
[126]Nor can it be accepted that Ms Briggs or Mr Grey considered or explained that SPS was ‘able to trade using Manson’s licence … until such time as the company got its own …’, as a ‘way around’ the problem, because the objective circumstances refute that view of the matter. It was an obviously doubtful proposition in any event, and was for that very reason the heavily quantified words were inserted to the warranty clause 25.3 in the Subscription Agreement providing that Mr Manson held his building licence ‘on trust’ for SPS ‘to the extent permitted by law’. More importantly, it was not a legally effective solution since SPS could not rely on Mr Manson’s licence under the BWC Act. So much was acknowledgement [sic] in clause 3.4 of the Subscription Agreement and clause 5.2(i) of the Asset Sale Agreement. That view of the statutory requirements is entirely in keeping with Ms Briggs’ sustained advice that they ‘needed urgently to assure that the company obtained a licence’ and her emphasis that this be done ‘immediately’ For these reasons her evidence to the effect that ‘I made it very clear … that this clause about holding Mr Manson’s licence on trust … were very unlikely to be legally effective …’, is preferable to that given by Mr Morris, because hers is far more consistent with the objective facts.
(citations omitted)
After obtaining Mr Morris’ instructions to proceed, Minters made a number of amendments to the Subscription Agreement. A new clause 3.4 was added which provided that SPS must, as soon as practicable after completion, apply for a builder’s licence under Part 2 of the BWC Act. SPS also acknowledged that prior to the satisfaction of that obligation, it could not carry on business as a building work contractor.
Clause 4 of the Subscription Agreement was amended to include the underlined paragraph below:
The Company must apply the funds:
(a)from the issue of the First Tranche shares toward the existing liabilities of the Existing Shareholder to a maximum of $80,000.
(b)from the issue of the Second Tranche, towards working capital requirements of the Company to be applied for the purposes of satisfying the Company’s requirements in obtaining a builders’ licence under Part 2 of the Building Work Contractors Act 1995 (SA) (and for no other purpose); and
(c)from the issue of the Third Tranche, towards working capital requirements of the Company, including in relation to the purpose described in clause 4(b) above and in accordance with the Initial Business Plan and any subsequent business plan approved under the Shareholders Agreement.

Clause 25 of Schedule 6 was amended to add clause 25.3 which provided:
25.3Mathew Manson holds Builders Licence number BLD206425 and will not cancel or fail to renew that licence and is not aware of any reason the licence will be, or would be likely to be, cancelled or withdrawn or fail to be renewed. To the extent permitted by law, Manson warrants that he will hold Builders Licence number BLD206425 on trust for the Purchaser.
The asset sale agreement was also amended to add clause 8.5 which provided that any proceeds of the construction contracts received by Manson were to be held on trust for SPS. Clause 12.3 of Schedule 3 was also inserted in the asset sale agreement and provided that the Manson licence was held on trust for SPS ‘to the extent permitted by law’.
Causation – Mr Morris’ explanations
Mr Morris testified that he entered into the arrangement with Manson on the strength of a belief that Manson held a builder’s licence or licences allowing it to construct the buildings using the Smart Panel System:
QI want to ask you a few questions just to finish off. I think you gave evidence yesterday as to discovering for the first time that Mr Manson had a restricted builders licence, which would not permit him to undertake construction, residential construction work that the company required to be undertaken. In your discussions with Mr Busuttil and Mr Manson, sometime towards the end of 2008 –
AYes.
QHad you had that understanding as to the truth of Mr Manson’s licence capabilities, back in September 2007, would you have entered into the fourth version of the Heads of Agreement? That is the agreement dated 29 September, 2007, which you signed on 30 September, 2007?
ANo. I most certainly would not have entered into that agreement.
QWhy is that?
AI would not have entered into that agreement because I would never want to be the director of a company that was doing something illegal. There would have been a very substantial financial risk and the fact that Manson would show that he had been lying to me, and that he was not a person that I would want to be getting into business with. Also not having a builders licence, he most probably didn’t know how to build houses.
QAnd would you have made the – perhaps it goes without saying, but perhaps I’d better do it. Would you have made the payments to him on 30 September 2007?
ANo I would not have made that payment.
QWould you have made any of the payments between 30 September 2007 and 5 December 2007?
ANo I would not have made those payments.
QHad the truth been known to you would you have made any payments after 5 December 2007, that is, the truth with respect to the position of Mr Manson’s building licence?
AHad I found out at the fifth or in any case?
QHad you known that he had a restricted builders licence which did not permit him to construct houses or small commercial ventures or both on 5 December 2007, would you have signed the various agreements that you signed at the completion meeting?
ANo, no, I would not have.
QWould you have caused Sirrom to have made any of the payments it made –
ANo, I certainly would not have.
Mr Morris explained that he made the payments he did to Mr Manson prior to the completion day because:
AI felt that the way things were progressing, that this agreement was sufficient security to be able to release those funds prior to the full documentation. There was nothing other than cooperation from the other side to get the business going and to move things forward. There was – I had no qualms that the documentation would not be entered into and it was entered into.
QWhat if it wasn’t? Let’s just take a hypothetical, what if it wasn’t?
AWhat if it wasn’t?
QMm.
AThat is hypothetical, I’d have to think about that for some time before I could give you an answer.
QIt’s simple as this and I put it like this; you knew full well on and from you signed this on that Sunday, that pursuant to the agreement you had reached with Mr Manson, that you were not obliged to pay him for his company one dollar until the shareholders agreement and other necessary documentation had been signed and importantly, you had Minter Ellison was going to do that for you, to, as you would say, protect your interest.
AYes.
QIt’s as simple as that isn’t it?
AYes, but I made them in any case.
QYes, correct. I would put it like this and they are voluntary payments made in good faith but you didn’t have to make them under this Heads of Agreement?
AI’m not a lawyer, so whether or not I was bound to make the payments to Manson in any case, I guess is up to legal interpretation, that I am not qualified to give.
Mr Morris testified that he made the payments prior to the completion date because he believed that the agreement was sufficient security on which to release funds prior to the full documentation. He explained that he ‘had no qualms that the documentation would not be entered into’.
Mr Morris testified that despite the advice Ms Briggs had given he did not move quickly to have SPS obtain a builder’s licence after the completion day because he believed that SPS was lawfully trading using the Manson building licence which was held on trust for SPS. Mr Morris claimed that he was assured by Mr Erskine that understanding was in accordance with what had been agreed at the completion meeting. Mr Morris testified that Mr Erskine always seemed to have an excuse as to why SPS did not yet have a builders licence yet he was not concerned because he believed SPS could lawfully use Mr Manson’s licence.
Mr Morris testified that he discovered that Mr Manson did not have the appropriate builder’s licence at a meeting with a builder, Mr Busuttil, around the middle of 2008. Mr Busuttil had been engaged by Mr and Mrs Wallman, a couple for whom SPS were building three possibly four houses using the Smart Panel system. Mr Manson was present at that meeting. Mr Busuttil primarily addressed Mr Manson. Mr Busuttil told Manson that he had been building the houses without an appropriate builders licence and that his licence was restricted to things like carports and retaining walls. According to Mr Morris, Mr Manson was left largely speechless, but acknowledged the truth of Mr Busuttil’s accusation. Mr Morris moved very quickly to liquidate SPS after that meeting.
Scope and Content of a Solicitor’s Duty
I commence with a consideration of the scope and standard of care imposed on solicitors by reason of the contractual and tortious duties they assume when retained to provide advice.
The reasonableness standard which determines the content of the duty of care in negligence and contract requires legal practitioners to familiarise themselves in a general way with the law which regulates the subject matter on which they are asked to advise. It is for that reason that, subject to any contractual limitation, it was Minters’ duty to advise Mr Morris of the requirements of the BWC Act which affected SPS once they knew or ought to have known, that it would engage in building work.
As to the particular content of that advice, the Court does not attribute to legal practitioners a foresight perfected by knowledge of actuality. In Capital Brake Service Pty Ltd v Meagher, Ipp JA said:[3]
[30] All these matters are matters of hindsight. There is a great danger, particularly in professional negligence matters, of applying an unrealistic hindsight judgment. Any fool can be wise after the event. That is not the test. The Court must be careful to judge the conduct of a defendant, where negligent failure to warn is asserted, by reference to what the defendant reasonably knew at the relevant time. Not after the loss has been suffered.
[3] [2003] NSWCA 225 at [30].
The extent to which the duty requires a solicitor to advise on matters beyond a client’s express instructions is problematic. In Micarone v Perpetual Trustees Australia Ltd,[4] Debelle and Wicks JJ identified the scope of a solicitor’s duty of care as follows:[5]
[4] (1999) 75 SASR 1.
[5] (1999) 75 SASR 1 at [689].
The content of the duty of care
[689]The extent of a solicitor’s duties to his client depends upon the terms and limits of the retainer and any duty of care to be implied must be related to what he is instructed to do: Midland Bank v Hett Stubbs & Kemp [1979] Ch 384 at 492-403 per Oliver J. In Hawkins v Clayton (1988) 164 CLR 539 at 574, Deane J expressed the view that the trend of modern authority supported the approach that the duty of care owed by a solicitor to a client in respect of professional work prima facie transcends that contained in the express or implied terms of the retainer and includes the ordinary duty of care arising under the common law of negligence. As the Court of Appeal in New South Wales pointed out in Cousins v Cousins [1991] ANZ ConvR 245, which was followed in Citicorp v O’Brien (1996) 40 NSWLR 398 at 413, it is not clear whether it is yet possible to express in general terms the duty that arises at common law from the relationship of solicitor and client as distinct from the contract since none of the other justices in Hawkins v Clayton appear to have adopted the approach of Deane J. Later, at 579, Deane J said:
‘The relationship of solicitor and client … may well give rise to a duty of care on the part of the solicitor which requires the taking of positive steps, beyond the specifically agreed professional task or function, to avoid a real and foreseeable risk of economic loss being sustained by the client. Whether the solicitor-client relationship does give rise to a duty of care requiring the taking of such positive steps will depend upon the nature of the particular professional task or function which is involved and the circumstances of the case.’
Although these views of Deane J may not, in a formal sense, form part of the ratio decidendi in Hawkins v Clayton, they accord with the trend of development in the law of negligence in the High Court in recent years. We will, therefore, proceed on the footing that the views of Deane J accurately state the law in Australia. The scope or content of the duty of care owed by Belperio to the plaintiffs is, therefore, to be determined by reference to the circumstances surrounding the relationship between the plaintiffs and Belperio. Those circumstances include the instructions Belperio received, the terms of any retainer, and any responsibility assumed by Belperio.
In Heydon v NRMA Ltd,[6] after referring to the decision in Rogers v Whittaker[7] on a medical practitioner’s duty to warn, Malcolm AJA described the duty of legal practitioners in the following terms:[8]
[145]While no therapeutic privilege is relevant in the present context, the application of these principles to a set of circumstances in which lawyers are called upon to advise whether a transaction can be implemented in particular way clearly gives rise to a duty to warn a client of any material risk in the same sense as that used in the medical context in Rogers v Whitaker.
[146]In my opinion the approach adopted in Rogers v Whitaker is applicable to the duty of care of legal practitioners and the standard of care. Both barristers and solicitors owe a duty of care to those whom they advise or for whom they act. In the present context, their duty is to exercise reasonable care and skill in the provision of professional advice. The standard of care and skill is that which may be reasonably expected of practitioners. In the case of practitioners professing to have a special skill in a particular area of the law, the standard of care required is that of the ordinary skilled person exercising and professing to have that special skill. …
[147]In this context the content of the duty of care and the liability is the same whether it is founded on contract in the case of a solicitor, or whether it is founded on a duty of care in tort in the case of a barrister. In each case the duty is to apply the relevant degree of skill and exercise reasonable care to carrying out the task. There is no implied undertaking that the advice is correct, but only that the requisite degree of professional skill and care has been exercised in the giving of the advice. Of course, where there is reason for doubt or there are risks which a person possessing the relevant degree of skill and competence should perceive, it follows from the above that there may be a duty to warn of the kind recognised by their Honours in Rogers v Whitaker. Thus, in Hawkins v Clayton (at 583–585), it was held by Deane J that, in the case of a solicitor, the circumstances may give rise to a duty to do more than simply perform the task defined by his instructions, if circumstances arose giving rise to a real and forseeable risk of economic loss by the client, or, in particular circumstances, even a person who was not a client but who may be adversely effected. See also Waimond Pty Ltd v Byrne in which the judgment of Deane J was followed. In Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, the House of Lords declined to follow Hawkins v Clayton insofar as it suggested that in the case of a solicitor liability lay only in contract rather than concurrently in contract and tort. In Astley v Austrust Ltd, the High Court decided to follow the decision in Henderson v Merrett Syndicates Ltd in preference to the judgment of Deane J so that in the case of solicitors, the liability remains a concurrent liability in contract and in tort.
[6] (2000) 51 NSWLR 1.
[7] (1992) 175 CLR 479 at 490.
[8] (2000) 51 NSWLR 1 at [145]-[147].
In contrast, McPherson AJA in Heydon held that the statement of Deane J in Hawkins v Clayton,[9] that a solicitor may have a duty to take positive steps beyond the express terms of the solicitor’s retainer, was no longer good law:[10]
[364]Finally, reference must be made to the limits of the duty to advise. At one time a solicitor’s duty was considered to be limited by the terms of the retainer from the client, there being no affirmative legal obligation to give advice going ‘beyond the specifically agreed task or function’. Then, in Hawkins v Clayton (1988) 164 CLR 539 at 585; 78 ALR 69 at 102, it was held that there was no justification for imposing a contractual duty of care that was co-extensive with the parallel duty independently imposed in the law of negligence. It followed that an obligation might arise requiring a solicitor to take positive steps, beyond the specifically agreed professional task or function, to avoid a real and foreseeable risk of economic loss being sustained by the client, or even by others who were not the clients who had retained the solicitor. The result was that in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 at 652, a majority of this Court held that an affirmative duty to advise might exist in relation to matters that were not directly within the ambit of the retainer from the client. The decision on this point in Waimond Pty Ltd v Byrne has since been followed on several occasions. More recently, however, in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 193–194; the House of Lords rejected the reasoning of Deane J in Hawkins v Clayton, holding instead that there was ‘no sound basis for a rule which automatically restricts a claimant to either a tortious or a contractual remedy’, and that it was the contract that defines the relationship of the parties, so that ordinarily ‘the parties must be taken to have agreed that the tortious remedy is to be limited or excluded’. In Astley v Austrust Ltd (1999) 197 CLR 1; 161 ALR 155; [1999] HCA 6, the High Court decided to follow the reasoning in Henderson v Merrett Syndicates Ltd, in preference to that of Deane J in Hawkins v Clayton. The result, in my respectful opinion, is that what was said by Deane J in Hawkins v Clayton has ceased to be good law in Australia. Because it formed the or a pivotal point in the reasoning in Waimond Pty Ltd v Byrne, it is no longer possible to say that there is a ‘penumbral’ duty in tort requiring a solicitor to advise on matters going beyond the limits of his or her retainer. On that aspect, the decision in Waimond Pty Ltd v Bryne is inconsistent with the reasoning in Astley v Austrust Ltd, and should, in my opinion, no longer be followed. It had the effect of enlarging or extending the range of matters on which a solicitor, and possibly also a barrister, might be required by the law of tort to advise a client or other persons.
[9] (1988) 164 CLR 539 at 585.
[10] (2000) 51 NSWLR 1 at [364].
In David v David,[11] the New South Wales Court of Appeal, in considering the scope of the duty of care of a solicitor retained to give advice on a refinancing transaction, doubted the general proposition that a penumbral duty always attaches itself to and extends beyond the retainer. However, Allsop P (Hodgson JA and Handley AJA agreeing) accepted that notice of a legal risk to a client’s interest may enliven a duty to alert the client to the need for additional advice:[12]
[76]Some reliance was placed on Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 in argument. In Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; 252 ALR 55; 14 BPR 26,565; [2008] NSWCA 343 at [267]–[294] Campbell JA undertook a detailed analysis of the precedential status of Waimond in particular after Heydon v NRMA Ltd (2000) 51 NSWLR 1; 36 ACSR 462; [2000] NSWCA 374 and Astley v Austrust Ltd (1999) 197 CLR 1; 161 ALR 155; 73 ALJR 403; [1999] HCA 6. It is unnecessary to repeat that analysis. It is sufficient to say that the notion that a solicitor may owe a client a ‘penumbral’ duty that extends beyond scope of the retainer is doubtful. If, however, the solicitor during the execution of his or her retainer learns of facts which put him or her on notice that the client’s interests are endangered or at risk unless further steps beyond the limits of the retainer are carried out, depending on the circumstances, the solicitor may be obliged to speak in order to bring to the attention of the client the aspect of concern and to advise of the need for further advice either from the solicitor or from a third party.
[11] [2009] NSWCA 8.
[12] [2009] NSWCA 8 at [76].
In AJH Lawyers Pty Ltd v Hamo,[13] Nettle JA accepted that circumstances may arise which impose a duty to warn of matters on which the legal practitioner has not been engaged to advise:[14]
[23]… As Deane J said in Hawkins v Clayton, depending upon the circumstances, a solicitor may come under a duty to do more than simply perform the task defined by his instructions. A duty to warn may arise where circumstances give rise to a real and foreseeable risk of economic loss by the client or, in particular circumstances, even a person who was not a client but who may be adversely affected.
(citations omitted)
[13] (2010) 29 VR 384.
[14] (2010) 29 VR 384 at [23].
In Badenach v Calvert,[15] French CJ, Kiefel and Keane JJ found that there was at least an interplay between a tortious and contractual duty:[16]
[16]There could be no doubt that a solicitor owes a duty to his or her client in both contract and tort. The scope of a solicitor’s duties with respect to the latter will usually be set by the terms of the retainer. …
[15] (2016) 90 ALJR 610.
[16] (2016) 90 ALJR 610 at [16].
In the same case, Gageler J observed that the extent to which a solicitor’s duty extended beyond his or her retainer remained an open one:[17]
[57]Subject to statutory or contractual exclusion, modification or expansion, the duty of care which a solicitor owes to a client is a comprehensive duty which arises in contract by force of the retainer and in tort by virtue of entering into the performance of the retainer. The duty is to exercise that degree of care and skill to be expected of a member of the profession having expertise appropriate to the undertaking of the function specified in the retainer. Performance of that duty might well require the solicitor not only to undertake the precise function specified in the retainer but to provide the client with advice on appurtenant legal risks. Whether or not performance of that duty might require the solicitor to take some further action for the protection of the client’s interests beyond the function specified in the retainer is a question on which differences of view have emerged. That question was not addressed in argument, and need not be determined in this appeal.
…
[79]When formulating a duty of care, its scope and its content ‘must neither be so broad as to be devoid of meaningful content, nor so narrow as to obscure the issues required for consideration’. Moreover, the scope of the duty of care is not to be determined retrospectively by looking at questions of breach of duty – that is, by asking first what could have been done to prevent the loss or damage. They are separate inquiries, which must not be conflated.
(citations omitted)
[17] (2016) 90 ALJR 610 at [57], [79].

I do not accept that the decision of the High Court in Astley v Austrust Limited[18] is inconsistent with the propositions in the judgment of Deane J in Hawkins v Clayton on the existence of the ‘penumbral’ duty. What is sometimes described as a penumbral duty is no more than a particular aspect of a solicitor’s primary duty. At the basis of the solicitor-client relationship, and the very reason for its existence, is the fact that clients seek the advice of solicitors on the legal implications of their factual circumstances precisely because they are ignorant of them. The first responsibility of a solicitor therefore is to assist the client to identify those legal implications so that the client can properly frame the scope of the retainer. In any event it is well established that a solicitor must bring material risks to the client’s interests to his or her attention and advise the client whether further advice should be sought.
[18] (1999) 197 CLR 1.
Was Minters Negligent Prior to Completion Day?
It is convenient to adopt the approach of the parties and the Judge and consider the question of liability by reference to the periods before, on, and after the completion day.
The Judge’s reasons for finding that Minters were not under a duty to investigate the status of the Manson licence before the completion day were:
[106]It was not for some time until the significance of the building licence problem came to the surface. The evidence was that the building licence issues were directed principally to Mr Erskine. In point of fact, Minters were specifically instructed to take ‘no action’ with respect to licence issues by Mr Morris in the telephone conference with Mr Grey on 8 October 2007. During the following telephone conference with Mr Grey of 17 October, Mr Manson affirmed he and Mr Erskine were ‘still reviewing’ the situation. Thereafter Minters continued to request ‘details’ of Manson’s builders licence, as noted by Ms Briggs on the due diligence questionnaire on 15 November 2007, and in her email to Mr Morris of 19 November, and yet it was never produced.
[107]This conclusion is further underpinned by the terms of the initial instructions on 3 September 2007 to undertake a limited low cost, ‘high level’ or ‘bargain basement’ due diligence exercise. The reference in Mr Simmons’ email of that date to ‘paring back’ the attached list of items to a ‘more limited scope of work’, is entirely consistent with that undertaking. Mr Morris plainly understood this to be the position. His initial telephone contact of that date suggests the due diligence exercise would evolve according to ‘mutual discussion about what was – what areas of focus there would be’.
[108]It follows that Minter Ellison’s retainer was never intended to be a ‘full-scale’ due diligence exercise covering all the topics contained in the index. Nor did it encompass an obligation to advise at large in respect of all aspects of the transaction. As the course of the retainer evolved, it became clear that Mr Morris assumed the responsibility for obtaining the primary information needed from Mr Erskine and Mr Manson, in order to ‘populate’ the schedules in the pro-forma draft agreements.
(citations omitted)
The Judge’s ultimate conclusion on this question was:
[183]This case has proven anything but simple or straight forward to resolve. The proven exchanges during the course of the contract of retainer demonstrate that whatever the scope of the due diligence process was, it was left by mutual understanding to Mr Morris to inquire into and to pursue issues related to Mr Manson or Manson Nominees building licence(s). It is not demonstrated in any event that Sirrom No 1 through Mr Morris relied upon any advice Minter Ellison gave, or did not give, leading up to the completion meeting of 5 December 2007, or that damage was caused thereby.
I first observe that the Judge has not accurately identified the responsibility which was left to Mr Manson and Mr Erskine. The evidence I have summarised shows Mr Manson and Mr Erskine undertook with Mr Morris’ approval to procure a builder’s licence for SPS. The requirements for a corporate builder’s licence are:
·The directors together must have sufficient business knowledge and experience for the purposes of properly directing the licenced business;[19]
·The company have sufficient financial resources;[20]
·The company have directors that are fit and proper persons;
·The company have, at all times, a registered Building Work Supervisor approved by the Commissioner;[21]
·The company ensure that licensed building work was properly supervised by a registered Building Work Supervisor, who was both approved for the Building Work Contractor’s business, and, whose own registration authorised supervision of that building work;[22]
·The registered Building Work Supervisor, (without whom no building work could be performed by the licenced company), be either a director or employee of the company.[23]
[19] Building Work Contractors Act 1995 (SA) s 9(2)(c).
[20] Building Work Contractors Act 1995 (SA), s 9(2)(d).
[21] Building Work Contractors Act 1995 (SA), s 12(1)(a).
[22] Building Work Contractors Act 1995 (SA), s 12(1)(b).
[23] Building Work Contractors Act 1995 (SA), s 19(4).
Moreover neither a natural person nor a corporation could acquire a builder’s licence by transfer from another. It fundamentally misunderstands the nature and purpose of a builder’s licence to think that it can be transferred. It follows that the status of any Manson licence was legally irrelevant to the capacity of SPS to hold a licence.
By agreeing to investigate the Smart Panel business, Minters was bound to exercise the skill and knowledge reasonably expected of a legal practitioner who has a general familiarity with the legislative regimes affecting the transaction and the regulation of building work in particular. The statutory regulation of building work is well-known. But for the express instructions that Minters not take any steps to procure a builder’s licence for SPS, Minters would have been duty bound to advise Sirrom whether there was any impediment to SPS holding a builder’s licence.
Even if Sirrom had not excluded the procurement of a builder’s licence for SPS from Minters’ retainer, the result would have been the same. Advice on that question would have revealed that s 9(2) of the BWC Act required SPS to procure a licence for itself and that it would need to employ or engage a licensed building work supervisor in order to comply with s 12 of the BWC Act. If that advice were given, and if Minters were then informed that Mr Morris contemplated that Mr Manson would be the building work supervisor, an investigation of Mr Manson’s capacity to be a licenced building work supervisor on the construction of houses and, therefore, the status of any licence he held may have fallen within the scope of Minters’ retainer if Mr Morris expressly asked Minters to investigate it. In addition, if Minters had reason to suspect Mr Manson might not be qualified to hold a supervisor’s licence they may have been duty bound to alert Mr Morris to the prudential desirability of investigating further.
However, it was not Sirrom’s case that Minters breached its duty by not giving general advice about the requirements of the BWC Act before the meeting of 8 October with Mr Grey. Nor was it Sirrom’s case, or Mr Morris’ evidence, that he would not have left the procurement of the appropriate building work licences to Mr Manson and Mr Erskine if he had been given advice about the requirements imposed on a corporate building entity by the BWC Act. Indeed, Mr Morris’ response after he was advised on 5 December of the statutory requirements was to leave the responsibility with Mr Manson. If the relevant provisions of the BWC Act had been explained to Mr Morris, it is probable that he would have relied on Mr Manson’s assertion that he had a licence and could therefore be the supervisor. It is probable also that he would have accepted assurances from Mr Erskine and Mr Manson, just as he did after completion day, that SPS would secure a licence because it would have appropriately qualified directors and the requisite capital and/or insurance. Mr Morris was seduced by his trust in Mr Mason and so he refrained from instructing Minters to investigate the Manson licence. This was the root failure of Sirrom’s investment. Moreover, Mr Morris saw value in the investment in the Smart Panel system. Given Mr Morris’ express confidence in Mr Manson, and the absence of any manifest reason to doubt his building skills, Minters was under no duty to investigate Mr Manson’s building skills or to warn Mr Morris or that he should instruct them to.
The Judge found that Mr Morris made payments before the completion day to seize the commercial opportunity to invest in the Smart Panel business and did so independent of his engagement of Minters to conduct a due diligence enquiry of the business:
[150]It follows from the accumulated weight of all this evidence which marches in the one direction, that the payments pre-completion were made independently of Minters without reliance on anything they had done, or failed to do. Such payments were made gratuitously by Mr Morris according to his own commercial judgment. On that appreciation of matters, any claim to damage on account of the total of $170,000 paid before 5 December 2007 must fail on the twin grounds of reliance and causation.
The Judge was correct to so find. Mr Morris made the payments independently of any advice from Minters and made no enquiry of them before doing so.
Was Minters Negligent on Completion Day?
The Judge found that Minters’ failure to enquire into the status of the Manson licence when Mr Manson failed to procure a licence for SPS by completion day was inexplicable:
[131]The failure by Mr Manson, Mr Erskine and Mr Morris to produce the building licence, or a copy of it at the completion meeting, was, or should have been, a disconcerting omission. That ought to have triggered questions as to the precise situation in the mind of any reasonably competent solicitor in the acute circumstances then present, particularly in light of the previous doubts that had arisen concerning Mr Manson and in the absence of responses to a number of prior requests for production. Extensive enquiries of OCBA were already underway and just why the simple inquiry was not made as to the status of the most critical piece of information – the exact nature of Mr Manson’s building licence – is inexplicable. This constituted a substantial breach of the duty of care that had arisen from the failure to produce the vital licence.
…
[133]The satisfaction of these principles was a simple one in this case. The magnitude of the financial risk to which Mr Morris was vulnerable, was high. This was known to Minters. There was no expense, little difficulty and inconvenience was involved in verifying the licence details. There were no conflicting responsibilities on the basis of the advice Minters and particularly Ms Briggs, gave at the time.
The Judge went on to find that Minters negligently failed to advise Sirrom to abort the transaction:
[134]On this understanding of matters, Minters were clearly negligent in failing to take an obvious, simple, unburdensome and expedient step of securing a copy of the licence. That simple, expedient step would have completely resolved the problem. On the basis of Mr Morris’s own evidence, and on the basis that the transaction could not have proceeded if the true state of affairs was exposed, as it should have been, the only reasonable advice that could be forthcoming was to abort the transaction. No reasonable person in Mr Morris’s position could have done other than to take that advice. It was the only sensible option available.
The only meaning with any legal significance I can give the concept of ‘abort’ in this context is that Minters should have advised Sirrom to terminate its contractual arrangements and refuse to complete on that, or any later, day. The Judge could not simply have meant a mere deferral of completion because that is what Minters did advise. The Judge concluded:
[184]Come the completion meeting of 5 December 2007, such an acute situation arose so as require any reasonable solicitor in the position of Minter Ellison then found themselves embroiled in, to have taken steps to acquire a copy of Mr Manson’s building licence(s), forthwith. This failure constituted negligence in breach of the solicitors general duty of care, particularly as that inquiry was a quick, simple and effective one to complete. It is demonstrated that had they acquired a copy of the limited building licence, the cheque for $72,794 would not have been handed over, so that an entitlement to damages for that sum is established.
The Judge in those passages conflates the problem created by the failure to procure a licence for SPS with an investigation of the status of the Manson licence. The exact nature of the Manson licence was not the ‘most critical piece of information’. The most critical information was whether SPS could meet the statutory requirements for a corporate builder’s licence and whether it would have available to it the services of a qualified building supervisor. At a factual level the questions were closely interconnected, the common thread being whether Mr Manson, along with Mr Morris or another director, would satisfy the corporate requirements and whether Mr Manson could be the necessary building supervisor. However neither Mr Morris nor Minters had any reason to suspect that Mr Manson was not suitably qualified. As I have already found, if Minter’s had any reason to suspect that Mr Manson was not qualified, they would have been duty bound to bring that risk to Mr Morris’ attention and advise him to instruct them to investigate it. The search was, as the Judge observed, a simple and inexpensive one. However Mr Morris had shown compete faith in Mr Manson’s building knowledge and experience, and Minter’s had no reason to doubt it. Minter’s conduct is not to be judged with the benefit of hindsight.
On completion day, Mr Morris was told that SPS required its own licence because the Manson licence could not be transferred to it and it could not engage in building work under cover of that licence. Nonetheless, Mr Morris declined to accept the advice to defer completion until SPS had procured the licence.
Mr Morris had instructed Minters that the procurement of a builder’s licence for Sirrom was, as the Judge himself found, to be left to Mr Manson and Mr Erskine. Even after completion, Mr Morris himself did not question the delay in procurement of the licence until Mr Busutil approached him with complaint from Sirrom’s customers. The failure of Minters to make the enquiry is only ‘inexplicable’ when the subsequent discovered fact that Mr Manson was a fraud perfects one’s foresight.
If, as appears to be the case, the Judge found that Sirrom should have been advised to terminate its agreement with Manson, I cannot accept that that would have been sound advice. Such advice would have put the payments already made by Mr Morris and/or Sirrom at risk. Arguably it would have placed Mr Morris in breach of the HOA. Moreover, the legislative scheme made the status of the Manson licence quite irrelevant. SPS was required to procure its own licence and could then engage any qualified person or persons as its supervisor(s). Whether as a matter of the profitable operation of the business that had to be Mr Morris was never made clear to Minters or in the evidence generally.
The Judge also supported his conclusion by reference to what he described as the premise of Minters’ meetings with Mr Morris that ‘verifying the building licence was an integral part of the due diligence process’.[24] However, that reasoning is inconsistent with the Judge’s own finding that the due diligence inquiries were expressly curtailed by the instruction given on 8, and again on 17 October that the builder’s licence for SPS would be procured by Mr Erskine.
[24] [2015] SADC 100 at [136].
Minters’ advice to defer completion until SPS had procured a builder’s licence was perfectly sound. If that advice had been acted on Sirrom would never have made the completion payment unless and until SPS procured a corporate builder’s licence and Mr Manson was in some way able to procure a supervisor’s licence or another qualified supervisor was engaged to the satisfaction of Sirrom.
On the question of causation the Judge concluded that Mr Morris would not have completed the transaction in the Smart Panel business if the true status of Mr Manson’s licence was known:
[138]The evidence of Mr Morris was to the adamant effect that without the SmartPanel component of the Manson business, he would not have invested. He testified that had he known about the restrictions or conditions on Mr Manson’s building licence, he certainly would not have proceeded with the transaction. He justified and explained this stance by not wishing to be ‘doing something illegal’, that there was a ‘very substantial financial risk’, and that Mr Manson ‘was lying to me’. More specifically, he deposed that had he learnt the truth with respect to Mr Manson’s limited building license capabilities in September 2007, he would not have executed the fourth version of the Heads of Agreement:
I would not have entered into that agreement because I would never want to be the director of a company that was doing something illegal. There would have been a very substantial financial risk and the fact that Manson would show that he had been lying to me, and that he was not a person that I would want to be getting into business with. Also not having a builder’s license, he most probably didn’t know how to build houses.
(citations omitted)
The Judge continued:
[144]The situation was that Mr Manson’s licence was completely ineffective for any of the purposes contemplated by the new ventures. No solution was available to rectify the problem, even on an interim basis. In that state of affairs no reasonable person surely could have proceeded. Despite his over enthusiasm for the project, I am satisfied when considered according to the above authorities that Mr Morris would not have proceeded, because there simply was no available solution to overcome the problem. The fact that Mr Manson held a limited building licence was an intractable one.
[145]Moreover, had the existence of the deficient licence emerged as it should have, the advice would not have been as qualified or contingent as it was. Without doubt it would surely have been emphatically to the effect that the transaction could not proceed, without reservation. Unquestionably, any reasonable solicitor in that situation would insist that the transaction could not proceed.
That finding on causation is premised on the Judge’s finding that Minters was bound to investigate and inform Sirrom about the status of the Manson licence on completion day rather than advise, as Minters did, that completion be deferred. However, even on that finding, it is doubtful that Mr Morris would have refused to make the completion payment.
Even if the limitations on Mr Manson’s builder’s licence had been discovered, there were plainly alternatives open to Sirrom. The most obvious was to consider whether or not the investment was still a good one if someone other than Mr Manson was employed as a building supervisor. Whether or not Mr Morris would have instructed Minters to proceed in those circumstances is largely speculative. Mr Morris was not asked whether, and therefore did not deny that, he would have proceeded in the hope that the business would still be profitable if another qualified person was engaged as another supervisor. That course may have required a renegotiation of Mr Manson’s interest in SPS and his remuneration. However, Mr Morris had already invested much in the enterprise. Even if Mr Morris had answered that he was prepared to throw that money away, an assessment of the credibility of his testimony was required before that finding could be made on the balance of probabilities.

I conclude that Minters were not negligent in not advising Mr Morris to terminate the agreement with Manson, nor in not ascertaining the status of the Manson licence on completion day. I also conclude that Sirrom did not establish that, if that advice were given, Mr Morris would not have proceeded.
Did Minters’ negligence cause Sirrom to make the post-completion payment?
Finally I turn to the post-completion payments. The Judge found that, even on the findings that Minters negligently caused the completion payment to be made, the payments made after the completion date were not the result of a failure to give correct advice on completion day. The Judge’s reasons were as follows:
[154]The inescapable fact of the matter is that had SPS promptly lodged a building licence application, together with a nominated building work supervisor application, the latter presumably in Mr Manson’s name, the conditions and restrictions on Mr Manson’s licence would have inevitably become known. This process should have been initiated shortly after the completion meeting, probably well before Christmas. Once the true state of affairs was revealed, Mr Morris on his own evidence would not have transacted, or not have transacted any further. On either contingency the prospective payments would not have been made. The period of 28 days before the first payment was due, provided more than a reasonable opportunity in point of time to have made that critical inquiry, and it is one set by the parties with that very purpose specifically in mind. Accordingly, the following second and third tranche payments were made not because of negligence on the part of Minter Ellison. They occurred on account of SPS’ failure to comply with its obligations and Mr Morris’ failure to ensure that it did. They were made knowing of the risks involved.
…
[157]Although it was SPS’ obligation to apply for the appropriate building licence, it was Minter’s firm advice to Mr Morris to ensure that it did so. Had he taken that advice, the investment would not have proceeded much further before faltering for good. As that would necessarily have been before any further sums were advanced beyond 5 January 2008, the fact that those payments were made was due to his own inaction, and the failure to heed the clear advice given. Mr Morris has therefore not proved the failure to obtain Mr Manson’s building licence was an operative cause leading to the making of subsequent payments beyond the date that the second tranche of $150,000 was due. On this alternative basis, further damage of $50,000, made up of these three payments between completion and 5 January, namely $15,000, $20,000 and $15,000 on 19, 20 and 21 December 2007, would otherwise be proven.
[158]A different way of viewing the post completion situation is this. Mr Morris received the advice that SPS was to immediately apply for its own builders licence. The contract documents contemplated the second tranche fell due on 5 January 2008, specifically earmarked by clause 4(b) of the Subscription Agreement for furthering the application for the necessary licence. Nothing at all is proven to have been done to that end. Despite the manifest inaction, Sirrom No 1 paid the further $50,000, and a further $20,000 on 15 January 2008, $19,000 of which actually, for the very first time eventually found its way in the SPS bank accounts. Since 5 January 2008 was mutually set as the date for payment specifically directed to the licence application, there was more than sufficient time to enable SPS to have done so. By that time Sirrom No 1 was no longer ‘locked into a situation from which [it] cannot escape’, to employ words of the joint judgment in Burns v MAN Automotive (Aust) Pty Ltd. Beyond that point in time it was open to Sirrom No 1 to withhold payments until SPS had genuinely begun the application process. Even so Sirrom continued to supply funds when it need not have.
[159]On that analysis, the point had come when further damages did not flow from any breach of duty. The reasonable contemplation of the parties was that the payment of $150,000 by 5 January 2008 was predicated on the building licence application being in progress. Thereafter the subsequent payments were therefore simply too remote. Likewise, the much later advances after 25 March 2008 over and above the total contract price of $500,000, were clearly too remote, because they went beyond the contractual obligations to pay and can only be seen as voluntary payments not attributable to any wrong doing on Minters part.
(citations omitted)
I would characterise the Judge’s conclusion as a finding that Mr Morris’ decision to make the post-completion payments in disregard of Minters’ advice, even though SPS had failed to procure a builder’s licence, was a novus actus interveniens. The Judge in effect found that the cause of the post-completion payments was Mr Morris’ failure to ensure that SPS had procured a builder’s licence before making the payments when he had been given strong advice that SPS required the licence to lawfully engage in the business. On the Judge’s findings, Minter’s negligence on completion day left Sirrom burdened with disadvantageous contractual obligations but also armed him with contractual mechanisms and advice to limit its loss to the payment made on that day if it so chose. Sirrom’s manifestly unreasonable disregard of its own interests by failing to make use of those mechanisms completely displaced Minter’s responsibility for its post-completion losses. That conclusion is plainly correct.
Hungerford and Lost Opportunity Damages
The Judge was correct to reject Sirrom’s claim for lost opportunity and Hungerford damages. There was simply no evidence of a lost opportunity. Sirrom’s lending and investments were so intermingled that the evidence failed to establish a connection between any particular borrowing cost and Sirrom’s payments to Manson and SPS.
Conclusion
I would allow the appeal and dismiss the cross-appeal. I would set aside the judgment of the District Court. I would order instead that Sirrom’s action be dismissed with costs.
PEEK J: I would allow the appeal and dismiss the cross-appeal. I agree with the reasons of the Chief Justice.
STANLEY J: I agree.
Annexure A: Chronology of Payments Made by Cross-Appellant

No.

Date of pmnt
(from BS)

Amount paid away by Sirrom
Running total paid away by Sirrom
Reference

Evidence

1 2/10/2007 $40,000 $40,000 Ex P2, vol 2, pg 5
T275/1-6 CBA BS no. 29

2 25/10/2007 $50,000 $90,000 Ex P2, vol 2, pg 6
T275/27-31

3 9/11/2007 $20,000 $110,000 Ex P2, vol 2, pg 7 CBA BS no. 30

4 12/11/2007 $10,000 $120,000

5 20/11/2007 $20,000 $140,000 Ex P2, vol 2, pg 8

6 21/11/2007 $15,000 $155,000

7 22/11/2007 $15,000 $170,000

8 6/12/2007 $72,794 $242,794 Ex P2, vol 2,
pgs 9 & 96 CBA BS no. 31 & Cheque no. 236

9 19/12/2007 $15,000 $257,794 Ex P2, vol 2, pg 10 CBA BS no. 31

10 20/12/2007 $20,000 $277,794

11 21/12/2007 $15,000 $292,794

12 15/01/2008 $20,000 $312,794 Ex P2, vol 2, pg 13 CBA BS no. 32

13 1/02/2008 $20,000 $332,794 Ex P2, vol 2, pg 15 CBA BS no. 33

14 6/02/2008 $19,000 $351,794

15 7/02/2008 $20,000 $371,794

16 8/02/2008 $20,000 $391,794

17 11/02/2008 $1,000 $392,794

18 13/02/2008 $18,000 $410,794

19 20/02/2008 $19,000 $429,794 Ex P2, vol 2, pg 16

20 21/02/2008 $3,000 $432,794

21 26/02/2008 $20,000 $452,794

22 27/02/2008 $5,000 $457,794

No.
Date of pmnt
(from BS)

Amount paid away by Sirrom
Running total paid away by Sirrom
Reference

Evidence

23 5/03/2008 $14,000 $471,794 Ex P2, vol 2, pg 17 CBA BS no. 34

24 6/03/2008 $20,000 $491,794

25 7/03/2008 $1,000 $492,794

26 25/03/2008 $10,000 $502,794 Ex P2, vol 2, pg 18

27 28/03/2008 $20,000 $522,794

28 31/03/2008 $1,000 $523,794 Ex P2, vol 2, pg 21 CBA BS no. 35

29 31/03/2008 $19,000 $542,794

30 10/04/2008 $5,000 $547,794

31 16/04/2008 $10,000 $557,794 Ex P2, vol 2, pg 22

32 29/04/2008 $15,000 $572,794

33 5/05/2008 $1,514 $574,308 Ex P2, vol 2, pg 23 CBA BS no. 36

34 7/05/2008 $8,486 $582,794

35 11/06/2008 $20,000 $602,794 Ex P2, vol 2, pg 27 CBA BS no. 37

36 13/06/2008 $8,500 $611,294

37 16/06/2008 $1,500 $612,794

38 16/06/2008 $20,000 $632,794

39 24/06/2008 $20,000 $652,794 Ex P2, vol 2, pg 28

40 25/06/2008 $2,000 $654,794

41 21/07/2008 $2,200 $656,994 vol 2 pg 29 CBA BS no. 38

No.	Date of pmnt (from BS)	Amount paid away by Sirrom	Running total paid away by Sirrom	Reference	Evidence
1	2/10/2007	$40,000	$40,000	Ex P2, vol 2, pg 5 T275/1-6	CBA BS no. 29
2	25/10/2007	$50,000	$90,000	Ex P2, vol 2, pg 6 T275/27-31	CBA BS no. 29
3	9/11/2007	$20,000	$110,000	Ex P2, vol 2, pg 7	CBA BS no. 30
4	12/11/2007	$10,000	$120,000	Ex P2, vol 2, pg 7
5	20/11/2007	$20,000	$140,000	Ex P2, vol 2, pg 8
6	21/11/2007	$15,000	$155,000
7	22/11/2007	$15,000	$170,000
8	6/12/2007	$72,794	$242,794	Ex P2, vol 2, pgs 9 & 96	CBA BS no. 31 & Cheque no. 236
9	19/12/2007	$15,000	$257,794	Ex P2, vol 2, pg 10	CBA BS no. 31
10	20/12/2007	$20,000	$277,794
11	21/12/2007	$15,000	$292,794
12	15/01/2008	$20,000	$312,794	Ex P2, vol 2, pg 13	CBA BS no. 32
13	1/02/2008	$20,000	$332,794	Ex P2, vol 2, pg 15	CBA BS no. 33
14	6/02/2008	$19,000	$351,794
15	7/02/2008	$20,000	$371,794
16	8/02/2008	$20,000	$391,794
17	11/02/2008	$1,000	$392,794
18	13/02/2008	$18,000	$410,794
19	20/02/2008	$19,000	$429,794	Ex P2, vol 2, pg 16
20	21/02/2008	$3,000	$432,794
21	26/02/2008	$20,000	$452,794
22	27/02/2008	$5,000	$457,794