Barfly's Nominees Pty Ltd v Kliger Partners (a firm)
[2019] VSCA 256
•11 November 2019
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2018 0105
| BARFLY’S NOMINEES PTY LTD | Applicant |
| v | |
| KLIGER PARTNERS (a firm) | Respondent |
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| JUDGES: | TATE, KYROU and EMERTON JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 4 September 2019 |
| DATE OF JUDGMENT: | 11 November 2019 |
| MEDIUM NEUTRAL CITATION: | [2019] VSCA 256 |
| JUDGMENT APPEALED FROM: | [2018] VSC 315 (Digby J) |
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NEGLIGENCE – Solicitors – Retail tenancies dispute – Landlords’ repair obligations – Solicitors’ advice to tenant to settle proceeding against landlords due to effect of retrospective amendments to retail tenancies legislation – Whether judge erred in finding advice by solicitors to settle not negligent – Whether judge mischaracterised case brought against solicitors and failed to have regard to tenant’s accrued contractual causes of action – Whether judge misunderstood the operation of the retail tenancies legislation – Reliance – Whether judge erred in finding no reliance by tenant on advice – No requirement for advice to be sole basis upon which client acts – Henville v Walker (2001) 206 CLR 459 applied – Retail Tenancies Reform Act 1998, ss 25, 26, 47 – Retail Leases Act 2003, ss 107, 118, 119 – Retail Leases (Amendment) Act 2005, ss 2(4), 43 – Interpretation of Legislation Act 1984, s 14(2)(e).
DAMAGES – Loss of a chance to continue proceeding against landlords – Whether judge erred in finding it was not possible to sufficiently, safely or accurately evaluate the prospects of success – Whether ‘broad brush’ approach or a ‘trial within a trial’ required – Johnson v Perez (1988) 166 CLR 351 and Rosa v Galbally & O’Bryan (2013) 42 VR 382 applied.
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| APPEARANCES: | Counsel | Solicitors |
For the Applicant | Mr S K Wilson QC with Mr J Kohn | JPM Law |
| For the Respondent | Mr P H Solomon QC with Ms C M Pierce | Obst Legal |
TATE JA
KYROU JA
EMERTON JA:
TABLE OF CONTENTS
| Introduction and summary......................................................................................... | 2 |
| The VCAT proceeding.................................................................................................. | 4 |
| (1) Leases of adjoining premises.............................................................................. | 4 |
| (2) The early stages of Barflys’ proceeding in VCAT............................................. | 6 |
| The contractual causes of action against the landlords........................... | 6 |
| Causes of action against the agent.............................................................. | 9 |
| The landlords’ defence................................................................................. | 10 |
| (3) Amendments to the Retail Tenancies Reform Act 1998................................... | 11 |
| (4) The Fifth Amended Points of Claim – new cause of action: breach of good repair obligation implied by statute................................................................... | 19 |
| (5) The Sixth Amended Points of Claim ................................................................ | 20 |
| (6) Engagement of Kligers and advice from counsel............................................... | 20 |
| (7) The Seventh Amended Points of Claim – revised causes of action: breach of urgent repairs obligation and consistent condition obligation ......................... | 23 |
| (8) The Eighth Amended Points of Claim .............................................................. | 25 |
| (9) The Conference – 31 January 2007................................................................... | 25 |
| (10) Settlement of the VCAT proceeding................................................................. | 26 |
| The trial for negligent advice...................................................................................... | 27 |
| The judge’s Reasons..................................................................................................... | 29 |
| (1) Identifying the issues for determination ........................................................... | 29 |
| (2) Findings about the RTRA Advice – no negligence.......................................... | 32 |
| (3) Findings about the Conference ......................................................................... | 37 |
| (4) Findings about the settlement process .............................................................. | 40 |
| (5) Evaluation of prospects of success considered impossible ................................. | 42 |
| Grounds of appeal........................................................................................................ | 45 |
| Did the judge misapply the RTRA; mischaracterise Barflys’ case; and err in finding that the RTRA Advice was not negligent? (Grounds 1–5)........................ | 49 |
| (1) What advice was given at the Conference?....................................................... | 50 |
| (2) Did the judge misunderstand the RTRA?........................................................ | 54 |
| (3) Did the judge wrongly focus on the date of loss and damage?.......................... | 60 |
| (4) Did the judge wrongly conclude that the RTRA Advice was not negligent? | 65 |
| Did the judge err in finding no reliance? (Ground 6)................................................ | 70 |
| Should the judge have evaluated Barflys’ prospects of success at VCAT? (Ground 7)...................................................................................................................... | 73 |
| Conclusion and disposition........................................................................................ | 77 |
Introduction and summary
Barfly’s Nominees Pty Ltd (‘Barflys’), ran a bar and café in Bourke Street in the centre of Melbourne under leases for two adjoining retail buildings that operated as a single premises. It suffered loss and damage arising from persistent flooding on the premises and closed its business in or about early November 2003. It brought a proceeding against its landlords in the Victorian Civil and Administrative Tribunal (‘VCAT’) on 6 November 2003 initially for an injunction and subsequently for damages in the sum of about $2 million based upon breaches of express terms under the leases and breaches of terms implied by statute. In 2006 to 2007, it was advised by its solicitors, Kliger Partners (‘Kligers’), that legislative changes made in 2005 in respect of retail leases had the effect that its position against the landlords at VCAT had been materially disadvantaged. Kligers advised that Barflys should settle the VCAT proceeding. The VCAT proceeding settled with Barflys being paid $341,500 inclusive of costs.
Barflys later brought claims against Kligers in negligence and breach of contract on the basis that the advice Kligers gave failed to assess the prospects of Barflys’ contractual causes of action under the leases. A judge of the Trial Division dismissed the proceeding.[1]
[1]Barflys Nominees Pty Ltd v Kliger Partners (a firm) [2018] VSC 315 (‘Reasons’).
Barflys seeks leave to appeal from the orders made by the judge.
For the reasons set out below, we would grant leave to appeal and allow the appeal. [2]
[2]For convenience, in what follows, we refer simply to ‘the appeal’.
In our view, Kligers was negligent to advise that Barflys should settle the VCAT proceeding because of the legislative changes made in 2005. We consider that the negligent advice Kligers gave was in breach of its retainer. The negligence consisted in advising that the entirety of Barflys’ proceeding against the landlords had been materially disadvantaged by reason of legislative amendments, and in light of the effect of those amendments, Barflys should settle the VCAT proceeding, without advising on the strength or weakness of the contractual causes of action. The contractual causes of action were in effect ignored.
In our view, the judge erred in law in holding that the changes in the retail tenancies legislation rendered most of Barflys’ claims against the landlords unrecoverable. He wrongly appears to have assumed that the statutorily implied terms of the leases subsumed, or directly affected, all other claims, whether sourced in contract or in statute, and misunderstood, and misapplied, the retail tenancies legislation. He did not independently assess the claims based on breaches of express terms of the leases. We also consider that the judge was wrong to conclude that Barflys did not rely on Kligers’ advice when it settled the VCAT proceeding. We further consider that the judge ought to have proceeded to value the loss of the damages that Barflys would have recovered in the VCAT proceeding, or the loss of opportunity to pursue such damages it suffered by foregoing the VCAT proceeding.
We would remit the matter to the Trial Division for the issue of damages to be assessed flowing from Kligers’ negligence. In accordance with legal principle, that assessment will require the hearing and determination of a 'dual inquiry’: (1) the prospects of Barflys’ success on liability at the VCAT proceeding; and (2) the award of damages which would have been obtained had the VCAT proceeding continued to judgment.[3] This will require the remitter judge to engage in a ‘broad-brush’ approach on the understanding that the court is necessarily carrying out a hypothetical exercise.
[3]Johnson v Perez (1988) 166 CLR 351, 364; Rosa v Galbally & O’Bryan (2013) 42 VR 382, 403 [88], 404 [92].
The VCAT proceeding
This matter has a complex history. The course of the proceeding at VCAT is illuminating, particularly in order to understand the manner in which allegations were introduced into the proceeding in respect of breaches of terms of the leases implied by statute.
(1) Leases of adjoining premises
On or about 16 August 2001, Barflys entered into two leases, one in respect of 14 Bourke Street (‘the No 14 lease’) and the other in respect of 16 Bourke Street (‘the No 16 lease’). Barflys executed an assignment of those leases from the previous tenant of both premises, Countweir Pty Ltd. The adjoining buildings had been occupied as a single premises and Barflys continued to occupy them as a single premises, operating a bar and café.
Alexander Robertson & Co Pty Ltd was appointed as the agent (‘the agent’) for Barflys’ landlords, Constantinos Manthos, and his brother, Matthew Manthos, in respect of 14 Bourke Street and the landlord, Nikpol Pty Ltd, in respect of 16 Bourke Street.[4]
[4]Constantinos Manthos, Matthew Manthos, and Nikpol Pty Ltd are collectively referred to as ‘the landlords’ except where the context indicates otherwise.
Both of the leases were due to expire on 28 February 2003. On or about 30 October 2002 Barflys renewed the No 14 lease for a further four years pursuant to the exercise of an option in the No 14 lease. On or about 1 November 2002 Barflys renewed the No 16 lease for a further four years pursuant to the exercise of an option in the No 16 lease. The effective renewal date for both leases was 1 March 2003.
Barflys has consistently alleged that throughout its tenancy the premises suffered from serious and ongoing defects, including significant water ingress causing flooding to the kitchen, hallway and toilet areas. On 31 October 2003, the landlords of 14 Bourke Street sent Barflys a letter demanding the payment of alleged outstanding rent. They threatened to terminate the relevant lease and re-enter the premises.
Barflys closed its business in early November 2003.[5]
[5]It is unclear on exactly what date Barflys closed its business. The Eighth Amended Points of Claim refer (at [11] and [12]) to ‘in or about November 2003’ as the date the business was closed but the date for calculating the loss claimed by reason of the need to close the business is specified (at [29] and [33]) as 5 November 2003.
On or about 6 November 2003, Barflys filed a proceeding in VCAT against the landlords, seeking to injunct them from re-entering the premises. Macnamara DP granted Barflys an injunction against the landlords from taking possession of the premises.[6] He did so on the basis that there was a serious question to be tried with respect to a breach of an express obligation under the lease. He observed:
I am satisfied that there is a serious question to be tried in all the circumstances as to whether the lease by Clause 2(p) or otherwise imposes an obligation upon [the landlords] to carry out structural repairs to the premises.[7]
...
I have concluded that the matters complained of here by Barfly’s are properly characterised as structural imperfections or as defects of a serious nature or again, at the very least, there is a serious question to be tried as to whether they really do bear that character.[8]
(2) The early stages of Barflys’ proceeding in VCAT
[6]Barfly’s Nominees Pty Ltd v Manthos [2003] VCAT 1987.
[7]Barfly’s Nominees Pty Ltd v Manthos [2003] VCAT 1987 [22]. Clause 2(p) of the No 14 lease is set out at [16] below.
[8]Barfly’s Nominees Pty Ltd v Manthos [2003] VCAT 1987 [24].
Following the grant of the injunction, Barflys filed details of its claim in VCAT seeking damages against the landlords and the agent.[9] At that time Barflys’ solicitor was Brian McMahon (‘McMahon’). On or about 25 October 2004, Barflys filed its Fourth Amended Points of Claim claiming damages for actual loss ($1,424,827) and future economic loss ($1,625,315) in the total sum of $3,050,142. This included causes of action against the landlords for breaches of covenants under the leases — the contractual causes of action — and causes of action against the landlords and the agent for misleading and deceptive representations. It did not contain causes of action based on terms of the leases implied by statute.
The contractual causes of action against the landlords
[9]The landlords of No 14 Bourke Street were named as the first and second respondents, the landlord of No 16 Bourke Street was named as the third respondent, and the agent was named as the fourth respondent.
In its Fourth Amended Points of Claim, Barflys alleged that the landlords had breached several obligations under the leases. In respect of the No 14 lease, Barflys relied particularly on cls 2(j) and 2(p), which it alleged rendered the landlords liable for ‘structural defects’. Those clauses provided:
2. THE Lessee HEREBY COVENANTS with the Lessor as follows:
…
(j)The Lessee will at its own cost and expenses throughout the said term keep the demised premises (including, but without limiting the generality thereof, all doors, locks, window frames, window glass, floor coverings, ceiling, tiles, blinds, curtains, plaster or other coverings to walls and ceiling, electrical light fittings and all other fixtures and fittings) clean and in good substantial and tenantable repair order and condition fair wear and tear and damage by fire (unless in the case of fire, the policy or policies of insurance effected by the Lessor shall have been vitiated or payment thereunder refused in consequence of some act neglect or default of the Lessee or any Contractor sub-Contractor or sub-Lessee of the Lessee or any servant officer agent invitee customer or visitor or any of them or any other person claiming through or under the Lease) flood lighting storm tempest earthquake Act of God only excepted PROVIDED THAT this clause shall not impose upon the Lessee any obligation in respect of any structural work unless such work be occasioned by any neglect or default of the Lessee or any contractor, sub-contractor or sub-Lessee of the Lessee or any servant officer, agent, invitee, customer or visitor of any of them or any other person claiming through or under the Lessee or by the Lessee’s use or occupancy of the demised premises and the Lessee further covenants that it shall keep all baths, sinks, water and sanitary apparatus, cisterns, interior pipes therein, cleansed and in good order and to pay the cost of all cleansing relative thereto caused by any stoppage not due to structural imperfections.
…
(p)The Lessee will give notice to the Lessor promptly of all structural imperfections which may appear in the demised premises and of the happening of any accident or the discovery of any defect in any service or any lighting heating or sanitary apparatus installed in or upon the building of which the demised premises forms part and all cisterns pipes, wires and accessories appearing thereto and whether it is the Lessee’s or the Lessor’s obligation to repair the same but the Lessor’s obligation hereunder shall be limited to structural imperfections and defects of a serious nature of which the Lessor ought reasonably to be given notice.[10]
[10]Emphasis added.
Barflys also alleged that the landlords failed to carry out repairs at 14 Bourke Street to preserve its quiet enjoyment of the premises.[11]
[11]No 14 lease, cl 3(a).
In respect of the No 16 lease, Barflys alleged breaches of many of the landlord’s obligations under the lease, including those under cl 3, especially obligations of the landlord to carry out structural repairs:
3.3 In addition to its obligations under clause 3.2, the tenant must:
…
3.3.5maintain in working order all plumbing, drainage, gas, electric, solar and sewerage installations and fire protection apparatus.
3.3.6promptly give written notice to the landlord or the landlord’s agent of:
(a)damage to the premises or of any defect in the structure of or any of the services to the premises.
…
(d)any hazards arising from the premises for which the landlord might be liable.
...
3.4 The tenant is not obliged:
3.4.1to repair damage against which the landlord must insure under clause 6.2 unless the landlord loses the benefit of the insurance because of acts or omissions by the tenant or the tenant’s employees, agents, contractors, customers or visitors.
3.4.2to carry out structural repairs or make payments of a capital nature unless the need for them results from:
(a)negligence by the tenant or the tenant’s employees, agents, contractors, customers or visitors; or
(b)failure by the tenant to perform its obligations under this lease; or
(c) the tenant’s use of the premises.
Barflys also alleged a breach of the landlord’s obligation to give it quiet possession under cl 6.1:
6.1The landlord must give the tenant quiet possession of the premises without any interruption by the landlord or anyone connected with the landlord as long as the tenant does what it must under this lease.
Barflys relied on the obligation on the landlord, under cl 6.2, to insure against risks:
6.2The landlord must take out policies of insurance against the risks listed in item 11 at the start of the term and must keep them current as long as the tenant pays or reimburses the premiums and charges for those covered by the tenant’s obligations in sub-clause 2.1.7.
Item 11 identified risks which the landlord’s insurance policy had to cover, namely, ‘Flood’, ‘Storm and Tempest’, and ‘Internal Flood Water’.
Barflys further relied on cl 8 that allowed for suspension of rent and outgoings where the premises are so damaged that they cannot be used, and required the landlord to reinstate the premises as soon as reasonably practicable:
8.1If the premises are damaged so that they cannot be used for the permitted use—
8.1.1a fair portion of the rent and outgoings is to be suspended until the premises are again wholly fit for the permitted use.
8.1.2the suspended portion of the rent and outgoings must be proportional to the nature and extent of the damage.
8.2If the premises are partly destroyed, but not substantially destroyed, the landlord must reinstate the premises as soon as reasonably practicable.
Barflys alleged that it became aware in November 2001 of what had previously been latent structural defects in the building and notified the agent of them. It alleged that during January and February 2002 the walls of the premises began peeling regularly and the kitchen and lounge area and staircase, as well as the upstairs area, showed signs of water damage. It claimed that the landlords had engaged in breaches of covenants under the leases because, despite repeated requests by Barflys to the landlords to remedy the structural defects, the landlords failed to rectify them causing a restriction of Barflys’ use of the premises and interference to its trade resulting in loss and damage.
Barflys also alleged against the landlords that they, through the agent, had misrepresented that Barflys could use the first floor function room and omitted to inform Barflys that the occupancy permit that had been issued was limited to the ground floor only and that use of the first floor of the premises was prohibited until the works shown on the building permit had been undertaken and completed. Barflys alleged that the landlords had engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in contravention of s 9 of the Fair Trading Act 1989.
Causes of action against the agent
In the Fourth Amended Points of Claim Barflys alleged that a representation was made in November 2001 by Malcolm Robertson (‘Robertson’) of the agent to Tony Hachem (‘Hachem’), the majority shareholder and the sole director of Barflys, after Robertson had inspected the premises, that the defects to the premises were structural and were the responsibility of the landlords. It was also alleged that Robertson said that Barflys should trade through the Christmas period and that he would review the situation in early January or early February 2002, after he had heard from the landlords, at which time any structural repairs could be effected with the least disruption to the tenant.
Barflys also alleged that in March 2002 Robertson told Hachem that he was dealing with the landlords and would recommend that Barflys be given rent relief and compensation because of the structural defects. In May 2002 Robertson is alleged to have said that he would have the landlords fix the rising damp problem as well as repairing the premises prior to the renewal of the leases. Similar representations were allegedly made in October 2002 and December 2002.
Barflys alleged that it relied on the representations of the agent, and, in the belief that the landlords would thereby rectify the structural defects, it conducted its business from November 2001 until the premises were deemed unsafe and unfit for habitation by the City of Melbourne when it issued Building Notices in November 2003 (‘the Building Notices’).[12] Barflys alleged that, were it not for the agent’s representations, it would not have refurbished the premises, continued in occupation of the premises, and exercised the option for the further term under the leases.[13]
[12]The City of Melbourne served Building Notices on the landlords on 12 November 2003 and these were re-issued on 19 December 2003.
[13]One of the representations alleged against the agent was that if Barflys refurbished the premises, the agent would obtain options for additional further terms under the leases.
Barflys alleged that the agent had engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in contravention of s 9 of the Fair Trading Act.
The landlords’ defence
The landlords’ defence included a denial that they were liable for structural damage, and an assertion that, if the alleged representations by the agent were made, they were made without instructions from or with the authority of the landlords and the landlords were not told about them.
The Fourth Amended Points of Claim does not contain any allegation of a breach of a term of the leases implied by statute.
It is convenient to consider the relevant statutory regimes that applied to the leases between their execution, in August 2001, and the close of Barflys’ business in early November 2003.
(3) Amendments to the Retail Tenancies Reform Act 1998
In summary, there are three distinct statutory regimes that are relevant to the proceeding by Barflys against its landlords in VCAT:
(1) the pre-2003 regime under s 25 of the Retail Tenancies Reform Act 1998 (‘the RTRA’) in accordance with which a landlord’s obligation for repairs was limited to a liability for urgent repairs that a tenant had arranged to be carried out, to a maximum of $5,000, provided that under the lease the landlord was responsible for ensuring the retail premises were maintained in good repair (‘the pre-2003 regime’);
(2) from 1 November 2003 the pre-2003 regime was replaced by a new s 25 in accordance with which a landlord of retail premises was bound by a stand-alone statutory obligation of good repair deemed to be incorporated as a term of the lease (‘the good repair regime’)[14] — this was a fleeting obligation as the relevant legislation was amended in 2005 to replace the obligation of good repair with a more qualified obligation;
(3) in 2005 legislation was passed that amended the new s 25 by replacing a landlord’s obligation to maintain retail premises in good repair with an obligation on the landlord to maintain the premises in a ‘condition consistent with the condition of the premises when the retail premises lease was entered into’ (‘the consistent condition regime’) — this obligation took effect either from 15 April 2003 or 1 November 2003.[15]
[14]See Adrian J Bradbrook, Clyde E Croft and Robert S Hay, Commercial Tenancy Law (LexisNexis Butterworths, 3rd ed, 2009) 787 [23.50].
[15]The date on which the consistent condition obligation took effect is debatable because of the effect of the interaction of different legislative amendments. See [46] below.
The RTRA was enacted in 1998 to reform the law relating to retail tenancies,[16] and has been described as ‘ameliorating or remedial legislation’.[17] At the time that the leases were entered into by Barflys, on 16 August 2001, the pre-2003 regime applied.
[16]RTRA s 1.
[17]Adrian J Bradbrook, Clyde E Croft and Robert S Hay, Commercial Tenancy Law (LexisNexis Butterworths, 3rd ed, 2009) 686 [23.8].
Section 4 of the RTRA provided:
4 Application
(1) This Act applies to a retail premises lease that is entered into after the commencement of this section including one entered into under an option provided under a retail premises lease that was entered into before that commencement.
Section 4 came into operation on 28 April 1998.
Under the pre-2003 regime, s 25 provided that where the landlord had a responsibility under the lease for ensuring that the structure, or fittings or fixtures relating to water or drainage, were maintained in good repair, the landlord was liable to reimburse a tenant for the reasonable cost of urgent repairs to a maximum of $5,000:
25 Urgent repairs
(1) This section only applies to the extent that a retail premises lease provides that the landlord is responsible for ensuring that—
(a) the structure of, or fixtures in, the retail premises; or
(b) the appliances, fittings or fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other services—
are maintained in good repair.
(2) A tenant may arrange for urgent repairs to be carried out to the structure, appliances, fittings or fixtures referred to in sub-section (1) if—
(a) the tenant has taken reasonable steps to arrange for the landlord or the landlord’s agent to immediately carry out the repairs; and
(b) the tenant is unable to get the landlord or agent to carry out the repairs.
(3) If the tenant carries out the repairs under subsection (2)—
(a) the tenant must give the landlord 14 days written notice of the repairs carried out and the cost; and
(b) the landlord is liable to reimburse the tenant for the reasonable cost of the repairs or $5,000, whichever is the lesser.
(4) In this section ‘urgent repairs’ means the work necessary to repair or remedy a fault or damage in—
(a) the structure of, or fixtures in, the retail premises; or
(b) the appliances, fittings or fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other services—
being a fault or damage having or causing a substantial effect on or to the tenant’s business at the premises.
Section 26 of the RTRA also imposed a liability on a landlord to pay reasonable compensation to a tenant for any loss or damage suffered by the tenant as a consequence of the landlord failing to comply with any requirement of a statutory authority or government department if it was the landlord’s responsibility to do so. That liability remained unchanged by the 2003 and 2005 amendments to s 25 of the RTRA. Section 26(1)(e) provided:
26 Compensation by landlord
(1) A retail premises lease is to be taken to provide that, if the landlord—
…
(e) fails to comply with any requirement of a public statutory authority or government department if it is the landlord's responsibility to do so; …
…
and the landlord does not rectify the matter within a reasonably practicable time after receiving from the tenant a written notice asking the landlord to do so, then the landlord is liable to pay the tenant, for any loss or damage suffered by the tenant as a consequence, reasonable compensation as agreed in writing between the parties or, in the absence of agreement, determined under Part 3.
In 2003, s 118 of the Retail Leases Act 2003 (‘the 2003 Act’) repealed the RTRA but the RTRA continued to apply to leases entered into before the commencement of the 2003 Act, including the No 14 lease and the No 16 lease.
The 2003 Act received the royal assent on 15 April 2003. Sections 118 and 119 of the 2003 Act came into operation on 1 May 2003. Section 119 provided:
119 General transitional and savings
(1) Despite the repeal of the Retail Tenancies Reform Act 1998 but subject to Part 10 of this Act, that Act continues to apply, and from 1 November 2003 applies as amended by Part 12 of this Act, to a retail premises lease to which it applied immediately before its repeal.
(2) However, if proceedings under Part 3 of the Retail Tenancies Reform Act 1998 have been commenced but are not completed before that Act is repealed, Part 3 of that Act continues to apply to those proceedings despite that repeal and despite Part 10 of this Act.
(3) Sections 39 and 52 of the Retail Tenancies Reform Act 1998, as in force immediately before the repeal of that Act, continue to have effect despite that repeal.
(4) For the avoidance of doubt it is declared that the effect of section 4(1) of the Retail Tenancies Reform Act 1998 is, and always has been, to apply that Act to a retail premises lease within the meaning of that Act that was entered into on or after 1 July 1998 including one entered into under an option provided under such a lease that was entered into before that date.[18]
[18]Emphasis added.
Section 119(1) provided for the amendment of the RTRA by pt 12 of the 2003 Act. Part 12 of the 2003 Act, by s 107, substituted a new s 25 into the RTRA which created a new repair regime by introducing an obligation on landlords to maintain in good repair the structure of, or fixtures in, retail premises, except where the need for repair arose out of misuse by the tenant.[19] Part 12 came into effect ‘immediately before the commencement of section 118’.[20]
[19]These changes reflected the provisions of s 52 of the 2003 Act, which applied to retail premises leases entered into or renewed after 1 May 2003. The judge appeared to consider (at [308]) that Barflys was submitting that s 52 of the 2003 Act did not apply to it and therefore that the obligation of good repair was irrelevant. It is clear that s 52 of the 2003 Act applied only to leases entered into after 1 May 2003 and, therefore, it did not apply to the No 14 or the No 16 lease which were, relevantly, entered into in August 2001 and the effective date of renewal was 1 March 2003. Barflys’ submissions about the lack of importance of the good repair obligation to its VCAT proceeding did not hinge on s 52 of the 2003 Act.
[20]The 2003 Act, s 2(2).
The new s 25(6) provided that s 25 only had effect from 1 November 2003.
Section 107 of the 2003 Act relevantly provided:
107 New sections 24 and 25 substituted
For sections 24 and 25 of the Retail Tenancies Reform Act 1998 substitute—
…
‘25 Landlord's liability for repairs
(1) A retail premises lease is taken to provide as set out in this section.
(2) The landlord is responsible for maintaining in good repair—
(a) the structure of, or fixtures in, the retail premises; and
(b) plant or equipment at the retail premises; and
(c) the appliances, fittings or fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other services.
(3) However, the landlord is not responsible for maintaining those things in good repair if—
(a) the need for the repair arises out of misuse by the tenant; or
(b) the tenant is entitled or required to remove the thing at the end of the lease.
(4) The tenant may arrange for urgent repairs (for which the landlord is responsible) to be carried out to those things if—
(a) the repairs are necessary to fix or remedy a fault or damage that has or causes a substantial effect on or to the tenant’s business at the premises; and
(b) the tenant is unable to get the landlord or the landlord’s agent to carry out the repairs despite having taken reasonable steps to arrange for the landlord or agent to do so.
(5) If the tenant carries out those repairs—
(a) the tenant must give the landlord written notice of the repairs and the cost within 14 days after the repairs are carried out; and
(b) the landlord is liable to reimburse the tenant for the reasonable cost of the repairs.
(6) This section only has effect from 1 November 2003.’[21]
[21]Emphasis added.
The new s 25 was amended in 2005. The consistent condition regime was introduced into the RTRA in 2005 by the Retail Leases (Amendment) Act 2005 (‘the 2005 Act’). The 2005 Act received the royal assent on 22 November 2005.
Section 43 of the 2005 Act amended s 107 of the 2003 Act to replace the words ‘in good repair’ in s 25(2) with the words ‘in a condition consistent with the condition of the premises when the retail premises lease was entered into’.[22] The amended new s 25 provided:
[22]Other changes included replacing in s 25(2) the disjunctive ‘or’ with the conjunctive ‘and’ in sub-s 2(a)–(c) removing the words ‘in good repair’ to describe the landlord’s obligation to maintain in sub-s (3), adding the words ‘under this section or under the terms and conditions of the lease’ into sub-s (4), and adding the words ‘and may not recover that cost or any part of it as an outgoing’ to sub-s (5)(b).
25 Landlord's liability for repairs
(1) A retail premises lease is taken to provide as set out in this section.
(2) The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into—
(a) the structure of, and fixtures in, the retail premises; and
(b) plant and equipment at the retail premises; and
(c) the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other services.
(3) However, the landlord is not responsible for maintaining those things if—
(a) the need for the repair arises out of misuse by the tenant; or
(b) the tenant is entitled or required to remove the thing at the end of the lease.
(4) The tenant may arrange for urgent repairs (for which the landlord is responsible under this section or under the terms and conditions of the lease) to be carried out to those things if—
(a) the repairs are necessary to fix or remedy a fault or damage that has or causes a substantial effect on or to the tenant’s business at the premises; and
(b) the tenant is unable to get the landlord or the landlord’s agent to carry out the repairs despite having taken reasonable steps to arrange for the landlord or agent to do so.
(5) If the tenant carries out those repairs—
(a) the tenant must give the landlord written notice of the repairs and the cost within 14 days after the repairs are carried out; and
(b) the landlord is liable to reimburse the tenant for the reasonable cost of the repairs and may not recover that cost or any part of it as an outgoing.
(6) This section only has effect from 1 November 2003.[23]
[23]Emphasis added.
The 2005 Act also provided, by s 2(4), that s 43 of the 2005 Act was deemed to have come into operation on 15 April 2003.
It is immediately apparent that there are arguably two conflicting dates from which the consistent condition regime began, 15 April 2003 (the deemed commencement date by reason of s 2(4)) or 1 November 2003 (the date expressly provided by sub-s (6) of s 25). The amendments introduced by s 43 of the 2005 Act did not purport to affect sub-s (6) of s 25. This meant that, once the 2005 Act passed into law,[24] the amendment to s 25 by the 2005 Act was deemed to commence either earlier than the amendment to s 25 by the 2003 Act or at the same time as that amendment (1 November 2003).
[24]22 November 2005.
The effect of the change from the good repair regime to the consistent condition regime has been described as a transformation of the landlord’s repair obligation ‘from a “put in and keep in repair” obligation to an obligation to “keep in repair” as at the date the retail premises lease was entered into’.[25]
[25]Dr Clyde Croft SC, ‘Retail Leases, Retail Leases (Amendment) Act 2005’ (Leo Cussen Institute, December 2005) 37. See also Adrian J Bradbrook, Clyde E Croft and Robert S Hay, Commercial Tenancy Law (LexisNexis Butterworths, 3rd ed, 2009) 787 [23.50].
With respect to the interaction between the statutorily implied terms, and express terms of the lease, it was provided that the RTRA did not affect the terms of retail premises leases, including any repair obligations, save to the extent that they were contrary to or inconsistent with anything in the RTRA or with anything that, by the RTRA, the lease was taken to provide:
47 Act prevails
…
(2)A provision of a retail premises lease is void insofar as it is contrary to or inconsistent with anything in this Act or with anything that by this Act the lease is taken to provide.
As remedial legislation, the obligations inserted by statute into the leases did not preclude the capacity of parties to negotiate more onerous terms on a landlord.[26] In particular, s 25 did not purport to limit the liability of a landlord under express terms of a lease.
[26]Versus (Aus) Pty Ltd v ANH Nominees Pty Ltd [2015] VSC 515 [49]–[50], [59] (‘Versus’).
As discussed below, it is noteworthy that the judge assumed, wrongly, that when the No 14 lease and the No 16 lease were entered into in August 2001, there was an obligation on the landlords, arising from the RTRA, to maintain the premises in good repair.[27] This was mistaken because, as set out above, the good repair obligation under the RTRA only came into effect on 1 November 2003. This mistaken assumption may explain why the judge placed such weight on the amendments introduced by the 2005 Act. It may also explain why he perhaps viewed the obligations under the express terms of the lease as somehow subsumed by the obligation of good repair.
(4) The Fifth Amended Points of Claim — new cause of action: breach of good repair obligation implied by statute
[27]At [78] of the Reasons, the judge says: ‘In summary, therefore, the likely position in respect of the various (and overlapping) retail lease provisions is that: (a) the lease agreements were executed in 2001. At this time, the lease agreements were subject to the 1998 Act. The 1998 Act required a landlord to maintain the premises in a state of “good repair”’. This understanding is challenged in ground 2(a) on the appeal. See [145]–[148] below.
The Fifth Amended Points of Claim was filed with VCAT on 8 June 2005. This was filed by Slater & Gordon who had become Barflys’ solicitors from about November 2004.
The Fifth Amended Points of Claim introduced for the first time an alleged breach of a statutorily implied obligation, namely, the obligation of good repair. At this time (8 June 2005) the amendment made to s 25 of the RTRA by s 107 of the 2003 Act was in effect (and had been so since 1 November 2003)[28] and the 2005 Act had not yet been become law (not being passed until 22 November 2005). Therefore, the amendment to s 107 of the 2003 Act by s 43 of the 2005 Act, the introduction of the consistent condition obligation, had not yet come into effect.
[28]Indeed the ‘good repair’ obligation had been in effect at the time the Fourth Amended Points of Claim was filed (October 2004) but, as mentioned, it did not allege a breach of an obligation imposed by statute.
The Fifth Amended Points of Claim continued to allege that the landlords, in failing to carry out repairs to ‘defective structural work’ and/or ‘structural imperfections’ and/or ‘defects of a serious nature’, breached obligations imposed under the express terms of the leases. It also alleged (in [33]) that in consequence of those breaches the City of Melbourne issued the Building Notices and the failure of the landlords to act upon those Building Notices rendered it reasonably necessary for Barflys to close its business, and (in [36]–[38]) that the agent negligently failed to pass on to the landlords Barflys’ complaints, causing loss and damage.
The Fifth Amended Points of Claim included an additional allegation, headed ‘Breach of Statutory Obligation’. It was alleged in [39] that from 1 November 2003 the landlords were responsible for maintaining in good repair the structure of, or fixtures in, the retail premises at No 14 Bourke Street and No 16 Bourke Street; the plant or equipment of the retail premises; and the appliances, fittings or fixtures provided under the leases relating to gas, electricity, water, drainage or other services. It was alleged in [40]–[41] that the landlords had breached the good repair obligation as a result of which the Building Notices were served on the landlords by the City of Melbourne. It was alleged in [42] that, as a consequence of the landlords’ obligation of good repair, and the service of the Building Notices from the City of Melbourne, Barflys suffered loss and damage. In [42] there was a cross-reference to the loss and damage identified earlier with respect to the closure of the business following receipt of the Building Notices, valued then at $1,625,315.
The prayer for relief made it plain that the claim based on the breach of the good repair obligation in [42] was an alternative claim to the claim for damages against the landlords for breaching their covenants under the leases in respect of repairing structural defects and failing to act on the Building Notices in [33]:
D.Damages against the First, Second and Third Respondents (see paragraph 33) alternatively the Fourth Respondent (see paragraph 38) in the sum of $1,625,315.
E.Alternatively to D, damages against the First, Second and Third respondents (see paragraph 42) in the sum of $1,625,315.
... [29]
[29]Emphasis added.
The Fifth Amended Points of Claim also retained the allegations against the landlords and the agent for misleading and deceptive conduct.
(5) The Sixth Amended Points of Claim
The Sixth Amended Points of Claim was filed on 11 November 2005. At this time the 2005 Act had not yet become law (not being passed until 22 November 2005).
The alleged breach of the obligation of good repair was maintained in [39]–[42] as were the other allegations.
(6) Engagement of Kligers and advice from counsel
On 9 February 2006 Barflys engaged Kligers as its new solicitors. In March 2006 Kligers briefed counsel at the Victorian Bar, Chris Connor (‘Connor’). By this time the 2005 Act had become law and the amendments made by s 43 of the 2005 Act to s 25 of the RTRA were in effect. This meant that the good repair regime had been replaced by the consistent condition regime. In other words, the ‘put in and keep in repair’ obligation had been replaced by an obligation to ‘keep in repair’ as at the date the retail premises leases were entered into.
Connor’s advice was dated 14 March 2006 (‘the Connor advice’).[30] It was headed ‘Breach of Statutory Obligation Claim’. It addressed [39]–[42] of the Sixth Amended Points of Claim and the allegation of the breach of good repair obligation. Connor set out some of the legislative history and noted that the original obligation under the RTRA in the pre-2003 regime, the obligation to conduct urgent repairs subject to a cap of $5,000, was not relied upon in the Sixth Amended Points of Claim and he recommended that consideration be given to adding that as a cause of action. He noted the terms of s 25 as amended by the 2005 Act, the general effect of this amendment on a landlord’s obligations, and the consequent diminution on the rights of tenants by comparison with the good repair regime. He said:
[F]rom a landlord’s point of view, s 25 of the [RTRA] was then fundamentally ameliorated by s 43 of the [2005 Act] which amended s 107 of the [2003 Act], and thereby introduced the ‘proposed new section 25(2) of the [RTRA]’ by (inter alia) substituting for ‘good repair’ the phrase ‘a condition consistent with the condition of the premises when the retail lease was entered into’. It can be readily seen that this change substantially diminished the rights of a tenant in relation to the standard of repair that a landlord was required to observe in a retail premises lease.
[30]It was not alleged that Connor’s advice was negligent.
Connor also noted that the amendment by the 2005 Act to s 25 of the RTRA was deemed to commence earlier than the amendment to s 25 by the 2003 Act:
Perversely, s 43 of the [2005 Act], by s 2(4), is deemed to have come into operation on 15 April 2003, which date predates the date of operation of the very section it is amending, namely 1 November 2003!
He also noted that the amendments introduced by the 2005 Act were likely to affect past events, arrangements and entitlements and therefore manifested a contrary intention to the preservation of accrued rights and liabilities effected by s 14 of the Interpretation of Legislation Act 1984 when legislation is repealed or amended. He also observed that s 101 of the 2003 Act inserted s 4(4) into the RTRA, which stipulated that if a provision in the RTRA only has effect from 1 November 2003, then the earlier provision continued to have effect until 1 November 2003. He considered the effect of this and applied it to Barflys’ circumstances, saying:
Consequently, if, as seems likely, the provisions of s 25 of the [RTRA], as it is currently enacted, affect the consequences of past events, arrangements and entitlements, then at least from 1 November 2003, or perhaps from 15 April 2003, the landlords’ obligations to their tenant, Barfly’s Nominees, were that they were responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into [my emphasis] —
(a) the structure of, and fixtures in, the retail premises; and
(b) plant and equipment at the retail premises; and
(c) the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other services.
He noted that the critical date for the consistent condition obligation was the date that a retail premises lease was entered into and, applied to the circumstances, that could be one of several dates:
In regards to the date when the ‘retail premises lease was entered into’ it is debatable whether the relevant date is the date when the leases in question were initially entered into by the tenant’s predecessors [14 December 1999 for the No 14 lease and 1 March 2000 for the No 16 lease], the date of the transfer of the leases to Barfly’s Nominees Pty Ltd on or about 16 August 2001, or the date when (and if) the leases were renewed [30 October 2002/1 November 2002 with an effective renewal date of 1 March 2003].[31]
[31]See [11] above.
He went on to advise that Barflys might still have a possible claim under the consistent condition obligation introduced by the 2005 Act:
Of course, even if the relevant date for the entry into the lease under s 25 is the date of the transfer of the leases to Barfly’s Nominees Pty Ltd on or about 16 August 2001, the defects of which the tenant later complained could have deteriorated after 1 November 2003, in which case the applicant may still have a possible claim under the statute ...
Connor emphasised that s 25 inserted obligations as implied terms into a lease and did not create a free-standing statutory duty:
A final, albeit minor, point is that the effect of the legislative provision providing for the landlord’s obligations in relation to the repair of retail premises is to treat the obligations as terms of the lease, so to this extent a breach of the provisions is not in quite the same vein as the breach of a statutory duty.
He offered to further amend the Sixth Amended Points of Claim in light of his advice:
As a result of the legislative review that has been undertaken in this memorandum, it seems clear that further amendments are likely to be necessary to the Sixth Amended Points of Claim.
I will be pleased to draw these amendments if requested by my instructing solicitors
The Connor advice did not, and did not purport to, assess the claims made by Barflys in the VCAT proceeding in their entirety. It did not, and did not purport to, evaluate the prospects of success of the contractual causes of action. The Connor advice was confined to, as its heading suggested, breaches of obligations implied by statute.
(7) The Seventh Amended Points of Claim — revised causes of action: breach of urgent repairs obligation and consistent condition obligation
The Seventh Amended Points of Claim was filed in VCAT on 30 May 2006 by Darren Cain (‘Cain’) of Kligers. It had been amended by Connor. It retained the allegations of breaches of express terms under the leases resulting in loss and damage; the claim that the agent negligently failed to pass on to the landlords Barflys’ complaints causing loss and damage; the claim against the landlords and agent for the alleged misrepresentation about the first floor function room; claims against the agent for misleading and deceptive conduct; and various other claims.
Relevantly, the principal change was to [39]–[42]. The allegation based on a breach of the obligation of good repair was entirely replaced by two new claims.
The first new claim ([39]–[42F]) relied on the obligation imposed under s 25 in the pre-2003 regime, the obligation on a landlord to reimburse a tenant for urgent repairs subject to a cap of $5,000. It was headed, ‘Landlords’ obligation to reimburse the tenant $5,000 each for urgent repairs carried out by the Applicant’. Connor had recommended in the Connor advice that such an allegation be included.[32] Separate allegations were made against the landlords of No 14 Bourke Street and No 16 Bourke Street for the recovery of $5,000.
[32]See [60] above.
The second new claim ([42G]–[42N]) alleged a breach of the consistent condition obligation. The obligation was alleged to derive from s 25 of the RTRA as in operation on and from 15 April 2003 or from 1 November 2003.[33]
[33]See [46] above.
It was alleged that as a result of the breach by the landlords of their contractual obligations, Barflys suffered loss and damage. In the prayer for relief the loss and damage was identified as (A) repair costs incurred by Barflys at No 14 Bourke Street ($42,662); (B) repair costs at No 16 Bourke Street ($126,498); (C) loss arising from the need to close the business on four occasions ($196,401); and (D) damages arising from loss of the business because of the need to close it down ($1,625,315). Alternatively, Barflys sought damages based on breach of the consistent condition obligation:
EB.Alternatively to A, C, and D, damages against the First and Second Respondents [the landlords of No 14 Bourke St] (see paragraph 42J).
EC. Alternatively to B, C, and D, damages against the Third Respondent [the landlord of No 16 Bourke St] (see paragraph 42N).[34]
[34]Emphasis added.
Orders were also sought that the landlords of No 14 Bourke Street pay Barflys the sum of $5,000 (arising from the urgent repairs obligation under the pre-2003 regime) and similarly with respect to the landlord of No 16 Bourke Street.[35]
(8) The Eighth Amended Points of Claim
[35]Based on [42A] and [42F].
On 19 January 2007 the Eighth Amended Points of Claim was filed at VCAT by Cain of Kligers. It bore Connor’s name. Barflys added a claim for compensation for loss of the business in the sum of $1,634,685 based on s 26 of the RTRA.[36] This alleged that the landlords had responsibilities as owners of the premises to comply with the Building Notices because the City of Melbourne was a public statutory body, or alternatively, a government department, and the landlords failed to comply after being notified of the Building Notices by Barflys’ solicitor in letters dated 12 and 28 November 2003. It was alleged that, as a result of those failures, Barflys was obliged to close down the business causing loss and damage.
(9) The Conference — 31 January 2007
[36]See [37] above.
A conference was held on 31 January 2007 at the offices of Kligers (‘the Conference’).[37] The Conference was attended by eight people: Hachem, his brother Joe Hachem, two of Hachem’s business advisors, Lou Gallo and Andrew Neophitou, an architect, George Batsakis, who was Hachem’s building advisor, Roger Rothfield, the supervising partner at Kligers, and Cain, as well as Connor. A compulsory conference at VCAT was imminent, being scheduled for 23 February 2007.[38]
[37]The judge noted that there was uncertainty about the date of the 2007 conference and the parties ultimately agreed it was held on 31 January 2007: Reasons [96].
[38]Reasons [276].
What was said at the Conference is in dispute. On the appeal, Kligers placed at the core of its submissions the dispute about what advice was given at the Conference. This is discussed further below.[39] Suffice it to say here that it was not in contest that at the Conference Kligers advised that the case against the landlords in the VCAT proceeding had been materially disadvantaged as a result of the amendments to s 25 of the RTRA made by the 2005 Act. The judge described this as ‘the RTRA Advice’[40] and noted that the giving of the RTRA Advice at the Conference was admitted by Kligers.[41] Cain also gave evidence, and the judge wholly accepted Cain’s evidence, that at the Conference he advised Hachem to think about settling the VCAT proceeding at the forthcoming compulsory conference on commercial terms.[42] The judge found that, at least by mid-March 2007, Cain advised Hachem that, in light of the RTRA Advice, he should settle the VCAT proceeding for an appropriate sum or on commercial terms.[43] The judge described this as the ‘Admitted Settlement Advice’,[44] it being admitted on the pleadings at trial.[45]
[39]See [136]–[144] below. See also [102] below.
[40]Reasons [24(a)].
[41]Reasons [74]. See [85] below.
[42]See [88] below.
[43]Reasons [122]–[123]. The Admitted Settlement Advice did not include any advice about using the proceeds of the VCAT proceeding to sue McMahon.
[44]Reasons [63]. See [88] below.
[45]See [83] below.
Amongst the issues in dispute before the judge about what was said at the Conference was the allegation by Barflys that Kligers advised Barflys to settle the VCAT proceeding and use the proceeds of the settlement to bring proceedings in negligence against Barflys’ former solicitor, McMahon. It was also disputed at trial whether Kligers advised that suing McMahon would yield a ‘windfall’ and that recovery against him might amount to $3 million, as McMahon was said to have professional indemnity insurance cover of about $5 million.
(10) Settlement of the VCAT proceeding
The VCAT proceeding did not settle at the compulsory conference on 23 February 2007. Cain and Rothfield then had a number of telephone conversations with Hachem in relation to reaching settlement, including in mid-March. Settlement was reached on or about 7 June 2007, after agreement in principle on the VCAT settlement sum from about early May 2007. Barflys settled the proceeding at VCAT against the landlords and the agent for $341,500 inclusive of costs.
Barflys thereafter instructed Kligers to issue proceedings against its former solicitor, McMahon, for negligence (‘the McMahon proceeding’). This appeared to relate principally to a failure by McMahon to tell Hachem that a notice under s 146 of the Property Law Act1958 asserting a right of re-entry of the landlord had been served by the landlord of No 16. On 18 November 2009, Kligers filed proceedings against McMahon in the County Court of Victoria. On 27 August 2013, Barflys settled the McMahon proceeding for $950,000, inclusive of costs. The costs of the McMahon proceeding were approximately $506,315. The net result was that Barflys recovered damages in the McMahon proceeding amounting to about $443,685.[46]
[46]Barflys alleged that it recovered, as the net result of the VCAT proceeding and the McMahon proceeding, $87,360.87 (that is, after costs in those two proceedings are subtracted). See [206] below.
The trial for negligent advice
Barflys sued Kligers for negligence and breach of retainer. In [8(a)] of its statement of claim Barflys pleaded that Rothfield and Cain of Kligers had advised that the legislative changes to s 25 of the RTRA effected by the 2005 Act meant that its ‘position against the landlords in the VCAT proceeding had been materially disadvantaged’ and ‘[i]n light thereof, that the Plaintiff should settle the VCAT proceeding and accept a settlement from [the landlords] on account of costs and in lieu of prosecuting the VCAT proceeding, pursue ... McMahon ... which was “where the real windfall lay” with the claim against McMahon being estimated by the Defendant at approximately $3 million’.[47]
[47]Emphasis added.
Barflys supported its allegation of negligence and breach of retainer with particulars in [12(ii)–(iii)] that specified that Kligers failed to advise with respect to the causes of action against the landlords alleging breaches of the leases that had accrued before the 2003 Act commenced (1 May 2003) and before the amendments to s 25 by the 2005 Act came into effect (1 November 2003), with the landlords’ obligations remaining as they had been pursuant to the terms of the leases. These included the obligations to repair ‘structural work’ and/or ‘structural imperfections’ and/or ‘defects of a serious nature’ (by virtue of cls 2(j) and 2(p) of the No 14 lease) and the obligation to repair damage caused by ‘flood’, ‘storm and tempests’ and ‘internal flood water’, as well as by implication ‘structural repairs’, (pursuant to cls 3.3.6(a) and (d); 6.2; 3.4.1; 6.1 of the No 16 lease and item 11 of the Schedule).[48] Barflys alleged that the contractual obligations were not detrimentally affected or at all by the amendments to the RTRA by the 2003 Act or the 2005 Act.
[48]See [16] and [18]–[21] above.
Barflys also alleged in [12] that Kligers had failed to advise that the legislative changes to s 25 of the RTRA had no effect on the claims against the agent. It further alleged that the McMahon proceeding was not where ‘the real windfall lay’ because McMahon had limited professional indemnity insurance and personal assets that were never likely to realise $3 million, and part of the claim against McMahon was based on the erroneous advice about the legislative amendments to s 25 that Kligers had given, and, in any event, did not give rise to negligence on behalf of McMahon.
Kligers’ further amended defence included the admission, in [8(a)], that it advised Barflys ‘that its position against the landlords in the VCAT proceeding had been materially disadvantaged as a result of retrospective legislative changes by reason that the landlords were only required to maintain the Premises in a ... condition consistent with the condition of the Premises when the Leases were entered into’.[49] They asserted, in [12] of the further amended defence, that this advice was correct. They also admitted, in [8(b)(i)], that in or around mid-March 2007, they advised Barflys that ‘by reason of the circumstances referred to in subparagraph 8(a) above and otherwise, it should attempt to settle the VCAT proceedings for an appropriate sum’. They also asserted, in [8(b)(ii)], that, on or about 14 March 2007, they had not been prepared to give advice ‘off the cuff’ as to whether a claim in negligence could be made out against McMahon.
[49]Emphasis added.
It was not part of Kligers’ further amended defence to allege that it assessed the causes of action based on breaches of express terms of the leases as weak or advised Barflys to settle the VCAT proceeding because of that assessment, even in part. It did not allege that it advised on the prospects of success of each of Barflys’ claims; in particular, it did not allege that it analysed and evaluated the prospects of the contractual causes of action and advised Barflys accordingly.
The judge’s Reasons
(1)Identifying the issues for determination
The judge approached Barflys’ case by identifying four categories of advice alleged by Barflys to have been given to it by Kligers at the Conference. The first category of advice was, as mentioned above,[50] ‘the RTRA Advice’ that Kligers admitted giving at the Conference,[51] namely that Kligers advised that Barflys’ case against the landlords in the VCAT proceeding had been materially disadvantaged as a result of the amendments to s 25 of the RTRA made by the 2005 Act. More specifically the judge defined the RTRA Advice as follows:
that the case against the plaintiff’s Landlords in the VCAT Proceeding had been materially disadvantaged as a result of the amendments to s 25 of the 1998 Act, which had previously required a Landlord to carry out repairs to retail premises and to maintain them in good repair; but post-amendment only required the Landlord to maintain retail premises in a condition consistent with the condition of the premises when the lease was entered into (‘the RTRA Advice’).[52]
[50]See [76] above.
[51]Reasons [74].
[52]Reasons [24(a)] (emphasis added).
It was conceded by Kligers on the appeal that the RTRA Advice was advice about the whole of the VCAT proceeding; namely, that the VCAT proceeding against the landlords in its entirety, including the contractual claims, had been materially disadvantaged by reason of the legislative amendments to s 25 of the RTRA.[53] In our view Kligers’ concession was appropriately made. This was consistent with the description given above that the RTRA Advice was about how Barflys’ ‘position against the landlords in the VCAT proceeding had been materially disadvantaged’ by reason of the statutory changes.[54] This was how it was alleged in [8(a)] of the statement of claim and admitted by Kligers in [8(a)] of the further amended defence.[55] It provided the basis of the advice that Barflys should attempt to settle the VCAT proceeding.[56]
[53]The Deed of Settlement makes it clear that all the claims in the proceeding were settled.
[54]See [80] above.
[55]See [80] and [83] above.
[56]See [76] above.
The judge also considered that similar advice had been given by Connor at an earlier initial conference at Kligers on 6 March 2006.[57] Cain took contemporaneous notes of this meeting to that effect. Cain gave evidence at trial, which the judge wholly accepted,[58] preferring his evidence over that given by Hachem who said he had not been told at the conference of 6 March 2006 that the changes to the legislation would materially disadvantage his case.[59] It was following this initial conference that Connor prepared the Connor advice.[60]
[57]Reasons [113].
[58]Reasons [134].
[59]The general findings the judge made on credibility are discussed at [107]–[114] below.
[60]See [62]–[65] above.The judge also found that at a ‘lengthy’ conference some two weeks after the initial conference, on 21 March 2006, Hachem was again ‘specifically apprised of the effect of the recent changes to the retail tenancies legislation and the negative effect that those changes were likely to have on [Barflys’] current claims at VCAT’: Reasons [232].
The second category of advice alleged was what the judge described as ‘the Settlement Advice’, which was that ‘in light of the [RTRA Advice, Barflys] should settle the VCAT Proceeding, accepting such settlement money on account of costs’.[61] The judge was not satisfied that Kligers had advised Barflys to accept a settlement comprising its costs alone. At one point in the reasons the judge accepted the evidence of Cain that at the Conference he advised Hachem to think about settling the VCAT proceeding at the forthcoming compulsory conference on commercial terms.[62] Cain’s evidence was to the following effect:
I emphasised that the compulsory conference was the first time since my firm had been on the record that there had been an opportunity to try and settle this proceeding. There had been no prior attempt to settle it, at least since my firm was on the record. I identified that in addition to — in addition to Mr Connor’s observations regarding certain aspects of the case, I reminded Mr Hachem about the fact that even though the agent had successfully applied for and obtained security for costs, if the matter did not settle, there was a risk that the application threatened by one of the landlords would manifest and in all likelihood there would be a further application made by that same agent for further security if the matter did not settle at the compulsory conference, which is what usually occurs.
[61]Reasons [24(b)].
[62]Reasons [122]–[123].
However, later in the Reasons the judge held that the advice to settle ‘for an appropriate sum’ was given in mid-March 2007.[63] He ultimately found that the advice on settlement Kligers gave was the advice that, by reason of the effect of the legislative amendments on Barflys’ position against the landlords at VCAT, Barflys should attempt to settle the VCAT proceeding ‘for an appropriate sum’.[64] The RTRA Advice provided the basis upon which the Admitted Settlement Advice was given. In the context of his summary of his findings on evidence, the judge said: ‘I am satisfied that in mid-March 2007 the defendant advised the plaintiff that as a result of the RTRA Advice the plaintiff should attempt to settle the VCAT Proceeding for an appropriate sum.’[65]
[63]Reasons [274].
[64]In [8(b)(i))] of the further amended defence Kligers said: ‘they advised the Plaintiff that, by reason of the circumstances referred to in subparagraph 8(a) above and otherwise, it should attempt to settle the VCAT proceedings for an appropriate sum’. See [83] above. The ‘and otherwise’ appears to refer to the risk of another security for costs application being brought. See [88] above and [110] below.
[65]Reasons [274] (emphasis added).
The third category of advice alleged was defined as ‘the McMahon Advice’:
that instead of continuing the VCAT Proceeding, the plaintiff should pursue its former solicitor, McMahon, who had acted in the plaintiff’s disputes against the Landlords and their Agent from about September 2003 until about November 2004 and that the settlement moneys received in respect of the VCAT Proceeding could be applied to prosecute the case against McMahon.[66]
[66]Reasons [24(c)].
The judge found that Kligers did not give Barflys the McMahon Advice.[67]
[67]Reasons [111].
The fourth category of advice alleged was described as ‘the Windfall Recovery Advice’, namely, ‘that a claim against McMahon was “where the real windfall lay” with a claim estimated by the defendant to be approximately $3 million’.[68] The judge found that Kligers did not give Barflys the Windfall Recovery Advice.[69]
[68]Reasons [24(d)].
[69]Reasons [111].
In the judge’s view there were three main issues for determination:
(1) Was Kligers negligent, as assessed by reference to a qualified, competent and careful lawyer in the circumstances in the practice of his or her profession?
(2) If Kligers was negligent, did its negligent conduct cause Barflys to suffer loss or damage?
(3) If Kligers’ negligence caused loss or damage, what is the quantum of the loss or damage suffered by Barflys?[70]
(2)Findings about the RTRA Advice — no negligence
[70]Reasons [66].
The judge found that Kligers did not breach its retainer, and was not negligent, by giving Barflys the RTRA Advice.[71]
[71]Reasons [75].
The principal basis for his conclusion was that, as he expressed it, he considered that the RTRA Advice was ‘substantially correct’.[72] He also said, at [92] of the Reasons, that the RTRA Advice ‘was correct, or at least arguably correct’.[73] He qualified this by saying that he had ‘not … sought to make findings or statements which decide the proper construction or operation of the subject provisions or Acts of Parliament’.[74] He said, at [87]–[88] of the Reasons:
In the result, the defendant was, I consider, substantially correct in advising the plaintiff in about March 2006 and at the Conference, that the plaintiff’s position against the Landlords in the VCAT Proceeding had been materially disadvantaged by the legislative changes outlined above. Accordingly, I am not persuaded that the defendant was in any way careless of, or lacking in skill or diligence, in giving the RTRA Advice.
I therefore reject the plaintiff’s claim that in giving the RTRA Advice relied on by the plaintiff in paragraph [8(a)] of its Statement of Claim, the defendant was negligent in that regard, and in breach of its retainer by the plaintiff.[75]
[72]Reasons [87].
[73]Reasons [92].
[74]Reasons [91].
[75]These are challenged in ground 3(a) of the grounds of appeal.
He held that VCAT was likely to have assessed Barflys’ claims against the landlords by reference to the reduced standard reflected by the ‘consistent condition’ obligation.[76] Importantly, he considered that the legislative change to s 25 of the RTRA adversely impacted upon ‘the bulk of the plaintiff’s prime claims at VCAT’.[77] He said:
[I]n my view the materially detrimental effect of the above legislative amendment on the plaintiff’s case at VCAT was probable, and at the very least arguable, and materially disadvantaged and rendered doubtful the bulk of the plaintiff’s prime claims at VCAT.[78]
[76]Reasons [76(k)].
[77]Reasons [77].
[78]Reasons [77] (emphasis added).
To similar effect, he later described the Connor advice as addressing ‘the main and most significant claims the plaintiff was at that time pursuing at VCAT’.[79]
[79]Reasons [300] (emphasis added).
The judge considered, based upon a report prepared by Mr Nigel Rockliffe (‘Rockliffe’) (‘the Rockliffe report’), that the bulk of Barflys’ loss and damage had occurred after 15 April 2003, the date the ‘consistent condition’ obligation arguably took effect. He concluded, at [79] of the Reasons, that the ‘reduction of the Landlords’ obligation likely resulted in an attendant reduction on the value of the plaintiff’s claim because the bulk of the relevant plaintiff’s claim at VCAT and associated loss and damages arose, or at least arguably so, after 15 April 2003’.[80] He repeated this conclusion at [81] of the Reasons, holding that the 2005 Act had the effect that ‘the bulk’ of Barflys’ claims against the landlords were ‘to be evaluated by reference to a materially lower ... standard’. In doing so, he clearly treated the claims based on statutorily implied terms as Barflys’ principal claims against the landlords. He said:
The impact of the legislative changes on the plaintiff’s case at VCAT was that the bulk of the claims brought against the Landlords for loss and damage caused as a result of the Premises being subject to water ingress, rising damp and similar problems, were claims which arose after the effective date of the amendments to the 1998 Act (by reason of the 2005 Act), that is probably from mid-April 2003. Such claims were probably therefore to be evaluated by reference to a materially lower or diminished standard from a good repair obligation earlier imposed upon the Landlord, namely an obligation to repair the Premises to a condition consistent with the condition of the Premises at the time of entry into the relevant lease.[81]
[80]This is challenged in ground 2(b).
[81]Emphasis added. This is challenged in ground 2(c).
The same conclusion was reiterated at [85] of the Reasons:
Ultimately, the … changes to the retail tenancies legislation probably effected a materially reduced standard of Landlords’ obligation from 15 April 2003. This also probably resulted in the plaintiff’s prime and principal claim, that is its claims against the Landlords at VCAT, being at least materially disadvantaged as a result of those legislative changes.[82]
[82]Emphasis added. This is challenged in ground 2(d).
He rejected, at [310] of the Reasons, what he took to be Barflys’ submission that when its VCAT proceeding commenced [November 2003] it was ‘entitled to have its claims determined by reference to [the] “good repair” obligation, namely the repair obligation contained in s 25 of the 1998 Act’.[83]
[83]This is challenged in ground 1(b) as a mischaracterisation of Barflys’ case.
The judge did not engage in an assessment of the prospects of success of the claims based upon breaches of the express terms of the leases. Nor did he evaluate the strength of those contractual causes of action by comparison with the causes of action based on the statutorily implied terms. Despite not undertaking that comparison, he treated the latter claims, as mentioned, as the ‘bulk of the plaintiff’s prime claims’, the ‘main and most significant claims’.[84] He observed, at [86] of the Reasons, that ‘most of the plaintiff’s loss and damage claimed against the Landlords in relation to the Premises … was unrecoverable against the Landlords at VCAT’.[85] This was because the ‘bulk of the events causing the plaintiff’s loss and damage claimed at VCAT, and the loss and damage itself, had arisen after 15 April 2003’.[86] He also said, tangentially, that it was probable, and therefore at least arguable, that the changes to the retail tenancies legislation would ‘cut across what might otherwise have been the plaintiff’s accrued rights in relation to its lease related causes of action (if any) against the Landlords, in respect of events and loss and damage in relation to the Premises’ repair associated obligations, after 15 April 2003’.[87] He also acknowledged, when concluding that it was impossible for him to evaluate Barflys’ prospects of success at VCAT, that Barflys faced ‘complexities, uncertainties and risks associated with the proper construction and effect of the various clauses of the Leases’ in a context in which the landlords relied on various terms of the leases in their defence.[88]
[84]Emphasis added. See [96]–[98] above.
[85]This is challenged in ground 2(e).
[86]Reasons [86].
[87]Reasons [86].
[88]Reasons [319(j)].
The judge found that the RTRA Advice did not deal specifically with the interpretation or effect of the clauses of the leases.[89] This is a significant finding given the position taken by Kligers on the appeal.[90] However, he held that there was no negligence in the failure by Kligers to advise on the prospects of success of the causes of actions based on breaches of the covenants under the leases.
[89]Reasons [303]. See [103] below.
[90]See [139]–[140] below.
He held, at [301]–[302] of the Reasons,[91] that Cain carefully considered the Connor advice and therefore that the RTRA Advice was of ‘the standard expected of a reasonably competent Australian lawyer’.[92] This was despite the RTRA Advice expressing an opinion about the entirety of the prospects of success of the VCAT proceeding against the landlords while failing to evaluate or assess the claims based on breach of covenants under the leases. He said:
[T]he Connor Advice did provide relevant advice as to the main and most significant claims the plaintiff was at that time pursuing at VCAT, and the Advice constituted clear unequivocal advice at that time to the plaintiff that its claims against the Landlords were materially disadvantaged.
I also find the defendant had, principally via Cain, carefully considered the legislative amendment issues upon which the advice the defendant did give at the Conference was based, including seeking and considering the Advice of Counsel on those issues and after seeking and considering Hachem’s instructions and ensuring that Hachem was acquainted with the defendant’s advice and Connor’s Advice on those issues.
In my view, the advice provided by the defendant at the Conference, namely the RTRA Advice, reflected the standard expected of a reasonably competent Australian lawyer. The defendant’s advice in that regard at the Conference exhibited a sufficient knowledge, analysis and understanding of the matters the subject of the defendant’s advice to the plaintiff.
In my view, the RTRA Advice in relation to which the plaintiff alleges a want of due care, skill and diligence by the defendant was not lacking in due care, skill or diligence in that it did not specifically deal with the plaintiff’s claims against the Agent and the construction and effect of certain other clauses of the Leases.[93]
[91]These are challenged in ground 4.
[92]Reasons [302].
[93]Reasons [300]–[303] (emphasis added).
The judge’s conclusion that the RTRA Advice was not negligent in failing to deal specifically with the causes of action based on covenants under the leases because, in the judge’s view, it nevertheless dealt with what he took to be the main and most significant claims, incorporates a positive finding that the RTRA Advice did not deal with the construction and effect of the covenants under the leases. In other words, the judge found that the RTRA Advice did not contain a review of all of the causes of action against the landlords in the VCAT proceeding. This finding is relevant when assessing Kligers’ submissions on the appeal.[94]
[94]See [136]–[144] below.
The judge had earlier observed (at [89] of the Reasons) that he did not consider Kligers to have been negligent in the ways particularised by Barflys in [12(ii)–(iii)] of its statement of claim, namely in the failure to advise on the allegations that the landlords had breached their obligations under the leases to carry our structural works or repair structural defects of a serious nature, and so on:[95] ‘Neither, in my view, was the defendant in any way negligent in failing to give advice in the ways alleged by the plaintiff in paragraphs [12(ii)–(iii)] of its Statement of Claim.’[96]
[200][2015] NSWCA 186 (Beazley P, Meagher and Ward JJA).
[201][2015] NSWCA 186 [21].
In our view, the approach of the judge was in error. He wrongly concentrated on the date on which the bulk of the loss and damage was suffered rather than the date of the contractual breach. This provided an ostensible coincidence of timing between the contractual causes of action and those based on terms implied by statute which appears to have supported the judge’s misconception that the contractual causes of action could be ignored because they had been superseded, or subsumed, by the statutory causes of action. It led him to the erroneous view that the ‘materially detrimental effect of the … [2005] legislative amendments on the plaintiff’s case at VCAT’ probably meant that it ‘rendered doubtful the bulk of the plaintiff’s prime claims at VCAT’.[202]
(4) Did the judge wrongly conclude that the RTRA Advice was not negligent?
[202]See [96] above.
In its written case, Kligers submitted that, even if, hypothetically, the judge had found that Barflys’ contractual causes of action were its prime and principal claim against the landlords and that they were unaffected by the RTRA amendments, the advice given by Kligers was not negligent because it would still be correct to say Barflys’ VCAT case had been ‘materially disadvantaged’. It was sufficient for a conclusion of ‘material disadvantage’ that some only of Barfly’s claims had been weakened by the amendments. In its written case, Kligers submitted:
Proceedings are ‘materially disadvantaged’ when the prospects of only some, but not all, of the causes of action pursued in those proceedings are reduced. That is, it was open to the trial Judge to find that, regardless of the way in which legislative amendments impacted on some causes of action, the fact that legislative amendments impacted on one or more of the causes of action that the [plaintiff] had been pursuing in VCAT (or could have pursued in VCAT) meant that legal advice that ‘the case against the plaintiff’s Landlords in the VCAT Proceeding had been materially disadvantaged’ was not negligent.[203]
[203]Emphasis in original.
However, in our view, an adverse impact upon only some of Barflys’ claims, but not the principal claims, could hardly be described as a ‘material’ disadvantage to the entire VCAT proceeding. Nor could it support a recommendation to compromise the entire VCAT proceeding.
Moreover, Kligers’ written submission is at odds with the approach of the judge. He clearly attributed differential weight to the causes of action based on the statutorily implied terms, as mentioned, describing the breach of terms implied by statute as the ‘bulk of [Barflys’] prime claims’.[204] He considered that Kligers’ advice was correct because he accepted that the principal claims relied on by Barflys had been adversely affected. However, as mentioned, he did this without engaging in any comparison or evaluation of the various causes of action in the VCAT proceeding.[205] It was conceded on the appeal by senior counsel for Kligers, quite appropriately in our view, that before the conclusion could be properly reached that the legislative amendments had materially disadvantaged the VCAT proceeding, it would be necessary to undertake a comparative analysis of the claims based on statute and the contractual causes of action. It was also conceded, again quite appropriately, that the judge did not undertake that comparison. We reject the proposition that the advice Kligers gave was not negligent because some of Barflys’ causes of action were less viable because of the legislative amendments.
[204]See [96] and [98]–[99] above.
[205]See [101], [152] above.
In our view, it was the combination of the errors already identified that led the judge, wrongly, to conclude that the RTRA Advice was not negligent. We consider that the RTRA Advice was negligent and the judge should have found that to be so.
It is important to emphasise that the RTRA Advice had multiple features. The first feature is that it drew on the Connor advice. As noted, the Connor advice, headed ‘Breach of Statutory Obligation Claim’,[206] was confined to the effect of the legislative amendments on those claims Barflys brought at VCAT that related to the breach of terms implied by statute. It did not involve an assessment of the effect of the legislative amendments on the contractual causes of action.[207] The conclusion that the legislative amendments had an adverse impact on the VCAT proceeding was confined to the impact on the breach of the statutory obligation claims. There was no impact on the contractual causes of action, as Connor accepted in cross examination,[208] and which Connor accepted as a conclusion he had arrived at when preparing the Connor advice.[209]
[206]See [54] above.
[207]See [67] above.
[208]See [166] above.
[209]See [164] above. As mentioned, Connor said: ‘They [the causes of action based on breaches of covenants under the leases] sit together [with the causes of action based on terms implied by statute]. ... They [the causes of action based on breaches of covenants under the leases] were not changed. Had I seen a reason, I would have changed it.’
The second feature of the RTRA Advice was that it was considerably more expanded in scope than the Connor advice. The RTRA Advice was that ‘the case against the landlords in the VCAT proceeding’ had been materially disadvantaged as a result of the amendments to s 25 of the RTRA made by the 2005 Act. Kligers admitted giving the RTRA Advice.[210] The RTRA Advice thus drew upon the legislative amendments to s 25 of the RTRA to support the inference that Barflys’ entire case at VCAT had been materially disadvantaged. This was so despite Connor recognising that the legislative amendments left the contractual causes of action unaffected. The unjustified expansion of the assessment of the impact of the legislative amendments to the entirety of Barflys’ case against the landlords in circumstances in which Kligers provided no evaluation to Barflys of the contractual causes of action,[211] in our view, fell well below the standard of a reasonably competent lawyer and lacked reasonable care, skill and diligence on the part of Kligers.
[210]See [76] above.
[211]See [104], [141] above.
The third feature of the RTRA Advice was that it provided the basis upon which the recommendation was made for Barflys to settle the VCAT proceeding. This was the ‘Admitted Settlement Advice’, the advice that ‘in light of the [RTRA Advice, Barflys] should settle the VCAT Proceeding’.[212] The recommendation to settle the VCAT proceeding because of the RTRA Advice exacerbated the flaws in the RTRA Advice. The negligence of Kligers in giving the RTRA Advice, in failing to conduct itself in accordance with the standard of a reasonably competent lawyer, flowed through to the advice Kligers gave to settle. The defects in the RTRA Advice were repeated in the Admitted Settlement Advice because that was premised upon the accuracy of the RTRA Advice. The Admitted Settlement Advice thus fell below the standard to be expected of a reasonably competent lawyer.
[212]Reasons [24(b)], [63]. See [88] above.
In summary, we consider that the RTRA Advice was negligent because it expressed a conclusion about the prospects of success of Barflys’ VCAT proceeding without evaluating the merits of the contractual causes of action. The judge fell into error by failing to recognise that the RTRA Advice unjustifiably expanded the adverse impact of the legislative amendments.
It is noteworthy that Kligers’ defence at trial was that the RTRA Advice was correct. It did not plead or argue that it was not negligent even if the advice was incorrect. Given that Kligers took that approach, it is curious that the judge considered that it was sufficient for Kligers to avoid a finding of negligence if its advice was ‘substantially correct’.[213] While on one occasion he expressed the conclusion that the advice was ‘correct’ he qualified that by saying ‘or at least arguably correct’.[214]
[213]Reasons [87]. See [95] above.
[214]Reasons [92]. See also Reasons [304]. See [95] above.
Kligers submits that it is significant that the judge did not find that the RTRA Advice was incorrect in any material particular. Indeed, he stated that he was not satisfied that the advice was incorrect. He said: ‘Neither am I satisfied … that the defendant gave any advice to the plaintiff in relation to its VCAT Proceeding which was incorrect or in any respect lacking in care, skill or diligence.’[215]
[215]Reasons [281] (emphasis added).
However, there is a distinction between advice not being incorrect and that advice being correct (advice that is not incorrect may still be not appropriately qualified, not address the principal issue, etc). The tentative language used by the judge might suggest that he had not reached the view, on the balance of probabilities, that the advice was correct. This doubt was reinforced by the judge’s statement that he had not sought to make findings which decided the proper construction or operation of the relevant legislation.[216] Given Kligers’ defence that its advice was correct, we consider that the judge ought to have clarified the conclusion he reached and why he reached it.
[216]Reasons [91].
One cannot draw a simple conclusion that any legal advice that is incorrect will thereby be negligent; everything will depend on the circumstances in which the advice was given, the instructions taken, the degree of reasonable argument about, say, the application of a principle of law that may be uncertain. An advice which is ultimately proved to be incorrect may yet accurately reflect the understanding of legal principle to that date. There is no readily available inference from the incorrect nature of legal advice to the negligence of the lawyer.
However, here, the negligence lies not so much in the RTRA Advice being incorrect, as such, but rather in the breach of standards of a reasonably competent lawyer that occurred in Kligers advising that an entire proceeding would be materially disadvantaged by reason of the adverse impact of legislative amendments on one cause of action while failing to provide any proper evaluation of the merits of alternative causes of action in that proceeding. This is how Barflys, in this Court, characterised what it submitted was the negligence of Kligers and it is a characterisation with which we agree.
In our view, grounds 1–5 are made out.
Did the judge err in finding no reliance? (Ground 6)
Barflys submits that it did rely on the RTRA Advice when deciding to settle the VCAT proceeding, and the judge’s finding that Hachem ‘took control’ of the settlement process does not mean that Barflys did not rely on it. Cain gave evidence, which the judge accepted, that he advised Hachem to settle the proceeding on commercial terms:[217] ‘I advised Mr Hachem that he should settle this case on commercial terms acceptable to him at the compulsory conference.’[218]
[217]Reasons [122]–[123].
[218]The phrase ‘commercial terms’ is sometimes used interchangeably with ‘an appropriate sum’ as it is in the Admitted Settlement Advice: see [89] above.
Barflys submits, further, that Kligers did not plead or argue at trial that Barflys did not rely on the RTRA Advice in deciding to settle the VCAT proceeding. There was no basis in the evidence for the judge to make a finding of fact that Barflys did not rely on the RTRA Advice; the only evidence on the point was given by Hachem to the effect that he relied on Kligers’ advice in deciding to settle. There was no other relevant evidence given at trial.
Kligers submits, in response, that Barflys has not established why it was not open to the judge to conclude that Hachem did not rely on any advice given by Cain or Rothfield at the Conference, but instead relied on his own judgment when deciding on an amount that was commercially acceptable for Barflys. Kligers points to the judge’s findings that Barflys did not seek any advice from Kligers about an appropriate settlement sum. In any event, it was Barflys that carried the onus of proving reliance.
In finding that Hachem controlled the settlement process, including the substance and timing of the settlement negotiations, the judge rejected Hachem’s evidence and relied heavily on his adverse findings about Hachem’s credibility.[219] Kligers submits that, given these adverse findings, the claim by Barflys that the judge erred in rejecting its evidence about reliance, given through Hachem, is misconceived.
[219]See [113]–[114] above.
Kligers submits that the adverse findings on credit are important here because Hachem’s evidence that he relied on Kligers’ advice had two aspects: (1) that Barflys’ case against the landlords had been weakened; and (2) that Barflys’ case against McMahon would be strong. Kligers submits that this is the second factual matter that is determinative of the appeal.[220] It submits that the judge’s strong adverse findings about Hachem in general, and his particular rejection of the allegation that at the Conference Kligers gave advice about the prospects of success of the proceeding against McMahon, preclude any potential for an inference to be drawn that Hachem relied on Kligers’ advice that Barflys’ case against the landlords had been weakened in settling the VCAT proceeding. Kligers submits that the two aspects of Hachem’s alleged reliance cannot be unravelled.
[220]See [134] above.
We disagree.
In our view, the inference drawn by the judge that Hachem did not rely, in deciding to settle the VCAT proceeding, on the advice given by Kligers at the Conference that Barflys’ case against the landlords had been materially disadvantaged by reason of the legislative amendments to the RTRA,[221] is untenable. Kligers has admitted giving the RTRA Advice at the Conference. Kligers has admitted that it advised Hachem that, in light of the RTRA Advice, it should attempt to settle the VCAT proceeding.[222] Hachem gave evidence that he relied on Kligers’ advice in deciding to settle. Hachem proceeded to settle the VCAT proceeding, a process in which Kligers remained involved. In the absence of any conflicting evidence, it is a natural and inevitable inference that Barflys relied on the RTRA Advice, and the Admitted Settlement Advice, when compromising the VCAT proceeding.
[221]Reasons [280], [282], [283]. See [121]–[122] above.
[222]See [88]–[89] above.
The assumption by Hachem of control of the practical process of settling the VCAT proceeding, including the identification of a settlement sum that was acceptable to him, does not preclude reliance. To establish reliance there is no requirement that, relevantly, legal advice must be the sole basis upon which a client acts. Reliance need not be exclusive. As Gaudron J observed in Henville v Walker:[223] ‘For the purpose of the law of negligence, where two or more events combine to bring about the result in question, the issue of causation is resolved on the basis that an act is legally causative if it materially contributes to that result.’[224]
[223](2001) 206 CLR 459.
[224]Henville v Walker (2001) 206 CLR 459, 480 [60], referring to Gould v Vaggelas (1984) 157 CLR 215. See also Sidhu v Van Dyke (2014) 251 CLR 505, 524 [66].
Here it was sufficient that the RTRA Advice, given in the context of the Admitted Settlement Advice, was one of the factors that materially contributed to Hachem deciding to settle the VCAT proceeding. In our view it is clear that the RTRA Advice was one of the factors that materially contributed to the decision to settle the VCAT proceeding. We consider that Hachem relied on the RTRA Advice in deciding to settle the VCAT proceeding. For these purposes, it is irrelevant that another material factor was that Hachem may have independently formed the view that Barflys had a strong case against McMahon and that was where the real money lay.
We reject the view that it is impossible to unravel the two aspects of the advice that Hachem said he relied upon. The judge carefully distinguished between the different features of the advice Kligers gave and he paid close attention to whether certain features were established on the whole of the evidence (the RTRA Advice and the Admitted Settlement Advice) while other features (the McMahon Advice and the Windfall Recovery Advice) were not.[225] The evidence that Hachem did rely on advice that the judge found was given (and, in respect of both the RTRA Advice and the Admitted Settlement Advice, indisputably given) was consistent with the inference ordinarily available in those circumstances.
[225]See [85], [88]–[92] above.
It would be unusual and counter-intuitive to infer that a lay client did not rely on legal advice given by his or her lawyer when the client acted in accordance with the advice admitted to have been given by the lawyer. This was not an issue that depended upon, or called for, an extensive evaluation of Hachem’s credibility. Insofar as the inference made by the judge that Hachem did not rely on the RTRA Advice was based upon his assessment of Hachem’s credibility, we consider that the inference drawn was, after making due allowance for the advantages enjoyed by judge, glaringly improbable.[226]
[226]Robinson Helicopter Co Inc v McDermott (2016) 331 ALR 550, 558–9 [43]; Bauer Media Pty Ltd v Wilson [No 2] (2018) 56 VR 674, 735–9 [265]–[287]; Braham Investments Pty Ltd v Wantrup [2018] VSCA 291 [10]–[12].
We would uphold ground 6.
Should the judge have evaluated Barflys’ prospects of success at VCAT? (Ground 7)
Barflys submits that although the judge found that Kligers was not negligent, he ought to have gone on to say that, in the event that he might be wrong in that conclusion, it was necessary for him to quantify the value of Barflys’ loss of opportunity to pursue the VCAT proceeding. This in turn would require determining only if there was a ‘real’ or ‘substantial’ chance that Barflys would have succeeded in the VCAT proceeding. In carrying out that exercise, Barflys submits, the judge would have been entitled to adopt a ‘broad brush’ approach without attempting to carry out a complete trial of the VCAT proceeding, and was not required to evaluate the competing positions of the parties or assess the likely outcomes.
Kligers submits that a ‘broad brush’ approach would be insufficient. The onus lay on Barflys to prove what it would have lost by reason of the alleged negligence, and this necessitated a ‘trial within a trial’ in order to evaluate that loss. Kligers claims that Barflys led no evidence at trial that established that its loss had a value that would have exceeded the combined amounts of the VCAT settlement ($341,500) and the settlement of the McMahon proceeding ($950,000).[227] The judge therefore was not in a position to conduct the necessary ‘trial within a trial’ to find that Barflys had suffered any loss or damage.
[227]Barflys submitted that its net receipt from the VCAT proceeding and the McMahon proceeding was $87,360.87. See [206] below.
In Johnson v Perez[228] the High Court considered what approach should be taken to the assessment of damages for loss of a chance where a plaintiff sues their solicitor for losing the benefit of a proceeding that might have been brought successfully. The Court held that where, by reason of a solicitor’s negligent advice, a plaintiff has lost a claim which it is plain would have succeeded had it proceeded, the plaintiff may recover the full amount of damages lost by the failure to bring the original action. The plaintiff is to be compensated for the loss of a chance to recover on the cause of action. Conversely, where it is clear that a plaintiff never had a cause of action, then nothing can be recovered save for nominal damages.[229] However, where there is some degree of doubt that a plaintiff would have succeeded in the original claim, the court is obliged to engage in an assessment of the value of that action as best it can, even where that exercise is not easy to perform. The Court referred to the well-known statement of Lord Evershed in Kitchen v Royal Air Force Association[230] that it is the duty of a court to determine that value:
In my judgment, what the court has to do (assuming that the plaintiff has established negligence) in such a case as the present, is to determine what the plaintiff has by that negligence lost. The question is, has the plaintiff lost some right of value, some chose in action of reality and substance? In such a case, it may be that its value is not easy to determine, but it is the duty of the court to determine that value as best it can.[231]
[228](1988) 166 CLR 351.
[229]Johnson v Perez (1988) 166 CLR 351, 364, 372. See also Rosa v Galbally & O’Bryan (2013) 42 VR 382, 403 [89].
[230]Kitchen v Royal Air Force Association [1958] 1 WLR 563 (‘Kitchen’).
[231]Kitchen [1958] 1 WLR 563, 575.
The High Court set out the principle to be applied to the valuation of the loss of the chose in action — namely, that the value of what is lost is dependent upon a combined dual evaluation of: (1) the prospects of success on liability; and (2) the award of damages which would have been obtained in the damages trial.[232]
[232]Johnson v Perez (1988) 166 CLR 351, 364. See also Rosa v Galbally & O’Bryan (2013) 42 VR 382, 403 [88], 404 [92].
In determining the value of the loss, a court must compare the plaintiff’s actual position with the position they would have been in but for the solicitor’s negligence, and make a dollar assessment of the amount of damages needed to place the plaintiff in that position. This may in some circumstances necessitate the court conducting ‘a trial within a trial’.[233] However, to say that ‘a trial within a trial’ may be needed is not to deny that, in some circumstances, a ‘broad brush’ approach may be sufficient. As Wilson, Toohey and Gaudron JJ recognised in Johnson v Perez, given that the court is necessarily undertaking a hypothetical exercise, the:
process of assessment may well require a broad brush approach in determining when, in the absence of negligence, the action would have come to trial and the evidence bearing on the quantum of damages that would or should have been available for tender to the court. [234]
[233]Johnson v Perez (1988) 166 CLR 351, 371. See also Rosa v Galbally & O’Bryan (2013) 42 VR 382, 413–4 [132].
[234]Johnson v Perez (1988) 166 CLR 351, 367.
We consider that Kligers is correct in the submission that it would have been necessary for the judge, in order to evaluate the loss arising from Kligers’ negligence, to have had regard to the competing positions of the parties in the VCAT proceeding and the likely outcome of that proceeding had it continued to judgment. Nevertheless, we consider the judge could have done so by applying a broad brush approach on the understanding that the court is necessarily carrying out a hypothetical exercise.
The judge concluded that it was impossible for him to have made an assessment of the prospects of success for Barflys at VCAT.[235] One of the reasons he gave for that conclusion was that there would have been an exchange of expert evidence before the VCAT proceeding was heard and this had not been completed by mid-2007 when the proceeding was settled. However, in the evaluation of the loss Barflys suffered by reason of Kligers’ negligence, the judge ought to have considered the competing evidence not by reference to the date the VCAT proceeding settled but rather to a date, hypothetically, when judgment would have been entered after the matter at VCAT had been heard. The broad-brush approach allows for a general consideration of what the state of evidence would have been at the hypothetical hearing.
[235]Reasons [319]–[320]. See [124]–[130] above.
On the appeal, senior counsel for Barflys informed this Court that at the trial the judge had received written expert reports on quantum. In addition, the judge heard evidence in relation to the quantum of Barflys’ loss from Rockliffe on behalf of Barflys, as well as from two independent accounting experts, one for each party, who gave concurrent evidence by way of a conclave before the judge. The experts were asked questions by counsel for each party and were also questioned by the judge. The Reasons make no mention of the conclave or of this expert evidence, which no doubt would have been of assistance in arriving at an appropriate evaluation of the loss suffered by reason of Kligers’ negligence.
The judge also had before him an exhibit submitted by Barflys which showed the net position of Barflys after the VCAT proceeding and the McMahon proceeding to be $87,360.87 (that is, after costs in those two proceedings are subtracted). In addition, he had building inspection reports relied upon by Hachem.
In our view, while there would have been difficulties for the judge in evaluating the prospects of success of the VCAT proceeding, the difficulties were not insuperable, as the judge found. The difficulties were inherent in the task of evaluating the loss of a chance of recovery in a proceeding arising from a solicitor’s negligence. Both parties ought to have been invited to give an overall indication of their respective positions. The parties ought to have been invited to make their competing submissions on the proper construction and effect of the relevant provisions of the leases and to have made submissions on all the other claims, including the claim for compensation under s 26 of the RTRA, the claims against the agent and the claim, included in the Seventh and Eighth Amended Points of Claim, of a breach of the implied term to keep the premises in a condition consistent with its state at the time Barflys entered into the leases.[236] The expert evidence on quantum relied upon by each party ought to have been properly evaluated.
[236]See [150] and [159] above.
It would also have been necessary for the judge to be mindful that the damages to be awarded ought be equal to the claim. As was observed in Rosa v Galbally & O’Bryan [No 2]:
The value of the loss of a chance, while it calls for a ‘broad brush’ approach to the elements making up the valuation, does not require an inevitable application of an arbitrary discount once the elements of the valuation have been identified. To require such a discount in every case could be to misstate the value of the chance lost. Indeed, such a requirement might have the effect of precluding the value of a claim, once lost, ever being equal to the claim.[237]
[237](2013) 42 VR 382, 424 [30].
In our view, the judge was wrong to conclude that it was not possible to sufficiently, accurately, or safely evaluate Barflys’ success at VCAT. We would uphold ground 7.
Conclusion and disposition
We would grant leave to appeal and allow the appeal.
We consider that Kligers was negligent in advising Barflys that, by reason of the legislative amendments to s 25 of the RTRA by the 2005 Act, its ‘case’ against the landlords in the VCAT proceeding had been materially disadvantaged and, in light of those legislative amendments, Barflys should attempt to settle the VCAT proceeding. Furthermore, we consider that Barflys relied on that advice in settling the VCAT proceeding.
We would remit the matter to the Trial Division for the issue of the damages flowing from Kligers’ negligence to be assessed according to law. That assessment will require the hearing and determination of: (1) the prospects of Barflys’ success on liability at the VCAT proceeding; and (2) the award of damages which would have been obtained had the VCAT proceeding continued to judgment.
In the circumstances where there have been such sharp conclusions on credit expressed in the Reasons about each party’s witnesses,[238] the remittal should be conducted by a different judge.
[238]See [107]–[114] above.
The remitter will require the remitter judge to engage in the ‘broad brush’ approach we have described above on the understanding that the court is necessarily carrying out a hypothetical exercise.[239]
[239]See [203]–[208] above. See also [159] above.
The parties will need to address, in general terms, what the prospects of success would have been on the issue of liability. It will be a matter for the remitter judge, after hearing the parties, to determine what evidence should form the subject-matter of the remitter hearing, including, for example, the building inspection reports and reports from structural experts that were before the judge.
With respect to the expert evidence on quantum, this Court was told by senior counsel for both parties that they seek no further opportunity to put on expert evidence. Given the protracted nature of this proceeding, and given the availability of the transcript of expert evidence about which the judge made no observations, the evidence before the remitter judge with respect to the quantum of loss that would have been established had the VCAT proceeding continued to judgment should be confined to the transcript of the evidence of the expert witnesses, together with the expert reports the parties relied upon before the judge.
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