Blakes (a firm) v Berrivale Orchards Ltd
[1996] QCA 368
•4/10/1996
IN THE COURT OF APPEAL
| SUPREME COURT OF QUEENSLAND | Appeal No. 221 of 1995 |
| Brisbane | |
| [Blakes v. Berrivale Orchards Ltd] | |
| BETWEEN: |
BLAKES (a firm)
(Defendant) Appellant
- and -
BERRIVALE ORCHARDS LIMITED
(Plaintiff) Respondent
FITZGERALD P.
DAVIES J.A. DEMACK J.
Judgment delivered 04/10/1996
JOINT REASONS FOR JUDGMENT - FITZGERALD P. AND DEMACK J.; SEPARATE
CONCURRING REASONS OF DAVIES J.A.
Appeal allowed with costs to be taxed.
Judgment below set aside; judgment to be entered in favour of Berrivale against the appellant
in the sum of $35,000.00, plus costs of the action to be taxed on the District Court Scale.
CATCHWORDS: PROFESSIONAL NEGLIGENCE - arising out of solicitor’s (appellant’s) handling of a contract to sell land owned by the respondent - whether the appellant failed to give the respondent appropriate advice - necessary Ministerial consent not obtained prior to settlement - quantum of damages.
Sellars v. Adelaide Petroleum N.L. (1994) 179 C.L.R. 332
| Counsel: | P. Morrison Q.C. with him L. Kelly for the Appellant R.R. Douglas Q.C. with him A.N. Daubney for the Respondent |
| Solicitors: | Feez Ruthning for the Appellant Nicholsons for the Respondent |
| Date(s) of Hearing: | 18 June 1996 |
IN THE COURT OF APPEAL
| SUPREME COURT OF QUEENSLAND | Appeal No. 221 of 1995 |
| Brisbane | |
| Before | Fitzgerald P. Davies J.A. Demack J. |
[Blakes v. Berrivale Orchards Ltd]
BETWEEN:
BLAKES (a firm)
(Defendant) Appellant
- and -
BERRIVALE ORCHARDS LIMITED
(Plaintiff) Respondent
JOINT REASONS FOR JUDGMENT - FITZGERALD P. AND DEMACK J.
Judgment delivered 04/10/1996
Berrivale Orchards Limited ("Berrivale") sued Blakes, a firm of solicitors, for negligence
arising out of its handling of a contract to sell land owned by Berrivale to Goldwood Holdings
Pty Ltd ("Goldwood"). At the trial of the action Blakes were found to be negligent and liable to
pay $396,350.57 damages together with interest in the sum of $301,226.43 and costs. Blakes
have appealed from this decision.
Prior to 1988, Berrivale had operated a business in Queensland manufacturing and selling
fruit juices. The fruit juice was produced at premises in Garnet Street, Carole Park ("Garnet
Street"). In 1988, the decision was made to sell those premises and move elsewhere. At that
time, Mr Peter Scott ("Scott") was Berrivale's Queensland Manager. Berrivale had its head office in Adelaide where Mr Peter Wood ("Wood") was managing director, and Mr Michael Nicolai
("Nicolai") was financial controller.
In November 1988, the agent appointed to sell Garnet Street introduced a prospective
purchaser, DRM Mainland Nominees Ltd, a New Zealand Company. The purchase price was
$1,790,000. Blakes drew up a contract using the REIQ standard form for leasehold land with
special conditions. Those conditions included an initial deposit of $10,000 with a further
$90,000 payable when the purchaser entered possession, Foreign Investment Review Board
("FIRB") approval before 28 February 1989, and a date of completion not later than 22 March
1989. Time was of the essence. The wrong company was shown as vendor, and the contract was
not proceeded with.
On 28 February 1989, Mr Short ("Short"), the partner at Blakes who had prepared the
contract document in November 1988, received an executed contract dated 3 February 1989 in
which the earlier purchaser’s name had been crossed out and Goldwood’s name inserted and the
name of Berrivale was substituted as vendor. The terms of the contract were unchanged.
Goldwood was a company incorporated for the purpose of acquiring Garnet Street. There
was a group of companies associated with Johnson Farm Management Pty Ltd and Goldwood,
which has since changed its name to Frank Johnson Restaurants Pty Ltd., was one of these. It
had a paid up capital of $2 and no other assets. Mr Anthony Johnson ("Johnson") was the major
shareholder and managing director of Farmer Johnson Limited, which, within the Johnson Farm
Management Group, was the parent company of Goldwood. In late 1988 and early 1989 he was
pursuing the idea of a proposed joint venture between his group and companies associated with
a New Zealander, Mr Stuart Cairns (“Cairns”), to process kiwi fruit in Australia. It was planned
to do the processing in the factory at Garnet Street. The business was to be conducted by a
limited partnership, and work had been started on a prospectus to raise capital, but the partnership
had not been formed and the prospectus had not been published.
Garnet Street was leasehold land so that the consent of the Minister to the sale was
required, and the printed form of the contract between Berrivale and Goldwood contained the
following term:
"16. CONSENTS. Where by any statute any consent is required to this sale or the performance of any obligation under this contract the sale shall be subject to such consent being given and each party as may be necessary shall apply for such consent and shall pursue such application. The Vendor shall pay all costs and fees (other than those of the Purchaser or the Purchaser's Solicitor) in respect of the application for consent. If such consent is refused or not granted by the date for completion then either party may by notice in writing to the other terminate this contract whereupon the deposit and other moneys paid hereunder shall be refunded to the Purchaser by the Vendor or the Stakeholder as the case may be without any deduction whatsoever."
Because the land was in an industrial estate, the Department of Industrial Development
was also necessarily involved in the process of obtaining the Minister's consent to a transfer of
the lease. That Department required information and commitments from Goldwood, as the
prospective purchaser. It is important to note that cl. 16 of the contract cast a duty on "each party
. . (to) pursue (the) application", which meant that, although the application for consent had to
be made by Berrivale, Goldwood had to provide the information which the Department of
Industrial Development required.
The contract Short received showed that Elliotts were the solicitors acting for Goldwood.
There was also a second contract in respect of the sale of equipment. Short phoned Elliotts and
was told they had no instructions and no copy of the contracts. He wrote to Scott on 28 February
1989, the day when he received Berrivale’s executed copy of the contract, as follows:-
"SALE TO GOLDWOOD HOLDINGS PTY. LIMITED
Please find enclosed copies of both agreements dated 3rd February 1989. You
will note the inconsistency which now appears in Special Condition 8 of the
Agreement for the sale of equipment. We have asked for confirmation that this
can be amended to the name of the Purchaser.
We note your advice that the deposit payable under the Contract has been paid,
and accordingly will now await further advice from the Purchaser as to the
satisfaction of Special Condition 32.
Maxine Whelan from this office will now be handling this matter through to
completion."
The reference to two contracts is to the land contract and the equipment contract. Special
condition 32 relates to FIRB approval. Between 1 and 8 March 1989 Short's secretary tried to
track Goldwood’s copy of the contract by phoning Elliotts, the real estate agent and Scott.
Activity on the file resumed on 15 March 1989 after Miss Jill Petrie ("Petrie") was given the file.
She had been admitted to practise as a solicitor on 20 February 1989. Short had given her the
file a few days before 15 March but she commenced work on it on that day. The file showed that
no application had been made to obtain the consent of the Minister. She phoned the Lands
Department and then wrote a letter to the Lands Administration Commission. She had been told
on the phone that obtaining consent took a couple of weeks so the letter dated 15 March 1989
was optimistic in asking for consent before 22 March 1989. It was however, delivered by hand.
On 15 March 1989, Petrie also spoke to Elliotts and ascertained that they had not applied
for ministerial consent, that their client was coming in that afternoon and that at that stage "they
had nothing". She phoned Scott and told him that she had spoken to Elliotts, that they were
having problems getting instructions but were aware that settlement was on 22 March, that FIRB
approval was not a problem and that Blakes would arrange settlement figures.
On 17 March, 1989, Elliotts asked Petrie for an extension of time for completion. She
phoned Scott who said that he did not want to extend, that there would have to be renegotiation
of the terms and that he wanted ten per cent deposit and eighteen per cent interest.
On 20 March 1989, Blakes received a letter by facsimile from Elliotts seeking an
extension to 21 April 1989 and advising that Goldwood was incorporated in Queensland so that
FIRB consent was not required.
On 21 March, Blakes received a reply from the Lands Administration Commission
advising that the Department of Industrial Development was involved in obtaining the Minister's
consent. Petrie phoned an officer of that Department and, according to her note of the
conversation, was advised that the length of time for consent depended on what information the
Department had. It usually required the purchaser to carry on a manufacturing business. Also,
it required names of directors and an undertaking from them that they would carry out all
conditions of the lease. Later the officer phoned Petrie and said the Department had received a
letter from the Lands Administration Commission dated 20 March 1989 requesting consent. He
needed information about what Goldwood proposed to do with the property to make sure that it
would still be involved in a manufacturing business. He also referred her to a letter to Berrivale
of 1 July 1988 to the effect that all the lease conditions had been complied with, and required an
undertaking from Goldwood that it would continue to do so.
On 22 March 1989, Blakes wrote to Elliotts by facsimile agreeing to an extension of the
date of completion to 21 April 1989 on the conditions:-
"(a) That your client pay a further $169,000 on or before 22 March 1989 which
represents 10% of the purchase price, and(b) That your client pay default interest on the purchase price at 18% per annum on the balance of the purchase price."
Elliotts responded by facsimile asking if a registrable transfer was available because their
inquiries of the Lands Administration Commission had not enabled them to find out if the
Minister's consent had been obtained. If no consent had been obtained they proposed an
extension to 12 April 1989 or until seven working days after consent was obtained. Blakes
responded by facsimile noting that the respective clients had agreed to extend time for
completion until 12 noon on 23 March 1989 to enable Goldwood to respond to Berrivale's
proposal. They confirmed the other terms of the contract and that time was of the essence.
On 23 March 1989 Elliotts wrote to Blakes by facsimile invoking cl. 16 of the contract
and giving notice that as the consent of the Minister was not available "the contract is voided".
They asked for the return of the deposit.
At that time, significant matters concerning the partnership structure were outstanding,
Mr Cairns had returned to New Zealand with the opinion that the venture would not proceed, “Mr
Johnson had started to become disenchanted with aspects of his New Zealand connections”, to
quote the trial judge, and the price of industrial land was falling.
Subsequently, Berrivale sold Garnet Street for a nett figure of $1,019,237.20.
In his evidence, Short maintained he had informed Scott that Ministerial consent had not
been obtained at the time when the terms on which Goldwood's request for an extension of the
time for completion should be granted were discussed. His evidence was not accepted. One of
the attacks made on this finding was that Scott's evidence left open the possibility he had been
told that consent had been obtained. Scott's evidence contained little detailed recollection. Many
answers were to the effect that he could not recall the matter. However, the trial judge accepted
that there was a chain of command in Berrivale which, in effect, required Scott to keep Wood
and Nicolai in Adelaide informed. Nicolai said that he was not told that Goldwood had the right
to terminate the agreement until he came to Brisbane in early April. The findings about the chain
of command were attacked, but there is no basis for thinking that in this respect the reasoning of
the trial judge was in error.
If the broad issues are looked at, it is hard to accept that Short told Scott that Ministerial
consent had not been applied for until 15 March 1989 and that consent would not be available
before settlement, and that Goldwood would be legally free to escape the contract. If he had told
Scott, it is unlikely that Scott would have communicated the terms on which an extension would
be granted. Business men might be hard headed, but the letter of 22 March 1989 expressing the terms upon which an extension would be granted and the following letter asserting that, apart
from a one day extension to 23 March 1989, time remained of the essence, amounted to
unrealistic responses in a difficult situation. These responses suggest that Berrivale did not know
that Ministerial consent had not been obtained and that Goldwood was in a position to terminate
the contract.
While strenuous criticism was made of the trial judge’s finding that the appellant failed
to give the respondent the appropriate advice, which involved rejection by her Honour of
evidence given by a solicitor, we are not persuaded that the finding was not open on the evidence
or involved any error of approach by the trial judge.
Although variously pleaded, Berrivale’s case was that the appellant’s negligence caused
it to lose the sale to Goldwood; i.e., Berrivale alleged that, but for the appellant’s negligence,
either the conditions of the contract could have been satisfied in time for completion in
accordance with the contract or any necessary extension of time could have been obtained, and
the sale could have been enforced or damages recovered against Goldwood.
The trial judge adopted that approach, and the damages awarded were a proportion of the
difference between the sale price to Goldwood and the lower price at which Berrivale was
subsequently able to resell; the proportion was related to the degree of probability of completion
of the contract by Goldwood calculated by the trial judge.
The trial judge held that there was a 70% likelihood that the necessary consent would
have been obtained, a 50% chance that Goldwood would have been willing to complete and a
50% chance that it would have been able to complete. This led her Honour to conclude “that the
chance was no greater than 55 per cent that Goldwood would have settled the contract or that the
proceeds of a judgment would have been available to Berrivale”. The course which her Honour
adopted was incorrect, arithmetically if for no other reason, and it is plain that, even if her Honour’s findings with respect to the respective probabilities were to stand, the award in favour
of Berrivale cannot be supported.
Her Honour considered that the consent necessary to permit completion of the contract
would have been obtainable if the relevant government bodies were informed of the
manufacturing business proposed to be carried on and the names of the directors of Goldwood
and given an undertaking that the conditions of the lease would be met. That might have
somewhat understated what was required to obtain the consent, as the evidence suggested that
it would have been necessary to demonstrate a capacity, as well as an intent, to carry on the
proposed business, and her Honour’s finding that there was a 70% likelihood that the consent
could have been obtained within the time limited by the contract or an agreed extension of time
seems unduly favourable to Berrivale. The trial judge also concluded, again very favourably to
Berrivale in our view, that “... Mr Johnson recognized that he had a binding contract and would
not lightly abandon it. Whether he would have done so later on the date of settlement or
subsequently, is a different question”, and that “[when the contract was executed ... the timing
was short for the limited partnership scheme to be in operation at the time of settlement when the
funds would have had to be provided, but ... there was every expectation that the contract would
be completed even if the funds were temporarily sourced elsewhere”. However, Goldwood’s
solicitors’ delay in obtaining instructions, their letters on 22 and 23 March 1989 and the attitude
adopted when Goldwood was able to take advantage of cl. 16 to terminate the contract
immediately it was entitled to do so suggest that Goldwood was unenthusiastic concerning its
purchase of Garnet Street, to say the least.
Nonetheless, on the evidence, it was open to the trial judge to conclude that the necessary
consent could probably have been obtained if Goldwood cooperated; if Goldwood did not
cooperate, or if it failed to complete after the consent was obtained, Berrivale would have been entitled to retain the deposit of $10,000.00. It is therefore entitled to recover that sum in
damages.
On the hypothesis that the consent could probably have been obtained, the appellant’s
negligence lost Berrivale the “commercial opportunity” represented by the contract and it is
necessary to value that lost opportunity;[1] that is to say, Berrivale lost a contract of sale at a
[1] Sellars v. Adelaide Petroleum N.L. (1994) 179 C.L.R. 332, 355.
considerably higher price than was otherwise achievable (under which a deposit of only
$10,000.00 had been paid) with a “straw” purchaser, Goldwood, which could not be enforced (in
any financially effective manner) without the cooperation of Goldwood which had become, or
soon after became, disinterested in the purchase and perhaps (to put it at its lowest) unable to
raise the purchase price. What must be valued is the possibility that the contract would have
been completed.
In our opinion, the transaction between Berrivale and Goldwood was little different, in
practical terms, from an option in favour of Goldwood, for which it had paid a $10,000.00 option
“fee”. Berrivale’s “commercial opportunity”, apart from retention of the deposit, substantially,
if not wholly, depended on Goldwood’s decision whether or not to proceed. While the value of
that “commercial opportunity” was not necessarily negligible, given her Honour’s findings with
respect to Mr Johnson’s attitude, it was small; in our opinion, it would be appropriate to allow
no more than another $10,000.00 in damages.
In total, therefore, we would award Berrivale damages of $20,000.00, with interest at the
rate of 12% for six and one-third years, the rate and period selected by the trial judge. The
interest to the date of the judgment below is, therefore, $15,200.00. Berrivale’s costs should be
taxed and paid on the District Court Scale.
In summary, the appeal should be allowed with costs to be taxed, and the judgment below
set aside; judgment should be entered in favour of Berrivale against the appellant in the sum of
$35,000.00, plus costs of the action to be taxed on the District Court Scale.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 221 of 1995
Brisbane
| Before | Fitzgerald P. Davies J.A. Demack J. |
[Blakes v. Berrivale Orchards Ltd.]
BETWEEN:
BLAKES (a firm)
(Defendant) Appellant
AND:
BERRIVALE ORCHARDS LIMITED
(Plaintiff) Respondent REASONS FOR JUDGMENT - DAVIES J.A.
Judgment delivered the 4th day of October 1996
I agree that the grounds of appeal challenging the conclusion that the appellant was
negligent and that its negligence caused loss of the contract with Goldwood must fail. It is
unnecessary, in order to reach that conclusion, to decide whether the appellant's negligence
caused the failure to obtain the Minister's consent prior to the date of settlement. It is plain that
it was not obtained by that date and that it would have been obvious to the appellant, well before
that date that it would not be obtained by then. The appellant's failure, on the learned trial
Judge's findings of fact, to advise the respondent that if it did not agree to an extension of time
it would probably lose the contract was plainly an omission causing that loss. The findings were,
in my view, open on the evidence and should not be disturbed.
As to damages I agree with the joint judgment of the President and Demack J. that the
learned trial Judge was entitled to conclude on the evidence that the Minister's consent could
probably have been obtained, with the purchaser's co-operation, if an extension had been agreed
to but that the respondent's difficulty lay in proving substantial damages given the substantial risk
that, on the evidence, the purchaser would not, in any event, have completed. I am in agreement
with the reasons which they give for limiting the damages in that respect to $20,000.
I agree with the orders they propose.
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