Negligence - Legal practitioner - Alleged breach of contract and duty of care - Solicitor acting on land transaction for purchaser - Encroachment of buildings on neighbouring land - Whether solicitor advised of the encroachment - Whether plaintiff knew of encroachment - Whether plaintiff knew of the adverse financial consequences of encroachment - Whether solicitor advised of adverse financial consequences - Whether failure to advise caused any loss

Legislation:

Property Law Act 1969, s 122

Result:

Plaintiff's claim dismissed

Category: B

Representation:

Counsel:

Plaintiff: Mr K E Yin
Defendant: Mr G R Hancy

Solicitors:

Plaintiff: Murcia Pestell Hillard
Defendant: Mallesons Stephen Jaques

Case(s) referred to in judgment(s):

Astley v Austrust Ltd (1999) 197 CLR 1
Bendal Pty Ltd v Mirvac Project Pty Ltd (1991) 23 NSWLR 464
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
Fox v Everingham & Howard (1983) 76 FLR 170
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Heydon v NRMA Ltd (2000) 51 NSWLR 1
Hill v Van Erp (1997) 188 CLR 159
Hudson v Cripps [1896] 1 Ch 265
Midland Bank v Hett Stubbs & Kemp [1979] Ch 384
Miller v Emcer Products [1956] 1 Ch 304
Montague Mining Pty Ltd v Gore [1998] FCA 1334
Plenty v Dillon (1991) 171 CLR 635
Rogers v Whitaker (1992) 175 CLR 479
Rosenberg v Percival (2001) 205 CLR 434

Case(s) also cited:

Chappel v Hart (1998) 195 CLR 232
Crabb v Arun District Council [1976] Ch 179
Delta Corp Ltd v Davies [2002] WASCA 125
Dillwyn v Llewelyn (1862) 4 DeGF&J 517
Erley Pty Ltd v Gunzburg Nominees Pty Ltd [1998] WASCA 75
F v R (1983) 33 SASR 189
Gesmundo v Anastasiou (1975) 1 BPR 9297
Halliday v Nevill (1984) 155 CLR 1
Hawkins v Clayton (1988) 164 CLR 539
Henville v Walker (2001) 182 ALR 37
Jetcity Pty Ltd v Yenald Nominees Pty Ltd [1999] WASC 1042
Morris v Thomas (1991) 73 LGRA 164
Ramsden v Dyson (1866) LR 1 HL 129
Re Melden Homes No 2 Pty Ltd's Land [1976] Qd R 79
Westcoast Clothing Co Pty Ltd v Freehill, Hollingdale & Page (1999) A Tort Rep 81-518

PULLIN J: The plaintiff sues its former solicitors, the defendant, for damages for alleged negligent omissions to provide advice and for negligent advice, which negligent acts and omissions are said to amount to a breach of contract and a breach of a general duty to exercise reasonable care and skill.

Summary

The plaintiff bought land known as the Wembley Shopping Centre land ("WSC land"). This land is sometimes referred to as the "Piazza" or the "Wembley Piazza". The plaintiff says that it did not know, and should have been advised by the defendant, that some of the buildings which appeared to be part of the Wembley Shopping Centre were, in fact, located on the land adjoining, and on which the Wembley Hotel was located ("WH land"). This did not matter if the plaintiff purchased both the WSC land and the WH land, but it did matter if the plaintiff only bought the WSC land.
In fact, the plaintiff negotiated to purchase, and did enter into contracts to purchase, both pieces of land. It entered into a contract to purchase the WSC land on 6 April 1994 and settled and became the registered proprietor of the WSC land on 1 July 1994.
On 7 July 1994, the plaintiff entered into a contract to purchase the WH land. Unfortunately the plaintiff did not settle under the latter contract because it did not secure approval for finance. The plaintiff says that if it had known about the encroachment of the Wembley Shopping Centre buildings on the WH land, it had funds and would have paid its own funds and settled on the settlement date agreed. When the plaintiff did not secure finance or waive the finance clause, the vendor of the WH land asserted that the contract was at an end. Then on 23 September 1994, the vendor's solicitors wrote a letter to the plaintiff claiming that the owner of the WH land should be paid the rent which the plaintiff collected from the tenants in that part of the Wembley Shopping Centre buildings which encroached on the WH land or alternatively the plaintiff should buy the land under the encroaching buildings.
The plaintiff alleges that the receipt of this letter was the first time that it knew that the Wembley Shopping Centre buildings encroached on the WH land. The plaintiff then negotiated a new contract to purchase the WH land, and had to pay an additional amount to do so. This additional amount is part of the financial loss which the plaintiff claims as damages from the defendant.
Although the allegations of negligent omissions are pleaded out in various ways in the statement of claim, they all relate to the encroachment.
The claim that the defendant failed to advise about the existence of the encroachment must fail. The defendant did advise the plaintiff about the encroachment before the plaintiff purchased the WSC land or the WH land. Furthermore, the plaintiff by other means knew of the encroachment before it entered into a contract with respect to either the WSC land or the WH land. It knew because, as I find, the director handling the transaction (Mr Adrian Lee) was told about the encroachment on 17 February 1994 by Mr Gorman, the Manager of the Wembley Shopping Centre. Further, Mr Lee had been expressly informed of the encroachment in an annexure to an offer to buy the WSC land signed by Mr Lee some time before 12 January 1994. In addition, the fact of the encroachment was expressly acknowledged by the plaintiff in the conditions in the offer relating to the WSC land which the plaintiff signed on 5 April 1994, and which Mr Lee read before he signed it.
The plaintiff alleges also that the defendant was negligent in not advising about the adverse financial consequences of buying and settling on the WSC land without at the same time buying and settling on the WH land. I find that the defendant was negligent in that regard. However, such negligence caused no loss because the plaintiff knew that if it bought land and buildings and the buildings encroached on another person's land, it would face adverse financial consequences. If the advice had been given, it would not have changed the way the plaintiff acted.
The plaintiff also alleges that there was a negligent failure to advise the plaintiff to make an offer to purchase the WH land after an invitation was made that it should do so by the solicitor acting for the owner of the WH land. The invitation was made in a facsimile of 8 August 1994. This allegation must fail because the defendant did ultimately advise the plaintiff to make such an offer, which advice the plaintiff did not act upon.
The plaintiff also alleges that the defendant was negligent in the advice it gave in the defendant's letter to the plaintiff dated 29 March 1994. By that date, Mr Lee planned to contract to purchase both the WSC land and the WH land. It was also planned to settle both proposed contracts at the same time. On 29 March 1994, the vendor of the WSC land refused to include a clause that the sale of the WSC land was to be subject to the WH land contract proceeding. In the letter of 29 March 1994, the defendant advised:
"This may not be as great a problem as you might think, as the 30 day due diligence period does give you an opportunity to walk away from the [WSC land] deal, and of course you have a clause in the [WH land] contract that is subject to the [WSC land] deal proceeding."
It is alleged that this was negligent advice. For reasons that I give below, I consider that in the circumstances, it was not negligent.
The plaintiff also complains that the defendant omitted to give advice about the due diligence clause in the contract relating to the WSC land, but I find there was no negligence in failing to do so.

Detailed reasons and findings

Adrian Min Yan Lee was a Singaporean resident until 1994. From 1992 onwards, he visited Perth regularly on business. His family had large property holdings in Singapore and Malaysia. In January 1993, he set up a company called Falconer (Australia) Pty Ltd as a vehicle for real estate purchases and property development in Australia. The name of this company changed to Everland (Australia) Pty Ltd ("Everland") soon after. Mr Lee also arranged for the incorporation of other companies, one of which was Megacity Holdings Pty Ltd, with the intention that it should be a "land bank" and Triumph Bay Holdings Pty Ltd ("Triumph Bay"), with the intention that it should be an investment company. He also caused the incorporation of the plaintiff on about 23 February 1994. Mr Lee became a permanent resident in Australia on 14 December 1994. Mr Lee's mother, Mrs Lan, is also an Australian resident. Mrs Lan was at all material times a director of the plaintiff. In 1993, Mrs Lan and Mr Lee owned, directly or indirectly through companies, land and other assets in Western Australia worth about $12 million.
On about 19 November 1993, Mr Lee was contacted by a Mr Richard Ridge of Peet & Co and told that the Wembley Shopping Centre was for sale. This was the first commercial property deal that Mr Lee had looked at in Australia. On 19 November 1993, Mr Lee went and inspected the Wembley Shopping Centre. During his inspection he noticed that there was what he said was a "potential car parking problem" because it was evident to him from the physical configuration of the two properties that the Wembley Hotel did not have a car park and that the hotel patrons parked on Wembley Shopping Centre property. Mr Ridge pointed out to Mr Lee where he thought the boundary between the WH land and the WSC land was located. It appears that this information was incorrect because the information given by Mr Ridge, if correct, would mean there was no encroachment. Both parties agree that the Wembley Shopping Centre buildings do encroach on the WH land. The precise extent of the encroachment was never revealed to me during the hearing.
On 22 November 1993, Mr Lee and his cousin Mr Kelvin Lim met Warwick Gorman, the manager of the Wembley Shopping Centre. As will appear, Mr Lee met with Mr Gorman again in February 1994.
Mr Lim was Everland's financial controller. He became a director of Everland on 10 January 1994. Mr Lim studied law at the University of Western Australia. He graduated with a Bachelor of Laws in 1992. He completed articles with solicitors Chan Galic in 1993 and 1994. Mr Lim recommended to Mr Lee, that the defendant could act for Mr Lim in relation to the purchase of the Wembley Shopping Centre.
On 23 November 1993, Mr Lee submitted an offer to purchase the WSC land for $2.55 million. This was submitted to a Mr Brett Jones of Sallmanns. This offer probably had attached to it some conditions contained in an annexure. Condition 5.1(d) read:
"This contract is conditional upon:-
(a)the existing titles for the Wembley Centre being amalgamated and a new title issuing for the combined lots;
(b)party wall easement agreements being made between the vendor and Tanner Point Holdings Pty Ltd ('Tanner');
(c)reciprocal car parking and access easement agreements being made between the vendor, Tanner, and the City of Perth (or its successor);
(d)Tanner transferring to the vendor that part of the land owned by Tanner on which part of the Wembley Centre is constructed."
I will refer to this annexure later, so I will call it "Annexure (5.1d)". I say Annexure (5.1d) was "probably" attached to this offer, because there is a little uncertainty as to which offer was which. Mr Lee said there were as many as two dozen offers submitted at different times during 1993 and 1994. I find, however, that Mr Lee saw and had Annexure (5.1d) in his possession before 12 January 1994.

Mr Lee's first meeting with Mr Marks

On 30 November 1993, Mr Lee went to the defendant's offices and met with one of that firm's partners, Mr Peter Marks, and with Mr Anthony Connor, an employed solicitor. Mr Connor said, and I accept, that he was at the meeting only during the introductory part of it. Mr Lee gave to Mr Marks a brochure relating to Everland, which Mr Marks read. The brochure sang the praises of Everland. It stated that:
"Everland will provide new type of real estate service with Everything‑Under‑One‑Roof".
The brochure said:
"With Everland, you are not dealing with a faceless organization. To us, you will never become a number. This personalized service starts from the moment you walk into our office in Subiaco. You will meet and get to know Your appointed Everlander.
Your Everlander will be your link with the real estate world and will act as your Project Manager.
… It is in your Everlander's interest to ensure that the property purchased is in the correct location, free of title defects and has the potential for profit because he is the Project Manager who will remain with that property throughout the life of the project. Traditional real estate agents do not have this incentive.
Depending on your project requirements, your Everlander will probably be one of Everland's highly qualified and experienced specialists. …"
The brochure then gave a profile on various members of the Everland team. It offered the services and expertise of a settlement agent and a profile of Mr Adrian Lee. That profile read:
"Adrian first started in the construction industry in London as a part time Site Engineer. From London, Adrian moved to Singapore where he worked with United Overseas Bank. Adrian became very familiar with the various financing instruments and risk/return analysis. From banking, Adrian returned to his earlier roots and worked for a property developer oversaw both residential and commercial property development in Malaysia and Perth."
Mr Lee in his evidence said that he was inexperienced and that the transaction under consideration in this case was the first commercial property transaction that Mr Lee and his companies or family had been involved in in Australia. I find that it was not what Mr Lee and Mr Kelvin Lim, another director of the plaintiff company, told Mr Marks. The defendant was entitled to assume from the information given, and statements made to Mr Marks, that Mr Lee was an experienced commercial property developer in Malaysia and Perth, and that Mr Lim was also an experienced property developer.
During the meeting with Mr Marks and Mr Connor on 30 November 1993, Mr Lee explained that he was thinking of buying the Wembley Shopping Centre. He asked if the defendant would act for him in relation to the purchase. Mr Lee did not give to Mr Marks a copy of the offer that he had submitted to Sallmanns on 23 November, but as appears later, Mr Lee must have told Mr Marks about the involvement of Sallmanns as an agent in relation to the sale of the WSC land. Mr Connor explained that he had acted for tenants in various disputes with the landlord. Mr Lee told Mr Marks and Mr Connor that he (Mr Lee) would handle negotiations regarding price, would "look after the tenants", and would look into the car parking problem. Mr Lee and Mr Marks agreed that the defendant would be paid $5,000 for all work in connection with the acquisition of the shopping centre, including lease examinations, and to carry out the items of work on a list which was handed to Mr Lee during the meeting. Neither Mr Lee nor Mr Marks can now remember what was on this list. The list no longer exists.
I am satisfied, and find, that the defendant agreed with Mr Lee that the defendant agreed to peruse any relevant documentation and act for and advise it generally in relation to the purchase of the WSC land in consideration of a fee of $5,000 plus disbursements. Mr Marks gave evidence, and I find, that on 30 November 1993 he did not know that the Wembley Shopping Centre buildings encroached onto the WH land.
After the meeting, Mr Marks sent a letter to Mr Lee, dated 30 November 1993, confirming the meeting which said, inter alia:
"It was good to meet you this morning. We are very pleased to be able to be of service to you and your Company.
Firstly, with this fax is a draft letter to Sallmanns in respect of the relationship with the Wembley Hotel. Because there was common ownership of the Hotel and the Shopping Centre up to the present, when the two are split there could well be problems, and we feel you must be fully informed.
Secondly, we confirm our quote of $5,000.00 for all work in connection with your Company's acquisition of the Shopping Centre, including all lease examinations and the items on the list we handed to you today."
The draft letter to Sallmanns which was referred to, was drafted by Mr Marks directed to Messrs Sallmanns on the basis that Mr Lee would sign and send the letter. That letter in its draft form in the first paragraph read:
"Please provide all agreements (if any) that exist between Jade Bay Holdings Pty Ltd (Receiver appointed) and the proprietors of the Wembley Hotel in relation to such things as car parking, airconditioning or use of the Centre's facilities and common areas …"
Mr Lee did not take any notice of the recommendation that he write to Sallmanns.
On 2 December 1993, a revised offer was made by Mr Lee for $3 million in relation to the WSC land and submitted to Warwick Gorman. Mr Lee in his evidence said he could not remember much about that offer. It was not shown to Mr Marks.
I should say at this point that Mr Lee understood from a very early stage that the owners of the WSC land and the WH land were different legal entities. The registered proprietor of the WH land was Tanner Point Holdings Pty Ltd ("Tanner Point Holdings"), and the registered proprietor of the WSC land was Jade Bay Holdings Pty Ltd ("Jade Bay Holdings"). However, there was common ownership of the majority of the shares in each of those companies.

Mr Lee's second meeting with Mr Marks

On 12 January 1994, Mr Marks had another meeting with Mr Lee at the defendant's office. At this meeting, Mr Kelvin Lim was introduced to Mr Marks. Mr Lim was introduced as a director of Everland. The proposed contract in relation to the WSC land was discussed. Mr Marks recommended that a clause be inserted into the purchase contract, making the purchase subject to Everland approving all arrangements between the Wembley Hotel and the Wembley Shopping Centre. Mr Lee did not accept that recommendation. I find that either Mr Lee or Mr Lim said that such a clause was not necessary. Mr Marks gave evidence that Mr Lim said he was an expert in property development, that he had lots of experience, and was aware of the steps necessary to complete a purchase transaction. Mr Lee and Mr Lim disputed this, but I accept Mr Marks' evidence on this point. Mr Lee brought with him Annexure (5.1d) and gave it to Mr Marks. Mr Marks gave evidence that this informed him about the encroachment of the Wembley Shopping Centre buildings onto the WH land.
Following the meeting, Mr Marks sent a letter to Mr Lee, dated 12 January 1994, which read:
"Dear Adrian
WEMBLEY CENTRE
It was good to see you again, and to meet Kelvin.
With this fax is a re‑type of the Annexure. The alterations I have made are as follows …
By agreement with you, I have not put in a new clause about the Contract being subject to the purchaser approving all arrangements between the Wembley Hotel and the shopping centre. …"
I find that the reference to the "Annexure" is a reference to Annexure (5.1d). Clause 5.1(d) in Annexure (5.1d) spelt out in no uncertain terms that part of the Wembley Shopping Centre was constructed on the WH land. I find that the defendant, through Mr Marks, only discovered on 12 January 1994 that the Wembley Shopping Centre buildings encroached on the WH land.

On 13 January 1994, Mr Marks wrote to Kelvin Lim again suggesting the inclusion of a clause which was set out in the letter, and which read:
"This Contract is subject to full disclosure being made by the vendor (by the ______ day of ______ 1994) of all arrangements between the Wembley Hotel and the Wembley Centre management and the purchaser's approval of such arrangements."
In early 1994, Mr Ridge told Mr Lee that he should look at purchasing the Wembley Hotel land because it could fit in with the redevelopment of the Wembley Shopping Centre.
Sometime between 13 January 1994 and 17 February 1994, either Mr Lee or Mr Lim told Mr Marks that Everland would purchase the company that owned the Wembley Hotel. On 17 February 1994, Kelvin Lim telephoned and instructed Mr Marks to act for Everland in relation to the purchase of the Wembley Hotel. The day before (16 February 1994) Mr Lee had met Mr Derek Gascoine, who was a director of the company which owned the WH land and a director of the company which owned the WSC land. He suggested that Mr Lee should purchase the hotel.

Mr Lee's meeting with Mr Gorman and Mr Robinson

On 17 February 1994, Mr Lee went to the office of Haydn Robinson, the solicitor instructed to act for Mr Gascoine's companies. Mr Gorman, the manager of the Wembley Shopping Centre, was in attendance. Mr Robinson gave evidence, and I find, that during this meeting Mr Gorman told Mr Lee that the Wembley Shopping Centre building encroached on the WH land and told Mr Lee that he would therefore have to buy both the hotel and the shopping centre. Mr Lee gave evidence that he was not told this. At another point in his evidence he said he did not remember being told this by Mr Gorman. I reject Mr Lee's evidence disputing that he was told about the encroachment by Mr Gorman. It is likely that Mr Lee was not concerned about encroachment because he was planning to buy both properties and because, as I find, he knew about the encroachment from cl 5.1(d) in Annexure (5.1d). As a result, the conversation was not particularly memorable. I should add that Mr Gorman was called as a witness and gave evidence that he could not recall details of discussions he had with Mr Lee.
On 17 February 1994, Mr Marks wrote to Mr Lim about the Wembley Hotel, recording the fact that he had now been told about the proposed hotel purchase. In his letter Mr Marks gave advice about what was necessary in relation to that transaction. He also advised that the combined purchase price would exceed $5 million and that this may require Foreign Investment Review Board approval. He therefore recommended that any contract be made subject to FIRB approval if the approval was required. This advice was followed.
On 18 February 1994, Haydn Robinson, acting for the registered proprietors of the WH land and the WSC land, sent a facsimile to Adrian Lee with two draft contracts relating to the WH land and the WSC land. By this time, Mr Marks says, and I find, that he had talked Kelvin Lim out of the earlier proposal to purchase the company which owned the Wembley Hotel. The plaintiff accepted Mr Marks' advice to instead purchase the WH land as the way to acquire the hotel. The draft contracts were each subject to conditions set out in an annexure. In each case, the contract was subject to the purchaser entering into a contract of sale to purchase the other property and subject also to settlement of the purchase of the one property being contemporaneous with settlement of the other property. If that course had been followed through, there would have been no adverse financial consequence involved in the encroachment of the Wembley Shopping Centre building onto the WH land.
I should pause at this moment to record the fact that Mr Lim did not agree that Mr Marks gave advice about not purchasing the company which owned the Wembley Hotel, but I prefer Mr Marks' evidence. During his evidence, Mr Lim was unable to recall many events which occurred in 1993 and 1994, and in the main only acknowledged events recorded and confirmed in writing. This is also an appropriate time to mention that Mr Lim also denied that he knew anything about the Wembley Shopping Centre buildings encroaching on the WH land before September 1994. I do not accept his denial. He was Mr Lee's right‑hand man, and he was responsible for composing most of the plaintiff's letters and responsible for reading and discussing with Mr Lee, documents and correspondence which arrived at the plaintiff's office in relation to the acquisition of the WH land and the WSC land. He saw the contract which was entered into by the plaintiff to purchase the WSC land. I reject Mr Lim's denial that he read or understood from condition 8(a) in the annexure to that contract that the Wembley Shopping Centre buildings encroached on the WH land. I find that Mr Lim knew of the encroachments, at least from the time when he read the proposed condition 8(a). I refer to the content of condition 8(a) below.
Many offers were made by Mr Lee to purchase the WH land and the WSC land. Not all were referred to the defendant before the offer was made. Some of the offers were not subject to finance. For example, one offer was made by Mr Lim via Triumph Bay to purchase the hotel for $2.8 million by an offer of 17 March 1994. It was a "cash" offer. Similarly, on 5 April 1994, Mr Lee offered to purchase the WSC land for $2.7 million "cash".

Triumph Bay enters into contract to buy the WH land

On 17 March 1994, the cash offer to purchase the WH land made by Mr Lee, on behalf of Triumph Bay, was accepted by Tanner Point Holdings.
By the same day - 17 March 1994 - Mallesons had been instructed to act on behalf of the Bank of Melbourne, which was the mortgagee in possession of the WSC land and which had begun to move to exercise its power of sale. On that date, Mallesons wrote to the defendant attaching a draft contract it was prepared to enter into in relation to the WSC land. It showed the proposed purchasers as being Mr Lee and his mother.
Condition 8 of the draft contract sent by Mallesons read:
"The purchaser enters into the contract and will accept the property subject to:
(a)any rights or liabilities concerning encroachments and dividing fences …"

Defendant draws Everland's attention to condition 8(a) in the letter of 25 March 1994

On 21 March 1994, the defendant wrote to Mallesons suggesting some changes to the draft WSC land contract, and a copy of this letter was sent to Kelvin Lim. On 25 March 1994, Mallesons responded to the defendant's letter of 21 March 1994 and made their own amendments. The amendments included condition 8(a) which had been changed from the earlier version, so that it read:
"The Purchaser enters into this contract and will accept the property subject to:
(a)any rights or liabilities concerning encroachments and dividing fences and, without limitation, the Purchaser expressly acknowledges the existence and extent of the encroachment of part of the buildings known as the Wembley Piazza onto the adjoining land known as the Wembley Hotel …"
(I have underlined the words to identify those which were added to the earlier version of condition 8 which was in the draft contract sent by Mallesons on 17 March 1994.)
By letter dated 25 March 1994, the defendant wrote to the directors of Everland about the WSC land contract. The letter commenced:
"We confirm having sent a copy of Mallesons' response to our letter of 21 March, together with a copy of the revised draft of the Sale Contract to you by courier this afternoon.
We draw your attention to the following in relation to the revised draft …
4.We note that an addition has been made to Condition 8(a) and draw your attention to this paragraph. …"
The letter concluded:
"Once you have had a chance to consider the above we ask that you contact the writer to discuss the same."
Enclosed with this letter from the defendant to the directors of Everland, was a copy of the revised draft containing the amended version of condition 8(a) which I have quoted above.

Mr Lee reads the letter of 25 March 1994

Mr Lee gave evidence that he was in Perth on 25 March 1994. In cross‑examination, Mr Lee first said he could not remember whether Mr Lim had brought the letter of 25 March 1994 to his attention. He then admitted it was his practice to read correspondence of that kind. Then he admitted that he remembered some aspects of the letter, and he then said:
"In hindsight now I know what condition 8 was, but in fact I was about to skip through it as well, but that's probably what I did when I first read it."
The letter of 25 March 1994 undoubtedly had the effect of drawing condition 8(a) to his attention. Later in his evidence, he said:
"… reading it now it looks very obvious how - how I didn't understand that; but at the time I really did not know that the building encroached on the title. I mean, it sounds pretty obvious now it says here - - -"
At one stage Mr Lee even suggested that he did not know what "encroachment" meant. I reject Mr Lee's evidence that he did not understand the significance of condition 8(a) or the meaning of the word "encroachment". He well understood from Annexure (5.1d) that Wembley Shopping Centre buildings were built on the WH land. Furthermore, he had been told about the encroachment by Mr Gorman on 17 February 1994. It is probably true that he paid little attention to condition 8(a), because at all times after February 1994 he intended to purchase both the WSC land and the WH land, and whether buildings encroached one on the other was of little significance to him. Mr Lee has a perfectly good grasp of the English language.
By letter dated 28 March 1994, the defendant then wrote to Mallesons saying that their client would like to see the offer as being subject to the settlement of the WH land. Mallesons advised that the Bank of Melbourne refused to make the offer in relation to the WSC land subject to the settlement of the WH land.

The defendant's facsimile of 29 March 1994

As a result of receiving this information, the defendant then wrote to Mr Lim by facsimile of 29 March 1994, which contains the advice which is pleaded as being the negligent advice provided by the defendant.
The facsimile refers to a conversation between Mr Marks and a Mr Sharp at Mallesons concerning two aspects of the negotiations which are not relevant for present purposes. The final point in the facsimile was par 3, which read:
"3.The clause we wanted about the Piazza sale being subject to the hotel sale proceeding has been refused. The Bank's attitude is that the hotel deal is so complicated, it doesn't want to get involved.
This may not be as great a problem as you might think, as the 30 day due diligence period does give you an opportunity to walk away from the Piazza deal, and of course you have a clause in the hotel contract that is subject to the Piazza deal proceeding."
What this facsimile points out, therefore, is that there was a "problem". The problem was one which, I have found, Mr Lee and Mr Lim knew about, namely the encroachment of the Wembley Shopping Centre buildings on the WH land. Mr Marks knew about this because he had been informed about it through his reading of Annexure (5.1d), and the parties appear to have been proceeding on the basis that it was known that such an encroachment was a "problem", but was not a "problem" if both contracts proceeded and settled together. There was a "problem" if Mr Lee purchased only the WSC land. The advice in the facsimile indicates that the "problem" was ameliorated to some degree by the fact that the "due diligence" period gave an opportunity to Mr Lee's company to "walk away" from the Piazza. There was also some amelioration of the "problem" because the contract relating to the WH land was subject to the WSC land transaction proceeding and that if the latter did not, then Mr Lee's companies would not be committed to either transaction.
It was argued by counsel for the plaintiff that this advice was negligent because the "due diligence" clause did not give an unqualified right to Mr Lee's companies to "walk away" from the contract to purchase the WSC land and because the encroachment would not allow the plaintiff to "walk away" under the "due diligence" clause. The facsimile, of course, does not say that the encroachment problem is something which could be relied upon by the plaintiff to "walk away" from the WSC land contract if it wished. The facsimile does not say that there was an unqualified right to "walk away" from the contract. It conveyed advice that the problem remained but "is not as great a problem" as Mr Lim or Mr Lee might think and pointed out that the "due diligence period" gave an "opportunity" but not a right to escape from the WSC contract.
The "due diligence" clause, which was cl 5 in the annexure to the contract being negotiated in relation to the WSC land, read:
"(a)Settlement is conditional on the Purchaser completing a due diligence investigation of the property and that investigation not revealing any information regarding the property which, had it been known by the Purchaser previously, would have led to the Purchaser not entering into this contract
(b)Due Diligence Period in this contract means 30 days from but not including the date of acceptance of this contract
(c)If, on or before the last day of the Due Diligence Period, the Purchaser delivers to the Vendor a notice stating that it considers the condition in paragraph (a) unsatisfied, then upon receipt by the Vendor of such a notice, this agreement terminates without further notice. …"
It was therefore plain, and obvious to Mr Lee, that only matters not previously known to the plaintiff and which were discovered during the due diligence investigation could allow Mr Lee or his company to escape from the contract. Mr Lee claimed a lack of understanding of the expression "due diligence", but he never told the defendant that he did not understand the expression. It was quite clear as between the defendant and Mr Lee that Mr Lee was to carry out investigations which would amount to "due diligence".
Success by the plaintiff in this case, depends to a considerable extent upon my accepting the suggestions by Mr Lee and Mr Lim in the witness box that they are inexperienced, did not understand the provisions contained in the contract documents, that this was known to the defendant, and that they relied entirely upon the defendant to explain each and every term in the contracts. Mr Lee and Mr Lim were inexperienced in relation to the purchase of commercial property in Australia, but I find that they understood the expressions used in the contract documents, and I find that the defendant did not know of their lack of experience. On the contrary, I find that Mr Lee was very keen to demonstrate to the defendant that he was very experienced and astute in property transactions. For example, Mr Lee considered that he, and only he, had the ability to negotiate with the vendors. Indeed, he made some offers which were not referred to the defendant for advice. He took some advice from the defendant but did not act on other advice. He had made an offer even before meeting the defendants. He was also experienced in the process of purchasing residential property in Australia.
In my opinion, the advice in the facsimile of 29 March 1994 was in a form appropriate for an astute and experienced property purchaser who knew about the encroachment of the buildings on one piece of land onto another piece of land.
The plaintiff submits that the facsimile of 29 March 1994 should have gone on to explain that if the WSC contract proceeded and Mr Lee's company became the registered proprietor of the WSC land, and the WH land contract did not proceed, that this would expose Mr Lee to a claim for damages because of the encroachment. I deal with that issue below in more detail. I can say at this point, however, that the defendant should have given advice about the consequences of encroachment. That raises a question about whether the failure to give advice caused the plaintiff any loss.
On the issue of causation, it is necessary to consider what Mr Lee might have said if that advice had been given. If the defendant had gone on to say that if the WSC land contract proceeded and settled and the WH land was not purchased, that this could cause financial loss to Mr Lee or his company, Mr Lee would have said that he knew that that was so. His evidence was, and I accept, that he knew that, in those circumstances, he could be held to "ransom" by the owner of the land on which buildings encroached. Mr Lee fully intended to purchase both the WSC land and the WH land on 29 March 1994 and at all times thereafter. I also find that he did not care much about tenants being located on the WH land because his intention was to get rid of all the tenants as soon as possible if he was able to do so. He believed that the TAB, which was one of the tenants situated in part of the building encroaching on the WH land, did not have a lease. I deal with the causation issue in more detail below at par 106.

The plaintiff enters into contract to buy the WSC land

On 6 April 1994, Mr Lee, on behalf of the plaintiff, entered into a contract to purchase the WSC land. This was in the form of an offer signed by Mr Lee and his mother on 5 April 1994 and accepted on 6 April 1994. He gave evidence that he read the document before he signed it. When he read the document, which I find he did, he then saw condition 8(a), which acknowledged what he already knew, namely that the Wembley Shopping Centre buildings encroached on the WH land.
Both of these contracts, that is, the contract that Triumph Bay had entered into to purchase the WH land and the contract which the plaintiff had entered into to purchase the WSC land, were not subject to finance. Mr Lee said he had access to funds to allow him to pay cash for both contracts. Mr Lee, however, was advised by his accountant that it might be sensible to negatively gear and that he should therefore borrow some of the purchase money. Mr Lee said he had never heard of negative gearing before, but that he was prepared to accept that advice.
He then informed the defendant that he wanted the plaintiff to be the purchaser of the WH land and not Triumph Bay. The defendant, for some time before this, had been negotiating amendments to the conditions to the contract for the WH land, and the change to the identity of the purchaser was simply an additional change.
In May 1994, Mr Marks handed over the conduct of the file to an employed solicitor, Mr Nelson.

Settlement occurs in relation to the WSC land

On 1 July 1994, settlement took place in relation to the WSC land and the plaintiff became the owner of it. At that time Mr Lee, as at all times, intended to proceed with the purchase of the WH land. Although settlement on the WSC land contract put the plaintiff at the risk of a claim by the owner of the WH land because of the encroachment of the buildings of the Wembley Shopping Centre onto the WH land, no such claim was made before the contract for the WH land was entered into. It was clearly not regarded as a serious risk, or indeed a risk at all, by Mr Nelson because the plaintiff and the vendor were actively working towards agreement on the terms of the contract for the plaintiff to purchase the WH land, which was close to occurring. In fact, the parties proceeded to complete agreement on the changes to the conditions to the contract to purchase the WH land as a replacement for the Triumph Bay contract which had been executed on 17 March 1994.

Plaintiff enters into contract to buy the WH land

The negotiations having concluded, Tanner Point Holdings, the owner of the WH land, accepted a new offer by the plaintiff to purchase the WH land, on 7 July 1994. This new contract was subject to finance, which had to be the subject of an application and approval by 28 July 1994. The contract provided that if finance was not obtained, then the contract would come to an end. The contract obliged the plaintiff to use its best endeavours to secure finance.

On 13 July 1994, Tanner Point Holdings wrote to the plaintiff informing them that if the matter did not settle then it was highly unlikely that the WH land would be offered on the same terms.

The WH land contract comes to an end because the plaintiff does not obtain finance

Mr Lee says that he spoke to people at Beneficial Finance, at Westpac, and at the Commonwealth Bank. None offered finance before 28 July 1994. In particular, on 27 July 1994 the Commonwealth Bank declined to provide finance. Precisely what steps were taken by the plaintiff in discharge of the obligation to use best endeavours to secure finance were not disclosed to me. Neither party sought to subpoena or prove all of the relevant bank documents. It might seem a little surprising that the plaintiff could not easily secure finance in view of the fact that by this time Mr Lee and his mother had net assets in Australia of about $20 million and in view of the fact that Mr Lee found no difficulty in securing finance a little later in the year. My initial impression was that finance was not secured in time because the plaintiff failed to use its best endeavours to do so. However, Mr Lee gave evidence that he did take all steps open to him to secure finance before 28 July 1994, and that being the only evidence, I find that the plaintiff did use best endeavours to secure finance before 28 July 1994 but was unable to secure finance. The contract therefore came to an end.
Before 28 July 1994, the defendant was instructed by the plaintiff to attempt to negotiate an extension of time in relation to the settlement of the WH land contract. The vendors were prepared to do this if the plaintiff paid half of the legal fees and the agent's fees. Mr Lee was offended by this and rejected this proposal immediately. He asked for no advice about this course of action, and none was given. If advice had been given by the defendant about the risk he ran if he purchased only the WSC land, I find that Mr Lee, and therefore the plaintiff, would not have acted in any different way.

Tanner Point Holdings invites a renewed offer from the plaintiff to buy the WH land

By fax dated 8 August 1994, the solicitors for the vendor of the WH land confirmed that the contract was at an end but offered again to settle for $2.8 million. This time, however, they required that the plaintiff pay all of the legal fees and disbursements. The fax read:
"RE: WEMBLEY HOTEL
… We confirm the contract has automatically come to an end as a consequence of various conditions being unsatisfied.
We are instructed our client would accept a new unconditional offer providing for:-
1.Sale price 2.8 million dollars;
2.Deposit $28,000.00;
3.Settlement 5.9/94;
4.Purchaser to pay all legal fees and disbursements incurred by the vendor in connection with or incidental to sale of the hotel including the expenses relating to the contract dated 7/7/94 and the negotiations involving Triumph;
5.The contract being subject to approval of transfer of the liquor licence as required by the Act.
We are further instructed if a contract is not duly executed by all parties by 5 pm 12/8/94 our client will be obliged to consider the negotiations at an end, and that your client does not intend to purchase the hotel. …"
Once again, Mr Lee rejected this proposal immediately.
Mr Lee claimed that he did not know about the encroachment and that if he had then been told about the existence of the encroachment of the WSC buildings on the WH land, that he would have used his own money and settled on time. I repeat yet again that he did know about the encroachment, and so that claim is not credible and I reject it.
By letter dated 15 August 1994, the defendant wrote to Haydn Robinson again requesting an extension of time in which to satisfy the conditions of the contract dated 7 July 1994. On 19 August 1994, Kelvin Lim advised Mr Nelson that he was now applying to the Challenge Bank for finance.
By fax dated 24 August 1994, Haydn Robinson wrote to the defendant regarding the Wembley Hotel, referring to the letter of the defendant dated 15 August 1994 and stating:
"We have referred your letter to our client but given the principal is overseas there will be a delay in responding.
However, we understand there is no change in the position or attitude of our client.
If your client proposes to make an offer please send same to this office."

The defendant's letter of 1 September 1994

On 1 September 1994, Mr Nelson wrote to Kelvin Lim enclosing a copy of Haydn Robinson's fax of 24 August 1994. The contents of Mr Nelson's letter are important. The letter read:
"… if Capebay Holdings Pty Ltd is to proceed with the purchase of the Hotel, then a new offer will need to be made.
We have also spoken to Haydn Robinson in relation to the TAB premises and the fact that those premises encroach upon the Hotel land. It appears there is also a problem with the video store encroaching on the Hotel land.
We were advised that there was no understanding or agreement between the owners of the Hotel and the Centre in relation to this problem. Apparently, the previous owners had been in the process of negotiating a resolution of this problem.
Haydn Robinson further indicated that he was to meet with his client sometime next week to determine what action they were to take concerning the encroachment problem. He made specific reference to the owner of the Hotel seeking an account in respect of rental being paid on any premises that encroach on the Hotel land. We will no doubt be contacted by Haydn Robinson in relation to this matter in the near future and as soon as we hear anything, we will let you know. …"
The letter also referred to the fact that the plaintiff was, in those circumstances, not in a position to provide a secure leasehold title to the TAB in relation to that part of the premises which encroached upon the hotel. Mr Lim received the letter. He either showed it to Mr Lee or faxed it to him. Mr Lee left Perth on 2 September 1994 and returned sometime before 13 September 1994. So he saw the letter of 1 September 1994 before he left, or it was faxed to him. Mr Lee said in cross‑examination that he was still then expecting to gain an extension of time to settle with the vendors of the WH land.
It is significant that there was no expression of surprise on the part of Mr Lee or Mr Lim when they read this letter. Their lack of surprise or reaction to the information contained in the letter strongly corroborates my conclusion not only that Mr Lee well knew about the encroachment from some time before 12 January 1994 but also that he well knew the risk of financial loss associated with purchasing only the WSC land and not the WH land. The letter of 1 September 1994 provides written information about the consequences which would flow from the plaintiff acquiring only the WSC land and the WH land. Far from expressing any surprise about this information, Mr Lee said in cross‑examination that he was "not troubled" by the fact that the contract relating to the WH land had come to an end. He continued to expect that he could persuade the vendor of the WH land to grant the plaintiff an extension of time under the contract of 7 July 1994 and then to proceed to settle under that contract despite being told that such a course was not open. (I discuss this again under the heading "causation" below at par 113.)
For a time matters progressed as before. On 15 September 1994, Mr Lim spoke to Mr Nelson on the telephone. There is no evidence of what was said, but it can be inferred that all Mr Lim did was to ask for a copy of the contract involving the WH land. I infer that because Mr Nelson wrote to Mr Lim on 15 September 1994 saying:
"As discussed this morning please find enclosed a Contract for Sale of Land by Offer & Acceptance."
By 19 September 1994, Mr Nelson had received instructions to make another request for an extension of time in which to satisfy the conditions under the contract dated 7 July 1994. In the meantime, Mr Lee went off to the Challenge Bank on 13 September 1994 to discuss details for financing of the hotel as though nothing was wrong. On 19 September 1994, Mr Nelson wrote, with a copy to Mr Lim, to Haydn Robinson, making such a request.

Tanner Point Holdings demands that plaintiff buy land or account for rent received

Then on 23 September 1994, Mr Robinson wrote direct to the plaintiff, marking the letter for the attention of Mr Lee, confirming that he, Mr Robinson, acted for Tanner Point Holdings, and stating that:
"1.at all material times Cape Bay has had express notice a substantial part of the Wembley Centre is constructed on land owned by Tanner Point;
2.the parts on our client's land include the whole or parts of the TAB, travel agent, video hire, coffee shop, hairdresser and other vacant tenancies;
…
5.the contract for the purchase of the hotel dated 7/7/94 originally provided for contemporaneous settlement with the purchase of the Wembley Centre but that provision was deleted at the request of Cape Bay;
6.The officers of Cape Bay have had full knowledge of part of the Wembley Centre being on our client's land from the commencement of negotiations extending back to February 1994, and that it would be necessary for the hotel and centre to be acquired by one party;
…
10.to date Cape Bay has not fulfilled the expectations of the parties, notwithstanding numerous promises and undertakings.
In consequence of the above our client has concluded Cape Bay does not intend to buy the hotel. Accordingly our client has now negotiated a lease of the hotel with Atarah Pty Ltd, and a sale of fixtures and fittings to that company.
As to Cape Bay in its capacity as part owner of the Wembley Centre, our client requires resolution of the current use by tenants of Cape Bay of those parts of the centre owned by Tanner Point.
Resolution requires either:
(a)Cape Bay purchase that part of the land on which part of the centre is built, for $800,000.00; or
(b)Cape Bay account for all past and future rents and other monies paid by the Tanner Point land tenants, as and from 1/7/94 …"
Tanner Point Holdings could not have directly enforced its claim that the plaintiff account for past and future rents and other moneys paid by the tenants in the WSC buildings which encroached on the WH land. However, Tanner Point Holdings could perhaps have excluded those tenants from those parts of the WSC buildings which encroached on the WH land because they were trespassers. Plenty v Dillon (1991) 171 CLR 635 at 647 and Bendal Pty Ltd v Mirvac Project Pty Ltd (1991) 23 NSWLR 464. That would then have prompted the tenants to sue the plaintiff for damages for breach of the covenant of quiet enjoyment. See Miller v Emcer Products [1956] 1 Ch 304 at 321 and Hudson v Cripps [1896] 1 Ch 265 at 268.
I say that "perhaps" the tenants could have been excluded without being certain that was so. In the circumstances of this case, there may have been a possibility that there was some arrangement, express or implied, between Tanner Point Holdings and Jade Bay Holdings which allowed the tenants of the owner of the WSC land to occupy part of the WH land. However, neither party explored that possibility during the evidence. In the absence of any evidence on the point, I must therefore assume that the tenants could have been excluded from the WH land. The plaintiff could have applied under s 122 of the Property Law Act 1969, for an order vesting the land under the encroaching buildings in the plaintiff without having to pay any damages or without having to pay a sum of money under s 122(4) of the Property Law Act 1969. Whether a court would have been prepared to make a vesting order without ordering it to pay damages, or pay monies, would depend upon facts which were not explored in any way at the trial. Clearly Tanner Point Holdings was offering a solution to all of the possible courses of action that might have been taken by it, or by the plaintiff, by offering for sale the land under the encroaching building. Alternatively, it was impliedly offering to let the tenants stay in the encroaching part of the building in consideration for the plaintiff paying over to it, the rental for the land under the encroaching building.
If the defendant had led evidence about the history of the site and the arrangements between Tanner Point Holdings and Jade Bay Holdings, it might have been possible for the defendant to show that Tanner Point Holdings' demand for a money sum was unlikely to succeed if proceedings had been taken under s 122 of the Property Law Act 1969. Such a demand might have succeeded if Tanner Point Holdings had allowed the shopping centre to be constructed partly on the WH land. Alternatively, if the plaintiff had explored this aspect in the evidence, it may have been possible for it to show that the owners of the WH land and the WSC land were innocent of any encroachment until after they had purchased the two pieces of land. That would make it more likely that a money sum would have to be paid under s 122(4) of the Property Law Act 1969 if proceedings were taken under that Act. In the absence of any evidence, I can only proceed on the basis that there was likely to be some unquantifiable financial detriment to the plaintiff because of the encroachment. The cost of proceedings under s 122 of Property Law Act 1969 and the cost of survey fees would at least constitute a financial detriment.
Upon receipt of the 23 September 1994 letter, Mr Lee claims to have been surprised by its contents. He gave evidence that he wondered what it was all about. Mr Lim said in his evidence that:
"At that time Capebay was in trouble. We thought that Capebay was in trouble then."
Mr Lee may have been surprised, but this was not because of the reference to the encroachment or financial recompense, but, because the vendor was acting contrary to Mr Lee's over‑confident belief that the vendor would settle on the terms of the 7 July 1994 contract when Mr Lee decided the plaintiff was ready to do so. Mr Lim then sent a facsimile to Mr Nelson enclosing the letter from Haydn Robinson dated 23 September 1994 and asking if there was any substance in the letter.
On 26 September 1994, Haydn Robinson wrote to the plaintiff, marked for the attention of Mr Lee, demanding payment of the rent which the plaintiff had received from the tenants occupying buildings encroaching on the WH land and threatening issue of a summons.
On 29 September 1994, Mr Nelson wrote to Kelvin Lim explaining what Haydn Robinson had said in his letter of 23 September 1994.

Plaintiff enters into new contract to buy the WH land

The plaintiff then instructed new solicitors and rapidly concluded a new contract to purchase the WH land for $2.9 million rather than $2.8 million, arranged finance and settled on 3 November 1994, thus solving the problem of any encroachment. The plaintiff later commenced these proceedings against the defendant.

For whom did the defendant agree to act?

The defendant pleads that it contracted with Everland. I find that the defendant agreed to act for Mr Lee or any company used as a vehicle for the acquisition of the WSC land and later the WH land. Whether the contract was in those terms or whether, upon strict analysis, the agreement was originally with Mr Lee or Everland and then by novation with the plaintiff, does not matter. The defendant knew that it was advising Mr Lee and that different corporate vehicles were being used. When different corporate vehicles were proposed - at one time Everland, at another Triumph Bay, and finally the plaintiff - the defendant continued to give advice as though it was the same client. So all advice given and the duty to give advice and to act, was advice given or a duty owed to whichever corporate vehicle was employed by Mr Lee. Thus, advice given in, say, 1993 to Mr Lee or to Everland, was later available to the subsequent corporate entity. All correspondence went onto files in Mr Lee's office without regard to the corporate entity involved. In the defendant's office, the file was opened originally in the name of Everland. There is no suggestion that the defendant opened separate files for each corporate entity.

The defendant's duties

There is an issue between the parties about the scope of the defendant's retainer, and I now turn to that subject. Before doing so, I should record the following propositions of law.
A solicitor's duties will depend upon the terms and conditions of that retainer and any duty of care to be implied must be related to what he or she is instructed to do: Midland Bank v Hett Stubbs & Kemp [1979] Ch 384 at 402; Hill v Van Erp (1997) 188 CLR 159. Within the terms of the retainer, a solicitor owes a duty of care to those whom they advise, or for whom they act. The duty of a solicitor is to exercise reasonable care and skill in the provision of professional advice. In the case of practitioners professing to have a special skill in a particular area of law, the standard of care required is that of the ordinary skilled person exercising and professing to have that special skill: Heydon v NRMA Ltd (2000) 51 NSWLR 1 at [146].
Fulfilment of a solicitor's duty is not necessarily confined to carrying out specific instructions. There is a duty to protect the client from a real and foreseeable risk of economic loss by giving appropriate advice and, if necessary, initiating action to guard against economic loss: Montague Mining Pty Ltd v Gore [1998] FCA 1334.
A solicitor acting for the buyer of property is paid not only for what the solicitor, in fact, does, but also for the responsibility he or she assumes in trying to protect clients from financial loss if things go wrong: Fox v Everingham & Howard (1983) 76 FLR 170 at 175. A solicitor has a duty to warn a client of a material risk inherent in the proposed purchase: Rogers v Whitaker (1992) 175 CLR 479; Heydon v NRMA Ltd (supra) at [146].
The terms of the retainer determine the scope of the duty in both tort and in contract, and an action may be brought for professional negligence in both contract and tort: Astley v Austrust Ltd (1999) 197 CLR 1 at pars [44] to [48].

Was there any relevant limitation on the defendant's retainer in this case?

The defendant claims in the defence that its retainer was limited to "negotiate the contract terms, peruse lease agreements, undertake title searches, prepare transfer of land documents, arrange payment of stamp duty, correspond with the City of Perth in relation to reciprocal parking rights and correspond with the vendor's solicitors". It denies that it was obliged to advise about the legal effect or financial consequences of the encroachment.
I find that the defendant was obliged to warn the plaintiff of material risks inherent in the transaction unless the defendant knew that the plaintiff was already aware of those risks.
I find that Mr Lee was to negotiate the price and deal with the tenants and ascertain the arrangements between the owners of the WSC land and the WH land concerning the two properties. I also find that it was the plaintiff which was to investigate factual matters which might allow the plaintiff to bring the contract to an end under the "due diligence" clause. However, the matters the plaintiff was to attend to did not in any way limit the defendant's obligation to give advice concerning the terms of contracts which were proposed and to warn of any material risk inherent in the transaction which might cause economic loss to Mr Lee, or any corporate purchaser including the plaintiff, unless the defendant knew that the plaintiff already knew of those risks.

The effect of Mr Lee's representations about his experience

There is clearly a difference between the way advice is given to an experienced client and a client completely inexperienced in the type of transaction in respect of which a solicitor is retained. To take an obvious example, a solicitor retained by a bank to act in relation to a mortgage transaction, gives advice in a much different way from the advice given to the person who has never before been involved in a mortgage transaction. A solicitor acting for a bank, may simply have to tell the bank that there is a caveat protecting another interest in property over which the bank is to take security. That advice and a copy of the caveat may, in a particular case, be sufficient to inform the bank of the prior interest and the consequences. On the other hand, a solicitor acting for a completely inexperienced person, might have to start by explaining what a caveat is, how it operates, how it might be removed and what the effect of a claimed prior interest would be on that person's security.

It is in this regard that the representations by Mr Lee and Mr Lim about the experience they had in relation to land transactions, is important. Those representations that they had experience justifiably affected the way that the defendant gave advice.

The plaintiff's pleaded case

The plaintiff pleads that the defendant was negligent and in breach of contract in:
(a)failing to advise the plaintiff that part of the improvements comprising the Wembley Shopping Centre encroached upon the WH land (par 16(a) of the statement of claim);
(b)failing to carry out on behalf of the plaintiff a survey of the WSC land and the WH land to determine the extent to which the improvements encroached upon the WH land, or alternatively, failing to counsel or advise the plaintiff to carry out such a survey (par 16(b) and (c));
(c)failing to advise the plaintiff that if the contract relating to the WSC land proceeded to settlement but the WH contract did not, so that the plaintiff became the registered proprietor of the WSC land but not the WH land, then the plaintiff would be liable to damages and be put to trouble and expense by reason of the encroachment (par 16(d) and (h));
(d)failing to advise the plaintiff that upon a proper construction of the contract relating to the WSC land as a whole and of cl 8 specifically, the plaintiff entered into the contract relating to the WSC land subject to any rights and liabilities concerning encroachments and that the plaintiff would not be at liberty to terminate the contract relating to the WSC land by reason of the encroachments (par 16(e));
(e)that the defendant negligently advised the plaintiff in the defendant's facsimile of 29 March 1994. The pleaded allegations of negligence are that:
(i)"Even if the sale of the Piazza land was not expressed to be subject to the sale of the WH land, that would nevertheless not cause great problems as the plaintiff, in effect, could take comfort from the fact that there was a clause in the WH contract that made it subject to the Piazza contract proceeding whereas such advice was incorrect as there was no reasonable basis in law for such advice." (par 16(f));
and
(ii)"That the existence of a 30 day due diligence period contained in the Piazza contract would entitle the plaintiff (to) 'walk away' from the Piazza contract, whereas such advice was incorrect as there was no basis for the provision of such advice based on a true and correct construction of clause 8 of the Piazza contract." (par 16(g)); and
(f)that the defendant negligently failed to advise the plaintiff to make an offer in terms of the invitation to that contained in the letter from Haydn Robinson to the defendant dated 8 August 1994 (par 20A(b) and par 20D).

My conclusions concerning the plaintiff's pleaded case

When the defendant became aware of the fact that the WSC building encroached on the WH land and if it had believed that the plaintiff did not know about it then, the defendant would have been under a duty to advise the plaintiff of the fact. I have already found the plaintiff knew about the encroachment. Nevertheless, the defendant did advise the plaintiff about the encroachment. It expressly drew the plaintiff's attention to the provisions of condition 8(a) in the annexure which was enclosed with the defendant's letter of 25 March 1994. If the plaintiff had been an inexperienced person, more might have been required. In this case, however, Mr Lee and Mr Lim had been at pains to demonstrate to the defendant how astute and expert they were. Mr Lee indicated he was a person capable of negotiating direct with the vendor of the WSC land and had provided to the defendant Annexure (5.1d) expressly spelling out the fact of the encroachment. In my view, nothing more was required of the defendant than to draw attention to condition 8(a).
As a result, the pleaded allegations of negligence which I have set out in par 96(a) and (b) above, must fail. There was no duty on the defendant to advise the plaintiff of what the plaintiff already knew. There was no duty to carry out a survey or advise the plaintiff to carry out a survey. The end result of a survey would be to disclose what was already known. There is no allegation that the defendant should have recommended a survey to learn about the extent of the encroachment. Indeed, as I have noted, no‑one at trial bothered to identify the extent of the encroachment, because it was not an issue.
There is then the allegation of negligence in par 96(c) above. This alleges a failure to advise about the consequences of any encroachment. I find that the defendant was negligent in failing to provide this advice. Advice should have been given by the defendant about the risk that the owner of the WH land could exclude the WSC tenants from going into those parts of the buildings which encroached on the WH land, that the tenants could then sue the plaintiff for damages for breach of the covenant of quiet enjoyment, that proceedings might have to be taken under s 122 of the Property Law Act 1969, that relief granted under that section might result in the plaintiff having to pay damages or monies to Tanner Point Holdings, and that to avoid all of those consequence some money might have to be paid to Tanner Point Holdings or that at the least the plaintiff would be put to expense in conducting litigation and having surveys carried out.
Notwithstanding that the defendant was aware that Mr Lee knew all about the fact of encroachment, the defendant was not entitled to assume that the plaintiff knew about the adverse economic consequences of encroachment in circumstances where the WSC land was purchased but the WH land was not. Mr Nelson admitted that he did not know of any facts which would allow him to assume that Mr Lee knew about the legal consequences which could flow from the encroachment of the buildings on the WH land. Mr Marks believed from the Everland brochure, that Mr Lim was experienced and that Mr Lee had experience in land development in Australia in relation to land transactions. Nevertheless, a reasonable solicitor in the position of the defendant, should have provided advice about the consequences of the encroachment when the possibility developed that the WSC land contract might proceed and the WH land contract might not.
The moment when this possibility arose is not easy to identify. On 6 April 1994, the plaintiff entered into a contract to purchase the WSC land. It did not enter into a contract to purchase the WH land until 7 July 1994. However, before 6 April 1994, Mr Lee had signed a contract to purchase the WH land. This was the contract entered into by Triumph Bay on 17 March 1994. Neither of the parties explored in submissions or via evidence when it was that the 17 March 1994 contract came to an end. An examination of its conditions reveals that it could have come to an end 14 days after 17 March 1994. Until it did come to an end, Mr Lee had no need to worry about the encroachment. On 29 March 1994, Triumph Bay held the contracts to purchase both the WH land and the WSC land. However, when the point was reached when it was imminent that Mr Lee would be committed to purchase the WSC land without any certainty that he could proceed with the purchase of the WH land, a reasonable solicitor should have provided the advice about the adverse financial consequences of not securing a right to acquire both pieces of land. That occurred sometime after 29 March 1994 and before 5 April 1994. The negligent omission occurred at the latest, therefore, by 5 April 1994.
Unknown to the defendant, however, the plaintiff already knew about the adverse financial consequences of encroachment. I will deal with that aspect again when looking at the issue of causation.
In relation to the allegation contained in par 96(d) and par 96(e)(ii), the pleaded allegation is to the effect that the defendant should have advised that the existence of encroachment of the Wembley Shopping Centre buildings on the WH land, would not allow the plaintiff to terminate the contract under the "due diligence" clause. In my view, the due diligence provision was perfectly clear in its terms and it had been read by Mr Lee. He was the person who was going to make enquiries about matters which had not previously been known to him and which, if revealed for the first time during the "due diligence" period, may have allowed him to terminate the contract. The existence of the encroachment was not going to be revealed to him for the first time during the due diligence period as he well knew. Mr Lee has a perfectly good understanding of English, and there was nothing difficult about the language of the "due diligence" clause which required any particular explanation. In my view, there was no negligence in failing to advise the plaintiff about the obvious effect of the "due diligence" clause. I have also discussed this aspect of the case at pars 50‑55 above.
As to the allegation that the advice in the 29 March 1994 facsimile was wrong, as alleged in par 96(e)(i) above, I have already concluded that there was no negligence involved in writing this letter. I repeat the conclusions I reached in pars 50‑55 above.
As to par 96(f) above, the allegation is that the defendant failed to advise the plaintiff to make an offer of the kind which had been invited in Haydn Robinson's letter of 8 August 1994. An offer in those terms would have been accepted, according to Mr Gascoine speaking on behalf of Tanner Point Holdings. Mr Gascoine's evidence was not challenged in any way, and so I accept it. The allegation that the defendant negligently failed to recommend to the plaintiff to make the offer which had been invited, must be dismissed. The defendant advised in the letter of 1 September 1994 that the plaintiff, if it wished to proceed, "needed" to make a new offer. The same letter also explained what claims would be made concerning the encroachment. The allegation of negligence in par 96(f) is therefore dismissed.

Causation

Having concluded that the defendant was negligent in failing to give the advice referred to above, it is now necessary to consider whether the negligent omission caused any loss.
The action is brought both in contract and in tort, and the plaintiff is entitled to either reliance or expectation loss. In contract, the damages are to be calculated by measuring the difference between the position that would have been created by full performance of the contract and the position which has actually been created by the breach. In tort, the plaintiff must be put in the position that it would have been in had the tort not been committed. The question to ask is how much worse off the plaintiff is as a result of the failure to provide the correct advice. See generally Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 and Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1.
In this case, if the contract had been performed, then the defendant would have advised of the adverse consequences which could flow from the encroachment of the Wembley Shopping Centre buildings on the WH land. In relation to both the tort claim and the contract claim, it is necessary to consider the hypothetical question about what the plaintiff would have done had such advice been given: Rosenberg v Percival (2001) 205 CLR 434 @ [24], [87] and [158].
As I have found, Mr Lee and Mr Lim well knew about the existence of the encroachment before 12 January 1994. Thus, throughout all of the negotiations after that date, this was a fact well known to Mr Lee and Mr Lim. Furthermore, Mr Lee knew throughout all of the negotiations and throughout all of 1994, that there were adverse financial consequences likely to flow from the encroachment if he bought only the WSC land.
So, what would Mr Lee have done if he had been provided with written advice by the defendant about the adverse financial consequences of the encroachment of the Wembley Shopping Centre buildings on the WH land if the plaintiff bought only the WSC land? I find that Mr Lee would have responded by saying that he knew that there were adverse financial consequences. He would have said that he knew he could be "held to ransom." If he had been given the advice just before making the offer on 5 April 1994 leading to the contract for the WSC land, he would have said in response to such advice that he was not worried about that advice because he intended to become the owner of the hotel. He would have added that his intention to do so was shown by the fact he had already entered into a contract to purchase the WH land via Triumph Bay on 18 March 1994. If he had been given the advice just before 28 July 1994, when the time for finance approval was running out under the 7 July 1994 contract, he would have expressed confidence that he could persuade the vendor to grant an extension of time to allow him to settle at a later date. In short, he would have acted as he did act without the advice. This finding about what he would have done is based on my assessment of him in the witness box and from the evidence I mention below.
Mr Lee did know about the adverse financial consequences of encroachment in 1993 and 1994. This was revealed via some questions I put to Mr Lee, and which were answered by him on pages 345 and 346 of the transcript. The questions and answers were as follows:
"I just want to get a little better understanding about your knowledge back in 1993 at the time when you first saw Mr Marks. Do I take it that you had done some land acquisitions before then of residential properties?---Yes, mostly through my mother. She bought a lot of what we call land bank, which is residential houses.
Were they always houses or did you sometimes buy blocks and build houses on them?---I can't remember any that we built on. In fact, that was one of the reasons why I started Everland. I said to mum that this is not like Singapore, where capital appreciation is so quick that it doesn't matter about our ongoing costs; that whenever you get a piece of land you should develop it straightaway and that is how you make your money. So I would say that, no, most of them - you know, she just buys them, rents them out, and by the time you deduct all the expenses you make nothing. So, no, I would say - I mean, I can check if your Honour wants me to, but I don't think we did any development work.
All right. When back in 1973 (sic) if you bought a property knowing that part of the building was built on somebody else's land, what did you think the consequences would be?---I know exactly what that consequence is. I wouldn't have bought it in the first place but, if I did buy it, I knew that I would be, as I said, held ransom because they could charge me anything they want. It is their property."
Counsel for the plaintiff later agreed that Mr Lee understood my reference to "1973" to be a reference to 1993.
I find that Mr Lee well knew that there were adverse financial consequences if he did not buy the WH land, and he knew this at all times in 1993 and 1994. In his terms, back in 1993, he well knew that if he bought a property knowing that part of the building was built on somebody else's land, that he could be "held ransom because they could charge me anything they want." He might not have been able to provide a dissertation about the right of the tenants of the WSC land (who were located in the buildings encroaching on the WH land) to sue the plaintiff for damages for the breach of the covenant of quiet enjoyment (which they could have done if the owner of the WH land expelled the tenants from the WH land). He probably did not know anything about s 122 of the Property Law Act 1969. However, he did know full well that there were adverse financial consequences. His view was that the owner of the land on which buildings encroached could make unlimited demands, that is, hold him to "ransom", which overstates the adverse financial consequences.
The finding that Mr Lee would not have acted any differently if he had been given advice about the adverse financial consequences is also supported by what he did after receiving the letter from the defendant dated 1 September 1994. It enclosed the letter from Haydn Robinson dated 24 August 1994, which was still inviting an offer as suggested in Haydn Robinson's letter of 8 August 1994. The defendant's letter of 1 September 1994 expressly advised that a new offer would need to be made by the plaintiff because the 7 July 1994 contract was at an end. The letter also spelt out that the owner of the hotel was contemplating the seeking of an account in respect of rental paid on any premises that encroached on the WH land. As I have noted above, it seems that this is what the owner of the hotel was prepared to accept, in lieu of expelling the trespassing tenants from his land. The 1 September 1994 letter is therefore a letter containing the information or advice about adverse financial consequences, which is a subject the defendant should have addressed earlier. Mr Lee did not react with surprise to the information contained in the 1 September 1994 letter. He continued to assume that he would be able to gain from the vendor of the WH land, an extension of time in relation to the 7 July 1994 contract. This was so even though the 7 July 1994 contract had come to an end, and even though the plaintiff had been told that no extension would be granted. Mr Lee acted as though the vendor of the WH land was an over‑anxious vendor. Alternatively, Mr Lee's cavalier attitude to contractual provisions made him over‑confident that he would be able to obtain the WH land at a time which suited him and on the terms set out in the 7 July 1994 contract. As it turned out, the vendor called his bluff, and when it did, Mr Lee had to pay more in order to obtain the WH land.
I therefore find that the negligent omission by the defendant to give advice about the consequences of the encroachment did not cause any loss. Nothing different would have occurred even if the advice had been given. It would have informed Mr Lee what he already knew in general terms.
I should add that, even if I am wrong in concluding that the other allegations of negligent acts or omissions should be dismissed, then those acts and omissions caused no loss for the reasons given above. Mr Lee impressed me as a person with a confidence, indeed over‑confidence, that he would be able to complete the purchase of both properties in his own time and on his own terms. Warnings that he would not be given an extension of time and information or advice he might have been given about the risk of loss or adverse financial consequences, were not of concern to him.

Provisional assessment of damages

Because the issue of damages was fully argued, I should make findings concerning damages issues. These findings would allow damages to be calculated.
The first component of damages claimed is the extra $100,000 which the plaintiff had to pay when it re‑negotiated a contract with the owners of the WH land. If negligence causative of loss were proven, this was damage suffered by the plaintiff.
The second component of loss related to the lease of the hotel. By the time the plaintiff concluded a new contract with the vendor of the WH land, that vendor had entered into a lease with the lessee of the Wembley Hotel which provided for rent of $225,000 per annum. This was less than the $252,000 per annum which had been previously negotiated between the plaintiff and the proposed lessee of the hotel in June or July 1994. The plaintiff claims that if there had been no negligent acts or omissions, the plaintiff would have settled on the 7 July 1994 contract and would have then signed a lease providing for the rent of $252,000 per annum with rent review in the last three years. The present value of the difference in rental ($252,000 ‑ $225,000) for each year of the lease should be calculated. The total of the five amounts, ie for the five years of the lease, would then be arrived at. From that total there must be deducted the "additional rent" (provided for in both the lease proposed and the lease actually entered into) which increased by reason of the fact that base rent was less than had originally been negotiated between the plaintiff and the lessee of the hotel. I would have required the parties to carry out the calculations based on these reasons.

The defendant then argues that in the lease which had been negotiated by the plaintiff and the proposed lessee of the hotel, the plaintiff was obliged to spend $200,000 in relation to capital works, whereas under the lease which was actually entered into by the lessee and the vendor of the WH land, there was no such obligation. The defendant argues that this $200,000 must be deducted from the above damages reducing the overall loss to zero. I was at first attracted to this argument, but it became evident upon a review of the evidence that Mr Lee had always intended to spend $200,000 so that he was no worse off whether he spent the money because he was obliged to do so under a lease or because he did so of his own volition. In my view, the fact that there was no capital works clause in the final lease, does not avail the defendant in relation to the damages issue.
The defendant also alleges that damages should be reduced because the plaintiff received rent from tenants in the encroaching buildings before settlement and when it was not entitled to it. I do not see that this fact has anything to do with the claim for damages, and I would not allow any such credit.
These findings should allow the parties to calculate the damages which should be awarded if ever it became necessary.

Conclusion

The plaintiff's claim is dismissed.

Details

AGLC: Capebay Holdings Pty Ltd v Sands [2002] WASC 287
Case: [2002] WASC 287
Decision Date

CaseChat Overview and Summary

The plaintiff, Capebay Holdings Pty Ltd, brought a claim against its former solicitors, the defendant, for damages for alleged negligent omissions to provide advice and for negligent advice. The plaintiff claimed that the defendant was negligent in not advising the plaintiff of the encroachment of some buildings on neighbouring land and the adverse financial consequences of such an encroachment, and in giving negligent advice. The plaintiff claimed damages for the loss of an opportunity to purchase the neighbouring land and the additional amount it paid to purchase it, and for loss of income from the lease of the encroaching buildings. The defendant denied liability and counterclaimed for unpaid legal fees. The case was heard by Pullin J in the Supreme Court of Western Australia, who dismissed the plaintiff's claim. The plaintiff's claim was dismissed because the plaintiff knew of the encroachment and the adverse financial consequences of purchasing the property without the neighbouring land. The plaintiff's director, Mr Lee, had been advised of the encroachment before the plaintiff contracted to purchase the property, and knew of the financial consequences. The defendant's advice that the plaintiff could "walk away" from the contract if the neighbouring land was not purchased was not negligent. The plaintiff would not have acted any differently if it had been advised of the consequences of the encroachment, because it knew of them. The plaintiff's claim for damages was dismissed.

Orders