Cassis and Anor. v Kalfus (No.2) - [2004] NSWCA 315

No judgment structure available for this case.

CITATION: Cassis & Anor. v. Kalfus (No.2) [2004] NSWCA 315

HEARING DATE(S): 25 and 26 March 2004

JUDGMENT DATE:
20 September 2004

JUDGMENT OF: Handley JA at 1; Giles JA at 2; Hodgson JA at 42

DECISION: 1. Appeal allowed. 2. Orders below in relation to Mr. Cassis set aside. 3. In lieu thereof, verdict and judgment for Mr. Cassis against Mr. Kalfus in the sum of $385,649.00, to take effect as at this date. 4. Mr. Kalfus to pay one-half the costs of Mr. Cassis of so much of the proceedings, including the first trial, as was referable to his claim. 5. Mr. Kalfus to pay the costs of Mr. Cassis of the appeal, and to have a certificate under the Suitors Fund Act if otherwise entitled.

CATCHWORDS: PROCEDURE - Appeal - Issues not decided by primary judge, to some extent dependent on credibility - Whether appropriate for appeal court to decide - Relevant considerations - DAMAGES - Loss caused by breach of fiduciary duty - Equitable compensation - Loss due to realisation of risk knowingly undertaken by plaintiff and not significantly affected by the breach of duty - Whether defendant liable in whole or in part.

CASES CITED: Beach Petroleum NL v. Kennedy (1999) 48 NSWLR 1
Brickenden v. London Loan & Savings Co. [1934] 3 DLR 465
Cackett v. Keswick [1902] 2 Ch. 456
Cassis v. Kalfus [2001] NSWCA 460
Henville v. Walker (2001) 206 CLR 459
Kolavo v. Pitsikas [2003] NSWCA 59
Nocton v. Lord Ashburton [1914] AC 932
Pateman v. Higgin (1957) 97 CLR 521
Quinn v. Rocla Concrete Pipes Ltd. (1986) 6 NSWLR 586
United Dominion Corporation Ltd. v. Brian Pty. Ltd. (1984) 157 CLR 1
Youyang Pty. Ltd. v. Minter Ellison (2003) 77 ALJR 895

PARTIES :
Sami Alfred Cassis and Gisele Cassis - appellants
Marcel Isador Kalfus - respondent

FILE NUMBER(S): CA 40715/03

COUNSEL: Mr. P. Roberts SC with Mr. M.K. Minehan for appellants
Mr. G. Lindsay SC with Mr. A. Ridley for respondent

SOLICITORS: Levitt Robinson for appellants
Mallesons Stephen Jaques for respondents

LOWER COURTJURISDICTION: Supreme Court - Common Law Division

LOWER COURT FILE NUMBER(S): SC20589/96

LOWER COURT
JUDICIAL OFFICER : Cripps AJ

CA 40715/03
SC 20589/96

HANDLEY JA
GILES JA
HODGSON JA
Monday 20 September 2004

CASSIS & ANOR. V. KALFUS (No.2)

HEADNOTE

FACTS
In 1982, the appellant (C) began work for a French company (CMF) in Australia, through its Australian subsidiary (CMA). The respondent (K) acted as a solicitor for CMA, and was an alternate director of it.

Between 1982 and 1988 CMA expanded, with turnover increasing from $425,824.00 in 1983 to $1,986,985.00 in 1988. By 1988, C was on a salary package of $100,00.00 per annum, comprised of a salary of about $85,000.00 per annum, the provision of a car and superannuation.

In 1988, C and K discussed the possibility of entering into a joint venture directed at taking over the business conducted by CMA. C and K agreed that, if CMF allowed them to take over the business of CMA, they would form a company International Gas Corporation Pty. Limited (IGC) for this purpose; and they would both become directors and shareholders of IGC.

K wrote a letter to C dated 23 January 1989 which (the primary judge found) represented that his legal practice was netting or could be netting an amount in excess of $100,000.00 per annum, sufficient to make a contribution to the pool that was to be established by the joint venture; whereas in fact it was netting no more than $75,000 per annum.

On 27 February 1989, CMF agreed in writing to the purchase by K and C from CMF of all the shares in CMA for A$1,155,213.00. Under a distribution contract, CMF agreed to IGC being its sole agent in Australia.

In March 1989 IGC commenced trading, and raised working capital through an overdraft facility. C and K acted as guarantors, securing their obligations by mortgages over their respective residential properties. Subsequently, different arrangements were made to finance the business, under which K gave no security.

On 9 April 1992, CMF gave written notice that the distribution contract would terminate on 31 December 1992. During 1993, the financial position of IGC became such that K could no longer draw wages; and the business ultimately failed in 1995. The primary judge found that the failure of the business was due to the termination of the distribution contract.

Pursuant to guarantees, C paid over $450,000 of the debts of the business. K made no contribution to the payment of such debts.

C commenced proceedings against K on 12 June 1996, claiming breaches of duty as his solicitor, and breaches of fiduciary duty. The primary judge dismissed the claim, finding no breach of any relevant duty. On appeal, questions also arose as the whether C’s action was defeated by the Limitation Act, and as to whether he could recover compensation for psychological injury.
HELD
The misrepresentation and associated non-disclosure by K in the letter of 23 January 1989 amounted to a breach of duty owed by K to C as an actual or prospective joint venturer: United Dominions Corporation Ltd. V. Brian Pty. Ltd. (1985) 157 CLR 1. Otherwise, no error was shown in the primary judge’s decision that there was no relevant breach of duty.

(1) (Per Handley JA and Hodgson JA, Giles JA contra.) Having regard to the relevant considerations of adequacy of material on which to make a decision, the affording of procedural fairness, and the desirability of just, quick and cheap resolution of issues between the parties, the Court of Appeal could and should determine whether loss was thereby caused and the amount of such loss.

(2) Where a party has a fiduciary duty and breaches that duty by non-disclosure of material facts, the Court may draw an inference concerning the conduct of the “constituent”, even where there is no explicit evidence from the constituent as to what his action would have been: Brickenden v. London Loan & Savings Co. [1934] 3 DLR 465. A finding that, but for the misrepresentation and non-disclosure, C would have not gone ahead with the venture was strongly supported by the circumstances.

(3) C was entitled to equitable compensation for loss caused by K’s breaches of duty: Nocton v. Lord Ashburton [1914] AC 932, Beach Petroleum NL v. Kennedy (1999) 48 NSWLR 1.

(4) In determining the quantification of equitable compensation, it is appropriate to begin with the question of “but for” causation: Henville v. Walker (2001) 206 CLR 459. However, a defendant liable for inducing a plaintiff to enter into a business venture does not thereby become an underwriter of all loses incurred by the business. Losses to C due to K’s failure to give financial support could be recovered, including the loss of the chance that the business could have been saved; but otherwise losses due to the termination of the distribution contract were not recoverable, because this was not foreseeable by K and was the realisation of a risk knowingly undertaken by C.

(5) K failed to show that a crystallised and definite loss occurred to C prior to 12 June 1990, the relevant date for limitation purposes, and the proceedings were not statute-barred.

(6) Damages in respect of psychological problems are not recoverable for breaches of duty concerning financial dealings, unless the circumstances are such that there is a reasonably foreseeable risk of psychological injury from such breaches: Kolavo v. Pitsikas [2003] NSWCA 59 at [77].

**********

CA 40715/03
SC 20589/96

HANDLEY JA
GILES JA
HODGSON JA

Monday 20 September 2004

CASSIS & ANOR. V. KALFUS (No.2)

Judgment

1 HANDLEY JA: I agree with Hodgson JA.

2 GILES JA: The core facts in Mr Cassis’ claim against Mr Kalfus are set out in the judgment of Hodgson JA, which I have had the advantage of reading in draft. I will add to them in some respects. For the reasons which follow, in my opinion the orders made against Mr Cassis can not stand and, regrettably, another new trial must be held.

3 Mr Cassis encapsulated on appeal a principal claim and four fall back claims. The principal claim was that, but for various breaches of duty by Mr Kalfus as solicitor or joint venturer, he would not have given up his position as managing director of CMA and taken over its business in joint venture with Mr Kalfus, and that he could recover from Mr Kalfus all his foregone salary and all the amounts paid to discharge the White mortgage, to pay the Roden judgment and to satisfy other creditors of IGC. The first, second and third fall-back claims were that, but for various breaches of duty by Mr Kalfus as solicitor, he would not later have undertaken the obligations which led to him having to discharge the White mortgage and pay Mr Roden and would not have exposed himself to trading whilst insolvent and consequent payment of trade creditors, and that he could recover from Mr Kalfus the respective amounts he had paid. The fourth fall-back claim was that Mr Kalfus was liable as joint venturer to pay half the amounts he had paid.

The principal claim

4 The duties asserted on appeal, as duties owed by a solicitor to the solicitor’s client or alternatively by one joint venturer to another, were -

Legal Profession Act

5 The judge considered that, with one qualification, the relationship between Mr Cassis and Mr Kalfus in relation to embarking on the joint venture was not a solicitor/client relationship. He said, as I read his reasons referring to a duty of care as between solicitor and client, that no case established that “in commercial dealings between two parties at arms length there is a relevant duty of care on one party to the other simply because the party on whom the obligation is alleged to lie happens to be a lawyer.”

6 Mr Kalfus had acted as solicitor for CMA and as solicitor for Mr Cassis, but it did not follow that he was acting as solicitor for Mr Cassis when they were discussing a joint venture between them. The judge found that Mr Cassis “with full knowledge of all relevant circumstances was prepared to accept CMF’s terms”, and there was no occasion for Mr Kalfus to advise Mr Cassis on commercial or prudential aspects of taking over the business. Mr Kalfus did not purport to act as Mr Cassis’ solicitor, either in advising him on legal aspects of taking over the business or in documenting the transaction: the letter of 23 January 1989 was by particular request made by Mr Cassis, plainly not in fulfilment of a solicitor’s responsibilities in acting for a client. No evidence from Mr Cassis provided a sound basis for engagement of Mr Kalfus as his solicitor in relation to entry into or documentation of the joint venture, or for expectation that Mr Kalfus would act as his solicitor in those respects. The judge’s finding as to the relationship has not been shown to be incorrect.

7 Mr Kalfus was not otherwise acting for Mr Cassis as his solicitor at the time, so as to raise a possible conflict of interest in also dealing with Mr Cassis as joint venturer. No requirement arose that he advise Mr Cassis to obtain independent advice. Even if it had, there was no evidence going to what the independent advice would have been or how it would have affected Mr Cassis’ conduct.

8 The qualification, in the judge’s view, was Mr Cassis’ allegation “that he was not adequately advised concerning the potentially illegal or unenforceable obligation assumed by [Mr Kalfus] with respect to sharing the proceeds of his practice with another person”: that is, the duty earlier mentioned to advise that the proposal to pool and share profits was unlawful. The judge thought the qualification necessary “where by reason of the solicitor’s special knowledge, he may find himself committing his co-venturer to a transaction that may be unenforceable or illegal”.

9 I doubt that, if the relationship between Mr Cassis and Mr Kalfus was not otherwise that of solicitor and client, it became such a relationship to the extent that the joint venture dealt with the profits of Mr Kalfus’ legal practice, or that if Mr Kalfus was not otherwise acting as Mr Cassis’ solicitor he came under a duty to give legal advice to Mr Cassis with respect to that aspect of their commercial dealing. It does not matter. There was evidence that an accountant, Mr Loewy, told Mr Cassis that it was contrary to s 119 to share profits because Mr Cassis was not a legal practitioner, and the judge considered that any illegality had “little impact” on Mr Cassis because he nonetheless went ahead. It was submitted that the letter of of 23 January 1989 post-dated the Loewy occasion, which it did by a short time, and that it amounted to Mr Kalfus’ implicit representation that the sharing was nonetheless permissible whereby any warning on the Loewy occasion was swamped. In my opinion, the judge’s findings that Mr Cassis went ahead believing that the sharing of profits would be honoured, and that whatever effect s 119 might have had did not trouble him, was well open. It has not been shown to be incorrect.

10 The substance of Mr Cassis’ case, then, lay in the duties concerning Mr Kalfus’ financial position and the earnings of his legal practice, as fiduciary duties owed by one joint venturer to another. The judge was of the view that, with the exception of the operation of s 119, “there was no relevant duty of care … as a fiduciary that was breached by [Mr Kalfus] as claimed in these proceedings”. He immediately said that Mr Cassis and Mr Kalfaus “entered into a business relationship”. From these last words it seems that he considered that, with the exception mentioned, the relationship was that of parties to a business relationship which did not carry with it fiduciary duties. In my opinion, however, Mr Kalfus owed to Mr Cassis fiduciary duties, arising from the relationship between him and Mr Cassis as prospective joint venturers, extending to the duties concerning Mr Kalfus’ financial position and the earnings of his legal practice.

11 A fiduciary relationship may arise during negotiations for a partnership or a joint venture, before any partnership or joint venture agreement has been finally concluded, if the parties have acted upon the proposed agreement, or have acted on an informal arrangement to become partners or joint venturers and taken steps to establish or implement the partnership or joint venture (United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 6, 11-12, 16). If partnership is not involved, whether there is such a relationship depends upon the nature of the particular joint venture and the content of the obligations which the parties to it have undertaken (ibid at 10-11). In the present case Mr Cassis and Mr Kalfus were to share in profits, the profits from Mr Kalfus’ legal practice and from the business of IGC. As a non-lawyer, Mr Cassis depended on Mr Kalfus for the conduct of the legal business from which the former profits would come. Mr Kalfus was inexperienced in gas water heaters, and depended on Mr Cassis and his knowledge of the business of IGC for the latter profits. There had to be, and no doubt at the time was, the mutual confidence and trust between them which underlies most consensual fiduciary relationships (ibid at 8, 12, 16). I consider that the joint venture relationship between Mr Kalfus and Mr Cassis was fiduciary.

12 To describe a relationship as fiduciary is only the first step: it is necessary to determine what duties thereby arise. I do not think that there arose all the duties asserted by Mr Cassis on appeal.

13 One intending joint venturer normally does not have to advise the other to obtain independent legal and financial advice. How the joint venture agreement is to be documented is a matter for both joint venturers, and there was nothing to establish that Mr Kalfus rather than Mr Cassis was obliged to do more by way of documentation than was in fact done: in any event, it was left entirely speculative that doing something more would have meant that Mr Cassis did not leave his employment with CMA and involve himself in the purchase and conduct of its business. I doubt that advice upon the legality of sharing the proceeds of the practice was required by the solicitor joint venturer to the lay joint venturer, but for the reason earlier given it does not matter.

14 As a general proposition, one intending joint venturer is not obliged to disclose to the other its financial position, although in some circumstances disclosure may be required. Misrepresentation is another matter: it is inconsistent with mutual trust and confidence. Mr Kalfus was under a fiduciary duty not to mislead Mr Cassis by misrepresentation of his financial position and the earnings of his legal practice, and if Mr Cassis’ case was to succeed it was necessary and sufficient for breach of duty to establish misrepresentation of that kind.

15 Mr Cassis pleaded his case, in this respect, as breaches of duty in that Mr Kalfus -

“(e) Mislead [Mr Cassis] as to his true financial position by representing that his legal practice was earning $200,000 net per annum when in fact it was earning less than $70,000 net per annum and by representing that he was able to fulfil the representations made to [Mr Cassis’] concerning pooling of profits and contributing to capital.

16 The representations concerning pooling of profits and contributing to capital picked up in these paragraphs were rather obscure. So far as going beyond the earnings of $200,000, they appear to have been in the earlier pleading that Mr Kalfus would meet and be responsible for one half of any capital contribution required by or in respect of the new company.

17 The representation as to earnings of $200,000 was, on the evidence in Mr Cassis’ case, made orally: later in these reasons I set out Mr Cassis’ evidence. The judge said that he was “not persuaded that this was a representation made by the defendant to the first named plaintiff”. This finding of fact was not challenged on appeal.

18 But the judge went on, referring to the letter of 23 January 1989 -

“However, it is fairly clear from the terms of the above letter that the defendant was representing, or at least implying, that his legal practice was netting, or could be netting, an amount in excess of $100,000 per year, sufficient to make a contribution to the ‘pool’ that was said to be established by the joint venture.”

19 The judge then said that Mr Kalfus “said in evidence that his earnings at that time never rose above $70,000 per year before tax”. This was not entirely accurate. Mr Kalfus’ evidence had been that the net income before tax had been between $70,000 and $100,000.

20 The finding thus made was of a misrepresentation as to the earnings of Mr Kalfus’ legal practice. It was not the specific misrepresentation pleaded, but would fall within the pleaded case because there was a failure by misrepresentation to disclose the true earnings of the legal practice.

21 It did not follow that there was breach of fiduciary duty as to true financial position or ability to fulfil the representations. Mr Kalfus’ financial position and capacity went beyond the earnings of his legal practice, and was but ineffectually addressed in the conduct of Mr Cassis’ case at the trial. Mr Kalfus contested on appeal that the letter conveyed the representation as to earnings of $100,000, and it may be that what the judge said was not meant to be a concluded view. Nonetheless, on the finding Mr Cassis had a basis for breach of fiduciary duty by misrepresentation, through the letter of 23 January 1989, that the earnings of Mr Kalfus’ legal practice were in excess of a net $100,000 per annum.

22 There was widespread contest at the trial over reliance by Mr Cassis on Mr Kalfus’ acts or omissions, as solicitor or joint venturer. For the fall-back claims, Mr Cassis suffered adverse findings by the judge. The judge said -

“65. … Throughout all the transactions [Mr Cassis] knew perfectly well what he was committing himself to do, and was prepared to undertake obligations to keep IGC afloat. He accepted in the case of the White and Vesaro transactions that [Mr Kalfus] could provide a guarantee only and in the case of the Roden transaction he was providing no support at all.

23 Because he took a limited view of breach of duty, the judge did not make findings beyond the s 119 matter as to reliance in Mr Cassis giving up his position as managing director of CMA and taking over its business in joint venture. Was the judge correct so far as he found in the letter of 23 January 1989 the representation as to earnings of $100,000, and what was the effect, if any, of the letter on Mr Cassis’ conduct in those respects? The answers to these questions call for regard to the circumstances in which the letter came into existence and to other evidence in the proceedings.

24 According to Mr Cassis, in about May 1998 Mr Kalfus suggested that they buy CMA on a fifty-fifty basis, and -

“Where would we get the money to purchase the company?’

‘From day to day trading and we can pay the company (meaning Chaffoteaux) by instalments over two or three years’.

‘How much can you contribute?’

‘I will give you fifty per cent of my practice, you will be entitled to fifty per cent of the profits of the firm.’

‘How much does your practice make?’

‘Around $200,000 nett per year.’

‘Are you prepared to confirm this in writing?’

‘Of course I will, we will make an agreement between you and I and since I am a solicitor we will not require anyone externally. We can use my house and your house as security to raise a loan.’”

25 Mr Kalfus did not agree that he first raised this matter. According to Mr Kalfus, Mr Cassis was considering a management buyout of CMA in the earlier part of 1988, and was having discussions with the French management of CMF. He said that in October or November 1988 Mr Cassis invited him to join in the buyout - indeed, was rather insistent. This conflict of evidence as to initiation and timing was not resolved by the judge.

26 There must have been a discussion about pooling profits, as the letter recorded, although the evidence did not extend to all the details in the letter. But Mr Kalfus specifically denied that he represented “that my legal practice provided a net income of approximately $200,000 per year, or words to that effect”. As I have said, the judge was not satisfied that Mr Kalfus made the representation as to earnings of $200,000. It was a major matter in Mr Cassis’ evidence. Rejection of Mr Cassis’ evidence would be material to the questions earlier identified.

27 Mr Cassis gave evidence that he later asked Mr Kalfus to “confirm in writing the agreement that we reached in May in relation to the purchase of the business and the sharing of the profits from my [sic: your?] practice”, and that the letter of 23 January 1989 was the result. It was amended in one respect at his request, by a handwritten change from drawing $100,000 from the profits of IGC on account of a share of profits to drawing that sum “as an annual salary as managing director of the company”. Mr Kalfus agreed that he was asked for a letter.

28 The letter should be set out in full -

“Dear Sami

Re: Legal Practice of MARCEL, KALFUS & CO

This letter is by way of confirmation of the agreements reached between ourselves concerning International Gas Corporation Pty Limited and the above legal practice.

I hereby confirm and acknowledge that you shall as from 1st February, 1989, be entitled to an one half share of the net profits of the above legal practice. In determining net profits there shall be deducted from the gross fees received in any tax year or trading period, all operating expenses including wages, rent, equipment leasing charges and bank interest and other charges and income tax.

I hereby further confirm that the net profit from the legal practice and from International Gas Corporation Pty Ltd (IGC) and all other related companies or businesses operated by us jointly, are to be pooled or aggregated and then shared by us on an equal basis.

I also confirm that you shall be entitled during an annual period of operation of IGC and related entitles to draw the sum of $100,000 as an account of your share of the abovementioned profits. [This was amended, see above.]

Similarly, I shall be entitled to draw the sum of $100,000 as from the gross fees received by Marcel Kalfus & Co on account of my share of such profits.

Our respective advance drawings against profits may exceed the sum of $100,000 but in the absence of express agreement between ourselves the same shall not in any year exceed the total of the permissible advance on drawings by 25% ie in the first year such advance drawings must not exceed $125,000. We may by agreement, at any time vary the amount of advance drawings in any year. All amounts paid by way of advance drawings shall be debited to the account of share of profits of yourself and myself respectively. If the amount of advance drawings of either [sic: of] us in any accounting period exceeds a half share of the net profit of IGC (and its related entitles) and the legal practice, then such excess will be debited against such person’s account for share of profits in the ensuing year.

29 The letter recorded a sharing of profits, and entitlements to draw $100,000 or more on account of shares of profits. It did not warrant that the profits had in the past or would be there for drawing, and certainly could not be regarded as having done so for the profits of IGC because it had no past and the future was unknown. Mr Cassis did not give evidence that he saw in the letter a representation as to earnings of $100,000. It was capable of conveying that the legal practice had brought profits of at least $100,000. On one view, however, since the language as to the profits of the legal practice is the same as that as to the profits of IGC, it did not represent that the profits of the legal practice had been or would be there for the drawing. For this reason, at least, Mr Kalfus contested that the letter conveyed the representation as to earnings of $100,000.

30 Mr Cassis did give evidence of what moved him to change his position -

“23. The Defendant and I had numerous discussions prior to the third week of January, 1989 about our purchasing CMA and the arrangement that would prevail between us. Although it had been agreed between the Defendant and me that he would not be involved in the day to day affairs of CMA for the first few years, it was agreed and I understood that:-

A. We could each draw $100,000 per annum from the combined profits of his law firm and CMA (which became IGC);

B. Each of us would contribute 50% of any capital that IGC may need.

C. He would continue to run his practice and I was entitled to 50% of the profits;

D. I owned 50% of the Defendant’s law firm;

E. He owned 50% of IGC.

‘You are a 50% owner of all of this’.

31 This left unclear what Mr Cassis regarded as necessary to fulfil Mr Kalfus’ side of the bargain, more particularly that earnings of $100,000 was part of what was necessary – indeed, it referred to drawings from the combined profits, with the uncertainty of what profits IGC would have extending to uncertainty of the profits from the legal practice.

32 To this, then, was added Mr Kalfus’ evidence of direct relevance to what the letter of 23 January 1989 would have conveyed to Mr Cassis, and to its effect on his conduct as a representation of the earnings from the legal practice. He said in cross-examination that in a series of conversations in December 1988, more than once, he told Mr Cassis that he had not earned an income from the practice beyond $100,000 net and that the practice was not earning more than that figure. He said that “I had been telling him that I had been earning about that sort of income and I didn’t know what I would earn in the future, so there was no certainty I was going to go over that figure”, and that Mr Cassis “acknowledged that that was the position because he had to rely upon what I told him”.

33 These conversations had not been put to Mr Cassis. Mr Cassis was not called to give further evidence about them. The judge made no finding as to the conversations.

34 Quite apart from the conversations, it would not be easy for this Court to find whether or not the letter of 23 January 1989, so far as it contained a representation as to earnings of $100,000, affected Mr Cassis’ conduct. Mr Cassis had been disbelieved in his evidence of direct representation as to earnings of $200,000. He had been found to have known what he was committing himself to, and to have made his own decisions in relation to the later transactions, with disbelief of his evidence to the contrary. A reading of Mr Cassis’ evidence shows, in the cold print, a witness who could be called inconsistent and argumentative, whose credibility would be better assessed with the benefit of seeing and hearing him so as to judge whether these were marks of the man or of lack of credibility.

35 When there is added the unresolved issue of Mr Cassis being told that the practice was not earning more than $100,000, which if correct would have meant that Mr Kalfus would be contributing no income to the joint venture, what the letter conveyed to Mr Cassis and its effect on his conduct can not be found in this Court. The manner in which Mr Kalfus’ evidence of the conversations emerged could cause one to doubt it, but the judge made no general assessment adverse to Mr Kalfus’ credibility and I do not think the evidence can be put aside. There were numerous conflicts between the evidence of Mr Kalfus and Mr Cassis, and a holistic approach to fact-finding is necessary.

36 In my opinion, therefore, while the judge’s disposal of the principal claim cannot stand, this Court is not in a position to decide whether or not Mr Cassis made out a case for damages for breach of fiduciary duty, even before getting to quantification of any damages. In this I include that I do not think Mr Cassis would be statute barred or defeated by delay in equity, as Mr Kalfus submitted. The limitation defence was the subject of an earlier appeal, see Cassis v Kalfus [2001] NSWCA 460. It is sufficient, in the light of what was there said, that I do not think Mr Cassis suffered loss upon entering into the joint venture or at any time prior to mid-1990. The joint venture may have been successful, sufficient to make up for the loss of Mr Cassis’ (relatively) secure employment. It may not have been successful. That the distributorship obtained from CMF was only for three years, without certainty of renewal, did not mean that failure of the joint venture was inevitable, although as it turned out non-renewal was significant to the continuance of the business. There was no evidence to the effect that the price paid for the business was more than it was worth. It was not shown that loss was suffered until well after mid-1990, when the business in fact fell upon hard times.

37 There must be a new trial of the principal claim. This is an unpalatable conclusion. There have already been two trials of the proceedings, and a third trial raking over events of 1988 and subsequent years has inherent difficulties and imposes significant financial and other burdens on the parties. I nonetheless do not think it can be avoided.

The fall-back claims

38 If Mr Cassis is entitled to succeed on the principal claim, it may be that he is foreclosed from succeeding on the fall-back claims because all recoverable loss is caught up under the principal claim. Whether or not that is so, in the manner he put his claims success on the fall-back claims would bring less recovery than success on the principal claim.

39 The appeal in relation to the fall-back claims in any event has great difficulties. On fall-back claims 1, 2 and 3, he encounters the judge’s findings that he knew what he was committing himself to, and made his own decisions whether to proceed or not. In fact Mr Kalfus advised Mr Cassis against entering into the Roden transaction, and on fall-back claim 3, although the judge did not specifically refer to it, there was evidence that Mr Kalfus advised Mr Cassis of the perils of insolvent trading. As to fall back claim 4, so far as Mr Kalfus may have promised to contribute to half the losses of the business, Mr Cassis did not sue in contract. A fiduciary duty as joint venturer to “meet and be responsible for half of any losses and liabilities of [Mr Cassis] arising out of the operations of IGC” was pleaded, but any such obligation could arise only as part of an accounting between the joint venturers and, as the judge expressly noted, no claim was made for an account to be taken in equity.

40 Notwithstanding this, I do not think the new trial should be confined so as to preclude Mr Cassis from maintaining fall-back claims in relation to the White-Vesaro and Roden transactions and trading while insolvent, to the extent that they are pleaded and if he be so advised. A new trial is on all issues unless a different course can properly be taken (see for example Pateman v Higgin (1957) 97 CLR 521 at 527; Quinn v Rocla Concrete Pipes Ltd (1986) 6 NSWLR 586 at 602). Questions of credibility in the dealings between Mr Kalfus and Mr Cassis and reliance by Mr Cassis on Mr Kalfus cannot be quarantined between undertaking the joint venture and the later transactions. It is not necessary, and is undesirable, to say more about these fall-back claims. Fall-back claim 4, however, was never an issue and is not maintainable.

The result

41 In my opinion, the appeal should be upheld and orders 1 and 2 made by Cripps AJ on 25 July 2003 should be set aside. There should be a new trial of the proceedings as between Mr Cassis and Mr Kalfus. The costs of the previous trials referable to Mr Cassis’ claim against Mr Kalfus should be in the discretion of the judge conducting the new trial. Mr Kalfus should pay Mr Cassis’ costs of the appeal and have a certificate under the Suitors Fund Act if otherwise qualified.

42 HODGSON JA: On 25 July 2003, Cripps AJ made orders disposing of proceedings in which the appellant Sami Alfred Cassis and his wife Giselle Cassis sued the respondent Marcel Isador Kalfus. The primary judge gave a verdict and judgment for the respondent against the appellant, and ordered the appellant to pay the respondent’s costs of so much of the proceedings as was referable to the appellant’s claim; and gave a verdict and judgment for Mrs. Cassis against the respondent in a total sum of $33,097.30, and ordered the respondent to pay so much of the costs of Mrs. Cassis as were relevant to her claim. The appellant appeals against the orders made in favour of the respondent against the appellant.

CIRCUMSTANCES

43 Mr. Cassis worked in France between 1970 and 1981 as an engineer for the firm Chaffoteaux et Mauri (CMF), at that time the world’s largest manufacturer of instant gas hot water heaters.

44 Mr. and Mrs. Cassis migrated to Australia in 1981; and in 1982, Mr. Cassis began doing work for CMF in Australia, through a subsidiary established in Australia, namely Chaffoteaux et Mauri Pty. Ltd. (CMA). Mr. Cassis became managing director of CMA. Mr. Kalfus acted as a solicitor for CMA, and was an alternate director of it.

45 A friendship developed between Mr. Cassis and Mr. Kalfus. Mr. Kalfus acted for Mr. Cassis in the acquisition of a residential property in Coogee in 1984.

46 CMA expanded its business between 1982 and 1988. In 1983, its turnover was $425,824.00, and in 1988 it was $1,986,985.00. By 1988, Mr. Cassis was on a salary package which was stated to be the equivalent of $100,000.00 per annum, made up of a salary of about $85,800.00 per annum, the provision of a car and payment of superannuation.

47 In 1988, Mr. Cassis and Mr. Kalfus discussed the possibility of entering into a joint venture directed to taking over the business conducted by CMA. Mr. Cassis raised the matter with Mr. Eskander of CMF in Paris in July 1988.

48 Mr. Cassis and Mr. Kalfus agreed that, if CMF allowed them to take over the business of CMA, they would form a company International Gas Corporation Pty. Limited (IGC) for this purpose; and that they would both become directors and shareholders of IGC.

49 On 23 January 1989, Mr. Kalfus executed a document on the letterhead of his legal practice, in the following terms:

50 Also in evidence were letters from Mr. Kalfus to CMF in October 1988 and January 1989 concerning terms of a proposed agreement for the acquisition of the business of CMA, dealing among other things with a proposed sole agency agreement which CMF was to grant. In the second of those letters, Mr. Kalfus wrote the following:

I note that at the conference in July, 1988 you had agreed to the initial terms being three (3) years with a right to the local distributor to renew for a further term of three (3) years. If you wish me to supply you with a copy of my notes taken at that conference, I will be happy to do so. Therefore, I suggest that this Clause provide for an initial term of three (3) years with an automatic renewal for a further three (3) years at the end of the initial period unless I.G.C. has not less than six (6) months prior to the end of the initial term notified Chaffoteaux et Maury S.A. that it does not wish to renew the Sole Agreement. By the way, it might be noted, that on page 5 of my fax to you dated 5th October, 1988 under the heading of "Clause 4" I had made reference to the right of renewal by the purchaser for a further term of three (3) years. From the outset, Sami Cassis has made it clear that a term of only three (3) years is not sufficiently long considering the capital investment and time and effort which will be made to expand the business in Australia.

51 In a facsimile sent to Mr. Kalfus and Mr. Cassis on 23 January 1989, Mr. Eskander responded to this as follows:

INITIAL

52 Mr. Kalfus met Mr. Eskander in Paris in February 1989; and on 27 February 1989, they both signed a handwritten document which provided for the purchase by Mr. Kalfus and Mr. Cassis from CMF of all the shares in CMA for $A1,155,213.00 (subject to certain adjustments) to be paid by 24 equal monthly instalments. The agreement stated that it was “interdependent with CMF entering into a Sole Distributorship Agreement with CMA”. A typed copy of this agreement was later signed by Mr. Cassis.

53 A sole distributorship agreement was signed on 5 October 1989, providing that IGC would be CMF’s sole distributor in Australia from 1 February 1989 to 31 December 1991, and thereafter unless and until cancelled by six months’ notice by either party. Clause 28 of this agreement provided as follows:

28. This whole Agreement is conditioned on Mr. Sami CASSIS being the Managing Director of Distributor. Any modification of Mr. Sami CASSIS’ role will automatically allow Principal to immediately terminate this Agreement, if he so wishes, without Distributor being entitled to any indemnity.

54 IGC commenced trading in or about March 1989. It raised working capital by obtaining an overdraft facility of $200,000.00 with Banque Nationale de Paris (BNP). Mr. Cassis and Mr. Kalfus were guarantors of this facility, and their obligations were secured by mortgages. Mr. Cassis gave a mortgage over his residential property at Leeton Avenue, Coogee, and Mr. Kalfus gave a third mortgage over his residential property at Double Bay.

55 The primary judge found that ICG traded profitably for almost three years. It paid off the purchase price for CMA, as agreed, within two years. During those three years, Mr. Cassis had a gross salary of $68,723.00 in 1990, $56,000.00 in 1991, and $56,000.00 in 1992. From that package was deducted moneys for superannuation and provision of a car. Mrs. Cassis and one of their sons were also on the company’s payroll.

56 However, it should be noted that by 24 April 1992, IGC’s accountants were expressing concerns about IGC’s solvency and the possibility of insolvent trading, in a letter indicating a loss for the year ended 30 June 1991 of nearly $400,000.00, and a deficiency of assets of $733,827.00. The primary judge did not attempt to reconcile this with his finding of profitable trading for almost three years.

57 In February 1991, Mr. Cassis and Mr. Kalfus entered into a shareholders deed conferring mutual rights of first refusal in relation to the shares each had in IGC.

58 In September 1991, BNP was paid out, and the National Australia Bank (NAB) took over the facility previously granted by BNP. It advanced $100,000.00 to pay out BNP, and granted an overdraft facility of $150,000.00. It also advanced $70,000.00 to pay out a loan previously made by the Advance Bank and secured over the Leeton Avenue property. As security, NAB took a first mortgage over the Leeton Avenue property and a third mortgage over Mr. Kalfus’s Double Bay property. Mr. Kalfus acted as solicitor for IGC and Mr. Cassis, as well as on his own behalf, in these transactions.

59 About this time, Mr. Cassis became concerned that he was exposed to a greater potential loss than Mr. Kalfus because of the greater equity that he had in the Leeton Avenue property, compared with the equity Mr. Kalfus had in his Double Bay property. In October 1991, at the request of Mr. Cassis, Mr. Kalfus signed a letter promising to indemnify Mr. Cassis for 50 percent of any personal loss to him in respect of the liability incurred to NAB.

60 On 9 April 1992, CMF gave written notice that the distribution contract would terminate on 31 December 1992. The primary judge found that the consequent loss of the French distributorship was the real cause of the subsequent collapse of IGC.

61 During 1993, the financial position of IGC became such that Mr. Kalfus could no longer draw wages.

62 On 12 December 1993, Mr. Kalfus signed another letter addressed to Mr. Cassis promising to indemnify him as to 50 percent of any personal liability Mr. Cassis might have to third party creditors.

63 On 23 December 1993, NAB was paid out from advances by two new lenders in what have been referred to as the White and Vesaro transactions. The first was an advance of $280,000.00 arranged through Mr. White, a solicitor, and which was secured by a mortgage given by Mr. Cassis over the Leeton Avenue property. The second was an advance arranged through a mortgage broker, Mr. Vesaro, for $40,000.00, which was secured by a second mortgage over the Leeton Avenue property. In these transactions, Mr. Cassis alone was the borrower, not IGC or Mr. Kalfus. However, although Mr. Kalfus did not provide security over real estate owned by him, he gave a personal guarantee. He acted for the firstnamed plaintiff, and charged a fee with respect to these transactions.

64 Although IGC made some repayments under the mortgages, it was unable to continue to do so. By about mid-1994 Mr. Cassis came to an arrangement with a Mr. Roden, and a new company called International Gas Appliances Pty. Limited (IGA) was formed. Mr. Roden had 50 percent of the shares of IGA, Mr. Cassis had 42.5 percent of the shares, and another shareholder had 7.5 percent of the shares. IGA acquired the assets of IGC for $45,000.00, and this amount was used to discharge the Vesaro mortgage.

65 An advance by Mr. Roden of $220,000.00 was secured by a charge over the assets of IGA and 50 percent of the loan facility was guaranteed by Mr. Cassis. These transactions were completed in July 1994. Mr. Cassis received legal advice concerning them from Mr. Kalfus. Mr. Kalfus said it was a bad deal, and advised Mr. Cassis not to enter into it; but Mr. Cassis felt that he had no option and proceeded with the transactions notwithstanding this advice.

66 The business now conducted by IGA continued to decline, and in April 1995 Mr. Roden gave notice requiring Mr. Cassis to pay an amount of $106,250.00, being the amount secured by the guarantee. It was not paid; and on 17 November 1995 Mr. Roden, after a contested hearing, obtained judgment in the Supreme Court for this amount plus interest.

67 Later the Leeton Avenue property was sold to a son of Mr. Cassis for $450,000.00, of which $288,000.00 was paid to discharge the White mortgage. Mr. Kalfus acted as a solicitor on the transaction and was paid legal fees. Mr. Cassis procured payment to Mrs. Cassis of $162,000.00 being the balance of the purchase money. Mr. and Mrs. Cassis continued then to live in the property, although they were living apart.

68 Proceedings were commenced by Mr. and Mrs. Cassis against Mr. Kalfus on 12 June 1996. A trial of the proceedings gave rise to an appeal, decided on 11 December 2001, in which a new trial was ordered: Cassis v. Kalfus [2001] NSWCA 460. The new trial gave rise to the decision now appealed from.

DECISION OF PRIMARY JUDGE

69 The primary judge found that Mr. Kalfus, in the letter of 23 January 1989, was representing or at least implying that his legal practice was netting or could be netting an amount in excess of $100,000.00 per annum, sufficient to make a contribution to the pool that was said to be established by the joint venture; whereas his evidence was that his earnings at that time never exceeded $70,000.00 before tax.

70 The primary judge noted that Mr. Cassis alleged breaches of duty of care and of fiduciary duty against Mr. Kalfus, giving rise to damages flowing from proceeding with the joint venture, giving up his employment, and becoming liable to pay out mortgages and creditors of IGC. However, the primary judge noted that Mr. Cassis was not suing Mr. Kalfus in tortious misrepresentation, and despite the finding concerning representations in the letter of 23 January 1989, concluded that, with the exception of a possible breach of fiduciary duty with respect to the operation of s.119 of the Legal Practitioners Act, there was no relevant duty of care in law or as a fiduciary that was breached by Mr. Kalfus. He went on to hold that, except in relation to the s.119 question, there was no solicitor and client relationship relevant to the claims. He held that the relationship between Mr. Cassis and Mr. Kalfus was a business relationship, and that Mr. Cassis was an experienced businessman and made his own decisions.

71 The primary judge set out s.119 of the Legal Practitioners Act as it was in 1988-1999 as follows:

72 The primary judge apparently considered that Mr. Kalfus may have been in breach of fiduciary duty to Mr. Cassis by reason of his failure to ensure that Mr. Cassis received independent advice concerning the potential unenforceability of the promise made by Mr. Kalfus in the letter of 23 January 1989 to share profits of his legal practice. However, the primary judge considered that any damage suffered as a result consisted in potential unenforceability of Mr. Kalfus’s promise, and that occurred in 1989; so that any claim of Mr. Cassis would be statute barred.

73 In relation to the later transactions, the primary judge held that Mr. Cassis understood his obligations, knew what he was doing, and was prepared to undertake the obligations to keep IGC afloat. Mr. Cassis accepted that in the case of the White and Vesaro transactions, Mr. Kalfus could provide a guarantee only, and in the case of the Roden transaction could provide no support at all.

74 On that basis, the primary judge found against Mr. Cassis.

GROUNDS OF APPEAL

75 Mr. Kalfus relies on the following grounds of appeal:

(a) by failing to inform the Appellant that he (the Respondent) viewed the entering into of the Roden agreement as putting to an end the Respondent's liability to contribute to the losses of IGC and putting to an end the Respondent's liabilities in respect of the Joint Venture;

76 Mr. Kalfus relied on a Notice of Contention containing the following grounds:

77 In my opinion, the most substantial issues raised on this appeal concern the absence of a finding by the primary judge of a breach of duty by Mr. Kalfus by reason of misrepresentation or non-disclosure concerning Mr. Kalfus’s financial position in and about January 1989. The first issue is whether the primary judge thereby erred, and whether such a breach should be found by this Court.

78 If such a breach were found, that would give rise to issues not addressed by the primary judge, namely whether the breach caused loss to Mr. Cassis, if so how much, and whether Mr. Cassis’s cause of action in respect of such loss is statute-barred. In relation to these issues, and in particular the first and second of them, there is a real question whether they can and should be decided by this Court or sent back for a further first instance hearing.

79 In my opinion, for reasons I will give, there is no substance in other matters raised by the appellant in this appeal.

80 I will deal with the issues in the following order. First, I will consider whether the primary judge erred in not finding a breach of duty by reason of misrepresentation and/or non-disclosure concerning Mr. Kalfus’s financial situation in and about January 1989. Second, I will consider whether and to what extent this Court should decide issues of causation and quantification of loss. Third, I will address the question of causation. Fourth, I will address the question of quantification of loss. Fifth, I will consider the limitation issue.

81 Then, I will briefly deal with less substantial issues. Sixth, I will consider whether there was a material error in the way the primary judge disposed of other alleged breaches of duty in and about January 1989, including that concerning alleged illegality of sharing profits of a legal firm. Seventh, I will consider whether there was material error in the way the primary judge disposed of claims concerning later alleged breaches of duty, notably in relation to the White/Vesaro transactions, the Roden transaction, insolvent trading and breach of duty as joint venturer in meeting losses of the joint venture. Eighth and finally, I will consider whether there was material error in relation to the claim for psychological injury.

BREACH OF DUTY BY MISREPRESENTATION OR NON-DISCLOSURE

82 Mr. Roberts SC for Mr. Cassis submitted that, even accepting the finding of the primary judge that Mr. Kalfus was not relevantly acting as solicitor for Mr. Cassis, plainly he owed a fiduciary duty as a prospective or actual joint venturer: United Dominion Corporation Ltd. v. Brian Pty. Limited (1984) 157 CLR 1. The misrepresentation found by the primary judge, and the associated non-disclosure of the true position, was a breach of that duty.

83 Mr. Lindsay SC for Mr. Kalfus submitted that there was no relevant fiduciary duty. In any event, the matter relied on by Mr. Cassis was a representation by Mr. Cassis that his income was $200,000.00 per annum, and that was rejected by the primary judge. There was no relevant finding of misrepresentation or non-disclosure; and in any event, the primary judge misconstrued the letter of January 1989. Furthermore, Mr. Lindsay submitted, the true position was disclosed in a conference with BNP.

84 In my opinion, UDC v. Brian establishes that there was a relevant fiduciary duty, so that it is necessary to address the question whether or not there was misrepresentation and/or non-disclosure by Mr. Kalfus in breach of his duty.

85 As pointed out by Giles JA, Mr. Kalfus gave evidence in cross-examination (Black 174) that he told Mr. Cassis in conversations in December 1988 that his practice was not earning more than $100,000.00 net; and the primary judge made no express finding as to whether such conversations took place. However, in my opinion the primary judge did make a definite finding that the letter of 23 January 1989 did represent or at least imply that the practice was netting or could be netting in excess of $100,000.00 per year: although this finding is expressed less than conclusively in par.[22] of the judgment, it is taken up as a definite conclusion in par.[62]. In my opinion, this clear finding negatives the existence of circumstances that would have precluded the conveying of that representation to Mr. Cassis, and thus indicates that the primary judge was not satisfied that in December 1988 it was brought home to Mr. Cassis that the practice was not earning more than $100,000.00 per year net.

86 Furthermore, it is clear in my opinion that what happened at BNP cannot be considered an appropriate disclosure. The evidence concerning disclosure to Mr. Cassis in association with disclosure to BNP does not suggest a disclosure of the income of the legal practice: what may have been disclosed at the meeting, and was subsequently disclosed in writing, was an allegation that the goodwill, plant, equipment and fittings of the practice were worth $185,000.00, that outstanding debtors excluding bad debts were $60,000.00, and that work-in-progress was worth $70,000.00. Those figures would not appear to fit well with a practice that did not earn over $100,000.00 net per year.

87 In considering Mr. Lindsay’s submission that the primary judge was in error in construing the letter as containing the representation in question, it is pertinent that there is reason to think that the parties’ expectation was that IGC would itself have earnings of this order, considered before any payment was made to Mr. Cassis: the business had been remunerating him at the rate of about $100,000.00 per annum (before tax), and the parties were willing to pay $1,155,213.00 for the business.

88 Having regard to all these considerations, I am not satisfied the primary judge erred in his findings as to the representation made by the letter.

89 However, as pointed out by Giles JA, the primary judge was in error in saying that Mr. Kalfus said that his earnings at that time never rose above $70,000.00 per year before tax: his evidence was that it was between $70,000.00 and $100,000.00 before tax (Black 155), and between about $45,000.00 and $75,000.00 after tax (Black 177).

90 The letter of 23 January 1989 expressly contemplated that the net profits were an after-tax figure, so that the representation found by the primary judge related to an after-tax figure. Accordingly, it was in my opinion materially false, and gave rise to a duty on Mr. Kalfus to disclose the true position, which he did not do.

91 Accordingly, in my opinion the misrepresentation found by the primary judge and the associated non-disclosure of the true position amounted to breaches of duty owed by Mr. Kalfus to Mr. Cassis as an actual or prospective joint venturer.

SHOULD THIS COURT DECIDE CAUSATION AND LOSS?

92 In my opinion, there is no hard and fast rule determining whether this Court should enter into consideration of matters not determined by a primary judge, where those matters may require findings which to some extent depend on the credibility of witnesses. In my opinion, the primary considerations to be taken into account in deciding whether this Court should undertake that task are the need for adequate material on which to make such a decision, the affording of procedural fairness, and the desirability of just, quick and cheap resolution of issues between the parties (cf. Supreme Court Act 1970, s.64; Supreme Court Rules Pt.1 r.3).

93 The first question that would need to be determined is the question of whether or not, but for the breaches I have identified, Mr. Cassis would have gone on with the joint venture, and in particular would have given up his employment with CMA. In considering whether this Court should decide that question, I note first that the question is a hypothetical one, so that direct evidence of Mr. Cassis of what he would have done is of limited weight: see Cackett v. Keswick [1902] 2 Ch 456 at 463-4. Next, I note that this Court does have substantial evidence and substantial findings by the primary judge as to the circumstances relevant to the question.

94 Third, on the question whether Mr. Cassis would have gone ahead with the transaction, it is relevant to have regard to what was said by the Privy Council in Brickenden v. London Loan & Savings Co. [1934] 3 DLR 465 at 469, as follows:

When a party, holding a fiduciary relationship, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction, because the constituent's action would be solely determined by some other factor, such as the valuation by another party of the property proposed to be mortgaged. Once the Court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant.

Beach Petroleum NL v. Kennedy

Cases and Materials on Equity and Trusts

95 In this case, in my opinion this Court does have adequate material to make a decision. As to whether Mr. Cassis would have gone ahead with the joint venture, but for the misrepresentation and non-disclosure, I do not think there would be any denial of procedural fairness in the Court making the decision. Certainly, this would promote just, quick and cheap resolution of the disputes between the parties.

96 As regards quantification of loss, the position is less clear. The Court has substantial material on the matter, although in many respects it is not as substantial or precise as would be desirable. However, the Court at first instance would have had to “do its best” on this material, and in my opinion this Court can do likewise. There have already been two expensive trials of this matter, and this is the second substantial appeal. Again I do not think it would deny procedural fairness for this Court to undertake the task, and certainly it would promote just, quick and cheap resolution of the dispute.

97 Accordingly, in my opinion it is appropriate for this Court at least to embark on the task, and to see if it can resolve the issues to its satisfaction.

CAUSATION

98 There was evidence from Mr. Cassis as to the course he would have taken in certain circumstances, but there is force in Mr. Lindsay’s submissions that that was predicated on a representation that the legal practice of Mr. Kalfus was earning $200,000.00 per annum, which was not found by the primary judge. However, a finding that, but for the misrepresentation and non-disclosure, Mr. Cassis would not have gone ahead with the venture is strongly supported by the circumstances. The step was a big one, inter alia in that it involved giving up an apparently secure and remunerative employment for a more risky project. Further, the very fact that Mr. Cassis wanted and was given a “letter of comfort” suggests concern as to Mr. Kalfus’s readiness and willingness to give financial support. Having regard to these considerations, and the general approach suggested by Brickenden, in my view this Court should conclude, on the balance of probabilities, that Mr. Cassis would not have gone ahead with the joint venture but for the misrepresentation and non-disclosure.

QUANTIFICATION OF LOSS

99 A person caused loss by a breach of fiduciary duty is entitled to equitable compensation for such loss: Nocton v. Lord Ashburton [1914] AC 932, Beach Petroleum. In my opinion, the approach to quantification of that compensation is not the same approach as would be taken in the case of a trustee who has paid away trust property, as discussed in Youyang Pty. Ltd. v. Minter Ellison (2003) 77 ALJR 895. In my opinion, the appropriate approach is more along the lines of the approach taken in cases of tort or misleading conduct under the Trade Practices Act, as illustrated by Henville v. Walker (2001) 206 CLR 459.

100 Beginning with the question of “but for” causation, it seems that if Mr. Cassis had not gone ahead with the joint venture, the most likely scenario was continued employment with CMA to age 65, with the possibility of improving his position or working longer, and also the possibility of doing worse, by reason of losing his employment or the business closing down. The general consequence of going ahead with the transaction was that Mr. Cassis ceased drawing wages from July 1993 onwards, and was obliged to pay substantial debts and costs. It appears that he has not worked since, apart from three-four months in the Post Office at Woollahra in about 2000 (see 5 Blue 1222).

101 However, in my opinion some of the losses should be regarded as too remote, because not foreseeable, or because so substantially caused by other factors that they are not reasonably attributed to Mr. Kalfus’s breach of duty. In particular, losses attributed to the loss of the French franchise should in my opinion largely be considered as losses flowing from a risk fully recognised by Mr. Cassis and taken, he being in a far better position than Mr. Kalfus to assess this risk and to minimise it by the way the business was then conducted. However, the loss of the franchise itself may partly have been due to a lack of financial resources to fall back on, and that lack of financial resources may also have lessened the chances of the business pulling through notwithstanding the loss of the franchise.

102 Doing the best I can on skimpy material, I would calculate the total “but for” losses relevant to the quantification of damages as follows.

103 First, loss of the employment that would have delivered remuneration at the rate of about $100,000.00 per annum gross from 1 July 1993 (when Mr. Cassis ceased being remunerated by IGC) and 15 October 2001 (age 65). (Mr. Cassis accepted that he did not suffer loss in this respect so long as he and members of his family were being remunerated by IGC). I would assess this at the after-tax figure of $70,000.00, for 8 years and 15 weeks, giving $580,192.00. To this I would add interest calculated from 1 April 1997, roughly 7½ years at 10%, giving $435,144.00, and resulting in a total of $1,015,336.00. To take account of vicissitudes and the small amount of work Mr. Cassis actually performed, I would reduce this to $900,000.00.

104 Second, money paid to discharge the White mortgage, that is $288,675.00 paid on 3 March 1995 (4 Blue 898) less $70,000.00 attributable to the loan for the use of Mr. Cassis, giving $218,675.00. To this I would add interest, roughly 9½ years at 10%, giving $207,741.00, and resulting in a total of $426,416.00.

105 Third, money paid to obtain the White mortgage in about December 1993, namely $6,285.00 (4 Blue 735). To this I would add interest, roughly 10¾ years at 10%, giving $6,757.00, and resulting in a total of $13,042.00.

106 Mr. Cassis claimed $7,000.00 for instalments paid in respect of the White mortgage. However, he did not establish that this was in excess of what was appropriate for his own $70,000.00 part of that mortgage.

107 Fourth, creditors of IGC paid by Mr. Cassis between July 1994 and February 1985, amounting to $39,780.00 (1 Blue 200, 2 Blue 224-45). To this I would add interest, roughly 10 years at 10%, giving $39,780.00 and resulting in a total of $79,560.00.

108 Fifth, payments in respect of the Roden debt. $51,000.00 was paid between 3 March 1996 and 6 December 1998 (4 Blue 953). Legal costs of $7,000.00 were also paid. To this I would add interest, roughly 7 years at 10%, giving $40,600.00. There is also a liability for $15,000.00 which will take effect if Mr. Cassis is sufficiently successful in these proceedings (6 Blue 1228). The total of these figures is $113,600.00. Since the Vesaro mortgage was paid out through this transaction, this total includes the liability of Mr. Cassis in respect of the Vesaro mortgage.

109 The grand total of these figures is as follows:

113,600.00

$1,532,618.00

110 In so far as the losses were due to the failure of Mr. Kalfus to contribute one half of the amounts for which Mr. Cassis became liable under the White and Vesaro transactions, in my opinion those losses are plainly not too remote. The Vesaro liability was discharged by a payment of $45,000.00 in mid-1994 in connection with the Roden transaction, so that the liability can be quantified at that figure plus 10 years’ interest at 10%, giving a total of $90,000.00. Mr. Kalfus thus failed to contribute one half of $426,416.00 plus $90,000.00, that is, $258,208.00; and this sum should be included in the damages.

111 As to the balance of the loss, that is, $1,274,410.00, in my opinion it is too remote except to the extent that it includes the value of the chance that the loss may have been avoided, had Mr. Kalfus been in the financial position suggested by his representation. Doing the best I can, I would assess this chance at 10%; and would add $127,441.00 to the damages on this amount.

112 Accordingly, I would award damages of $385,649.00.

113 The approach I have taken is consistent with the view expressed in the dissenting judgment of Gleeson CJ. in Henville v. Walker at [23] and [35] that a defendant liable for inducing a plaintiff to enter into a business venture does not thereby become an underwriter of all losses incurred by the business, whenever and however those losses may arise. I believe it is also consistent with the leading judgment of the majority in that case, the judgment of McHugh J. This is a case where, in my opinion, the excluded part of the loss was not foreseeable, even in a general way, by Mr. Kalfus (see Henville at [134] and [136]); and where the excluded part is loss which would not have occurred but for the realisation of a risk knowingly undertaken by Mr. Cassis (and not significantly affected by the breach of duty), and the manner in which the business was conducted by Mr. Cassis (see Henville at [140]). I would add that, in so far as equitable compensation is required to be fair, the result does in my opinion constitute a fair assessment of compensation for the relevant breaches, in all the circumstances.

LIMITATION QUESTIONS

114 In my opinion, substantially for the reasons set out in the decision in the previous appeal, it has not been shown by Mr. Kalfus that there was any more than the chance of loss occurring prior to 12 June 1990, the relevant date for limitation purposes. It is true that in 1989 Mr. Cassis gave up secure employment, and in that sense lost a substantial benefit, and also placed himself under personal liabilities, through guarantees and mortgages. However, on the other hand, he was acquiring the benefit of a business which had a significant chance of success, and Mr. Kalfus has not discharged the onus lying on him to show that a crystallised and definite loss occurred to Mr. Cassis prior to the relevant date. In circumstances where the final collapse of the venture occurred in 1995, and the proceedings were commenced in June 1996, the defence of laches, acquiescence and delay is not made out.

OTHER BREACHES OF DUTY IN ABOUT JANAURY 1989

115 In my opinion, there has not been demonstrated to be any error by the primary judge in his finding that Mr. Kalfus was not relevantly acting as solicitor for Mr. Cassis, and that there were no breaches of any duties in relation to advice concerning documentation of the transaction or the status of the sole distributorship.

116 As regards the possible breach concerning possible illegality of the proposed sharing of profits, in my opinion no loss was shown to flow from such a breach, if there was one. In my opinion, the primary judge was wrong on the limitation question concerning that matter, substantially for the reasons given in the first appeal in this case; but that was immaterial.

LATER ALLEGED BREACHES

117 In my opinion, no error has been shown to have been made by the primary judge in his finding that Mr. Cassis fully understood all the relevant transactions, and that accordingly there was no breach of duty, and certainly no causation of loss, by Mr. Kalfus in relation to the White/Vesaro transactions or the Roden transaction. No error has been shown on the matter of advice concerning insolvent trading; and in any event, that does not seem to be included in the grounds of appeal.

118 As regards duties arising out of the documents signed undertaking liability for one-half the loss, no claim is made in contract. As regards the liability as joint venturer to meet half the losses, that in my opinion would require an account to be undertaken, and there is no claim for such an account: cf. Marcolongo v. Mattiussi [2000] NSWSC 834 at [71]. However, as noted above, I think Mr. Kalfus is liable in substance for half the debts paid by Mr. Cassis by reason of the original breach of duty.

PERSONAL INJURY

119 I have included in the sum of approximately $1.5 million, taken as a starting point for calculation of some of the damages, losses partly due to Mr. Cassis’s failure to earn income to age 65; and in so far as that is due to psychological difficulties, those difficulties have been taken into account in my lack of satisfaction that Mr. Cassis failed to take steps to mitigate damages.

120 Otherwise, in my opinion alleged psychological problems do not give rise to any damages or compensation recoverable by Mr. Cassis. In my opinion, no duty of care has been shown to protect Mr. Cassis from psychological injury. Damages in respect of psychological problems are not, in my opinion, within what can be claimed for breaches of duty concerning financial dealings, as in this case, at least unless the circumstances are such that there is a reasonably foreseeable risk of psychological injury from such breaches (cf. Kolavo v. Pitsikas [2003] NSWCA 59 at [77]). I do not think this is shown to be such a case.

CONCLUSION

121 For those reasons, in my opinion the following orders should be made:

122 The effect of the costs order for the proceedings is to make Mr. Kalfus liable for something like three-quarters of the total costs, and Mr. Cassis for one-quarter of the total costs; and I think this is a fair balance, having regard to the costs and time wasted by reason of imprecise pleadings and imprecise claims made by Mr. Cassis.

**********

Last Modified: 09/23/2004

Actions

Download as PDF Download as Word Document

Citations

Cassis and Anor. v Kalfus (No.2) [2004] NSWCA 315

Most Recent Citation

Darkinjung Pty Ltd v Darkinjung Local Aboriginal Land Council; Hillig v Darkinjung Pty Ltd [2006] NSWSC 1217

Cases Citing This Decision

3

Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172

Crisp v Burridge [2004] NSWCA 334

Darkinjung Pty Ltd v Darkinjung Local Aboriginal Land Council [2006] NSWSC 1217

Cases Cited

10

Statutory Material Cited

0

Chan v Zacharia [1984] HCA 36

Henville v Walker [2001] HCA 52

Kolavo v Pitsikas [2003] NSWCA 59

CITATION:	Cassis & Anor. v. Kalfus (No.2) [2004] NSWCA 315
HEARING DATE(S):	25 and 26 March 2004
JUDGMENT DATE:	20 September 2004
JUDGMENT OF:	Handley JA at 1; Giles JA at 2; Hodgson JA at 42
DECISION:	1. Appeal allowed. 2. Orders below in relation to Mr. Cassis set aside. 3. In lieu thereof, verdict and judgment for Mr. Cassis against Mr. Kalfus in the sum of $385,649.00, to take effect as at this date. 4. Mr. Kalfus to pay one-half the costs of Mr. Cassis of so much of the proceedings, including the first trial, as was referable to his claim. 5. Mr. Kalfus to pay the costs of Mr. Cassis of the appeal, and to have a certificate under the Suitors Fund Act if otherwise entitled.
CATCHWORDS:	PROCEDURE - Appeal - Issues not decided by primary judge, to some extent dependent on credibility - Whether appropriate for appeal court to decide - Relevant considerations - DAMAGES - Loss caused by breach of fiduciary duty - Equitable compensation - Loss due to realisation of risk knowingly undertaken by plaintiff and not significantly affected by the breach of duty - Whether defendant liable in whole or in part.
CASES CITED:	Beach Petroleum NL v. Kennedy (1999) 48 NSWLR 1 Brickenden v. London Loan & Savings Co. [1934] 3 DLR 465 Cackett v. Keswick [1902] 2 Ch. 456 Cassis v. Kalfus [2001] NSWCA 460 Henville v. Walker (2001) 206 CLR 459 Kolavo v. Pitsikas [2003] NSWCA 59 Nocton v. Lord Ashburton [1914] AC 932 Pateman v. Higgin (1957) 97 CLR 521 Quinn v. Rocla Concrete Pipes Ltd. (1986) 6 NSWLR 586 United Dominion Corporation Ltd. v. Brian Pty. Ltd. (1984) 157 CLR 1 Youyang Pty. Ltd. v. Minter Ellison (2003) 77 ALJR 895
PARTIES :	Sami Alfred Cassis and Gisele Cassis - appellants Marcel Isador Kalfus - respondent
FILE NUMBER(S):	CA 40715/03
COUNSEL:	Mr. P. Roberts SC with Mr. M.K. Minehan for appellants Mr. G. Lindsay SC with Mr. A. Ridley for respondent
SOLICITORS:	Levitt Robinson for appellants Mallesons Stephen Jaques for respondents

LOWER COURTJURISDICTION:	Supreme Court - Common Law Division
LOWER COURT FILE NUMBER(S):	SC20589/96
LOWER COURT JUDICIAL OFFICER :	Cripps AJ