Chartspike v Chahoud - [2000] NSWSC 625

NEW SOUTH WALES SUPREME COURT

CITATION: CHARTSPIKE v CHAHOUD [2000] NSWSC 625 revised - 27/10/2000

CURRENT JURISDICTION: Common Law Division

FILE NUMBER(S): 20371/97

HEARING DATE{S): 26/06/2000

JUDGMENT DATE: 30/08/2000

PARTIES:
CHARTSPIKE PTY LTD (IN LIQ) & 3 ORS v MICHAEL CHAHOUD

JUDGMENT OF: Master Macready

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:
Mr J.T. Svehla for plaintiff
Mr J.C. Kelly SC with G. Curtin for defendant

SOLICITORS:
Baker & McKenzie for plaintiff
Colin Biggers & Paisley for defendant

CATCHWORDS:
Contracts - Principal and Agent. Proceedings commenced on behalf of a company without authority. First Liquidator declines to ratify solicitor's actions. Second Liquidator adopts proceedings by filing and amended statement of claim. Held solicitor's actions ratified by second Liquidator.
Practice - Application to dismiss proceedings based on Limitations Act defences. Held appropriate in part.
Corporations Law - Whether s 1322(4)(d) of Corportions Law impliedly repeals s 14(1) of the Limitation Act. Held point premature at this stage.

ACTS CITED:

DECISION:
Paras 50 and 51

JUDGMENT:

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
MASTER MACREADY
Wednesday 30 August 2000.
20371 of 1997 CHARTSPIKE PTY LTD (IN LIQ) v MICHAEL CHAHOUD
JUDGMENT

MASTER: There are presently before me for hearing two motions and the determination of a separate question. The first motion which is brought by the defendant, Michael Chahoud, was filed on 14 July 1999 and seeks that the proceedings be dismissed for failure to disclose a reasonable cause of action. The second motion is one by the plaintiff, Chartspike Pty Limited ( In Liquidation) filed on 26 June 2000 in which it seeks leave to amend the existing amended statement of claim in a form of the draft annexed to the motion.
The separate question was defined in Orders made by Abadee J on 4 April 2000 and is in the following terms:-
1. Pursuant to Part 31 of the Supreme Court Rules, the following questions shall be separately tried on a final basis before the trial:
(a) Whether this Supreme Court of New South Wales proceeding (the "proceeding") was validly commenced on 1 May 1997 by the Plaintiff through its liquidator or with his authority;
(b)If the answer to question (a) is no, whether the Plaintiff by its liquidator could thereafter ratify the commencement of the proceeding such that the proceeding was, or is taken to have been validly commenced on 1 May 1997;
(c) If the answer to question (b) is no, whether a declaration ought be made pursuant to section 1322(4)(a) of the Corporations Law that the commencement of the proceeding on 1 May 1997 other than by the liquidator of the Plaintiff exercising his powers contained in sections 477(2)(a), (b), (k) and/or (m) of the Corporations Law is not invalid by reason of the contravention of such provisions of the Corporations Law;
2. Pursuant to Part 31 Rule 6 otherwise of the Supreme Court Rules, that the Court shall make orders and declarations consequent upon and conformable with the answers to question 1(a), (b) and (c) above.”
These proceedings were commenced by the filing of the statement of claim on 1 May 1997. There are proceedings for the recovery of damages consequent upon alleged negligence and breach of contract by the defendant who was a solicitor acting for the plaintiff in respect of a proposed joint venture agreement for the development of land.
It is common ground that:-
(a) The statement of claim originally filed on 1 May 1997 named four plaintiffs being the company, Chartspike Pty Limited (In Liquidation) and three natural persons, Gary Haddad, Victor El Bayeh and Tony Hadidi.
(b)The statement of claim was never served on the defendant.
(c) An amended statement of claim which was filed by a solicitor different from the one who filed the original statement of claim, removed the three natural persons as plaintiffs. The amended statement of claim was filed and served on 30 April 1999 one day before the expiration of the period provided for service of originating process under Part 7 Rule 1(1) of the Supreme Court Rules. The statement of claim was amended pursuant to Part 20 Rule 2 of the Rules.
When the matter came on for hearing before me there were appearances on behalf of the individual plaintiffs to the original statement of claim. None of those persons made any application to again be joined as plaintiffs and indicated that they had no application to make in relation to the continuance of the proceedings in which the only plaintiff was Chartspike Pty Limited (In Liquidation).
The application for leave to amend the amended statement of claim annexes a further amended statement of claim that still contained a reference to the individual plaintiffs who had ceased being parties when the amended statement of claim was filed. It is conceded by the plaintiffs that this is an error and it is not intended that the further amended statement of claim should be brought by the individual plaintiffs. Indeed there are no allegations in the further amended statement of claim which disclose any cause of action on their part. There is not any great difference in substance between the proposed further amended statement of claim and the amended statement of claim which is already filed. In essence the further amended statement of claim adds more particulars and detail to the existing amended statement of claim. The opposition to the filing of the further amended statement of claim was based upon the grounds advanced to strike out the amended statement of claim and those grounds equally apply to the proposed further amended statement of claim. In these circumstances it would seem probably convenient to deal with the proposed further amended statement of claim in addressing the substantive reasons advanced on the strike out application. If these reasons are upheld the existing statement of claim can suffer the appropriate consequences and the extent of leave can be limited to so much, if any, of the further amended statement of claim as survives the strike out application.
Given that a negative answer to each of the separate questions which are to be tried on a final basis would determine the proceedings it may be useful to first deal with that point before dealing with the more contentious issue of the strike out application which concerns statute of limitations defences.
The Separate Question
Chartspike Pty Limited was placed in liquidation on 13 March 1992. At that time Richard Campbell Brien was appointed its liquidator. The initial statement of claim which was not served was filed by Janus Lawyers on 1 May 1977 the relevant solicitor being Mr Assi. It is apparent from evidence given in the hearing before me that although there had been some discussions about proposed proceedings Mr Brien had not given his authority prior to the commencement of the proceedings. In these circumstances it is clear that the first separate question which has been asked should be answered “no”.
It was suggested that there are five bases upon which either Mr Brien, the first liquidator of the plaintiff company or Mr Hamilton, the second liquidator, has ratified the commencement of the proceedings. These are as follows:-
(a) Mr Brien keeping the claim on foot after finding out (on the day after its filing) that it had been commenced and taking no steps to discontinue the claim.
(b)Mr Brien keeping the claim alive for the balance of his period as liquidator, so as to enable steps to be taken to have it assigned from Chartspike to the directors on terms satisfactory to Mr Brien.
(c) By the passing of a Creditor’s resolution on 26 September 1997.
(d)By Mr Hamilton taking no steps to discontinue the proceedings on or after his appointment on 26 September 1997.
(e)By Mr Hamilton keeping the claim alive, continuing investigations in relation to it, instructing solicitors to put on a change of appearance on behalf of the plaintiff company in November 1998 and thereafter filing an amended claim verified by Mr Hamilton as Chartspike’s liquidator on 30 April 1999.
There is authority for the proposition that where a solicitor commences proceedings without the authority of a client the proceedings are not a nullity but an abuse of the process of the court liable to be stayed but it is open for the client to ratify the actions of the solicitors whereupon any want of authority at the commencement of the proceedings may be overcome. See Danish Mercantile Co Ltd v Beaumont (1951) 1 Ch 680, Omega Estates Pty Ltd v Ganke (1962) 80 WN (NSW) 1218 and the authorities referred in Halsbury’s Laws of England 4th edition volume 44 paras 114 and 115. Normally ratification allows an agent’s unauthorised act to be treated as if the principal had previously given actual authority to do it. In Bank of Australia Ltd v Rudder (1911) 13 CLR 152. It constitutes the relationship of principal and agent retrospectively. See also Australian Blue Metal Ltd v Hughes (1962) 79 WN (NSW) 498.
I turn to the facts as they appear to have occurred in relation to the proceedings after their commencement and non-service.
After hearing by facsimile that proceedings had been commenced without his authority Mr Brien said the following in his affidavit:-
“16. After I had read this facsimile I rang Mr Assi and we had a telephone discussion in words to the following effect:
I said: “What do you think you’re doing, filing a statement of claim with Chartspike as a party?”
Assi:      "Look, we had to file by 1 May 1997 or the claim would have been out of date because of the limitation period."
I said:     "If the directors want to prosecute the action, that's fine, they can have it. But I have set out the terms. I won't be involved and I'm not going to let the claim run and won't commit the company to prosecute its claim unless I'm protected. I'm not going to provide a letter to the court. If the directors want to run with the claim then you better sort it out on a basis on which I won't be involved as I don't want any liability".
17.         I did not write to the court in the terms requested by Mr Assi in his facsimile of 2 May 1997 requesting that the court release the statement of claim where Chartspike had no funds to pay for filing fees.
18.         I also did not write to the court to ask that the company be removed as a plaintiff or to indicate that the claim had been commenced without my knowledge and without me authorising Mr Assi of Janus to file the statement of claim on behalf of Chartspike.
19.         However, once I became aware that the statement of claim had been filed on behalf of Chartspike by Mr Assi of Janus, I was prepared to allow the statement of claim to remain on the court file and to take no steps to remove it, to give the directors further time to satisfy my fundamental requirement, namely, that if Chartspike was to prosecute any claim it considered it had against Mr Chahoud, then I, the liquidator of Chartspike, was not to be involved and I was to have no prospect of personal liability. It was for this reason that I had previously suggested to Mr Assi an assignment together with the irrevocable authority as to dispersing sale proceeds.
Thereafter he wrote on 9 May in the following terms:-
“In response to your letter of 2nd May 1997, I note the undertakings given by the three directors.
For some reason it was my understanding that Chartspike Pty Limited would not participate in the litigation of the matter in any fashion and certainly not as the first plaintiff. It again was my understanding that on the assignment of the rights of Cbartspike to any claims that have against the actual plaintiffs in the matter, would be: Hadad El Bayeh and Addili. I am not prepared to have: Chartspike Pty Limited as a plaintiff in the matter as there are ramifications as to potential costs both for the company and myself as liquidator and I am certainly not prepared to provide you with any instructions in relation to the conduct of the litigation:
To this extent unless Charspike Pty Limited ceases to be a plaintiff in the proceedings, with the rights vesting in the second, third and fourth plaintiff under the assignment that was proposed, then the matter cannot obviously proceed and I do not agree to Chartspike being a party.
Your urgent advices are requested.”
The defendant placed emphasis on the third sentence of the second last paragraph of that letter to suggest that this constituted a repudiation of the actions of Mr Assi in filing the claim. It seems to me that when one looks at the letter Mr Brien was in fact declining to ratify the actions of Mr Assi in commencing the proceedings. Mr Brien took no further steps to remove Chartspike as a party and heard nothing further from Mr Assi until 6 August 1997 when he was asked to call a meeting to consider a proposal to appoint Mr Hamilton as a new liquidator and whether proceedings ought to be commenced against the company’s erstwhile solicitor, Mr Chahoud. Apparently Mr Brien took the view after writing the letter of 9 May that as long as no steps were taken to prosecute the claim then he had no risk of exposure or liability. He said he was prepared for Chartspike’s claim to remain on the court file to give the directors an opportunity and time to come up with a satisfactory solution to the terms upon which he was prepared to allow Chartspike’s claim against Mr Chahoud to proceed.
Having been asked, Mr Brien called a meeting of creditors, and in the notice calling the meeting of 14 August 1997 he indicated the agenda to be:
1.            To consider the report of the liquidator as attached.
2.            To consider indemnity for action against a former solicitor for the company in a claim for negligence. Refer paragraph    of the attached report and
3.            Consider the resignation of the current liquidator.
There was sent with the notice a report in which Mr Brien discussed the state of the existing proceedings and the dispute which he had about an appropriate indemnity for costs. In the report he refers to the insistence of the then solicitors that the company must participate for the action to have its best merits which I take to be prospects of success. It was this which prompted him to require some other liquidator to take over the matter. At the meeting after the discussion of the report the following two resolutions were passed:-
“That legal action be commenced against Mr Michael Chahoud, former solicitor for the company with a claim for negligence.
That Richard Brien resign as liquidator of the company.”
Much was made in submissions of the fact the actual terms of the resolution indicated commencement of legal action. If one reads the minutes of the meeting and the documents which the creditors had before them it is perfectly apparent that it was the existing matter that was to be taken over by another liquidator that was for approval. There was no suggestion of fresh proceedings. In these circumstances it would seem to me that the creditors have clearly intended to ratify the commencement of the proceedings. However, the only person who probably had authority to bind the company would be its liquidator. Mr Hamilton, once he was appointed, took steps to adopt the proceedings. He instructed solicitors to file an appearance and caused an amended statement of claim to be filed. In my view this is a clear adoption of the proceedings and thus a ratification of the original solicitor’s actions in commencing the proceedings. As it is the company which ratifies the solicitor’s actions it could do so through actions of either of its liquidators subject to the next matter to which I turn.
I have already held that Mr Brien had refused to ratify and in these circumstances can a later liquidator ratify the commencement of the proceedings? It was submitted that this would be able to be done provided that ratification would not unfairly prejudice any third party. In Bowstead and Reynolds on Agency (16th ed) one of the rules was said to be that ratification is effective although the person ratifying had refused at first to recognise the act unless to allow ratification would unfairly prejudice the third party. At page 88 the following was said:-
In general it seems, therefore, that the rule is correctly expressed as above: a ratification may be effective against the principal though originally he refused to ratify, and also in his favour unless the third party has relied on a previous refusal in a way that would make a subsequent ratification unfairly prejudicial. These conclusions seem better based on the rules as to limits on ratification than an estoppel, since there may be difficulties concerning representations of intention as founding estoppel. This reasoning seems best based on an analogy with the grant of preceding authority, which cannot be withdrawn as regards the transaction authorised once acted on: since the agent's action has already taken place, a ratification cannot without the consent of the other party be withdrawn. A refusal to ratify, on the other hand, is merely equivalent to a refusal to grant authority: this does not prevent a subsequent grant of authority, subject to the doctrine of estoppel.”
The defendant made reference to the modern law of waiver and election and referred to Sargent v ASL Developments Limited (1974) 131 CLR 634 where Mason J said at p 655:-
“Essential to the making of an election is communication to the party affected by such a conduct of the choice thereby made it is accepted that once an election is made it cannot be retracted.”
The defendant then submitted that the actions of Mr Brien were a choice between inconsistent rights and that he had repudiated the commencement of the proceedings. I do not see it in this way. All he did in his letter was to decline to ratify and his affidavit evidence makes it clear he did nothing further. There was no contract between him and the solicitor which could be repudiated. His refusal to ratify simply left the solicitor at risk as to costs.
The only question that has to be addressed is whether the subsequent ratification is unfairly prejudicial.
It is important to note in this regard that at the time the creditors passed their resolution no service of the first statement of claim had been effected and thus the defendant could have taken no prejudicial steps in relation to the proceedings. As he was represented by proxy at the creditors’ meeting he would then have knowledge of the existence of the proceedings. The actions of Mr Hamilton, which may constitute ratification also occurred before service of the amended statement of claim. In these circumstances it is not surprising that the only prejudice suggested by the defendant was a loss of individual plaintiffs from whom he may recover costs. Give the minor involvement of these individuals and the power of the court to order security for costs, it would seem to me that there is no relevant prejudice.
In the circumstances I am satisfied there has been ratification of the proceedings by the liquidator of Chartspike Pty Limited and accordingly the proceedings are validly commenced. It is thus not necessary to address separate question 1(c).
Strike Out Application.
It is useful to deal with some of the elements of the cause of action as propounded in both the amended statement of claim and the further amended statement of claim.
The pleadings allege a retainer to act in and about the proposed joint venture which was to be entered into by the plaintiff company. The pleadings first plead a contractual basis to exercise reasonable skill, care and diligence in advising and acting for the plaintiff in respect of the matters the subject of the retainer (para 7 amended statement of claim, para 12 further amended claim). It also alleged a duty of care to exercise reasonable care, skill and diligence in advising and acting for the plaintiff as its solicitor in respect of the joint venture (para 8 of the amended statement of claim and para 13 of the further amended statement of claim). The pleading then alleges the fact that the defendant knew that the joint venture would be borrowing substantial funds from Esanda which would require a first mortage, that there were negotiations to sell part of the property the subject of the joint venture to certain Taiwanese purchasers which could affect the ability of the plaintiff to obtain a second mortgage to secure its contribution over the land to the joint venture and that the plaintiff company was not in a good financial position.

A final version of the joint venture agreement was received on 25 September upon which the defendant advised the plaintiff. Thereupon relying upon that advice the plaintiff paid $1,000,000 contribution to the joint venture, entered into a loan arrangement with Esanda and signed the final version of the joint venture agreement. That document was signed on 14 November 1990.
The pleading alleges breaches of retainer to which I will return in a moment. It then goes on to deal with other relevant matters including that on 13 March 1992 the plaintiff was placed in liquidation and that on 5 May 1992 pursuant to clause 15 of the joint venture agreement the agreement was terminated as a result of which the plaintiff company had no right to claim a refund of the capital contributions made to the joint venture or otherwise make a claim for the funds it had advanced.
The breaches of both contract and tort claim are alleged in paragraph 15 of the amended statement of claim and paragraph 27 of the proposed further amended statement of claim. In broad terms the particulars of the breach are divided into two areas. The first deals with failing to adequately warn or advise the plaintiff of the legal consequences prior to entry into the joint venture agreement. Secondly failing to ensure that a second ranking mortgage secured over the land was obtained for Chartspike prior to the termination of the joint venture agreement. It should be appreciated that this occurred after 1 May 1991 which is six years prior to the commencement of the proceedings.
In respect of the claims to strike out the relevant reasons advanced are, of course, the expiry of the limitation period. In respect of the contract claim it seems fairly clear (subject to a Corporation law point) that in so far as it is based upon a breach of duty relating to the entry into the joint venture agreement in 1990 that the claim is clearly statute barred.
In respect of the failure to obtain a mortgage this is, of course, more contentious. In relation to the application of the Limitation Act defences to the claim in tort there is a dispute as to whether or not the loss was sustained on entry into the agreement or was one which arose upon the happening of a contingency, namely, the inability to complete the joint venture at a later stage.
The plaintiff also raised a novel matter in relation to the Limitation Act defence. They say that under s 1322(4)(d) of the Corporations Law a corporation may apply for an extension of time within which to commence proceedings and that this provision would over-ride the bar in s 14 (1) of the Limitation Act.
I will turn first to the contract claims and the application of the New South Wales Limitation Act. It seems quite clear and, indeed, it was conceded that in respect of those claims founded upon a breach prior to the entry into the joint venture that they could not succeed. The pleading makes adequate allegations of the retainer continuing up until final termination of the joint venture in May 1992. It also makes it clear that the breach is a failure to obtain a registered second mortgage over the joint venture land and to give advice during that period. To the extent therefore that there was a continuing obligation which extended beyond 1 May 1991, it would seem to me that allegations to this effect should be allowed to stand in respect of the contract claim.
The plaintiff submits that the balance of the contract claim should also be allowed to stand because of the possibility that leave may be given under s 1322(4) of the Corporations Law for an extension of time to bring these proceedings.
Section 1322 relevantly provides as follows:-
“1322(4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Law, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:
(a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Law or in relation to a corporation is not invalid by reason of any contravention of a provision of this Law or a provision of the constitution of a corporation;
(b) an order directing the rectification of any register kept by the
Commission under this Law;
(c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);
(d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Law or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;
and may make such consequential or ancillary orders as the Court thinks fit.
……..
(6) The Court shall not make an order under this section unless it is satisfied:
……..
(c) in every case - that no substantial injustice has been or, is likely to be caused to any person.”
I received extensive submissions from both parties which concentrated on the words of subsection (d) with particular emphasis on the words, “or in relation to a Corporation”. The plaintiff submitted that the words should be given a liberal interpretation such that it would override the provisions of the Limitation Act in respect of a corporation. In particular it referred to -
(a) Statements in David Grant & Co Pty Ltd (Receiver Appointed) v Westpac Banking Corporation & Ors (1995) 184 CLR 265 at 275 by Gummow J as to the breadth of the authority conferred.
(b)The history of the predecessors of the section and particularly the change from s 366(4) of the Companies Act to s 539(4)(d) of the Companies Code.
(c) The width of the words “in relation to” and the cases which deal with that expression.
(d)The use of the section to extend time periods for proceedings against directors.
The defendant for his part concentrated on the meaning of “in relation to a corporation” arguing that the extension of time for the taking of a step against the defendant’s solicitor is not a step in relation to a corporation. It is a step by a corporation in relation to another citizen. By way of illustration it suggested that if a corporation borrowed a library book from a local lending library it would be absurd to conclude that the Corporations Law intended to confer on the court a power to extend time for its return so that the corporation may avoid paying a fine.
An important point that was also raised by the defendant was that the section requires that there be an application by the corporation for the relief sought. Until that relief is granted there can be no effect on the Limitation Act even if the plaintiff’s submissions are correct.
In written submissions the plaintiff applied for leave to file a motion seeking the relief such motion to be returnable at the trial of the proceedings. This course was opposed by the defendant.
There are a number of reasons why this course should not be followed.
(a) The motion seeks that the proceedings be dismissed for failure to disclose a reasonable cause of action. This requires an analysis of the pleaded facts in the statement of claim and defence to see if there is disclosed a reasonable cause of action. No reference to the application under s 1322(4)(d) appears in these documents nor, indeed, could it as there has been no application for relief under the section.
(b)If the application for relief were to be dealt with at the final hearing and fail then there would be a substantial waste of costs. This would flow from the work which would have to have been done to prepare that part of the pleading which refers to the pre May 1991 breaches. These costs would be substantial.
(c) If the plaintiff does make a successful application for relief there could be no opposition to the amendment of the statement of claim to include the pre May 1991 breaches as the relief granted would remove any limitation argument.
(d)The plaintiff submits that it takes the s 1322(4)(d) point seriously and intends to argue it on a final basis. This can be accommodated by the plaintiff bringing a motion in these proceedings in the ordinary course. If it was thought necessary it could be heard as a separate question. Provided the plaintiff brings the application expeditiously there would be little wasted costs at this stage of the proceedings.
In the circumstances, without expressing a final view on the Corporations Law point, I propose to strike out all of the existing contract claim except that comprised within the continuing claim of breach in paragraph 15 (h) and to give leave to replead accordingly.
The limitations defence in respect of the claim in tort depends on when loss or damage occurs. The real debate between the parties is whether the loss was sustained on the entry into the agreement or which arose on the happening of a contingency. The contingencies for which the plaintiff contended were:-
(a)          Chartspike being able to perform its funding obligations throughout the life of the joint venture;
(b)the costs of subdividing and developing the joint venture land;
(c)          the net sale proceeds of the joint venture land once subdivided;
(d)the time it would take to subdivide and develop the land and on-sell it;
(e)          the Taiwanese interests agreeing to Chartspike having a registered second mortgage.
It was suggested that the matters which the company now complains of in relation to the defendant’s conduct concern his failure to do things and the advice that he gave or did not give in the circumstances where the plaintiff was unable to continue to fund the joint venture (i.e. the protection of the plaintiff company’s rights on such a happening). It was submitted that at the time of execution of the joint venture agreement and at the time of making the balance of the initial contribution of $1,000,000 on 4 October that these were contingencies. It was submitted that they became actualities on 5 May 1992 when Castle Hill terminated the joint venture. Perhaps an earlier date of 13 March 1992 when the plaintiff company went into liquidation would be more appropriate.
There appears to be no dispute that the plaintiff did not meet its obligations to make appropriate payments and it was this which led to the termination of the joint venture agreement with a resulting loss of its investment. There is no suggestion that any default of the defendant caused it to default in its obligations to the joint venture.
Reference was made in submissions to Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514. That case concerned the strike out of an amendment to a claim for damages under s 82 of the Trade Practices Act. The respondent had given an indemnity as a result of misleading and deceptive conduct on the part of the appellant. It was held that the indemnifier suffered no loss until the contingency (an obligation to make a payment) was fulfilled.
Notable in the court’s reasons were the distinguishing of cases concerning execution of mortgages and its treatment of the English authorities dealing with situations where a plaintiff was induced by negligent representations to enter into a contract or the signature of defective documents brought into existence by solicitors. It declined to follow them, Mason CJ, Dawson J, Gaudron J and McHugh J saying at 532:-
“If, contrary to the view which we have just expressed, the English decisions properly understood support the proposition that where, as a result of the defendant's negligent misrepresentation, the plaintiff enters into a contract which exposes him or her to a contingent loss or liability, the plaintiff first suffers loss or damage on entry into the contract, we do not agree with them. In our opinion, in such a case, the plaintiff sustains no actual damage until the contingency is fulfilled and the loss becomes actual; until that happens the loss is prospective and may never be incurred. A deferred liability may stand in a different position but there is no occasion here to discuss that matter.”
Brennan J at p 536 - 537 analysed the matter in this way:-
“A plaintiff may suffer economic loss or damage in a number of ways: by payment of money, by transfer of property, by diminution in the value of an asset or by the incurring of a liability. Whether loss or damage is actually suffered when any of those events occurs depends on the value of the benefit, if any, acquired by the plaintiff by paying the money, transferring the property, having the value of the asset diminished or incurring the liability. If the plaintiff acquires no benefit, the loss or damage is suffered when the event occurs. At that time, the plaintiff's net worth is reduced. And that is so even if the quantification of that loss or damage is not then ascertainable. But if a benefit is acquired by the plaintiff, it may not be possible to ascertain whether loss or damage has been suffered at the time when the burden is borne — that is, at the time of the payment, the transfer, the diminution in value of the asset or the incurring of the liability. A transaction in which there are benefits and burdens results in loss or damage only if an adverse balance is struck. If the balance cannot be struck until certain events occur, no loss is suffered until those events occur. The quantification of the diminution in value of an asset or of a liability incurred or the value of any benefit acquired may not be ascertainable at the time when the burden of the transaction is borne. In that event, the suffering of any loss cannot be said to occur before it is reasonably ascertainable (not before it is ascertained) that the burdens which the plaintiff has borne are greater than the value of the benefits that the plaintiff has acquired or will acquire. In other words, no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is "worse off than if he had not entered into the transaction".
In the present case the plaintiff acquired a benefit when it entered into the agreement and paid its money. It had the prospect of participating in a joint venture land development which may have produced profits. It seems to be a case of both benefit and burdens to which His Honour is referring. It does not seem to me that any measurable loss occurred on the entry into the agreement and it is certainly arguable that the loss only quantified at a later stage.
It may be that when the facts are fully analysed that the reason for the ultimate loss may be action of the plaintiff rather than other persons or facts. This a matter of causation and not a matter determinative of when a loss is suffered.
At p 533 the majority had the following to say:-
“Conclusion
It follows from what we have said that we agree with the approach adopted by the Full Court of the Federal Court in the present case and in Magman International Pty Ltd v Westpac Banking Corporation (1991) 32 FCR 1.
We should, however, state in the plainest of terms that we regard it as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question.”
These comments are particularly apposite in the present case which involves prospects of a successful land development project. The circumstances in which the loss was sustained are not sufficiently certain. For these reasons the claim should be allowed to stand and be repleaded.
The parties are to bring in short minutes at a convenient time when I will hear submissions on costs.

LAST UPDATED: 27/10/2000