Craig Mostyn and Co Pty Ltd v Atherton

[2007] WADC 133

CRAIG MOSTYN & CO PTY LTD -v- ATHERTON & ORS [2007] WADC 133

Jurisdiction:	DISTRICT COURT OF WESTERN AUSTRALIA	Citation No:	[2007] WADC 133
Case No:	CIV:181/2005	Heard:	24 MAY 2007
Coram:	DEPUTY REGISTRAR HARMAN	Delivered:	2/08/07
Location:	PERTH
No of pages:	15	Judgment Part:	1 of 1
Result:	Application successful
PDF Version

Parties:	CRAIG MOSTYN & CO PTY LTD FRANCIS JOHN ATHERTON JOSEPH ANTHONY  MARTELLA TERRY MICHAEL FOGLIANI ALAN ROY HANCOCK PETER NORMAN WOOD JOHN ALAN  MORRIS DEACONS
Catchwords:	Practice Practice under the Rules of the Supreme Court of Western Australia Application for summary judgment by third party Claims by defendant against solicitors under retainer , duty of care and Fair Trading Act WA, s 10 Turns on its facts
Legislation:	Fair Trading Act 1987
Case References:	Dey v Victorian Railway Commissioners (1948) 78 CLR 62

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA

IN CHAMBERS

LOCATION : PERTH CITATION : CRAIG MOSTYN & CO PTY LTD -v- ATHERTON & ORS [2007] WADC 133 CORAM : DEPUTY REGISTRAR HARMAN HEARD : 24 MAY 2007 DELIVERED : 2 AUGUST 2007 FILE NO/S : CIV 181 of 2005 BETWEEN : CRAIG MOSTYN & CO PTY LTD

Plaintiff

AND

FRANCIS JOHN ATHERTON
First First Defendant

JOSEPH ANTHONY MARTELLA
First Second Defendant

TERRY MICHAEL FOGLIANI
First Third Defendant

ALAN ROY HANCOCK
First Fourth Defendant

PETER NORMAN WOOD
First Fifth Defendant

JOHN ALAN MORRIS
First Sixth Defendant

DEACONS
First Third Party

(Page 2)

Catchwords:

Practice - Practice under the Rules of the Supreme Court of Western Australia - Application for summary judgment by third party - Claims by defendant against solicitors under retainer , duty of care and Fair Trading Act WA, s 10 - Turns on its facts

Legislation:

Fair Trading Act 1987

Result:

Application successful

Representation:

Counsel:

Plaintiff : No appearance
First First Defendant : Mr M F Rynne
First Second Defendant : Mr M F Rynne
First Third Defendant : Mr M F Rynne
First Fourth Defendant : Mr M F Rynne
First Fifth Defendant : Mr M F Rynne
First Sixth Defendant : Mr M F Rynne
First Third Party : Mr G J Pynt

Solicitors:

Plaintiff : Not applicable
First First Defendant : Tottle Partners
First Second Defendant : Tottle Partners
First Third Defendant : Tottle Partners
First Fourth Defendant : Tottle Partners
First Fifth Defendant : Tottle Partners
First Sixth Defendant : Tottle Partners
First Third Party : Pynt & Partners

(Page 3)

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

Dey v Victorian Railway Commissioners (1948) 78 CLR 62

(Page 4)

1 DEPUTY REGISTRAR HARMAN: The plaintiff's claim in the action is pursuant to a guarantee.

2 The defendants' amended statement of claim is expressed as follows:

"5 If the defendants are liable to the plaintiff pursuant to the statement of claim of the plaintiff pleaded in the particulars to paragraph 2 of this statement of claim (which the defendants deny) then the defendants claim that the third party is liable to the defendants as set out in the following paragraphs:

(a) At all material times the third party carried on business as a law firm under the name Deacons.

(b) At all material times the defendants were the directors of Old Valley Pty Ltd ('Old Valley').

(c) During the period between on or about 31 October and 17 November 2003 the third party acted for Old Valley in relation to the negotiation and execution of the Deed of Settlement such matters to include the loan and such other matters ancillary or incidental to the finalisation of the negotiations as between the plaintiff and Old Valley (sic).

(d) It was a (sic) agreed term of the retainer between the third party and Old Valley that the third party would communicate with Old Valley by its officers John Morriss (sic) and Alan Hancock.

(e) The third party knew and or it was reasonably foreseeable at all material times inter alia that:


(i) That the Deed of Settlement was intended to effect a termination of a commercial arrangement between the plaintiff … and Old Valley;

(ii) That the plaintiff and Old Valley operated a business in overseas markets in respect of the same and or similar products

(Page 5)

collectively referred to a (sic) 'fruit and vegetables';

(iii) That for the purposes of its commercial operations Old Valley required as a condition of the Deed of Settlement that the plaintiff would be restricted from selling, soliciting, seeking to sell promoting marketing or procuring the sale of fruit and vegetables to any Old Valley Customer (the 'no competition clause');

(iv) That Old Valley would not enter into the Deed of Settlement without the security of the condition referred to in paragraph (iii) above;

(v) That the defendants were reliant upon the third party to communicate with Old Valley such that Old Valley was aware at all times of the state of negotiations as between the third party and the plaintiff; and

(vi) That the defendants would not execute a guarantee for the loan unless Old Valley and the plaintiff entered into a Deed of Settlement containing a restriction as outlined in (iii) above.

(f) By virtue of the matters pleaded in (c) and (e) above the third party owed to the defendants a duty of care and there existed an implied retainer as between them to ensure that the defendants at all material times were adequately and properly informed of the position of the negotiations as between the plaintiff and Old Valley such that the defendants in being called upon to guarantee the loan were aware of the nature of the transaction giving rise to the loan that they were called upon to guarantee.

(Page 6)

(g) The Deed of Settlement executed between the plaintiff and Old Valley on 17 November 2003 failed to include a no competition clause.

(h) The third party knew or ought to have known that in a series of Drafts of the Deed of Settlement prepared by the plaintiff's solicitors prior to the production of the Deed of Settlement that was executed and referred to in paragraph (g) above, that a non (sic) competition clause was inserted in such drafts.

(i) The third party knew that the Deed of Settlement to be executed did not contain a no competition clause.

(j) In breach of the third party's duty of care and the implied retainer the third party failed to communicate to the defendants and Old Valley that the Deed of Settlement did not include a no competition clause.

(k) Old Valley did not know at the time of its execution that the Deed of Settlement did not include a no competition clause.

(l) The defendants did not know either prior to or at the time of executing the guarantee that the Deed of Settlement did not contain a no competition clause.

(m) At no material time did Old Valley or the defendants give the third party instructions to agree to the deletion of a non competition clause from the Deed of Settlement.

(n) In breach of the third party's duty of care and the implied retainer the third party allowed the defendants on 17 November 2003 in the presence of the third party and the plaintiff and the plaintiff's solicitors to execute the guarantee knowing that the Deed of Settlement did not contain a non competition clause without

(Page 7)

informing them of the removal of the non competition clause.

(o) The third party by its silence in relation to the deletion of the no competition clause has engaged in misleading or deceptive conduct pursuant to sec 10 Fair Trading Act 1987 (WA)."

3 By the application before me the third parties seek summary judgment against the defendants, alternatively that the third party notice be set aside under O 19 r 6 of the Rules of the Supreme Court. The grounds of the application are that the third parties did not owe the defendants a duty of care and that the conduct the subject of the allegation at par 5(o) would not amount to a breach s 10 of the Fair Trading Act 1987. At the hearing the third party also put the case that the court would not imply a relationship of solicitor and client. The defendants did not object to the inclusion of that ground but did not address submissions in relation to that issue.

4 On each part of the application the applicants carry the persuasive onus. Despite there being authority to the contrary, I am satisfied that an application for judgment is no different to any other interlocutory application and that the onus upon the respondents is no more than to support any submission that they care to make. In Dey v Victorian Railway Commissioners (1948) 78 CLR 62 at p90 Dixon J proposed that the test for the exercise of discretion is that the remedy ought to be reserved for actions in which the claim is absolutely hopeless. At the point of considering the exercise of discretion I am satisfied that the issue for consideration is whether on each particular cause it is clear that the third party proceedings would fail.

5 The defendants accept that the retainer for which they contend would not be established on the usual contractual indicia. For the court to find a retainer between the third parties and the defendants would depend upon its recognition of the relationship between them was that which would exist between a solicitor and client. Upon an analysis of the pleading the defendants' case would draw upon the defendants being directors of the third parties' client.

(Page 8)

6 In support of the application the third parties rely upon the affidavit of Elizabeth Anne Allnutt of 12 March 2007. At par 3 and following she deposes:

"3. Between 30 October and 17 November 2003 , the third party acted for Old Valley Pty Ltd (in liquidation) ('Old Valley') in relation to the negotiation and execution of the Deed of Settlement described in paragraph 5(c) of the defendant's (sic) statement of claim.

4. On 14 November 2003, Minter Ellison emailed to me draft security documents, including a draft directors' guarantee (Draft Directors' Guarantee)".

I sent a copy of the documents enclosed with email to Mr Alan Hancock by email the same day. In the email I said:

I will review the security documents insofar as they relate to OVPL but I will not be reviewing or advising on the directors' guarantee documentation. In this regard I confirm that each director should seek independent legal advice on the consequences of entering into the guarantees.

5. On or before 17 November 2003, Mr Hancock orally informed me that he intended to speak to the independent lawyer John Vaughan about advising the Old Valley directors on the consequences of entering into a guarantee in terms of the Draft Directors' guarantee.

6. At or about 12.05pm on 17 November 2003, I emailed to Mr Hancock a letter of advice on the security documentation and again confirmed that I was not reviewing the directors' guarantees and that the directors should obtain independent advice about the guarantees."

7 Part of the content of that letter is as follows:

"I now write with advice with regard to the security documentation which Old Valley Pty Ltd (Company) proposes to enter into with Craig Mostyn and Co Pty Ltd (Craig Mostyn).

The relevant provisions are contained in a fixed and floating charge over the assets and undertaking of the Company. I have also reviewed some ancillary documents but I have not

(Page 9)

reviewed the guarantee and indemnity which the directors of the Company have been asked to sign. I confirm my advice that the directors should obtain independent advice about that document and you were to discuss it with John Vaughan (who has been instructed to act on behalf of the shareholders of the company – other than Craig Mostyn).

My advice in respect of the security document (which is in identical format to the documentation which Minter Ellison produced for Westpac Bank Incorporation (Bank) last year) is as follows:

…"

8 The significant evidence from the affidavit of Alan Roy Hancock is as follows:

"8 Deacons acted for Old Valley and Minter Ellison acted for the plaintiff in negotiations for the deed of settlement.

9 Approximately 3 hours prior to the deed of settlement being signed Minter Ellison sent Deacons an e-mail attaching a draft of the deed of settlement with clause 8 struck out (this is the e-mail referred to in paragraph 38 of the defence and counterclaim).

10 The defendants accept that the third party was not expressly retained by the defendants to advise them in respect of the guarantee the plaintiff required to be executed by the defendants but claim that an implied retainer existed between the defendants and the third party and therefore the third party owed a duty of care to the defendants.

11. The defendants say that the circumstances which existed so as to cause an implied retainer and duty of care to exist between the defendants and the third party were as follows:


(a) it had already been agreed between:

(i) the plaintiff;

(ii) the defendants; and

(Page 10)

(iii) Old Valley

that all negotiations between Old Valley and the defendants with the plaintiff would be by the directors John Morriss (sic) and Alan Hancock;

(b) up to the morning of 17 November 2003 all communications of draft of the Deed of Settlement were sent directly by email the (sic) plaintiff to John Morriss (sic) and Alan Hancock;

(c) the Deed of Settlement was to end the existing agency agreement between the plaintiff and Old Valley;

(d) as a vital term of its commercial operations Old Valley required in the Deed of Settlement that the plaintiff be restricted from selling, promoting or procuring the sale of fruit and vegetables to any Old Valley customer (the 'No Competition clause');

(e) Old Valley would not enter into a deed of settlement without the existence of the No Competition clause;

(f) draft 9 of the Deed of Settlement proposed by the plaintiff to be executed by Old Valley was forwarded by the plaintiff's solicitors Minter Ellison to the third party at 12.59pm on 17 November 2003. Draft 9 of the Deed of Settlement was the first draft that had been sent directly by Minter Ellison to the third party direct;

(g) the email from Minter Ellison to Deacons accompanying draft 9 of the Deed of Settlement stated the 'changes highlighted in yellow are currently still being negotiated between the parties'. The No Competition clause was one of those clauses marked in yellow;

(h) at 2.18pm draft number 10 of the Deed of Settlement was forwarded to the third party by Minter Ellison

(Page 11)

(i) the No Competition clause which had been present in all previous drafts of the Deed of Settlement had been removed from the draft 9 sent on 17 November 2003;

(j) the defendants were not aware of the removal of the No Competition clause from the execution copies of the Deed of Settlement;

(k) neither Old Valley nor the defendants gave instructions to the third party to agree to the deletion of the No Competition clause;

(l) the defendants say that the third party by Ms Allnutt permitted or suffered the defendants to execute the Deed of Guarantee between the plaintiff and the defendants knowing that the Deed of Settlement did not contain the No Competition clause and without informing them of the removal of the No Competition clause;

(m) the defendants have informed me and I truly believe that they would not have executed the Deed of Guarantee had they known of the deletion of the No Competition clause;

(n) the defendants' claim against the third party is brought in breach of the duty of care and the implied retainer pursuant to which the third party owed a duty of care to the defendants which duty of care was breached as set out above."

9 Paragraph 38 of the substituted defence and counterclaim to which reference is made at par 9 which appears as part of the statement of claim against the third parties does not contain any reference to an email. It is as follows:

"On or about 17 November 2003 Messrs Minter Ellison sent a document ('the Final Document') to Messrs Deacons, being the solicitors for Old Valley.

(Page 12)

PARTICULARS

The Final Document is the document which was subsequently executed by the plaintiff and Holdings (sic) so as to become the Deed of Settlement."

10 There is no evidence as to when either the loan or the guarantee became features of either the negotiations for settlement or the draft deed. At the point that the draft of the guarantee was provided to the third parties they informed the defendants that they would not act as their solicitors and recommended that they instruct a solicitor. The telephone conversation and the second email to which Allnutt deposes suggest that the defendants had understood that the third parties would not act for them and that they had at least identified a solicitor to whom they would look to protect their interests.

11 By the terms of the first communication to which Allnutt deposes the third parties defined their future role in the negotiations leading to the deed of settlement and the process of its execution by identifying their client and communicating to the defendants that they did not intend to have any relationship with them. There is nothing to suggest that the third parties subsequently compromised that stance.

12 The retainer contended for by the defendants was one whereby the third parties would ensure that the defendants would be informed of the position of negotiations between the third parties and Old Valley Pty Ltd as to the nature of the transaction giving rise to the loan. The fact that it is possible to construct scope within which the limited relationship contended for could either exist or develop is not to the point: it is a matter of whether the court would infer that such a relationship would properly be characterised as a retainer. In my opinion the limited scope of the relationship pleaded would defeat the prospect that the court would find a retainer. Under a retainer the solicitor would have a comprehensive responsibility to protect the relevant interests of the client. The nature and extent of the duty owed by a solicitor to a client and the implications of the existence of a retainer are such that the court would only draw an inference that a relationship existed if it was necessary to do so. A responsibility to inform is significantly less than the scope of a solicitor's responsibility to his client.

13 It is a matter of whether the analysis of the pleading that I have conducted and the evidence that supports the conclusions that I have expressed and would be sufficient to overcome the case put by the

(Page 13)

defendants. There is no evidence or pleading that would suggest that the parties conducted themselves in a manner that would speak to the prospect that a retainer existed. The third parties could not have done more to distance themselves from the prospect that they would find themselves in a solicitor and client relationship. In my opinion it is so unlikely that at trial a court would find a retainer that to the extent that the defendants would rely upon such a finding the application is well founded.

14 The second case for which the defendants contend is that the third parties owed them a duty of care to ensure that they were informed of the position of negotiations between the third parties and the plaintiff in relation to the terms of settlement and were aware of the nature of the transaction giving rise to the loan the subject of the guarantee. That allegation is founded upon the proposition that they were reliant upon the third parties communicating with their client so that Old Valley Pty Ltd was aware of the state of negations between the third parties and the plaintiff.

15 I understand that the third parties recognise that it is conceivable that the defendants relied on the course of communication under the retainer between the third parties and Old Valley Pty Ltd however as the context within which it is pleaded reveals, such reliance would found the proposition that it was foreseeable that the defendants would be exposed to pure economic loss.

16 To establish a case that the third parties owed a duty of care to protect the defendants from loss would depend upon more than a finding of the forseeability of pure economic loss.

17 What I have already canvassed on the subject of the existence of a retainer has a direct bearing upon whether the court would find that the third parties owed the defendants a duty of care. There is no pleading or evidence of any relevant prior history of dealings between the third parties and the defendants. At the point that their interest emerged the third parties communicated to the defendants that they would act in accordance with their retainer with Old Valley Pty Ltd and not for them. Properly considered the course of solicitor and client communications upon which the defendants relied were no more than that. Whatever services were generated by the retainer between the third parties and their client came into the hands of the defendants as the third parties' client.

18 There is no pleading or evidence that would suggest that the third parties had any relationship with the defendants at all. There is no

(Page 14)

pleading or evidence that third parties did anything to either induce reliance by the defendants on the course of communications between themselves and their client or that they had done anything to engender an expectation in the defendants that they would provide information to them relating to the course of negotiations between Old Valley and the plaintiff.

19 The defendants submitted that in the context of the course of communication under the retainer between the third parties and Old Valley Pty Ltd it would be artificial to distinguish their capacity as directors of the third parties' client from their interest as guarantors; and that the determination of their claim would properly be left to the trial. I accept that such submissions amount to powerful cautions against the exercise of discretion to enter judgment. The reason for remaining engaged with the applicants' proposition is that as guarantors that they contend that they were owed a duty of care. It is by the case brought against the third parties that their identity as guarantors is revealed as fundamental. Regardless of the evidence that would emerge at trial the case that they bring has been expressed and it is open for the applicants to seek to have the issue of the sufficiency of the case considered on an application for judgment. In my opinion the pleading and evidence reveal that there is no basis for the defendants to contend that they were owed a duty of care. In my opinion, that result is clear.

20 The third case brought by the defendants against the third parties is under s 10 of the Fair Trading Act 1987. The proposition upon which they rely is that the third parties' silence as to the deletion of the non competition clause from the deed of settlement amounted to misleading and deceptive conduct.

21 Silence could only be portrayed as misleading or deceptive conduct in the context of a course of communication. The defendants neither plead nor give evidence of a course of communication which would provide the context within which the third parties' silence on the removal of the non competition clause in the deed of settlement would be established. Prior to the point at which that clause was removed from the deed of settlement the third parties had made it clear to the defendants that they would not act for them. According to the pleading and the evidence at all material times the third parties represented Old Valley Pty Ltd. Any communication between the third parties and Old Valley Pty Ltd in the course of that retainer was the product of the retainer. After the time that the defendants were given notice that the third parties would not act for them there is nothing in the pleading or the evidence that would

(Page 15)

indicate that that there was any course of communication upon which a claim founded upon silence as to the deletion of the clause could emerge.

22 As to whether it would be appropriate to exercise discretion in favour of the applicants on that ground of the application, neither the pleadings nor the evidentiary landscape supports the establishment of such a case. In my opinion the necessary clarity is provided by the third parties notice to the defendant that they would not act. That notice provides the datum to assess whether the third parties and defendants had engaged in any relevant course of communication.