Goss v MFA Finance Pty Ltd
[2000] WASC 200
•10 AUGUST 2000
GOSS & ORS -v- MFA FINANCE PTY LTD & ORS [2000] WASC 200
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2000] WASC 200 | |
| Case No: | CIV:1479/2000 | 2 AUGUST 2000 | |
| Coram: | MASTER SANDERSON | 10/08/00 | |
| 21 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| PDF Version |
| Parties: | JAMES ALBERT GOSS EVELYN MARGARET GOSS GARRY GEORGE MEEK ROSALIND MEEK SAMUEL GROTTEN KATHERINE GROTTEN JOYCE ELIZABETH EDGAR ANITA LYON COLORADO HOLDINGS PTY LTD (ACN 009 117 033) RONALD PIPER EDGAR GEORGE THOMAS ROBINSON SHEILA NORMAN ROBINSON HUGH ERNEST GREGORY HELEN GREGORY ELFRIEDA ELIZABETH BATTLEY ERIC LAWRENCE CREW PAMELA ANNE SEYMOUR JEFFREY MARK PASKULICH PAULINE MARIE PASKULICH MFA FINANCE PTY LTD (ACN 068 307 148) HERBERT ROSS FISHER NEIL JAMES PINNER KENNETH WALTER COURT RUSSELL JOHN HAWKINS MICHAEL BERNARD BRENNAN KOTT GUNNING (A Firm) RICHARD CLANAN MARR SAGAR PTY LTD STEPHEN ADAIR OLIFENT |
Catchwords: | Practice and procedure Application to strike out statement of claim Turns on its own facts |
Legislation: | Fair Trading Act, s 10 and s 82(4) |
Case References: | Amadio Pty Ltd v Henderson (1998) 81 FCR 149 Astley v Austrust Ltd [1999] HCA 6 Orszulak v Hoy (1989) A Tort Rep 69,181 Pegrum v Fatharly (1996) 14 WAR 92 Yager v Fishman & Co [1944] 1 All ER 552 Groom v Crocker [1939] 1 KB 194 Hawkins v Clayton (1988) 164 CLR 539 Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 Lanphier v Phipos (1838) 8 Car & P 457 McCarthy v McIntyre [1999] FCA 784 Philip Morris v Nixon [2000] FCA 229 Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- EVELYN MARGARET GOSS
First Plaintiffs
GARRY GEORGE MEEK
ROSALIND MEEK
Second Plaintiffs
SAMUEL GROTTEN
KATHERINE GROTTEN
Third Plaintiffs
JOYCE ELIZABETH EDGAR
Fourth Plaintiff
ANITA LYON
Fifth Plaintiff
COLORADO HOLDINGS PTY LTD (ACN 009 117 033)
Sixth Plaintiff
RONALD PIPER EDGAR
JOYCE ELIZABETH EDGAR
Seventh Plaintiffs
(Page 2)
- GEORGE THOMAS ROBINSON
SHEILA NORMAN ROBINSON
Eighth Plaintiffs
HUGH ERNEST GREGORY
HELEN GREGORY
Ninth Plaintiffs
ELFRIEDA ELIZABETH BATTLEY
Ten Plaintiff
ERIC LAWRENCE CREW
Eleventh Plaintiff
PAMELA ANNE SEYMOUR
Twelth Plaintiff
JEFFREY MARK PASKULICH
PAULINE MARIE PASKULICH
Thirteenth Plaintiffs
AND
MFA FINANCE PTY LTD (ACN 068 307 148)
First Defendant
HERBERT ROSS FISHER
Second Defendant
NEIL JAMES PINNER
KENNETH WALTER COURT
Third Defendants
RUSSELL JOHN HAWKINS
MICHAEL BERNARD BRENNAN
Fourth Defendants
KOTT GUNNING (A Firm)
Fifth Defendant
RICHARD CLANAN MARR
First Third Party
(Page 3)
SAGAR PTY LTD
Second Third Party
STEPHEN ADAIR OLIFENT
Third Third Party
Catchwords:
Practice and procedure - Application to strike out statement of claim - Turns on its own facts
Legislation:
Fair Trading Act, s 10 and s 82(4)
Result:
Application dismissed
Representation:
Counsel:
First Plaintiffs : Mr D H Solomon
Second Plaintiffs : Mr D H Solomon
Third Plaintiffs : Mr D H Solomon
Fourth Plaintiff : Mr D H Solomon
Fifth Plaintiff : Mr D H Solomon
Sixth Plaintiff : Mr D H Solomon
Seventh Plaintiffs : Mr D H Solomon
Eighth Plaintiffs : Mr D H Solomon
Ninth Plaintiffs : Mr D H Solomon
Ten Plaintiff : Mr D H Solomon
Eleventh Plaintiff : Mr D H Solomon
Twelth Plaintiff : Mr D H Solomon
Thirteenth Plaintiffs : Mr D H Solomon
First Defendant : No appearance
Second Defendant : No appearance
Third Defendants : No appearance
(Page 4)
- Fourth Defendants : No appearance
Fifth Defendant : Ms C J McLure QC
First Third Party : No appearance
Second Third Party : No appearance
Third Third Party : No appearance
Solicitors:
First Plaintiffs : Solomon Brothers
Second Plaintiffs : Solomon Brothers
Third Plaintiffs : Solomon Brothers
Fourth Plaintiff : Solomon Brothers
Fifth Plaintiff : Solomon Brothers
Sixth Plaintiff : Solomon Brothers
Seventh Plaintiffs : Solomon Brothers
Eighth Plaintiffs : Solomon Brothers
Ninth Plaintiffs : Solomon Brothers
Ten Plaintiff : Solomon Brothers
Eleventh Plaintiff : Solomon Brothers
Twelth Plaintiff : Solomon Brothers
Thirteenth Plaintiffs : Solomon Brothers
First Defendant : No appearance
Second Defendant : No appearance
Third Defendants : No appearance
Fourth Defendants : No appearance
Fifth Defendant : Blake Dawson Waldron
First Third Party : No appearance
Second Third Party : No appearance
Third Third Party : No appearance
Case(s) referred to in judgment(s):
Amadio Pty Ltd v Henderson (1998) 81 FCR 149
Astley v Austrust Ltd [1999] HCA 6
Orszulak v Hoy (1989) A Tort Rep 69,181
Pegrum v Fatharly (1996) 14 WAR 92
Yager v Fishman & Co [1944] 1 All ER 552
(Page 5)
Case(s) also cited:
Groom v Crocker [1939] 1 KB 194
Hawkins v Clayton (1988) 164 CLR 539
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526
Lanphier v Phipos (1838) 8 Car & P 457
McCarthy v McIntyre [1999] FCA 784
Philip Morris v Nixon [2000] FCA 229
Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642
(Page 6)
1 MASTER SANDERSON: This is the fifth defendant's chamber summons seeking to strike out certain paragraphs of the plaintiffs' statement of claim. These paragraphs, enumerated in par 1 of the chamber summons, essentially comprise the whole of the claim by the plaintiffs against the fifth defendant.
2 Just prior to the hearing the plaintiffs lodged a minute of reamended statement of claim dated 1 April 2000. The amendments made by this minute did not in any way affect the claim by the plaintiffs against the fifth defendant. There being no objection to the amendment, I ordered that the minute stand as the reamended statement of claim and service of the pleading be dispensed with.
3 The claims brought by the plaintiffs relate to loans or syndicated mortgages brokered by the first defendant. The fifth defendant is a firm of legal practitioners. Paragraph 2, par 3 and par 4 of the reamended statement of claim identify each of the defendants. The pleading divides the plaintiffs into four separate groups. The claims made by each plaintiff within the separate groups are roughly similar and so far as the fifth defendant is concerned there is little difference between the claims made by each of the groups. The difficulties the fifth defendant says exist with the pleading can be illustrated by dealing with one group - the reasoning applied by the fifth defendant being then applicable to the claims by each other group. To detail the complaints made by the fifth defendant it is necessary to quote at some length from the re-amended statement of claim. I will only quote those paragraphs necessary to detail the claim of the first group, defined as "the Initial Investors", against the fifth defendant.
"5. On various dates prior to 12 November 1998, MFA sent to each of the first, second, third, fourth, fifth, sixth and seventh plaintiffs (collectively referred to as 'the Initial Investors') a document signed by Fisher, in a form previously approved by Pinner and Court, and styled 'Second Mortgage Proposal for Marnoo Holdings Pty Ltd (ACN 009 350 814) Amount: $720,000, Term: 3 years' ('the Proposal'), in which the following representations were made:
5.1 A loan of $720,000 to Marnoo Holdings Pty Ltd ('Marnoo') was to be made on security of a second registered mortgage over lots 1-9 of a property known as Wattle Grove Motel/Apartments ('the
(Page 7)
- Property'), to rank behind a first mortgage of $1,855,000 to be advanced by the Commonwealth Bank of Australia ('CBA');
- 5.2 Mr Greg Kennedy, who owned and controlled Marnoo, had purchased another property in Busselton/Dunsborough and arrangements concluded by MFA to transfer the mortgage funds currently advanced on the Property to Busselton/Dunsborough;
5.3 The arrangements pleaded in paragraph 5.2 had been concluded because Mr Kennedy originally intended to accept an offer to purchase the Property;
5.4 Mr Kennedy's original intentions pleaded in paragraph 5.3 had changed and he had decided to retain the Property as a longer term investment; MFA had therefore arranged a long-term principal and interest loan for him of $1,855,000 from the Commonwealth Bank of Australia ('CBA') to partly re-finance the debt secured on the Property;
5.5 the second mortgage loan of $720,000 being sought by MFA on behalf of Mr Kennedy was to re-finance the balance of existing funding of $2,571,000 which was secured by 9 separate loans managed by MFA over strata lots 1-9 comprising the Property, so that the loan by CBA of $1,855,000 and the second mortgage loan of $720,000 to be secured over the Property would secure the same amount as the 9 previous loans secured over the Property;
5.6 Mr Kennedy had gross assets of $12,513,000, and after liabilities his net asset position was $5,548,000;
5.7 Mr Kennedy had been a sound borrower with MFA and his (then) current asset position of $5,545,000 enhanced the proposed loan; and
(Page 8)
- 5.8 MFA considered the proposal a suitable outlet for an investor's funds.
- 6. On 11 November 1998, MFA instructed Kott Gunning to act for the mortgagees in the preparation and registration of a second mortgage over the Property securing a principal sum of $720,000 in favour of:-
6.1 the Initial Investors securing amounts totalling $370,000 made up as follows:
First plaintiffs - $100,000.00
Second plaintiffs - $100,000.00
Third plaintiffs - $60,000.00
Fourth plaintiff - $40,000.00
Fifth plaintiff - $35,000.00
Sixth plaintiff - $25,000.00
- Seventh plaintiff - $10,000,00;
6.2 Marjorie Gladys Harrington securing $100,000; and
6.3 Barrington Vasse Pty Ltd ('BV') securing $250,000.
7. Kott Gunning accepted the instructions pleaded in paragraph 6 and represented the Initial Investors and those named in paragraphs 6.2 and 6.3 ('the Mortgagees') for reward by preparing a second mortgage and, following settlement of the transactions pleaded in paragraph 8 below on 12 November 1998 ('the Settlement Date'), registering that second mortgage which was numbered G950526 ('the Mortgage').
Particulars of Remuneration
Kott Gunning deducted $1,500 from the proceeds of the settlement referred to in paragraph 8 in satisfaction of Marnoo's obligation under the Mortgage to pay the costs and disbursements of the Mortgagees' solicitors.
8. On the Settlement Date, as settlement was effected simultaneously of a number of transactions concerning both the Property and another property acquired by BV in
(Page 9)
- the Busselton/Dunsborough area known as the Peppermint Park Chalets ('the Chalets') as follows:-
- 8.1 BV was another company controlled by Gregory James Kennedy ('Kennedy'), who is the person described as 'Greg Kennedy' in the Proposal as pleaded in paragraph 5;
8.2 BV settled the purchase of the Chalets on the Settlement Date for a price of $1,520,000;
8.3 Kott Gunning represented a large group of mortgagees in collecting a registrable transfer of the Chalets to BV for a consideration of $1,520,000 and then registering that transfer followed by a first mortgage of the Chalets in favour of the mortgagees securing $2,300,000 ('the Chalets Mortgage');
8.4 The existing mortgages over the Property were discharged and a new first mortgage in favour of CBA, securing an amount of $1,855,000 which, subject to deduction by CBA of $25,000, was advanced at settlement, was registered after settlement; and that registration was followed by registration of the Mortgage, as pleaded in paragraph 7;
8.5 Most of the mortgagees in the Chalets Mortgage did not advance any funds for the purposes of the settlement on the Settlement Date because the previous security for each of their advances (mortgages over the Property) was substituted by an interest in the Chalets Mortgage;
8.6 Most of the Initial Investors also did not advance any funds for the settlement on the Settlement Date because the security for each of their previous advances (mortgages over the Property) was substituted by an interest in the Mortgage;
8.7 Most of the funds available at settlement were therefore sourced from the $1,855,000 loan by the CBA, with the balance ($172,000) from the few
(Page 10)
- investors who advanced funds for investment in the Chalets Mortgage or the Mortgage;
- 8.8 The funds available at settlement were anticipated by MFA to be $2,027,000 ($1,855,000 from CBA and $172,000 from new investors);
and after settlement the following payments totalling $2,029,000 were made for the following purposes:-
8.8.1 completing the purchase of the Chalets - $1,499,533.54 in accordance with an amended settlement statement dated 12 November 1998 by BV's settlement agent, Clark Settlements;
8.8.2 discharging the third mortgage over the Property - $56,097.87 paid to Clifton Partners Finance;
8.8.3 payments to Marnoo/BV - $207,608.94 paid by MFA on 13 November 1998 ($150,000) and 16 November 1998 ($57,608.94);
8.8.4 interest in advance for 1 year on the Chalets Mortgage paid by MFA - $207,124.20;
8.8.5 discharge of mortgage fees to:
Kott Gunning $2,500
- MFA $1,100
- 8.8.6 legal fees new mortgages to
- Kott Gunning $5,240
8.8.7 brokerage and FID and
- expenses to MFA $40,550
8.8.8 early repayment additional
- interest on mortgages of the
- Property $9,245.45
(Page 11)
- 8.9 The discrepancy between $2,027,000 and $2,029,000 arose because the Chalets Mortgage secured $2,300,000 but the amounts transferred from other investments and invested in the Chalets Mortgage totalled $2,298,000;
8.10 At settlement, CBA deducted $25,000 and advanced $1,830,000 rather than $1,855,000 as anticipated by MFA; the $25,000 shortfall was made up by a second mortgage over the Chalets brokered by MFA in December 1998;
8.11 At or after settlement, Kott Gunning attended to making some of the payments pleaded in paragraph 8.8, and following settlement remitted the balance proceeds of the settlement of $430,466.46 to MFA to be disbursed by MFA;
8.12 After settlement, Kott Gunning proceeded to have the Mortgage and the Third Mortgage (referred to in paragraph 10 below) registered despite the matters pleaded in paragraphs 9-11 below.
- 9. Although BV became registered as a mortgagee in the Mortgage for $250,000 out of the $720,000 principal sum, BV did not advance the $250,000 or any part thereof to Marnoo as part of the loan of $720,000 for the purposes of the settlement which took place on the Settlement Date as pleaded in paragraph 8 or otherwise.
10. On the Settlement Date, Kott Gunning registered a third mortgage over the Property numbered G950527 ('the Third Mortgage') securing $55,000 in favour of John Patrick McTernan and Jacqueline May McTernan (collectively 'the McTernans'), who are Kennedy's parents-in-law.
11. Although the McTernans became registered as the mortgagees for a principal sum of $55,000 secured by the Third Mortgage, they did not advance $55,000 or any part thereof to Marnoo for the purposes of the settlement which took place on the Settlement Date as pleaded in paragraph 8 or otherwise.
(Page 12)
- 12. Representations made to the Initial Investors in the Proposal were false in that:-
12.1 Contrary to the representation pleaded in paragraph 5.2, arrangements had not been concluded for the mortgage funds advanced on the Property to be transferred over to the Chalets because:-
12.1.1 in order to repay the moneys secured by mortgages over the Property ('the Previous Debt') and re-advance those moneys on security of a mortgage over the Chalets, funding to raise $2,626,000 to make the repayment of the Previous Debt was required but had not been raised at the time the Proposal was issued to each of the Initial Investors; and
12.1.2 no arrangements were concluded at the time the Proposal was issued to each of the Initial Investors for $2,626,000 to be raised at or before settlement of the Mortgage to repay the Previous Debt and enable the amount of the Previous Debt to be re-advanced on security of a mortgage over the Chalets;
12.2 Contrary to the representation pleaded in paragraph 5.3, no arrangements the subject of the representation pleaded in paragraph 5.2 had been concluded to give effect to Kennedy's intention to sell the Property;
12.3 Contrary to the representations pleaded in paragraphs 5.3, 5.4 and 5.5:-
12.3.1 the loans from the CBA and the investors in the Second Mortgage were not being arranged for the purpose of re-financing the debt on the Property separately from the concluded arrangements the subject of the representation pleaded in paragraphs 5.2; and
(Page 13)
- 12.3.2 the loan from the CBA and the investors in the Second Mortgage were, in fact, being arranged in conjunction with the substitution of security for $2,300,00 part of the Previous Debt with the Chalets Mortgage securing $2,300,00 to enable BV to complete the purchase of the Chalets for a price of $1,520,000;
- 12.4 Kennedy did not have gross or net assets as pleaded in paragraph 5.6;
12.5 Kennedy or his companies had made default under loans arranged by MFA and he had not been a sound borrower in the past as pleaded paragraph 5.7;
12.6 In light of the matters pleaded in this paragraph and paragraph 13, MFA did not consider the Proposal a suitable outlet for an investor's funds.
- 13. Neither MFA nor Kott Gunning nor Pinner or Court nor any person on behalf of any of them informed any of the Investors on or before the Settlement Date of any of the following facts:
13.1 The purchase price being paid by BV for the Chalets was $1,520,000 but the Chalets Mortgage was to secure $2,300,000;
13.2 The money being raised from CBA on security of a first mortgage of the Property and other investors' funds being advanced were being utilised to enable BV to:-
13.2.1 complete the purchase of the Chalets for a price of $1,520,000;
13.2.2 pay a year's interest under the Chalets Mortgage; and
13.2.3 pay expenses associated with all loans and the balance remaining to be paid to Kennedy or his associated companies;
(Page 14)
- 13.3 The amount of $2,300,000 to be secured by the Chalets Mortgage was not all being advanced by the mortgagees under the Chalets Mortgage to enable the purchase of the Chalets to be completed by BV;
13.4 The mortgagees named in the Chalets Mortgage had not been informed that BV was buying the Chalets for $1,520,000 and had only been told that the Chalets had been valued in July 1998 at $3,300,000;
13.5 The matters pleaded in paragraph 9;
13.6 The matters pleaded in paragraphs 10 and 11;
...
- 25. Each of the plaintiffs engaged Kott Gunning for reward as solicitors to:-
25.1 prepare instruments of security to protect their respective investments pleaded above;
25.2 attend to settlement of the transactions the subject of those instruments of security;
25.3 attend to registration of the instruments of security under the Transfer of Land Act 1893 ('TLA').
26. By reason of the matters pleaded in paragraphs 4 and 25, Kott Gunning owed each of the plaintiffs duties of care and in contract to advise the plaintiffs of any unusual risks or aspects in relation to or concerning the transactions the subject of the respective instruments of security.
27. Kott Gunning breached the duties pleaded in paragraph 26.
27.1 Owed to the Initial Investors, by reason of the matters pleaded in paragraphs 6-11 and 13;
(Page 15)
- 27.2 Owed to the First Tranche Transferees, by reason of the matters pleaded in paragraphs 16.1-16.7 and 16.10;
27.3 Owed to the Second Tranche Transferees, by reason of the matters pleaded in paragraphs 17.1-17.4 and 17.7; and
27.4 Owed to the eleventh plaintiff with respect to the Third Mortgage, by reason of the matters pleaded in paragraphs 18.1-18.5 and 18.8."
4 Senior counsel for the fifth defendant submitted in broad terms that the reamended statement of claim was prolix, confusing, failed to plead crucial material facts and left the fifth defendant embarrassed. Counsel went on to detail particular complaints with the pleading, but these were her general comments and the background against which specific complaints were made. Mr Solomon, counsel for the plaintiffs and the draftsman of the pleading, in his usual rumbustious style defended the pleading as concise, straightforward, readable, pleading all material facts and providing an unanswerable claim. He denounced any suggestion to the contrary. There was no common ground whatever between the parties in relation to the application.
5 Based upon counsel's submissions, the fifth defendant had six specific areas of complaint. First, it was said that there was no proper plea as to the nature of the retainer between the plaintiffs and the fifth defendant. In par 6 of the reamended statement of claim it is pleaded that MFA instructed Kott Gunning to act for the mortgagees. It was submitted on behalf of the fifth defendant that it was not clear from par 6 and the pleading as a whole whether the retainer was express or implied or partly express and partly to be implied and the parties who entered into the retainer agreement were not identified. This, it was said, was a failure to plead material facts and rendered the reamended statement of claim bad. Counsel for the plaintiffs submitted that it was the fact of the retainer which was important and the question of whether or not it was an express or implied retainer could be dealt with by particulars. Counsel submitted nothing turned on the way in which the retainer was brought into existence.
6 The question of the way in which a retainer ought be pleaded was considered by the Full Court in Pegrum v Fatharly (1996) 14 WAR 92.
(Page 16)
- In that case the statement of claim pleaded the retainer in the following terms:
"In or about April 1992 the plaintiffs (by the firstnamed plaintiff) engaged the defendant for reward to advise them in relation to, and subject to that advice, to prepare documents to secure financial accommodation the plaintiffs proposed to afford to Alfred Geoffrey Wilkins (Wilkins) and persons and bodies associated with Wilkins."
8 In his judgment, Ipp J did not deal directly with the pleadings and did not express a view as to the adequacy of the pleading of retainer in the statement of claim. However, his Honour did say (at 95):
"A contractual relationship of solicitor and client will therefore be presumed if it is proved that the relationship of solicitor and client existed de facto between a solicitor and another person. Upon proof of that kind it would not be necessary to prove when, where, by whom or in what particular words the agreement of retainer was made. Applying the rule expressed by Thomas J in Australian Energy Ltd v Lennard Oil NL [1996] 2 Qd R 216 at 237, the de facto relationship of solicitor and client has to be a necessary and clear inference from the proved facts before a retainer will be presumed."
9 The plaintiffs say, in this case, the fact that the fifth defendant acted for them on settlement of certain transactions and was paid for its services shows the relationship of solicitor and client and therefore nothing more need be pleaded. In other words, counsel submitted the relationship clearly exists and the way in which it was brought into existence is of no real consequence.
10 It is not easy to reconcile the views of Ipp J with those expressed by Anderson J in Pegrum (supra). With that in mind, I think the proper
(Page 17)
- course in this case is to allow the fifth defendant to seek particulars if that is necessary. Bearing in mind that in Pegrum's case both Ipp J and Anderson J found there was a retainer based on the facts, it may be that here the fifth defendant will admit the existence of the retainer. After all, it is alleged by the plaintiffs that the fifth defendant acted for them on settlement of certain transactions and were paid for their services. If these facts are admitted, it is difficult to see that the retainer would not be admitted. If the retainer is admitted then there would be no need for particulars. Furthermore, the fifth defendants are well placed to know whether or not they entered into a retainer with the plaintiffs. In the circumstances, it is difficult to see how the statement of claim can embarrass the fifth defendant.
11 The second complaint made by the fifth defendant related to par 26 of the reamended statement of claim. That paragraph pleads the duty of care said to be owed to the plaintiffs by the fifth defendant. The fifth defendant argued that it was unclear what was meant by the phrase "unusual risks or aspects in relation to or concerning the transactions". It was said that if this meant the plaintiffs were to provide advice as to the commercial aspects of the transactions, there was no pleaded basis for this duty. Further, it was said that there was no explanation of what the unusual risks or aspects of the transactions might be. It was also said that it was not made plain in respect of which instruments of security advice had to be given.
12 The duty owed by a solicitor to a client is, of course, dependent upon the scope of the solicitor's retainer. This issue was considered by the Full Court of the Supreme Court of Queensland in Orszulak v Hoy (1989) A Tort Rep 69,181 where Williams J, with whom Connolly and McPherson JJ agreed, said at 69,184:
"The thrust of the argument of counsel for the appellants was that, having found that the appellants asked about the proposal which led Robins to check on the profit Beasley was making, the respondents were under a duty to give what was in effect commercial advice as to the advisability of entering into the transaction. The argument must fail. As Mason CJ and Wilson J pointed out in Hawkins v Clayton (1988) 164 CLR 539 at 544 the extent of a solicitor's duty to his client depends upon the terms and limits of the retainer. Here the only retainer was to act in the conveyances. On an earlier date, when the appellants had arguably sought commercial business advice, the respondents had sent them off to an accountant; therefore it
(Page 18)
- could not be said that by prior conduct the respondents had held themselves out as being willing or able to offer commercial advice. Further, on the evidence the appellants did not put the respondents in a position enabling them to give meaningful commercial advice as to the transaction. The evidence clearly establishes, as found by the learned trial Judge, that the respondents did not know at the material time details of the appellant's financial standing. Finally, it is hardly likely that the appellants would have placed any weight on commercial advice from the respondents because they had already been advised by their bank manager and accountant against entering into the transaction and had specifically refused to make the respondents aware that they had received that advice."
13 This can be contrasted with the position in Amadio Pty Ltd v Henderson (1998) 81 FCR 149. That case concerned, inter alia, a claim that a failure to advise by a firm of solicitors in relation to certain terms of a lease agreement amounted to a breach of the solicitor's retainer. The clause in question was a ratchet clause in a lease agreement. The clause allowed for the rent of premises not only to go up in certain circumstances, but to go down. The purchasers of the premises, for whom the solicitors were found to be acting, did not draw this provision in the lease to their client's attention. It was submitted on behalf of the solicitors that the ratchet clause was commercial in nature and it could not therefore be expected that it was a matter upon which solicitors would advise. The Full Court of the Federal Court found this was not commercial advice but advice as to the legal effect of the lease. As such, it was a matter about which solicitors could be expected to advise.
14 The case of Pegrum v Fatharly (supra) also dealt, indirectly, in this issue. Fatharly, a solicitor, was acting for a group of companies to whom Pegrum intended to lend money. The security documentation was drawn by Fatharly and the court found that there was an implied retainer and Fatharly acted as a solicitor for Pegrum. As a consequence of his dealings with the borrowers, Fatharly knew that the borrowers were a bad risk and that the securities given by them were inadequate to secure the loan. He did not warn Pegrum of this fact. The court found that he was under a duty to do so. Anderson J pointed out that the solicitor's duty depends upon the terms of his retainer and that, as a general rule, it is not for a solicitor to give business advice or valuation advice in the ordinary course. His Honour referred to a number of authorities, including Yager v Fishman & Co [1944] 1 All ER 552. His Honour went on:
(Page 19)
- " ... It has been accepted for a long time that when a solicitor knows or has reason to suspect that the borrower may be insolvent or that the security he has been asked to prepare may be inadequate in point of value, it is his duty to so advise his client."
15 These three cases serve to illustrate that matters upon which a solicitor should advise his client is very much dependent upon the facts in each case. To suggest that it is not for a solicitor to give commercial advice or advice in relation to investment matters, is to put the position too simplistically. In my view, it may be the case that in certain circumstances it is a solicitor's duty to draw to the attention of his client what might reasonably be considered unusual risks or unusual aspects of a transaction. To that extent, I think the pleading is unexceptional. Moreover, it is at least arguable in my view that the transactions which are detailed in par 8, par 9, par 10 and par 11 are unusual or have about them unusual aspects. To take but one example. It is pleaded in par 10 and par 11 of the reamended statement of claim that a mortgage was registered in favour of the McTernans in the sum of $55,000 although no advance of $55,000 was ever made by the McTernans. If that were proved to be the case (and on a pleading summons it must be assumed that the plaintiff will be able to establish all the material facts pleaded), then the situation is unusual and could arguable have given rise to an obligation to advise the plaintiffs accordingly. Again, in my view, the pleading is not defective.
16 It is the case that the series of transactions pleaded in par 8 is complex. But that is not the fault of the draftsman - it is simply the case that there were a series of complex transactions. What I think emerges from the pleading is that the plaintiffs say, if all the components of the transactions were taken together, the effect upon the position of the plaintiffs was such as to require the fifth defendant to alert the plaintiffs to the situation. It is not a matter of saying that the fifth defendant acted for the plaintiffs in one particular aspect of the transaction. That is too narrow a view and is not, as I understand it, what is being put by the plaintiffs. They say that, taken in the overall, with the fifth defendant in the position of knowing of all matters pleaded in par 8, the duty to advise and warn arose. In my view, that is at least arguable.
17 Thirdly, the fifth defendant complains that there is no plea that it had knowledge of the unusual risks or unusual aspects of the transactions and therefore there is no basis upon which any duty could be said to arise. It is true that there is no plea of direct knowledge of these transactions on the part of the fifth defendant. But the plea is that the fifth defendant
(Page 20)
attended upon settlement and was responsible for preparing the documentation. Clearly, what is being pleaded is implied knowledge - that is to say, because of the intimate involvement of the fifth defendant in preparing documentation, they knew of all matters and all transactions pleaded in par 8. In my view, that emerges from the pleading and does not place the fifth defendant in an embarrassing position.
18 Fourthly, it is said that the plaintiffs do not plead how the duty that is said they owed to the plaintiffs was breached. The plea of breach of duty is to be found in par 27 of the reamended statement of claim. In relation to the initial investors, reference is made to par 6 through to par 11 and par 13. It is par 13 that is crucial. That paragraph pleads matters which it is said were not brought to the attention of the plaintiffs by the fifth defendant. As I understand the pleading, that is said to be how the duty was breached. In my view, this aspect of the pleading is clear and the fifth defendant can have no complaint.
19 Fifthly, it was said that it was not clear from the pleading as a whole whether or not the claim was based in tort or in contract. Both parties agreed that it was open to the plaintiffs to maintain an action in either tort or contract or both: see Astley v Austrust Ltd [1999] HCA 6. That is what is pleaded in par 26 of the reamended statement of claim. The duties are said to arise both in tort and contract and it is pleaded that the duties were breached. In my view, the position is quite straightforward and the fifth defendant could have no complaint.
20 The final complaint related to par 42 of the reamended statement of claim. This paragraph is in the following terms:
"42. Kott Gunning engaged in conduct in trade or commence in connection with the investments of all of the plaintiffs pleaded in paragraphs 5-18 which was misleading or deceptive or likely to mislead or deceive, in contravention of s 10 of FTA, by reason of the conduct of Kott Gunning pleaded in paragraphs 6, 7, 8, 13, 16, 17 and 18. The plaintiffs rely on s 82(4) of FTA in attributing to all partners of Kott Gunning the conduct engaged in by any partner, servant or agent of the firm."
21 A number of complaints were made about this paragraph. Counsel for the fifth defendant submitted it was a rolled up plea which did not sufficiently establish that the plaintiffs relied on the conduct of the fifth defendant and thus sustained loss. Counsel for the plaintiffs conceded
(Page 21)
that the paragraph was in fact a rolled up plea. He made the point that the pleading had set out in earlier paragraphs precisely what conduct was complained of and it was simply not necessary to repeat all elements of the Fair Trading Act claim. I accept that submission. To require the plaintiffs to go through each aspect of the conduct of the fifth defendant, which it is said give rise to a claim under the Fair Trading Act, would be simply to require the plaintiffs to repeat, perhaps in a slightly different way, what has already been said. In my view, no confusion arises and the plea ought stand.
22 It was further submitted on the part of the fifth defendant that it was not clear from par 42 of the pleading, or otherwise, what "conduct" it was said on the part of the fifth defendant had given rise to the breach of the Fair Trading Act. As I understood counsel's submissions, it was said that as the thrust of the plaintiffs' case was that the fifth defendant was at fault in failing to warn the plaintiffs, the conduct complained of was silence and without more such conduct was not actionable.
23 It may be that there is an issue between the parties as to whether the failure to warn is conduct within the terms of the Fair Trading Act. But this, I think, is a question of fact which must be determined at trial. To determine on the basis of a pleading summons that the case as pleaded could not give rise to a claim under the Fair Trading Act would be to usurp the function of the trail Judge.
24 In all the circumstances, I am satisfied that the pleading should stand. The fifth defendant's chamber summons will be dismissed. The fifth defendant should pay the plaintiffs' costs of the application in any event.
0
10
1