Grundy, Arthur Henry v Lewis, John Bertram

[1996] FCA 100

CATCHWORDS

PRACTICE AND PROCEDURE - Leave to appeal - proposed joinder and cross-claims - whether judgment under consideration attended with sufficient doubt - whether substantial injustice if leave refused - leave refused.

JOINDER OF PARTIES - Proposed joinder of State of Queensland - claim for damages by second and third respondents - no pleaded reliance upon alleged advice in circumstances where such reliance is said to give rise to liability on the issues - proximity - no cause of action pleaded against State of Queensland giving rise to a duty of care.

CONTRIBUTION AND INDEMNITY - Proposed claim for contribution under s5(c) Law Reform (Tortfeasors Contribution, Contributory Negligence and Division of Chattels) Act 1952 (Qld) - foreseeable loss and damage caused by alleged tortious conduct of the first, second and third respondents different from that caused by alleged tortious conduct of proposed cross-claimants - loss and damage additional - occasioned independently of conduct of first, second and third respondents.

Law Reform (Tortfeasors Contribution, Contributory Negligence and Division of Chattels) Act 1952 (Qld) s5(c)

Dillingham Constructions Pty Ltd v Steel Mains Pty Ltd (1975) 132 CLR 323
Mahoney v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522 at 527 - Appl
Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 - Appl
Jarrett v Seymour (1933) 46 FCR 557 - Appl
Gardiner v Henderson & Lahey [1988] 1 QdR 125 - Distg
British Westinghouse Electric and Manufacturing Company Limited v Underground Electric Railways Company of London, Limited [1912] AC 673 - Appl
Makhoul v Barnes (Unreported, Federal Court of Australia (FC) Hill, Cooper and Branson JJ, 24 November 1995) - Refd

Arthur Henry Grundy and Rita Nell Grundy v John Bertram Lewis, Headship Pty Ltd, Chamberg Pty Ltd and Graham Arthur Schmidt and Peter Thomas Maker
No. QG168 of 1993
Cooper J, Brisbane, 29 February 1996

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
  No QG168 of 1993

BETWEEN:

ARTHUR HENRY GRUNDY and

RITA NELL GRUNDY

Applicant

AND:  JOHN BERTRAM LEWIS

First Respondent

AND:  HEADSHIP PTY LTD

ACN 010 645 708

Second Respondent

AND:  CHAMBERG PTY LTD

ACN 010 831 615

Third Respondent

AND:  GRAHAM ARTHUR SCHMIDT and

PETER THOMAS MAKER

Fourth Respondents

JUDGE MAKING ORDER:           Cooper J

WHERE MADE:  Brisbane

DATE OF ORDER:  29 February 1996

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The notice of motion filed on 29 November 1995 by the first, second and third respondents be dismissed.

1. The first, second and third respondents pay the costs of each of the respondents to the notice of motion of and incidental to the notice of motion, including reserved costs, to be taxed if not agreed.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
  No QG168 of 1993

BETWEEN:

ARTHUR HENRY GRUNDY and

RITA NELL GRUNDY

Applicant

AND:  JOHN BERTRAM LEWIS

First Respondent

AND:  HEADSHIP PTY LTD

ACN 010 645 708

Second Respondent

AND:  CHAMBERG PTY LTD

ACN 010 831 615

Third Respondent

AND:  GRAHAM ARTHUR SCHMIDT and

PETER THOMAS MAKER

Fourth Respondents

CORAM:  Cooper J

PLACE:  Brisbane

DATE:  29 February 1996

REASONS FOR JUDGMENT

The Application

This is an application for leave to appeal against a refusal of Kiefel J to order the joinder of certain parties to a proposed cross-claim by the first, second and third respondents to the original action.

Background
  The proceedings arise out of a sale on 30 August 1991 by Mr and Mrs
Grundy ("the Grundys") of their piggery business to the second respondent for $125,000 and the land upon which the piggery was conducted to the third respondent for $650,000.  Part of the consideration passing from the second and third respondents was the assignment of a mortgage securing a debt of $500,000 owed by Arnokaz Pty Ltd to the second respondent.  Under the agreement with the Grundys the mortgage debt was treated as equivalent to the payment of $500,000 of the sale price.

The Grundys allege that due to fraudulent or negligent representations made by the first respondent on behalf of the second and third respondents, the Grundys were induced to enter into the agreements made on 30 August 1991 and thereby suffered loss and damage.  The foreseeable damage, if any, suffered by the Grundys upon entering into the agreements and transferring their interests in the piggery business and land to the second and third respondents respectively, is the extent to which, if at all, the interest acquired by the Grundys upon the assignment of the mortgage was worth less than $500,000.  The value of the mortgage debt at the time of the assignment involves in part a consideration of the likelihood of default of the debtor over the period of repayment provided for in the mortgage, the value of the property against which payment of the mortgage debt was secured at the time of the assignment and throughout the period of repayment, and, the costs of recovery in the event of default.

The proposed joinder and cross-claims
  The first, second and third respondents wish to claim contribution under s 5(c) of the Law Reform (Tortfeasors Contribution, Contributory Negligence and Division of Chattels) Act 1952 (Qld) which relevantly provides :-

""Where damage is suffered by any person as a result of a tort ...

(c)any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tortfeasor or otherwise..."

The alleged tortfeasors are the fourth respondents who were the solicitors for the Grundys and allegedly advised them negligently prior to the Grundys entering into the agreements on 30 August 1991, and Bernays and Bernays, solicitors, and Flehr and Walker, solicitors, who subsequently acted for the Grundys in their attempts to recover the mortgage debt and their realisation of the mortgaged property.

The first, second and third respondents plead that the fourth respondent did not advise the Grundys to take out mortgage insurance or to insure or require the mortgagor to insure the property against theft, accidental loss or damage noting the mortgagees' interest in the property.  Additionally, it is alleged that upon default by the mortgagor, all of the solicitors at the various times they acted for the Grundys thereafter failed to give the Grundys advice which would, it is alleged, have seen the Grundys achieve a higher realisation than in fact they did and would, it is alleged, have resulted in the Grundys mitigating their loss and damage flowing from the alleged misconduct of the first, second and third respondents as the Grundys were obliged to do.  The foreseeable damage of failure to give the pleaded advice is that the sum realised is less than the amount which would have been realised after taking into account the costs of realisation if the advice had been given and acted upon.

Her Honour held that the foreseeable damage caused by the alleged deceit
and negligence of the first, second and third respondents was prior in time and was different to the foreseeable damage caused by the later negligent advice as to recovery of the debt and enforcement of the mortgage against the property of the mortgagor.  In coming to this view her Honour relied upon the decisions of the High Court in Dillingham Constructions Pty Ltd v Steel Mains Pty Ltd (1975) 132 CLR 323 and Mahoney v J Kruschich (Demolitions) Pty Ltd (1985) 156 CLR 522 at 527.

The first, second and third respondents submit that leave to appeal ought to be given because :-

(a)Her Honour failed to appreciate that there was at least an overlap of the damage caused by the alleged tortious conduct of the three respondents and the solicitors and erred in her application of the decision in Mahoney in the circumstances set out in their outline of submissions;

(b)Her Honour erred in deciding at an interlocutory stage to refuse leave to join the cross-respondents and ought to have allowed the question of contribution to be determined at trial;

(c)The first, second and third respondents would be prejudiced if the joinder does not occur because of the risk of inconsistent findings on the same issues in two trials and that the refusal of her Honour may create an issue estoppel as to the respondents' rights to contribution.

To obtain leave to appeal the first, second and third respondents must demonstrate that the judgment under consideration is attended with sufficient doubt to warrant it being reconsidered by a Full Court and that substantial injustice would result if leave were refused supposing the decision wrong:  Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397; Jarrett v Seymour (1933) 46 FCR 557 at 559-560.

In my view her Honour's decision is not attended with sufficient doubt to justify the grant of leave.  The relevant "damage" for the purposes of s5(c) is what the Grundys suffer as the foreseeable consequence of the tortfeasor's act or omission:  Mahoney at 527.  In the instant case the foreseeable consequences are different.  The conduct of the first, second and third respondents is alleged to have induced the Grundys to enter into the agreement and to agree to take property in lieu of $500,000 in cash.  The risk of foreseeable loss and damage is that the property received (the debt and mortgage interest) may be worth less than $500,000.  The alleged negligence of the solicitors, although involving numerous alleged omissions, has as its foreseeable consequence a loss in the nature of a diminution in the monies recoverable under the securities.  That involves the difference between the proper realisable value of the property and the value in fact realised less the costs of realisation at the time of realisation or when realisation ought to have occurred.  This later loss is a loss additional to whatever the loss claimed against the first, second and third respondents may be.  It is a loss occasioned independently of the conduct of the first, second and third respondents and irrespective of whether or not the debt and mortgage interest were, on 30 August 1991 or on the date of performance of the sale and purchase agreement, worth $500,000.

Likewise, the foreseeable consequence of failing to advise the Grundys to take out insurance against default in repayment by the mortgagor, or, loss of the second property, is that the Grundys would fail to do so and thereby be deprived of an indemnity from an insurer against any shortfall in the recovery of the debt by recourse to the security.  That is different damage to the loss, if any, in the value of the property taken as consideration in consequence of being induced to enter into the agreements by the conduct complained of.  The observations in Gardiner v Henderson & Lahey [1988] 1 QdR 125 on the facts alleged in that case are not of assistance to the respondents on the present application.

Further, there is no prejudice to the first, second and third respondents for they have pleaded that the Grundys have failed to take the steps which it is contended the solicitors ought to have advised them to take and thus failed to mitigate their damage.  Success on this plea would see the first, second and third respondents not being liable for the damage to the extent that there was a failure to mitigate:  British Westinghouse Electric and Manufacturing Company Limited v Underground Electric Railways Company of London Limited [1912] AC 673, 689. If the first, second and third respondents fail on that plea they would necessarily fail against the solicitors. Nor can it be said that the proceedings before her Honour should be treated as a final determination of the issue of whether the first, second and third respondents have a right to contribution against the solicitors on the grounds which the respondents wished to raise on the joinder. In those circumstances no issue estoppel will arise: Makhoul v Barnes (Unreported, Federal Court of Australia (FC) Hill, Cooper and Branson JJ, 24 November 1995).

The first, second and third respondents have not satisfied the requirement for a grant of leave to appeal from her Honour's refusal to allow the cross-claim to be brought against the solicitors.
  The first, second and third respondents also sought to join the State of Queensland as a respondent seeking damages for negligent misstatement or indemnity or contribution for such misstatement.  On the hearing before Kiefel J the claim to such relief by the first respondent was disavowed and the claims for indemnity or contribution were not pressed by any of those respondents.  That left a claim for damages by the second and third respondents.  Her Honour refused the joinder.

The Grundys allege that in July and August 1991 the first respondent for himself and on behalf of the second and third respondents (paragraph 7 of the Further Amended Statement of Claim) orally represented to Mr A Grundy that :-

(a)"The sawmill had a private licence that permitted the owners to cut 75 cubic metres a week";

(b)"One could not get such a licence (from the Forestry authorities) unless there was seven years' standing timber on the property";

(c)"You would never cut out the timber on the property because there was just so much there"; 

(Paragraph 6(c), (d) and (e) of the Further Amended Statement of Claim).

The first, second and third respondents deny the allegations in paragraph 6(c), (d) and (e) and that the first respondent was acting on his own behalf or on behalf of the third respondent and does not admit that the first respondent was acting on behalf of the second respondent (paragraphs 5(c)(i), 5(d)(i), 5(e) and 6 of the respondent's further amended defence respectively).

By paragraph 5(d)(ii) and (iii) of the further amended defence the first, second and third respondents plead :-

"5(d)(ii)prior to the issue of the licence to Mr Lewis, officers of the Department of Forestry inspected the timbered property, made an assessment of the quantity of timber on it and orally advised Mr Lewis that sufficient timber stood on the timbered property to sustain a mill with a capacity of 950 cubic metres per quarter for 5 years;

(iii)Mr Lewis so informed Arthur Grundy in or about August, 1991;"

The Grundys by paragraph 9 of the Further Amended Statement of Claim plead that the first, second and third respondents represented in writing that the property in issue was "heavily timbered" amongst other representations.  By paragraph 5(h) of the further amended defence the first, second and third respondents do not admit the allegations made in paragraph 8.  However, they also plead that, further and alternatively, the substance of each of the representations pleaded was true.

The Grundys do not allege that the first respondent orally advised Mr A Grundy in August 1991 in terms of paragraph 5(d)(ii) of the defence nor that such advice, if given in 1989, was wrong or if correct in 1989, was no longer correct in August 1991.  Therefore, there is no issue as between the Grundys and the first, second and third respondents as to whether the property in December 1989 had "enough millable timber to maintain milling at 950 cubic metres per quarter for at least five years", the truth or falsity of which could give rise to a liability of the first, second or third respondents to the Grundys.

Her Honour is correct when she asks in her reasons the question what damage flows from the claim as pleaded in paragraph 51 of the proposed cross-claim.  Because there is no issue between the Grundys and the first, second and third respondents in respect of the matters pleaded in paragraph 5(d)(ii) of the amended defence, there is no relevant reliance on that advice in the dealings between the Grundys and the first, second and third respondents.  As her Honour observes, the only other reliance upon the alleged advice from the forestry officers appearing in the pleading or the particulars was for the first respondent to construct and operate a commercial sawmill on the land in issue.  Her Honour is correct when she observes that there is no allegation of damage to the first, second or third respondents said to arise out of the sawmilling operation established on the land.  In those circumstances, there is not a pleaded reliance upon the alleged advice in circumstances where such reliance is alleged to give rise to a liability on the issues joined between the Grundys and the first, second and third respondents such that it can be said there is loss and damage caused to the first, second or third respondents from the reliance.  Nor is there any other damage claimed in consequence of the reliance alleged to construct and operate the sawmill.  Her Honour is with respect correct when she said that the "cause of action is incomplete on the face of the pleadings and leave to amend is inappropriate".

It is submitted by the first, second and third respondents that reliance on the advice is pleaded in paragraph 50(b) of the proposed cross-claim which provides :-

"Mr Lewis relied upon the said representation :-

(a)...

(b)(if it is held that the Respondents made the written representations) in preparing the document constituting those
representations and giving it to Arthur Grundy."

The document referred to in paragraph 50(b) is a letter, annexure "A" to the Further Amended Statement of Claim.  The letter contains a paragraph :-

"The timber mill has a very strong cash flow and is currently cutting in excess of 38 cubic metres of timber per week.  The property is heavily timbered."

These are the representations pleaded in paragraph 9 of the Further Amended Statement of Claim which the first, second and third respondents do not admit making or if they were made, those respondents allege are in substance true and correct.  The assertions contained in the letter are ones of present fact said to exist at the time of the creation of the letter.  There is nothing in the pleading or the particulars given which ties in in any relevant way the alleged oral advice given to the first respondent in December 1989 or impliedly given by the issue of a licence to the first respondent in January 1990 to the assertions of fact contained in the letter.  Her Honour was not in  my view in error in failing to allow a joinder on this basis.
  There is a further basis upon which leave to appeal ought to be refused.

The State of Queensland in paragraph 3(b), 3(e), 3(f) and 3(g) of a request for particulars of the proposed Further Amended Defence and Cross-claim, sought particulars which would have involved the first, second and third respondents revealing the facts and circumstances relied upon as sustaining the allegation that the State of Queensland was aware of the existence of the second respondent or that it stood in any
proximate relationship to the State of Queensland in respect of the application by the first respondent for a mill licence and the granting of a mill licence to the first respondent in January 1990.  The first, second and third respondents refused to answer requests 3(b) and 3(g).  The answers to 3(e) and (f) contain nothing which would give rise to any knowledge on the part of the State or its officers of the second respondent or place the second respondent in such proximity to the State as to give rise to a duty of care to the second respondent.  In short, the second respondent has not pleaded any cause of action against the State of Queensland which gives rise to a duty of care the breach of which would cause loss and damage to the second respondent in an amount equal to such sum as the second respondent may be ordered to pay the Grundys by way of damages.

The position of the third respondent is worse than that of the second respondent.  There is no pleading which would entitle the third respondent to any award of damages in an amount equal to that which it may be ordered to pay the Grundys.

Conclusion
  The first, second and third respondents have not satisfied the requirements for a grant of leave to appeal from the orders of Kiefel J refusing to allow the joinder of the solicitors and the State of Queensland as cross-respondents and to bring the cross-claims pleaded in the proposed Further Amended Defence and Cross-claim.

Costs
  The first, second and third respondents have failed on the application and ought pay the costs of the respondents to the application to be taxed if not agreed.
THE COURT ORDERS THAT:

1. The notice of motion filed on 29 November 1995 by the first, second and third respondents be dismissed.

2. The first, second and third respondents pay the costs of each of the respondents to the notice of motion of and incidental to the notice of motion, including reserved costs, to be taxed if not agreed.

I certify that this and the preceding eleven (11) pages are a true copy of the reasons for judgment herein of his Honour Justice Cooper.

Date:29 February 1996

Associate

Counsel for the Applicants:  Mr DJS Jackson QC and Mr D M Logan

Solicitors for the Applicants:  Flehr & Walker

Counsel for the First, Second

and Third Respondents:  Mr S Doyle SC

Solicitors for the First, Second

and Third Respondents:  Russell & Co.

Solicitors for the Fourth

Respondents:  Clayton Utz

Counsel for the proposed Third and

Fourth Cross-Respondents:  Mr J McKenna

Solicitors for the proposed Third

and Fourth Cross-Respondents:                 Feez Ruthning

Counsel for the proposed Sixth

Cross-Respondent:  Mr R Derrington

Solicitors for the proposed Sixth

Cross-Respondent:  Crown Solicitor

Date of Hearing:  20 February 1996

Place of Hearing:  Brisbane

Date of Judgment:  29 February 1996