Hendriks v McGeoch - [2008] NSWCA 53

No judgment structure available for this case.

New South Wales

Court of Appeal

CITATION: HENDRIKS v McGEOCH [2008] NSWCA 53
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 17 March 2008

JUDGMENT DATE:
2 April 2008

JUDGMENT OF: Spigelman CJ at 1; Giles JA at 7; Basten JA at 29

DECISION: 1. Appeal allowed in part.
2. Set aside the judgment for the plaintiff against the defendants for $422,834, and in lieu thereof judgment for the plaintiff against the defendants for such sum as shall be advised to the Registrar in accordance with order 3 taking effect on 13 April 2007.
3. Direct the parties to confer with a view to agreement on the plaintiff’s damages computed in accordance with these reasons and to advise the Registrar within seven days hereafter of the amount of the judgment for the plaintiff against the defendants.
4. Appellants pay 50 per cent of the respondent’s costs of the appeal.
5. Liberty to apply in the event that the Registrar is not advised in accordance with order 3, such liberty to be exercised within fourteen days hereafter.
6. Application for leave to cross-appeal dismissed with costs.

CATCHWORDS: CONTRACT – express or implied retainer – legal practitioner described as “the family solicitor” in arrangement to transfer property from mother to her sons - COSTS – costs follow the event – cost of issues abandoned at beginning of proceedings – offers of compromise – Uniform Civil Procedure Rules r 42.1 - DAMAGES – loss of chance – assessment of probabilities and possibilities - TORTS – negligence – duty of care –duty of solicitor of testator to intended beneficiary of will – duty of solicitor to third party where performance of duty not in conflict with duty to client

LEGISLATION CITED: Civil Procedure Act 2005 (NSW), ss 56, 98
Fair Trading Act 1987 (NSW), s 42
Legal Profession Act 1987 (NSW), s 174
Uniform Civil Procedure Rules 2005 (NSW), rr 42.1, 42.15

CATEGORY: Principal judgment

CASES CITED: Astley v Austrust Ltd [1999] HCA 6; 197 CLR 1
Australian Conservation Foundation Inc v Forestry Commission of Tasmania (1988) 81 ALR 166
Birmingham v Renfrew (1937) 57 CLR 666
Clare v Joseph [1907] 2 KB 369
Commissioner of Australian Federal Police v Razzi (1991) 101 ALR 425
Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1993] FCA 259; 26 IPR 261
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523
Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95
Hawkins v Clayton (1988) 164 CLR 539
Heenan v Di Sisto [2008] NSWCA 25
Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1
Hill v Van Erp (1997) 188 CLR 159
Hughes v Western Australian Cricket Association Inc (1986) ATPR 40-748
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 97326
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
Sharp v Anderson (1994) 6 BPR 97-510
Sutherland Shire Council v Heyman (1985) 157 CLR 424
Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 42 FLR 213
Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642

PARTIES: Henri Hendriks (First Appellant)
Robert George Stone (Second Appellant)
Ian Erratt (Third Appellant)
Frederick John Commins (Fourth Appellant)
Glen Francis Lollback (Fifth Appellant)
Geoffrey John Potter (Sixth Appellant)
William James Thompson (Seventh Appellant)
Peter James Webb (Eighth Appellant)
Jon McLaurin McGeoch (Respondent)

FILE NUMBER(S): CA 40229/07

COUNSEL: D Davies SC/P Arblaster/T Anderson (Appellants)
B M J Tooomey QC/M K Condon (Respondent)

SOLICITORS: Colin Biggers & Paisley (Appellants)
Walsh & Blair, Wagga Wagga (Respondent)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): SC 4154/03

LOWER COURT JUDICIAL OFFICER: Gzell J

LOWER COURT DATE OF DECISION: 11 April 2007; 13 April 2007

LOWER COURT MEDIUM NEUTRAL CITATION: McGeoch v Hendriks & Ors [2007] NSWSC 311; Jon McLaurin McGeoch v Henri Hendriks & 7 Ors (No. 2) [2007] NSWSC 364

CA 40229/07
SC 4154/03

SPIGELMAN CJ
GILES JA
BASTEN JA
2 April 2008

HENDRIKS v McGEOCH

Headnote

In December 1995, Mrs Jeanette Fraser McGeoch had a meeting with her two sons, Mr Jon McGeoch (the respondent) and Mr Robert McGeoch, and her solicitor, Mr Hendriks. At the meeting, Mrs McGeoch proposed to transfer the remainder of a grazing property known as “Wanganui” to Mr Robert McGeoch and a holiday home at Mollymook to Mr Jon McGeoch. The transfer of the Mollymook property was dependent upon Mr Jon McGeoch finding a sum of $5,500 for stamp duty and agreeing to proceed. It was agreed that, if the transfers did not proceed, the respective properties would be left by Mrs McGeoch to her sons in her will.

Although the arrangement was accepted by Mr Jon McGeoch, in January 1996 it was discovered that the disposal of the Mollymook property would substantially diminish Mrs McGeoch’s pension entitlements and she gave instructions that the transfer should not proceed. In December 2000, Mrs McGeoch changed her will so as to leave the Mollymook property to the children of Mr Robert McGeoch. She died in 2001.

The respondent brought proceedings against Commins Hendriks, the firm of solicitors of which Mr Hendriks was a member. In the Equity Division, Gzell J gave judgment in favour of the respondent, from which the present appeal is brought.

On the appeal, the issues for determination were:

(i) whether there was a contract of retainer between the appellants and the respondent;

(ii) whether the appellants owed the respondent a duty of care;

(iii) whether the appellants breached their duty of care to the respondent;

(iv) the assessment of the loss suffered by the respondent;

(v) whether the respondent should have been allowed his costs for issues that were abandoned at the commencement of the trial.

The Court held, allowing the appeal in part:

In relation to (i)

(per Spigelman CJ)

1. The meeting of 19 December 1995 led to the existence of a multipartite contract between the appellants on the one hand and Mrs McGeoch, Robert McGeoch and Jon McGeoch. Although the specific steps required to carry the arrangement into effect changed after 24 January 1996, the contractual relationship did not in essence change. There was a contractual duty of skill which, relevantly, did not differ either in its incidents or, in relation to issues of breach and of damages, from the incidents of the tort: [3]-[5].

(per Giles JA)

2. At least from mid-February 1996, there was a contract by which, in return for Jon McGeoch’s payment of half the costs, Mr Hendriks would act as his solicitor in relation to the distribution of the properties by Mrs McGeoch between the two sons: [16].

Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 97326, applied.

3. Mr Hendriks should not have assured Jon McGeoch that his entitlement to the Mollymook property would not be affected by the decision not to transfer the property immediately, but should have advised him to ask his mother to contract not to revoke the devise of the property in her will: [17].

(per Basten JA, dissenting)

4. There was no express request by the respondent to the solicitors asking that they act for him; nor was there any clear inference to that effect from the contemporaneous conduct of the parties, either on 19 December 1995 or around 13 February 1996: [64].

5. Accepting that Mr Hendriks described himself as “the family solicitor” an objective bystander would not infer from that that the solicitors were acting for each member of the family. The proper inference was that he had been retained by the mother to effect an inter vivos disposition of her real estate on the basis that her two sons were to be treated equally. There is no sufficient evidence to establish that the solicitors, through Mr Hendriks, were retained by the respondent: [66].

In relation to (ii)

(per Basten JA, Spigelman CJ agreeing, Giles JA not deciding)

6. A solicitor may have a duty of care even where a contractual relationship cannot be established: [69].

Astley v Austrust Ltd [1999] HCA 6; 197 CLR 1, applied.

7. Mr Hendriks’ assurances as to the contents of Mrs McGeoch’s will and her intentions in that respect, together with his insistence that the respondent remained liable for half of the costs incurred by the solicitors, were objective circumstances indicating recognition of a duty to exercise skill and care in the interests of the respondent, where the respondent was at risk of reasonably foreseeable loss if the duty were not fulfilled: [71].

8. A solicitor will generally not be under a duty of care to a third party where performance of the duty would or could conflict with the solicitor’s obligations to a client. However, where performance of the duty involves carrying out the client’s instructions, no such potential for conflict arises: [72].

Hill v Van Erp (1997) 188 CLR 159, applied.
Hawkins v Clayton (1988) 164 CLR 539, considered

9. At least between December 1995 and March 1996, protection of the respondent’s interests was not only in accordance with Mrs McGeoch’s instructions, but reasonably necessary in order to carry them into effect: [77].

In relation to (iii)

(per Basten JA, Spigelman CJ agreeing, Giles JA not deciding)

10. The solicitors should properly have taken steps to make the agreement of 19 December 1995 legally enforceable or, if their instructions were to the contrary, to advise both brothers that that would not be done. In failing to render the agreement enforceable on the part of the respondent, whilst at the same time reassuring him that his interests were being looked after, Mr Hendriks breached his duty to the respondent: [81].

In relation to (iv)

(per Basten JA, Spigelman CJ and Giles JA agreeing)

11. Once the fact that a chance had been lost was established on the balance of probabilities, the loss should be assessed by reference to degrees of probabilities and possibilities: [88].

Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; Heenan v Di Sisto [2008] NSWCA 25, applied.

12. The breach first occurred when Mr Hendriks failed to prepare an appropriate agreement within a reasonable time after the proposal for a transfer inter vivos had been abandoned, which was on 24 January 1996. The letter advising the respondent of that position was sent on 13 February 1996 and accordingly steps should have been taken at or about that time: [89].

13. By mid-February 1996, a degree of uncertainty must attend the assessment of Mrs McGeoch’s attitude toward the transfer of the Mollymook property to the respondent. The respondent should have received a loss of chance calculated at 80%: [18], [99].

In relation to (v)

(per Giles JA, Spigelman CJ agreeing)

14. Unless some other rational explanation appears, the fact that claims were abandoned indicates that they were less than doubtful and likely to have brought the same costs consequence. It was not shown that the abandoned issues were so interwoven with other issues in the appeal that the trial judge erred in making an order for costs referable to the abandoned issues. None of the asserted errors of principle would warrant the grant of leave to cross-appeal: [25]-[27].

(per Basten JA, dissenting)

15. It may be inferred from the general costs order made in this case that the respondent made an offer on 8 December 2004 which he bettered at trial. In that case it may not have been appropriate to deprive the respondent of part of his costs unless express consideration were given to whether the Court should order otherwise than as provided by r 42.15. The parties should be given leave to make further submissions in relation to the costs of the trial and appeal: [107]-[108].

CA 40229/07
SC 4154/03

SPIGELMAN CJ
GILES JA
BASTEN JA
2 April 2008

HENDRIKS v McGEOCH

Judgment

1 SPIGELMAN CJ: In this matter I have read the judgment of Basten JA in draft. I agree with his Honour’s analysis on the tort cause of action. I also agree with his Honour’s analysis of damages.

2 I have come to a different conclusion with respect to the existence of a retainer. However, as this makes no material difference to the outcome of the case I can state my reasons briefly.

3 In my opinion, the meeting of 19 December 1995, the evidence of which is set out in the judgment of Basten JA, led to the existence of a multipartite contract between the appellants, on the one hand, and Mrs McGeoch, Robert McGeoch and Jon McGeoch, on the other hand. The reference Mr Hendriks made to acting as the “family solicitor” reflected this relationship, as did the undertaking by each of the sons to pay half of the legal costs of the transfers. The ultimate memorandum of fees addressed to Mrs McGeoch in the terms: “To our costs of acting for you and members of the family …” reflected this arrangement.

4 Plainly the specific steps required to carry the arrangement into effect changed, particularly after 24 January 1996 when advice as to the pension implications of the proposal to transfer the property at Mollymook became known. Nevertheless, in my opinion, the contractual relationship did not in essence change.

5 There was, accordingly, a contractual duty of skill which, relevantly, did not differ either in its incidents or, in relation to issues of breach and of damages, from the incidents of the tort. I would uphold Gzell J’s finding with respect to the express contract cause of action.

6 Since writing the above I have read the judgment of Giles JA in draft. I agree with his Honour's reasons and the orders he proposes.

7 GILES JA: The facts are described in the reasons of Basten JA, which I have had the advantage of reading in draft.

Liability

8 I agree that the appeal against liability should be dismissed but, respectfully differing from his Honour, because in my opinion the trial judge correctly found that Mr Jon McGeoch had retained the solicitors to act for him. The legalese of “retained” can be put aside. A contract was entered into between the solicitors, through Mr Hendriks, and Mr Jon McGeoch, under which the solicitors were obliged to exercise reasonable care and skill in safeguarding Mr McGeoch’s expectation of receiving the Mollymook property. This they did not do.

9 In what follows, for convenience and without intending disrespect I will refer to Mr Jon McGeoch as Jon and Mr Robert McGeoch as Robert.

10 A contract need not be made by formal offer and acceptance, or by an overt course of negotiation. Entry into a contract can be found in the conduct of the parties, in what they said and did towards each other. In Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 97326 McHugh JA, with whom Hope and Mahoney JJA agreed, said at 11,117 -

“It is often difficult to fit a commercial arrangement into the common lawyers' analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of "offer", "acceptance", "consideration" and "intention to create a legal relationship" which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship. cf Atiyah, "Contracts, Promises and the Law of Obligations" 94 Law Quarterly Review at 194. A bilateral contract of this type exists independently of and indeed precedes what the parties do. Consequently, it is an error "to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed" : Howard, " Contract, Reliance and Business Transactions" [1987] Journal of Business Law at 127. Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (Court of Appeal) (11/11/88) . The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement.”

11 Whether a contract has been entered into is to be judged objectively on “an objective assessment of the state of affairs between the parties”: Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 at [25]. The status of the parties, the relationship between them and the nature of the putative contract will bear upon whether a contract should be inferred to have been made. It is customary, for example, to look for some formality in making a contract for the sale of land.

12 Mr Hendriks was well known to the McGeochs, Jon included, and the solicitors had acted on his behalf, on Robert’s behalf and for their parents on many legal matters on previous occasions. Mr Hendriks described himself as the family solicitor. The December meeting was called to finalise how Mrs McGeoch would distribute the properties between the two sons. Mr Hendriks certainly did not make clear to the sons that he was acting for their mother and their mother alone, and expressed views as to what was fair between the sons and how the distribution could be carried out. There is no occasion for reluctance in concluding that, on an objective assessment, a contract between solicitor and client should be inferred.

13 The meeting in December 1995 ended with Robert and Jon agreeing to share the costs of the transfers, and even at that point what had occurred and was to occur was more than Mr Hendriks advising and acting as solicitor for Mrs McGeoch. What was to come included bringing about the transfer of “Wanganui” to Robert and, if Jon elected for it, the transfer to him of the Mollymook property.

14 So far as what was said and done at the meeting did not clearly indicate a solicitor/client contract, what was said and done between Jon and Mr Hendriks thereafter cast considerable light on Mr Hendriks’ role.

15 The significant events in that respect were -

(a) When Mr Hendriks wrote to Jon in February 1996 saying that immediate transfer of the Mollymook property would affect Mrs McGeoch’s pension rights, so that that property would have to be left to Jon in her will, Jon telephoned him and said that was not the agreement reached in December and he would not have agreed to vacate “Wanganui” if the Mollymook property was not to be transferred straight to him.

“Look, don’t worry Jon. I’m looking after your interests. Your Mother’s Will provides that Mollymook will pass to you. This is all being done to save her pension. It won’t affect your entitlement to Mollymook”.

(c) Thereafter, in June 1996, Jon asked Mr Hendriks “could we enter into a lease or some other arrangement which would ensure that the agreement between myself, Robert and Mum is enforceable?” He referred to the possibility of a lease arrangement. Mr Hendriks said that he would “speak to your mother and get back to you”.

and members of your family

16 In these matters Jon was seeking advice from Mr Hendricks as his solicitor, and Mr Hendriks was giving it (see in particular “It won’t affect your entitlement to Mollymook”) or agreeing to give it (when he said he would get back to Jon). More generally, Mr Hendriks said to Jon that he was acting in Jon’s interests, and said that at a time when Jon’s expectation needed protection. The accounts would not independently establish a solicitor/client relationship, since they could be unthinking inaccuracy, but are consistent with and provide some support for the inference from all other matters.

17 With the light thus cast on the earlier events, in my opinion the correct conclusion is that at the least from mid-February 1996, when Mr Hendriks had occasion to tell Jon that there could not be a immediate transfer of the Mollymook property but Jon’s entitlement to the Mollymook property would not be affected, there was a contract by which, in return for Jon’s payment of half the costs, Mr Hendriks would act as his solicitor in relation to the distribution of the properties by Mrs McGeoch between the two sons.

18 When the impact of an immediate transfer on Mrs McGeoch’s pension was realised, the distribution became unbalanced. “Wanganui” would still be transferred to Robert. Jon had to leave “Wanganui”, but his receipt of the Mollymook property was not assured because Mrs McGeoch could change her will. Jon’s expectation, which came at the price of leaving “Wanganui”, needed to be safeguarded. It was quite incorrect for Mr Hendriks to say that his entitlement would not be affected, and this may have been the misleading and deceptive conduct which the trial judge had in mind. Mr Hendriks should have advised Jon to ask his mother to contract not to revoke that devise.

Quantum

19 For the reasons given by Basten JA, which are equally applicable to breach of retainer in mid-February 1996, the damages should be assessed on the basis of a loss of a chance calculated at 80 per cent.

The costs order

20 The trial judge noted that there was “no argument that costs should be assessed on the ordinary basis to 9 December 2004 and on an indemnity basis thereafter”. He held, however, that the costs should exclude the costs of “issues that were abandoned at the commencement of the trial”.

21 Computation of Jon’s loss was not straightforward, and reduction to an 80 per cent lost chance did not bring a straight-line reduction. In the event of reduction, the parties were to agree on the substituted damages. The offer of compromise was not made known to us; if the substituted damages alters its effect, no doubt the parties can agree on that also. The application for leave to cross-appeal was directed to the exclusion of the costs of the abandoned issues, and it was not submitted that we could not or should not decide it when we did not know the amount of the offer of compromise.

22 The abandoned issues were principally founded on events in December 2000, when Mr Hendriks acted for Mrs McGeoch in making the will which left the Mollymook property to Robert’s children. It was alleged in the statement of claim that he thereby participated in and facilitated a breach of trust by Mrs McGeoch and assisted in the breach of a contract made between Mrs McGeoch, Robert and Jon in December 1995. These were discrete issues, removed from breach or other wrong in December 1995 and early 1996. There is no doubt that the exercise of the costs discretion can bring exclusion of costs in such circumstances.

23 Jon asserted error of principle in three respects.

24 First, he said that abandonment of claims is not uncommon. That may be accepted, but does not mean that the trial judge’s exercise of discretion miscarried in this case.

25 Secondly, he said that he would have been better off maintaining the abandoned issues, even if he failed on them; that a party should not be worse off because taking the responsible course of abandoning a doubtful claim, and that in any event the judge did not characterise the abandoned issues as doubtful. The fact that they were abandoned, unless some other rational explanation appears, indicates that the claim founded on the events in December 2000 was less than doubtful, and it should not be assumed that maintaining the abandoned issues would have left Jon better off – it is likely that it would have shown that the claim was without substance and brought the same costs consequence. I do not think this provides an appealable error.

26 Thirdly, he said that an order that costs be paid referable to issues should only be made when the assessor would be able to distinguish the costs of those issues from the costs of other issues; and that here the issues were interwoven, for example because the new will in 2000 was part of showing loss. The mingling of issues is a relevant matter, but there is no reason to conclude that the trial judge failed to pay regard to it; it is clear that there would have been much in the litigation over participation in breach of trust and inducing breach of contract in 2000 which did not overlap with litigation over the events of 1995-6. Again, I do not think there was appealable error.

27 None of the asserted errors of principle would in my opinion warrant the grant of leave to appeal. That is not changed because the Court is seised of the solicitors’ appeal.

28 Unless the offer of compromise has an altered effect, there is no reason to vary the order for the costs of the trial. The solicitors failed on liability but succeeded on quantum, and I agree with Basten JA’s proposal that they pay 50 per cent of Jon’s costs of the appeal. I propose the orders -

1. Appeal allowed in part.

2. Set aside the judgment for the plaintiff against the defendants for $422,834, and in lieu thereof judgment for the plaintiff against the defendants for such sum as shall be advised to the Registrar in accordance with order 3 taking effect on 13 April 2007.

3. Direct the parties to confer with a view to agreement on the plaintiff’s damages computed in accordance with these reasons and to advise the Registrar within seven days hereafter of the amount of the judgment for the plaintiff against the defendants.

4. Appellants pay 50 per cent of the respondent’s costs of the appeal.

5. Liberty to apply in the event that the Registrar is not advised in accordance with order 3, such liberty to be exercised within fourteen days hereafter.

29 BASTEN JA: In December 1995 the late Jeanette Fraser McGeoch (Mrs McGeoch) invited her two sons, Jon McGeoch (then aged 64) and Robert McGeoch (then aged 67) to a meeting with a solicitor, at which she proposed to transfer two properties of which she was the registered owner, one to each of her sons. The arrangement proposed was that Mr Robert McGeoch would obtain the remainder of a grazing property known as “Wanganui” and that Mr Jon McGeoch would obtain a holiday home at Mollymook on the south coast of New South Wales.

30 The grazing property, “Wanganui”, could be transferred to Mr Robert McGeoch without liability for stamp duty. Transfer of the Mollymook property, which was understood to be of equal value, would incur stamp duty of $5,500. The transfer was dependent upon Mr Jon McGeoch finding that sum and agreeing to proceed. It was also agreed that, if the transfers did not proceed, the respective properties would be left by Mrs McGeoch to her sons in her will.

31 Although Mr Jon McGeoch accepted the arrangement, it was discovered in January 1996 that the disposal of the Mollymook property would substantially diminish Mrs McGeoch’s pension entitlements. Accordingly, she gave instructions that the transfer should not proceed.

32 The equal distribution of the land therefore depended upon Mrs McGeoch maintaining the proposed testamentary disposition of the Mollymook property to Mr Jon McGeoch. However, in December 2000 she changed her will so as to leave the Mollymook property to Mr Robert McGeoch’s children. She died in July 2001.

33 After his mother’s death, Mr Jon McGeoch brought proceedings under the Family Provision Act 1982 (NSW) and obtained a payment from the estate. He also brought proceedings against Commins Hendriks (“the solicitors”), the firm of which Mr Hendriks, who had attended the meeting on 19 December 1995 and had thereafter dealt with the proposed property arrangements, was a member. The present appeal arises from a judgment in the Equity Division in favour of Mr Jon McGeoch against the solicitors. The solicitors now appeal against the judgment; Mr Jon McGeoch (“the respondent”) has cross-appealed in relation to an aspect of the costs order.

Issues

34 Although there was no formal order for separate determination of any issues in the proceedings, the parties appear to have agreed that the Court should first determine whether the respondent had an entitlement to damages. The quantum of any entitlement and issues with respect to costs were deferred for further argument. On 11 April 2007 the primary judge, Gzell J, gave judgment in favour of the plaintiff with respect to liability: see McGeoch v Hendriks [2007] NSWSC 311. The first question addressed in that judgment was whether there was an express contract pursuant to which the respondent had retained the solicitors to act for him with respect to the proposed property settlement. His Honour held that there was such a contract and that the solicitors were in breach of their contractual obligations in failing to draw up an agreement pursuant to which Mrs McGeoch would bind herself not to alter her will with respect to the devise of the Mollymook house. His Honour held that if there were no express retainer, there was an implied agreement. Although not stated, it would appear that his Honour was satisfied that there was a breach of the implied retainer in the same sense that he had found a breach of the express retainer.

35 The third basis of the claim involved the allegation of a breach of a duty of care which arose even in the absence of any retainer. His Honour held that in the circumstances of the arrangements, the solicitors, through Mr Hendriks, had a duty to provide appropriate advice to the respondent, which Mr Hendriks failed to do. Finally, his Honour upheld a claim under the Fair Trading Act 1987 (NSW) and under the Trade Practices Act 1974 (Cth), for damages flowing from misleading or deceptive conduct in the course of trade or commerce. No explanation was given as to how a claim could arise under the Trade Practices Act, and that part of his Honour’s reasoning, which was in any event unnecessary for the judgment, has not been supported by the respondent, in the event that neither a contractual nor a tortious claim might be upheld; the respondent did however seek to uphold the finding in similar terms under s 42 of the Fair Trading Act. I would uphold the judgment below on the basis of a breach of a duty of care. Hence it is not necessary to consider the alleged breach of statutory duty, which would require a number of factual findings not expressly addressed below.

36 If the solicitors were liable to the respondent, there was a further question as to whether the judgment should be for the full amount of the loss (the quantum of which was agreed between the parties) or whether the respondent was entitled only to such percentage as represented a fair assessment of his lost chance of a better outcome. His Honour awarded the full amount of the loss either because he did not think it necessary to assess the damages on a loss of chance basis, or because, if he had so assessed them, the loss of a chance was close to 100%: see McGeoch v Hendriks (No. 2) [2007] NSWSC 364. It was common ground on the appeal that the appropriate course was to assess damages by reference to the loss of a chance, but the respondent nevertheless maintained that full recovery was appropriate.

37 Finally, there was a separate issue as to costs which were addressed in the second judgment. Although the plaintiff had been entirely successful at trial, a number of issues had been abandoned at the commencement of the trial and his Honour deemed it appropriate to deprive the plaintiff of any costs incurred in relation to those issues. By way of application for leave to cross-appeal, the plaintiff sought to challenge in this Court the reduction in the award of costs.

38 It is convenient to deal first with the question of whether the respondent in fact retained the solicitors.

Express or implied retainer

39 The distinction between an express contract and an implied contract is obscure. Whether a contract exists between particular parties is a matter to be inferred from an objective assessment of the circumstances, including the communications between the parties. A promise may be stated expressly or may be inferred from conduct; the same may apply to an acceptance of an offer. Whilst terms may be implied which are not expressly or inferentially agreed upon, it makes little sense to say that a contract is “implied”. It is sufficient to ask whether the existence of a contract has been established on the evidence: see generally, Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 534-535 (McHugh JA, Samuels JA agreeing).

40 The question whether a contract of retainer existed between the respondent and the solicitors, and the terms of any such retainer, needs to be addressed at particular points in time. Further, it is useful to consider the evidence without reference to particular consequences, or at least bearing in mind that there may be other consequences than those which arise in the proceedings. One consequence of direct relevance will be that the solicitors undertook to assist and advise the respondent, but another may be that the respondent was obliged to pay for those services. One way of testing the respondent’s claim that he had entered into a retainer with the solicitors would be to ask whether he should reasonably be seen to have accepted an obligation to pay their fees.

41 The first stage at which it was suggested that any retainer arose was the meeting of 19 December 1995. The meeting was not instigated by the respondent, but by his mother who rang him on the previous day to say:

“Jon, can you come to a meeting tomorrow morning. I want to finalise the details of my property. I want to transfer to you Mollymook and I want to transfer ‘Wanganui’ to Robert.

I said: Yes mum. That is a good idea.”

42 Mr Hendriks’ evidence indicated that the proposed transfers had been under consideration for some little time, apparently at the instigation of Mr Robert McGeoch, who wanted the balance of “Wanganui” then in his mother’s ownership to go to his own son (her grandson), Mr Angus McGeoch. It was clear that there were two factors relevant to this proposal which had been considered by Mr Hendriks prior to 19 December 1995. The first was the possible effect which a transfer of property would have on Mrs McGeoch’s pension; the other was the liability to pay stamp duty. At the meeting on 19 December, Mr Hendriks was aware of the differential treatment of the two properties in relation to stamp duty, but not in relation to the pension rights, the former arising under State law and the latter under Commonwealth law. It appears that for the purposes of her pension entitlement, both properties were ignored as assets in the hands of Mrs McGeoch, on the basis of “hardship”. Further, an inter-generational transfer of “Wanganui” could occur without affecting her pension entitlements, if the donee were able to demonstrate that the value of the farm was not less than wages foregone by him in the past, when working the farm with his father. However, Mr Hendriks only discovered after the December meeting that a similar exercise was unavailable in relation to the Mollymook property which was not a primary producing asset.

43 Mrs McGeoch had been living in a nursing home at Wagga Wagga from 15 October 1989. The respondent gave evidence of a conversation with his mother in 1994. At that time both he and his brother were running stock on parts of “Wanganui”, where his brother lived, while the respondent was living on a neighbouring property. He recounted in his affidavit in these proceedings the following conversation in 1994 with his mother:

“She said: I will give you Mollymook and I will give Robert ‘Wanganui’. Are you happy with that?

I said: Yes.

She said: You will have to move off Wanganui.

I said: That is OK, provided I get ownership of Mollymook.”

44 So far as the evidence revealed, there was no discussion of timing in relation to that proposal.

45 At the beginning of the meeting on 19 December 1995, the respondent asserted that Mr Hendriks said to him:

“Jon, I’m here today as the family solicitor to help your mother to transfer these properties over to you and your brother. That’s what she wants to do.”

46 In cross-examination, Mr Hendriks stated that he did not recall describing himself as “the family solicitor” because he did not think he had instructions from either of the brothers or the grandson, Angus McGeoch: Tcpt, 27/03/07, p 118. He said that he was at the meeting to give effect to Mrs McGeoch’s intentions, apparently as her solicitor.

47 In the course of the meeting it is said that he “advised” the respondent by explaining the liability to pay stamp duty on the transfer of the Mollymook property and the proposed arrangements whereby he would vacate “Wanganui” and take delivery of Mollymook by 30 June 1996.

48 In the course of the meeting, two factors were made tolerably clear by Mr Hendriks. The first was that Mrs McGeoch sought to deal equally with her sons and that she was willing to effect transfers to them of both properties, if they wished that course to be undertaken. Secondly, the respondent had an option as to whether to take the transfer immediately, upon payment of the relevant stamp duty or whether he would prefer to defer taking his interest, which would then come to him as a testamentary disposition on his mother’s death. At various stages during the meeting, which he taped, the transcript revealed him complaining that he had “no option”: this appears to have been a reference to his lack of alternative in relation to removing his stock from “Wanganui”.

49 On the basis of this material, I am not persuaded that an objective bystander would have drawn the inference that there was a contractual relationship between Mr Hendriks and the respondent. Mr Hendriks did little more than set out the facts as to Mrs McGeoch’s proposed course of action and the conditions which would attend each step. The respondent’s interest may have been in preserving his continued use of “Wanganui”, but that was not an issue on which he sought any advice from Mr Hendriks. Even had he wanted Mr Hendriks to advise him on that matter, it is understandable that he did not raise it at a meeting at which his brother and mother were apparently of a common mind that on receiving a promise of the Mollymook property, he would be required to remove his stock from “Wanganui”. Nevertheless, he did not ask Mr Hendriks for advice after the meeting, nor did he obtain his own independent legal advice. No doubt if he had agreed to go ahead with the inter vivos transfer at that time, Mr Hendriks would have agreed to act for him as transferee, anticipating no conflict between his position and that of his mother (or his brother). That position did not arise, however, until two days later when, on 21 December, the respondent rang Mr Hendriks to say that he would proceed with the transfer to him of the Mollymook house.

50 At the end of the meeting on 19 December, Mr Hendriks is recorded by the respondent as saying:

“I’ll get the papers ready so the transfers of ‘Wanganui’ and Mollymook can go through. Now, who’s going to pay for that work? Robert and Jon, will you pay half each of the legal costs of the transfers?”

51 The brothers agreed to that proposition, although whether that was intended to include the costs of the conference and any other preliminary work was unclear. However, unless that were intended, one would have expected that each would pay the costs associated with the transfer to him, rather than half the total costs.

52 Whilst it was intended that inter vivos transfers occur in relation to both properties and whilst it seemed likely that the respondent would accept that proposal and find the relevant stamp duty, no issue arose as to any further advice necessary to protect his position with respect to the Mollymook property. No such issue could arise until approximately four weeks later, when, on 24 January 1996, Mr Hendriks checked with an officer in the Department of Social Security as to the possible effects on Mrs McGeoch’s pension of a transfer of Mollymook to the respondent. On discovering that it would have a substantial effect, he advised Mrs McGeoch, who instructed him to withdraw the proposed transfer of the Mollymook property to the respondent. On 13 February 1996 Mr Hendriks wrote to the respondent explaining the new understanding as to the effect on Mrs McGeoch’s pension and stating:

We are at liberty to advise you that your mother’s recently executed Will provides that should she own ‘Wanganui’ on her death it is to pass to Robert and that should she own the Mollymook house on her death it is to pass to you. The balance of the Estate is to pass to you and Robert equally.

We are writing to advise you of the situation and to keep you fully informed of this recent development.

If you wish to discuss any aspect of the matter further please do not hesitate to contact us.”

53 From 24 January 1996, the respondent was in a new position. First, he had agreed to relinquish occupation of part of “Wanganui” without receiving any immediate countervailing benefit. Secondly, he was now at risk that, despite her present state of mind, his mother might later change her will so as to deprive him of the proposed devise of Mollymook.

54 Whether Mr Hendriks was at that point retained to advise the respondent as to his legal interests becomes a matter of critical importance. If he had been so retained, there is little doubt that he should have advised the respondent to seek an agreement from his mother not to vary her will with respect to the devise of Mollymook. Although on 22 January, two days before the correct position in relation to pension entitlements had been ascertained, Mrs McGeoch had decided to defer transfer of Mollymook until 30 June 1996, the reason for that delay is not known. On the evidence, there is no reason to suppose that Mr Hendriks would not have been in a position to advise the respondent in relation to a non-revocation agreement, without any conflict with his duty to Mrs McGeoch. If the respondent had sought to use his on-going occupation of part of “Wanganui” as a bargaining position, the possibility of a conflict of interest might have arisen, possibly in relation to Mr Robert McGeoch, from whom the solicitors otherwise had instructions. However, for present purposes, the question is whether Mr Hendriks was in breach of an existing duty by not volunteering appropriate advice at about the time he wrote to the respondent on 13 February 1996.

55 The high point of the evidence in favour of the existence of a retainer was a conversation between the respondent and Mr Hendriks, as recounted by the respondent and as accepted by the trial judge, in the course of which Mr Hendriks said:

“Look, don’t worry Jon. I’m looking after your interests. Your mother’s Will provides that Mollymook will pass to you. This is all being done to save her pension. It won’t affect your entitlement to Mollymook.”

56 His Honour expressly accepted the respondent’s version of the conversation and in particular the statement by Mr Hendriks that he was “looking after your interests”: at [48].

57 There was a third occasion, not dealt with by the trial judge, which could have given rise to a retainer. Thus the respondent gave evidence of a conversation with Mr Hendriks in June 1996 in which he said words to the effect:

“Could we enter into a lease or some other arrangement, which would ensure that the agreement between myself, Robert and Mum is enforceable? …

Harry, what about if I leased the Mollymook house for say $1 from Mum, then I may well be able to sublet it as suits me?

He said: ‘I will speak to your mother and get back to you.’

I do not recall Mr Hendriks getting back to me about my proposal.”

58 Mr Hendriks agreed that such a conversation took place. A file note of 20 June 1996 related to a telephone attendance on Mrs McGeoch, which included the following matters:

“2. She spoke to her son John [sic] last night and told him she wasn’t ‘going to change anything’.

3. She told me she was quite happy to talk with him and his son, John, and they were calling this evening.

4. I told her that John had called on Monday to see me to find out how my enquiries were going on his suggestion that he lease Mollymook house from Mrs McGeoch for say $1 a week (thereby effectively avoiding any income to her) and then subletting as it suited him. I told him I had not pursued the matter but that I would do so.

5. I told Mrs McGeoch that I had telephoned Doug Emery of DSS yesterday but that they were closed for the day and I was about to ring him on it.

6. She told me that she didn’t want me to speak to him on this matter at all. I told her that I was only contacting him to ensure that there were no problems if such a proposition came up.

and

59 His Honour did not rely upon this material as demonstrating the existence of a retainer. In my view his Honour was correct in that respect: it demonstrated the respondent approaching his mother’s solicitor to suggest a legal arrangement with respect to part of her property.

60 Some reliance was also sought to be placed on later statements which were presumably to be treated as admissions against interest and thus relevant to the existence of a retainer at some earlier date. Thus, there was a memorandum of fees addressed to Mrs McGeoch, copies of which were sent to each of her sons. This document did not assist Mr Hendriks’ credit, because, whilst leaving the amount of the fees unchanged, he excised from the copy of the bill sent to the respondent reference to work done specifically for his brother. Otherwise, the respondent relied upon the bill which, although addressed to Mrs McGeoch and headed “transactions with your sons”, commenced:

“TO our costs of acting for you and members of the family in respect of proposed transactions ….”

61 The fee memorandum was dated 9 September 1996 and the language was as readily explicable by reference to the agreement that the brothers would pay the costs of the proposed transactions (as discussed on 19 December 1995 and set out above) as to any admission that the solicitors were in fact retained by either or both of the brothers individually. The fact that the bill was addressed to Mrs McGeoch weighs against the latter inference.

62 On 14 February 1997 the respondent wrote to the solicitors enclosing a cheque for $500, although the total bill amounted to $2,760. He complained that a large amount of work had been carried out prior to the meeting on 19 December on behalf of his brother. Following that, some correspondence from the solicitors was misaddressed and apparently not received by the respondent. Nevertheless, on 11 August 1997 they wrote to the respondent (at his correct address) seeking a further cheque to finalise the matter “as, unfortunately, this firm is now becoming the ‘meat in the sandwich’ through no fault of its own”. On 24 October 1997 the respondent replied complaining about the unfairness of his situation. He started with a general proposition:

“Firstly I feel you as my mother’s legal advisor you are not ‘the meat in the sandwich’, but a person who advises and studies both sides to be fair and equal if possible.”

63 The substance of this complaint was not that the solicitors were acting for the respondent and had obligations to him in that regard, but that in acting for his mother, they had a duty to treat the brothers fairly and equally, because that was their mother’s instruction. In the result, he was being required to pay half the costs of the arrangements with respect to “Wanganui”, from which his brother benefited, whilst receiving no benefit himself and doubting whether if there were costs in relation to the transfer of Mollymook, under his mother’s will, his brother would be required to pay half of them. He also complained of the unfairness involved in the distribution of the furniture to the person taking the property, suggesting that the value of the furniture which remained on “Wanganui” far exceeded that at Mollymook and included many items of sentimental value. The distribution of furniture in that way was suggested at the meeting on 19 December, at which time the respondent had expressed his disappointment and concern at the unfairness of the proposal.

64 It is clear that there was no express request by the respondent to the solicitors, asking that they act for him in any respect; nor was there any clear inference to that effect from the contemporaneous conduct of the parties, either on 19 December 1995 or around 13 February 1996. Although the respondent gave evidence of a conversation with Mr Hendriks in June 1996, in which he sought an enforceable agreement in relation to Mollymook, Mr Hendriks appears to have treated that as a request to obtain instructions from Mrs McGeoch, rather than a request that he act as the respondent’s solicitor. When he did not get those instructions, the matter was allowed to lapse by the respondent.

65 The importance of a solicitor/client retainer being clearly ascertainable has long been recognised, in part because it would usually include an obligation to pay fees. In that respect both the general law and statute have been protective of the client’s position. The legal entitlement to fees has long been regulated by a process known as taxation although, at least since the Attorneys and Solicitors Act 1870 (UK), a means has existed for a solicitor to charge at a higher rate, where agreement to that effect was reduced to writing. That was necessary to remove a disability from a solicitor with respect to any bargain he proposed with the client, which was to the client’s disadvantage: see Clare v Joseph [1907] 2 KB 369 at 375 (Buckley LJ). Modern legislation requires legal practitioners to disclose in writing the basis on which they will charge and an estimate of their costs: see, as in force in 1995, Legal Profession Act 1987 (NSW), s 174 ff. There is no suggestion that any such disclosure was made in the present case. Whilst that might have precluded the solicitors from recovering costs from the respondent, if he were their client, the failure of the solicitors to record their retainer in writing does not prevent the respondent, as the putative client, asserting that the solicitors owed him contractual obligations.

66 However, neither the contemporaneous conversations nor the subsequent evidence demonstrate the existence of a contract of retainer between the respondent and the solicitors. Accepting that Mr Hendriks described himself as “the family solicitor” an objective bystander would not infer from that that the solicitors were acting for each member of the family. Rather, the proper inference was that he had been retained by the mother to effect an inter vivos disposition of her real estate in a manner which she wished to be acceptable to her two sons, on the basis that they were to be treated equally. No doubt, if the proposed transfers went ahead, Mr Hendriks could reasonably have expected that he would act on behalf of the transferees, as well as Mrs McGeoch as the transferor. If they did not go ahead, as the proposed transfer to the respondent did not, there would be nothing to be done to give effect to Mrs McGeoch’s intentions. It appears that at all stages Mr Hendriks acted on her instructions. There is no sufficient evidence to establish that the solicitors, through Mr Hendriks, were retained by the respondent.

67 Before leaving this topic, it should be noted that the amended statement of claim filed by the respondent in the Equity Division asserted that there was an agreement entered into in about March 1996 between him and his mother, the terms of which included a requirement that his mother would not revoke her will leaving Mollymook to the respondent and that she would hold Mollymook on trust for him during her lifetime. As a legal proposition, it is clear that the law will recognise and may enforce through the means of a constructive trust, an agreement not to revoke a will, or a particular disposition in a will: see, eg, Birmingham v Renfrew (1937) 57 CLR 666 at 682-683 (Dixon J). Although the property in this case involved a specific parcel of real estate, the remedy of a constructive trust would operate, without the constraint of writing required by the statute of frauds and its modern counterparts: see Birmingham at 680 (Latham CJ) and 690 (Dixon J); see also Sharp v Anderson (1994) 6 BPR ¶97-510 at 13,807 (Santow J).

68 There might have been something to be said for the view that a conditional agreement was reached on 19 December 1995, pursuant to which the respondent agreed to vacate “Wanganui” by 30 June 1996 in return for a transfer to him of the property at Mollymook or, at his option, an irrevocable devise of that property to him under mother’s will. When the transfer inter vivos was withdrawn as an option, in February 1996, arguably the agreement crystallised as one pursuant to which he obtained an entitlement under his mother’s will which she was bound not to revoke. If there were such an agreement, it would have been arguable that, as to the proposed transfer, the solicitors were contractually obliged to take such steps as were necessary and appropriate to give effect to that intention and to act for the respondent in that respect. However, this approach was abandoned before the trial and his Honour did not consider a retainer based upon such an agreement. It is not open now to find a retainer to give effect to such a testamentary contract, but this possible analysis is relevant to the question whether the solicitors owed the respondent a duty of care, absent any retainer.

Duty of care

69 Where there is a contractual relationship between a solicitor and a client, “there is no reason why the contract should not declare completely and exclusively what are the legal rights and obligations of the parties in relation to their contractual dealings”: Astley v Austrust Ltd [1999] HCA 6; 197 CLR 1 at [47] (Gleeson CJ, McHugh, Gummow and Hayne JJ). This statement involved a rejection of the approach of Deane J in Hawkins v Clayton (1988) 164 CLR 539, 585 that the solicitor’s duties should be identified solely under the general law of negligence. The Court in Astley did not conclude that there could be no liability in tort, as between solicitor and client, but merely that “there is no justification in recognising the tortious duty to the exclusion of the contractual duty”: at [48]. Nevertheless, it has been suggested that the decision of this Court in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 at 652 (Kirby P), to the extent that it held that a solicitor may be required “to advise on matters going beyond the limits of his or her retainer” is no longer good law: see Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1 at [364] (McPherson AJA). That question does not arise in the present case and need not be addressed. What is relevant and beyond doubt is that a solicitor may have a duty of care “even in situations where a contractual relationship cannot be established”: Astley at [48]. The present question is whether, in the circumstances discussed above, the solicitors had a duty of care to the respondent.

70 The retainer between the solicitors and Mrs McGeoch was not limited to giving her advice as to the possible disposition of her property: it extended to carrying into effect her instructions so as to achieve the proposed results. In relation to the Mollymook property, this included the preparation and execution of a will containing a devise in favour of the respondent. As may be inferred from the discussion on 19 December 1995, the respondent was anxious to obtain control over Mollymook, so that necessary repairs could be carried out and so that he could use (including by way of letting) the property at his own discretion. That, it may be inferred, led him to accept the proposed transfer and agree to the payment of stamp duty. When that option was withdrawn, he sought other means by which to exercise control of the property, as disclosed in the telephone conversation with Mr Hendriks in July 1996.

71 Mr Hendriks’ statements to the effect that he was “looking after” the respondent’s interests and that the respondent had an “entitlement” to Mollymook (in the course of the conversation following the letter of 13 February 1996) were clearly intended to reassure the respondent that his interest, in accordance with his mother’s instructions, had been identified and was being addressed. Mr Hendriks’ assurances as to the contents of Mrs McGeoch’s will and her intentions in that respect, together with his insistence that the respondent remained liable for half of the costs incurred by the solicitors, were objective circumstances indicating recognition of a duty to exercise skill and care in the interests of the respondent, where the respondent was at risk of reasonably foreseeable loss if the duty were not fulfilled.

72 A solicitor will generally not be under a duty of care to a third party where performance of the duty would or could conflict with the solicitor’s obligations to a client. However, where performance of the duty involves carrying out the client’s instructions, no such potential for conflict arises. Thus, in Hawkins, the Court held solicitors liable for failing to take reasonable steps to locate the executor of a will and inform him of the will’s existence. The damages were held to be the loss flowing from the delay in taking possession of the estate. However, the three majority judgments approached the matter in different ways, the approach of Deane J being rejected (in part) in Astley. Of more direct relevance in the present case was the reasoning of the High Court in Hill v Van Erp (1997) 188 CLR 159 in which a solicitor was held liable to the intended beneficiary under the will, where the husband of the intended beneficiary had been asked to attest the will, thereby rendering the disposition ineffective. As explained by Brennan CJ at p 170:

“By accepting the testator’s retainer, the solicitor enters upon the task of effecting compliance with the formalities necessary to transfer property from a testator on death to an intended beneficiary; it is foreseeable that, if reasonable care is not exercised in performing the task, the intended beneficiary will not take the property; the solicitor fails to exercise reasonable care whereby the formalities are not complied with; and the intended beneficiary thereby loses the property.”

Hedley Byrne

73 Other members of the majority in Hill spoke to similar effect. The language of assumed responsibility was considered by Dawson J at 185-186. His Honour commenced at p 185:

“Thus, when a solicitor accepts responsibility for carrying out a client's testamentary intentions, he or she cannot, in my view, be regarded as being devoid of any responsibility to an intended beneficiary. The responsibility is not contractual but arises from the solicitor's undertaking the duty of ensuring that the testator's intention of conferring a benefit upon a beneficiary is realised. In a factual, if not a legal sense, that may be seen as assuming a responsibility not only to the testatrix but also to the intended beneficiary.

In the present case there was no reliance upon the solicitor by Mrs Van Erp nor did she request her to do anything for her. Mrs Van Erp did not change her position in reliance upon anything said or done by the solicitor. It is true that Mrs Van Erp was told that she was a beneficiary under the will and took no steps to protect her position. In that way it might be said that she relied upon the solicitor to carry out the testatrix's instructions carefully. However, I make no point of that in the present case.”

74 After reference to statements by Mason J in Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 464, Dawson J continued:

“The notion of general reliance or dependence described by Mason J is apt also to describe the situation in which, whilst there will usually be no specific reliance by an intended beneficiary upon a solicitor retained to attend to the will, the intended beneficiary's interests are totally and unavoidably dependent upon the proper performance of a function within the sole province of the solicitor. And, it might be added, in that situation the solicitor knows of the beneficiary's dependence and in that respect may be regarded as having assumed responsibility towards the intended beneficiary.”

75 Toohey J agreed with Dawson J (p 188) as did Gaudron J, relying upon matters of principle, including the position of control which was in the hands of the solicitor, in finding liability for loss to the intended beneficiary (at p 199).

76 In the present case there was the additional factor of an anterior relationship. Although the solicitors complained that the conclusion reached by the trial judge at [57] relied upon a suspect finding that the solicitor “assumed a responsibility” for his advice, that may have been an unnecessary and extraneous step, though the factual finding was justified, in the sense explained by Dawson J.

77 To avoid the existence of a duty in the present circumstances, the solicitors sought to rely upon the proposition that any duty to the respondent would have conflicted with their duties to Mrs McGeoch. Whilst it may be accepted that a duty would not arise in such circumstances, the factual premise was not made out: at least between December 1995 and March 1996, protection of the respondent’s interests would not only have been in accordance with Mrs McGeoch’s instructions, but reasonably necessary in order to carry them into effect.

Breach of duty of care

78 Having found that there was a retainer and a breach of the relevant contractual obligations, his Honour, understandably, paid little attention to the alternative basis which required consideration, of how any specific duty of care may have been breached. Given the rejection of the existence of a retainer between the respondent and the solicitors, it is necessary to consider how precisely the solicitors may have been in breach of a general law duty of care owed to the respondent.

79 As already noted, the breach must have flowed, if at all, from the failure to give effect to Mrs McGeoch’s proposal for the disposition of her property in a legally effective manner. If an immediate transfer inter vivos had been decided upon, the solicitor’s duty would have extended to preparing, obtaining the execution of and registering an appropriate transfer. By mid-January, it was known that this approach was not available in accordance with Mrs McGeoch’s instructions. But on 22 January 1996, at a time when it was proposed that both properties be transferred inter vivos, Mrs McGeoch made a will devising “Wanganui” to Robert McGeoch and Mollymook to the respondent, provided that she was the owner of the properties at the date of her death. Apart from a minor bequest, the residue of her estate was to be divided equally between her two sons. The solicitors prepared and arranged for the attestation of a will, the validity of which was not in doubt, giving effect to Mrs McGeoch’s instructions. If such a testamentary disposition had failed because, for example, the respondent’s wife had witnessed the will, the solicitors would have been liable in accordance with Hill v Van Erp.

80 In relevant respects, the 1996 will was substantively similar to a previous will signed by Mrs McGeoch in 1993. The purpose of executing a fresh will in January 1996 was, it may be inferred, at least in part to reflect the agreement reached in December 1995. The expectation at that stage was that neither property would still be owned by the testatrix at her death, unless it occurred before the relevant transfers were executed. However, there was nothing in the will which foreclosed the possibility that Mrs McGeoch would otherwise dispose of the properties during her lifetime nor that the will might not be altered or revoked at any time.

81 To Mr Hendriks’ knowledge, unless the respondent reached some agreement with his brother, he would lose access to “Wanganui” and occupation of part thereof, on his mother’s death. Mr Hendriks was also aware that the proposed transfer to Mr Robert McGeoch was designed to achieve an earlier termination of the respondent’s occupation. Whether or not that could have been unilaterally achieved by Mrs McGeoch revoking his licence to occupy the land, on reasonable notice, is beside the point: she did not seek to take such a step, but rather sought to achieve the result through an agreement involving both brothers. By 24 January 1996, that agreement required the testamentary disposition of the Mollymook property to the respondent. Assuming that the agreement reached in December 1995 had not been a charade on the part of Mrs McGeoch, the solicitors should properly have taken steps to make the agreement legally enforceable or, if their instructions were to the contrary, to advise both brothers that that would not be done. Rather, Mr Hendriks failed to render the agreement enforceable on the part of the respondent, whilst at the same time reassuring him that his interests were being looked after. Such conduct constituted a breach of his duty to the respondent, such breach occurring on and from approximately February 1996, when he had had an opportunity to consider and act upon the fresh instructions from Mrs McGeoch, which were not to proceed with an inter vivos transfer of Mollymook.

Damages

82 The next question is the assessment of the loss suffered by the respondent, arising from the solicitors’ breach of duty. This question involved two steps: the first step required a finding that, assuming that Mr Hendriks had prepared an appropriate agreement, the respondent would have executed it; the second, a finding that Mrs McGeoch would have executed it. (An appropriate agreement would probably have included Mr Robert McGeoch as a party, but nothing was said to turn on that fact.)

83 The trial judge did not address the first question, but there was no suggestion that the respondent would not have signed an appropriate agreement, in circumstances where his intention was to obtain (originally by immediate transfer and later by testamentary disposition) ownership of Mollymook and, if that were not possible immediately, control of Mollymook prior to his mother’s death. Accordingly, it should be accepted as common ground that the first step was made out.

84 In relation to the second step, his Honour held in his first judgment at [49], in considering a breach of duty under a retainer between the respondent and Mr Hendriks:

“He failed to draw up and have executed an agreement that would protect Mr Jon McGeoch’s interests by binding his mother not to alter her will with respect to the devise of the Mollymook property. There is no doubt that had such an agreement been drawn, Mrs McGeoch would have signed it. She executed a transfer of the Mollymook property before the issue of the adverse effect on her pension entitlement arose.”

85 This was a finding of breach of contract and not an assessment of loss. It is not precise as to the time of the breach, although it appears to assume that at the relevant time, Mrs McGeoch’s intentions would have been the same as at 22 January 1996 when she executed the transfer. As noted above, the question of damages was left for a further hearing subsequent upon the finding in relation to liability. The issue was then dealt with briefly. His Honour commenced by noting that he had been referred to a passage in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 349-350, in the joint judgment of Mason CJ, Dawson, Toohey and Gaudron JJ stating:

Malec v J C Hutton Pty Ltd

86 Whether his Honour adopted that approach is not entirely clear. He proceeded, [2007] NSWSC 364 at [3]:

“It was submitted that for assessment of damage purposes the appropriate loss of chance percentage would be in the range of 51% to 60%. I have said in my reasons for judgment that I have no doubt that the deceased would have signed an agreement if drawn up by the solicitor, Mr Hendriks. If it had been necessary for me to express a percentage of that loss of chance, it would have been closer to 100% and certainly in excess of the suggested range.”

87 The solicitors did not contend in this Court that the assessment of the past hypothetical situation could result in a percentage chance of less than 51%. A lower possibility had not been contended for below, apparently on the basis, which was not challenged, that his Honour had already found on the balance of probabilities that Mrs McGeoch would have signed such an agreement. They nevertheless contended that unless the chance of that happening were virtually certain, the award of 100% of the calculated loss should not have been allowed.

88 Following the recent decision in this Court in Heenan v Di Sisto [2008] NSWCA 25, once the fact that a chance had been lost was established on the balance of probabilities, the loss should be assessed by reference to degrees of probabilities and possibilities: at [28]-[32] (Giles JA, Mason P and Mathews AJA agreeing).

89 The first question is to identify the time at which that question should be answered. For reasons already given, the breach first occurred when Mr Hendriks failed to prepare an appropriate agreement within a reasonable time after the proposal for a transfer inter vivos had been abandoned, which was on 24 January 1996. The letter advising the respondent of that position was sent on 13 February 1996 and accordingly steps should have been taken at or about that time.

90 It was true, as his Honour noted, that Mrs McGeoch was prepared to effectuate an inter vivos transfer when the matter was discussed on 19 December 1995 and when a relevant transfer was prepared for her signature, the document being signed on 22 January 1996. Nevertheless, Mr Hendriks recorded a variation in her position at a meeting with Mrs McGeoch, attended by Mr Robert McGeoch, on 22 January 1996, in the following terms:

“During the meeting which followed the execution of the Will referred to in the preceding paragraph, I was informed by either Mrs McGeoch or Mr Robert McGeoch that certain soil conservation funds would become available in February 1996 and that it was her desire that those funds be available to Mr Robert McGeoch for his use upon the land and that, therefore, the Wanganui transfer should be effected immediately. There was then some discussion about the Mollymook property. Initially in this meeting, Mrs McGeoch agreed to sign the transfer to the plaintiff at that time and for my firm to hold the Deed until the plaintiff had vacated the Wanganui property on 30 June 1996. Mrs McGeoch confirmed her instructions that the contents of the Mollymook house would pass with ownership. However, during the course of the meeting Mrs McGeoch changed her mind and stated that she wished to defer the transfer of Mollymook until 30 June, 1996 irrespective of when the plaintiff vacated the Wanganui property. I was directed by Mrs McGeoch to send the plaintiff a note setting out what had been discussed at that meeting.”

91 No written advice appears to have been sent to the respondent, no doubt because the proposed inter vivos transfer was abandoned two days later when advice was received from the Department of Social Security. On receiving that advice and advising Mrs McGeoch of its contents, Mr Hendriks was instructed to withhold the proposed transfer of Mollymook to the respondent.

92 On 12 April 1996 the solicitors wrote to Mrs McGeoch noting that the transfer of “Wanganui” had taken place and confirming that the transfer of Mollymook would not take place because the effect would be to cancel “most if not all of your pension”. The letter continued:

“Accordingly, we wrote to your son John [sic] to advise him of the situation since which time he has indicated that he wished to speak with you further on the matter though we are not sure whether this has taken place.”

93 On 8 May there is a file note of a telephone conversation with Mrs McGeoch, most of the contents of which were not admitted into evidence. Then, as noted above, on 17 June 1996 the respondent raised the possibility of leasing Mollymook to allow him to sublet. There were two file notes referring to that conversation. In one form the file note of the conversation noted the proposed purpose was “so that she cannot change it without reference to him or risk being sued”.

94 The content of the telephone conversation between Mr Hendriks and Mrs McGeoch of 20 June has been noted above at [58].

95 The evidence as to Mrs McGeoch’s intentions and frame of mind at various points in time is largely circumstantial. Nevertheless, the following matters may be inferred with a reasonable degree of confidence:

(1) prior to 1995 Mrs McGeoch had been content to hold both “Wanganui” and the Mollymook house as her property, to be disposed of in her will;

(2) during 1995 her son Robert, probably for the benefit of his son Angus and the more efficient running of the property, sought to bring forward the transfer to him of the balance of “Wanganui” as an immediate disposition inter vivos ;

(3) there was no apparent reason for Mrs McGeoch to transfer Mollymook to the respondent inter vivos , except for the purpose of treating each of her sons equally and not exacerbating family tensions;

(4) even in January 1996, prior to the decision not to transfer Mollymook by an inter vivos disposition, she decided to delay the transfer until the latest possible date under the December agreement, namely 30 June 1996;

(5) on being advised that such a transfer would have adverse effects on her pension, she immediately instructed the solicitors not to proceed with the inter vivos disposition;

(6) at some stage no later than 17 June 1996 she had decided not to give the respondent any additional degree of control over use and occupation of Mollymook, and in particular not to lease it to the respondent;

96 For present purposes, the decision not to leave Mollymook to the respondent can be treated as having been made in late 2000, well after the commencement of the breach of duty by the solicitors, and may thus be disregarded in assessing the probability that she would have entered into an agreement not to change her will in this respect in or about February 1996.

97 At some point between January 1996 and June 1996 she decided not to give the respondent control of Mollymook by way of a lease. It is probably not possible to say that such an intention was formed at any particular point in time, but there are hints of a change in attitude in her decision on 22 January, not to carry out the transfer which had then been agreed to until the very last day, consistent with the December agreement.

98 Finally, some weight may be given to the fact that, as her primary purpose was to ensure a transfer forthwith of “Wanganui” to her son Robert, her intention to protect the respondent’s position with respect to Mollymook may have weakened when the transfer of “Wanganui” occurred in April 1996, with the possibility that it had started to weaken earlier, once it was clear that the respondent agreed to vacate “Wanganui” and did not object to the inter vivos transfer of that property.

99 If an agreement which rendered the testamentary disposition of Mollymook to the respondent irrevocable had been presented to Mrs McGeoch on 19 December 1995, his Honour’s conclusion that Mrs McGeoch would undoubtedly have signed it might be accepted. However, that was no more than part of the proposal and there was no breach of duty in not taking that step at that time. By mid-February 1996, a degree of uncertainty must attend the assessment of Mrs McGeoch’s attitude. That degree of uncertainty is neither insignificant nor considerable. I do not accept, as suggested by the solicitors, that it would warrant a discount of 40% or more. As best these things can be gauged, I would assess the uncertainty at 20%. Accordingly, the respondent should have received a loss of chance calculated at 80%. Damages and interest prior to judgment should be assessed accordingly.

Costs – cross-appeal

100 The respondent filed a cross-appeal in respect of so much of the costs order made at trial as excluded from the costs allowed to the respondent, the costs of certain issues abandoned on the first day of the trial. The respondent complained, in effect, that he was treated adversely by reason of abandoning claims which might have been considered doubtful, rather than pursuing them in circumstances where they were either unnecessary to his success and therefore might not have been considered or might have been rejected. To order him to lose his costs in that respect tends, it was contended, to provide a disincentive for parties seeking to facilitate the just, quick and cheap resolution of the real issues in the proceedings, in conformity with s 56 of the Civil Procedure Act 2005 (NSW).

101 The proper approach to the question of costs commences with the proposition that s 98 of the Civil Procedure Act confers an ostensibly unfettered discretion on the court to award costs as the court thinks fit. That power is, however, stated to be “[s]ubject to the rules” which, relevantly for present purposes, provide that, subject to other specific rules, “the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs”: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.

102 The application of this rule requires identification of “the event”, a term which could encompass the ultimate outcome in the case or could apply to individual issues within a case. In Hughes v Western Australian Cricket Association Inc (1986) ATPR ¶40-748, Toohey J treated the event as the final outcome but considered that the discretion conferred by such a rule was wide enough to allow a successful party to be deprived of costs with respect to particular issues on which it was not successful, and indeed to allow the successful party to be ordered to pay the other party’s costs of such issues.

103 There are no clear statements of principle as to when a successful party should lose part of his or her costs in relation to specific issues. In some circumstances, such an order may be made on the basis that a particular part of the case was hopeless. Where, had that part been abandoned, there would have been an identifiable saving in the time expended on the trial, or on the pre-trial costs of the parties, an otherwise successful party may be deprived of those costs. The complaint in the present case is that abandonment should not necessarily be seen as a concession that the plaintiff’s case was hopeless on particular issues.

104 Further, different approaches may be taken in relation to issues on which a plaintiff failed, as opposed to issues on which a defendant failed. Thus, in Australian Conservation Foundation Inc v Forestry Commission of Tasmania (1988) 81 ALR 166 at 169, Burchett J noted that a respondent was “entitled to raise his earthworks at every reasonable point along the path of assault”.

105 In the present case, his Honour considered it necessary to identify the abandonment of issues as “exceptional circumstances” which permitted him to exclude from the general order as to costs the costs of the issues abandoned: at [9]. As noted by the Full Court of the Federal Court (Gummow, French and Hill JJ) in Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1993] FCA 259; 26 IPR 261 at [28], Fisher J had stated in Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 42 FLR 213, that the discretion to apportion costs should be exercised “only in the most exceptional circumstances”. However, in Commissioner of Australian Federal Police v Razzi (1991) 101 ALR 425 at 430, Wilcox J, in a passage referred to by the Full Court with apparent approval, stated that he did not think that courts should be reluctant to “recognise the existence of exceptional cases”. The use of an appropriate costs order to deprive a successful party of some of its costs might promote a legitimate purpose of encouraging parties to “consider carefully what matters they will put in issue in their litigation”. The Full Court in Dodds concluded at [29]:

“Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion for the trial judge. Mathematical precision is illusory and the exercise of the discretion will often depend upon matters of impression and evaluation.”

106 One factor to bear in mind in considering the exercise of the discretion is the role which may be served by an offer of compromise. The rules provide for offers to be made, with specified costs consequences in the case of non-acceptance, “with respect to a plaintiff’s claim”: r 42.13. Where an offer has been made by a plaintiff to compromise the whole of his or her claim or claims in an amount which has been bettered at trial, that is a factor which may need to be taken into account in deciding whether a subsequent abandonment of particular claims should result in a different order with respect to costs.

107 As the basis of the general costs order made in this case is not explained in the judgment, it must have been agreed that costs should be assessed on an ordinary basis to 9 December 2004 and thereafter on an indemnity basis: [2007] NSWSC 364 at [5]. It may be inferred that the respondent made an offer on 8 December 2004, long before the trial, which he bettered at trial. In that case, it may not have been appropriate to deprive the respondent of part of his costs unless express consideration were given to whether the Court should order otherwise than as provided by r 42.15.

108 This Court has not been told what offer was made, nor what may be the consequences of the proposed reduction in the judgment. Accordingly, it is appropriate to give the parties leave to make such further submissions as may be thought appropriate in relation to both the costs of the trial and the costs of the appeal on the basis of this judgment. Nevertheless, it should be noted that the complaint raised by the cross-appeal was not founded on any error in the application of r 42.15.

109 I would propose the following orders:

(1) Allow the appeal in part and set aside the judgment given below in favour of the respondent in the sum of $422,834.90.

(2) Direct the parties to assess the appropriate quantum of the judgment to be given in lieu thereof, on the basis that the plaintiff’s loss of a chance is assessed at 80%.

(3) Order that the appellants pay 50% of the respondent’s costs of the appeal.

(a) the costs order made at trial;

(b) the appropriate orders in relation to the cross-appeal, and

(c) any submission as to the basis of assessment of the costs of the appeal.

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03/04/2008 - Typographical errors - Paragraph(s) 3 and 5

Citations

Hendriks v McGeoch [2008] NSWCA 53

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Statutory Material Cited

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CITATION:	HENDRIKS v McGEOCH [2008] NSWCA 53 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	17 March 2008
JUDGMENT DATE:	2 April 2008
JUDGMENT OF:	Spigelman CJ at 1; Giles JA at 7; Basten JA at 29
DECISION:	1. Appeal allowed in part. 2. Set aside the judgment for the plaintiff against the defendants for $422,834, and in lieu thereof judgment for the plaintiff against the defendants for such sum as shall be advised to the Registrar in accordance with order 3 taking effect on 13 April 2007. 3. Direct the parties to confer with a view to agreement on the plaintiff’s damages computed in accordance with these reasons and to advise the Registrar within seven days hereafter of the amount of the judgment for the plaintiff against the defendants. 4. Appellants pay 50 per cent of the respondent’s costs of the appeal. 5. Liberty to apply in the event that the Registrar is not advised in accordance with order 3, such liberty to be exercised within fourteen days hereafter. 6. Application for leave to cross-appeal dismissed with costs.
CATCHWORDS:	CONTRACT – express or implied retainer – legal practitioner described as “the family solicitor” in arrangement to transfer property from mother to her sons - COSTS – costs follow the event – cost of issues abandoned at beginning of proceedings – offers of compromise – Uniform Civil Procedure Rules r 42.1 - DAMAGES – loss of chance – assessment of probabilities and possibilities - TORTS – negligence – duty of care –duty of solicitor of testator to intended beneficiary of will – duty of solicitor to third party where performance of duty not in conflict with duty to client
LEGISLATION CITED:	Civil Procedure Act 2005 (NSW), ss 56, 98 Fair Trading Act 1987 (NSW), s 42 Legal Profession Act 1987 (NSW), s 174 Uniform Civil Procedure Rules 2005 (NSW), rr 42.1, 42.15
CATEGORY:	Principal judgment
CASES CITED:	Astley v Austrust Ltd [1999] HCA 6; 197 CLR 1 Australian Conservation Foundation Inc v Forestry Commission of Tasmania (1988) 81 ALR 166 Birmingham v Renfrew (1937) 57 CLR 666 Clare v Joseph [1907] 2 KB 369 Commissioner of Australian Federal Police v Razzi (1991) 101 ALR 425 Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1993] FCA 259; 26 IPR 261 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 Hawkins v Clayton (1988) 164 CLR 539 Heenan v Di Sisto [2008] NSWCA 25 Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1 Hill v Van Erp (1997) 188 CLR 159 Hughes v Western Australian Cricket Association Inc (1986) ATPR 40-748 Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 97326 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Sharp v Anderson (1994) 6 BPR 97-510 Sutherland Shire Council v Heyman (1985) 157 CLR 424 Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 42 FLR 213 Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642
PARTIES:	Henri Hendriks (First Appellant) Robert George Stone (Second Appellant) Ian Erratt (Third Appellant) Frederick John Commins (Fourth Appellant) Glen Francis Lollback (Fifth Appellant) Geoffrey John Potter (Sixth Appellant) William James Thompson (Seventh Appellant) Peter James Webb (Eighth Appellant) Jon McLaurin McGeoch (Respondent)
FILE NUMBER(S):	CA 40229/07
COUNSEL:	D Davies SC/P Arblaster/T Anderson (Appellants) B M J Tooomey QC/M K Condon (Respondent)
SOLICITORS:	Colin Biggers & Paisley (Appellants) Walsh & Blair, Wagga Wagga (Respondent)
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC 4154/03
LOWER COURT JUDICIAL OFFICER:	Gzell J
LOWER COURT DATE OF DECISION:	11 April 2007; 13 April 2007
LOWER COURT MEDIUM NEUTRAL CITATION:	McGeoch v Hendriks & Ors [2007] NSWSC 311; Jon McLaurin McGeoch v Henri Hendriks & 7 Ors (No. 2) [2007] NSWSC 364