Hicks v Stewart
[1998] QSC 114
•5 June 1998
IN THE SUPREME COURT
OF QUEENSLAND
No.653 of 1994
Brisbane
[Hicks v. Stewart & Ors]
BETWEEN:
RUSSELL BRUCE HICKS
Plaintiff
AND:ALLAN MICHAEL STEWART
First Defendant
AND:
JAMIE LEE McPHERSON
Second Defendant
AND:
FRANK NUCIFORA
Third Defendant
AND:
RUSSELL SMYTHE
Fourth DefendantREASONS FOR JUDGMENT - FRYBERG J.
Judgment delivered 5 June 1998
CATCHWORDS: PROFESSIONS AND TRADES - Lawyers - Solicitor and Client - Duties and Liabilities to client - Transactions and proceedings on behalf of client - Exercise of skill - Liability for negligence
Counsel:Mr D Laws for the plaintiff
Mr M Bland for the first defendant
Solicitors:B D Williams & Associates for the plaintiff
Deacons Graham & James for the first defendant
Hearing Dates: 29 January, 1-2, 5-9, 12-16, 19-20 February 1996.
REASONS FOR JUDGMENT - FRYBERG J.
Judgment delivered 5 June 1998
In 1989, the plaintiff (Mr Hicks) purchased a restaurant at Alexandra Headlands. He claims he did so in reliance upon misrepresentations made to him by or on behalf of the vendors (the Tarantos). He engaged a firm of solicitors to do the conveyancing (Blackwell Appleyard). He claims they did not attend properly to their duties. When he became aware of the alleged misrepresentations, he sought advice from Blackwell Appleyard. He received advice which he claims was given negligently. Blackwell Appleyard accepted instructions to commence an action against the Tarantos. A few days before the trial of the action, counsel advised that Blackwell Appleyard were in a position of conflict of interest. The trial was adjourned. Mr Hicks subsequently persuaded the present defendant (Mr Stewart) to act for him in the action. He claims Mr Stewart agreed to act on a speculative basis, but the terms of the retainer are disputed. On counsel's advice, Blackwell Appleyard were added as defendants. Limited legal aid was granted to Mr Hicks, but not for the trial. Shortly before the trial was due, Mr Stewart applied to the court for leave to withdraw as Mr Hicks’ solicitor. He advised Mr Hicks that he had only limited prospects of success and refused to act unless Mr Hicks accepted his advice. Mr Hicks agreed to compromise the action. Later he found the compromise unsatisfactory. He claims that he compromised in reliance upon advice from Mr Stewart which was negligent and because, owing to Mr Stewart’s negligence, he was in a weak position to fight the trial. He further alleges that Mr Stewart exercised undue influence upon him to obtain his agreement to the compromise. He now sues for an amount which he claims the compromise has cost him.
The facts
Mr Hicks came to Queensland from Melbourne in 1987. Between that year and 1989 he purchased two residential properties at the Sunshine Coast. Mr Ian Duncan of Blackwell Appleyard acted for him in relation to those transactions. In February 1989, he was interested in purchasing a business. Ms Jamie McPherson, a real estate salesperson, drew his attention to “Tarantos”, a restaurant conducted in premises at the corner of Alexandra Parade and Mari Street, Alexandra Headlands by the Taranto family. On 14 February 1989, she showed him through the restaurant. It occupied part of a two-storey building, the balance of which comprised residential units. It had an indoor dining area as well as a paved courtyard outside the building, set up with tables for outdoor dining and screened from the street. Mr Hicks found the premises attractive, particularly because of their location. He revisited them on a number of occasions. He discussed purchasing the business, principally with Mrs Taranto. The Tarantos owned the premises and were willing either to sell them or to lease them to him. The discussions took place in the courtyard area. Mrs Taranto gave Mr Hicks profit and loss figures for the restaurant for the previous four years (“the profit figures”). He took them to an accountant who had cash flow projections prepared from them. This was done after Mr Hicks had signed a contract to purchase the restaurant.
The land owned by the Tarantos was described as lot 3 on Building Units Plan No. 3076. In fact, that lot contained only the indoor portion of the restaurant – it did not contain the courtyard. Part of the courtyard was included in the common property under the Building Units Plan, and the balance was located on a footpath owned by the Shire Council. This was not apparent to a person inspecting the property. The Tarantos had paved or maintained paving over the whole of the courtyard and furnished it appropriately for a restaurant. Its seating was needed to achieve the advertised seating capacity of 100 without crowding the indoor section. An inventory supplied to Mr Hicks by Mrs Taranto referred to 31 outdoor chairs, nine outdoor tables and two umbrellas. Mrs Taranto told him the courtyard was good in summer. Mr Hicks claims that he naturally inferred that the courtyard was part of the business which he was purchasing. However, Mrs Taranto says that she expressly told Mr Hicks that the courtyard was on land owned by the Council and the body corporate, and was not licensed for the sale of liquor. Mr Hicks denies this.
On the day he first inspected the property, Mr Hicks consulted Mr Ian Duncan of Blackwell Appleyard. Mr Duncan had been admitted as a solicitor two years earlier. He instructed Mr Duncan to prepare a business sale agreement for the restaurant and a lease of the premises[1] and to do everything necessary as regards the lease. Mr Duncan said that he was aware of the premises - his firm had previously held a partners' meeting there. He advised Mr Hicks to procure an inventory to be put into the contract and to have the trading figures checked and sought instructions on certain terms to be included in the lease. He also advised Mr Hicks of the importance of “checking out” the business, and told him that either he should not sign a contract until the proper searches were done or he should make any contract subject to satisfactory searches. At no stage did he ask Mr Hicks to describe the extent of the premises or the layout of what he thought he was going to lease. Mr Duncan proceeded to prepare necessary documentation. This included a copy of the inventory. He did not ask Mr Hicks to what use the outdoor furniture was to be put. Mr Hicks was anxious to sign the contract as soon as possible, and told Mr Duncan this on 21 February. On 23 February, Mr Duncan received a copy of the certificate of title and the building units plan from his search agents. The following day he showed Mr Hicks a copy of two sheets from the plan with the relevant unit outlined in red. He did not give Mr Hicks a copy of the site plan (sheet no.1). The sheets which he showed Mr Hicks did not depict either the boundaries of the site or the common area.
[1]Mrs Taranto wanted the purchaser’s solicitors to prepare the lease.
There is some uncertainty surrounding the precise circumstances of the execution of the business contract. It is dated 24 February and it was probably executed on that date. Mr Hicks was very anxious to have it signed by the Tarantos. However, he swore that he would not have signed the agreement had he known the truth about the courtyard. Clause 20 of the contract provided:
"REPRESENTATIONS. The Vendor warrants the truth, correctness and accuracy of the trading figures, financial statements and information pertaining to the business provided by the Vendor to the Purchaser and comprising the Fourth Schedule hereto . . . .”
The Fourth Schedule consisted of a copy of the profit figures. After the execution of the contract, Mr Duncan put in train the steps necessary to procure the transfer of the liquor licence to Mr Hicks. However, although he recognized its importance, he did not carry out a body corporate search. He agreed in evidence that had he done so, the searcher would have seen copies of two letters written in late 1986 and early 1988 by the body corporate to the Tarantos. The first refused permission for the Tarantos to erect a fence on the Mari Street side of the building and the second requested them to cease the sale of liquor in, and remove tables and chairs from, an area of the common property. It is not disputed that the area in question was the courtyard.
Completion of the contract took place on 5 April 1989. Mr Hicks immediately began to make alterations to the restaurant. He spent some $40,000.00. On 3 June, he met Mr Russell Smythe, the secretary to the body corporate. Mr Smythe showed him copies of the two letters and told him he could no longer have the courtyard. Mr Hicks promptly saw Mr Duncan, who advised him to have the area surveyed. This Mr Hicks did. While that was being done, the body corporate wrote to Mr Hicks formally requesting removal of the tables and chairs and cessation of the sale of liquor in the courtyard area (the liquor licence did not extend to the common property). Mr Duncan advised Mr Hicks in writing that it was an offence to provide liquor on unlicensed premises and that it seemed unlikely that any relevant person would approve an application for an extension of the licensed premises. He further advised that “notwithstanding the above apparent misrepresentations by your Vendor/Landlords, you should continue to comply with your obligations under the lease, including the payment of rental.” The subsequent survey showed that the courtyard encroached onto the public footpath. When Mr Hicks took the survey results back to Mr Duncan, the latter said that he would pass Mr Hicks over to the litigation partner in his firm, Mr Alexander.
On 6 July 1989, Mr Alexander wrote to Messrs Brett and Black, solicitors for the Tarantos, in the following terms:
“Re: Purchase R.B. Hicks from M.P. Z.A. & J.M. Taranto
In purchasing Taranto’s restaurant from your clients, it was represented to our client by the vendors, and the vendors’ agents that the courtyard adjacent to the building was included in the business that he was purchasing. Unfortunately, it now transpires that the courtyard not only is not included in the demised premises, part of the courtyard is encroaching onto the footpath and the balance of the courtyard is situated on common property. Enclosed you will find two (2) letters from the Body Corporate pertaining to this matter. You will see from the letter dated the 25th January, 1989 that your clients were aware the courtyard area was being used unlawfully. Notwithstanding this matter, it was subsequently represented to our client that the courtyard area was included in the sale.
In part the significance of this representation is that the available seating space is decreased by 31%. This in turn affects the cocktail bar license sold by your clients to Mr Hicks, as the decrease in seating capacity will mean that he has insufficient seating capacity to maintain the liquor license.
Consequently if Mr Hicks is unable to use this space, it is clear that on the figures given to our client there will be a expected decrease in nett profit of $43,320.00 for each year of the lease. In addition to misrepresenting the position in relation to seating, the client is clearly in breach of Clause 9 of the Contract, and in particular sub paragraph A, E and F.
Not only does Mr Hicks now face a situation where the expected nett profit will now be vastly lower than that contemplated, he also faces the prospect of the loss of the cocktail bar license which will no doubt further adversely affect the profitability of the business.
We would invite your client to urgently enter into negotiations with us concerning the damages suffered by our client. Should we not have positive indication of your clients’ attitude within three (3) days of the date of this letter we are instructed to make the appropriate complaints without further notice.
Pending your reply, and negotiations, if any, our client reserves his rights.”
On 12 July 1989, before a reply was received, Mr Alexander had another conference with Mr Hicks. Mr Hicks then told Mr Alexander that he was unable to remember exactly what Mrs Taranto said to him. Probably at the same meeting, Mr Hicks indicated to Mr Alexander that he might take legal action against Blackwell Appleyard at a later stage. Mr Alexander reported this to Law Claims[2], but continued to act on Mr Hicks' behalf. On 21 July 1989, he received a reply dated the previous day from Brett and Black. It was a strong letter emphatically denying any misrepresentation and asserting specific disclosure by the Tarantos to Mr Hicks of the position of the boundary of the property with the footpath.
[2]Other allegations made by Mr Alexander in his letter to Law Claims were unverified. Mr Alexander was not called and the defendant offered no satisfactory explanation for this omission.
Sometime during the next four weeks, Mr Alexander took a statement from Mr Hicks. On 17 August 1989, he wrote Mr Hicks a letter of advice. In it, he pointed out that the remedies for fraud included damages and rescission or a combination of both. The letter made it clear that Mr Hicks had to decide on what course to follow. It was suggested that if Mr Hicks decided to continue with the business, he should attend to payment of the rental and conform with the requirements of the lease. It contained no indication of any inquiry as to the rent position since early June. Mr Alexander also delivered some sort of brief to counsel. On 29 August, he wrote to Mr Hicks advising that he had received advice from counsel. The letter continued:
“As previously advised your alternative courses of action are:-
1.to affirm a contract;
2.to affirm a contract and sue for damages; or
3. to rescind the contract and sue for damages.
Rescission of the contract is only open in such circumstances where no act has been done to affirm the contract after the breach has best become known. We understand that a rent payment has been made after the problem first came to light, and it is possible that the Court may take the view that such act is an act affirming the contract; it is more likely however that the Court would take the view that you are simply predicting a position, and doing what you are obliged to under the Lease while you investigated the matter. If you were to rescind the contract you should do so as soon as possible. This would entail you giving up possession of the restaurant, and putting the Tarantos as far as possible back in the position they were prior to the signing of the Contract. Proceedings would then have to be instituted to recover the purchase price, and your other costs by way of damages. It is difficult to give a timetable as to when such a matter would come to Court.
. . .
If you are to bring proceedings in this matter, it is the writer’s view that you would be better served to sue for damages for fraudulent misrepresentation. So long as your evidence is accepted over and above that of the Tarantos, we are advised by Counsel that mis-representation by itself must be fraudulent, and therefore Judgement would be secured in your favour.
If you are left to sue for damages, then you should ensure that you comply with the terms of the Lease and give the Tarantos no excuse to terminate the Lease. This would include attending to payment today of any outstanding monies due to the Tarantos.
. . .
P.S. We note that you have attended to payment of the rental yesterday.”
Whether because Mr Alexander was on holidays or for some other reason, Mr Hicks' next contact with Blackwell Appleyard was with Mr Duncan. He saw Mr Duncan on or about 25 September. Mr Duncan then advised him to rescind the contract, close the restaurant, remove the fixtures and fittings, and walk away from the business. At that stage, Mr Hicks had been paying rent since June with knowledge of the position regarding the courtyard. Mr Hicks followed this advice, although he was unable to remove all of the fixtures which he had installed. He instructed Blackwell Appleyard to institute proceedings against the Tarantos, and this was done by the issue of writ 3355 of 1989.
It is unnecessary to follow the detailed history of the litigation over the next two years. The action was set down for trial in January 1991 but was adjourned because, according to Mr Hicks, the solicitor for the Tarantos was going to be overseas on holidays immediately before the trial date. As far as I can tell from the material before me, no advice on evidence had been obtained on Mr Hicks’ behalf, nor had there been any written advice on prospects. The action was not relisted until the following year, when it was set down for trial in May. Mr Simon Couper of counsel was briefed. A conference was held between him, Mr Alexander, and Mr Hicks on 6 May 1992. On the following day, Mr Couper confirmed in writing the advice which he had given. It is desirable to refer to it at some length:
“1. There is a very high probability that the plaintiff will lose the action against the defendants. I estimated an 80% probability of loss but I think that the probability is even higher. This is so because the plaintiff, by election, lost the right to rescind the contract, and further put it out of his power to rescind by closing down the restaurant business and taking possession of a significant portion of the fixtures and fittings.
2. Further, any claim for damages on the basis presently pleaded is highly likely to fail because the plaintiff will be unable to prove any loss. The basis of the claim is said to be that with the courtyard the restaurant could seat 100, without it the restaurant could seat only 69. The restaurant never at any time had 69 patrons, the maximum number being about 48. During the period when Mr Hicks closed the courtyard the numbers of patrons did not fall off significantly. There is no evidence that there were any patrons who would only frequent the restaurant because of the existence of the courtyard.
3. In other words there is no available evidence that the loss of the seating in the courtyard caused any fall in turnover or profit to the restaurant.
4. Further, the knowledge of the plaintiff’s solicitor in the conveyancing transaction will be imputed to him. The solicitor at least before settlement and perhaps before the signing of the contract obtained a copy of the Registered Building Units Plan which showed no bylaw made pursuant to s.30(7) of the Building Units & Group Titles Act giving the right of exclusive possession of any part of the common property to the vendors of the restaurant. The solicitor had the liquor licence before settlement and again possibly before the signing of the contract which described the licensed premises as being part of the building, with no reference to any external area. The solicitor drew the lease which was a lease of only Lot 3 in the Building Units Plan. There is a high probability that the court would find that the solicitor had knowledge that there was no right to occupy the courtyard and conduct any restaurant business in it. That knowledge would be held to be knowledge of the plaintiff.”
Mr Couper then referred to the possibility of the plaintiff amending his claim to allege a breach of warranty in relation to the profit figures, a possibility raised by an analysis carried out by Mr Alexander, presumably some short time previously. He then continued:
“7. I advised that the plaintiff should seek independent legal advice from another solicitor with respect to his position regarding my instructing solicitors. I advised him in the first instance to approach the Queensland Law Society which could give him a list of solicitors from whom advice might be obtained. I advised that, without attempting to give any advice about the rights of the plaintiff and my instructing solicitors between one another, that it was possible that the advice independently given might be to join my instructing solicitors as defendants in these proceedings.
8. I advised that any right of the plaintiff to make a claim based upon the misstatement of profits will probably be lost if this case is run on its present basis and is lost. I also advised that there was a real risk that the plaintiff’s rights against his present solicitors might be prejudiced by the running and loss of this present case against the defendants. I advised that I was unable to deal with that topic in any detail as I had insufficient knowledge of the dealings between the plaintiff and my instructing solicitors to make any comment and it was inappropriate for me to do so.”
Mr Couper then passed to another topic. His advice continued:
“9. I advised that I was aware of the note at p.95 of Volume 5 of the brief, apparently made by Mr Alexander of a conversation on 12th July 1989 with Mr Duncan, the solicitor responsible for the conveyancing, which records Mr Duncan’s recollection that on or about 23rd February 1989 he showed the plaintiff the plans and outlined the areas that he was leasing in felt pen. I advised that the import of this was that the area would exclude the courtyard area and would be strongly adverse to the plaintiff’s case that he was unaware from any source prior to completion of the contract that he was not obtaining a right to the use of the courtyard area. The plaintiff’s first response in conference was that such an occasion did not take place. His later response was that he had no recollection of being shown a plan and having the appropriate area outlined to him by Mr Duncan.
10. I advised that this situation left a very clear conflict of interest and interest and duty and interest as between the plaintiff and my instructing solicitors. I advised that in those circumstances it would be inappropriate for my instructing solicitors to continue to act. I note Mr Alexander expressed the view that it would not be proper to withdraw at this stage of the proceedings.”
It seems that Mr Couper was not told that Mr Hicks was shown only part of the building units plan, a part which did not delineate either the common property or the external boundaries of the land upon which the building was constructed. His further advice therefore proceeded upon a misapprehension that from seeing the plan Mr Hicks must have known (at least before settlement) that the representations made to him by the Tarantos were false:
“Since the cessation of the conference, I have given anxious consideration to my ethical position in these circumstances. I have an ethical duty not to in any way mislead or deceive the court. This is a primary duty. After careful consideration and after seeking advice from senior members of the Bar, I have formed the view that I could not fulfil that ethical duty if I were to lead evidence from the plaintiff that he had no knowledge of the falsity of the representation about the courtyard prior to completion of the contract of sale whilst knowing that on my instructions from my instructing solicitors there had been a relevant conversation between Mr Duncan and the plaintiff which would clearly have indicated to the plaintiff that the representations made to him were untrue. It is, in my view, not merely a case of conflicting evidence of witnesses, but the evidence of the plaintiff conflicting with my instructions from my own instructing solicitors.
In those circumstances I take the view that I am unable to retain the brief. If the plaintiff remains fixed in the view that he ought to have the trial run on 11th May 1992, it is my view that other counsel can be retained in time to conduct the trial.
I am reinforced in the view that it is proper for me to return the brief by my expressed view that it is entirely contrary to the interest of the plaintiff to have the action run when there is a greater than 80% probability that he will lose the action, pay very substantial sums of costs to the defendant, lose his right to make a claim against the defendants which might be a proper claim, and potentially prejudice his rights to make a claim successfully against my instructing solicitors.
I know nothing of the financial arrangements between the plaintiff and my instructing solicitors. I am aware that the plaintiff has financial difficulties. Nonetheless I consider it unavoidable that I return the brief for ethical reasons.
My instructing solicitors may think it appropriate to discuss with the plaintiff, if there is to be an adjournment, where the costs of that adjournment should fall.”
When Mr Hicks was told that his prospects of success were slight, he was, he said, "distraught". Two days later, after Mr Alexander received Mr Couper's written confirmation of the conference and his advice that he felt he could not act, he discussed the advice with Mr Hicks. Mr Alexander told Mr Hicks that he disagreed with the advice in relation to the question of conflict of interest and advised that another barrister be retained. Mr Hicks accepted this advice. That day, Friday 8 May 1992, Mr Andrew Crowe was engaged for the trial the following Monday. The brief, which consisted of five volumes, was delivered to him either that afternoon or on Saturday morning. A Saturday conference was held between Mr Alexander, Mr Hicks and Mr Crowe. In the small hours of the following Monday, the morning of trial, Mr Hicks prepared a handwritten note entitled "Courtyard Conversations". It is necessary to refer to the circumstances of this note in some detail.
It will be recalled that Mr Alexander had held a conference with Mr Hicks on 12 July 1989 for the purposes of taking instructions. During that conference, Mr Hicks told Mr Alexander that he did not recall exactly what was said by Mrs Taranto while she was showing him the courtyard. It will also be recalled that on 20 July 1989, Messrs Brett and Black, the solicitors for the Tarantos, wrote to Blackwell Appleyard in response to Mr Hicks’ allegations. In that detailed response, they asserted, inter alia, that Mrs Taranto had told Mr Hicks during their negotiations that in 1987/88 the Tarantos had made application to the body corporate for formal permission to use the courtyard and to improve it by putting a roof over it, and that this was refused. He had said to her, it was alleged, “Stuff the body corporate.” That letter was the subject of a further conference between Mr Alexander and Mr Hicks. The date of that conference is not clear, but it was apparently the conference at which Mr Alexander took instructions for the statement by Mr Hicks which he prepared shortly afterwards. At this conference, Mr Alexander went through the letter from Brett and Black with Mr Hicks. According to Mr Hicks, the discussion regarding the assertion just referred to consisted of Mr Alexander saying, "This is not correct, is it, Russell?" and Mr Hicks replying, "No". Mr Hicks said that after he left the solicitor's office that day he remembered some sort of conversation about roofing in the courtyard, but he didn't go back to tell Mr Alexander because the office was closed, and he let it slip. Subsequently, Mr Alexander prepared the statement with this sentence:
"8. I recall Anne Taranto telling me that the courtyard area was particularly good in summer however I do not recall any other comments made about it. We had a number of conversations in the courtyard and I signed the business contract at a table there."
This statement was apparently the one included in Mr Crowe's brief in May 1992.
It was against that background, following his conference with Mr Crowe, that Mr Hicks wrote the "Courtyard Conversations" note. I shall set it out in full:
“ Courtyard Conversations
(1)Ann Taranto did show me round the courtyard at some stage in the first couple of weeks. (1st or 2nd meeting I think)
(2)She told me about putting plants in the garden, particularly front area to stop people getting under fence.
(3)There was talk concerning a palm tree in a plastic tube.
(4)Ann T. did say she asked to roof in the back section, I understand she meant as similar to the front sloping section but the body corp would not allow her. I said probably it would block their view. I then said you couldn’t anyway because of the toilet windows and air. I said I would have to cut down the prickerly flowering plants that were climbing up the building wall and hanging over. She said I could trail them around string or rope or something over the top of the courtyard. I said I could build a pergola type thing. Her comment was the body corp might not let you. My comment was your the owner stuff the body corp. You deal with them. As long as you say its O.K. There was then talk about the door facing to the back of the courtyard and how they had it open especially in summer when the courtyard was extremely busy. At that time illegible line.
of the door.
There was also talk about the serving hatch from the bar to the courtyard which would open when the courtyard was busy for serving drinks.
At no time was I told it was body corp land or council footpath.
I did say something about covering the courtyard at the back and fixing to the wall a canopy so it could come over the courtyard, if the body corp wouldn’t allow any permanent structure.
(I did have a problem with body corp at High St, E. Prahran when I put wire on the fence to climb the passionfruit higher.) Thus my comment stuff the B. Corp.
I did later on get a quote for a wind out cover/awning but couldn’t afford to get it initially.
My own comments - big misunderstanding,
- by her saying the body corp wouldn’t let her roof the area she was telling me indirectly it was B/C land I guess. And I took it as just another difficult B/C. not allowing you to put up a structure on your own land.
I guess I’ve misunderstood the situation. I guess I’m stupid. Why didn’t my solicitor do a Body Corp illegible line
signed
I went into the contract:-
(1)misunderstanding the vendor (Ann)
(2)Told by Jamie part of restaurant deal
(3)Thinking my Sol. had done all searches (b/Corp search). and that there were no problems.
I’m stuff cos when I said no - no conversation took place it was - I can’t remember what happened. "
In cross-examination before me, Mr Hicks agreed that later that day, he said to Mr Alexander words to the effect, "The whole thing has been a dreadful misunderstanding between Mrs Taranto and me."
Mr Hicks and Mr Alexander, accompanied by an articled clerk, met Mr Crowe in his chambers at 8.30 a.m. that day. By then, Mr Crowe had come to the same conclusion as Mr Couper, namely that Blackwell Appleyard should not be acting for Mr Hicks. In the light of that advice, Mr Alexander withdrew as Mr Hicks’ solicitor. In consequence, Mr Crowe's instructions were also withdrawn. When the matter was called before Williams J., Mr Crowe explained that an adjournment was needed because Mr Hicks wanted to join Blackwell Appleyard as defendants in the action. His Honour suggested that he should hear evidence from Mr Alexander (apparently, in relation to the question of costs), but this suggestion was resisted and nothing came of it. In the result, his Honour adjourned the trial and ordered Mr Hicks to pay the costs of the Tarantos thrown away by the adjournment. Mr Hicks, who was now unrepresented, followed Mr Crowe's advice and immediately sought legal aid.
On 15 May 1992, Mr Alexander wrote to Mr Hicks. By then, of course, he had ceased to act as Mr Hicks’ solicitor. No explanation was suggested to me for why the letter was written[3]. It was plainly in Blackwell Appleyard's interest, and I infer it was intended to be "evidence making". Again, it is necessary to quote it extensively:
[3]See note 2 above.
“Re: TARANTO
We write to confirm the events of the past few days.
At 5.43 a.m. on the 11th May, 1992 you telephoned the writer. You advised him that ‘the whole thing has been a dreadful misunderstanding between Mrs. Taranto and me’ and that you would like to see him at the Counsel’s meeting at 7.30 a.m.
When the writer met you at his car later that morning you advised that you had messed the whole thing up and you were apologetic. You and the writer then went on to Counsel’s Chambers where you said you had lied, you were wrong, you were sorry and you wanted an adjournment.
You went on to say that you now recall a conversation with the Tarantos in the courtyard where Mrs. Taranto advised you of conversations she had with the Body Corporate Officers to the effect that she requested to roof the courtyard area but they refused the permission because it would block the view of the residents.
This point was made by the Defendants in their letter of the 20th July, 1990. When the writer discussed that letter with you after its receipt you denied each of the allegations. As recently as a week ago when the writer went over that letter with you, you again denied that particular allegation, which you are now admitting.
From the early stages of these proceedings you have advised the writer you have had difficulties with your memory, you have been unable to particularise many of the relevant instances. We have had to run a case in circumstances where you strongly deny certain things but are only vague about many relevant particulars that support your case.
[Page 2] As recently as the conference with Mr Crowe you said certain matters in the Amended Statement of Claim and in the Answers to Interrogatories were incorrect or misleading. Our records indicate the Answers that were given in those documents came specifically from your instructions on previous occasions. You are now giving different instructions. One of the comments you now make is that you never saw the courtyard table settings for dining when the Tarantos owned the Restaurant. Given that you were first there on the 14th February, 1992, that must surely have suggested to you that the courtyard had only a very limited use.
As Officers of the Court lawyers have a duty not to mislead or deceive the court. In view of the changes to your instructions in very material respects we had no alternative other than to withdraw as your Solicitors. As Mr. Crowe pointed out whilst you could not remember things three years ago, on the morning of the hearing you had a dramatic reversal of evidence on a key point in issue. If your memory is suspect on that point, then a Judge may conclude that your memory in relation to the other points referred to in the Defendants’ Solicitors’ letter of the 20th July, 1990 (where they canvassed their case) must also be suspect.
You were advised at the beginning of these proceedings that the case would very much be determined on the credibility of the witnesses. Your admission on the morning of the 11th May, 1992 and your other changes in instructions are likely to cause a Judge to take the view that your memory is not reliable. Given that you have the onus of proving your case, your case in relation to the issue of the courtyard is likely to fail.
The other major allegation made in your proceedings, on your instructions, was that the Defendants had over-stated their gross revenue. Discovery has not supported that, although it may support an action based on the discrepancies between the Profit & Loss Statements annexed to the Contract and the Tax Returns. To some extent the discrepancies are explained by the addition of depreciation and the addition of personal cost items. It would appear that it is only in this area are you likely to have a claim.
. . . ”
In cross-examination, Mr Hicks was given the opportunity to comment on part of the contents of that letter. Interestingly, it was not suggested to him when he disagreed with any of it that the contents were true. Mr Hicks agreed that, apart from the word "dreadful", the second paragraph was basically correct. The third paragraph he described as "rubbish". He said:
"I never wanted an adjournment. I didn’t say I lied. I said there could have been a misunderstanding. I certainly didn’t say I wanted an adjournment. I was very - what I wanted to make Andrew Crowe aware of was of that conversation concerning roofing in the courtyard and making - make him aware of that."
He agreed with the fourth paragraph. As to the fifth paragraph, he reiterated his version of the discussion after the letter was received, but admitted that in the recent discussion he had denied the roofing allegation. He admitted the first sentence of the sixth paragraph and did not deny the balance. Counsel did not give him the opportunity to comment on the second page of the letter.
By the middle of 1992, Mr Hicks had "virtually no money". His application for legal aid was refused, but he appealed. He moved from Melbourne to Brisbane and began to look for a solicitor. He received a bill for the Tarantos’ costs of the adjournment for a sum in excess of $17,000.00. He saw at least one firm of solicitors who took a statement from him, but who for unexplained reasons were not retained by him. On 7 August 1992, he telephoned the defendant, Mr Stewart. By this time, he was "distraught . . . crying on the telephone". He told Mr Stewart that he was looking for someone to act for him on a speculative basis. Mr Stewart told him that he was prepared to see him, and that he understood the basis on which he was being asked to act. They met later that day. Mr Hicks gave Mr Stewart a number of relevant documents and explained his complaints. Mr Stewart said he would take the matter on, meaning that he would act for Mr Hicks. He said this knowing that legal aid had been refused (but also that a review application was pending), and that Mr Hicks wanted someone to act for him in the litigation, not merely to give advice. Mr Hicks understood that Mr Stewart had agreed to act on a speculative basis.
Over the next few days, Mr Hicks delivered a large number of documents to Mr Stewart. The action was on the commercial causes list and was due to be called over in about a week. On 11 August, Mr Hicks told Mr Stewart that the Review Committee had met that morning. Two days later, he telephoned Mr Stewart with the news that he had been granted legal aid to investigate his claim against his former solicitors, in particular to obtain counsel's opinion on prospects of success and quantum. Mr Stewart telephoned a person at the Legal Aid Office to discuss whether the action could be certified as complex for the purpose of increasing the sum payable pursuant to the grant. On 14 August, Mr Stewart attended the callover, when the matter was adjourned for review on 6 November 1992, and filed a notice of change of solicitor. He telephoned Mr Hicks to tell him the outcome of the callover, and said that he wouldn't let the funding aspect, as regards legal aid, hold up his preparation of the file.
Mr Stewart worked on the file over the next two months "whenever reasonable-sized blocks of time [became] available". It was complex and it must have been difficult. Mr Hicks cooperated in providing information and documents, and made numerous suggestions. In September, Mr Stewart wrote that they would not be ready to ask for a trial date at the November callover. He expressed the view that what was important at that stage was for them to have made a decision as to whether or not to apply to join Blackwell Appleyard as a defendant. He took a fresh statement from Mr Hicks in mid-September and sent a draft to Mr Hicks for checking. Mr Hicks returned the corrected draft on 30 September. It appears from the correspondence that both Mr Hicks and Mr Stewart were well aware of the need for expert assistance in calculating the amount of Mr Hicks’ loss. Mr. Hicks said he could not afford it and inquired whether legal aid would pay for it. By this time, Mr Hicks had successfully represented himself at the taxation of the Tarantos bill; the costs were taxed down to just over $11,000.00. He was unable to pay this amount. Mr Stewart replied to Mr Hicks on 19 October that he doubted whether the Legal Aid Office would be prepared to pay for an accountant to perform calculations and no application was made. I was not told the basis for this advice. He wrote that finding an accountant prepared to do the work on a speculative basis might not prove too difficult if there was a strong counsel's advice as to the prospects of success. He advised Mr Hicks that he hoped to deliver the brief to counsel in the next few days. His letter concluded:
"There is one other matter I should raise. During our last conversation you indicated that you were under the impression I was committed to taking the action through to trial, on a speculative basis. Unfortunately, that is not the case. While I will do my best to help you, I consider my present involvement to be limited to my appearance at the callover on the 14th August and preparing the brief to counsel to advise on prospects of success and quantum in the claim against your former solicitors.
Assuming I can find a barrister prepared to provide the advice on a speculative basis, I propose to review my position when I have that advice. I appreciate this may not represent the depth of commitment you hoped for, but in the circumstances, and particularly having regard to the size of the file, the complexity of the issues and the likelihood that any action involving the underwriters of the Queensland Law Society’s Professional Indemnity Insurance scheme will be hard-fought, I doubt whether it will be possible for me to accept the action on a speculative basis unless I can be satisfied that you have strong prospects of success."
Mr Hicks made no protest at this letter.
Mr Stewart delivered the brief to advise on prospects to Mr Freeburn of counsel on 20 October 1992. On 30 October, after discussing the matter with Mr Freeburn, he filed a summons and two affidavits in support seeking an order that Blackwell Appleyard be added as a defendant in the action. He briefed Mr Freeburn to appear on that application and on 3 November instructed him at the hearing. The order was duly made. Mr Stewart saw no need to revert to Mr Hicks in order to obtain instructions to bring this application - he plainly thought it was within the scope of his authority on the basis of his original instructions. Notwithstanding the terms of his letter of 19 October, he did not discuss the question of payment for this application with Mr Hicks. It was, of course, not covered by the legal aid certificate. Prior to filing the application, Mr Stewart was aware that the Tarantos had issued a bankruptcy notice against Mr Hicks for nonpayment of the costs ordered against him, and that Mr Hicks was seeking legal aid in respect of that notice.
Mr Stewart received Mr Freeburn's advice on 4 November 1992. In summary, Mr Freeburn advised:
(a)Mr Hicks’ prospects of succeeding against the Tarantos in respect of the alleged courtyard misrepresentation were only slight;
(b)proper expert evidence and discovery was necessary in relation to the alleged takings misrepresentation;
(c)while much would turn on credibility, the claim against Blackwell Appleyard in relation to failure to search the body corporate records had some merit; but a court would probably find that Mr Hicks would have proceeded with the transaction even if he had known the true position regarding the courtyard. Consequently, it was difficult to see damages being more than $10,000.00;
(d)Blackwell Appleyard's advice to "pull the pin" was plainly negligent. The measure of damages was "the difference between the loss on rescission vs. the loss recoverable for damages." That equation, said Mr Freeburn, needed to be scrutinised.
(e)it was likely that Blackwell Appleyard were negligent in failing to obtain advice on evidence in good time or in failing to appreciate that they were in a position of conflict. The resultant loss was the costs thrown away.
In a covering letter, Mr Freeburn pointed out the need to obtain particulars of the statement of claim, the need to obtain statements or reports from various witnesses and the need for the pleadings to be reviewed. He further commented:
" 4.The action cries out to be settled. All avenues should be explored.
5.I have grave doubts about the action against the defendants, and, whilst the action against the solicitors has some superficial merit, I think the likely damages are a good deal smaller than the schedule ‘Loss’ suggests.”
Mr Stewart sent a copy of the advice with a letter dated 5 November 1992 to Mr Hicks. In that letter, he commented in some detail on the advice. He also drew Mr Hicks’ attention to Mr Freeburn's unwillingness to work on legal aid terms and said:
"For my own part, I am bound by the terms of the existing Legal Aid fixed fee grant, and I will continue to act in the matter for so long as the Legal Aid Office is prepared to fund it. If they will not fund the action beyond the existing grant I am prepared to act for you on a speculative basis on terms to be agreed between us. We can discuss that if and when it becomes necessary to do so." [4]
[4]In fact, the letter did not include a copy of Mr Freeburn’s conditions of acceptance of the brief, but Mr Stewart sent Mr Hicks a copy about a week later.
On the same day Mr Stewart sent a copy of the advice to the Legal Aid Office and applied for legal aid for a number of interlocutory steps. He also asked the Office to consider treating the existing grant of aid as a complex matter and made submissions in support of that.
Some of Mr Freeburn's conditions are of some importance:
". . .
2.My engagement as counsel in the action is not an entire contract. Each piece of work is separate and, at my discretion, I am entitled to decline to do any particular item of work or to decline to continue in the matter.
. . .
4.In the event of my declining any item of work or declining to continue in the matter all previous fee notes are still to be paid in the event of success in the action (as defined above) and all previous fee notes are to be a first charge as per paragraph 3 above."
Mr Hicks was plainly unhappy with these terms and sought Mr Stewart's advice by letter dated 17 November 1992. He was also unhappy with Mr Freeburn's advice, mainly because the advice seemed to him to have been based on inadequate or incorrect instructions. He sought to correct these errors by a letter to Mr Stewart dated 19 November 1992. This letter contained important information supplementing Mr Hicks’ earlier instructions. It elicited a response from Mr Stewart dated 24 November 1992. In that letter, Mr Stewart began by explaining at length the difference between solicitor and client, and party and party costs. That explanation included the following passage:
"It is important that you understand the difference between party/party and solicitor/own client costs, because a good deal of the work I have done on your file so far is of a solicitor/own client rather than of a party/party nature. Your letters of the 17th and 19th November are an illustration of that.
From my point of view, this is undesirable. If the action is going to be funded by Legal Aid the amount they pay solicitors is so much less than my usual hourly rate that I need to keep the solicitor/own client component of the file as low as is reasonably possible.
If the action is not funded by Legal Aid and I take it on a speculative basis, you will still [be] liable for my solicitor/own client costs of running the action. That means that if you are successful, you are likely to find yourself paying over some or all of the damages as legal fees. It is therefore also in your interests to keep the solicitor/own client component of the file to a minimum.”
He further advised Mr Hicks that at that stage, he saw nothing to be gained by submitting the latter's comments on 19 November to Mr Freeburn.
On 9 December 1992, Mr Stewart received a letter from the Legal Aid Office dated five days earlier advising that the matter would not be treated as a complex one and that retrospective legal assistance would not be provided. The letter further advised that the request for future assistance had been referred to the Review Committee. Mr Stewart discussed with Mr Hicks whether he would act for him on a speculative basis or on a legal aid basis in a telephone conversation on 17 December. Mr Stewart told Mr Hicks that on balance he preferred legal aid for the cash flow. He agreed to appear before the Review Committee on Mr Hicks’ behalf on 13 January the following year if Mr Hicks wished this.
Mr Hicks and Mr Stewart met on the day before this appointment. Mr Hicks asked what Mr Stewart would do if legal aid were refused. Mr Stewart replied that on the basis of Mr Freeburn's opinion, he had fears about the prospects. He said he would have to weigh up the risk against putting his time into the file if the time could be better used elsewhere. He said he would probably formulate a proposal involving acting for Mr Hicks on a speculative basis up to discovery and inspection and then looking at it again. He told Mr Hicks that in order to avoid dealing with the very difficult issues of credit and quantum it would be desirable to try to settle the action.
The appointment with the Review Committee was described by Mr Stewart as "a bit of a farce". The Committee simply told Mr Stewart and Mr Hicks that legal aid was no longer available for civil litigation. Later, over coffee, Mr Stewart told Mr Hicks that he was prepared to continue acting and that he would put a proposal to him within the next few days. He did so by letter dated 27 January 1993:
"I have also considered my position on the question whether I will continue handling the matter on a speculative basis, and have decided that I am prepared to do so, on the following terms:-
1.You agree to pay my fees at $180.00 per hour if you succeed in the action. I use the same definition of success in the action as that used by Mr Freeburn, namely a settlement of it which involves the payment of money to you from any party to the action or any insurer of any party.
2.My fees are to be a first charge on any monies recovered, whether by way of judgment or settlement. That charge will rank second in priority to the charge claimed by Mr Freeburn for his fees.
3.If, for any reason, I cease to continue acting for you in the matter, my fees accrued up to the date of my so ceasing to act are still to be paid in the event of success in the action as defined above, and are to remain a first charge in the way I have outlined above.
4.You will reimburse me within seven days for outlays I have incurred on your behalf. That includes photocopying, courier fees, travelling expenses, telephone calls, facsimile charges, court filing fees (if any), search fees and the like.
5.These terms apply retrospectively to all the work I have done so far in connection with your claim except for that which was covered by the Legal Aid grant, namely briefing counsel to advise on prospects and quantum. I do not consider the time spent by me taking and preparing your statement to be covered by the Legal Aid certificate.
6.My accounts will not be itemised except for outlays.
7.I will render monthly interim accounts so that you will know the amount of fees being generated as the action progresses. My accounts are to bear simple interest at the rate of 8% per annum commencing fourteen days from the date of the account.
I have enclosed a photocopy of this letter. If you are agreeable to my handling the matter on these terms, would you please date and sign the photocopy and return it to me for my file."
The following day, before Mr Hicks had responded to that letter, Mr Stewart received a letter from the Legal Aid Office. In that letter, the Office advised that the Review Committee had decided to grant legal aid to the discovery stage subject to receipt of counsel’s written certification that the prospects of success were more reasonable than not. In due course, Mr Freeburn so certified. In the light of Mr Stewart's preference for the cash flow from legal aid over a speculative action, Mr Hicks took no further action at that time to sign the letter.
Thereafter, the action proceeded, but not without difficulty. Mr Freeburn was given a brief to settle answers to a request for particulars; a protracted correspondence began with the solicitors for Blackwell Appleyard regarding a claim for privilege; and, prompted by a request for particulars of quantum, Mr Stewart began to consider that question. He also began work on Mr Hicks’ affidavit of documents. On 10 March, he told Mr Hicks that work was needed to determine the quantum of the claim and suggested that it would be desirable for a conference to be held with Mr Freeburn to try to work that matter out. Apparently, he did nothing to call such a conference or to prepare the particulars at that time, despite Mr Freeburn’s advice in November the previous year. On 14 April, Mr Hicks telephoned and inquired what progress Mr Stewart was making. Mr Stewart told him that he was still working on the affidavit of documents and claimed that he was bogged down with it. He again said that he thought guidance from Mr Freeburn was needed as to how quantum should be approached and the request for particulars answered and said that once that was obtained, they could go back to legal aid for assistance to answer the request for particulars. He told Mr Hicks that it looked like it could be some months before the matter was ready for trial. Apparently, Mr Hicks followed that phone call with a letter expressing concern at the rate of progress in the action and inquiring if there was anything he could do to expedite things. Mr Stewart replied by letter dated 19 April. After dealing with questions relating to the Legal Aid Commission and to particulars, he continued:
“You comment that the restrictions imposed by the Legal Aid Office mean that I am unable to deal with your case in the same way as for a paying client. As I see it, if anyone is at fault, it is me, and not the Legal Aid Office[5]. Solicitors such as myself who choose to take work on a Legal Aid basis do so knowing that it is poorly remunerated. To a large degree, solicitors who are prepared to take work on the Legal Aid scale do so expecting that very little of their work will be paid.
[5]The fault to which Mr Stewart referred was presumably a breach of s.33(17) of the Legal Aid Act 1978.
If the Legal Aid scale were more generous, I am sure that more of the larger firms would do Legal Aid work, and you would have a greater choice of solicitors who might be prepared to act for you in this matter. At present, however, if you are not satisfied with the rate at which the matter is proceeding, I believe your only remedy is to look for another firm of solicitors who might be better placed than I to push it along.
. . . ."
After dealing with a question regarding the nature of barristers’ advice, Mr Stewart wrote:
"Over the time that I have been acting for you, you have written me quite a few letters, all of which I have done my best to answer. I must point out that while I continue to act in this matter on a Legal Aid basis, the time spent by me in answering your letters is unpaid. Even if we succeed in the action against the Tarantos and Blackwell Appleyard, I will recover nothing for the time I spend answering these letters.
I do not wish to discourage you from raising these issues, but would ask that you keep this in mind in the future."
The next development was initiated by the Tarantos. On 24 April, Mr Hicks was served with a bankruptcy petition issued on their behalf. Mr Stewart applied for legal aid to oppose the petition, but on 10 May this was refused. Meanwhile, Mr Stewart was again in touch with the Legal Aid Office. By letter dated 29 April 1993, he reported progress and sought further legal aid. He advised the Office that he had not yet completed Mr Hicks’ affidavit of documents, and described problems which existed in relation to discovery and the provision of particulars by Blackwell Appleyard. He applied for legal aid to make an application to the court in relation to the particulars and to obtain counsel's advice on the legal question involved in the discovery by Blackwell Appleyard. He also applied for legal aid to brief counsel to advise on the further and better particulars of quantum and reapplied for retrospective legal aid for work done before the first certificate in December 1992. On the following day, he reported progress by letter to Mr Hicks. He told Mr Hicks (inter alia) that his affidavit of documents should be completed within the next 14 days. He expressed reasonable confidence that a "certificate of trial listing" could be filed within six months and the action given a trial date within twelve months after that. On 12 May, legal aid was granted to continue with the action up to but not including trial, to brief counsel to advise in relation to the discovery problem and to advise as to particulars of loss and damage and for one chamber application. Retrospective aid was again refused.
Mr Stewart wrote to Mr. Hicks again on 1 June 1993. He informed Mr Hicks that he had finished dictating the affidavit of documents and would send it for Mr Hicks’ consideration within a few days. He also notified Mr Hicks that he was prepared to act for him in relation to the bankruptcy proceedings on a speculative basis on the terms set out in his letter of 27 January 1993. In relation to the action, he wrote:
“. . . I assume you have also been given a copy of the Legal Aid Office’s application result where they granted legal aid for the court application to limit the second defendants’ discovery, amongst other things. If so, you will have seen that the last comment at the foot of the grant is that retrospective aid is refused, and referring to their letter of the 4th December.
The matters on which I asked for, but was refused legal aid were these:-
1.To make application to the court to join Blackwell Appleyard as a party to the proceedings and to brief to counsel for the purpose of that application;
2.To make the amendments to the writ and statement of claim, and to brief counsel to draw and settle the amendments to the statement of claim; and
3.To appear before Judge Moynihan in August 1992 and on the 6th November 1992.
The Legal Aid Office having confirmed its original decision in response to my request for aid to do that work, the question how I am to be paid for it remains an issue that should be settled between us. Again, I am prepared to accept that you defer payment for that work until the action has been concluded by ‘success in the action’ as defined in my letter of the 27th January. A copy of page 2 of that letter is enclosed. If you agree to those terms, please date, sign and return it to me as proof of your acceptance, both for myself and Mr Freeburn.
If you agree to my acting for you on a speculative basis on those parts of your claim which the Legal Aid Office has declined to fund, then if you succeed in the action, you will be liable for my costs on the basis set out in my letter of the 27th January for those parts of the action; as to the parts which have been funded so far by Legal Aid, the money which they have paid or will pay to me for doing that work will have to be refunded to them out of any money you recover from the defendants; and I will have to negotiate with Legal Aid to retain the difference between that refund and the (larger) amount you may recover for your costs of those parts of the action.
As to those costs, I wish to make it clear that subject to the outcome of any such negotiations with Legal Aid at that time, the amount you recover for costs does not represent part of your damages, and will be money to which I am entitled. If that is not your understanding, please let me know.”
Mr Hicks replied by letter dated 17 June:
"I am very concerned that you are paid for all the work you have done for me, and as quickly as possible. The only way I see this being done is by getting the matter to court as quickly as possible. . . . I agree to the conditions of the attached page 2, 27th Jan 1993 on the understanding that you are acting for me until my case is finalized. Point 4 concerns me as my finances are very limited and I ask that you advise me if this exceeds $50 -- pw."
Mr Stewart replied to that letter on 21 June, but did not say anything in respect of the passages quoted above. He did enclose Mr Hicks’ affidavit of documents for execution. Mr Hicks returned the executed affidavit promptly.
In the meantime, Mr Stewart had applied to the Review Committee to reconsider the refusal of aid in respect of the bankruptcy petition. By letter dated 2 July 1993, the President of the Committee informed Mr Stewart that the decision had been set aside and aid granted to respond to the petition. A few days earlier, the registry of the Federal Court had advised him that the bankruptcy proceedings would probably not be heard until after October.
On 8 July 1993, Mr Stewart and Mr Hicks inspected Blackwell Appleyard's documents. Among those documents were some which purported to be Mr Duncan’s file notes of dealings concerning Mr Hicks. The content of those notes sharply contradicted much of Mr Hicks’ instructions to Mr Stewart. The notes appeared to Mr Stewart to be partly in the handwriting of a secretary with additions in another hand, apparently a solicitor. They were densely written and many contained interlineations suggesting that additions had been made after they were first written. Different inks had been used and Mr Stewart thought that the extent to which the notes dealt with the issues of survey and searches was suspicious. He advised Mr Hicks to have them examined for authenticity.
On 12 July, Mr Stewart attended a commercial causes list callover. To his surprise, he was offered trial dates in the week commencing 16 August. He knew Mr Hicks was anxious to have the matter brought on for trial, so he "took a punt" (to use his words) and accepted the dates[6]. He said he assessed that this left him time to get ready for trial. That was optimistic. At this point, the problems regarding the discovery from Blackwell Appleyard and the provision of particulars of quantum were outstanding, nothing had been done to collect evidence regarding quantum, nothing had been done to have the Blackwell Appleyard file notes examined, no witnesses (expert or otherwise) had been proofed and no inquiry had been made as to the availability of witnesses or counsel for the trial dates. Most importantly, legal aid had not been granted for the trial. The leisurely pace of the action up to that date gave no cause for confidence that the matter could be got ready in the available time.
[6]Eventually the action was listed for trial on 19 August 1993.
Mr Freeburn provided his advice in relation to discovery and particulars of damage two days later. He outlined in general terms how damages should be calculated for the various heads of Mr Hicks’ claim. It is evident from his advice that he was not briefed with Mr Hicks’ letter to Mr Stewart of 19 November 1992, for he referred back to doubts expressed in his earlier opinion which that letter would have allayed. On receiving the advice, Mr Stewart discussed it with Mr Freeburn. Mr Freeburn advised him to talk to Mr Hicks and try to make a quick and realistic attempt to settle the action. He said he did not believe that legal aid would be made available for the trial because he would not feel able to give the same sort of certificate as he had given previously. The major reason for this was the appearance of the Blackwell Appleyard file notes in that defendant’s discovery. He was also concerned with the allegation that Mr Hicks told Mr Alexander and Mr Crowe on 11 May 1992 that he had lied, although the only material which seems to have supported this suggestion was the letter written by Mr Alexander on 15 May 1992[7]. Mr Crowe was not willing to provide a statement on the subject and the evidence of Mr Alexander’s clerk could only be guessed at. Mr Freeburn advised Mr Stewart that Mr Hicks should try to get out of the action as best he could. He explained that he himself had a number of commitments in the next month and was not assured of being available for the trial.
[7]A tape recording made at the conference on 11 May 1992 did not support the allegation, but Mr Freeburn had not heard the recording.
On the same day, Mr Stewart wrote to Mr Hicks:
"The trial commences in just over four weeks, and there is a great deal to do between now and then. I have advised Mr Freeburn of the trial dates, and he may not be available. That was the risk I took when I accepted the dates offered; I was given no opportunity to consult with you or Mr Freeburn, but I assumed that if you were offered dates, you would accept them.
Before Monday’s review, I had been talking to the other solicitors about a possible mediation; with a preliminary conference in late July, and the mediation itself in mid-August. Now that trial dates have been set that timetable is redundant; but I believe it is still in your interests to try to arrange either a mediation, or at least a pre-trial settlement conference, provided the Legal Aid Office will agree to fund it. That is likely to be the greatest obstacle.
I had a conference with Mr Freeburn on the 12th July, aimed at working out an order of priority for the work we need to do before the trial. I mentioned the handwritten file notes we inspected on the 8th July, and your and my suspicion that they were inserted by Mr Duncan after the dates written on them. Mr Freeburn is very interested in those file notes, and I have provided him with copies. I believe that, if possible, he should also be shown the originals on the files. I believe that if these file notes are accepted by the Judge as genuine contemporaneous notes of conversations between you and Mr Duncan, they will likely be fatal to your case against Blackwell Appleyard.
That being so, if we do not have substantial grounds to attack these notes, I doubt whether Mr Freeburn or any other barrister will be prepared to run the trial on a speculative basis.
The other critical document from Mr Freeburn’s point of view is the audio tape of the conference with Mr Crowe on the 11th May. I have arranged a time for him to listen to it at Ms Fairfull’s office.
My own position regarding the trial is no more certain than Mr Freeburn’s. If, in the face of Mr Duncan’s file notes and Mr Alexander’s tape from the 11th May, the Legal Aid Office decides not to fund the trial, I will either have to withdraw as your solicitor on the court record, or reach agreement with you about running the trial on a speculative basis. The cost to me of a five-day trial in terms of lost working time will be more than $10,000.00, and if I am put in the position of having to make that choice, I will have to be fairly sure about your prospects before I can consider running the trial on a speculative basis.
Like you, I believe that Mr Duncan’s file notes are redolent of an attempt to rewrite the file, and I have discussed the arguments about that with Mr Freeburn. He agrees with me that it seems quite odd that these file notes should have lain undisturbed on the file for more than four years, when, at any time after you first came to Mr Duncan in June 1989 after your visit from Mr Smythe, he could have shown them to you and pointed out that it was you, and not he, who was at fault in failing to obtain a check survey. However, as I have said before, Mr Freeburn has the advantage of being one step removed from the case, and I value the objectivity that gives him. For that reason, if he is not prepared to take the trial on a speculative basis, I expect I will have to follow his lead.
It is early days yet to be raising these difficult issues with you, but it is best that I make the position as clear as I can. That is:-
1.The short notice means that Mr Freeburn may be unavailable for the trial;
2.Legal Aid may not agree to fund the trial, in which case
3.There is a risk that you will be unrepresented by counsel or solicitor at the trial.
I am hoping Mr Freeburn will be able to make a decision fairly quickly once he has seen the file notes and heard the audio tape from the 11th May; and I will be able to consider my own position once I have his advice. I will also be pressing Legal Aid for a decision, and will do my best to give them the information they need to make that decision, and as possible.”
He also sought further legal aid to instruct counsel to advise on prospects in the light of the second defendant’s discovery and on evidence.
Next day, Mr Stewart again wrote to Mr Hicks. He forwarded a copy of Mr Freeburn's advice, told Mr Hicks of the doubt regarding Mr Freeburn's availability and suggested a conference with Mr Freeburn and Mr Hicks on the following day. That conference duly took place. It lasted a couple of hours and was mainly concerned with quantum and causation. Its purpose was to bring Mr Hicks to a realisation that the three page list compiled by him of every item of expenditure ever incurred in relation to the restaurant had nothing to do with reality. Mr Hicks was asked to apply the principles as explained by Mr Freeburn to quantify his claim, rather than rely upon a list of every item which he had ever expended in relation to the restaurant. Neither lawyer took him through the list and applied those principles to its contents. No conclusion was reached because, according to Mr Stewart, it was too difficult and accounting evidence was necessary[8]. That evidence was not available and no steps had been taken to procure it or even to apply for legal aid for that purpose. It is unclear what the outcome of the conference was, although it seems that Mr Stewart advised Mr Hicks to settle for a figure in the order of $30,000- $40,000.00.
[8]How Mr Hicks was expected to do it on his own was not explained to me.
By now, Mr Hicks had ceased to trust Mr Stewart. He did not reply specifically to the letter of 14 July 1993, but he began the practice of secretly tape recording his conversations with Mr Stewart. On 16 July, Mr. Stewart reiterated the position which he adopted in his letter of 14 July that he could not afford to "spec" the action unless the case was very strong. Mr Freeburn's advice on prospects was given three days later. In relation to the claim against the Tarantos, his opinion was that the claim based on the courtyard misrepresentation was unlikely to succeed because the contract, the lease and the liquor licence all made it perfectly clear that what was being transferred was the right to operate the restaurant in a specific area. He also thought that what he described as "the alterations in the Hicks version" were likely to prove difficult obstacles at trial. He referred to his earlier advice. Again, it seems he was still unaware of the contents of Mr Hicks’ letter to Mr Stewart of 19 November 1992, and he does not seem to have considered whether Mr Hicks really had altered his version in any significant way. Second, he thought the odds of succeeding against the Tarantos on the takings misrepresentation were about even, but only if expert accountant’s advice was available. As regards the action against Blackwell Appleyard, the prospects varied. Mr Freeburn thought that the claim based on failure to search the records of the body corporate could succeed only if expert solicitor’s advice were obtained; and none had been obtained. As regards the alleged failure to advise on the need properly to identify the area the subject of the sale, the lease and liquor licence, Mr Freeburn thought that in the absence of a substantiated challenge to the file notes, it was more likely than not that the court would prefer Mr Duncan's evidence to that of Mr Hicks. There was also the difficulty of convincing the court that Mr Hicks would not have proceeded with the purchase had he known the true position. As regards the claims based on negligent advice to rescind and failure to appreciate conflict of interest, Mr Freeburn thought Mr Hicks’ prospects were good.
After receiving that advice, Mr Stewart sent a copy to Mr Hicks and to the Legal Aid Office. He reiterated the advice already given regarding the desirability of settlement. He continued:
"I believe the Legal Aid Office is likely to decline to provide funding for the trial of your case against the Tarantos, although they may yet approve funding for the trial against the solicitors. My own position as regards the trial depends on the Legal Aid Office’s decision: I will run it if they decide to fund it; but it is plain to me that your case against the Tarantos is not strong enough to justify my running the trial on a speculative basis.
That leaves your case against the solicitors. If Legal Aid decline to fund that part of the case, I would be prepared to run the trial on a speculative basis, but only on condition that:-
1.The Legal Aid Office agrees to fund the experts’ reports that we need or you can find the money to pay for those reports;
2.The experts’ opinions support your case;
3.You give me such assistance as I need in preparing for trial; and
4.We are able to find a barrister (whether it be Mr Freeburn or someone else) who is prepared to run the trial on a speculative basis;
and otherwise on the conditions we have agreed for the work I have done so far on a speculative basis.
Please let me know whether you have calculated your loss with reference to the legal principles referred to in Mr Freeburn’s last advice, as he suggested at our conference on the 16th July.”
It is probably fair to say that until 27 July, Mr Stewart left most of the work of gathering evidence to Mr Hicks. For example, on 22 July Mr Hicks asked Mr Stewart to phone Mr Aston, the accountant who had prepared the original cash flow calculations for the restaurant, and explain what evidence was wanted. Mr Stewart refused to do this, giving as his reason "that I don't believe that anyone is going to do it on spec and I'd rather you did the legwork." He was, however, trying to settle the matter, and had a number of discussions with the solicitors for the defendants from time to time after 15 July. For example, on 20 July he told the solicitor for Blackwell Appleyard that he thought Mr Hicks’ claim was worth somewhere between $100,000.00 and $200,000.00 (he admitted in evidence that this was not the truth); but he rather spoiled the effect of this lie by also saying, "I suppose you are looking at something like 20 to 30 all up." From the terms of a conversation between Mr Stewart and Mr Hicks on 22 July, it seems that Mr Stewart also let on to that solicitor a plan he had formulated to run the case on spec against Blackwell Appleyard while Mr Hicks ran the case against the Tarantos.
By facsimile dated 27 July, the Legal Aid Office advised Mr Stewart that it would consider obtaining an opinion from an accountant as to the discrepancy in the turnover figures and from a valuer as to the value of the restaurant as a going concern in September 1989. It refused to obtain an opinion from an experienced conveyancing solicitor on the ground that Mr Stewart had advised that the other side was not doing so! Upon receipt of this letter, Mr Stewart contacted an expert accountant, Mr Denaro. At that point, he realized that the Tarantos had not discovered most of their books of account. Their solicitor then told him that the journals were lost. No books of account had been listed in either schedule in their affidavit of documents. It seems he took no further action to obtain original records from the Tarantos; Mr Denaro was limited to comparing the figures with those in the Tarantos’ tax returns. Mr Denaro sought further information from Mr Stewart, particularly about wages and employees. It was, of course, far too late to contemplate interrogatories, and Mr Stewart was reduced to asking the solicitor for the Tarantos to provide the requested information. He said he was unable to do so, and that he could not contact his clients at the time.
The following day, Mr Stewart received from Mr Hicks a list of 40 or so potential witnesses. Some of these would plainly have been of no assistance; some had already been spoken to; some would probably have refused to be of assistance; but some, in Mr Stewart's view, might have helped in relation to the issue of how much use the courtyard had had under the Tarantos. Of these, Mr Stewart said, “This was something that Hicks and I had discussed and he expressed a willingness to help but he seemed not to be able to help. So I suppose I'm saying that I thought if Hicks wanted to talk to any of these people he should do so himself.” He took no step to contact any of the witnesses except Mr Hoiberg (Mr Aston’s employer) and Mr McPherson, the operator of another Sunshine Coast restaurant.
It is clear that by 30 July 1993, Mr Stewart had abandoned all hope of success against the Tarantos in respect of the courtyard misrepresentation. He was persisting with the view that, unless legal aid were granted for this part of the action (which he thought most unlikely), Mr Hicks would have to run that part of the case by himself. He told Mr Hicks:
"Well I think you're wasting your time with the case, the first case based on misrepresentation. You’re going to lose that, you’ll get a costs order. It’ll be a complete waste of time. You should abandon that altogether. The sooner you make a decision about that the better.”
Mr Stewart's attention was at this time focused on a possible settlement conference funded by legal aid, and he was seeking evidence which might be of use at such a conference. The Legal Aid Office approved funding for such a conference on 2 August.
On 3 August, Mr Freeburn told Mr. Stewart that he was not willing to accept the brief on a speculative basis and that it was not possible to run the action on the basis that Mr Hicks would do part of it himself and Mr Stewart do part. One might have thought that a solicitor of Mr Stewart's experience would have realised this from the start. Mr Freeburn advised Mr Stewart that if Mr Hicks was not prepared to abandon the parts of the claim which Mr Stewart recommended be abandoned, then he (Mr Stewart) would have no option but to withdraw. Later that day, Mr Stewart told Mr Hicks of Mr Freeburn's attitude and of his own decision to act on Mr Freeburn's advice.
Mr Stewart received Mr Denaro's report the following day. Mr Denaro was of the opinion that the figures quoted to Mr Hicks were simply extracts from the final trading results for income-tax purposes. They excluded certain proprietors’ expenses and finance expenses, in accordance with normal commercial practice, but also they contained eight significant unexplained discrepancies. The value of the business on the basis of the figures supplied to Mr Hicks was $40-43,000.00 plus plant and equipment; but if the discrepancies were taken into account, the only value apart from plant and equipment was nominal. The business was not a going concern by the time Mr Hicks ceased to trade on 28 September 1989. Mr Stewart conferred with him about his report that same day.
The following day, after discussing Mr Denaro's report with Mr Freeburn, Mr Stewart attended the settlement conference. Mr Hicks and Mr Freeburn also attended. The conference was inconclusive. Late that afternoon Mr Freeburn faxed a letter to Mr Stewart. He reiterated his own unwillingness to take the case on a speculative basis and continued:
"As I mentioned to your client today, and as I have mentioned before, the case is dangerously short on evidence. When I raised that with Mr Hicks he said the evidence just has to be obtained. Unfortunately, the plain fact is that the evidence is not there and he has no means of obtaining it. On this point I note that the evidence discussed on the last occasion has not been obtained (with one exception - the accountants report which does not really assist Mr Hicks’ case in any event).”
He also sent Mr Stewart possible draft settlement agreements and a set of calculations setting out the worst and best cases for the Tarantos. Mr Stewart read this letter to Mr Hicks over the telephone the following day. He also told Mr Hicks that he would do the trial if legal aid were prepared to fund it, but that that seemed unlikely. He said that if he decided to spec any of the action he would have to have a barrister and it was not likely that he would get someone to do it on spec. He said that he was not going to spec the trial without evidence. Mr Hicks asked whether the legal aid certificate which had been given for work "up to but not including trial" was supposed to cover statements from witnesses. Mr Stewart "explained to him that because the amount being paid by legal aid was so little, I was entitled to expect him to do the legwork to find the witnesses and then I would talk to the witnesses that he was able to locate. I pointed out that he hadn't produced anything at all which was helpful as yet. I thought that the grant of legal aid didn't specifically cover any particular work. He wasn't paying so he couldn't expect the same service that he might get if he was." The following day, the Legal Aid Office advised that it would not fund the trial.
It follows that had Mr Stewart not been negligent in the performance of his duties, by the time the action came on for trial, Mr Hicks would have been in a position to prove that the figures provided to him by Mrs Taranto were wrong. That amounted to a clear breach by the vendors of the warranty in cl.20 of the Business Agreement. Mr Stewart’s negligence deprived Mr Hicks of the chance to negotiate from a stronger position and to contest the trial for a better outcome on this point.
Failure to search the body corporate records
Although Mr Stewart did not refer to the question of failing properly to search the records of the body corporate in his letter of 12 August, he cannot have been unaware of it. It was referred to in Mr Freeburn’s advice of 19 July, a copy of which Mr Stewart forwarded to Mr Hicks on that day. Mr Freeburn advised that an expert solicitor’s evidence was crucial. Mr Stewart gave evidence that Mr Freeburn’s opinion accorded with his understanding of the position. Further light on his thinking is gained from part of a letter which he wrote to the Legal Aid Office on 19 July 1993:
“The other important issue so far as regards the failure to search is what was the practice of solicitors at the time as regards searching body corporate records. For my own part, I would have thought such a search would be done as a matter of course; but an experienced conveyancing clerk tells me that is not necessarily the case. As Mr Freeburn says, this is a matter of expert evidence, that we do not yet have. However, Corrs have not made any comment on this aspect of the claim, and they may be assuming, as I did, that a prudent conveyancing solicitor would conduct such a search as a matter of course. If that is the case, this head of claim may give us some leverage in settlement negotiations.”
In light of the information available to Mr Stewart, the view that the claim based on failure to search the body corporate records would fail in the absence of expert evidence was probably correct. Mr Hicks did not instruct Mr Stewart that he had specifically instructed Mr Duncan to carry out such a search - he said he told Mr Duncan to do all the necessary work, not knowing what searches needed to be done. Evidence that such a search ought to have been carried out as a matter of proper practice in 1989 was therefore essential to Mr Hicks’ claim. None was available, because little effort had been made to obtain it. Mr Stewart’s own view was that such a search ought to have been made as a matter of course, and Mr Duncan’s file note showed that he had at least advised one. Although some contrary views were expressed to Mr Stewart, he had no sufficient basis for concluding that an attempt to find such expert evidence would be a waste of time. Indeed, he did not suggest that that was his view. He said that the reason the action was in strife in this regard was not because he was having difficulty finding an expert conveyancing solicitor, but because he had not been given legal aid to obtain the evidence. Given his retainer, that was no excuse. Mr Freeburn had advised him of the need for such evidence back in October 1992. In my judgment, he ought to have set about trying to obtain it long before July 1993.
I have little doubt that had he made energetic attempts to obtain such evidence, it would have been available. True, the topic was one on which views differed; but Mr Duncan said that such a search was important and would have disclosed the letters from Mr Smythe to the Tarantos. Of course, Mr Stewart was not to know that this would be Mr Duncan’s attitude; but that is all the more reason why he should have bent his energies toward obtaining the evidence. I have no doubt that the professionalism of solicitors in Queensland would have ensured that Mr Hicks’ inability to guarantee payment for an opinion would not have been an obstacle.
In failing to seek expert evidence from a solicitor Mr Stewart was negligent. His pessimistic advice to Mr Hicks was the result of that negligence. The negligence also meant that Mr Hicks was in no position to proceed with the action if Mr Stewart withdrew. As a result, Mr Hicks was deprived of the chance to negotiate from a stronger position and to contest the trial for a better outcome on this point.
Identification of property
Mr Stewart’s advice to Mr Hicks on this issue on 12 August 1993 was as follows:
“As to the solicitors’ advice the issues are, first, whether Mr Duncan advised you to have the property surveyed. You say he did not; he says he did, and he has file notes in support of that. Not only that, you have told me that even if Mr Duncan had recommended that you have the property surveyed, you would not have done that because it was clear enough from your inspection where the boundaries lay. There may be an issue as to the genuineness of the file notes, but all we have to contradict them is your evidence, based on your memory, which you acknowledge is far from perfect. That being so, in the absence of better evidence in support of your version I am not prepared to go to trial on this issue on a speculative basis. The risk to me if we do not succeed is too great, having regard to the prospects of success.”
There was no challenge to the evidence of Mr Byron, a solicitor expert in conveyancing matters, that his practice (and by implication, the proper practice for a solicitor) in a transaction like the one Mr Hicks was involved in was to ask the client to identify the property which he thought he was buying with that defined in the lease, and to do this before a contract was signed. Mr Hicks gave evidence that Mr Duncan did not do this. In cross-examination it was put to him that on 24 February 1989 Mr Duncan said to him, in effect, that he should physically check the actual boundaries of the restaurant premises to ensure that they coincided with the search information. He denied that suggestion. That suggestion was in accordance with a statement signed by Mr Duncan and made in May 1990. This part of the statement was evidently compiled from a diary note made by Mr Duncan purportedly on 24 February 1989. That note was one of those seen by Mr Stewart and Mr Hicks on inspection of documents on 8 July 1993 and which, on its face, caused them to doubt its complete authenticity. In particular, Mr Hicks said that the passage referring to advice on survey had been written in a different coloured ink, as had a number of passages in other file notes. At that time, the file notes were in the possession of Corrs Chambers Westgarth, solicitors for Law Claims, who were representing Blackwell Appleyard. In March 1995, Mr Hicks sought their production in the present action by a writ of non-party discovery directed to Mr Duncan. They were not produced. In a subsequent affidavit, Mr Duncan deposed that he did not have the notes; and that he had been informed by an officer of Law Claims that the Blackwell Appleyard file had been delivered to Mr Alexander. I was told from the bar table without objection that subsequent searches of that file revealed that it did not contain the relevant notes. No one was able to explain what had happened to them. Although it was not suggested he was not available, Mr Alexander was not called.
When Mr Duncan was called on behalf of the defendant, I allowed him to use a photocopy of the notes to refresh his memory. He said that it was his usual, but not his invariable, practice to make notes immediately after a conference. With the copy of the note dated 24 February before him, he said that he could remember conversation about some aspects of the note (one of which he identified as the question of searches); but that even having regard to the date on the note in his own writing, he was not prepared to say that the matters in the note were discussed on that day. He then read aloud the note in question, which included the words, “Advised him to check boundaries - survey will cost.” In cross-examination he said he could not remember whether he had discussed the layout of the premises with Mr Hicks nor whether he had sought to apprise himself of the subject matter of the business agreement and the extent of the intended lease.
In these circumstances, I accept the evidence of Mr Hicks that the conversation put to him in cross-examination did not occur. I find that Mr Duncan did not in this regard give the advice which a prudent solicitor ought to have given. That was negligent.
That finding, however, does not resolve the question whether Mr Stewart’s advice was negligent. Mr Stewart was not to know that Mr Duncan would not be prepared to swear to the conversation suggested by the file note. He had to assume the contrary. While there was evidence that the crucial part of the note may have been added at a later time, there was little doubt that it was in Mr Duncan’s handwriting, and there was every reason to suppose that it reflected his likely testimony. Although Mr Hicks denied the conversation, he admitted to problems with his memory. Moreover, he admitted that in previous transactions in which he was represented by Blackwell Appleyard, they sent him a copy of the plan of the property outlined in red, asked him to check that this was the property he had contracted to buy and recommended that he obtain an identification survey if in doubt of boundaries. Taking into account also the view which he was entitled to form of Mr Hicks’ credibility, it does not seem to me that the conclusion embodied in Mr Stewart’s advice, viz. that Mr Duncan was more likely to be believed than Mr Hicks, was negligent.
It is unnecessary for me to make any finding as regards whether, had Mr Duncan given the necessary advice, it would have made any difference to Mr Hicks’ conduct. Having regard to the fact that he had received the advice on two previous occasions (and ought therefore to have been aware of the need), to his anxiety to sign the contract and to his own statement that he would probably not have had an identification survey done even if advised to do so, it would have seemed likely to Mr Stewart that an adverse finding would be made on this aspect also, should the action go to trial. Mr Stewart correctly took this into account in his advice.
The advice to rescind
Mr Stewart’s advice on this question on 12 August 1993 was as follows:
“The other issue is the advice to rescind. Even if you can succeed on liability, in the absence of evidence that the solicitor’s negligence caused you loss, the claim must fail. The only way that we can prove the solicitor’s advice caused you loss is if:-
(a)At the time the advice was given, the restaurant was worth something as a going concern; or,
(b)Even if the restaurant was worthless, you could have achieved a better price by selling the contents in situ than at auction out of the storage sheds, as you did.
We have no evidence except your own opinion that as at September 1989, the restaurant was of any value as a going concern. It may be possible for the accountant to extract profit and loss figures for the 1989-90 year out of your original records, but I expect that will involve a great deal of time. That would have to be paid for.
That leaves the question whether you could have sold the contents for more than you ultimately obtained. I have discussed that with a valuer, and he thinks there is likely to be a difference in price between an auction sale of the restaurant contents in situ and a sale out of the storage sheds. However, he cannot quantify that difference and is not prepared to give evidence about it. He was the third valuer I spoke with before I could even find someone who was prepared to look at the issue, because of the difficulties we face with the goods having been sold, and so on.”
It will be noted that Mr Stewart assumed that Mr Hicks would succeed on liability in relation to this aspect of the matter. The assumption was justified. Although liability was in issue in the action, Mr Hicks’ case was very strong. Before me, Mr Bland did not argue the contrary. There also seems to be no doubt that the advice given was, in terms, largely correct. The only possible exception to that was the fact that Mr Denaro had in fact already reviewed the trading and profit and loss figures; so that extracting them might not have involved a great deal of time. However, as Mr Wright’s evidence before me showed, it would have been fruitless. As at the date of the rescission, 28 September 1989, there was no goodwill to value. The only value lay in the assets. This was entirely predictable.
There was no challenge to Mr Stewart’s assertion that he had spoken to three valuers and was unable to find a witness. On the other hand, it is evident that he put his mind to finding a witness only after advice from the Legal Aid Office on 27 July about the funding of a valuer. His duty to his client did in my judgment require that he set about this task much earlier than he did. Had he done so there was a chance that he would have been able to find some evidence for the trial. Perhaps he would have found someone to give evidence along the lines of that given by Mr Wright before me. If funding was a problem, legal aid could have been sought. Certainly there were major problems in obtaining evidence, since the valuer would by definition be unable to see the goods in question. However, Blackwell Appleyard faced the same difficulty, although they did not bear the onus of proof. In any event, the claim included substantial elements for which no expert evidence was necessary, viz., the cost of an inventory and the cost of transportation and storage. Being prepared would have improved Mr Hicks’ negotiating position. Mr Stewart was in my judgment negligent. His negligence deprived Mr Hicks of the chance to negotiate from a stronger position and to contest the trial for a better outcome on this point.
Conflict of interest
In his letter of 19 July 1993 to Mr Hicks, Mr Stewart advised that the case seemed fairly clear in relation to the conflict of interest point. He expressed doubt as to whether the argument on behalf of Blackwell Appleyard that they withdrew because Mr Hicks changed his story about the courtyard conversations on the morning of trial would be upheld. There seems little doubt on the material before me that that advice was correct. On the other hand, there seems to have been some confusion in Mr Stewart’s advice regarding the measure of damages for this claim. He appreciated that Mr Hicks would be able to claim the amount of $11,056.00, the Tarantos’ costs of the adjournment as taxed. He also appreciated that Mr Hicks would be able to recover the amount of his own costs thrown away by the adjournment. These included, as he realised, fees paid to Mr Crowe by Mr Hicks of $5,900.00[16]. Mr Stewart does not seem to have appreciated, from what appeared from his evidence in relation to negotiations on 17 August 1993, that Mr Hicks would also have been entitled to recover some part of a further amount paid to Blackwell Appleyard for their professional fees and outlays, including counsel’s fees, prior to 24 July 1990. The amount paid was agreed by the parties to have been $17,822.75. In my judgment, he was negligent in failing to advise Mr Hicks that he had a good claim to recover a fair part of this amount. By that negligence, Mr Hicks lost the chance to negotiate from a stronger position to contest the trial for a better outcome on this point.
[16]This amount appears from exhibit 23. Mr Hicks said he did not pay any other part of the amount included in that bill.
Negligence and causation: other allegations
Some of the allegations of inadequate preparation have already been dealt with. However it was argued on behalf of Mr Hicks that he was forced to accept the settlement not only because of Mr Stewart’s negligent advice, but also because he had no other option. Mr Stewart was attempting to withdraw from the case and had inhibited preparation for trial by wrongly asserting a lien; no barrister had been briefed; and the case had not been properly prepared. This situation, it was submitted, came about by reason of Mr Stewart’s negligence or breach of duty.
Mr Stewart’s attempted withdrawal
It was argued on Mr Stewart’s behalf that he was entitled to withdraw from the proceedings because he held no other retainer than to act to the extent that legal aid had been granted; and legal aid was not granted for the trial. My rejection of that submission is implicit in the findings which I have already made about the establishment and non-variation of Mr Stewart’s retainer on a speculative basis. Mr Stewart’s attempts to withdraw could only be justified if he was entitled to withdraw. He was entitled to withdraw if Mr Hicks was unreasonably refusing to accept or follow his advice, but only upon reasonable notice. What amounts to reasonable notice in such a situation was not the subject of evidence or argument before me. I need not consider the point, for in my judgment, Mr Stewart was not entitled to withdraw from the case. I reach this conclusion for two reasons. First, while he was not negligent in advising Mr Hicks to abandon the courtyard representation, Mr Hicks was not obliged to take that advice unless its full ramifications were explained to him. Mr Stewart made a valiant effort to do this on the basis of the materials available to him. Unfortunately, because he had not analysed the claim in sufficient detail, he was not able to do so. This point is discussed below. The second reason is that in any event, the claim against Blackwell Appleyard remained. The total time for the case was not going to be lengthened excessively by continuing the courtyard claim, and the interests of Mr Hicks would be severely prejudiced as against Blackwell Appleyard by Mr Stewart’s withdrawal. Withdrawal in those circumstances was unreasonable and threatening to withdraw was not an option open to Mr Stewart.
However, in my judgment, any damage which the threat and attempt to withdraw caused is covered by matters already discussed or to be discussed. No additional loss arose under this heading.
Claiming a lien
Mr Stewart’s claim for a lien over the documents was short-lived. There is no evidence before me that it had any measurable effect on the position, save that it probably hindered Mr Hicks’ preparation of his own case in ways which were intangible. It may have contributed to his decision to accept the settlement in a minor way. However any loss which he suffered was not increased. No additional loss arose under this heading.
Failure to brief counsel for trial
Mr Stewart had retained Mr Freeburn on speculative conditions known to Mr Hicks from the start. When Mr Freeburn declined the brief on trial in accordance with those conditions, Mr Stewart should have attempted to procure alternative counsel for the trial. There is little evidence of his chance of success in this search. If counsel prepared to act on a speculative basis had been found, Mr Hicks may have been able to reject the settlement and proceed to trial. Again, however, no additional damage occurred as a result.
Failing properly to prepare the action for trial
It was submitted on behalf of Mr Hicks that Mr Stewart failed properly to analyse and particularise Mr Hicks’ claim, particularly in relation to quantum and to formulate on some rational basis maximum and minimum recovery amounts in respect of each head of claim. There is a degree of force in this submission. Had such an analysis been conducted, Mr Hicks would have been much more comfortable in assessing whether he should accept the settlement or fight on, and would have been able to make a better judgment as to whether to fight on; and Mr Stewart would have been able to provide more accurate advice. The main reason why Mr Stewart’s analysis was deficient was the absence of clear evidence on a number of points. For example, any analysis of the value of the courtyard misrepresentation claim would inevitably have involved the value of the business at the date of sale. A moment’s thought would have been enough for Mr Stewart to have realised the need to obtain the evidence of a valuer, and to apply to the Legal Aid Office for funding to do this. There is no reason to suppose that such funding would not have been forthcoming up until June 1993. The lack of evidence however was only part of this problem. If Mr Stewart was to conduct serious and rational negotiations to settle the matter, he ought to have prepared calculations of best and worse scenarios in respect of each claim, for both Mr Hicks and the defendants. Mr Freeburn did something of this task for him with his facsimile of scenarios on 5 August 1993, but much more was needed. With such an analysis, it would have been evident to Mr Stewart and to Mr Hicks how much would be given away by, for example, the abandonment of the courtyard claim. If the amount was large, even a small probability of success might have had a significant value. If it was small, the fact could have been demonstrated to Mr Hicks.
In my judgment, Mr Stewart should also have proceeded to obtain statements from witnesses and an advice on evidence, particularly after he had received the certificate from the Legal Aid Office for funds up to trial. Mr Stewart did not explain why he did not obtain an advice on evidence, although he admitted to Mr Hicks in his letter of 12 August 1993 that the certificate covered this. He contended that it did not cover taking proofs from (non expert) witnesses. Mr Hodgins, the Director of Legal Aid in Queensland, gave evidence to the contrary, and I accept that evidence. All of this lack of preparation was compounded by Mr Stewart’s acceptance in July 1993 of a trial date only five weeks away. Mr Stewart displayed little awareness of the requirements of commercial causes litigation.
Underlying all of this was Mr Stewart’s attitude that because the matter was a legal aid brief, it could be attended to “whenever reasonable-sized blocks of time become available”. As a result, each step in the action was delayed. For example, he took four and a half months to prepare Mr Hicks’ affidavit of documents. Mr Stewart took the view that he did not owe the same professional responsibility to a client on legal aid as he would owe to one paying a normal fee. It is impossible not to feel some sympathy for the predicament in which he found himself. The amounts granted by Legal Aid at the time were paltry compared to the value of the work required in a case as complex as this. However that did not justify a departure from professional standards. Mr Stewart took on the case on a speculative basis. When he realised its complexity he tried to resile from this position. To the extent that legal aid was granted, his cash flow position was relieved, but I have no doubt financially the case was, if conducted properly, calculated to lose money for any solicitor on a legal aid basis. That fact did not justify a reduced standard of service. A willingness to adhere to high standards and to put the interests of the client first, even at personal cost, is one of the marks of a profession. This does not mean that a legally aided client is entitled to the “full frills” service provided to one to whom cost is no object. All it means is that there are some standards of normal skill and care below which the level of service may not fall. The same is true where a solicitor agrees to conduct an action on a speculative basis. For want of what he regarded as adequate remuneration, Mr Stewart’s conduct of the action fell short of the proper standards.
Mr Hicks’ loss
It remains to assess the value of the chance lost by Mr Stewart’s negligence. I propose to approach this task by assessing the amount which would have been recoverable in respect of each head of claim where negligence occurred, and then discounting that amount appropriately.
The takings misrepresentation: quantum
I have already held that but for Mr Stewart’s negligence, Mr Hicks would have been in a strong position to prove a breach of the warranty contained in cl.20 of the Business Agreement. That would have entitled him to an amount of damages sufficient to put him into the position in which he would have been had the warranty been true.
On Mr Wright’s evidence, Mr Hicks would, if the figures had been true, have had a business worth $84,000.00[17]. There is no evidence before me of the value of the business in fact on that date. Counsel for Mr Hicks approached this problem on the basis that I should use the value calculated by Mr Wright on the basis of the Tarantos’ financial statements for taxation purposes; his submission implied that although these figures may not have been proved to be correct, it was a reasonable inference that there were near enough to correct for the purpose. Counsel for Mr Stewart did not challenge this approach. It seems a reasonable approach to me, particularly having regard to the size of the figures involved and the findings which I have already made in relation to them[18]. The value calculated on that basis by Mr Wright was $61,200.00. Consequently the amount needed to put Mr Hicks into the position which he would have been in had the warranty been true was $22,800.00.
[17]Although Mr Wright describes this as a valuation “including courtyard area”, that expression is misleading. In fact, the valuation carried out under that head is simply a valuation of the business at the date of sale based on the Tarantos’ figures.
[18]See above, p.56
What are the chances that with proper preparation and evidence, this claim would have succeeded? In assessing these chances, I must take into account all of the evidence before me. For this purpose, it is not a question of asking what was the position as it appeared to Mr Stewart at the time. I must make an objective assessment of the value of this aspect of the claim. In my judgment there was a small but not trivial chance that the Tarantos might have proved the figures supplied to have been correct and a slightly larger chance that they might have shown the figures at least not to have been as bad as those in their tax return. I discount the claim by 15 per cent to take account of these possibilities. I find this aspect of the claim was worth (in round figures) $19,400.00. That was the figure which would have represented a fair settlement and which represents the lost value of the litigation prospect.
Failure to search: quantum
Mr Hicks’ case was that a search of the records of the body corporate would have revealed the fact that the courtyard was not part of the property which the business was entitled to occupy or use. Had he known this fact, he said, he would never have entered into the contract. Consequently, the loss which he sustained by entering into the contract was caused by Mr Duncan’s failure to carry out the search. Mr Stewart’s negligence deprived him of the chance of recovering that loss.
To make that argument good, Mr Hicks must show:-
(a)he was not aware before he signed the contract that the business was not entitled to occupy or use the courtyard;
(b)if the search had been carried out, he would have become aware of this fact;
(c)if he had been aware of this fact, he would not have entered into the contract.
There is no difficulty as regards point (b). The crucial facts which a search of the records of the body corporate would have revealed were that the sale of liquor and placement of tables and chairs on an area of body corporate land adjacent to the restaurant building was not permitted by the body corporate. It would have been easy to infer that the land in question was the courtyard. It would also have been easy to infer that the courtyard was not part of the property which the business was entitled to occupy or use.
Was Mr Hicks aware of the true position before he signed the contract? Mrs Taranto gave evidence that she told Mr Hicks that part of the courtyard belonged to the Council and part “was the body corporate”; and that the area was not licensed. I accept that evidence and I reject Mr Hicks’ denial of it. I do so not because I think Mr Hicks was lying, but because I find Mr Hicks unreliable in matters of detail. I observed him in the witness box for quite a long time, and I have read many letters written by him. He has a complex personality and a lateral cast of mind. He has an excessive tendency to perceive sub-texts and hidden motives in what is said to him; yet a curious inability to listen carefully and comprehend the precise detail of things said to him. This is particularly so when his mind is filled with some preconception of his own. There is no doubt that he was engulfed in a wave of enthusiasm to purchase the restaurant. He had a vision of what he wanted to do with it. I do not think he listened carefully to what Mrs Taranto said and I am satisfied that he did not realise he would have no right to use the courtyard for the restaurant. He may have realised that the liquor licence would not extend to the courtyard, and been prepared to take his chances in that regard. However, it was the attitude of the body corporate which was crucial for present purposes. Mr Hicks was not aware of the true position.
If Mr Hicks had been made aware of the true position before he signed the contract, would he still have signed it? His evidence was that he would not have done so. On the other hand, he was anxious to sign the contract (so anxious that on Mr Wright’s evidence, he paid a premium of about $11,000.00 or about 12 per cent to acquire the business) and he in fact signed the contract without waiting for the results of any searches. I shall refer to this aspect of the matter in a little more detail shortly. Despite this, I am satisfied that he would not have signed the contract at the price he in fact paid had he been aware that the business was not entitled to occupy or use the courtyard.
In assessing the value of the chance which he lost through Mr Stewart’s negligence, however, regard must be had to the possibility that the judge hearing the matter might not have come to the same conclusion as I have done. There was a very significant risk that Mr Hicks would have been found to have been aware of the true position before signing the contract. There was also a very significant risk that the judge would have found that Mr Hicks would have signed the contract even knowing the true position. These risks require a substantial reduction in the maximum recoverable amount under this heading.
Though Mr Hicks did not remember it and Mr Stewart had no idea of it, Mr Hicks may have given Mr Duncan express instructions to carry out a body corporate search. Certainly, that was what Mr Duncan thought had happened. In fact, no such search was carried out between Mr Hicks’ first visit to him and when Mr Hicks signed the contract on 24 February 1989. However Mr Duncan did advise Mr Hicks that he should not sign the contract until all the necessary searches were carried out, or unless the contract itself contained a clause allowing him to rescind in the event that the outcome of the searches was unsatisfactory. Mr Hicks denied receiving such advice. On this point I prefer the evidence of Mr Duncan. I thought he was a very cautious witness who did not make a definite statement unless he had a firm recollection of it. As I have said, Mr Hicks was anxious for the contract to be signed. He told Mr Duncan that he thought the restaurant was okay, and instructed that he did not want Blackwell Appleyard to insist on certain clauses which they advised should be in the contract, because Mrs Taranto would not agree to them. That may be the reason why a clause of the sort recommended by Mr Duncan was not included. In any event, Mr Hicks went ahead and signed the contract without the search being performed and without a clause of the type recommended by Mr Duncan being included in it.
In those circumstances, it was arguable that Mr Hicks was guilty of contributory negligence by ignoring Mr Duncan’s advice. It might even have been argued that Mr Hicks’ rejection of that advice constituted a novus actus interveniens. True, these matters were not raised by Blackwell Appleyard on the pleadings; but the facts were bound to come out, and an amendment could hardly have been resisted. The value of the opportunity to litigate lost by Mr Stewart’s negligence must be assessed having regard to this possibility.
The purchase price of the business was $95,000.00. Stamp duty accounted for a further $6,733.00 and legal fees were $2,806.00. Those amounts total $104,539.00. On Mr Wright’s evidence[19], the value of the business on the date of purchase was $84,000.00 [20]. Prima facie, therefore, the claim undiscounted was valued at $20,539.00. Counsel for Mr Hicks submitted that a large number of expenses associated with running the business thereafter could also be claimed under this heading. Those expenses included trading losses in excess of $62,000.00, renovations in excess of $15,000.00 and new plant and equipment in excess of $16,000.00, as well as a number of smaller items. In my judgment those amounts are too remote. They would not have been recoverable and could not be taken into account. The figure of $20,539.00 to which I have already referred must be heavily discounted to take account of the factors discussed above. The plaintiff’s claim under this heading should be valued at $5,000.00. In my view, that fairly represents the value of his lost chance.
[19]Using his calculation based on the represented takings rather than the tax figures in order to avoid double counting.
[20]Mr Denaro’s opinion was that it was worth $40-43,000.00 plus net tangible assets, a value not inconsistent with that of Mr Wright. Mr Denaro used a different valuation method. He was not called to give evidence.
The advice to rescind: quantum
As a result of the advice to rescind, Mr Hicks removed most of his assets from the restaurant and sold them. The Tarantos locked the premises when they found out what was happening and prevented him from removing all of what he claimed to be his property. There was some attempt on his behalf to include the value of the unrecovered property in the amount of his claim under the present heading, but that is plainly unmaintainable. Accountants prepared an inventory of the property removed; and it was transported to an auction room. Mr Stewart admitted that the fees for the former were $5,116.00 and for the removal and storage $7,575.50. The value of the assets was not admitted. Mr Wright valued them in evidence at $50,000.00. I do not accept that evidence. It is in my view flawed for two reasons. First, the process by which it was determined involved adding the apportioned price of the goods in the business contract ($52,000.00), to the amount of the expenditure made by Mr Hicks on the premises after he took over ($40,000.00). Mr Wright selected the figure of $50,000.00 as being slightly over half of the total thus derived. There was however no detailed evidence of how the $40,000.00 was spent, and in particular, of what, if any, was spent on consumables (e.g. paint) or fixtures. Neither of these would be recoverable. Second, the figure assumed that the goods could be sold in place to a purchaser wishing to use them in the business. However Mr Wright himself thought the business had no value, and the existence of any such purchaser is therefore entirely speculative. It seems unlikely that anyone would have been prepared to buy the goods for the purpose of continuing a loss-making business.
There was evidence that the goods would have brought more had they been auctioned on site. Somewhat arbitrarily I find that they would have realised $10,000.00. The maximum amount recoverable under this heading would therefore have been $22,912.52, taking into account a workers’ compensation premium of $221.02 thrown away by the early vacation of the premises. Giving credit for the amount actually recovered at auction of $6,760.50, the maximum net claim under this heading was $16,152.02. All but $3,239.50 of this was easily provable. There was a reasonable chance that the court would have been prepared to place a value of $10,000.00 on the goods in the way I have done. Taking the various contingencies into account, I assess the amount which would have represented a fair settlement and which represents the value of the lost chance at $13,000.00.
Conflict of interest: quantum
From the discussion under this heading in relation to negligence, it will be apparent that the amount properly claimable under this heading was $34,778.75 less something for costs incurred before 24 July 1990 and not thrown away. Only a small discount should be made for litigation contingencies, given the strength of this claim. I assess the figure which would have represented a fair settlement and which represents the lost value of the litigation prospect under this heading at $31,000.00.
Failure to prepare: quantum
There were a number of ways in which Mr Stewart failed properly to prepare the action for trial. Most of them have been covered above, or produced no damage in addition to what has been described above. The position with respect to the courtyard misrepresentation claim is slightly different. Mr Stewart’s advice that this claim would fail was not negligent, but that does not mean the claim was worthless. It should have been prepared for trial, and a proper analysis of its value should have been provided to Mr Hicks. The instructions contained in Mr Hicks’ letter to Mr Stewart of 19 November 1992 should have been properly analysed as should the “Courtyard Conversations” document. Had this claim been properly prepared, the chances of success on it would in my judgment have been significantly less than even, particularly having regard to the need to prove fraud against Mrs Taranto[21]. There is no reason why Mr Stewart would not have assessed this, at least with Mr Freeburn’s advice, had the claim been properly prepared. Whether anything could have been included in any settlement in respect of it is speculative; but it had some value, at least as a head of claim had the action gone to trial.
[21]There was some discussion before me about a possible claim for negligent misrepresentation, but it was ill-defined.
How should it be assessed now? For reasons set out above[22], its maximum value undiscounted was $20,539.00. It must be discounted by about 60 per cent to $8,000.00. Moreover, had this claim been successfully litigated, the claim against Blackwell Appleyard for failure to search could have produced only nominal damages; so the amount awarded must be reduced by the amount already awarded in respect of that claim ($5,000.00). The value of the loss of the chance in litigation under this head is therefore assessed at $3,000.00.
[22]See p.74
Conclusion
In summary, the amounts which in my judgment represent fair value for Mr Hicks’ loss of the chance of a better settlement or a better result in litigation are as follows:-
The takings claim................................................................................................. $19,400.00
The claim for failure to search............................................................................... $ 5,000.00
The claim in respect of the advice to rescind......................................................... $13,000.00
The claim based on conflict of interest.................................................................. $31,000.00
Failure to prepare the courtyard claim ................................................................. $ 3,000.00
Total (clear of costs) $71,400.00
The action was in fact settled for $40,000.00 plus the forgiveness of the indebtedness to the Tarantos for costs of $11,056.00. Of the total value of the settlement of $51,056.00, $10,000.00 was for costs; so the net value of the settlement was $41,056.00. When that amount is deducted from the fair value of Mr Hicks’ claim, the difference of $30,344.00 represents the net loss suffered by Mr Hicks as a result of Mr Stewart’s negligence.
There should be judgment for Mr Hicks for that amount. I shall hear the parties on the questions of interest and costs.
0
0
0