Hummelstone Pty Ltd v Mountford

[1997] HCATrans 354

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B56 of 1996

B e t w e e n -

HUMMELSTONE PTY LTD

Applicant

and

JOHN WILLIAM MOUNTFORD

Respondent

Application for special leave to appeal

GAUDRON J
McHUGH J
KIRBY J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 5 DECEMBER 1997, AT 12.11 PM

Copyright in the High Court of Australia

MR R.M. GALLOWAY:   If it please the Court, I appear in this matter for the applicant.  (instructed by Cartwright Richardson & Stringer)

MR P.A. KEANE, QC:   If it please the Court, I appear with my learned friend, MR W.D.P. CAMPBELL, for the respondent.  (instructed by Minter Ellison)

MR GALLOWAY:   If your Honours please, the background to this case was that it concerned the sale and purchase of a business at Noosa, and the question of the negligence of the purchaser’s solicitors.  The business sold various lines of products, including cigarettes.  The matter that was not ultimately contentious was that ordinarily a wholesaling licence would be required for the sale of cigarettes wholesale.  It is true, as can be gleaned from the judgments, that, in fact, there was a de facto arrangement of a degree of toleration of non-licensed selling of wholesale products but ultimately, in my submission, at least, that was irrelevant to his Honour the trial judge’s determination of the appeal.

KIRBY J:   But this is a gift shop in which all that was said, and ultimately accepted, was there was some mention of cigarettes. 

MR GALLOWAY:   Yes.

KIRBY J:   Now, why, in those circumstances, should a solicitor have to say, “Well, what sort of cigarettes?  How many cigarettes?  Is it wholesale or retail?  If it is wholesale, you need to get a licence.”  Now, that is, essentially, as far as you have got to go, and do you say the expert evidence before the primary judge went that far?

MR GALLOWAY:   Your Honour, indeed we do.  The expert evidence is well set out and, indeed, quoted by the dissenting judge, Justice Cullinane, and that can be found at page 30 of the application book.  Not only, of course, did his Honour deal with the expert’s evidence but, of course, he informed himself of the limit of the duty with reference to a decision of the Court of Appeal of New South Wales, but I will come to that shortly.  At page 30 of the application book, his Honour Justice Cullinane quotes parts - and, in my submission, the relevant parts - of the evidence of the expert and it is plain, in my submission, that the expert is contending that it is proper practice to inquire as to the source of the income.  One might see, at about point 3, a partial answer:

No where does your income come from.

That is posed as an appropriate question for a solicitor to address in a circumstance such as this.  What his Honour found was that, in fact, the inquiries made by the solicitor were inadequate and - I speak of his Honour the trial judge - and that there had not been inquiry about the source of income.  His Honour found that had there - - -

KIRBY J:   What is that next question that is quoted?  It says:

we’ve already seen an accountant.  We don’t require commercial advice.

Was that actually said, or is that the hypothesis of the question?  You see the next indented - - -

MR GALLOWAY:   No, in fact, that was part of this case.  It might also be part of submissions about - that may have general application but, in fact, in this case - I speak, now, a little outside the record - there had been consultation with an accountant, but it was not for the purposes of determining whether the activities were properly licensed, but only whether the - - -

KIRBY J:   So, essentially, you are arguing for the point that a solicitor, when he or she receives instructions on a sale of a business, has to inquire into the nature of the sources of income against the possibility that one of those sources requires a statutory licence?  That is the principle you are arguing for?

MR GALLOWAY:   Amongst other things, your Honour, yes, it is.

KIRBY J:   And do you say that that is established by the Court of Appeal of New South Wales’s decision in the case involving Justice - MacIndoe, is it?

MR GALLOWAY:   It is the case of MacIndoe v Parbery.  It should be with the materials that I have provided to the Court.  Justice Young of that court set forth - it is at page 61,537 of the extract that should be before your Honours.

KIRBY J:   What do you say is the principle his Honour established?

MR GALLOWAY:   His Honour said this:

A prudent solicitor will usually need to make enquires with respect to any substantial possibility that the intended use of the property may be affected by some proposal of a statutory authority.  The Solicitor will be expected to make what are the standard enquiries common within the profession.

I interrupt that quotation, your Honour, to indicate that Mr Rigby proved what those standard inquiries were, and that was, you inquire after the sources of income.  His Honour continues:

He or she will also be expected -  - -

GAUDRON J:   He did, relevantly.  He inquired about cigarettes and they said “Yes”, but inquired in a context in which they had said “gift shop”.  Now, you have really got to go to the point, do you not, that where the clients identify a business as a “gift shop” that you would consider the possibility that there might be some wholesaling as well.

MR GALLOWAY:   Yes.  When cigarettes are known to be one of the product lines that passes through that shop, and that was certainly always the common evidence.  Now, I have to accept at once that there was a credit finding against the principles of my client and that is there had been a contention that they had actually said to their solicitor that the cigarettes were wholesale, but that was rejected by his Honour, the trial judge.

KIRBY J:   In a sense, that tenders the issue very acutely.  If there had been a credibility finding and it had been accepted, there is no issue, or there may be no issue, but here the issue is tendered because your clients were not believed in that respect, so it is a question of whether the solicitor has to go and sniff it out.  Why has a solicitor got to sniff it out if the client does not tell them?

MR GALLOWAY:   Because Mr Rigby gave evidence, accepted by his Honour, that that was appropriate practice and MacIndoe v Parbery indicates that - - -

GAUDRON J:   I am aware of appropriate practice, but if it is standard practice one can understand that that is part of the duty but, really, why is the solicitor in any better position than a court to say what really ought to be done if it is not standard practice?  Unless it is standard practice for solicitors to inquire in the context of a gift shop which trades by retail, whether any part of its business is wholesale, that I would have thought it simply a question whether or not it was reasonably foreseeable that a gift shop might have a wholesale component of its business.

MR GALLOWAY:   Your Honour, yes, put in the way we certainly would assent to that and, read properly, Mr Rigby told his Honour the trial judge that it was appropriate to make those inquiries.

GAUDRON J:   Did he say it was standard practice?

MR GALLOWAY:   If not in so many words, that was certainly the tenor of his evidence.  He was taken to have said that, in my submission.

KIRBY J:   Essentially, you have to latch on to what Justice Young said about standard practice in MacIndoe, that standard practice has gone further now, that solicitors do not just sit there passively.  They have a duty to ask a few questions.  That is part of their professionalism to protect clients against the risk of so many statutory authorities that now exist.

MR GALLOWAY:   Your Honour, I had not finished reading from that short extract because indeed, as your Honour observes, he goes on to say that a solicitor:

He or she will also be expected to make further enquiries if particular matters have come to attention which would indicate to a solicitor of reasonable competence that the matter should be followed up.

And at page 30 Mr Rigby is quoted again right at the end of the passage of quotation at the bottom of the page:

Yes, I think cigarettes was something they needed to investigate.  Yes.

So that Mr Rigby’s evidence measures exactly with what has fallen from his Honour Justice Young in MacIndoe and his Honour the trial judge found that that was so because he quoted with approbation that passage and he accepted what Mr Rigby had said and there was unable to find that what the solicitor had done in this case fell short of the sufficiency.

GAUDRON J:   Why was that evidence even admissible?

KIRBY J:   I think there is some authority in England that said that judges used to be able to find this all out for themselves but now it is preferable to have evidence on these things because of the practice in the profession.  I think that ‑ ‑ ‑

MR GALLOWAY:   Yes.

GAUDRON J:   Was it evidence of practice though?

MR GALLOWAY:   Your Honour, I will come to that precise answer but it was discussed passingly in MacIndoe itself and, certainly, it was received without objection in the instant case.

McHUGH J:   But where does this all go to?  It is a misnomer to talk about this being a duty in any legal sense.  The duty is to take reasonable care and as Sir Owen Dixon once said, “Not everything that is in the law reports is law.”  These statements in MacIndoe are just simply a judge’s view of particular facts.

MR GALLOWAY:   Yes, indeed, that is so.  Nonetheless the Court of Appeal ‑ ‑ ‑

McHUGH J:   But that only means that the case is about fact, does it not?  There are no legal principles involved in it, no errors of law.

MR GALLOWAY:   In my submission, his Honour was entitled to make the findings that he did but the Court of Appeal and, of course, this is why we are making this application, was not entitled to, as we say it did, substitute its own findings for those of the judge.  Now, it may be characterised by my learned friend as an exercise in substituting an inference to be drawn from facts and from findings but, in my submission, that is not truly what the Court of Appeal has done.

The Court of Appeal has found, contra the trial judge, that the solicitors were not negligent.  In my submission, that was never open, and that is why we raise Warren v Coombes as the first of our special leave points. 

KIRBY J:   One of the difficulties for you is that I think both the majority and the minority in the Court of Appeal said, “This is just a matter of fact.”  Justice Cullinane said that at page 30:

The matter turns upon its own particular facts - - -

MR GALLOWAY:   Yes.

KIRBY J:   That is pretty unpromising, from your point of view.

MR GALLOWAY:   Whether that was merely obiter or not is moot, but the majority said, at page 24, at the commencement of, again, a long quotation from MacIndoe:

The learned trial judge concluded that the appellant had failed to exercise due care and diligence in his advice to the respondent.

It seems to recognise a finding of fact.  There are then passages of the judgment set out.  The court, at page 26 of the application book, toward the top - that is the majority - said this:

The question whether the appellant failed in his duty of care is essentially a matter of impression.

But then, by what I would characterise, respectfully, as a non sequitur, they say in the next paragraph;

The issue is whether, having regard to the findings of fact the learned trial judge’s assessment that the enquiries made by the appellant were inadequate was open to him.  In our opinion it was not.

In my submission, the reasoning of the Court of Appeal has proceeded by way of non sequitur in that sense and in another.  Firstly, there seems to be a majority decision affirming that a finding of a failure in a duty of care is a matter of impression, and then by reason of the end result ‑ ‑ ‑

GAUDRON J:   The language might have been better expressed, but it is a question of judgment, at least, whether or not there was a duty to make an inquiry, in this case, as to whether there was some wholesale component of the cigarette business.

MR GALLOWAY:   Yes, indeed, your Honour.  His Honour the trial judge found that there was, that the duty had not been discharged ‑ ‑ ‑

GAUDRON J:   Yes.  But that is not simply a question of fact; it is a question to be determined in a factual matrix, but it is not itself simply a question of fact.

MR GALLOWAY:   Yes.  It is difficult then to understand the apparent denial of the sufficiency of the impression that the majority decision says is really the essence of the case.  It is difficult to understand how that can proceed, logically, from an acceptance by that court that this was a matter of impression.  If it was, then his Honour the trial judge was right, and because that was a matter of fact, in my submission, and not inference, it was never open ‑ ‑ ‑

KIRBY J:   I think what Justice Gaudron was saying to you though is that the Court of Appeal has its separate responsibility to perform, and when the appeal comes up it has to draw its own inferences and consider the whole matter within the framework of the credibility finding, and that the issue,

though one of impression, is not one that is wrapped up in a credibility decision, it is one that is, “Accept the credibility, but what inference do you draw as to the obligation of a solicitor on those credibility findings on these facts?”  The Court of Appeal said, “Well, we just do not think that that is an obligation which” - the majority said, “That is not an obligation which a solicitor has to perform, where it is just a gift shop.”

MR GALLOWAY:   Yes, and that is my friend’s case, as I perceive it, but my case is that, in fact, it is not an inference that is to be drawn, that if the trial judge has found that on the facts of this case, given his credit finding, there was a duty in the solicitor to make inquiry, having listened to the witnesses, particularly Mr Rigby, then that was really not open to the Court of Appeal to disturb because it was not an inference.  It was, in fact, an independent finding of fact.  I argue further that there appears to be a non sequitur in the majority decision because in seeming to accept, as the trial judge had accepted that the evidence of another solicitor, Mr Rigby, describe good practice, the majority decision seems to deny that the trial judge was right to impose that standard upon the respondent and that is the difficulty, in my submission, that my friend confronts in defending the majority decision.

Thus, in my submission, the two bases which identify as meriting a grant of special leave, namely that the Court of Appeal has ultimately treated this as a hearing de novo and that there ought to be in any event a prescription of the duties of solicitors, are made out and I would seek that a grant of special leave be accorded to us.  Those are my submissions.

GAUDRON J:   Yes, thank you, Mr Galloway.  We need not trouble Mr Keane in this matter. 

This case turns upon its own facts, raises no question of general principle or importance and enjoys insufficient prospects of success to justify the grant of special leave.  Accordingly, special leave is refused.

MR KEANE:   We ask for costs, if the Court please.

GAUDRON J:   Mr Galloway.

MR GALLOWAY:   If it please, there is nothing I can say why a grant should not be ordered.

GAUDRON J:   It is refused with costs.

AT 12.29 PM THE MATTER WAS CONCLUDED