La Motta, La Motta, Toumbas, Toumbas and Delahunty v Varitimos

[1992] QCA 367

IN THE COURT OF APPEAL

[1992] QCA 367

SUPREME COURT OF QUEENSLAND

Appeal No. 60 of 1992

BETWEEN:

GIOVANNI LA MOTTA and MARIA

ANTIONIETTA LA MOTTA, NICHOLAS TOUMBAS and IRENE TOUMBAS and

JAMES ANTHONY DELAHUNTY

(Plaintiffs) Respondents

- and -

JAMES VARITIMOS

(Defendant) Appellant

JUDGMENT - THE CHIEF JUSTICE

Delivered the 28th day of October, 1992.

The plaintiff respondents, the former owners of a building "Empire House" in Queen Street, Brisbane, brought an action against the defendant appellant, Varitimos, alleging negligence and breach of contract in the performance of his duties as a solicitor. The appellant, had acted for some time as the respondents' solicitor in the preparation of leases, tenancy agreements and associated documents in connection with the letting of Empire House.

In the course of this he had prepared a lease from the respondents to a Mr and Mrs Abeni, trading as Europa Bicycles, and, contrary to instructions, had not inserted in the drafted lease a clause, called a "termination" or "demolition" clause, enabling the owners to bring the lease to an end in certain eventualities.

In the action below the learned trial judge gave judgment for the respondents against the appellant in the sum of $200,000.00, that being his assessment of the loss which accrued to the respondents as a result of the appellant's negligence. The issue of liability is not in question on the appeal, it not being contested that a judgment in some sum should properly go against the appellant. The only issue argued was whether His Honour was correct in attributing $200,000.00 to the breach and giving judgment for that sum.

The respondents, by virtue of their ownership of Empire House, held a valuable corner parcel of land which attracted attention and became central to certain developers' plans for redevelopment. The developers in question, the White Industries group of companies which included an associate Borodin Pty. Ltd., were looking to aggregate a large parcel held in a number of separate ownerships. They wished to get this area under their control and immediate or prompt availability of possession was an important consideration for them. Empire House was a key site in their plans.

The owners and the developers negotiated a price on the basis that the developers would be given an option to purchase. The price negotiated was $6 million and it is clear that this was done on the basis that delivery of vacant possession of the Empire House site would be given promptly if the option was exercised. The owners had a number of tenants in occupation and when it became necessary to investigate the matter more closely it emerged that their leasing and letting arrangements were in a disorganised state. Amongst the situations which existed and which if possible had to be reduced to some state of relative certainty were cases where tenants had been simply let into occupation or continued in possession on no very clear basis, other cases where it was judged that leases should be signed to regularise the position and further cases where questions arose whether previously existing options for extensions of term had in fact been exercised. That this was the situation became appreciated only after an option to purchase had been negotiated with the developers providing for a $6 million purchase price.

Although there was no uniformity in the terms under which the various tenants held, after the time when the appellant commenced to act for the owners the leases arranged by him were meant to contain a termination clause of the kind referred to. It was appreciated that the realty had potential for redevelopment and to keep it fully available to meet any opportunity which might present itself the owners wished to be in a position to offer possession of the site unencumbered by any long tenancies. The function of the termination clause was to give the owners the right in any necessary case to bring the leases to an end although it was otherwise provided that the leases should run for a term. There was some variation in the style of the termination clauses adopted for the different tenants.

Sometimes they empowered termination of leases when demolition or structural alterations were proposed, sometimes when the building was sold and sometimes in a combination of cases. Whichever form was used they enabled the owners to bring the areas concerned back into their possession and control.

When the option in favour of the developers was negotiated the purchase price of $6 million would understandably have been regarded as tied to the incorporated conditions including those in cl. 31 of the annexed contract of sale which, should it become operative, provided that at the date of completion no tenant should have any right to occupy beyond specified dates other than as a monthly tenant or under a lease giving the landlord a right to terminate on no more than six months' notice when the landlord wanted the building for demolition. With the option agreement negotiated in this form it became necessary for the situation actually prevailing in respect of all current leases and tenancies to be scrutinised with care to ensure that they all conformed or could be made to conform with the developers' requirements. On the owners' side the defendant undertook the examination which was necessary to settle a schedule of tenancies to be incorporated with the option documents and Mr Nichols of the firm of solicitors Cannan & Peterson acting for the developers undertook the equivalent exercise for them.

In negotiating the option agreement the developers had bound themselves to nothing apart from an obligation on the part of Borodin Pty. Ltd. to pay the sum of $5,000.00 when the terms of the option were concluded but the reality which was clear and which the learned trial judge accepted was that the parties, following their negotiations, had accepted that $6 million was an appropriate purchase price to match the owners' presumed ability to convey the site with vacant possession available at a time chosen to fit in with the developers' wish to obtain control of all the necessary land areas and proceed with their project without hitch. The owners for their part were offering the option on a basis which would bind them to transfer the building with effective vacant possession should Borodin Pty. Ltd. exercise its option to purchase.

In the course of preparing the necessary schedule of leases and tenancies for incorporation in the option agreement it was discovered by the defendant that there were obstacles in the way of the plan to hold the building available for transfer with effective vacant possession.

One difficulty was that the lease for a term to Mr and Mrs Abeni did not contain a termination clause. This lease, prepared by the defendant, had granted an interest to the Abenis for two years from 15 September, 1985 and contained provisions granting the lessees options to take two further terms of two years with the options to be exercised not less than three calendar months prior to the end of the preceding term in each case. The obstacle presented by the Abenis' interest was obvious unless it could be terminated in some way whether by agreement with the Abenis or otherwise. No way short of agreement was found to present itself.

Investigation of the other leases and tenancies

highlighted further areas of difficulty where it was discovered that tenants' interests needed clarification so that there would be no plain sailing.

After contemplating the difficulties which confronted them, the solution eventually arrived at by the owners and developers was that the building would be sold "as is", that is, that the owners would give no warranties in respect of the availability of possession but would simply inform the developers of the details of the leases and tenancies currently held so far as they knew them. As part of the changed arrangements for the option for purchase a new price was, after further negotiation, agreed at $5.8 million.

The evidence showed that the owners did not want to lose the opportunity for an advantageous sale and the arrival on the scene of a possible purchaser engaged in aggregating a large holding for a major development was extremely opportune for them. The developers, who were expending considerable effort in putting the necessary arrangements in place did not want all to fail through a breakdown at any point and the indications were that Empire House, a corner site, was a crucial part of their overall scheme. While events showed that neither owners nor developers wanted to lose the deal the situation where possession and control appeared jeopardised forced a reconsideration of the matter. In the further negotiations that took place over price the earlier figure of $6 million which had been agreed on the basis that there would be effective vacant possession seems to have provided the benchmark.

The learned trial judge's decision, in effect, attributed the whole of the reduction in price from $6 million to $5.8 million to the difficulty which was encountered over the Abeni lease and the respondent's position on appeal was that this was a correct assessment of the factors operating in the negotiations and a correct finding in terms of legal principle. The appellant, while not contesting responsibility for the consequences of his negligence, contended that the judge erred in regarding the whole of the consequential price reduction as recoverable damage flowing from the negligent preparation of the Abeni lease.

The appellant's submission was that the difficulties in the way of giving effective vacant possession of the other leases and tenancies should have been given weight in the assessment and a lesser sum than $200,000.00 should have been awarded as the damages caused by the defective form of the Abeni lease. It was added that Abeni had, in good time, sufficiently clearly indicated that he would accept a voluntary termination in consideration of the payment of $50,000.00 and that the owners could have concluded a deal with him on that basis just as the developers themselves very promptly did once the amended option was signed offering the building "as is" for $5.8 million. It was contended that this showed that no more than $50,000.00 of the $200,000.00 price difference could be attributed to the form of the Abeni lease and the appellant's negligence. It was further said that the actual course of negotiations when the terms of the amended option were being settled reflected the discovery that there were problems of varying degrees of difficulty affecting other leases and tenancies. It was contended that the agreed reduction in price by $200,000.00 from that first fixed came about as a result of the owners' desire to keep the deal in place but transfer responsibility for all of these difficulties to the developers.

As part of its argument the appellant contended that the owners should have mitigated their loss and need not have accepted the reduced price which the developers offered accompanied by a transfer of the risk in respect of possession but could have entered into an arrangement themselves to pay or accept responsibility for paying $50,000.00 to the Abenis and so kept the advantage of the $6 million sale price which was earlier negotiated. It was said that the owners had not in the circumstances acted reasonably to mitigate their loss. To put the argument in this fashion involved, as they submitted, advancing an alternative to their principal argument based more directly upon the issues of causation and measure of damages.

The way in which the learned trial judge arrived at his conclusion should now be looked at more closely in view of the challenge which is made to it. The following was his reasoning. The owners were concerned that if the Abenis became aware of the events which were proceeding between the owners and the developers they might use their position to their own significant tactical advantage and compel the payment of a large sum as the price of their vacating their lease. Preliminary discussions had been held between one of the owners, Mr Toumbas, and Abeni and this took things as far as could reasonably be expected especially since it generated what was thought to be an adverse reaction from Abeni who exercised the option for a further term of his lease. This gave the owners and their advisers good reason to be apprehensive about making any further approach. When first approached, Abeni did make some mention of wanting $50,000.00 for good will if he were expected to relocate his business but it was thought that if pressed or if he found out more of the true circumstances of the owners' negotiations with the developers he might demand more. The Abeni lease interest was a real obstacle in the way of the plans of the owners and the developers but the features of difficulty affecting the other leases and tenancies were to be assessed as minor in comparison. The uncertainty over the ability to transfer vacant possession was based on the rights of the Abenis "rather than" the other tenants' situations. Even though the developers within a matter of days after the signing of the option agreement on 26 May, 1987 were able to agree with Abeni for a surrender by him of his interest for $50,000.00 this showed merely what was with hindsight achieved rather than what would at the time have appeared as necessarily achievable in a delicate situation.

On the evidence the only matter which influenced the developers to reduce their offer price was the existence of the Abenis' right and any other problem would have been accepted as a "normal commercial risk" by the developers and not otherwise accorded an effect. The developers wanted to cover themselves if they were to accept an obligation to deal with Abeni themselves and although hoping to manage this on terms which would be to their advantage they wanted to be protected by retaining a financial margin in their negotiating efforts with Abeni. The owners, by contrast, even apart from their reasons for apprehension over Abenis' possible attitude could not reasonably have been expected to expend their own monies in buying a termination of the Abeni interest since the option did not bind Borodin Pty. Ltd. to complete and the owners would not want to be left with no tenant and no sale. The appellant had failed to prove that the owners did not take reasonable steps that they should have taken to mitigate their loss. The reduction by the developers of $200,000.00 in the price they were prepared to pay would not have occurred but for the appellant's failure to include a termination clause in the Abeni lease. This may be accepted as a sufficient summary of the trial judge's findings.

The evidence does not demonstrate any reason to criticise the findings the trial judge made in accepting that the owners went as far as could reasonably be expected in the circumstances in sounding out Abeni and then refraining from jeopardising their deal by not pressing him further. The appellant at the time when he was still advising the owners did not recommend that they should press the matter further nor did he himself attempt to limit the amount of the loss by buying out the Abenis' interest. When the transcript of the evidence is more closely examined this aspect of His Honour's findings cannot be seriously challenged. The owners, as a result of the appellant's negligence, had been presented with a delicate situation and a risk which they had to assess and they were obliged to do no more than act reasonably in the situation as they then saw it. This conclusion, however, still leaves the further question whether the loss of $200,000.00 flowing from the reduction in the contract price should all be attributed to the Abeni problem and regarded as recoverable from the appellant. An examination of the transcript of evidence shows that this proposition was much less clearly demonstrated.

The passage of time since the events of 1987 presented major challenges to the recollection of a number of witnesses. Certain written documents helped fix significant sign posts but disadvantaged by impaired or failed recollections some witnesses seemed forced to rationalise and indeed at times speculate as to what their actions might have been as they endeavoured in their evidence to fill in the gaps not established by the documentary evidence. Some of the witnesses' recollections were conflicting or in less than complete harmony. This feature made for difficulty in establishing a satisfactory basis on which to form conclusions. It might be thought that in this situation a determination of the necessary details was very much a matter for assessment by a trial judge but even after due allowance is made for this there remains reason to question His Honour's conclusion. A perusal of the evidence gives the impression that His Honour attributed too great an effect to the fact that the Abeni lease problem was the first or the first serious problem to come to light and this led to too narrow a concentration on the fact that it alone would have caused renegotiation of the price in the option.

Further questions were whether, if the other difficulties and problems had arisen without the Abeni lease complication the owners would still have endeavoured to shift from themselves the obligation to warrant vacant possession and in doing this caused some renegotiation on price with the sale modified to reflect an "as is" basis. This directs attention to the further question whether the reduction in price of $200,000.00 was weighted to allow something for the other lease and tenancy difficulties. We are without the relative certainty that would have existed if the parties had negotiated two different prices on two separate bases - one passing the risk associated with the Abeni difficulty alone and another passing the risk for the others without the Abeni difficulty. But the absence of this secure basis does not mean that the Court is spared the necessary task of assessment difficult thought it may be. The correct conclusion depends upon the solution to a problem of causation which is exacerbated by the absence of a clear indication in the evidence.

It may be accepted that the result of the appellant's negligence is that the owners have suffered damage. The trial judge has found this and there is no reason to disturb the finding. The answer to the question how much damage must take into account the appropriate measure of damages.

Only that damage which is caused by the wrong or the breach is recoverable and there is the further limitation that only that which is reasonably foreseeable is recoverable in tort.

In contract the familiar test from Hadley v. Baxendale (1854) 9 Exch. 341; 156 E.R. 145 provides the measure of damages. These differently phrased limitations upon the right of recovery depending upon the cause of action raise no question for consideration here but the fundamental matter of causation does. As to this it is said that it is a matter for commonsense judgment whether damage is to be regarded as caused by a wrongful act for which the law allows recovery: March v. E. & M.H. Stramare Pty. Ltd. (1991) 171 C.L.R. 506 at 515.

The fact is that after the Abeni lease difficulty and the other lease and tenancy agreement problems were known to both owners and developers each side reacted according to its own motivation. If the option was to be concluded on an "as is" basis the evidence shows the developers had to be talked up to a price of $5.8 million and the owners had to be persuaded to go lower than their opening reduced bid of $5.9 million. The owners' insistence, after advice, that the "as is" cloak should cover all of the problems and not just the Abenis' might be thought to suggest that all of those problems were probably taken into account in fixing the new price. The evidence, including that of Mr Byrne, the solicitor who acted for the owners when the appellant ceased to act and that of Mr Delahunty one of the owners, is that after the owners received advice it became a matter of importance to them to be protected against all of the areas of difficulty. The more compelling conclusion from the firmest of the evidence, especially perhaps that of Mr Nichols the solicitor who acted on behalf of the developers, is that in arriving at the price the developers would accept in the option they were also influenced by the full ambit of the risk they were asked to assume. It remained the position, however, that the major matter allowed for on each side was the Abeni problem.

The following further outline of events occurring in the course of negotiations supports this conclusion. The account given by Nichols provides particular assistance because of the extent of his recollection, that is, as compared with other witnesses and the fact his account is broadly supported by that other evidence.

The developers' solicitors drafted the first proposed option agreement and on 22 April, 1987 forwarded it to the appellant. By 23 April Nichols knew from the appellant that the Abeni lease did not contain a termination clause. On 24 April the appellant appears to have told Nichols that Abeni when approached was talking of wanting $50,000.00 for a surrender of his lease or, as he put it, for the goodwill of his business. On 29 April the appellant forwarded to Nichols a schedule of the tenancies which the investigations to that point had established. Amongst the leases and tenancies which were later viewed on the owners' side as causing difficulty were those of the Abenis and also Calvisi, F.R. Administration Pty. Ltd., Royston James, the Foundation for Aboriginal and Islander Research Action Ltd. and Dome Association (Qld) Inc. In early May discussions proceeded between Nichols and the appellant on a number of the leases and tenancies. It was then that the appellant first appears to have suggested that the option should be agreed on an "as is" basis. Shortly afterwards the appellant who was in a situation of conflict of interest ceased to act. Mr Byrne commenced to act for the owners and made contact with Nichols on 8 May. By 13 May it appears that Byrne was telling Nichols that the owners would take $5.9 million on an "as is" basis covering all leases and tenancies. On 21 May that Byrne told the owners that counsel confirmed there were significant problems affecting tenants other than the Abenis. Nichols gave evidence at the hearing that there were other tenant interests beyond those of the Abenis which were of concern to him and the developers. He said that the whole situation was troubling and he did not have a clear idea of the exact nature of the tenant interests. It may be noted that this seems to conform with the appellant's view when he last had contact with the matter. Nichols said that even after an inspection of all of the available agreements two instances remained unresolved as far as he was concerned and that this was the position right up to the time the option was signed. Those further troublesome instances were the Calvisi lease and the F.R. Administration lease. It seems that the appellant's evidence would have added the Royston James interest to this list. By 21 May agreement had been reached between the parties over the option in a form whereby the owners disclaimed responsibility for warranting any right to vacant possession. An option in these terms was then signed on 26 May and brought into operation as agreed by exchange on 28 May. On 27 May agreement seems to have been reached between the developers' agent and Abeni for the termination of Abenis' interest for $50,000.00. The form of the precise arrangement with Abeni was modified on 29 May so that the interest was to be cancelled from 15 November, 1987 but it was still in exchange for a consideration of $50,000.00.

A picture of the extent to which each side allowed for the further difficulties with the tenants appears from the evidence outlined. The conclusion should be reached that the reduction in price from that originally agreed was in a practical sense and in a legal sense caused by the discovery of all of the lease and tenancy problems although the major problem perceived on both sides and the cause in a practical and again in a legal sense of the major part of the reduction in price was that related to the Abenis. It is only that major share which should be regarded as the loss which was caused by the appellant's negligence. It should, with respect, be regarded as erroneous to have attributed none of the price reduction to the existence of the additional difficulties. Consistently with this view something must be attributed to the problems other than that surrounding the Abeni lease. Difficult though the task of assessment is the award of the trial judge should be reduced although no sum can be precisely established. It would be appropriate to adopt a figure of $135,000.00 as allowing for the view that the negligence in respect of the Abenis caused only part, although the major part, of the reduction in price from the figure originally agreed.

The appeal should be allowed and the order made below set aside. Judgment should be entered in the action for the sum of $135,000.00 in lieu of $200,000.00. The respondents should pay the appellant's costs of the appeal to be taxed and the respondents should retain their order against the appellant for the costs of and incidental to the action below to be taxed.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 60 of 1992

BETWEEN:

GIOVANNI LA MOTTA and MARIA ANTIONIETTA LA MOTTA, NICHOLAS TOUMBAS and IRENE TOUMBAS and JAMES ANTHONY DELAHUNTY

(Plaintiffs) Respondents

AND:

JAMES VARITIMOS

(Defendant) Appellant

JUDGMENT OF PINCUS J.A.

Delivered the Twenty-eighth day of October 1992

I have read the reasons prepared by the Chief Justice and agree that the orders his Honour proposes should be made. The learned trial judge does not appear to have been convinced that the Abeni lease was the only relevant difficulty. It is true that the judge referred to the Abeni interest as the "real obstacle" and referred to problems with some of the other leases as "minor". Having read the evidence dealing with those other problems, it appears to me difficult to sustain a view that the Abeni lease was the sole cause of the reduction in price. On that subject, the primary judge remarked:

"Because of the uncertainty involved in securing vacant possession of the premises, and on the evidence this uncertainty was based upon the rights of the Abenis rather than upon features of any of the other 'problem tenancies', there was a good deal of haggling between the plaintiffs and the developer as to the purchase price for the building".

That does not imply that his Honour thought the Abenis' rights were the sole source of haggling, but rather that they were the major or dominant source.

The evidence of the purchaser's solicitor, Mr. Nichols, supports that view of the matter; he was called at the trial by counsel for the respondents. He explained that from the examination of a file he could see that there were leases other than the Abeni lease "that were of concern to us"; he gave details. Nichols' evidence is consistent with the content of a letter written to the respondents on 21 May 1987. By that letter, their solicitors advised the respondents that counsel had confirmed their "earlier advices that there are significant problems with respect to some of the leases/tenancies of the building ...". These included, but were by no means confined to, the Abeni lease.

The date of the letter is significant, because it was on the following day that Nichols wrote to Williams and Williams to say that the clients had discussed matters and resolved their disagreement. It was during those discussions that the revised price of $5.8m with limited warranties was agreed upon.

In my opinion, the contemporary correspondence, together with the evidence of Nichols, make it impossible to accept the submission advanced by counsel for the respondents that the $200,000 reduction in price was caused by nothing other than the problem with the Abeni lease. It is true that, as counsel for the respondents pointed out, one finds in the evidence statements to that effect made by witnesses called on behalf of the respondents. Mr. A.E. Curtis, who was at the relevant time Development Manager of the purchaser, White Industries Queensland Pty. Ltd., said that "$200,000 was to secure the release of the Abeni lease" and made other statements to that effect. But he also made reference to the fact that "... the new and reduced price was $5.8m with a $200,000 allowance left to buy out whatever leases ..." and that seems inconsistent with the suggestion that the $200,000 was an allowance for one lease only.

Further, it is difficult to reconcile that suggestion with the evidence relating to the eventual cost of disposing of the Abeni problem, given that the day after the option agreement was executed at $5.8m, an agreement was made with the Abenis that a demolition clause would be inserted on payment of $50,000. That was surely not an unexpected outcome, for weeks before Mr. Abeni had indicated that $50,000 would suffice.

In my opinion, then, the finding is inescapable that expected difficulties with tenants other than the Abenis contributed to the reduction in price and, as I have pointed out, that view is not inconsistent with some of the discussion to be found in the reasons of the learned primary judge.

It was argued for the appellant, and I agree, that in a case of this special kind the damages should ordinarily be equal to the cost of correcting the mistake made; reliance was placed upon County Personnel (Employment Agency) Ltd. v. Alan R. Pulver & Co. (A Firm) [1987] 1 W.L.R. 916 at 925H.

The problem here is that there was an unapportioned reduction of $200,000 agreed upon between the parties and that was, on the view of the matter I have taken, mainly but not wholly attributable to the appellant's fault. It appears to me that where the loss complained of is, although a single sum, caused partly by the defendant's breach and partly by other circumstances, the Court must, at least in cases of this sort, do the best it can to estimate the defendant's proper share of responsibility. There is some authority pointing in that direction, in the rather different situation in which the additional cause is an act or omission of the plaintiff: Government of Ceylon v. Chandris [1965] 3 All E.R. 48 at 56, Day v. Mead [1987] 2 N.Z.L.R. 443. I agree with the Chief Justice's view that a sum of $135,000 should be fixed as fairly representing the extent to which the appellant's negligence contributed to the reduction in price and that the orders his Honour proposes should be made.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 60 of 1992

Before the Court of Appeal
The Chief Justice
Mr. Justice Pincus

Mr. Justice McPherson

BETWEEN:

GIOVANNI LA MOTTA and MARIA ANTIONIETTA LA MOTTA, NICHOLAS TOUMBAS and IRENE TOUMBAS and JAMES ANTHONY DELAHUNTY

(Plaintiffs) Respondents

AND:

JAMES VARITIMOS

(Defendant) Appellant

JUDGMENT OF PINCUS J.A.

Delivered the Twenty-eighth day of October 1992

CATCHWORDS:	LEGAL PRACTITIONERS - SOLICITOR AND CLIENT - NEGLIGENCE - Plaintiff claimed damages for solicitor's failure to insert "demolition clause" in lease for lessor - whether reduction in sale price of land due solely to lease without demolition clause - whether plaintiffs failed to mitigate loss by buying out lessee - whether reasonable to negotiate.
Counsel:	Ms E.M. O'Reilly for the Appellant Ms S.M. Kiefel Q.C., with her D.J. McGill for the Respondents
Solicitors:	Feez Ruthning for the Appellant Hill and Taylor for the Respondents
Hearing Date(s):	19 and 22 June 1992