Maher v Millennium Markets Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 8883 of 2001

PATRICIA MAHER AND OTHERS	Plaintiffs
v
MILLENNIUM MARKETS AND OTHERS	Defendants

---

JUDGE:	OSBORN J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	15-19, 22-25, 29 MARCH, 6 AND 15 APRIL 2004
DATE OF JUDGMENT:	20 MAY 2004
CASE MAY BE CITED AS:	MAHER & ORS v MILLENNIUM MARKETS PTY LTD & ORS
MEDIUM NEUTRAL CITATION:	[2004] VSC 174

---

Breach of fiduciary duty by solicitor – Knowing participation in breach of fiduciary duty – Economic duress – Unconscionable conduct - Conduct in breach of s51AA and 53A(2) of the Trade Practices Act 1974 - Proposed land uses – Factory retailing outlet – Fruit and produce market - Trash and treasure market – Lack of due care and skill - Failure to advise – Breach of retainer - Negligence.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P. Riordan SC with Mr A. Strahan	Riordan & Partners
For the First to Third Defendants	Mr J. Styring	Efron & Associates
For the Fourth Defendant	Mr J. O’Callaghan QC with Mr I.R. Jones	Minter Ellison

TABLE [L1]OF CONTENTS

Introduction........................................................................................................................................ 1

Background Facts............................................................................................................................... 1

The Claim............................................................................................................................................ 8

The Parties as Witnesses................................................................................................................... 9

Breach of Fiduciary Duty................................................................................................................ 13

The Claim against the Purchaser Defendants for Knowing Participation in a Breach of Fiduciary Duty.................................................................................................................................................... 25

Repudiation of the 28 February Agreement............................................................................... 33

Economic Duress.............................................................................................................................. 35

The Agreement of 28 February...................................................................................................... 38

The Proposed Uses........................................................................................................................... 42

Factory Premises............................................................................................................................... 45

Trash and Treasure Market............................................................................................................ 46

(a) The requirement for fresh permission................................................................................ 47
(b) The requirement for the ability to grant leases.................................................................. 47
(c) The ambit of the use for trash and treasure market........................................................... 48
(d) The fruit and produce market use..................................................................................... 50
(e) The effect of the change of status of the use "market" on 8 July 1999............................... 50

The Alternative of a Permit Application..................................................................................... 51

(a) The permit application....................................................................................................... 54
(b) The availability of a permit for the proposed uses............................................................. 58
(c) The potential availability of a permit after the change to the new format planning scheme on 8 July 1999.......................................................................................................................................... 61

The Alternative Claims Relating to the Making and Settlement of the Contract for the Sale of the Bourke Street Apartment................................................................................................................ 62

The Claim for Lack of Due Care and Skill.................................................................................. 63

(a) Alleged failure to make the 28 February agreement binding............................................ 64
(b) Alleged failure to advise the plaintiffs properly with respect to the 16 March agreement 64
(c) Alleged failure to negotiate with due care and skill prior to settlement of the Bourke Street apartment contract on 9 July 1999............................................................................................................ 69
(d) Alleged negligence in lodging a caveat over the Bourke Street Apartment...................... 70
(e) Alleged failure to resolve the question of the proposed uses in time to exercise the option 73

Conclusion and Counterclaim....................................................................................................... 78

HIS HONOUR:

Introduction

The plaintiffs claim arises out of the sale in March 1999 to the first, second and third defendants ("the purchaser defendants") of certain properties ("the security properties"). The sale was effected to pay out moneys due by the plaintiffs to the Westpac Banking Corporation Ltd as successor to the Bank of Melbourne Ltd("the bank"). The amount payable to the bank and the terms of payment had been negotiated by the fourth defendant ("Brott") as solicitor for the plaintiffs. Brott had also introduced the purchaser defendants to the plaintiffs. He was paid a fee for legal services of $40,000 jointly by the bank and the purchaser defendants, and was also paid a commission of $150,000 ("the Herszberg fee") by the second defendant ("Herszberg") with respect to the purchase of the security properties.

The plaintiffs' claim has three principal aspects. Firstly, it is said Brott placed himself in a position of conflict of interest with the consequence that the plaintiffs are entitled to relief both against him for breach of fiduciary duty and against the purchaser defendants for knowing involvement in such breach. Secondly, it is said that Brott breached the terms of his retainer and his fiduciary duty, and acted negligently by failing to exercise due skill and care on behalf of the plaintiffs. Thirdly, it is said that one of the dealings effected with respect to the security properties comprising the sale of an apartment owned by the fourth plaintiff and occupied by the first plaintiff, should be set aside or alternatively treated as founding a claim in damages because it was procured by economic duress and/or unconscionable conduct and/or conduct in breach of the Trade Practices Act 1974.

Background Facts

The plaintiffs in this matter comprise members of the Maher family and companies controlled by them. The first plaintiff, Patricia Maher, is the mother of the second and third plaintiffs Justice and Dominus Maher.

The fourth, fifth, sixth and seven plaintiffs are companies controlled by the Mahers which as at February 1999 owned a series of properties.

(a)The fourth plaintiff was the registered proprietor of a warehouse situated at 169 Settlement Road, Thomastown and of an apartment situated at 50 Bourke Street, Melbourne occupied by Patricia Maher;
(b)The fifth plaintiff was the registered proprietor of land situated at 187-205 Settlement Road, Thomastown used for the purposes of a trash and treasure market ("the market land");
(c)The sixth plaintiff was the operator of this trash and treasure market business and the proprietor of a house occupied by Dominus Maher situated at 14 Warranwood Place, Bundoora;
(d)The seventh plaintiff was the proprietor of land situated at Cannonvale, Queensland.

The security properties comprised the above properties together with a service station situated at 161-167 Settlement Road, Thomastown of which Patricia Maher was the registered proprietor.

As at March 1999 Justice and Dominus Maher had assisted their mother to conduct a series of business enterprises since the death of their father in 1977. Justice had the major role in the management of the trash and treasure market.

From late 1989 till 1996 the Mahers were involved in a series of disputes with the bank and the Bank of Singapore. These disputes resulted in litigation.

The fortunes of the trash and treasure market business fluctuated and at one stage it was placed in the hands of a receiver.

As at 1 April 1998 the Mahers were indebted to the Bank of Melbourne Ltd in the sum of $6.35 million. On 1 April 1998 the Bank of Melbourne Ltd required this sum to be paid out by 30 September 1998.

The Mahers then sought to find a purchaser or business partner who would pay out their liability to the bank.

They also sought refinancing from a variety of financial institutions including the Bank of Western Australia Ltd and had discussions with real estate agents and persons expressing interest in the security properties.

These discussions included discussions concerning the possibility of creating a factory outlet centre at the market premises. Such a centre was envisaged as similar to one conducted at Moorabbin known as Fairways Market.

Some substantial discussion occurred with representatives of the Banco Group of companies concerning the possibility of a joint venture to establish and operate such a centre. These negotiations broke down in early 1999 because as Justice Maher said:

" Once the Lo Giudices investigated the zonings, direct factory outlets as such was not a possibility, and they talked about Capt'n Snooze peripheral sales; The Good Guys; Billy Guyatt's, subdividing factories - subdivision, that type of things."

The Banco Group offered $4 million and then $4.3 million for the purchase of the security properties (without joint venture arrangements). These figures were not acceptable to the bank.

In January 1999 the plaintiffs obtained financial estimates from accountants as to the possible return if the market premises were "transformed" into a "factory clearance centre".

By the end of January 1999 although settlement of the debt due to the bank had been delayed by negotiation, the plaintiffs remained indebted in the sum of $6.35 million and were under substantial pressure to meet their obligations to the bank. On 28 January 1999 the Mahers retained Brott to act for them to negotiate a solution to their position with the bank.

On about 4 February 1999 the plaintiffs and Brott agreed that he would be retained for the lump sum for $40,000 to act for them in their dispute with the bank. At this point in time although the plaintiffs were making interest payments to the bank as and when they fell due they were unable to make payments in reduction of the capital sum owing by them. The bank had made it clear it would advance no more credit to them and in February 1999 took the step of requiring the Mahers to return their personal credit cards.

Brott had initial discussions with the bank and then obtained advice from counsel as to the possibility of delaying the bank in the enforcement of its security.

On 9 February 1999 the bank made demands for the outstanding moneys due pursuant to mortgages it held over each of the security properties.

On 11 February 1999, after extended negotiations in conference with Brott, Patricia and Justice Maher, the bank agreed to accept $5.8 million in full satisfaction of the debt and allowed the Mahers some further time for payment of that sum.

On 12 February 1999 the bank forwarded a letter setting out the terms of the compromise acceptable to it. This letter contained acknowledgments of the moneys due to the bank and of the bank's entitlement to enforce its securities. It also included agreement by the bank to pay $5,000 towards Brott's fees. This letter was signed by the Mahers on 17 February 1999 and provided to the bank.

On 14 February 1999 there had been a meeting at the premises of Denman Audio in St. Kilda Road, St. Kilda between Brott, Patricia and Justice Maher, and Herszberg and his solicitor Szental.

Brott had introduced Herszberg to the plaintiffs as a potential purchaser of the security properties. At the meeting Herszberg and Szental requested documentation relating to the properties including copies of relevant planning permits.

On 17 February 1999 there was a meeting at Brott's office between Brott, Herszberg, Justice Maher and Patricia Maher which resulted in the formulation of a joint venture arrangement providing for a 65/35 split in the net proceeds of sale of the plaintiffs' properties and businesses. A document was prepared setting out the basis of the arrangement and was executed by the parties.

Nothing occurred during the following week and the Mahers maintain that during this period they believed Brott was overseas as a result of advice to them from him that this would be the case.

On 26 February 1999 Patricia Maher attended at Brott's office and after further discussion as to the 17 February 1999 agreement tore up a counterpart of that agreement and told Brott that the Mahers would not proceed with it. Brott in turn advised Herszberg that the Mahers would not proceed with the agreement.

On 28 February 1999 there was a meeting at Brott's office attended by Brott, Herszberg, Justice Maher and Patricia Maher. At that meeting a memorandum of agreement was executed providing for the sale to Herszberg of the shares in the plaintiff companies subject to conditions which included the transfer of the Bourke Street apartment to Patricia Maher ("the 28 February agreement"). There is a dispute as to the completeness of this agreement.

On 28 February 1999 Herszberg also agreed to pay Brott a $150,000 fee by way of commission and to pay $35,000 to Brott by way of the balance of the plaintiffs' legal fees (the bank having agreed to pay the sum of $5,000 upon settlement of the sale of the security properties for $5.8 million).

On 1 March 1999 the plaintiffs executed a deed of settlement with the bank acknowledging their indebtedness to the bank in the sum of $6,348,758.88, and requiring them either to enter into contracts for sale of the security properties for an aggregate price of not less than $5.8 million or to enter into agreements for the sale of the shares in the plaintiff companies for an aggregate price of not less than $5.8 million. It was further agreed the bank would accept payment of $5.8 million by 10 May 1999 in settlement of the debt.

On the same date the plaintiffs also signed a letter from Herszberg's solicitors confirming agreement to sell the security properties to Herszberg.

Again on the same day the plaintiffs signed a deed of agreement ("the fee agreement") consenting to the payment by Herszberg of the sum of $150,000 by way of commission to Brott and the payment of the sum of $35,000 legal costs by Herszberg to Brott on their behalf.

Again on the same day Herszberg arranged to bring the third defendant ("Gordon") out to look at the market. Shortly thereafter this occurred and Gordon was supplied with a variety of documentation relating to the market.

On 15 and 16 March there were further extended negotiations which resulted in the agreements of 16 March 1999. On that day:

(a)contracts of sale were entered into for the sale of each of the security properties to companies associated with Herszberg and Gordon, and the performance of these contracts was in turn guaranteed by Herszberg and Gordon (the properties sold included the Bourke Street apartment which was sold to the first defendant for $300,000); and
(b)deposits were paid pursuant to such contracts;
(c)a collateral agreement (the "16 March agreement") was entered into providing for a series of collateral arrangements including the cancellation of the contract of sale for the Bourke Street apartment in the event certain proposed uses of the market land, including that of factory retailing outlets, were lawful as at the date of settlement of the contracts for sale of the security properties;
(d)in the event that this cancellation did not occur the plaintiffs were given a two year option to repurchase the apartment for the lesser of either:
(i)the sum of $10,00 plus the costs of obtaining a town planning permit for the proposed uses; or
(ii)$210,000.

Transfers of land including the Bourke Street apartment were executed by the Mahers on 17 May 1999.

By a variation agreement dated 19 May 1999 the settlement date with the bank was extended to 9 July 1999 upon the payment of a further 10 percent in the reduction of the agreed sum of $5.8 million.

On 9 July 1999 the sale of the security properties settled. The bank was paid $5.8 million by the purchasers. Brott was paid $40,000 by way of legal costs and was further paid the sum of $75,000 by way of part payment of the Herszberg fee (having received an initial payment of $20,000 on either 28 February 1999 or 1 March 1999).

Prior to and at the time of settlement the plaintiffs maintained that the vendor company was entitled to cancel the contract relating to the Bourke Street apartment because the proposed uses of the market land were lawful. The purchaser defendants took the position that this was not so.

Following settlement there was ongoing dispute between the parties as to the status of the proposed uses at the date of settlement.

On 30 August 1999 Brott lodged a caveat over the title to the Bourke Street apartment in his own name. After receipt of Titles Office requisitions this caveat was amended to name the fifth defendant (the former registered proprietor) as caveator.

In late 1999 the plaintiffs sought an independent opinion from McKean & Park, solicitors, as to what course they should follow. Consequent upon that advice they instructed Brott to institute proceedings against the purchaser defendants for specific performance of the 16 March 1999 agreement.

In January 2001 the purchaser defendants offered to honour the option and sell the apartment to the plaintiffs for $210,000.

No proceedings had been instituted by Brott against the purchaser defendants and the plaintiffs terminated Brott's retainer in February 2001.

In May 2001 the plaintiffs retained their current solicitors to act in the matter.

On 9 July 2001 the option lapsed.

The Claim

The plaintiffs now make the following claims:

(a)It is alleged the fee agreement was entered into in breach of Brott's fiduciary duty to the plaintiffs.
(b)It is alleged the purchaser defendants were knowingly involved in Brott's breach of fiduciary duty.
(c)It is alleged that Herszberg wrongfully repudiated the 28 February 1999 agreement.
(d)It is alleged that the making of the contract of sale for the Bourke Street apartment and in turn the settlement of that contract occurred as the result of economic duress on the part of the purchaser defendants, alternatively they resulted from unconscionable dealing, or contraventions of s.51AA or 53A(2) of the Trade Practices Act 1974 on the part of the purchaser defendants.
(e)It is alleged Brott breached the terms of his retainer and his fiduciary duty and acted negligently by failing to exercise due skill and care with respect to the making of the agreement of 28 February 1999, the making of the 16 March agreement, and the loss of the apartment generally, including settlement of the contract for sale of the apartment, lodging the caveat in circumstances which led to the loss of the right to exercise the option and failing to resolve the question of the proposed uses with respect to the option.

The issues arising from the claim will be addressed within the following framework:

(a)       the parties as witnesses;
(b)      the claim for breach of fiduciary duty;
(c)       the claim for knowing participation in breach of fiduciary duty;
(d)      the claim for wrongful repudiation of the agreement of 28 February 1999;
(e)       the claim for economic duress;
(f)the alternative claims of inequitable conduct, and breaches of the Trade Practices Act;
(g)the claim for lack of due care and skill; and
(h)conclusion and counterclaim.

The Parties as Witnesses

The principal witnesses for the plaintiffs were Justice and Patricia Maher. It is they who had the principal dealings with Brott and with the purchaser defendants although Dominus Maher was also present on the occasion of certain significant transactions.

I am not persuaded that Justice and Patricia Maher were reliable witnesses as to matters of detail and in particular as to the details of conversations. Justice Maher was responsible for negotiations with prospective purchasers of an interest in the security properties during late 1998 and 1999. Patricia Maher had the principal conduct of negotiations with the bank and other financiers. Despite initial denials by Justice Maher it is apparent from documentation deriving from this period that discussions were held over many months concerning the possible transformation of the trash and treasure market conducted on the market land into a factory retailing outlet centre. Likewise there were discussions as to the substantial physical upgrade of the market, including the creation of lock-up stalls with panelled walls and roller doors (and not merely stalls with wire mesh walls as Justice Maher first maintained in evidence).

As at 1 February 1999 the Mahers still continued in correspondence with the Banco Group to refer to the market land as intended for redevelopment as a "factory outlet centre" within three to five years.

In turn Justice was involved with a series of discussions on site at the market land and elsewhere, first with Herszberg and then with Gordon as to possible uses of the land. Despite repeated denials that he mentioned factory retailing outlets to the purchaser defendants prior to 16 March 1999, his own diary records providing plans showing factory outlets to Herszberg's architect on 23 February 1999. Moreover Brott’s evidence is that on 14 February 1999 Justice was "very hot" on direct market outlets and produced plans. In the course of subsequent discussions and again contrary to Justice Maher's initial evidence, shop uses were mentioned including supermarket.

On 15 March 1999 the purchaser defendants sought an agreement which incorporated provisions relating to the proposed uses of the land.

When the 16 March agreement was entered into it was Justice Maher who was primarily relied upon by the plaintiffs with respect to the definition of proposed uses which could be conducted upon the market land. I do not accept Justice Maher's evidence that he did not read relevant recitals and other provisions in the 16 March agreement. The negotiations in relation to it extended over some five hours. Further, for reasons I will elaborate, I am satisfied Justice Maher exaggerated in evidence the extent to which he was taken by surprise by the description of the proposed uses. In summary I do not accept his account of discussions with Brott or the purchasers in relation to the 16 March agreement was reliable.

In turn I do not accept that his account of subsequent events is reliable save insofar as it is confirmed or corroborated by documentary or other circumstantial evidence.

The evidence of Justice Maher was that in 1999 Patricia Maher had the ultimate control over decisions on behalf of the plaintiffs. In these circumstances her evidence might be thought to be of critical importance. Nevertheless when pressed in cross-examination as to matters in issue she was combative, non-responsive and evasive to such a degree as to render her evidence most unimpressive. In March 2001 Patricia Maher expressed the view to her solicitor that she had been the subject of a conspiracy by a "Jewish combine" and her evidence to the Court was substantially to the same effect.

Some further matters deserve particular comment. I do not accept that Patricia Maher was mistaken as to the terms of the 17 February agreement which she entered into and then subsequently tore up. I do not accept that someone of her long business experience could fundamentally misunderstand both the nature of the proposal put to her and the document signed by her as she asserted. The document specifically provided for the sale of the Bourke Street apartment but Patricia Maher maintains she did not understand this.

" Yes, I couldn't understand the document properly. I had the baby in my hands, Mr Brott's baby, nursing the baby. He had to go to London; he had to get a plane. Everything was rushed. Everyone was saying, "Come on Mr Brott, you'll miss your plane to London", and it was just psychological warfare. … "

Likewise I do not accept that Patricia Maher was generally as naive or trusting as she claimed.

"I have had good lawyers. I haven't had any legal experience whatsoever. So when I get documents and I have got a lawyer and he tells me to sign. It is a shocking thing, but I sign, if I believe in the lawyer."

Further I do not accept that Brott put Patricia Maher "under extreme duress" and procured her signature to the 16 March agreement as she asserted. Conversely I do accept that Patricia Maher was in fact better able to cope with pressure than Justice Maher as she at one stage asserted.

Insofar as events after settlement of the sale of the Bourke Street apartment are concerned I specifically reject her evidence that when her current solicitors were retained Mr Curtain did not discuss the option provisions of the 16 March agreement with her.

Dominus Maher was a materially less aggressive and less apparently unreliable witness than his mother and brother, but as I have said his evidence was of relatively limited ambit.

No evidence whatsoever was called from the purchaser defendants. A course which has its own consequences which I shall address further below.

Brott, however, was called to give evidence and was extensively cross-examined. For reasons I will exemplify in the course of my reasons by reference to particular passages of evidence, I do not regard Brott as a reliable witness as to what was said in discussions between the Mahers and himself, or in discussion with the purchaser defendants and their solicitors. Brott demonstrated a considerable facility for speculation as to the motives and thoughts of others. He remained less than convincing, however, in giving a consistent and credible account of the discussions in which he himself was involved.

I shall mention only a few specific preliminary matters concerning Brott’s evidence. Firstly he demonstrated himself to be a most evasive witness in dealing with the questions of how he had dealt with $2000 – obtained by him on account of fees payable to Mr Dealehr of Counsel, and in particular $1000 – not in fact paid to Mr Dealehr. Secondly he maintains that he instructed his solicitors that documents were removed from his file by Justice Maher. This allegation was not reflected in his affidavit of documents or in the cross-examination of Justice Maher and I do not accept these instructions were given as he alleges.

For the above reasons and by reason of other detailed considerations to which I will refer I have formed my views concerning this matter upon the basis that reliance should not be placed on the evidence of Justice Maher, Patricia Maher or Brott, to determine significant matters unless that evidence is materially confirmed or corroborated in some way by documentary or other circumstantial evidence.

Breach of Fiduciary Duty

The plaintiffs allege that by agreeing to receive fees from Herszberg Brott placed himself in a position of conflict of interest and thereby breached his fiduciary duty to them.

In his witness statement Brott states:

"[39]The question of my receiving a fee was first raised by Herszberg, at about the time of a meeting at Denman Audio on or about 14 February. He volunteered to me the sum of $150,000 upon completion of the deal.
[40]I advised Patricia and Justice of that offer. When I told them Justice quipped 'why doesn't he give it to us?' then Patricia said 'you should take it.' I said 'there may be problems with me accepting it. You wouldn't mind if I did?' Patricia said 'no get him to pay our legal costs as well.' On 17 February I negotiated with Herszberg for a substantial period trying to convince Herszberg to pay the legal costs and he eventually agreed to pay $35,000 of the costs being the amount in addition to the allowance allowed by the bank in its letter of 12 February 1999. He had been in a board room annexed to my office. During the same conference when the fee offer had become concrete I telephoned the Law Institute in Patricia and Justice's presence and in the presence of Herszberg on loud speaker. The person I spoke with at the Law Institute said that I could receive the fee as long as my clients had been informed of it and consented and given the opportunity to obtain independent legal advice.
[41]I was conscious of the need to fully disclose the commission to Patricia and Justice and to obtain their formal consent and I told them I would require a written agreement. Accordingly a further agreement to record that Herszberg was to pay $150,000 to me was signed by Herszberg, Patricia, Justice, Dominus and myself on 1 March 1999. The agreement was drafted by Christopher Northrop of counsel at my request to ensure full disclosure and proper consent. I provided a copy of this agreement to Mr Moishe Gordon ('Gordon') on 2 March. A copy of my covering letter is at Court Book 750.
[42]This Agreement was signed by Patricia, Justice and Dominus in my presence. I specifically discussed with them at the meeting on 1 March 1999 at which they signed the agreement, the fact that I was seeking their signature and formal agreement to my receiving the fee about which I had previously informed them. They said that it was of no concern to them as they were not paying the fee. I said to them words to the effect 'I need to disclose it and know that you are happy with it. You will need another lawyer to look at that.' She replied to me with words to the effect 'I have been doing business for fifty years. I don't need a solicitor to tell me what it means.' They then signed the document. At no time in this transaction did I act in any capacity for Herszberg. Herszberg was represented by both Richard Szental and Efron & Associates ('Efron'). I have never acted for Herszberg or his related companies before or since the transaction."

This account of events was not accepted by the Mahers. In particular they deny there was a discussion concerning independent legal advice on 17 February and Justice and Patricia maintain the situation was as summarised by Justice that on 1 March 1999 Brott,

"… produced the Deed of Agreement, which provided that he was to be paid a commission by Herszberg of $150,000. He told us that he had spoken to the Law Institute and that it was all above board and that we were to sign the commission agreement. At that point in time, we had an agreement that we were comfortable with and so we signed the agreement. At no time did he tell us that we should obtain legal advice before signing this agreement."

Brott's evidence was amplified in answer to cross-examination and in particular he asserted that the clients were advised on both 17 February and 1 March 1999 that they should obtain independent legal advice. Brott's evidence was replete with assertions as to circumstantial detail including the proposition that he took comprehensive notes of the advice given on 17 February and that these notes had "evaporated". They had been removed from his file by Justice Maher. The circumstantial accuracy of this evidence was in turn attacked on the basis that its reliability was not supported by a series of variations in witness statements prepared on his behalf. Brott sought to explain the most critical inconsistency in these accounts as follows:

" On the statement of 12 March, for the first time you are able to recall the Law Institute person had said that it was necessary for the clients to be given the opportunity to obtain independent legal advice?---I - it wasn't a matter of recalling it. I recalled about the Institute advice. I recalled about Herszberg being in a meeting. I recalled about the Mahers being in a meeting. But it was scattered everywhere, like a lot of the other matters here, and things that were unusual struck me, and provided the first points of reference, and then documents provided the points of reference, and I was able to get what I believe was a reliable picture in my head about a lot of these things that happened. By just sitting there at night, in bed. Not sitting there. Lying in bed, thinking about it, and, you know, reconciling it."

Whatever advice Brott did or did not give his clients there is no doubt a formal deed of agreement as to the proposed fee arrangement was drafted by counsel at Brott's request. Clause 9 of the fee agreement provided:

"The Mahers and each of them, on their own behalf and on behalf of each member of the Maher group, hereby acknowledges and consents to the payment of the Herszberg fee to Brott in his own right."

This agreement was executed as a deed by Patricia, Justice and Dominus Maher together with Brott on 1 March 1999. No copy of the agreement executed by Herszberg has been tendered to the Court and I am not satisfied he signed it. Nevertheless it is clear that Herszberg did agree to pay Brott $150,000 albeit not on the precise terms set out in the fee agreement. So much is expressly admitted by Herszberg's defence. Moreover on 1 March 1999 Herszberg's solicitors forwarded a letter by facsimile transmission to Brott which expressly confirmed that they were instructed that Herszberg had agreed to pay an introduction fee to Brott in the sum of $150,000 payable as follows:

(a)       $20,000 already paid;
(b)      $55,000 at settlement of the sale of assets to Herszberg; and
(c)       $10,000 per month thereafter.

Brott's evidence is that thereafter he received the full $150,000 and the records of his practice produced to the Court show he received at least $147,000, the last payment recorded being received on 31 March 2000.

The relevant principle governing the propriety of the arrangement in issue is stated in the fourth edition of Meagher, Gummow & Lehane Equity Doctrine and Remedies at paragraph [5-115]:

"If a person occupying a fiduciary position wishes to enter into a transaction which would otherwise amount to a breach of duty, he must, if he is to avoid liability, make full disclosure to the person to whom the duty is owed of all relevant facts known to the fiduciary, and that person must consent to the fiduciary's proposal."

In Spellson v George & Ors[1] Hope AJA cited with approval the following passage from the 4th edition of Halsbury's Laws of England:

"Where a beneficiary sues in respect of a breach of trust, then if his consent or concurrence is relied on as a defence to his proceedings the court has to consider all the circumstances with a view to deciding whether it is fair and equitable that he should sue the trustees; but it is not necessary for the purpose of protecting them that the beneficiary should have known that it was a breach of trust in which he concurred, if he fully understood in what he concurred, nor is it necessary that he himself should have benefited from the breach. There is no hard and fast rule that ignorance of a legal right prevents an effective consent being given, but all the circumstances must be looked at to see whether it is just that the complaining beneficiary should succeed against the trustee. There must be a full and frank disclosure so that the beneficiary is put fully in the picture."

[1](1992) 26 NSWLR 666 at p.674

In Maguire v Makaronis[2] a husband and wife who were clients of solicitors executed a mortgage in favour of the solicitors to secure finance for the purchase of a poultry farm. The solicitors did not draw the clients' attention to the fact that the solicitors were to be the mortgagees nor did they tell them that they should obtain independent legal advice. The clients defaulted on the loan secured by the mortgage and the solicitors claimed possession of the mortgaged property. The clients sought by counterclaim a declaration that the mortgage was void. Brennan CJ, Gaudron, McHugh and Gummow JJ held that the mortgage was liable to be set aside at the suit of the clients as a result of the solicitors' breach of fiduciary duty in entering into the mortgage in the absence of the informed consent of the clients to the solicitors' interest in the transaction. This was so whether or not it might be said that the clients would have entered into the mortgage if the solicitors had disclosed their identity as mortgagees. At p.464 they stated:

"In Clark Boyce v Mouat, the Privy Council referred to the judgment of Lord St Leonards LC in Lewis v Hillman as authority for the proposition:
'The classic case of the (fiduciary) duty arising is where a solicitor acts for a client in a matter in which he has a personal interest. In such a case there is an obligation on the solicitor to disclose his interest and, if he fails to do so, the transaction, however favourable it may be to the client, may be set aside at his instance'."

To this several points may be added in elaboration. First, the situation here is to be distinguished from an action in tort to recover damages for a pecuniary loss caused, for example, by fraudulent misrepresentation. Equity intervenes, particularly where the fiduciary is a solicitor, not so much to recoup a loss suffered by the plaintiff as to hold the fiduciary to, and vindicate, the high duty owed to the plaintiff. Thus, whilst significant, inadequacy of the consideration or other improvidence of the transaction is not determinative…" (Citations omitted)

[2](1997) 188 CLR 449

The joint judgment went on to refer with approval to the statement of Lord St Leonards LC that if a transaction between solicitor and client is to stand it must be "open and fair and free from all objection" not just merely "fair".[3]
[3]Ibid p.461

Like the present case Maguire v Makaronis was a case of conflict of interest and duty rather than a case of conflict of duty and duty (conflicting duties to different clients), although both situations ultimately give rise to the question of whether the solicitor acted properly having regard to the fundamental duty to act with undivided loyalty to a client.[4]
[4]Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 at [196]-[202]

It is not enough in a case such as the present that the client consent to the transaction. The consent must be fully informed. What is required for fully informed consent is a question of fact in all the circumstances of each case. In Maguire v Makaronis the joint judgment stated at 466:

"… in the circumstances disclosed above, if the appellants were to escape the stigma of an adverse finding of breach of fiduciary duty, with consequent remedies, it was for them to show, by way of defence, informed consent by the respondents to the appellants’ acting, in relation to the Mortgage, with a divided loyalty. What is required for a fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given. The circumstances of the case may include [as they would have here] the importance of obtaining independent and skilled advice from a third party. On no footing could it be maintained that the appellants had taken the necessary steps of this nature to answer the charge of breach of fiduciary duty. However, it should be noted that, contrary to what appeared to be suggested by the respondents in argument, there was no duty as such on the appellants to obtain an informed consent from the respondents. Rather, the existence of an informed consent would have gone to negate what otherwise was a breach of duty." (Citations omitted – my emphasis).

As I have stated I have real reservations as to the reliability of the evidence of Justice and Patricia Maher as to the detail of what was and what was not said from time to time in the course of the transactions in issue unless such evidence is corroborated in some way by documentation or other circumstances. Likewise I have real reservations as to the reliability of the evidence of Brott in regard to relevant conversations in the absence of documentary or other circumstantial corroboration. For these reasons it is important to emphasise that the onus with respect to the issue of informed consent falls on Brott. To paraphrase the joint judgment in Maguire v Makaronis - "it was for him to show by way of defence informed consent by the Mahers to him acting in relation to the transactions with a divided loyalty."

In the present case there is a threshold dispute as to whether any advice was obtained from the Law Institute of Victoria ("the Law Institute") in the presence of the Mahers as asserted by Brott in [40] of his witness statement. Justice Maher and Patricia Maher maintain that they were simply told by Brott on the same day that he produced the fee agreement that he had spoken to the Law Institute and had been advised "It was all above board and that we were to sign the commission agreement." They deny that they were advised that they could or should obtain independent legal advice before executing the agreement. The following circumstances are of significance in this regard.

·No diary note has been produced by Brott recording the terms of advice from a representative of the Law Institute concerning independent legal advice. Brott concedes that he would have made a note of such an important matter. Moreover there are notes of meetings between the clients and Brott on 17 February 1999 which do not record the Law Institute phone call. Likewise there are notes of discussion with the clients on 1 March 1999 when Brott asserts that he informed the Mahers of their right to obtain independent legal advice, and again these notes make no reference to a conversation to this effect.

· Brott maintains that notes were made of a conversation on 17 February which have "evaporated". He asserts that such notes must have been removed by Justice Maher when he subsequently had access to the file for the purposes of photocopying in 2001. This allegation was not put to Justice Maher in cross-examination. The existence of such notes was not referred to in Brott's affidavit of documents.

· The file notes which are in existence record that the clients were told of the $150,000 fee on 26 February. There is no reference to advice from the Law Institute in the notes of 26 February.

· Dominus Maher, who gave generally credible evidence in somewhat different terms from his mother and brother, says that when he signed the fee agreement on 1 March 1999 he was advised by Brott that he need not worry about it as he was not paying for it. There was no recollection by him of a telephone conversation with the Law Institute in his presence.

· The recitals in the fee agreement do not record any advice from the Law Institute or from Brott as to the desirability of independent advice.

· No evidence was called from Herszberg to confirm that he was present during a conversation with the Law Institute on speaker phone.

· No reference to advice from the Law Institute is pleaded in Brott's defence.

· The witness statements delivered on behalf of Brott in this proceeding are not consistent. The witness statement of 21 November 2003 contains no reference to speaking with the Law Institute.

· The witness statement dated 10 March 2004 refers to the incident in the following terms.

"To ascertain whether or not I could receive the Herszberg fee I telephoned the Law Institute of Victoria. I do not recall with whom I spoke at the Institute but it was somebody from Professional Standards. I recall that the telephone call was made in the presence of Justice and Patricia on loud speaker. The person I spoke with at the Law Institute said that I could receive the fee as long as my clients had been informed of it and consented."

It can be seen that the witness statement tendered to me is recent in formulation. The above passage from an earlier statement refers neither to the presence of Herszberg nor to reference by the Law Institute representative to the question of independent advice.

I am not persuaded on the balance of probabilities that there was any discussion with the Law Institute to the effect now alleged alerting the clients to the need for, or desirability of, independent advice. Further and in any event it was not asserted by Brott in evidence before me that there was any explicit discussion with the Law Institute in the presence of the clients of potential problems regarding conflict of interest.

In my view the potential for problems of conflict of interest was significant. The agreement which was entered into with Herszberg on 17 February 1999 was on any view a preliminary agreement. It required finalisation by further documentation. There was a potential conflict of interest as to the precise terms of such finalisation. Moreover this agreement was torn up by Patricia Maher and a further preliminary agreement was entered into on 28 February 1999.[5] As at 1 March 1999, being the date on which the deed was executed relating to the payment of $150,000 by Herszberg, it must have been apparent to Brott that there was potential for future conflict between the Mahers and Herszberg regarding the detailed resolution of the final documentation necessary to give effect to the preliminary agreement of 28 February.
[5]My reasons for so characterising the agreement of 28 February 1999 are stated below.

Further it must have been apparent to Brott that there might be conflict as to the performance of such agreements.

There is no satisfactory evidence that the implications of the proposed fee arrangement in terms of potential future conflicts of interest were adequately explained to the Mahers. Brott was at the relevant time the Mahers’ legal adviser. It was incumbent upon him either to ensure that they were independently advised as to the potential for conflict of interest implicit in the fee agreement, or if he did not do so then at the very least to himself advise them explicitly as to such issues. It was not sufficient to advise the clients that they had the "opportunity to seek independent advice". Nor as I have stated am I satisfied in any event that they were present during a telephone speaker conversation with the Law Institute in which it was stated the clients should be advised of such opportunity. Likewise I am not persuaded that on 1 March 1999 Brott advised the Mahers "You will need another lawyer to look at that."

In my view the probability is that the Mahers agreed to the arrangement simply because it was on the face of it to the mutual financial benefit of both themselves and Brott. The effect of the arrangement documented on 1 March 1999 was that the pre-existing liability that they had to Brott with respect to fees would be discharged by Herszberg and that Brott would also receive an additional fee.[6] No doubt the Mahers also felt some real gratitude to Brott for having achieved a solution to their problems with the bank. The advantage to both the Mahers and Brott from the proposed arrangement was obvious, but I am not satisfied that the potential disadvantage to the Mahers was adequately explained to them. Indeed I am not satisfied that it was addressed in substance at all. It may not strictly have been necessary to obtain independent legal advice for the Mahers but in the absence of such advice the fourth defendant faces a difficult task to persuade the Court that the Mahers gave fully informed consent to the transaction. If counsel briefed to prepare the written agreement had also been briefed to independently advise the Mahers then the difficulties in issue could readily have been resolved. In the circumstances I have set out, however, I am not satisfied that the Mahers were advised in a manner which enabled them to give fully informed consent to the proposal to which they agreed.
[6]The 28 February 1999 agreement made provision for payment by Herszberg of the Mahers' legal fees in the sum of $35,000 to Brott. But for reasons stated elsewhere I do not accept such agreement was a final and enforceable agreement.

Mr O'Callaghan QC, who appeared with Mr Jones for Brott, submitted to me in his address in reply that the potential for conflict of interest was so obvious that it did not have to be spelt out in order for the Mahers to give informed consent. He submitted that the essential information was the fact that Herszberg had agreed to pay Brott $150,000. Once that information was received, it was obvious to anyone, and particularly to experienced business persons such as the Mahers, that there was an actual or potential conflict of interest in the sense that it was obviously in Brott's personal interest for the proposed transaction to be consummated. Mr O'Callaghan placed particular reliance upon the decision of the New South Wales Court of Appeal in Beach Petroleum NL v Kennedy[7]. In that case Abbott Tout had acted as solicitors both for the plaintiff and for other companies within the same group having a potentially conflicting interest in the same transactions. The Court stated[8]:
[7](1999) 48 NSWLR 1
[8]at [465] to [467}

"In Maguire v Makaronis (at 466), it was stated that what constitutes a fully informed consent is a question of fact to be determined in all the circumstances of each case. The court said that there is no precise formula which will determine in all cases whether a fully informed consent has been given. Abbott Tout's submission on informed consent is straightforward. Clearly there was no express informed consent in the sense that Abbott Tout told Beach that there would be a potential conflict of interest in acting for it in the transactions while acting for other companies within the group and Beach consented to Abbott Tout so acting. However such fully informed consent is to be inferred from the undisputed facts. The three directors of Beach, Mr Fuller, Mr Cummings and Mr Main, were the directing minds and will of Beach. When they instructed Abbott Tout, on behalf of Beach, they did so with full knowledge of the circumstances that Abbott Tout were acting for the other companies in the transactions. They knew exactly what was going on and what Abbott Tout were asked to do.
Reliance was placed on an analogous situation in Bristol & West Building Society v Mathew [1998] Ch 1. Millett LJ said (at 18-19):
'… A fiduciary who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other: see Clark Boyce v Mouat [1994] 1 AC 428 and the cases there cited. This is sometimes described as 'the double employment rule'. Breach of the rule automatically constitutes a breach of fiduciary duty. But this is not something of which the society can complain. It knew that the defendant was acting for the purchasers when it instructed him. Indeed, that was the very reason why it chose the defendant to act for it. The potential conflict was of the society's own making: see Finn, Fiduciary Obligations (at 254) and Kelly v Cooper [1993] AC 205.
It was submitted on behalf of the society that this is irrelevant because the defendant misled the society. It did not know of the arrangements which the purchasers had made with their bank, and so could not be said to be 'fully informed' for the purpose of absolving the defendant from the operation of the double employment rule. The submission is misconceived. The society knew all the facts relevant to its choice of solicitor. Its decision to forward the cheque for the mortgage advance to the defendant and to instruct him to proceed was based on false information, but its earlier decision to employ the defendant despite the potentially conflicting interest of his other clients was a fully informed decision.'

So too here. Beach, through its directors, knew that Abbott Tout were acting for other companies within the group on the various transactions. Indeed, they had quite deliberately given instructions on behalf of those other companies to Abbott Tout. If there was any conflict, it was of their own making and a decision which was made by them with knowledge of all the facts relevant to the choice of solicitor. It was a fully informed decision."

I accept that the Mahers were experienced in both business and litigation at the time they executed the fee agreement. Nevertheless in my view there is a fundamental distinction to be made between cases such as Beach Petroleum and Bristol & West Building Society on the one hand, and the present case. This is not a case where Brott was retained to act for two parties. It is a case where consent was given to receipt by him of fees from a third party having a potentially conflicting interest to that of the plaintiffs in the outcome of future transactions. The recitals to the fee agreement expressly stated:

"K.Brott has not, does not and will not act as legal practitioner for Herszberg in relation to the sale."

The situation of potential future conflict of interest and duty which arose as at 1 March 1999 with respect to the position of Brott was not of the same obvious nature as arises when it is agreed by one party to a transaction that a solicitor will also act for another party to that transaction. The situation which arose required either independent advice to be given to the Mahers or at the very least explicit explanation of the potential for future conflict to be given as a prerequisite to informed consent.

As events transpired, at 16 March 1999 being the date on which agreement was finalised between the parties to the sale transaction, it is clear that there was significant dispute between the parties and that Brott had a significant personal interest in resolving such dispute.

Likewise at the date of settlement Brott had a significant personal interest in completing settlement, in circumstances where one aspect of the settlement (namely the transfer of the Bourke Street apartment) was contentious and not in his clients' interests. On that day he received previously agreed costs of $40,000 together with all but $55,000 of the Herszberg fee.

It may also be said that thereafter up until the payment of the balance of his fee pursuant to the agreement Brott was in a position of conflict of interest insofar as dispute with Herszberg was concerned. The degree of his personal interest is reflected by correspondence referring to his desperate financial situation. Thus on 11 November 1999 Brott wrote to Herszberg stating in part:

"As your business is operating, please assist me by assuring me that the remainder of $35,000 owing will be available on 17 December, 1999 as I am truly stretched to the maximum and certainly have had a number of 'let downs' by a number of people with respect to monies owing to me."

It is apparent that throughout the period of ongoing dispute after the transfer of the Bourke Street apartment and up until substantial receipt of the moneys due to him under the fee agreement Brott had a material reason for not antagonising Herszberg.

In these circumstances I am satisfied the moneys received by Brott pursuant to the fee arrangement of 1 March 1999 were received in breach of his fiduciary duty to the plaintiffs and must be repaid to the plaintiffs.[9] In summary

(a)The fee agreement of 1 March 1999 was not entered into with fully informed consent; and
(b)The sums paid pursuant to the fee agreement by Herszberg were received when there was an actual conflict of interest between the Mahers and Herszberg and a consequential conflict of interest between the interests of Brott and the Mahers.
[9]cf Maguire v Makaronis at [467]

The Claim against the Purchaser Defendants for Knowing Participation in a Breach of Fiduciary Duty

The plaintiffs claim that the purchaser defendants knowingly participated in Brott's breach of fiduciary duty and accordingly they are also entitled to claim the Herszberg fee from them.

It was accepted in submission on their behalf that the plaintiffs must establish dishonest conduct in the sense referred to by Nettle J in Victoria University of Technology v Wilson[10]:

"A stranger to a trust (in which for present purposes may be included fiduciary duties falling short of trusteeship) does not become a constructive trustee merely because he becomes involved in the breach of trust. He is not liable unless he assists with knowledge in a dishonest and fraudulent design on the part of the fiduciary. And knowledge for this purpose means actual knowledge or calculated abstention from inquiry - constructive knowledge is not enough – of which the burden of proof of lies upon the plaintiff. Consul Development Pty Ltd v IPC Estates Ltd (1975) 132 CLR 373 at 385; Kooratang v ANZ Banking Group [1998] 3 VR 16 at 89-90; Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 at 157."

[10][2004] VSC 33 at para.[181]

The underlying principle in issue was stated by Lord Selbourne LC in Barnes v Addy[11]:

"(The responsibility of a trustee) may no doubt be extended in equity to others who are not properly trustees, if they are found … actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees."

[11][1874] LR 9 Ch App 244 at 251-2

The relevant standard of honesty for accessory liability was clarified by the advice of the Privy Council in Royal Brunei Airlines v Tan[12]:

"… dishonesty is a necessary ingredient of accessory liability. It is also a sufficient ingredient. A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation. It is not necessary that, in addition, the trustee or fiduciary was acting dishonestly, although this will usually be so where the third party who is assisting him is acting dishonestly. 'Knowingly' is better avoided as a defining ingredient of the principle, and in the context of this principle the Baden (1993) 1 WLR 509 scale of knowledge is best forgotten."

[12](1995) 2 AC 378 at 392

Elsewhere the Privy Council stated:

"… in the context of the accessory liability principle acting dishonestly, …, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour."[13]

[13]Ibid p.389

In Twinsectra v Yardley[14] Lord Hutton stated at 174:

"… dishonesty requires knowledge by the defendant that what he was doing would be regarded as dishonest by honest people, although he should not escape a finding of dishonesty because he sets his own standards of honesty and does not regard as dishonest what he knows would offend the normally accepted standards of honest conduct."

[14][2002] 2 AC 164

I am not satisfied that the plaintiffs have established that the purchaser defendants acted dishonestly in the requisite sense when Herszberg agreed to pay the Herszberg fee in consideration of Brott procuring the sale of the security properties and the purchaser defendants knowing this thereafter proceeded with the transaction as a whole. There is no doubt Herszberg and in turn Gordon knew on or about 1 March 1999 that the plaintiffs had executed the fee agreement. On the face of such agreement the plaintiffs gave their full consent to the payments in issue. They did so on the apparent basis of the facts set out in the recitals and they did so in a form which demonstrated the plaintiffs expected their consent would be acted upon. These circumstances do not suggest or establish that the purchaser defendants knew that what they were doing would be regarded as dishonest by honest people. Nor do they establish that their conduct was dishonest when assessed in the light of what they actually knew at the time.

It is appropriate to record that the recitals to the fee agreement which was executed as a deed are as follows:

"A. Isaac Brott is a legal practitioner.
B.The Mahers are involved with Bundoora Allweather Market Pty Ltd, Eighty-Sixth Eternity Pty Ltd, Simply Irresistible Pty Ltd and Pamah Pty Ltd ('the Maher group').
C.In February, 1999 the Mahers retained Brott to act for them and the Maher group in relation to a claim by Westpac Banking Corporation for payment of more than $6,000,000 ('the services').
D.By letter dated 4 February, 1999 from Brott to Patricia and Justice Maher and signed by them, Patricia and Justice Maher agreed to pay to Brott $40,000 as legal costs for the services ('the legal costs').
E.Brott agreed to provide the services on condition that, in addition to the legal costs payable by the Mahers, he would be entitled to receive and retain a fee from the purchaser of any property sold in relation to the claim.
F.Brott procured the negotiation of a settlement with Westpac Banking Corporation whereby the Bank agreed to accept $5,800,000 on the terms and conditions set out in a letter dated 12 February, 1999 from the Westpac Banking Corporation to Patricia Maher, a copy of which letter was signed by the Mahers and on behalf of the Maher group ('the Bank settlement').
G.In furtherance of the Bank settlement, Brott negotiated for the sale of properties to Herszberg or nominee ('the sale').
H.By an undated memorandum of agreement which was executed by the parties to it on 28 February, 1999 ('the memorandum of agreement') Herszberg agreed, inter alia, to pay $35,000 to Brott as part payment of the legal costs.
I.Herszberg has, with the Mahers knowledge and consent, agreed to pay $150,000 to Brott for procuring the sale ('the Herszberg fee').
J.Herszberg has paid $20,000 to Brott as part payment of the Herszberg fee.
K.Brott has not, does not and will not act as legal practitioner for Herszberg in relation to the sale.
L.Herszberg intends to re-sell some or all of the properties included in the sale."

The plaintiffs' case is pleaded on the basis that actual knowledge on the part of the purchaser defendants with respect to breach of fiduciary duty by Brott can be inferred:

(a)from the fact that Herszberg was a party to the fee agreement and to the preceding agreement of 28 February 1999 pursuant to which he agreed to pay $35,000 towards the plaintiffs' legal costs; and
(b)from the fact Gordon participated in the 16 March 1999 agreement.

It is not disputed Gordon was made aware of the contents of the fee agreement shortly after it was made.

The fact of the relevant agreements does not establish dishonesty. On its face the fee agreement evidences complete consent by the Mahers to the arrangement in issue. It subsumed the Mahers' agreement on the previous day and that agreement of 28 February in turn had conveyed consent to the payment of $35,000 towards the plaintiffs' legal costs.

The plaintiffs' case was put on an expanded basis in final submission. Firstly it was submitted that there was no reasonable explanation for the agreement by Herszberg to pay $150,000 other than that which Brott at one stage advanced in a witness statement. This was that the $150,000 was offered to Brott by Herszberg in an attempt to put Herszberg at an improper advantage over other buyers and to ensure that a deal was done with the Mahers. There are three answers to this submission.

(a)I am not satisfied the question of a fee was first raised by Herszberg as Brott maintained. Brott's evidence as to these matters was most unimpressive, particularly his assertion that he did not at first take the suggestion of a fee seriously. The evidence of Justice Maher was that Brott told the Mahers that in sequence he might, would and had asked Herszberg for a commission. It is in my opinion inherently more likely that Brott asked for the fee rather than that Herszberg offered it to him.
(b)There is another explanation for the payment of the fee than that of attempting to obtain some dishonest advantage. This is that stated in an earlier witness statement by Brott, namely that the fee was in effect a broker's commission paid by the purchaser as part of the sale transaction. Brott introduced the purchasers to the properties and sought and obtained a fee for doing so.
(c)The issue is not whether Herszberg sought to cement the deal by agreeing to pay the fee but whether there was something dishonest about this. The suggested motive of seeking to conclude a deal with the plaintiffs does not give rise to an inference of dishonesty unless the fee agreement were not the subject of consent by the Mahers.

The plaintiffs next contend that an inference of dishonesty should be drawn because Herszberg never intended the plaintiffs would be told of the commission. This proposition turns upon Brott's qualified adoption in the witness box of a prior witness statement to the effect "shortly after telling Patricia and Justice about the $150,000 commission, I told Herszberg that I informed them about it. Herszberg said he was surprised that I informed the Mahers." I do not accept that Herszberg said that he was surprised.

(a) This is not what Brott said in his final witness statement or in the witness box;
(b)Brott's evidence as to the relevant conversation with Herszberg provides no satisfactory basis for any confident conclusion as to what was said.

The tenor of Brott's evidence can be appreciated from the following extract:

"But it was a conversation that took place?---It was a conversation but it was different in the way this was put, hence the change.
How do you say Mr Herszberg put that - expressed his view about you telling them - the Mahers?---By his face - facial expression. That was my interpretation at the time. He didn't say, "I'm surprised you told them".
It's fair to say though, isn't it, that at the time you were offered this commission it was your view that Mr - why he was offering it to you was he wanted to make sure that he got the deal?---It was my view that he was hungry for the deal.
You've given evidence about that. You said he was hungry for the deal, wasn't he?---I just said that.
Yes, and you realised what he was trying to do effectively here was to ensure that no other competitors got in front of him?---There was a number of constructions that I can put on it, but not sitting within his head I would have to consider a full array of constructions. That would be one of them.
That's the construction you accepted at the time?---There were a number of constructions that I thought at the time.
That's the only one that's in any of the draft witness statements though, isn't it?---No, I think that there are other constructions put on it also. It was certainly an incentive and he wanted the property.
He thought by giving you a commission conditioned upon him getting the property, that was his best way to make sure the competitors didn't beat him to it, wasn't it?---When he put it to me I took it as something to go straight to the Mahers and tell them because it was a fabulous sign and encouraging for them as it indicated the level of intensity of which he was interested, and a comfort to them.
I put it to you that what he did was nothing short of offering you a bribe. Is that a - - -?---No, because if it would have been an offer of a bribe he would have told me not to tell them. He would have told me, "Come under the table" or "It would be paid in cash". No.
He didn't expect you to tell him, as far as you perceived, did he?---That's why he looked to me, surprised, but then again Myer is the sort of person that you can't have a conversation of two sentences with him without cracking a joke or putting on an expression or saying something that he thinks is funny or expects somebody else to think is funny, and it would be unfair to him, but in my context it was something that entered my head that it was a concern, but at the same time really I didn't take it that seriously at the time other than dash off to the Mahers and say, "Hey, this guy's - he wants it. Feel better now"? I mean not to you, but to them - sorry."

It was submitted that there was no challenge on behalf of the purchaser defendants to Brott's evidence that Herszberg was surprised to learn Brott advised the Mahers of the commission. In fact Brott did not say in evidence to the Court that this occurred. Moreover, the prior witness statement upon which the cross-examination on behalf of the plaintiffs was based, was not provided to counsel for the purchaser defendants prior to his own cross-examination of Brott.

It is next submitted that dishonesty can be inferred from the fact that Herszberg and Gordon became recipients of Brott's breach of fiduciary duty on the occasion of the renegotiation resulting in the 16 March 1999 agreement. This is not the basis on which the case of dishonest participation is pleaded.[15] Further it presupposes a breach of duty by Brott on 16 March 1999. For reasons I will set out below I am not satisfied such a breach occurred but in any event the actions of Brott on that date complained of by the plaintiffs could not give rise to an inference of dishonesty on the part of the purchaser defendants.
[15]The claim is not based on actual awareness of a failure by Brott to advise or act in accordance with Brott's retainer as originally particularised in paragraph 20 of the statement of claim. That this was so was confirmed by correspondence between solicitors prior to the hearing to which counsel referred me.

The plaintiffs submitted Brott breached his duty of skill and care to them on 16 March in two respects:

(a) failing to define expressions used in the agreement of that date; and
(b) failing to negotiate an outcome by waiving his commission.

The first of these matters could not in itself form the basis for any inference of dishonest knowledge on the part of the purchaser defendants. Nor could the second which is directed to a failure by Brott, not a circumstance going to his position which could have alerted the purchaser defendants to the breach by Brott of his fiduciary duty. Any obligation of Brott to give up the benefit of the agreement turned on pre-existing circumstances. Either there was a pre-existing basis for knowledge on the part of the purchaser defendants of a breach of fiduciary duty with respect to this agreement or there was not. For reasons I have already stated I am not satisfied there was.

It was next submitted on behalf of the plaintiffs that neither Herszberg or Gordon had reason to believe the plaintiffs had obtained independent legal advice with respect to the fee agreement. The case pleaded against the purchaser defendants is one of actual knowledge of breach of fiduciary duty. This was a matter repeatedly emphasised by Mr Styring in submission on their behalf. No answering application was made to amend the statement of claim to reformulate a case of constructive dishonest knowledge.

Moreover, and in any event, to establish an entitlement to relief the plaintiffs must establish actual knowledge or a calculated abstention from inquiry to satisfy the relevant test of dishonesty in the sense of knowledge by the purchaser defendants that what they were doing would be regarded as dishonest by honest people. As was stated in the Royal Brunei case, carelessness is not dishonesty.

There is no satisfactory basis for concluding the purchaser defendants knew that Brott was in breach of his fiduciary duty or that the purchaser defendants refrained in a dishonest way from inquiry as to the basis of the plaintiffs' apparently full and informed consent to the fee agreement.

I accept that, as the plaintiffs submit, Brott's evidence that Herszberg was present when an unidentified representative of the Law Institute advised concerning independent legal advice, should be rejected. I do not, however, accept that this leads to an inference adverse to the purchaser defendants.

I further accept that the failure of both Herszberg and Gordon to give evidence creates a situation where the Court may be entitled to be bold in drawing inferences as to their relevant state of mind.

Nevertheless, there is a fundamental deficiency of evidence demonstrating dishonesty in the relevant sense. The failure of Herszberg and Gordon to give evidence does not cure this deficiency. As Menzies J stated in Jones v Dunkel[16]:

"In my opinion a proper direction in the circumstances should have made three things clear: (i) that the absence of the defendant Hegedus as a witness cannot be used to make up any deficiency of evidence; (ii) that evidence which might have been contradicted by the defendant can be accepted the more readily if the defendant fails to give evidence; (iii) that where an inference is open from facts proved by direct evidence and the question is whether it should be drawn, the circumstance that the defendant disputing it might have proved the contrary had he chosen to give evidence is properly to be taken into account as a circumstance in favour of drawing the inference."

[16](1959) 101 CLR 298 at 312

In the present case the fundamental difficulty confronting the claim of knowing participation by the purchaser defendants in the breach by Brott of his fiduciary duty to the plaintiffs is that there is no direct evidence from which an inference of dishonesty relating to Brott's fees can be drawn against the purchaser defendants.

Repudiation of the 28 February Agreement

The plaintiffs claim that on or about 14 March 1999 Herszberg repudiated the 28 February agreement and that that repudiation was accepted by entering into the agreement of 16 March 1999. As a result it is alleged that the plaintiffs suffered damage.

The 28 February agreement was headed "Memorandum of Agreement". It was expressed to be made between the owners of the security properties and Herszberg or nominee. It was stated to be with respect to the security properties which were individually described. It stated in substance:

"The agreement between the parties is particularised as follows:
1.Ownership of Property situate at Unit 20/50 Bourke Street be transferred to the nominated ownership entity as specified by Patricia Maher.
2.Ownership of Property situate at 14 Warranwood Place, Bundoora be likewise transferred to the nominated ownership entity as specified by Dominus Maher.
3.Myer Herszberg will employ Justice Maher for 12 months at a remuneration of $1000 weekly.
4.Myer Herszberg will employ Helen Maher for 12 months at a remuneration of $600 weekly.
5.Myer Herszberg will pay per your irrevocable direction and authority $35,000 representing Legal fees to Solicitor Isaac Brott.
6.Justice Maher can live free of rent at 161 Settlement Road until demolition of same becomes necessary.
7.The Maher group will sign all necessary documentation to satisfaction of Herszberg and/or his associated entities in order to put effect to this agreement including execution of all necessary documentation to affect the purchase by Herszberg of the associated companies and transfer of all shares and/or units.
8.In consideration Myer Herszberg has made $100 payment into the trust account of Isaac Brott this day being 28 February, 1999."

It can be seen that the first matter provided for is the transfer of ownership of the Bourke Street apartment to an entity specified by Patricia Maher. It is the subsequent failure to achieve this outcome which is the central basis of the plaintiffs' grievance against the purchaser defendants.

Nevertheless, it is apparent that the 28 February agreement was supplanted by subsequent consensual arrangements. In particular the parties entered into the 16 March agreement and contracts for sale of the security properties, with the intent that such agreement and contracts would replace any prior understanding.

Further, it is apparent that the 16 March agreement and contracts of sale were entered into for good consideration. In particular they provided to the vendors additional consideration to that provided in the 28 February agreement. Most obviously they introduced Gordon to the contractual arrangements with the plaintiffs and imposed significant obligations upon him.

In these circumstances it is apparent that it cannot be said Herszberg wrongfully repudiated the 28 February agreement and no submissions to this effect were put on behalf of the plaintiffs in final submission.

It follows that if the claim based on knowing participation in breach of fiduciary duty is put to one side, the plaintiffs' claim against the purchaser defendants turns on the effect of the 16 March agreement and the contract for sale of the Bourke Street apartment.

Economic Duress

The plaintiffs allege the purchaser defendants exercised economic duress in requiring the fourth plaintiff to:

(a)enter into the contract of sale of the Bourke Street apartment on 16 March 1999; and

(b) settle the sale on 9 July 1999.

Economic duress in the requisite sense requires:

(a) pressure amounting to compulsion of the will of the victim; and
(b) the illegitimacy of the pressure exerted.[17]
[17]Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 per McHugh JA at 45
"The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress.
In their dissenting advice in Barton v Armstrong [1973] 2 NSWLR 598; [1976] AC 104, Lord Wilberforce and Lord Simon of Glaisdale pointed out (at 634; 121):
'… in life, including the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act. Absence of choice in this sense does not negate consent in law: for this the pressure must be one of a kind which the law does not regard as illegitimate. Thus, out of the various means by which consent may be obtained – advice, persuasion, influence, inducement, representation, commercial pressure – the law has come to select some which it will not accept as a reason for voluntary action: fraud, abuse of relation of confidence, undue influence, duress or coercion.'

64.I said to Justice and Patricia at that time that I was not expert in respect of local planning issues, and I advised them that they needed to be sure about their views about the Proposed Uses and that it would be wise in the circumstances to obtain written advice of experienced counsel in the area as the achievement of the Proposed Uses would control the cancellation of the apartment contract, which was the security that Herszberg and Gordon were demanding to ensure that such uses could be achieved for the Market. Justice and Patricia both said to me in this meeting that they did not want me to obtain such expert advice from counsel as Justice had the expertise himself, and that the clauses in the 16 March 1999 agreement which required the involvement of Justice in the obtaining of the permit gave them the assurance that any permit would be properly applied for and that in their view the permit would be obtained. Because of these instructions by Justice and Patricia, I did not take the matter further, and in particular did not instruct counsel to give advice. Justice and Patricia in my presence both read the proposed terms of the definition of 'Proposed Uses' many times and Justice said to me that from his knowledge of the planning requirements of the Whittlesea Shire Council he had no doubt that the uses described in the definition would be achieved."

I am not satisfied the plaintiffs relied upon Brott to advise them as to the definition of the proposed uses. I am conversely satisfied that he disclaimed expertise in town planning matters and that the definition of the proposed uses was arrived at by negotiation between the parties, as reflecting a compromise describing uses previously referred to by Justice Maher as being potentially able to be achieved on the market land.

It is clear that Brott participated in extended negotiations on 16 March 1999 seeking to give effect to his clients' instructions. The draft agreements in evidence demonstrate that in the course of these negotiations elements which the clients would not accept and in particular the inclusion of the use "shop" as a proposed use were deleted. Conversely, elements put forward on behalf of the clients by Brott were rejected by the purchaser defendants. These included a series of suggested references to the possibility that the lawfulness of the proposed use might be evidenced by letter of the responsible authority declaring that the proposed uses fell within the ambit of the existing permits. (I have had regard to this process of deletion and attempted amendment as demonstrating Brott's actions but not in aid of the interpretation of the agreement having regard to the principle as stated in Chitty on Contracts[36]:

"… where an instrument appears to have been altered while the parties were negotiating, the court cannot look at it as it originally stood compared with the alterations which were made in it, to see whether those alterations will throw any light upon the question of intention. However, when the parties use a printed form, and delete parts of it, there is some authority for the view that regard may be paid to what has been deleted as part of the surrounding circumstances in light of which the meaning of the words which they chose to leave in is to be ascertained. … it is doubtful whether the court can look at the words deleted except to resolve an ambiguity in the words retained."[37])

[36]28^th ed. vol 1, [12-067]

[37]Chitty on Contracts 25^th ed. vol 1, para.782 applied by Owen J in Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd (1999) 21 WAR 425 at [28].

I do not accept that Brott did not contend to the best of his ability for terms advantageous to his clients. Indeed the draft agreements evidencing changes and proposed changes to the agreement support the contrary view.

The evidence of the Mahers was that it was Justice Maher who in effect informed the ultimate decision as to what the plaintiffs would accept by way of description of the proposed uses. As I have said Justice and in turn Patricia Maher took the position that the existing trash and treasure market permits already authorised factory retailing outlets.

I am not satisfied, however, that Justice Maher is a reliable witness as to what otherwise occurred.

Justice Maher initially gave evidence that when the Mahers were presented with the first draft of the 16 march agreement he was shocked by its contents.

"Mr Maher, you were confident that the proposed uses could always be achieved?---On the original document when it was faxed through, I was horrified, shocked. Supermarket. Unbelievable. They had a completely hidden agenda.
Completely hidden agenda?---Hidden agenda Your Honour. Supermarket.
The document was sent through to you, was it not?---Never mentioned, I've never mentioned shops or supermarket to either of them. Shops and supermarket, it was like walking into a time bomb and saying you've got one second to go before it blows.
…
You never mentioned it then. You say they'd never mentioned it to you?---Never."

Contrary to this evidence Mr Maher's own diaries show quite clearly (as he subsequently conceded) that the proposed purchasers had had discussions about a supermarket use with him and indeed had requested him to investigate electricity sub-station arrangements to enable a supermarket use.

The genesis of the definition of proposed uses is reflected in Brott's notes of a conference he had with Herszberg and Gordon and the solicitors Efron and Szental on 15 March 1999. These notes include the following:

"Representations murky.
Maher
(1) suitability f(actory) retail outlets.
(2) operate shops.
(3) issue leases."

The notes conclude by recording as "changes" (presumably to the proposed agreement):
"… (ii) Bourke Street property cancellation contract subject to and conditional up[on] obtaining the represented permission allowing use."

Brott said in evidence, and having regard to the notes, I accept:

"Szental was maintaining that he had severe doubts as to the veracity of what Mrs Maher and Justice have represented."

The notes further record that on 15 March 1999 Brott sought advice from counsel having expertise in town planning matters. There was further evidence that Brott did in fact on that day obtain telephone advice for the Mahers from Mr Peake of counsel as to the question of leases and licences. (Just as he had obtained advice from counsel for his clients before negotiating with the bank.)

I am satisfied that the negotiations which took place the following day as to the definition of proposed uses within the 16 March agreement took the form of negotiations as to the correct description of uses previously forming the subject of discussion by Justice Maher with the proposed purchasers. I am specifically satisfied (as the Mahers themselves concede) that Brott's advice to the Mahers was to the effect that the contract for the sale of the Bourke Street apartment would be cancelled "provided the proposed uses can be achieved" and that he did not purport to give them expert advice as to the optimal description of these uses.

The Mahers were content to accept Justice Maher's view as to an acceptable definition of the proposed uses. The definition of proposed uses adopted was a compromise but insofar as this definition was disadvantageous to the Mahers this was not due to any lack of due skill or care on the part of Brott.

Indeed I am satisfied the definition was adopted when Justice knew that the terms adopted might mean different things to different people, although Patricia Maher maintains she was unaware of "the ambiguities" at the time.

Further it was adopted after five hours of negotiation when I am satisfied the Mahers had carefully considered the provisions in issue.

I do not accept that there was a clearer consensus between the purchaser defendants and the plaintiffs than that which the 16 March agreement embodies. In this regard I should add I do not accept Brott's evidence as to what and was not said in negotiation by the purchaser defendants is reliable as to matters of detail.

It is further submitted on behalf of the plaintiffs that Brott failed to negotiate the plaintiffs' concerns by offering to waive the Herszberg fee. There is no evidence that the contribution of $150,000 towards the difference between the parties would have resolved the issue between them. Ultimately the effect of the option agreement was that the purchaser defendants obtained security to the extent of $210,000 with respect to the achievement of planning approval for the proposed uses. It is entirely speculative as to whether $150,000 would have had any material effect upon the outcome of the negotiations. It cannot be said waiver of this fee would on the balance of probabilities have fundamentally altered the framework of the agreement with respect to which the plaintiffs complain.

(c)Alleged failure to negotiate with due care and skill prior to settlement of the Bourke Street apartment contract on 9 July 1999

It is submitted that the request by the purchaser defendants for an extension of time to settle, should have been refused. It is further submitted that Brott's evidence that he gave advice to this effect should be rejected.

I am not satisfied as to the precise terms of the advice Brott gave to the Mahers when the purchaser defendants sought an extension of time for settlement. I do not accept as entirely reliable either the evidence of Brott or the Mahers as to what was said at this time. Nevertheless I am satisfied that it must have been apparent to the Mahers that the ultimate commercial imperative with which they were confronted was the need to pay out and settle with the bank. It was a matter for judgment by them as to whether they were prepared to grant the purchaser defendants an extension of time for settlement or whether they wished to forfeit the deposit and place themselves in a position where they could offer the bank such deposit but no present arrangement for further payment. No doubt the terms of the 16 March agreement including those relating to the Bourke Street apartment were matters that they took into account. There is no satisfactory basis for concluding, however, that the decision which was made by the Mahers was made in reliance upon advice from Brott or precisely what that advice was although it is apparent there was a discussion of the commercial options open to the clients.

It is further submitted on behalf of the plaintiffs that Brott failed to ascertain what would satisfy the purchaser defendants by way of compliance with the 16 March agreement as evidence of the approved status of the proposed uses.

In my view the 16 March agreement makes clear that what was envisaged as conclusive was a fresh permit.

Moreover Brott sought by letter to Efron of 18 May 1999 and in discussion with Herszberg on or about 6 July 1999 to persuade the purchaser defendants to agree to abide by the opinion of an independent barrister as to the lawfulness of the proposed uses. This was an entirely reasonable process by which to seek to expedite the resolution of the question of the proposed uses favourably to his clients.

It is further submitted on behalf of the plaintiffs that Brott failed to advise the Mahers to take a strong stand at settlement on 9 July 1999 and further advised them that they had no leverage. For reasons I have stated in my view the purchaser defendants were in fact entitled to maintain that the proposed uses were not the subject of proper approval. It follows that the plaintiffs had no basis for the "strong stand" in issue.

It is common ground between the Mahers and Brott that Brott did advise the Mahers as to the commercial reality confronting them. Nevertheless it can hardly be said that it was negligent to advise the plaintiffs to settle the sale of the apartment contract (even if the proposed uses had at that date been lawful). The downside to the plaintiffs was at worst $210,000 in circumstances where settlement would resolve a potential liability to the bank for $6.35 million and avoid seizure by the bank of the security properties.

(d) Alleged negligence in lodging a caveat over the Bourke Street Apartment

Clause 7.7 of the 16 March agreement provided:

"7.7.1Simply (for itself and its nominee) undertakes to the Purchaser that Simply must not lodge, cause or allow to be lodged at the Land Titles Office a caveat in respect of its interest in the Apartment created by this Clause 7 or otherwise until after registration of a mortgage over the titles to the Apartment given by the Purchaser in favour of its banker or financier to secure (amongst other things) funds provided for the purchase of the Apartment by the Purchaser.
7.7.2Simply (for itself and its nominee) undertakes to the Purchaser that, if (after Simply or its nominee have lodged or caused or allowed to be lodged at the Land Title Office a caveat in respect of its interest in the Apartment created by this Clause 7 or otherwise) the Purchaser requests Simply (or its nominee) to consent to lodgment or registration of a mortgage over the titles to the Apartment, Simply will procure that the appropriate consent, acceptable to the Land Titles Office and the mortgagee, is given to the Purchaser within 3 days after a written request is made for it."

Brott's witness statement describes his actions with respect to the caveat as follows:

"117.I was always reluctant to lodge a caveat against the apartment, as I was fully aware of the consequences under the 16 March 1999 agreement. I spoke to Patricia about the consequences of lodging a caveat. Initially in these conversations, Patricia did not want to lodge a caveat as she said she did not want to take the consequences. She said that she would deal with Herszberg and Gordon and Herzog and that she believed she would have the apartment returned. I was also speaking to Patricia in this period about issuing litigation. She did not want to do that either. Prior to 2 September, Patricia said to me that she had had no luck in her dealings with Herszberg, Gordon and Herzog, that she now wanted to lodge a caveat against all the properties. I said to her that she had no caveatable interest in any of the properties other than the Bourke Street apartment. She said to me that she was not going to pay any monies for the Bourke Street apartment, and that she now wanted to lodge a caveat against the title to tie Herszberg and Gordon up in respect of any dealings with the property. She also said to me that she believed Herszberg and Gordon were acting dishonestly in that they were already trying to leave the Bundoora markets upon the basis that factory retailing outlets were allowed by their current permit.
118.On 2 September I arranged for a caveat to be lodged at the Titles Office over the apartment. The named caveator was my firm. The interest claimed was an interest as chargee, pursuant to the 16 March agreement.
119.I was only prepared to lodge this caveat after I was satisfied by reason of the conversations referred to in paragraph 117 above that Patricia and Justice were aware that the effect of lodging a caveat over the apartment would be to cancel the option to purchase the apartment. I was certain from my discussions with Justice and Patricia from July 1999 onwards that so far as Justice and Patricia were concerned they were not prepared to ever exercise the option to re-purchase the apartment by paying any sum of money as in their view the Proposed Uses were met and that they expressed the clear view to me that Herszberg and Gordon were in breach of contract by not making the application for the permit. I spoke in these conversations to Justice and Patricia about the effect of the caveat upon the exercise of the right to re-purchase and they were both adamant in these discussions that they would not be paying one cent to Herszberg and Gordon for the return of the apartment. Patricia said to me in these conversations that she was talking to Herszberg directly about the matter and that she believed from those discussions that she would resolve the matter with the apartment being returned to her.
120.On 9 September 1999 I wrote a letter to Patricia confirming that arrangements had been made with regard to lodging a caveat over the apartment and that due to the lack of any caveatable interest in the Thomastown properties no caveat could be lodged over them. The letter was sent by facsimile. I note that it appears the facsimile was in fact sent on 15 September. My letter was written in response to Patricia's facsimile to me dated 28 August 1999, ...
121.Following the receipt of requisitions on the caveat from the Land Titles Office on 27 September I requested the caveator be amended to Eighty-Sixth Eternity in lieu of my firm. The caveat (No. W265550E) was registered on the title to the apartment on 18 November 1999."

At the date the caveat was registered no mortgage over the title to the apartment in favour of the purchasers' banker had been registered. A mortgage had been granted to the National Australia Bank Ltd on 9 July 1999 but it was not lodged for registration until May 2001.

There is no doubt that the caveat lodged by Brott was lodged in accordance with express instructions from Patricia Maher as reflected in facsimile transmissions from her of 26 and 28 August 1999.

The evidence of Justice Maher is that he had left a message at Brott's office expressing concern that no caveat had been lodged on 12 July 1999. He says further:

"During this period, there were a number of occasions, when we instructed Brott to lodge a caveat. He said that he had to be careful, because under the 16 March 1999 agreement, the lodging of the caveat could affect our right to recover the Bourke Street apartment. We said as soon as the mortgage was put on he should immediately caveat."

I am not satisfied Brott failed to advise the Mahers as to the effect of the lodging of the caveat upon the vendor's rights under the 16 March agreement, before a caveat was lodged by him in accordance with the Mahers' instructions.

At the trial before me it was submitted on behalf of Brott that the lodging of the caveat did not in fact lead to a loss of rights under the option. I prefer the view that it did (the first limb of cl.7.7 would otherwise be rendered superfluous) but I am not satisfied that Brott failed to advise his clients as to this risk.

Further and in any event the purchaser defendants by solicitor’s letter dated 30 January 2001 invited the plaintiffs to exercise the option. That letter (to which I shall return) stated in part as follows:

"If your clients position is that the market land can be used for the proposed uses, please provide written evidence in support of such proposition by return.
In the alternative, if you are unable to do so, our clients position is clear, being that subject to the exercise of the option the apartment purchase price is $210,000."

It cannot be said that the lodging of the caveat prevented the exercise of the option. It is apparent that in 2001 the purchaser defendants invited the plaintiff to exercise the option as a vehicle for settlement of the ongoing dispute as to rights of ownership to the Bourke Street apartment.

(e)Alleged failure to resolve the question of the proposed uses in time to exercise the option

It is submitted on behalf of the plaintiffs that Brott failed to resolve the question of the proposed uses in time to enable exercise of the option and that in particular Brott:

(a)failed to advise the plaintiffs properly as to the prospect of having the planning issues resolved; and
(b)failed to follow specific instructions to issue proceedings against the defendant purchasers.

Insofar as the allegation that Brott did not advise the plaintiffs properly as to the prospect of having the planning issues resolved, I am not satisfied that the Mahers' account of the advice given to them by Brott is reliable.

It is apparent from the documentary evidence and matters admitted by the Mahers that:

(a)Brott had advised the Mahers prior to the 16 March agreement that it was open to them to obtain the advice of specialist counsel with expertise in town planning law;
(b)Brott first threatened (9 July 1999) and then lodged a caveat over the Bourke Street apartment in an effect to bring pressure to have the dispute as to the status of the proposed uses resolved;
(c)Brott repeatedly suggested to the purchaser defendants that it would be appropriate to resolve the dispute by having it arbitrated by an expert in town planning law (prior to settlement 18 May 1999, and after settlement 13 July 1999, and 18 August 1999);
(d)Brott corresponded with Herszberg direct and sought to persuade him that the proposed uses were lawful (23 July 1999 and 2 August 1999);
(e)Brott advised his clients the best way to resolve the matter would be direct negotiation with Herszberg (25 October 1999);
(f)Brott sought to engineer round table discussions between the parties (3 October 2000 to 21 November 2000, 18 January 2001, 22 January 2001);
(g)Brott had discussions with both Gordon (28 June 2000) and Herszberg (18 January 2001);
(h)Brott threatened proceedings for specific performance of the contract cancellation provisions contained in the 16 March agreement (28 June 2000, 24 September 2000);
(i)Brott briefed counsel to draw proceedings and attended an initial conference in July 2000 with counsel and his clients for the purpose of giving instructions to counsel. A draft statement of claim was drawn but adequate instructions were never given for the completion of a statement of claim in effective form.

Having regard to the documentary evidence as to the steps which Brott did take I am not satisfied Brott did not advise the clients adequately as to the alternatives open to them to clarify the status of the proposed use.

A significant circumstance tending to confirm the view that Brott did not act without due skill and care to resolve the status of the proposed uses is the independent assessment of the case by Mr Whitby of McKean & Park Solicitors in late 1999. Mr Whitby impressed me as a careful and competent solicitor. His considered advice on the basis of the instructions given him by the Mahers as to the course of the matter up until that point in time (including a satisfactory chain of documentation) was that it was appropriate to leave the case in the hands of Brott but that the independent advice of an appropriate expert as to the underlying planning issues should be obtained.

Mr Whitby was retained by the plaintiffs for the express purpose of obtaining an opinion independent of that of Brott. After conferring with the clients and counsel and obtaining counsel's opinion, Mr Whitby advised in writing in terms which correctly identified the critical issue between the parties as turning on the status of the proposed uses. He set out arguments relating to the status of the proposed uses and while expressing the view that the plaintiffs should be able to take successful proceedings against the purchaser defendants, he expressly recommended that expert planning advice be obtained.

"We would, however, suggest that the independent opinion of a town and country planning expert be obtained. It will be necessary in the future that such expert evidence be given to the court in the event that you proceed with proceedings. The court will have to be satisfied that under the normal course of events the plaintiffs would have been able to use the premises for the uses which you agreed could be done; therefore expert evidence should be obtained and you should be prepared to call the planning officers of the relevant council to establish that they would have no objection to the uses as anticipated by the contract.
Under the circumstances we believe our retainer is complete as you really wished a second opinion as to whether or not you should proceed with this matter.
Subject to the qualifications above we believe that you should speak to Mr Brott and request that he proceed to seek enforcement of the contract as soon as possible or alternatively seek damages. We trust that this matter has been handled t your satisfaction."

The failure to resolve the status of the proposed leases in time to exercise the option resulted from the failure to obtain appropriate expert advice as Brott had advised might be done and as Mr Whitby unequivocally advised should be done.

Insofar as the failure to issue proceedings as such is concerned this matter is not raised as a basis for negligence by the particulars in the third amended statement of claim. Brott acknowledges that he received written instructions from Patricia Maher of 7 December 1999 and 25 January 2000 to institute proceedings "for specific performance of the deed of March 16, 1999 relating to Unit 20/50 Bourke Street, Melbourne." Nevertheless Brott maintains that thereafter he received contradictory and inconsistent instructions from his clients because:

(a)Justice and Helen Maher were employed by the purchaser defendants pursuant to the terms of the 16 March agreement and remained so employed up until Christmas 2000; and
(b)Patricia Maher remained in occupation of the Bourke Street apartment and depended on the payment of expenses in relation to that apartment by the purchaser defendants.

I am not satisfied it is possible to satisfactorily resolve what was the exact course of instructions to Brott in relation to the issue of proceedings during 2000. It is clear, moreover, that proceedings were not regarded as an exclusive remedy by the Mahers. Thus there was agreement by them to attempts by Brott to organise a round table conference in November 2000. Ultimately, however, it can be concluded that the discussions between the Mahers and Brott culminated in unequivocal instructions to institute proceedings in late 2000. Brott's response to what may be called the final instructions to sue, was to advise the Mahers to institute proceedings against Gordon alone and not Herszberg – essentially with a view to driving a wedge between them. Following this advice the Mahers terminated Brott's retainer on or about 8 February 2001.

In my view despite the fact that Brott did not resolve the status of the proposed uses, the plaintiffs have not established that he failed to take reasonable steps to do so by virtue of the failure to institute proceedings:

(a) He did take the various steps to which I have referred;
(b)There is dispute as to the terms of his instructions from the Mahers with respect to the institution of proceedings which I am unable to resolve conclusively in a manner adverse to Brott;
(c)The proceedings contemplated were in any event misconceived. They were premised upon the view that Justice Maher's opinion that the proposed uses were lawful as at the date of settlement, 9 July 1999, was correct. Mr Whitby correctly and clearly identified this premise for the Plaintiffs in November 1999. They chose not to take his advice that this issue should be independently clarified by an independent expert.

Even if I were persuaded that Brott failed to exercise due skill and care in seeking to resolve the issue of the status of the proposed uses by the failure to issue proceedings, two further problems confront the plaintiffs. First, it cannot be said the institution of the proceedings contemplated by the Mahers would as a matter of probability have led to a successful outcome. For the reasons I have set out such an outcome could only have been ensured by the exercise of the option.

Second, Brott's services were terminated while the option was still alive. The plaintiffs then sought and obtained further advice from their current solicitors. The decision not to exercise the option was not made in reliance on Brott's advice, but rather made after Brott had been discarded by the plaintiffs as a reliable source of advice.

Brott was by this stage thought by Patricia Maher to be part of a Jewish conspiracy and by Justice Maher to be untrustworthy because of his relationship with Herszberg. Brott was thought by them to be so unreliable as to justify the termination of his services and to require the retainer of new solicitors.

On 19 March 2001 Patricia Maher instructed Mr Curtain of the plaintiffs' solicitors with respect to her understanding of the option, which he noted as follows:

"If not what we say it is, we'll have to pay $210,000 towards the cost of making it what we said the market was."

In turn Mr Curtain's file note of 18 June 2001 specifically records that he advised Patricia Maher of the right to exercise the option.

In my view Brott's advice cannot be regarded as a material cause of the decision not to exercise the option. The true position is that the plaintiffs themselves were not prepared to exercise the option and in formulating their position in this regard they relied not upon Brott but upon their own understanding of the planning status of the proposed uses and the advice of the solicitor they retained after the termination of Brott's services. That advice did not express a concluded view as to the plaintiffs' rights and it was in the absence of expert planning advice and of a concluded view from that solicitor that the plaintiffs elected not to exercise the option. The Plaintiffs took the view that full cancellation of the contract of sale of the Bourke Street apartment could still be achieved and in light of this possibility elected not to exercise the option.

Conclusion and Counterclaim

For the above reasons the plaintiffs' claim fails save for the claim against Brott for the Herszberg fee in the sum of $150,000.

Further the first defendant is entitled to succeed on its counterclaim against the first plaintiff for occupation of the Bourke Street apartment since 12 December 2003. It is agreed that the damages payable are to be calculated at the rate of $60 per day from and including that date up until judgment.

---

[L1]

[2004] VSC 174

20 May 2004