Mountford v Hummelstone Pty Ltd

[1996] QCA 420

IN THE COURT OF APPEAL	[1996] QCA 420
SUPREME COURT OF QUEENSLAND
Brisbane	Appeal. No.2480 of 1996
[Mountford v. Hummelstone P/L]

JOHN WILLIAM MOUNTFORD

(First Defendant) Appellant

and

HUMMELSTONE PTY LTD

(Plaintiff) Fitzgerald P. Mackenzie J. Cullinane J. Respondent

Judgment delivered 05/11/1996

Joint reasons for Judgment of Fitzgerald P. and Mackenzie J. Dissenting reasons for judgment of Cullinane J.

APPEAL ALLOWED WITH COSTS TO BE TAXED.

CATCHWORDS:LEGAL PRACTITIONERS - duties and liabilities - solicitor acting for the purchaser of a business - solicitor's pre-contractual enquiries did not disclose that wholesale cigarette trading was a significant component of the business - statutory restrictions on wholesale trade affecting value of business - whether the solicitor was negligent in the performance of his duties to the client purchaser - whether the solicitor was in breach of contract or retainer - duties of a solicitor acting for the purchaser of a business discussed.

MacIndoe v. Parbery (1994) Aust. Torts R.81-290 applied.

Counsel:	P.A. Keene Q.C. with him W.D.P. Campbell for the appellant. R. Galloway for the respondent.
Solicitors:	Minter Ellison for the appellant. Goss Downey Carne as town agent for Cartright Richardson and Stringer for the respondent.
Hearing date:	17 October, 1996

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Brisbane	Appeal No.2480 of 1996
Before	Fitzgerald P. Mackenzie J. Cullinane J.

[Mountford v Hummelstone P/L]

JOHN WILLIAM MOUNTFORD

(First Defendant) Appellant

and

HUMMELSTONE PTY LTD

(Plaintiff) Respondent

JOINT REASONS FOR JUDGMENT - FITZGERALD P. & MACKENZIE J.

Judgment Delivered 5 November 1996

This is an appeal against a decision of the District Court at Gympie in an action for breach of contract of retainer or, alternatively, for breach of duty.

The appellant is a solicitor who acted for the respondent in the purchase of a business at Noosa which sold tourist items, gifts, bags and cigarettes by retail. At the time when the business was purchased by the respondent it also sold, by wholesale, tobacco products to other business outlets in the Noosa area. The wholesaling was a significant component of its overall trading. However, this was neither disclosed by the respondent to the appellant nor ascertained by the appellant prior to the completion of the sale. The critical finding against the appellant was that the discussion which he had with the directors of the respondent "regarding the business they were purchasing, what it did and its sources of income was quite inadequate to achieve any real understanding of what it did and its sources of income." The learned trial judge further said:

"... I cannot come to the view that the description of the discussion regarding the business which emerges from the evidence was adequate to discharge a solicitor's duty to his or her client in the circumstances of the retainer here. It seems to me had the nature of the business and its sources of income been the subject of some enquiry and fuller discussion by the first defendant it would probably have emerged that a component of its trading was the supply of tobacco products to other retail outlets on a wholesale basis."

The method adopted by the appellant, who had seen the respondent's directors at short notice because they were soon to return to New Zealand, was to have some general discussion and then to go through the draft contract with them. On this occasion, the only discussion about the business, what it did and its sources of income occurred when clause 9 of the business contract was discussed. The clause was a restraint of trade clause and the trade or business restrained was that of "gift shop". According to the learned trial judge's findings the appellant indicated he knew the business. He had made a remark to the effect that it sold "bits and pieces of everything" and had remarked that he thought it sold cigarettes too which was confirmed by the clients. The contract was duly executed, with special conditions that it was subject to and conditional on a lease in terms satisfactory to the purchaser, and on approval of finance. On a subsequent occasion when the appellant discussed the terms of the permissible use clause of the lease during its preparation, the male director of the respondent instructed the appellant that the permissible use should read "retail of gifts, novelties, souvenirs, travel accessories, cigarettes and tourist paraphernalia". The respondent's case had been run at trial on the basis that the appellant had been told when he was retained that tobacco wholesaling was a significant part of the business. The learned trial judge rejected that evidence saying that he was unable to come to the conclusion that he had been told that tobacco wholesaling was a component of the business, much less a principal component.

The respondent conducted the business in the same manner as the vendor until correspondence from the Office of State Revenue referring to the need to have a licence to sell tobacco for the purpose of resale came to its notice. The respondent took professional advice. It was ascertained that the cost of such a licence was prohibitive and the tobacco wholesaling aspect of the business was discontinued. There was evidence that had enquiries been made of the Office of State Revenue such enquiries would have revealed that there was a policy of non- enforcement of the strict letter of the law provided the wholesale sales did not exceed $1,000 in respect of any one customer per day. Subsequently, the limit increased to $2,000. The learned trial judge found that the wholesaling trade was within these limits at all material times. He also found that the action of the respondent in ceasing the wholesale trade was "entirely reasonable" in the circumstances, having taken legal and accounting advice and having never been made aware that it could continue wholesaling to the level it had been. The business was eventually sold for about half the price for which it had been purchased.

The learned trial judge concluded that the appellant had failed to exercise due care and diligence in his advice to the respondent. In coming to that conclusion he relied on MacIndoe v. Parbery (1994) Aust. Torts R. 81-290 and upon the evidence of a solicitor, Mr Rigby. The passages in MacIndoe, to which he referred were:-

"A prudent solicitor will usually need to make enquiries with respect to any substantial possibility that the intended use of the property may be affected by some proposal of a statutory authority. The solicitor will be expected to make what are the standard enquiries common within the profession. He or she will also be expected to make further enquiries if particular matters have come to attention which would indicate to a solicitor of reasonable competence that the matter should be followed up."(61,537)

"... the ordinary retainer of a solicitor in a conveyancing matter includes an obligation to find out from the purchaser the use to which the purchaser wishes to put the land and give advice as to the legal impediments to that occurring and suggesting what other expert advice the purchaser should obtain.

Of course the ordinary retainer in conveyancing matters will be varied by the circumstances of each individual case. If a person who is buying a business is an experienced person of business and makes it clear to the solicitor that he or she merely wishes the deal that has been done to be documented and nothing more then the solicitor's responsibility is so much the less. Again, there is a difference between having a responsibility to point out to the purchaser the pitfalls in using the property purchased for the intended purpose on one hand and venturing an opinion as to whether the purchaser has made a good deal commercially. The latter is usually not something that comes within the ordinary retainer of a solicitor."(61,540)

"Accordingly, there is no lack of authority for the proposition that the retainer of a solicitor for the purchaser on the purchase of a business ordinarily extends beyond mere documentation and includes the duty to warn the purchaser of anything that is unusual and anything that may affect the purchaser obtaining the benefit of the contract which he or she discloses to the solicitor is sought to be obtained. "(61542)

With respect to the evidence of Mr Rigby the learned trial judge made the following

finding:-

"I accept the evidence of Mr Rigby. In my view it described the duty a solicitor owes a client who is purchasing a business who retains the solicitor to act for him or her on the purchase. Except if specifically instructed to that effect, a solicitor so acting is more than a mere conveyancer. Apart from the mechanical steps of the conveyance, the "mere documentation" Young AJA referred to, a solicitor will ordinarily have a duty to ensure that the client is aware of legal limitations or impediments actual and potential which may affect the operation of the business."

Mr Rigby's initial statement of the standard of prudent practice in the case of sale of a business was that the solicitor should try to ensure that he got as much information as he could from the client as to the nature of the assets and the nature of rights that might attach to the business because the assets and rights generated the income. He said that it was necessary to enquire because the client did not always give all the information. He said that if he knew that cigarettes were sold he would enquire to what extent it was a major part of the business and would have checked with the Office of State Revenue. In cross-examination he agreed that the use of the word "wholesale" would have put him on enquiry but conceded that it would not be until "wholesale" was used that he would have enquired of the Office of State Revenue. He also conceded that if he had been told that the business was a gift shop that sold knick-knacks, bags, handbags, caneware and cigarettes there would be nothing which would cause him to make further enquiries in relation to the matter.

The question whether the appellant failed in his duty of care is essentially a matter of impression. As Young AJA said in MacIndoe (61,542) the question is one of fact which has to be determined in the light of all the circumstances of the case and the way in which the case is presented at trial.

The issue is whether, having regard to the findings of fact the learned trial judge's assessment that the enquiries made by the appellant were inadequate was open to him. In our opinion it was not. The case was one where the respondent through its directors had initially, in the contract, accepted the definition of "gift shop" as describing the business. It was known that it also sold cigarettes but nothing was said to suggest that there was any wholesale component. The facts found by the learned trial judge are that at no time was the appellant told that the business had a wholesale component. Further there was nothing else to put the appellant on notice that there may be a wholesale component. For example the business names extract describes the nature of the business as "retail giftware and bags".

After the contract was signed but before finance had been approved, there were discussions in some detail at the time when the lease was being drafted which resulted in the permissible use of the premises being amended at the respondent's request to "retail of gifts, novelties, souvenirs, travel accessories, cigarettes and tourist paraphernalia". At this point, the respondent could have declined to proceed with the contract if the provision relating to licensing had become known and finance had not been approved, as would in all probability have been the case if potential lenders had become aware the business was likely to be worth substantially less than the contract price. However, at this point, explicit instructions were given that the business was a retail business and in our view the appellant was entitled to act on these incorrect instructions even if his initial inquiries were imperfect.

Each case must be determined on its particular facts. In our opinion in the present case the evidence accepted by the learned trial judge does not support the conclusion that the appellant had failed to discharge his duty towards the respondent. The appeal must be allowed with costs to be taxed.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Brisbane	App. No.2480 of 1996
Before	Fitzgerald P. Mackenzie J. Cullinane J.

[Mountford v Hummelstone P/L]

JOHN WILLIAM MOUNTFORD

(First Defendant) Appellant

and

HUMMELSTONE PTY LTD

(Plaintiff) Respondent

REASONS FOR JUDGMENT - CULLINANE J.

Judgment Delivered 5 November 1996

The appeal in this matter involves a fairly narrow point. The relevant facts are set out in the joint judgment of the President and Mr Justice Mackenzie. His Honour rejected the evidence of Mr Hillier that he told the appellant about the wholesaling contained in the business. He accepted that what took place between them as to the nature of the business was as the Appellant related in evidence. The conversation concerned clause 9 a restraint of trade clause. It was:-

"We then went on to discuss the other provisions, including the Australian (sic) trade - what I call the standard Australian (sic) trade clause in the document, and as a result of that discussion I asked him did he agree that the business was a gift shop business. At that particular juncture I said to him, 'Yes, Tony, I know of the business, it sells bits and pieces of everything. I know it's on the corner of Acadia Walk/Lanyana Way.' He said, 'Yes, that's right.' I said, 'It sells bits and pieces of everything.' He said, 'Yes, that's right.' I said, 'I think it sells cigarettes too, doesn't it?', or words to that effect. He said, 'Yes, that's correct.' I said, 'Are you content' - I explained the purpose of the clause, why it was there, and I believe he understood that, and that the reason for that was the clause prevented a vendor from acting in competition within the radius set out in the clause, and for the period set out in the clause, in my view, and I asked him, 'Now, are you content that gift shop' - well, let me think about that - 'the gift shop, does that cover it?', and he says, 'Yes, that covers it, that's fine. No need for a change there.'"

His Honour's findings relevant to this appeal are at pages 14 and 15:-

"I find that the first defendants discussion with the Hilliers regarding the business they were purchasing, what it did and its sources of income was quite inadequate to achieve any real understanding of what it did and its sources of income. I am conscious of the need to guard against judging the matter with the benefit of hindsight. However I cannot come to the view that the description of the discussion regarding the business which emerges from the evidence was adequate to discharge a solicitors duty to his or her client in the circumstances of the retainer here. It seems to me had the nature of the business and its sources of income been the subject of some enquiry and fuller discussion by the first defendant it would probably have emerged that a component of its trading was the supply of tobacco products to other retail outlets on a wholesale basis."

In reaching that conclusion His Honour accepted the evidence of Mr. Rigby, a solicitor and relied upon passages in the judgment of Young A.J.A. in MacIndoe v. Parbery (1994) Aust Torts Reports 81- 290 and particularly at page 61,540 where the following passage appears:-

"This strongly suggests that, at least since 1990, the ordinary retainer of a solicitor in a conveyancing matter includes an obligation to find out from the purchaser the use to which the purchaser wishes to put the land and give advice as to the legal impediments to that occurring and suggesting what other expert advice the purchaser should obtain."

This passage appears after a reference to a conveyancing code of practice. Prestly J.A. agreed with the reasons of Young A.J.A. The Appellant's obligation to the Respondent was to act generally

in its interests in relation to the entering into of the contract for the purchase of the business and the

transfer of it. What will be required of a solicitor in order to discharge his duty of care will depend upon

the nature of the engagement and the particular circumstances of each case. His Honour in this case

relied upon the evidence of Mr Rigby who gave evidence as to appropriate practice. He gave evidence

by reference to both the Respondent and Appellant's account of what had occurred. He said at p.101:-

"The important thing in relation to a business that I believe is the standard of prudent practice, and certainly that I adopt, is to try and ensure that you get as much information as you can from the client as to the nature of the assets and the nature of any rights that might attach to that business in the sense that it's those assets and rights that generate the income."

When asked a little later as to what would be appropriate practice when he was told the business was described as a "gift shop", he said:-

"Gift shop' is a very broad term and again I think the normal thing, the thing I would do is simply say 'What are you selling, what types of - what is the merchandise' and 'Where is - No where does your income come from'. I mean that question usually gets straight answers."

He went on to say that he would tell the client that he needed to know what is the basis of the business and how it generates its income so that the client could be protected.

It is true that a little later in cross-examination he said that if he had not been told that the sale of cigarettes was a significant part of the business he would not think much of it. He also said in response to the following question:-

"'Yes, but if you're told that, 'in fact, we've already seen an accountant. We don't require commercial advice. We're going back to New Zealand in two days' time', and you're told that it's a gift shop that sells knick-knacks, bags, handbags, and caneware and cigarettes, there would be nothing, if you were the solicitor at the time, to have caused you to make any further inquiries in relation to that?-- I don't think so, no.'"

In a later exchange in which it was revealed that he knew something of the business concerned

he was asked:-

"Are you sure you mightn't be influenced by perhaps your knowledge that has been acquired in the preparation of this case as well?-- No I don't believe that to be so. In your mind that was also a cigarette--? Yes, I think cigarettes was something they needed to investigate. Yes."

The matter turns upon its own particular facts and is undoubtedly close to the margin. However, although his evidence may not have been entirely consistent throughout, I think it was open on the evidence of Mr Rigby taken as a whole, for His Honour to reach the conclusion he did.

There was a challenge to the further finding that had the Appellant made the enquiries which His Honour found ought to have been made it is likely that he would have established that a component of the business was the supply of tobacco products on a wholesale basis.

I think this finding also was open to His Honour.
There was a later conversation after Mr and Mrs Hillier had returned to New Zealand, concerning

the description of the permitted use in a lease of the premises from which the business was conducted. This conversation was one of the bases upon which His Honour rejected Mr. Hillier's evidence as to what he had told the Appellant. However, it does not seem to me that it affects the finding that His Honour made as to the Appellant's breach of duty. Whilst having some relevance to the second finding challenged on the appeal, it did not require a finding adverse to the Respondent.

I would dismiss the appeal with costs.