Nesseler & Nesseler v Lennon

[1993] QCA 169

IN THE COURT OF APPEAL	[1993] QCA 169
QUEENSLAND

Appeal No. 86 of 1992

Brisbane
[Nesseler v. Lennon & Woosnam]

BETWEEN:

DIETER NESSELER and

WALTRUD ELSE NESSELER

(Plaintiffs) Respondents

- and -

LENNON & WOOSNAM

(Defendant) Appellant

The Chief Justice Mr Justice Pincus Mr Justice Ambrose

Judgment delivered 14/5/93.
REASONS FOR JUDGMENT - THE COURT

APPEAL ALLOWED. JUDGMENT ENTERED BELOW FOR $48,321.69 PLUS INTEREST IS SET ASIDE AND JUDGMENT ENTERED FOR THE RESPONDENTS FOR $18,321.69 PLUS INTEREST AT TWELVE PER CENT FROM 19 SEPTEMBER, 1989 TO 8 APRIL, 1992. THE APPELLANT TO PAY THE RESPONDENTS THE COSTS OF THE ACTION TO BE TAXED. THE RESPONDENTS TO PAY TO THE APPELLANT THE COSTS OF THE APPEAL TO BE TAXED.

CATCHWORDS:	DAMAGES - CAUSATION - Applt/solicitors held negligent in advising resps of entitlement to rescind contract and retake possession without notice per s. 72 - Wh damage caused by wrongful repudiation - Wh resps mitigated - Wh settlement voluntary and applts not liable for whole loss.
Counsel:	A.J. Moon for the Appellant. P.J. White for the Respondents.
Solicitors:	Connolly Suthers for the Appellant. Mellick & Smith for the Respondents.
Hearing date:	25/8/92.

IN THE COURT OF APPEAL

QUEENSLAND

Appeal No. 86 of 1992

Brisbane

Before The Chief Justice Mr Justice Pincus Mr Justice Ambrose

[Nesseler v. Lennon & Woosnam]

BETWEEN:

DIETER NESSELER and

WALTRUD ELSE NESSELER

(Plaintiffs) Respondents

- and -

LENNON & WOOSNAM

(Defendant) Appellant

JUDGMENT OF THE COURT

Delivered the 14th day of May, 1993.

This appeal is brought by a firm of solicitors against a judgment entered awarding damages because of their negligence in advising clients. The respondents, who had been the clients, claimed that they had been incorrectly advised in certain steps which their legal adviser, a member of the appellant firm, encouraged them to take in ejecting a purchaser from restaurant premises. The purchaser had agreed to buy from the respondents the business which was conducted in those premises. The respondents alleged that their solicitor had advised them that they were entitled to rescind the arrangements which they had made with the purchaser and retake possession. They said they were not told that their entitlement to move in this fashion was restricted by a need to give preliminary statutory notice under s. 72 of the Property Law Act.

The defence was conducted on the basis that the solicitors had not advised in the terms claimed by the respondents and so had not been negligent. The appellants said that they had informed the respondents that preliminary notice was necessary before they rescinded their arrangements with the purchaser but the respondents had insisted on proceeding with a rescission without notice notwithstanding. The appellants' claim that they had advised the respondents that a preliminary statutory notice was necessary was rejected by the trial judge after he had listened to the evidence. He preferred the version of the respondents.

From what has been said it will be gathered that it was common ground below and on the appeal that the respondents were not free to rescind all of their arrangements with the purchaser without first giving a notice. Specifically, the appeal was conducted on the basis that the nature of the arrangements between the respondents and their purchaser was such that there was what amounted to a sale of land by instalments.

There are a number of difficulties in the resolution of this appeal but in the circumstances it seems appropriate to accept without further examination the common basis to the parties' litigation, namely that the respondents had, in truth, entered into an instalment contract for the sale of land (as that concept is treated in the Property Law Act) and that if the respondents otherwise had good cause to rescind then a preliminary notice was necessary under the statute.

The nature of the arrangements entered into and the events which followed should now be described in a little more detail.

A contract for the sale of the respondents' business to the purchaser, ex. 2, was entered into on 19 September, 1988 and there was an addendum to that contract dated 25 November, 1988. The contract provided for the sale of the restaurant business with fixtures, fittings, plant and equipment for a total consideration of $65,000.00. There was an initial deposit of $5,000.00 paid on execution and a further instalment of $15,000.00 was paid on 1 October, 1988. The balance of $45,000.00 was to be paid by sixty equal monthly instalments commencing on 1 February, 1989 and that balance sum was to be secured by a bill of sale. By cl. 5 if there occurred a failure to pay the purchase money or to comply with the conditions of the contract then all monies paid were forfeitable by the respondent vendors, who had as well a right to cancel and resume possession of the premises. Certain clauses in the printed document employed by the parties to incorporate their contract provided for the giving of possession and a date for that event but a number of the clauses were crossed out. In some other clauses references were nevertheless implied to a date for giving possession (in the contract called "date of possession"). In conflict with the terms of a management agreement which will be mentioned shortly it was, by cl. 11 of the contract, provided that the vendors should remain in possession and manage the premises until the date of possession. Clause 32 of the contract provided that it was subject to the approval of the Licensing Commission for transfer of the relevant restaurant licence and that if approval had not been obtained by 30 April, 1989 then the contract was at an end and the monies which had been paid were to be repaid to the purchaser. Under cl. 33 it was provided that completion, so called, should occur within seven days of the vendors' giving notice of the Licensing Commission approval. Clause 34 provided that on completion the parties would contemporaneously enter into a lease for two years with subsequent options for three years and two years respectively and that the lease would be one "commencing from the date of completion of this contract" at a monthly rent of $1,083.00.

The purchaser was given a "right of first refusal" during the currency of the lease.

There was also entered into an agreement (called in the proceedings the "Management Agreement"). Although undated, this agreement provided that the purchaser should manage the restaurant from 1 October, 1988 with the right to retain all takings but paying to the respondent owners $1,083.00 monthly in advance from that date as well as meeting certain specified charges. The management agreement was to terminate on 1 May, 1989 or on completion of the contract whichever was the earlier.

The agreements had not been long in existence when differences arose. The respondents visited the premises which the purchaser held under the management agreement and they were upset by what they saw. In a number of ways the condition of the premises disturbed them. They contended also that all of the payments required to be made under the agreements were not fully up-to-date. Whether, apart from the requirements which it is accepted flowed from s. 72 of the Property Law Act, the aspects of which the respondents complained would have been a sufficient basis for termination by the respondents was never determined in court but the respondents, as a result of their observations, did attend upon Mr Lennon, a member of the appellant firm of solicitors, for advice upon their rights with the consequences already mentioned. The trial judge has held that the respondents were advised by Mr Lennon that they were entitled to rescind immediately and they proceeded accordingly.

They retook possession by moving in and changing the locks on the premises. It seems that they were bent also on retaining the payments which the purchaser had up to that stage made to them apart from the question of any further claims they might have had.

The purchaser did not accept the validity of the actions which the respondents took and a solicitor acting on its behalf in due course commenced proceedings against the respondents.

The writ that was issued was followed by a statement of claim and certain of the allegations in that document should be stated. The management agreement as well as the sale of business contract was relied on by the purchaser in support of its position. It said that having entered into possession of the restaurant premises on 1 November, 1988 it expended money on plant, equipment and stock, that the respondents wrongly purported to rescind the sale contract and by their actions in taking possession were in breach of the management agreement.

It said that the sale contract was an instalment contract as defined by the statute and the purported rescission of it was ineffectual. Equitable relief against forfeiture was asked for and specific performance both of the sale contract and the management agreement which was described as being "collateral" to it. In addition or in lieu, there was a claim for damages for breach of contract but it is clear that the general form of the proceedings was an enforcement claim of the purchaser's original rights and the purchaser did not accept the respondents' purported rescission but maintained that the two agreements remained on foot. The appellants continued to act for the respondents and Mr Lennon encouraged them to defend the purchaser's Supreme Court proceedings. A defence was served denying the claims which the purchaser made. Thereafter, feeling that they were not receiving satisfaction from the appellants, the respondents contacted another solicitor and he took a different attitude. He had some difficulty in obtaining the file and it took him a little time to make an assessment of the respondents' position. Having done that he concluded that it would be wise to settle the purchaser's suit. On 19 May, 1989 he made an approach suggesting settlement (see ex. 20).

Negotiations continued for a time. On 6 June, 1989 the purchaser's solicitor offered without prejudice to settle on payment of a sum of $76,500.00 which they justified by reference to amounts set out under a number of headings (see ex. 22). The headings included a reference to the total deposit of $20,000.00 which had earlier been paid under the sale contract.

An examination of the correspondence exchanged between the solicitors and also of the transcript of evidence strongly supports one contention made on the appellants' behalf at the trial. They submitted that the respondents, having become aware of a weakness in their position and being desirous of reaching a settlement, did not ever attempt to achieve it by offering to let the purchaser back into possession. Even at a time when the claims for specific performance and recovery of possession were still on foot and apparently pressed by the purchaser, the respondents directed their efforts towards securing what amounted to a rescission of the contractual arrangements so that they would retain possession although that would be achievable only on payment of compensation. Since the purchaser had not at the time the negotiations were opened accepted the respondents' purported rescission but was, on the contrary, seeking to enforce the contracts, it would have been open to the respondents to withdraw their purported rescission and let the purchaser have the possession which its proceedings claimed: see Frost v. Knight (1872) L.R. 7 Ex. 111 at 112.

The appellants claimed that had the respondents taken advantage of their new appreciation that they were not on strong ground in resisting the purchaser's suit and reacted by accepting the purchaser's claim to possession they could have achieved a settlement much more cheaply in terms of the amount of money which they found it necessary to pay the purchaser. The payment may have amounted to no more than what was necessary to cover the purchaser's legal costs and some limited disruption to its business and other wasted expenditure. There would reasonably have been taken into consideration as a set-off against such claims the fact that the purchaser in the interval during which it had been out of possession had not been paying the instalments which the contracts provided for.

In looking at the compromise which was eventually achieved and the course of negotiations which led to it, it is hard to avoid the conclusion that a significant element in the payment which the respondents made to settle the proceedings was a consideration for the fact that the respondents were achieving, as they appeared to wish, a rescission of the contracts and gaining an entitlement to retain possession. The settlement reached was on the basis that the respondents retained possession, freed of all claims by the purchasers: see cl. 3 of ex. 13, a deed dated 19 December, 1989 which shows that the settlement was intended to be one of all claims arising out of the contracts. The respondents apparently did not endeavour to take advantage of the opportunity to settle on some other basis which might reasonably have been expected to be cheaper for them in terms of money paid. They do not appear to have attempted to respond to the purchaser's demands for specific performance and redelivery of possession of the premises during the course of negotiations which led to a settlement. There is therefore reason to depart from the trial judge's construction of this aspect of the matter when he came to assess damages.

After some back and forth in the negotiations, a settlement was arrived at on the basis that the two contracts were brought to an end, the respondents retaining possession of the restaurant freed of all further claims on the part of the purchaser and the respondents paying the purchaser $40,000.00 without otherwise accounting for the sum of $20,000.00 which was the total of the deposit that had been paid to them.

Having arrived at the settlement at the cost to them just mentioned and thereby freed themselves of the purchaser's claims, the respondents sued the appellants in the District Court claiming as damages $50,057.98 and interest in addition.

The sum claimed was made up of the $40,000.00 paid to the purchaser, $6,007.98 professional costs and fees paid to the appellants and $4,050.00 costs incurred in engaging the new solicitor to conduct on their behalf the Supreme Court proceeding in which they were defendants. The District Court judge who tried the respondents' action allowed most of this sum as damages which the appellants should pay to the respondents, giving judgment for $48,321.69 and interest in addition.

In a number of respects the conclusions reached by the District Court judge may be accepted. He decided that it was reasonable for the respondents to reach an appropriate settlement of the suit in which they were defendants once they became persuaded that their purported rescission without giving prior notice under the statute was invalid. The judge also decided that the general headings of the components of the damages which the respondents were claiming against the appellants were reasonably chosen. Where he cannot, with respect, be accepted is where he failed to make appropriate allowance for the fact that the total paid in settlement of the action reflected the particular basis on which it was settled.

That payment should be seen to allow for what was in effect an agreed termination of the contractual agreements when the purchaser had not demanded that result and the respondents need not have offered it. In short, there was an element of voluntary payment in the settlement arrangements that cannot be regarded as attributable to the appellants' negligent advice or, as the appellants put it in their alternative submission, part of the settlement payment could be regarded as involving a failure to minimise the damage which the respondents had suffered as a result of the appellants' advice.

A second aspect of His Honour's assessment which cannot be accepted is his failure to allow for the fact that in the settlement reached with the purchaser, the respondents kept the $20,000.00 which they had received by way of deposit. In their action the respondents were entitled to recover against the appellants the loss which they had suffered as a result of a settlement which they reasonably reached in the situation in which they found themselves as a consequence of the appellants' negligence but in making an assessment of this loss amounts on both sides of the ledger have to be taken into account. It may well be the case that in the negotiations which followed the purchaser's first quantification of its claim, items of loss suffered on each side would have been taken into account. On the purchaser's side there was the loss of stock, the work to launch and maintain the business being set up and so on and on the respondents' side it can be accepted that apart from anything else they had lost the benefit of a number of payments otherwise due under the two contracts. However, in the end, the contracts were bilaterally terminated, all claims were settled and while the respondents paid out $40,000.00 they retained the $20,000.00 deposit. His Honour's reasons for not giving credit for this latter sum which the respondents had the advantage of cannot be accepted. The judge seems to have had in mind two bases which he considered supported his approach.

He said that the evidence had not dealt with the matter of the $20,000.00 deposit and the appellants raised a claim of entitlement to an equivalent deduction against damages only at a late stage of the proceedings. But there was no concession as to the quantum of damages recoverable and the amount recoverable was a matter for the respondents as plaintiffs to prove. The judge also looked at the course of negotiations during which the purchaser had reduced its money claim from the $76,574.54 originally demanded to the $40,000.00 which it eventually accepted. The purchaser had asked for the return of the deposit as an ingredient in the $76,574.54 first put forward and the judge seems to have thought that the reduction in the amount of the claim down to $40,000.00 somehow may have accounted for the $20,000.00 deposit. But this provides no answer and simply obscures the final reality. The respondents paid only $40,000.00 to the purchaser and there is no evidence that they did other than retain the $20,000.00 which they had earlier been paid.

It remains to consider the further ingredients of the claim allowed. It has already been stated that he gave judgment for $48,321.69 and interest. This was made up of the $40,000.00 paid to the purchaser, the $4,050.00 paid as costs by the respondents to their new solicitor and $4,571.69 of the larger amount of $6,007.98 paid as costs and fees to the appellants (see the details in ex. 14 and ex. 15). It can be accepted that it was correct to make the reductions which the judge did from the total for this last item of $6,007.98 since it was only the litigation costs and fees which constituted expenditure wasted as a result of the appellants' negligence.

The difference amounting to $1,436.29 consisted of conveyancing costs attributable to the work in attending to the contractual arrangements between the respondents and the purchaser and would have been incurred even if the appellants had not been negligent in the advice which they subsequently gave.

Counsel for the appellants submitted that on the trial judge's finding that the appellants had advised negligently, the amount of the damages which would be recoverable under the heading of costs paid to the respondents' new solicitor should include only those which were incurred up to the point when the solicitor had a reasonable opportunity to consider the matter.

He should then have seen and advised that the matter could most economically be settled by allowing the purchaser to retake possession. This, it was contended, would have reduced the portion of his bill allowable as damages down from its original total of $3,750.00 to $1,750.00. The full bill included costs charged for continuing to act during a fairly lengthy period of negotiations until the settlement was eventually arrived at with the respondents retaining possession and an agreed sum being paid to the purchaser.

The respondents had, as a result of the appellants' negligence, been made defendants in proceedings and placed in a difficult position. There is no real reason to think that the task of extricating them would have been simpler or at least shorter for their solicitor if they had submitted or offered to submit to the purchaser's claim for specific performance and redelivery of possession. In the limited material placed before this Court nothing emerges which would call for a positive reduction to be made in the amount of the bill of their new solicitor. On balance, it may be accepted that all of the costs paid by the respondents to their new solicitor should be allowed as part of their reasonable costs of achieving a settlement.

One further matter which should be mentioned is that in their District Court plaint the respondents relied on alleged negligent advice in respect of the termination of the business contract and they did not put in issue a claim of entitlement to act in any particular way under the management agreement.

This last issue appears to have been left out of express account in the conclusions of the trial judge as though the assumed restriction upon the right of the respondents to terminate the sale contract without giving notice under the statute also provided an impediment to any right to terminate the management agreement or retake possession.

On the hearing of the appeal, no doubt in an attempt to limit expense, the parties chose to include only a limited portion of the record below in the appeal record and the Court was asked to decide the matter on that material and on the parties' submissions. Neither side asked that a new trial be ordered.

It would be difficult for this Court to form a view on what might have been justified by the course of the trial when only a limited portion of the transcript of proceedings is before it. There does however seem to be reasonable ground for thinking that the two agreements entered into between the parties have a collateral effect so that they would stand or fall together.

In the proceedings below some attention was given to the different considerations which could apply to a termination of the business agreement and a termination of the management agreement. Neither below nor on the appeal did either side suggest that the statutory restriction on rescission applied directly to the latter agreement.

On the hearing of the appeal, counsel for the respondents submitted that the management agreement should be regarded as collateral so that any restriction upon the right to terminate the sale agreement would apply equally to the management agreement.

The fact that the respondents' plaint relied only on negligent advice in respect of the sale contract should not be allowed to present an insuperable difficulty to this Court when it comes to decide on the reduction which should be made in the damages which the trial judge has assessed. The two agreements can fairly be regarded as collateral and apparently were so treated by the trial judge. Incorrect advice given upon the sale contract could for this reason be expected to have the same practical consequences as incorrect advice given upon both agreements. Telling the respondents (wrongly as we are asked to assume) that they were free to terminate the sale contract immediately would lead them to retake possession while if they could not terminate the sale contract it can be taken that because of the collateral nature of the agreements they could not terminate the management agreement. The same level of damage can be accepted as flowing from incorrect advice given upon the sale contract alone as upon both documents, although because of the difficulty in which this Court is now placed, only a very broad assessment can be made.

A satisfyingly accurate assessment of a corrected figure

cannot be achieved but the Court must now do the best it can. basis that all of the necessary materials for an assessment were available and in the circumstances it is appropriate for this Court to proceed without subjecting the parties to the expense of a new trial. Some allowance reasonably sufficient to allow for the appellants' apparent objective of achieving a rescission of the contracts when the purchaser was pressing for specific performance will have to be arrived at. Accordingly some reduction will have to be made from the component of $20,000.00 which is left when the amount of the $20,000.00 deposit is subtracted from the $40,000.00 paid by way of settlement. In this task the details contained in ex. 22, the letter of 6 June, 1989 from the purchaser's solicitor when the claim being made stood at $76,574.57, are of some but not of great assistance since in negotiations the total figure acceptable to the purchaser was reduced to $40,000.00. The evidence at the trial so far as it is contained in the record does not help much either on this aspect.

In making a broad allowance for the deduction which has to be made it is of some help to remember that the onus lay on the respondents to prove the amount of damages to which they were entitled under the heading of the amount reasonably paid to settle the claim which the purchaser was making. At the same time justice, so far as the inadequate materials permit, must be done to the respondents. The Court in the end is left with the task of making a reduction to allow both for the amount of the retained deposit and the fact that the settlement sum paid to the purchaser covered more than compensation just for merely temporarily disturbing the purchaser's possession and for a limited period refusing to accept the binding nature of the agreements. The settlement figure paid for the purchaser's release of all of its contractual rights. To allow for the two respects in which the judge's assessment does need correction, a reduction of $30,000.00 should be made from his total figure thus allowing for the effect of the retained deposit and also limiting the amount which can be regarded as attributable to settling the purchaser's claim for possession and specific performance.

The appeal should be allowed and the judgment entered below for $48,321.69 plus interest should be set aside and in lieu judgment should be entered for the respondents for $18,321.69 plus interest at twelve per cent from 19 September, 1989 to 8 April, 1992. The respondents should have an order for the costs of the trial of the action below. The respondents should pay to the appellants the costs of the appeal to be taxed.