Olliver, Brian v Heap, John
[1996] FCA 606
•23 JULY 1996
CATCHWORDS
TORT - negligence - breach of fiduciary duty - breach of duty of care in relation to professional legal advice - conflict of interest - solicitor to profit from transaction personally -history of business and professional relationships between solicitor and client - sufficient proximity to establish solicitor/client relationship and a breach of duty.
PRACTICE AND PROCEDURE - appeal form a single judge - trial judge's findings depend to a substantial degree on credit and demeanour - findings accord with probabilities - findings open to the trial judge on the evidence - no error of law in finding the existence of a duty and its breach, or a caused relationship between loss and negligent conduct - appellate court not to interfere with the exercise of wide discretion by the trial judge except in the clearest possible case.
Devries v Australian National Railways Commission (1993)
177 CLR 472, applied
Buckland v Macksey (1968) 112 Sol. Jo 841, applied
Fox v Everingham (1983) 50 ALR 337, cited
Commonwealth Bank of Australia v Smith (1991) 102 ALR 453, cited
Hawkins v Clayton (1988) 164 CLR 539, cited
House v R (1936) 55 CLR 499, cited
McCauley v McCauley (1910) 10 CLR 434, cited
Henderson v Amadio Pty Ltd, unreported, Heerey J, 22 March 1996, cited
Cretazzo v Lombardi (1975) 13 SASR 4, considered
Hughes v Western Australian Cricket Association (1986)
ATPR 40-748, cited
BRIAN OLLIVER v
JOHN HEAP AND JS HEAP CONSTRUCTIONS PTY LIMITED
No NG 172 of 1996
Sheppard, Hill & Tamberlin JJ
Sydney
23 JULY 1996
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 172 of 1996
GENERAL DIVISION )
ON APPEAL FROM A JUDGE OF
THE FEDERAL COURT OF AUSTRALIA
BETWEEN: BRIAN OLLIVER
Appellant
AND: JOHN HEAP
First Respondent
J S HEAP CONSTRUCTIONS
PTY LIMITED
Second Respondent
CORAM: SHEPPARD, HILL & TAMBERLIN JJ
PLACE: SYDNEY
DATED: 23 JULY 1996
MINUTE OF ORDERS
THE COURT ORDERS THAT:
The appeal be dismissed with costs.
The cross-appeal be dismissed with costs.
NOTE: Settlement and entry of orders is dealt with in accordance with Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 172 of 1996 GENERAL DIVISION )
ON APPEAL FROM A JUDGE OF
THE FEDERAL COURT OF AUSTRALIA
BETWEEN: BRIAN OLLIVER
Appellant
AND: JOHN HEAP
First Respondent
J S HEAP CONSTRUCTIONS
PTY LIMITED
Second Respondent
CORAM: SHEPPARD, HILL & TAMBERLIN JJ
PLACE: SYDNEY
DATED: 23 JULY 1996
REASONS FOR JUDGMENT
THE COURT:
This is an appeal from a judgment of Davies J concerning a claim for damages by the first and second respondents based on allegations of misrepresentation, negligence and breach of fiduciary duty by the appellant.
The claim relates to loans and investments made by the respondents in relation to four real estate development projects promoted by participants in a development group, known as the "Blue Dolphin Group". The dealings in question took place during 1989 and 1990.
John Heap ("Heap"), the first respondent, is a director of the second respondent, JS Heap Constructions Pty Limited ("Constructions").
Mr Noyce ("Noyce"), who was the cross-respondent, before Davies J, but is not party to this appeal, for many years had acted as a solicitor for Heap. Heap had also been associated with Noyce in a number of business ventures. In 1974, for example, Heap had lent over $25,000 to Noyce to assist the establishment of a restaurant and wine bar. During the years 1976 through to 1983 he had been associated with Noyce in a discotheque venture and a tavern. Both were involved in a number of other projects together.
Prior to 1983, Heap had retained the firm of Noyce Olliver as his solicitors, but in that year he became dissatisfied with the services of the firm as a result of some unsuccessful litigation. This led to a dispute about the fees due to Brian Olliver ("Olliver"), the other member of that firm. The evidence indicated that Heap had an aversion to incurring legal costs and expenses. After the dispute Heap retained other solicitors, from time to time, on an ad hoc basis, but Noyce Olliver continued to provide some legal services to Heap and Constructions.
His Honour referred to evidence that in the years up to 1989 Heap had relied on Noyce to undertake legal work arising from transactions in which Heap was engaged. He also adverted to some evidence which had indicated that in order to minimise legal costs Heap had often made his own decisions without the advice of a solicitor. His Honour instanced an occasion when Olliver had written to Heap recommending that Heap obtain independent legal advice and representation concerning a bankruptcy notice and Heap declined to follow the advice.
Although Noyce was represented throughout the hearing before his Honour he did not give any evidence in the proceedings.
In relation to Noyce, his Honour found that there was no general relationship of solicitor/client between Noyce and Heap in the period 1988-1990. However, whenever legal documents had to be prepared, Heap relied on Noyce as a solicitor to prepare them properly and Noyce understood that Heap relied on him to do so, notwithstanding that there was no engagement which would have entitled Noyce to charge fees in respect of such work. The work sometimes involved Noyce drawing documents and engrossing them in the office of Noyce Olliver without opening a file or sending an account. Olliver did not approve of Noyce performing this work on a non-charging basis.
His Honour found that Heap knew that Noyce was not an independent solicitor, but was a business associate and he dealt with Noyce on that basis. He sought no formal general advice in respect of transactions under consideration.
The Blue Dolphin Group, referred to earlier, comprised companies associated with the Blue Dolphin Corporation Pty Limited, including Barnspine Pty Limited ("Barnspine"), Abulla Pty Limited ("Abulla"), Bepuri Pty Limited ("Bepuri"), Adamont Pty Limited ("Adamont") and others. Another company, Ablego Pty Limited ("Ablego"), was controlled by persons involved with Blue Dolphin but this was not in fact a Blue Dolphin Group company. The Blue Dolphin Group had an office adjacent to that occupied by Noyce Olliver. The principals of the Blue Dolphin Group were Messrs Merton, Turnbull, Manassa and Cunningham.
Heap was familiar with the persons in the Group. In particular, he had previous business associations with Mr Merton, who was a real estate agent with some years experience. Heap had most of his dealings with Merton. The Group was short of funds by December 1988, shortly prior to the transaction with which this proceeding is concerned.
His Honour found that Olliver was involved with the affairs of this group. Messrs Merton and Turnbull were clients of Noyce Olliver and the firm acted for a number of the companies in the group, including Barnspine, which was concerned with a development known as "Fitzroy Gardens"
Olliver
The appellant Olliver, had been a partner with Noyce since April 1980 in the firm Noyce Olliver. In 1987 the partnership was dissolved and Noyce became an employee of Olliver. The dissolution occurred because Noyce had become involved extensively in property development and had had less time for traditional legal work. Olliver had an arrangement with Noyce whereby Olliver not only permitted Noyce to act as an employed solicitor with his firm whilst, at the same time, being involved in extensive real property development, but also shared in the profits from those development activities.
In November 1987, Noyce and Olliver entered into a Deed ("the November Deed") whereby Noyce was to receive a salary from Noyce Olliver and whereby Noyce would share equally with Olliver any nett profits before tax, which Noyce or any associated corporation should make in circumstances where Noyce acted in relation to such matters during normal business hours of the firm.
Noyce was also given an option to buy-back into the partnership at a later date.
Although Olliver gave evidence that he saw the profit sharing arrangement as designed to encourage Noyce to attend to legal work and discourage him from extraneous property activities,
his Honour formed the view that this purpose was certainly not achieved. Nor was it well calculated to do so.
Although, in May 1988, Olliver received $12,713 from Noyce under the agreement, his Honour found that this profit sharing arrangement did not give rise to a partnership between Noyce and Olliver.
His Honour found that Olliver's evidence did not convey the whole truth with respect to his appreciation of the purpose of the November Deed with Noyce. He found it appropriate to approach Olliver's evidence with caution. He stated that although Olliver gave his evidence clearly, he tended to cast all events in their best light so far as he was concerned.
His Honour's reservations were reinforced by a diary note made by Olliver on 1 February 1989 as to a conversation with Noyce, which read as follows:
"MJN [Noyce] said he has been trying to get John Heap slowly involved 'so that he is locked in to us'. He has money & he is 100% on side. Everything is fine. John has never lost money on any deal with me."
In cross-examination Olliver was asked what he understood the word "slowly" to mean. He said that he did not turn his mind to it. He said that he was not interested and that it had nothing to do with him or his firm. His Honour disbelieved this explanation.
This note indicates a design on the part of Noyce, the former solicitor for Heap, with the knowledge of another former solicitor, Olliver, to entice Heap "who has money" into property investment, but to do so in a gradual way and in order to "lock" Heap in. This proposal was clearly regarded as sufficiently significant to Olliver, as his Honour noted, to warrant a written record and was also such as to cause him to seek to deny that the proposal of Noyce, with whom there was a profit sharing arrangement, had any significance to him when clearly it did.
Heap
His Honour concluded that the events which occurred during 1989 and 1990 indicated that Heap was incapable of protecting his own interests, and that while Heap may have appeared to be an astute businessman, who made up his mind about matters, in some instances rejecting professional assistance, he was not astute. His Honour considered Heap to be a poor witness, who had suffered ill health some years ago and had had two heart operations and whose memory was deficient. His Honour indicated that although he heavily discounted Heap's evidence, he accepted such of it, as seemed to him, to accord with the probabilities of the case.
Decision Below
Transactions relating to four properties were the subject of the claim. These transactions and properties are referred to in his Honour's judgment under the following headings:
Fitzroy Gardens
Marlin Advance
Discharge of Mortgage over the Adamont land.
Alpha House - Newtown
His Honour dismissed the claims with respect to transactions concerning Fitzroy Gardens and the Marlin Advance but found for the respondents, Heap and Constructions, on the third and fourth claims relating to the Adamont land and Alpha House. He awarded Heap and Constructions 60% of the costs of the proceedings.
The appeal concerns the third and fourth transactions and the costs decision. Heap has filed a cross-appeal which challenges the decision with respect to the transaction known as the Marlin Advance. There was no appeal by Noyce.
Demeanour and Credit
In this matter, considerations of demeanour and credit were of great importance. His Honour undertook a careful evaluation of the credit of the parties and made clear his conclusions as to the reliability of evidence given by them. These considerations are of particular importance where questions of reliance, purpose and inducement are concerned. In considering his Honour's reasons for judgment, it is important to bear in mind the observations of Brennan, Gaudron and McHugh JJ in Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479:
"... this Court has pointed out that a finding of fact by a trial judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against - even strongly against - that finding of fact. If the trial judge's finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge 'has failed to use or has palpably misused his advantage' or has acted on evidence which was 'inconsistent with facts incontrovertibly established by the evidence' or which was 'glaringly improbable'." (Emphasis added)
Solicitors' Duty
In the present case, the solicitors, in acting for Heap were not bound to advise as to the financial wisdom of the proposed transactions. Nevertheless, to the extent that they were in a solicitor/client relationship, they were obliged to warn Heap as to his legal exposure resulting from contracts, authorisations and other documents drawn by them to give effect to his instructions.
In Buckland v Macksey (1968) 112 Sol. Jo. 841 (C.A.) at 842, Harman LJ, with whom Salmon LJ and Baker J agreed said:
"The plaintiff contended that the solicitor was negligent because he allowed or advised the plaintiff to exchange contracts when he knew that the plaintiff had not yet obtained a mortgage. But there was no duty on a solicitor to ensure that his client had obtained a mortgage before exchanging contracts: he fulfilled his duty if he warned the client of the risk which the client incurred."
In that case, unlike the present, there was no suggestion that the solicitor was acting for two parties with conflicting interests, nor did the solicitors stand to personally profit from the transaction. See also Fox v Everingham (1983) 50 ALR 337 at 345, and Commonwealth Bank of Australia v Smith (1991) 102 ALR 453 at 478.
In the present case, there is the additional factor that Noyce, to the knowledge of Olliver, set out to slowly entice and "lock in" Heap to a series of financial transactions.
These features in the present case serve to accentuate the delicacy of the solicitors' position. It should be observed that to the extent that he has been found liable, in the present case, such liability arose from his evident inability to appreciate the high standards required in the exercise of his profession. In Fox v Everingham (supra), a case in which the solicitors acted both for the vendors and purchasers, the Court said at 345:
"... it should be said that this case again highlights how difficult it is for one solicitor to represent adequately both parties to a conveyancing transaction. Warnings about the problems which arise continue to be sounded. In Goody v Baring [1956] 2 All ER 11, Danckwerts J ... said ... that it seemed to him practically impossible for a solicitor to do his duty to each client properly when he tries to act for both a vendor and a purchaser ... it was plain that the standard of skill and care required of a solicitor who acts for both parties on a sale and purchase is at least as great as that which would be required of a solicitor who acts for a purchaser or ... vendor alone."
This observation has particular force where the solicitors have a history of both business and professional relationships with the client, did not taken steps to distinctly define the respective relationships of the parties, have acted for parties with conflicting interests and in addition, in some instances, have exposed themselves to a conflict between duty and interest.
The Appeal
Adamont Land - Discharge of Mortgage
Background
As at 17 February 1989 Constructions had a mortgage over land at Friday's Creek, known as the Adamont Land to secure an initial loan of $300,000. The mortgage was dated 1 February 1989 and was registered on 24 February 1989.
Noyce Olliver held the security and title documents in custody pending repayment of the loan.
On 17 February, Constructions made a further loan of $646,000 which was the subject of the project known as the Marlin Development.
The Deed of 17 February 1989, acknowledged the debt on the part of Adamont to Constructions for $300,000, pursuant to the mortgage.
Thereafter, the Blue Dolphin Group experienced financial difficulties and on 26 July 1989 it was anticipated by Olliver that a bankruptcy petition would be issued against Noyce.
In order to raise further funds for the group, it was necessary to seek a discharge of Constructions' registered first mortgage over the Adamont land. A lender, Mr Greig, agreed to lend $550,000 on the security of a first mortgage over the land.
His Honour found that Messrs Merton, Noyce and Olliver all expected to benefit from Greig's advance of $550,000.
Constructions was asked and to agreed release its mortgage over the Adamont land, so that funds could be raised by way of a further mortgage. Further funds were advanced on 9 August 1989, following the discharge of Heap Constructions' mortgage. Of the $550,000 advance, $124,000 was paid to Olliver, who discharged his indebtedness to his bank, in respect of his home.
On 8 August 1989, Olliver had conferred with Heap and taken "instructions" in relation to the discharge. On 9 August, an authority was given by Heap to Olliver. This had been written out by Noyce.
It "authorised" Olliver to release the title deeds and discharge the mortgage on the Friday's Creek land to Merton, or as he directed. One of the express conditions on which this was to be effected, read:
"(3) Security satisfactory to me for $300,000 or exchanged contract to me for Shop 30 (Golden Dragon) Oasis Shopping Centre to be provided to me."
Another condition was that the new funds were to be used to buy shares in Ablego so as to enable Merton or his nominee to acquire control of half of the Oasis Shopping Centre.
The price for Shop 30 was $600,000, of which the discharge of the Adamont mortgage was deemed to be a payment of a deposit of $300,000. Heap proposed to resell the property to Mr White, a real estate agent, at a profit. Noyce prepared the discharge of mortgage and had it executed by Constructions on or about 8 August. He prepared a contract of sale by Ablego to Constructions of Shop 30 for $600,000, of which the deposit of $300,000 was deemed to have been paid.
The contract of sale provided for repayment of the deposit in the event of rescission of the contract. However, Olliver drew up an Acknowledgment whereby, on 9 August, Heap agreed that in the event of the contract being rescinded, the provisions for refund of deposit would not apply. Accordingly, Heap surrendered a valuable right. No advice was given either by Noyce or Olliver to Heap, in respect of the abandonment of the right of refund of the deemed deposit. As a result of the discharge and the acknowledgment, Constructions lost both its security and any entitlement to refund of the deemed deposit of $300,000 in the event of rescission. The contract contained a number of conditions which could give rise to a rescission and Olliver was aware of this.
His Honour found that there was an express engagement of Noyce to act on behalf of Heap and Constructions. He also made an independent finding that there was a sufficient proximate relationship between Heap and Constructions and Olliver, to attract the duty of care and negligence, referred to in Hawkins v Clayton (1988) 164 CLR 539. He concluded that the respondents (in these proceedings) relied on Olliver, that Olliver had breached his fiduciary duty, had been negligent in not drawing the attention of Heap to the effect of the acknowledgment, whereby the right to repayment of the deemed
deposit was relinquished and that Constructions suffered the loss of $300,000.
The appellant's submissions in substance are as follows:
No duty - no solicitor/client relationship or proximity.
It is submitted that there had been a serious falling out some years previously prior to the transaction and that Olliver had not acted for the respondents for some time. The Adamont mortgage had not been prepared by Olliver, as solicitor for Heap or Constructions. Olliver, it is said, was only acting in the interest of Merton in respect of the discharge.
In addition to examining the general history of the relationship, his Honour considered that the Authority to release the title deeds and discharge of mortgage on certain conditions was an important document in characterising the relationship between all the parties. He also referred to a letter to Heap two days later from Olliver which stated:
"We confirm that in accordance with your instructions on 9th instant we released to Adamont Pty Limited the Certificate of Title, Mortgage and Discharge of Mortgage.
We confirm that we hold an executed Agreement for Sale with respect to Lot 30 Carlingford Oasis Home Fair. We also note that on 9th instant a cheque for $300,000.00 was paid to your Company on account of the cost of the works to be effected by your Company to the Centre." (Emphasis added)
Olliver denied that his firm acted on behalf of Heap or Constructions, "in respect of a mortgage over Friday's Creek, the Deed of Loan dated 17 February 1989 or the Discharge of the Mortgage and the obtaining of an executed Agreement for Sale in relation to Lot 30". This denial was contrary to his acceptance of express specific instructions set out in the authority and was also contrary to the confirmation on 11 August, that he had acted in accordance with the instructions of 9 August.
His Honour found that by executing the authority, Heap authorised Olliver to act in the transaction on behalf of the respondents. This finding was open to him.
The written Authority given to Olliver was not simply to perform an administrative act. That Authority was to release valuable security documents held by the firm of solicitors, which had previously acted for him, comprising title deeds and to hand across a discharge of a real property mortgage, which secured an amount of $300,000.
The Authority was confined in that it was subject to specified conditions, one of which was that security be provided "satisfactory" to Heap, or that an exchanged contract be provided. In our view, these instructions necessarily called for an exercise of professional judgment and the proffering of some advice by Olliver as to whether the security provided could be considered satisfactory to Heap.
Neither Olliver nor Noyce gave any warning to Heap, with respect to the effect of the Acknowledgment on his rights.
As his Honour observed, Olliver must have appreciated that Heap, in signing the Authority, wanted him to ensure that the contract was in a form which could be satisfactory to the respondents.
It was next submitted that his Honour erred in finding that Olliver knew Heap would be relying on him to properly handle the legal work and would give any advice. However, it must have been evident to Olliver that Heap would not be prepared to accept any contract on any terms. The instructions included a request to obtain an executed contract in exchange for the giving up of a valuable security. This carried with it a duty to consider all its terms and to advise Heap of any significant matters which would make the substituted security unsatisfactory.
Next it was said that it was not open to his Honour to find that Heap relied on Olliver or would have acted any differently if he had been properly advised or warned. This submission is based on the disregard on occasions by Heap of legal advice in the past.
In considering this submission, it is firstly important to bear in mind that the language of the "instructions", given to Olliver, made it clear that Heap wanted a satisfactory security by way of substitution for the protection afforded by the mortgage, which was to be released and discharged.
Second, it would have been evident to Heap, if properly advised, that there was a real danger of losing his substituted security for $300,000, if the contract was rescinded since there were a number of conditions which Olliver conceded could give rise to a rescission.
Third, the danger of rescission was enhanced because as at the date of the Strata Plan, Lot 30 was simply a marking on an unregistered Strata Plan. The reality of this danger is evidenced by the fact that the plan was not approved by Council until about three months later and was not registered until ten months later. Special condition 1(d) provided for rescission in the event that the plan was not registered as a Strata Plan within six months from the date of contract. In that event, clause 19 could have applied. The protection of clause 19 of course had been neutralised by the acknowledgment drawn up by Olliver.
His Honour generally considered that due to a combination of illness and poor memory, he should discount heavily the evidence of Heap, unless in accordance with inherent probability. However, he concluded that Heap would have acted differently if he had received proper advice. His Honour referred in the judgment to the fact that since the release of security and substitution of the contract was for the benefit of Merton, Heap would have expected Merton to bear the legal costs so that Heap's evident disinclination to pay or incur legal costs would not have been a significant factor, which would have deterred him from requiring or heeding advice.
In the light of the above considerations, we are not persuaded that his Honour erred in finding that in this particular transaction, Heap, if properly advised, would not have agreed to relinquish the rights to refund the deposit under clause 19 of the contract.
Adamont - Damages
It is submitted for Olliver that no loss or damage could be awarded until a proper comparison was made between the position that Constructions would have been in if the mortgage had been retained and its actual position with the contract it received, in substitution, as modified by the acknowledgments.
There are two branches to this submission.
The first is that it was an error of law to find that the contract for sale was worthless. The second is that the value of the mortgage relinquished was less than $300,000.
As to the first matter, the contract had problematic features. Ablego had only a one half interest in the Oasis Shopping Centre. There appears to have been a contract between the
owner of the remaining interest to sell to Ablego. As his Honour pointed out, all the owners had not been tied into acceptance of the $300,000 as a deemed deposit. In fact the contract was never completed.
Second, the contract was open to rescission in the event of non-registration of the Strata Plan within six months. Third, the interest of Constructions was never noted on the title. On 18 January 1990 the property was subject to a "huge mortgage" to Farrow Mortgage Corporation ("Farrow") and Ablego had fallen into arrears in paying interest. There was no evidence that State Bank or Farrow would have agreed to the release of Lot 30 from the mortgage to allow completion of the sale of the shop.
In the light of these considerations, there was a sufficient basis for his Honour concluding that the substitute contract, provided to Constructions was worthless.
The second aspect of the damages submission relates to the value of the mortgage. His Honour accepted that the true value was the price which the parties agreed to place on the mortgage, namely $300,000. They were dealing at arms' length in a commercial transaction, and this is the common price which they determined.
Valuation evidence led by Olliver and Noyce assigned a value of $190,000 for the land at Friday's Creek (which was the security) with or without development consent. The basis for this figure was the view of the valuer that the property was not well-suited for the proposed development. The valuer, called for the respondents, placed a value of $200,000 without development consent and $400,000 with consent. The approval was to expire and indeed did expire on 11 October 1989, so that it was subsisting at the time of valuation.
Valuation, of course, is an imprecise art and is a question of fact. His Honour had the advantage of seeing the valuers giving their evidence and the figure of $300,000 was within the broad range of values assigned by the two valuers.
In these circumstances, the conclusion that the appropriate value was $300,000 was one which was available to his Honour on the evidence.
An alternative finding was made by his Honour that as a result of the discharge of mortgage, Olliver indirectly was able to secure a financial advantage which enabled him to meet personal commitments on his home amounting to $115,000. Through the refinance, Olliver, who was acting as solicitor for Heap, in the respects mentioned above, derived a benefit of $124,000 which was never disclosed to Heap. His Honour held that, as an alternative to the finding as to the difference in value, Heap was entitled to payment of the undisclosed benefit. However, his Honour decided to award the sum of $300,000 to the respondents and there has not been demonstrated any appealable error of law or fact in reaching that conclusion.
Alpha House - Newtown
In this transaction the challenged finding is that Noyce Olliver owed a duty to Heap to make an inquiry on or about 15 January 1990, as to whether Farrow was committed to providing one hundred percent finance for purchase of the Oasis Shopping Centre and whether there was any impediment to settlement of that purchase.
Ablego had sought a loan of $149,000 from Avocado Pacific Properties Pty Limited ("Avocado") of which Heap was a director, to enable Ablego to pay interest to Farrow in respect of the Oasis Shopping Centre. Heap had arranged for Ablego to borrow $149,000 from his bank and guaranteed repayment of the loan.
Ablego (the vendor of Shop 30 to Heap in the Adamont transaction) had contracted to buy Alpha House for $4.175 million and had paid a deposit of $460,000. It was indebted at the relevant times to Farrow in respect of interest on the Oasis Shopping Centre. It had sought one hundred percent finance from Farrow. That finance was not to be advanced until completion.
In fact there was no legal commitment by Farrow to the financing. His Honour inferred from correspondence that Farrow did not make any formal offer to provide finance until 24 January 1990 and then on conditions. The offer was on the specific basis that settlement would take place within 45 days thereafter. It transpired that a lane-way had to be closed as a result of which the purchase was not settled within 45 days.
In mid-May 1990, Farrow withdrew its offer of finance. Heap lent the $149,000.
His Honour concluded that Olliver owed a duty of care to Avocado and Heap and that he breached this duty to Avocado and Heap whom he knew could be affected if the loan was not properly secured. He was satisfied that Noyce Olliver acted as solicitors for Avocado and Heap in this transaction.
As Olliver could readily have made a brief inquiry from Farrow or the vendor's solicitor, Blake Dawson Waldron, as to the position with respect to that loan and failed to do so, his Honour concluded that Olliver was in breach and he awarded damages of $149,000.
A cheque for $149,000 was signed on 10 January 1990. The bank statements in evidence indicated that the transaction was reversed on the next day and that a cheque bearing the same number was finally cleared on 29 January. His Honour found
that money was in fact advanced on 29 January and that the loan was effective from that date.
His Honour concluded that Olliver had breached his duty to Heap and Avocado and that this breach preceded the advance of the moneys which did not become "irreversible" until the cheque was cleared on 29 January. He considered that the cheque could have been stopped up to that time if proper advice had been given.
There was no direct evidence as to why the transaction was reversed on 11 January, but looking at the relevant documents, the probable explanation is that the overdraft limit of Avocado company had been exceeded and that subsequent arrangements were made.
There is implicit in his Honour's judgment the finding that if Heap had been properly advised as regards the status of the Farrow loan, Heap would not have proceeded to guarantee the loans to Avocado to make the advance. This accords with the inherent probabilities, coupled with the fact that Heap, as might be foreseen, guaranteed the bank's loan to Avocado. His Honour found that commitment of Farrow, to making the advance, was of crucial importance.
Olliver conceded that the commitment of Farrow was "crucial" in his opinion. Therefore, it was open to his Honour to form the view that had Heap been told this by Olliver, the probability was that Heap would not have guaranteed the bank loan.
The appellants submit that there was no evidence as to what an inquiry of Blake Dawson Waldron, or of Farrow, would have revealed, if made on 12 or 15 January.
There was evidence that there had been no formal commitment by Farrow as at those dates. It was open to his Honour to conclude that proper inquiry would have revealed there was no commitment to one hundred percent finance and possibly the condition as to early settlement would also have been disclosed.
Then it is said that Farrow's entitlement to cancel the arrangement was not demonstrated. This was disputed. On the evidence, it was open to his Honour to conclude that Farrow had not made any legally binding commitment to the loan.
Next, it is said that Olliver was not instructed to make any inquiry and that it had been made clear in the letter of 12 January that Olliver was not in a position independently to confirm the Farrow commitment. This, however, does not mean that Olliver ought not to have made any inquiry in order to confirm the true position.
The language used in the letter of 12 January refers to "instructions" being received from Avocado about the advance. Olliver had prepared the agreement relating to the loan. At a conference on 15 January with Olliver, Heap agreed that a caveat need not be lodged to protect his interest, but he asked Olliver or Blake Dawson Waldron to find out when the money "will come through". No doubt, this was done to enable him to appreciate his exposure if a caveat were not lodged. Olliver subsequently rang Blake Dawson Waldron and was told that settlement could take some time because of the need to close a laneway. There is no evidence that Olliver inquired as to Farrow's commitment to provide funds.
Contrary to the submission of the appellant there was considerably more to the relationship of Heap and Olliver than the mere fact that Heap might suffer economic loss if Olliver was negligent. There had been previous history of the solicitor/client relationship. Olliver had accepted instructions and authorisations from Heap to act on his behalf and had drawn legal documents both for Heap and his companies.
Where a person has acted as a solicitor for a client over a number of years and has then terminated the arrangement generally, but has assumed from time to time such tasks as preparing security documents which involve acting as an agent and taking instructions to carry out duties relating to security documents involving the exercising of discretion and judgment, it is not possible to treat the relationship as simply that of a principal and agent. The present circumstance involve a much more complex situation, the features of which support the conclusion that there was a solicitor/client relationship.
The breach of duty occurred before the final commitment by Heap to the loan on 29 January. It was therefore open to his Honour to find that the causal nexus had been established between the loss and the breach. The fact that Heap himself could have made inquiries does not mean there was no breach,or that there was contributory negligence, in the light of the finding that Olliver was the appropriate person to make the inquiry. This is further supported by the fact that Olliver, in accordance with instructions from Heap, in fact made inquiries of Blake Dawson Waldron.
Having regard to the above considerations, we are not persuaded that there was any error of law in his Honour's finding as to the existence of a duty and its breach or as to the causal relationship between the loss suffered by Heap and the negligent conduct under consideration.
Cross-Appeal - Marlin Advance
This claim relates to the purchase of one of two parcels of land at Coffs Harbour, known as the Marlin development.
On 2 February 1989, Abulla entered into a contract with Bepuri, another company in the Group, to buy a parcel of land in the Marlin development. The purpose of the advance by Heap was to enable Abulla to meet its obligations under the purchase agreement.
On that date Abulla was in default of its obligations to make payments to Bepuri.
The gravamen of the claim is that Heap was not informed of these defaults by Abulla under its contract with Bepuri prior to making the advance three week later.
On 17 February 1989, Heap entered into a Deed to lend $646,000 to Abulla.
As it transpired the defaults were waived by Deed between Abulla and Bepuri. The moneys advanced by Heap were used to pay part of these defaults, namely $500,000 and the remaining amount due, namely $349,000 remained outstanding.
The claim of the respondents was that Noyce owed a fiduciary duty to Heap or alternatively a duty of care in negligence, and that these duties had been breached by the failure of the firm before 17 February to alert Heap to the fact that Abulla was in default of its obligations.
His Honour rejected these claims. The respondents say that his Honour erred in finding that Heap would not have been troubled by the fact that a default had occurred.
Central to his Honour's finding, was the conclusion that it was the magnitude of the potential profit, which Heap expected to make, which was the operative factor in his decision to lend the money. In support of this conclusion, his Honour referred to evidence that:
•Heap had investigated the matter and concluded it would be feasible and would produce a large profit.
•Heap expected to receive a profit of about $1.2 million.
•During the period of the advance, Heap was to receive interest at the rate of 20% per annum.
•The Deed contained important written amendments made in a conference at which Heap's accountant was present, including the commitment to pay 10% of the net profit. In addition there were a number of important hand written insertions made in the contract at that conference.
•There were disclaimer clauses in the contract as to independent advice; non reliance; absence of representations and the fact that Noyce Olliver was not engaged by either of the parties.
•His Honour was satisfied that as at 17 February, both Abulla and Bepuri expected the defaults to be "remedied".
The respondents submit that his Honour erred in finding that the default had been "remedied" on 6 March. It is said that all that happened on that date, was that the defaults were waived but there still remained outstanding an amount of over $359,000 of the $859,000 which was overdue as at 17 February, Accordingly, it was said, that in a "practical"sense, it was not open to his Honour to conclude that the defaults had been "remedied".
However, it was open to conclude that waiver of the rights arising from failure to pay, remedied these defaults, in circumstances where the companies are members of the same group and as at the date of the advance the Companies expected the defaults to be remedied.
Furthermore, the finding that Heap would not have acted differently, had he known of the defaults, was well open to his Honour on the facts and this finding is fatal to the respondents' case in relation to this transaction.
Costs
In his reasons for judgment of 12 December 1995, his Honour expressed a tentative view that Olliver should pay 50% of the respondents' costs.
On 13 February 1996, after hearing agreement, his Honour ordered that the appellant should pay 60% of the respondents's costs.
In his reasons, his Honour said:
"It is difficult to determine this issue as the matters were so intertwined. I see, however, that in my reasons for judgment I spent a great deal more time on the transactions in respect of which the applicants were successful than on those in respect of which the applicants failed. After a lengthy introductory part, which perhaps dealt rather more with those areas in which the applicants failed but nevertheless was generally relevant, I did not spend much time on the claims in which the respondent succeeded. Having listened to counsel and reviewed my reasons, I now consider that I should give the applicants 60 per cent of the costs of the proceedings."
The award of costs is a matter which involves the exercise of a wide discretion and in a case, such as the present, the trial judge is obviously in a better position than an appellate court to decide the substance of the matter and to fully appreciate and make a judgment as to the merits of a costs application. An appellate court will rarely interfere, in the exercise of a wide discretion except in the clearest possible case and will bear in mind the advantages of the trial judge in such a matter. (See House v R (1936) 55 CLR 449 at 504 and 505 and McCauley v McCauley (1910) 10 CLR 434 at 445).
In Cretazzo v Lombardi (1975) 13 SASR 4 at 11, Bray CJ said that the general discretion was absolute and unfettered except that it must be exercised judicially not arbitrarily or capriciously, and that it cannot be exercised on grounds unconnected with the litigation. In the same case Jacobs J said at 16:
"But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues."
It was submitted that it was an error of law to apportion the costs on the basis of the time spent in the judgment in dealing with the issues raised. This submission puts the matter too narrowly. It is evident from his reasons that his Honour adverted to this matter, but it was in a context where he considered the exercise to be a difficult one and he made it clear that he had weighed the submissions and reviewed the reasons for decision. In addition, as his Honour points out, the relevant facts and considerations relating to each of the
transactions were, to a large extent, "intertwined". Consideration of the judgment, and indeed the material in the appeals books, demonstrate this was clearly so and that it was not possible to segregate the issues, evidence and submissions, relating to each transactions as if they were discrete. Given the "entwined" nature of the matters and the overall success of the respondents in recovering the judgment, we are not persuaded that his Honour fell into any error in reaching his conclusion. (See Henderson v Armadio Pty Ltd, unreported, Heerey J, 22 March 1996, and Hughes v Western Australian Cricket Association (1986) ATPR 40-748 at 48, 136 which deal with appeals against exercises of discretion in relation to costs).
Conclusion
For the above reasons the appeal and cross-appeal should be dismissed with costs.
I certify that this and
the preceding thirty-two (32)
pages are a true copy of the
Reasons for Judgment herein of
the Court.
Associate:
Date: 23 July 1996
Counsel for Applicant: Mr J B Simpkins
Solicitor for Applicant: Phillips Fox
Counsel for Respondent: Mr M Cashion
Solicitor for Respondent: Caruana Kay & Barry
Date of Hearing: 28 May 1996
Date Judgment Delivered: 23 July 1996
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