Raniere Nominees Pty Ltd v Pearn
[2002] VSC 392
•11 September 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 4335 of 1999
| RANIERE NOMINEES PTY LTD (A.C.N. 005 501 208) | Plaintiff |
| v | |
| DONALD PEARN and | |
| ANTHONY COOK | Defendants |
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JUDGE: | Ashley J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 16,19, 20 August and 6 September 2002 | |
DATE OF JUDGMENT: | 11 September 2002 | |
CASE MAY BE CITED AS: | Raniere Nominees Pty Ltd v Pearn and Anor | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 392 | |
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Solicitor and client – terms of retainer – scope of common law duty of care – breach – loss and damage – whether plaintiff paid too much to purchase property subject to lease – causation – remoteness of damage.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J.R. Dixon | Romeo & Associates |
| For the Defendants | Mr R. McGarvie | Hunt & Hunt |
HIS HONOUR:
The circumstances of the claim generally described
In this proceeding the plaintiff, Raniere Nominees Pty Ltd, makes claim against its former solicitors arising out of its purchase of a property known as the Magdala Motor Lodge at Stawell in 1993. The solicitors, Donald Pearn & Anthony Cook, practising in partnership as “Pearn & Cook”, acted for the plaintiff in connection with the purchase. According to the plaintiff’s claim the defendants’ breach of retainer or negligence has caused it loss and damage.
A number of matters are not in dispute: The plaintiff did purchase the property. A contract was signed on 12 February 1993. The transfer took effect on 23 April 1993. The purchase price was $960,000. The property was subject to a lease when sold. The lease, dated 14 April 1992, provided for a five year term and gave an option to renew for three succeeding five year periods.
It is next the case that the lessee, Stayvale Pty Ltd, gave notice of its intention to exercise the option to renew for the first renewal period on 6 January 1997. There followed correspondence in which the lessee, and later its solicitors, contended that fair market rental was all that the lessee was obliged to pay; and in which the plaintiff’s solicitors contended that the rent nonetheless could not be less than the amount paid in the last year of the initial term, and proposed rent in excess of that amount.
The parties did not agree upon the rental to be paid. The matter was referred, in accordance with the lease provisions, to an independent valuer. On 15 July 1997 the valuer determined that the rental for the first year of the renewal period should be $109,000 per annum. The rent last paid had been $130,566 per annum. The valuation highlighted the dispute between the parties concerning the meaning of the lease with respect to the rental payable in the first year of a new term. In 1999 the lessee commenced a proceeding under s. 137 of the Property Law Act 1958 in this Court concerning that question[1]. The proceeding was settled in June 2000 on terms which in essence involved the plaintiff’s capitulation upon the question, although the plaintiff did obtain a certain benefit in return.
[1]1999 No 7112.
The plaintiff alleges that the defendants were relevantly retained to advise it as to the terms and effect of the lease, as to the fixing of rental thereunder and as to any risks or uncertainties arising from its terms. It was not in dispute at trial that the defendants retainer extended to advising the plaintiff about the lease; and that they were also under a common law duty to do so.
The plaintiff alleges that it was advised by the defendants that the lease was straightforward, that the amount of rent could not decrease from one year to the next, and that if the parties failed to agree upon the amount of rent payable in the first year of a new term then the same was to be determined at market value by a valuer – but was not in any event to be less than the rent paid in the last year of the expired term. The defendants deny that they gave such advice. They admit that certain advice was given. They say that it accorded with the provisions of the lease which pertained to rent alterations within the initial term of the lease and which pertained to the method of fixing rent in the event that the lessee exercised the option to renew. They say alternatively that if they gave the advice which the plaintiff says was given, then such advice was not in breach of retainer or negligent.
The plaintiff alleges that it was induced by what the solicitors told it about the method of fixing rental for the first year of a renewal period to purchase the property for the price paid; and that it would not have made the purchase had Mr Giacomo Ranieri, its moving spirit, known that in the event of option to renew being exercised the rent in the first year could be less than the amount paid in the last year of the expired term. The defendants deny that the plaintiff was so induced. If there was inducement in fact they say that causation, as a matter of the application of legal principle, is nonetheless not established. They challenge also the loss and damage claimed by the plaintiff. That loss and damage is said to be the adverse consequences of the plaintiff purchasing the property when it would not otherwise have done so – those consequences being that it paid an amount in excess of the market value of the property, and incurred additional costs by doing so.
What advice did the solicitors give?
Resolution of this question depends upon the recollection of Mr Ranieri and Mr Pearn. It is not in dispute that the two men met for the second time on about 5 February 1993. It is not in dispute that the terms of the lease, a copy of which had been provided to Mr Pearn a few days earlier, were then discussed. The only other person present at the meeting was Mr Ranieri’s former wife. She was not called to give evidence. I draw no inference adverse to the plaintiff on this account. Counsel for the defendants did not submit that I should do so. Neither Mr Ranieri nor Mr Pearn kept notes of the interview. Mr Pearn at no stage provided the plaintiff with a letter of advice.
This was the first occasion upon which the defendants had been retained by the plaintiff. The amount involved in the transaction was substantial. On any view Mr Ranieri was concerned to have some explanation of the terms of the lease, albeit that he had previously acquired, and leased, two other motels. It is surprising that there is no file note either of Mr Pearn’s analysis of the lease or of his conference with the client. It is surprising also that, as I said a moment ago, Mr Pearn did not provide a letter of advice. It was not suggested, I add, that the defendants had destroyed any such documents or copy documents. Be that as may, it leaves the situation as one in which recollections collide; and in which the circumstances were of particular importance to Mr Ranieri whilst they were one of many sets of circumstances professionally considered by Mr Pearn. Moreover, whilst Mr Ranieri was caused to consider the advice which Mr Pearn had given him in 1997, Mr Pearn was not called upon to recall the critical conversation until 1999.
Against the background thus described, Mr Ranieri gave evidence that before 1993 he had purchased two motels in Port Macquarie, New South Wales; one in 1977, one in 1987. Each had been subject to a lease when purchased. In one instance at least there had been a problem concerning lease renewal.
In 1993, Mr Ranieri said, he had paid off the two motels. He was looking for a third motel to buy. He spoke to an estate agent about a motel near Mildura. Nothing came of that, but soon afterwards the agent brought the Magdala Motor Lodge to his attention. He visited the motel over the Australia Day weekend.[2] He met the agent, Mr Cox, made an inspection, and spoke briefly to the human faces of the corporate lessee. Mr Cox provided him with a copy of the lease, and a copy of the s. 32 statement. He was not provided with financial figures about the lessee’s business; nor did he seek such figures. He was, however, told what amount the lessee had paid for the lease, that the asking price for the freehold was $1.1M, and that the vendors were under some financial pressure.[3]
[2]The Australia Day holiday was Monday 1 February 1993.
[3]This last representation seems to have been untrue. See exhibit 3, paragraph 5.
The following day, Mr Ranieri said, he contacted Mr Pearn, whose office he had seen as he drove past when taking his children to and from school. He made an appointment for that same day. On that occasion he had a general discussion with Mr Pearn. He provided the lease and s. 32 statement to Mr Pearn, who asked him for a few days in which to go through them.[4] Three or four days later he received a phone call from Mr Pearn’s office. The critical appointment was made and kept – the witness thought on Friday 5 February 1993. Concerning that interview he said this:
[4]As to the lease, at least, Mr Pearn’s evidence was to the same effect: T.134.
“Mr Pearn started to explain that he had gone through the documents, and he started to go through, again, about the rent, the terms; the responsibilities of the tenants, the responsibilities of the landlord. Yes, and then we came to the – after, after he talked about those things, then I asked Mr Pearn about the mortgage of the lease. In fact, I had an experience with the first motel that I purchased about the mortgage, and I always been reluctant, for tenants to mortgage the lease. But Mr Pearn opened the page … of the lease, and he read the clause, but he said that 'Here', stops here, 'doesn't say whether you can or you can't'. But he said 'Only one thing I tell you: that the lease, it is mortgaged, and so is nothing you can do about'. That was one about – then about the rent, I asked him specific question, about the rent, if it could go down, and Mr Pearn again went to the page; he opened the lease and he said 'At no stage the rent can go down'. He explained to me that the first two years of the term would have been the same rent. Years, third, fourth and fifth would have been increased on a CPI basis, and he said at the end of the term, providing that the tenant exercises the option of renewal, he said that I would, the landlord would have asked for a proper rent. If no agreement was reached between landlord and tenants, then a valuer would have been appointed. And he explained me the formality that you had to go through the president of Victorian Institute of Valuers, and all those things. And after he talked I said 'Mr Pearn, can you tell me one thing: can the rent be dropped, or can it go down?', and Mr Pearn said 'At no stage the rent can go, can be dropped'. In fact, he said 'Here talks about increasing of the rent, and - - -
Yes, was there any further discussion that you recall about the rent review clauses?- - - Sorry.
Was that discussion about the rent review clauses? - - - That was the discussion.
All right. Now, did - - -? - - Sorry, another thing: he said that, then at the end his comment was that it was a straight, a fairly straight-forward lease.”[5]
[5]T.44-45.
He also said this:
“I told Mr Pearn that that was the third motel that I was purchasing. I told him that I was concerned about the rent; that I want to make sure that at no stage would it have gone, would have been dropped, and he said that there was no way that, that the rent would have been dropped.”[6]
The witness said that he explained to Mr Pearn a problem he had encountered at another of his motels when the lessee was able to “[drop] the rent”. This is the evidence he gave in that connection:
“And then with the same property, we had some solicitor that, he did something on the lease there. Whilst he said he put the clause that at no stage the rent could go down, at the worst would have stayed the same as the previous 12 months, then when we went for renewal we found that some words in that contract had been crossed out before the, the lease being registered, which, those few words would have changed the whole meaning of the clause, and so we faced the problem again that the tenants dropped the rent. But then it was re-negotiated, and it was fixed, the problem. So that was my concern with Mr Pearn. That is why I, I strongly, and quite few times I asked him, if the rent can ever dropped, and Mr Pearn said 'No, at no stage'.
Can I just clarify with you, Mr Ranieri what you just told His Honour about your concerns, can you tell me, do you remember what you said to Mr Pearn during that meeting? Did you tell him all of that, that you have just told His Honour? - - - I told him, yes.”[7]
[6]T.45.
[7]T.51.
Although Mr Ranieri said at one point that he asked Mr Pearn “quite a few times” whether the rent could ever go down, the burden of his evidence in chief was that he asked that question twice; once in respect of the existing term, once in respect of the exercise of an option to renew.
Mr Ranieri was cross-examined to considerable effect. He permitted himself to say that he could recall not only the sequence of what was said, but the exact words that were used. He sensibly attempted to resile from but was held to this implausible position. I was left with the clear impression that, as might be expected, he had a general recollection of the range of matters discussed and of what was said[8]; but that it was not a recollection perfect either as to sequence or the words used. It is not incompatible with such a situation that a man may recall with clarity particular words or phrases.
[8]As to which see my question and the witness’s answer at T.77, lines 28-31.
Mr Ranieri emerged from his evidence, in my view, as not in all respects the most reliable of witnesses. So, I do not accept that he could recall the precise sequence of events and words used at the critical interview. Again, I am satisfied that he exaggerated the number of occasions on which he asked Mr Pearn whether the rent could decrease. Further, I consider it improbable that Mr Pearn told him that the lease had been mortgaged, and that he could do nothing about it – that is, whether or not he asked Mr Pearn whether the lessee was able to mortgage the lease. Further again, I think it improbable that he provided a copy of the s. 32 statement to Mr Pearn on the occasion of their first meeting; for the City of Stawell planning certificate, one of the documents in the statement as eventually produced, was dated 3 February 1993; whilst the signed document was dated 8 February. If Mr Ranieri’s evidence was to be accepted it would require a conclusion that he received, before 2 February 1993, an incomplete and unsigned statement. Finally, I am satisfied that he did not give frank evidence upon the question whether, before he took the lease to Mr Pearn, he had read all or part of it, and upon the question how well he understood what he had read.
Those matters, which are of concern[9], leave untouched certain important aspects of the critical meeting and of the surrounding circumstances as they were described by Mr Ranieri in his evidence: first, the plaintiff had not entered into a contract before Mr Ranieri consulted Mr Pearn; nor, indeed, had the plaintiff made any offer to purchase the property. Second, Mr Ranieri took a copy of the lease to Mr Pearn at the outset. Third, whether or not Mr Ranieri took a s. 32 statement to Mr Pearn at the same time, what he critically sought from the solicitor was advice about the terms of the lease. Fourth, on Mr Ranieri's account Mr Pearn gave a description of the initial term of the lease, and accurately stated that it provided for the rent to remain static for two years and then to be subject to adjustment for CPI, provided always that such adjustment did not reduce the rent. Fifth, on Mr Ranieri's account Mr Pearn gave a description of the exercise of option process; and of the fact that, in the absence of agreement between the parties as to the appropriate amount of rent, a valuer must be appointed, whose determination of market rent would bind the parties. To those matters, by reference to the evidence of Mr Pearn, a sixth may be added: it was common ground that Mr Ranieri on one occasion at least asked Mr Pearn whether the rent could go down.
[9]Not all of them pertain to issues which I must decide; but all of them are capable of affecting the witness’s credibility.
I go to the evidence of Mr Pearn, a now retired solicitor aged 74 years. In 1993 he was a conveyancing practitioner of some 40 years experience. He had rarely been retained in connection with a conveyancing transaction involving the purchase and lease of a motel; but he had much familiarity with commercial leasing matters. It was not suggested, I interpolate, that there was anything about this lease that took it outside the range of his experience with commercial leases.
Mr Pearn said that after perusing the lease carefully he thought he had somebody ring Mr Ranieri to make an appointment for him to come in for discussion about the lease. At the meeting, as he recalled it, he summarised its provisions. Concerning the initial term of the lease he said this:
“I said that it was a lease that had commenced in April 1992, and of the initial term of five years it said the first two years the rent was fixed as $120,000 a year, payable by monthly instalments of $10,000 and for the remaining three years of the first five-year term it was to be adjusted according to CPI, with a proviso that in no year should the rent fall below that of the preceding year.”[10]
[10]T135.
Mr Pearn said that the meeting consisted in part of Mr Ranieri asking questions and he providing replies:
“And what particular points, if any, do you remember him asking about? - - - It is hard for me to, from the back and forward of my summary explanations and his questions, to emphasise any particular questions that I recall him having asked, but - - -
Yes? - - - Although I know that they were on the general tenor of clarifying and seeking a definite assurance on certain points.”[11]
[11]T.136.
He expanded in his evidence upon the key factual dispute:
“What advice did you give, in relation to the terms of the lease, apart from those, as to lessor and term, that you have described to this point?---My recollection is it read to me, and I would have read to Mr and Mrs Raniere, that it was a lease that for the first five years provided a reasonable cashflow. Thereafter, there was a potential further 15 years, subject to market reassessments of rent every two years. Now, I did say to them that that had the potential to tie up the freehold property for 20 years, which I felt was a very long time concerning a lease which there was no capacity to re-negotiate. I then, I think there were questions from Mr Raniere about how a valuer would approach things. I elaborated on the fact that a valuer is to be relied upon to give a fair assessment, taking into account all circumstances; that sometimes, that valuers sometimes are deemed to be conservative in their estimates, but that they could be regarded as fair; that compared with CPI valuation can end up with a lesser determined rent if the premises are in some stagnant area, such as a block of ten shops where nine of them have newspaper over the windows, that sort of thing; the rest of the country may be prospering but such a property may be in an area where a valuer may consider it of lower rental worth than CPI would dictate.
Yes. Did you deal with the provision relating to the first five-year term distinctly from the provision relating to subsequent renewals?---Yes, because the, I would not have used clauses like underpinning or ratchet, but nonetheless the underpinning proviso as to that first five years was, I felt, prominent by the lack of any such proviso in the two areas of the lease that dealt with valuation to market.
Yes. And in discussion of the first five-year term, do you recollect, or do you think that it is possible, that you used the term such as ‘The rent can’t fall’ or ‘There is no way the rent can go down’, or something to that effect?---Yes. I have read what Mr Raniere feels that I said, that the rent could never be lower, or something to that effect, and I would well have used that term as part of a comment as to the first five years. The remainder of the comment, of course, being that during those first five years - - -
Did you, or could you, have given any such evidence(sic) in relation to any of the three option periods, that is, that the rent can never fall?---No. Not in a month of Sundays would I have said that, from my reading of the lease.”[12]
and
“And are you able to say whether there was some specific discussion about the, apart from the evidence you have already given in relation to the role of a valuer, and that a valuer would attempt to be fair or whatever it was that, precisely that you said, the, was there discussion about the precise mechanism by which a new rent would be fixed in the event of the exercise of an option, or are you able to not recollect one way or the other?---Yes, I did read out and explain the procedure, first of all, in the two-yearly reviews of the landlord submitting his suggestion as to a fair rent, and the tenant either agreeing in which case it was accepted, or objecting in which case a valuer would be called. A similar procedure, of not specifying notices, but at the end of every five-year term, I explained that there was a provision that, should rent not have been agreed for the oncoming period, a valuer would be called.”[13]
[12]T.137-139.
[13]T.139-140.
The last portion of Mr Pearn's evidence just noted was a reference to the fact that by the terms of the lease, in the event of an exercise of option, rent was to be reviewed to market each two years – very much in contrast to the situation in the initial term. There were thus, in the event of an exercise of option, multiple occasions upon which the rent might decrease.
Mr Pearn, throughout his evidence, was at some pains to assert that Mr Ranieri appeared to be a businessman experienced in the motel industry who had read the lease and apparently understood it except to the extent that he sought advice upon particular aspects about which he asked questions.
It is noteworthy that in his evidence in chief Mr Pearn did not refer to the plaintiff asking whether the rent could fall. He accepted that he “would (?could) well have” said something to the effect that the rent could not fall in the initial term; but he did not suggest that it was in reply to a question asked by Mr Ranieri. Indeed, he said that he had difficulty in recalling any particular question which Mr Ranieri had asked.
Another noteworthy feature of Mr Pearn’s evidence in chief was his very frequent resort to the language of uncertainty: “Then I think”; “As I recall”; “I would have”; “I think there were”; “I would not have used”; “I would well have”. I do not mean to criticise him for using that language. But it did reflect, I consider, his understandable difficulty in recalling what had been said long ago at a meeting of which he had neither preparation nor meeting notes.
In cross-examination Mr Pearn said that he “felt sure” he took the lease home, and that he “[thought] he read it at home” before meeting with Mr Ranieri on the critical occasion. Here again was the language of uncertainty; although it is highly likely, I consider, that Mr Pearn did those things; or at the least read through the lease in the interim between the two meetings.
Mr Pearn was cross-examined about his evidence that he had told Mr Ranieri that because of the three option period the property could be tied up for an unusually long period. It was suggested, in effect, that he had said nothing of the sort. He responded, in substance, that he had done so for two reasons: first, because a potential 20 year period was a long time by conventional standards; and second, because if the options were exercised there would be multiple occasions when the rent might fall. He said that Mr Ranieri had seemed unconcerned when he told him that the property could be tied up for an unusually long period; and that this was cause to send a letter of advice[14]. He resisted the suggestion that, no letter of advice having been sent, it followed that he had not raised the issue with Mr Ranieri.
[14]T.153.
The witness conceded in cross-examination that it was “only subsequently” to 1993 that he realised that a second exercise of option would fall within the period of the third two yearly adjustment to market rent; in which case a question would arise whether provisions in the lease for review to market could operate compatibly. He said also that he “may not have foreshadowed seven successive decreases of anything like that. But I believe my language would have been sufficient to indicate that these valuations to market…”[15] It was not put to him that he failed to refer to this possible situation because he failed altogether to mention to Mr Ranieri the two yearly review to market.
[15]T.177; see also T.188.
The witness also gave this evidence in cross-examination about what he had said to Mr Ranieri concerning the rent review provisions of the lease:
“But I am sure I would have made clear in this discussion about valuation, or certainly did, in the emphasis, that the rent could only go down, could not go down in the first five years, and it was reviewed to market every two years thereafter. I am sure I would have made clear that it could go down, although I can’t remember, as I said, emphasising that to the extent to say ‘Don’t touch this freehold with a barge-pole because the rent might go down under valuation provisions later on.”[16]
[16]T.162-163.
Notwithstanding his frequent use of the language of uncertainty in his evidence in chief, in cross-examination Mr Pearn said that his recollection of the critical meeting was clear; he had a “pretty solid recollection” of what [he] advised”[17]. On the other hand he said that “… I was not relying on looking through the file [6 years later] as my only recollection of what had been said or advised.”[18]
[17]T.156
[18]T.157.
The witness accepted in cross-examination that Mr Ranieri had asked him whether the rent could go down[19]. He said that he had answered no,
“’Not during’ I think I might have then said ‘the forthcoming four years’. ‘Not during the first five years of the term’.”[20]
[19]T.163.
[20]T.164.
Mr Pearn was challenged in cross-examination about his evidence in chief that he had told Mr Ranieri that a valuation to market can end up with a lesser determined rent; and of an example he said he had given to show that on a market valuation the rent may decrease. He said that he could not remember if he had given the example on that occasion[21]. He agreed that it had not been put to Mr Ranieri in cross-examination that he had told Mr Ranieri that valuers could err on the conservative side. He also said that he could not remember his “explanation of the rent being able to go down on market review… producing an urgent concern on the part of Mr Ranieri”.[22]
[21]T.175.
[22]T.182.
I should refer next to two questions which I asked Mr Pearn, and to his replies:
“Can you recall whether he asked the question after you had dealt both with the five-year term and the rent renewal provisions, or whether it was at some other time?---No, I think it was after the full 20 years had been spoken of, as to – yes.
And by the time, as I understand it, you had already told him that the rent could go down?---That is my recollection.”[23]
[23]T.194.
The question to which I referred in the first of my questions was Mr Ranieri’s question whether the rent could decrease.
At the end of Mr Pearn’s evidence I consider that there was room for much doubt what true recollection he had of what was said at the critical meeting, as distinct from reconstruction of events based upon his later perusal of the lease, his knowledge of the allegations made by the plaintiff in paragraphs 6 and 11 of the statement of claim dated 3 February 2000, and his usual practice. I have carefully considered his evidence, and that of Mr Ranieri. I have already remarked upon unsatisfactory features in the evidence of the latter. I have borne in mind the onus of proof resting upon the plaintiff. Those things said, I consider that the following findings may be safely made:
First, as I have already concluded, Mr Ranieri did read through the lease before the critical meeting with Mr Ranieri.
Second, Mr Pearn did take Mr Ranieri through the terms of the lease, most particularly the matters set out in the Schedule.
Third, in taking Mr Ranieri through the terms of the lease Mr Pearn described the initial term and accurately stated that it provided for the rent to remain static for two years and then be subject to adjustment for CPI, provided that such adjustment did not reduce the rent[24].
[24]A finding anticipated in paragraph 16 of these Reasons.
Fourth Mr Ranieri understood what he was told about the rental situation within the initial term of the lease. He did not ask, because he did not need to ask, whether the rent could decrease within that term.
Fifth, Mr Pearn described the exercise of option process. He told Mr Ranieri that in the absence of agreement between the parties as to the appropriate amount of rent a valuer must be appointed whose determination of market rent would bind the parties[25]. He said that a valuer must act fairly. He did not tell Mr Ranieri that on such a review the rent could decrease. He did not give an example as would have highlighted that possibility.
[25]Another finding anticipated by paragraph 16 of these Reasons.
Sixth, Mr Pearn told Mr Ranieri that, if the lessee exercised the option to review, there would be a review of rent to market each two years if the parties could not agree upon amount. He did not draw Mr Ranieri’s attention to the possibility that, if the option was exercised for the second time, there was room for doubt as to the timing of reviews. He did not tell Mr Ranieri that the rent might decrease on any such review. Nor did he tell Mr Ranieri that there could be a multiplicity of occasions on which a review could lead to a decrease in rent.
Seventh, Mr Pearn did say that the property could be tied up for 20 years, which was a long time. But he did not connect that observation with the prospect of multiple rent reviews or decreases in rent.
Eighth, Mr Ranieri was concerned whether the rent could fall at any stage in the prospectively long life of the lease. For that reason, after Mr Pearn had explained to him the mechanical steps pertaining to and flowing from an exercise of option, he asked Mr Pearn whether the rent could ever fall. The question was asked in that context. It was the only time when Mr Ranieri asked Mr Pearn whether the rent could fall.
Ninth, Mr Pearn answered the question simply in the negative. Although the question had been asked in a particular connection he did not differentiate in his answer between rent payable in the initial term and rent thereafter. He did not attach his reply to the situation in the initial term. Nor did he attach it to the conception of a review to market. The latter conception he had already described, but without saying more than that the review must be fair to both parties.
Tenth, Mr Ranieri understood the reply to relate to the rent review process, which he understood might occur on a number of occasions. He believed, in consequence, that on the reviews which might eventuate the rent would not necessarily go up; but that it could not go down. He regarded that as sufficiently protecting his position. He was not concerned about the situation if the lessee did not take up the option to review. He believed, rightly or wrongly, that if the option was not taken up the plaintiff would be able to manage satisfactorily.
Eleventh, Mr Pearn should reasonably have understood that Mr Ranieri’s question was directed to the review to market situation. Mr Ranieri had asked no question after Mr Pearn had described the rent provision for the initial term. Mr Pearn’s description of that provision could not have left any uncertainty on that score. Mr Ranieri asked the question after Mr Pearn had described the market review process as set out in the lease. Description of that process did not entail his saying that the operation of the process might yield decreased rent.
Twelfth, Mr Pearn probably misunderstood what he was being asked. His answer probably did not bespeak a misunderstanding of the possible consequences of a review to market on an exercise of option. But his answer was in language which was not evidently confined to the situation in the initial term of the lease. Additional words would have sufficed to ensure that Mr Ranieri understood that the answer related only to rent in the initial term. But I am satisfied that those additional words were not said.
Thirteenth, Mr Pearn did tell Mr Ranieri that the lease was straightforward, or words to that effect[26]. He did so because in his professional opinion at the time it was. His then belief, probably, was that the rent could fall on a review to market. He understood that there could be a succession of reviews to market. He was not conscious of a possible difficulty concerning review at the commencement of a second period of exercised option. This is immaterial to this proceeding.
[26]He conceded that he may have done so. T 157.
Did the defendants breach their retainer or their common law duty?
According to the statement of claim the defendants breached their contract of retainer and their common law duty of care in the same way. They -
“failed to exercise reasonable skill and care as solicitors for the plaintiff in:
(a)acting as solicitors for the plaintiff in respect of the proposed purchase of the property;
(b)advising the plaintiff as to the purchase and the lease, including the giving of the advice;
(c)advising the plaintiff as to the fixing of rental under the lease; and/or
(d)failing to warn the plaintiff as to the risks and uncertainties arising from the terms of the lease.”
“The advice”, a term used in paragraph (b) of the above particulars, was identified by the statement of claim this way:
“… the defendants advised the plaintiff, inter alia, that:
(a)the Lease was straight forward;
(b)the Lease provided that, during the period of the Lease, the rental could not fall at any stage below the amount of the rental payable in the preceding year;
(c)if the parties failed to agree on the initial rental upon the Lease being renewed, then the initial rental was to be determined at market value by a valuer, but that the initial rental could not fall below the amount of the rental payable in the preceding year; and
(d)there was no reason arising from the Lease for the Plaintiff not to proceed to purchase the Property
(‘the advice’).”
The gist of the plaintiff’s case as argued at trial was that the relevant provisions of the lease were clear, and that negligently wrong advice was given concerning the rental payable in the event of exercise of the option to review; or that the lease was not clear about that matter and that the defendants had not put the plaintiff on notice of ambiguities. At the heart of the case was the contention that, one way or the other, Mr Pearn had misunderstood the terms of the lease.
Against that background, counsel for the defendants pursued at trial the case that, if Mr Pearn had given the alleged advice, there was no breach of contractual or common law duty in doing so. Counsel pursued this contention, I must say, with something less than his accustomed force[27]. Understandably so, in light of certain of Mr Pearn’s evidence. Be that as may, he cited Trust Co, Stevenson v Rowland[28], Bannerman Brydone Folster & Company v Murray and anor[29] and Carew Counsel Pty Ltd v French[30].
[27]Compare T249 line 23 to T250 line 1 with T251 line 10 to T252 line 7.
[28]II Dow and Clark 104.
[29][1972] NZLR 411.
[30][2002] VSCA 1.
Counsel for the plaintiff contended at trial that there was plain evidence of breach. He cited Henderson and ors v Amadio Pty Ltd and ors (No.1)[31]. He referred also, in a somewhat different connection, to Griffiths v Evans[32].
[31](1995) 62 FCR 1.
[32][1953] WLR 1424.
The relevant principles are clear. They were summarised, so far as could here be relevant, by Winneke P in Carew Counsel[33]:
“…the solicitor’s duty is to act with reasonable care and skill in the discharge of his retainer to his client. What is required for the performance of this duty in the particular case depends upon the circumstances, including the scope of the retainer and the nature of the task entrusted to and undertaken by the solicitor[34]. A solicitor who brings a reasonable degree of skill and knowledge to his task, and exercises reasonable care, in the circumstances, in carrying it out will not be liable per se for an error of judgment[35]; nor will he be liable, necessarily, for a mistake made upon a “nice and difficult point of law”[36]. In giving advice or making decisions in the exercise of the retainer, the solicitor does not warrant or guarantee the soundness of the advice or decision but only that the requisite degree of skill and care has been used in arriving at them[37].”[38]
[33]Ibid, at [29].
[34]Trust Company of Australia v Perpetual Trustees W.A. & Ors (1997) 42 NSWLR 237 at 247 per McClelland CJ in Eq.
[35]Armindale Holdings Ltd v Ray (1982) 36 BCLR 378 at 387 per Taylor J.
[36]Bannerman & Co v Murray [1972] NZLR 411 at 422 per North P; at 429 per Woodhouse J.
[37]Boland v Yates Property Corp Pty Ltd (1999) 74 ALJR 209 at 272; Heydon v NRMA Ltd & Ors (2001) 36 ACSR 462 at 567.
[38]The observations of Heerey J in Amadio at 139G to 140A concerned the scope of the retainer. That was not an issue in the present case. The observations of Denning LJ in his dissenting judgment in Griffiths v Evans at 1428 were also concerned with the scope of the retainer.
My findings of fact do not coincide with the case as presented and defended at trial. So, whilst I have found that Mr Pearn did answer Mr Ranieri’s question whether the rent could ever fall by a simple and unconfined negative, this on its face extending both to rental in the initial term and on an exercise of option, I have not found that his reply evidenced a want of understanding of the provisions of the lease. I have found that he probably misunderstood the import of the critical question when reasonably he ought not have done so; and that in any event he made a reply which, because it was unconfined, was in part wrong advice, and misleading.
Having account of my findings, I invited counsel to address me further on the question whether in the circumstances the plaintiff had proved want of reasonable care on the part of the defendants. Counsel for the plaintiff submitted that the default was proved. Counsel for the defendants contended to the contrary. Counsel for the plaintiff emphasised the need for Mr Pearn to have accurately explained the differing effect of each aspect of the rent regime. Counsel for the defendants submitted that reasonable care only was required of Mr Pearn and that it was reasonable for him to have understood the question to relate only to the initial term, in which case his answer should have been so understood by Mr Ranieri. Mr Pearn, he submitted, was not required to be a mind-reader.
Upon the findings which I have made, I consider that the plaintiff has proved want of reasonable care on the part of the defendants. Mr Pearn probably did not misunderstand the terms of the lease pertaining to rental. But asked whether, after he had explained all those terms, the rent could ever fall, he answered in the negative in an unconfined way. The rental regime established by the lease was sharply different in the initial term and upon an exercise of option. To answer Mr Ranieri’s question in a way which did not differentiate between the two situations was to give an answer which was wrong advice in part. Regardless whether Mr Pearn understood the question to refer only to the initial term – and he ought not reasonably have done so on the findings which I have made – he should not have given an answer in unconfined language. Its effect, in substance, was to give advice which he said he would not have given in “a month of Sundays”.
I should add this: If, contrary to what I consider to be the more probable situation, Mr Pearn’s answer to the critical question was not founded upon a misunderstanding of the question he was asked, the situation would be worse for the defendants. For it would either bespeak faulty understanding of the provisions of the lease, or a singularly inappropriate answer to the question which had been asked.
Upon the question of possible faulty understanding of the provisions of the lease, I should say, defendants’ counsel relied at trial upon alleged ambiguity therein; a reliance made difficult by portions of Mr Pearn’s evidence. In support of the alleged ambiguity counsel for the defendants pointed to the circumstances that the plaintiff did not yield the point in 1997, but forced the lessee to initiate litigation by boldly stating its position[39]. He did not, however, seek to analyse the lease in order to show that there was substance to what the plaintiff’s solicitors had then asserted; and the strength of the assertions was rather contradicted by the outcome of the litigation which, although not a complete capitulation by the plaintiff, salvaged only a little from the wreck. In any event, if the relevant parts of the lease were ambiguous, then as counsel for the defendants contended, Mr Pearn should have so advised; but according to his evidence, and that of Mr Ranieri, he had not done so.
[39]See exhibit 2, letter from the plaintiff’s solicitors to the lessee’s solicitors dated 21 September 1998.
Causation; loss and damage
The plaintiff claims that it would not have bought the property had not Mr Pearn given the advice that he did. Mr Ranieri gave very emphatic evidence to that effect on several occasions. I accept that evidence. It was consistent with his question to Mr Pearn, after all the rent provisions had been described, whether the rent could ever go down, a question directed to the situation consequent on an exercise of option.
The plaintiff claims that in consequence of the advice allegedly given it suffered loss and damage, being the difference between the price it paid for the property and the true value of the property at the time of purchase together with additional borrowing costs and stamp duty. In money terms the elements of the claim are:
v difference in value $90,000
v increased cost of borrowing $74,856.42
v additional stamp duty $4,950
The arithmetic of the second and third items was not in dispute before me. Nor did counsel for the defendants submit that, if a compensable difference in value was established, those items were not recoverable.
Two questions arise: first, assuming that the plaintiff suffered the loss and damage alleged, was the defendants' conduct, in law, a cause of such loss and damage? Second, did the plaintiff suffer the loss and damage which it alleges, or some lesser loss and damage? Upon the first question counsel for the defendants submitted that his clients' assumed negligence was not a cause of the plaintiff’s alleged loss and damage because – even assuming that the plaintiff would not have purchased the property had Mr Pearn not given the advice he did – the difference in value was attributable to the rental paid being above market rental at the time of purchase, and was unrelated to the fact that, if the tenant exercised the option to renew, the rent might decrease. Upon the second question counsel for the defendants submitted that in fact the rental being paid as at February 1992 was a market rental, in which case the capital value of the property was indeed the price paid.
If there was no difference between the purchase price paid and the market value of the property as at early 1993 then the plaintiff’s claim necessarily fails. It is convenient to deal with that issue immediately. Two witnesses gave pertinent evidence: Mr Dudakov for the plaintiff and Mr Norman for the defendant. According to Mr Dudakov the market value of the property in April 1993 was made up of an $816,000 core component plus $51,400 to reflect the fact that more than market rent was being paid and would continue to be paid in the initial term of the lease; amounts rounded off to $870,000 in all. According to Mr Norman the market value of the property in April 1993 was identical with the price paid, that is, $960,000.
Both witnesses, well-credentialled experts, agreed that the proper method of valuing the property was by capitalising rental. They agreed, subject to a late qualification by Mr Norman, that it was appropriate that market rental be capitalised at 12.5%. They agreed also that market rental for a business such as this is almost exclusively derived from turnover, and that there is a particular relationship between turnover and rental. According to Mr Dudakov “rents for motel rooms usually range between 20-30% of turnover and for food/beveridge (sic) the rent is usually around 8-10% of turnover”.[40] According to Mr Norman “market rental should reflect in the order of 20% of sales turnover, having particular regard to the proportion of income derived from the restaurant component”.[41]
[40]Report 19 July 2002, part of Exhibit H. In cross-examination Mr Dudakov said that rents are in the order of 20-25% of turnover, in relation to room rates, primarily closer to 20%: T103.
[41]Statement of evidence, Exhibit 4, para 18.
Mr Dudakov did not work from turnover figures in calculating market rental, and thus capital value, as at April 1993. He accepted the correctness of a determination made by Mr Zala, the independent valuer appointed under the provisions of the lease, of market rental as at mid 1997. Then, extrapolating from certain statistics concerning average occupancy rates/room rental rates in the Stawell district between April 1993 and May 1997, he concluded that “market rental of the subject property had increased by about 7% between early 1993 and early 1997”. That done, he took the market rental of $109,000 determined by Mr Zala and reduced it by 7%. Thus $102,000. Thus, in turn, $816,000 as the core component of the April 1993 capital value of the property.
That was an ingenious exercise. But it substituted an informed guess about rental at the plaintiff’s motel with the actual rental.
Mr Norman used turnover figures in his valuation of the property as at April 1993. They were, it seems, extremely close to the actual turnover figures for the financial years 1992/93 to 1996/97. It was not suggested that any variation from the actual turnover figures was material to his opinion.
The turnover figures used by Mr Norman did not differentiate between room and food and beverage income. That is likely to have yielded a less than perfect result to the exercise of translating turnover to rental to capital value. That said, Mr Norman, applying his “order of 20% total sales turnover” approach to turnover figures varying between $520,000 and $600,000 over the past 10 years[42], concluded that “the maximum level of rental value that can be attributed to the subject premises would be in the order of $120,000 per annum”[43]. He referred also to “[a] likely perception that the passing rental was broadly in accordance with market rates” in April 1993[44].
[42]His statement of evidence was dated 15 July 2002.
[43]Exhibit 4, para 18.
[44]Exhibit 4, para 24.
He further concluded, as I understand it, that the capital value of the property in April 1993 was $960,000 whether or not the purchaser understood that the existing lease underpinned rental for only the initial term, or rather for the entire possible term of 20 years. Such a rental was either appropriate to the turnover, or was excessive. If, contrary to the witness’s opinion, the rental was excessive, the prudent investor would realise that for one reason or another this could not be expected to continue throughout the 20 years. So, if the rent was excessive and was underpinned, it would not be expected that the lessee would exercise the options. But if the rent was excessive and was not underpinned, then there would be review to market rental.
As the plaintiff’s claim was pursued it is unnecessary, I think, to consider the last-mentioned aspects of Mr Norman’s evidence. It was not the plaintiff’s case that the value of the property was the less in April 1993 because the rent was not underpinned throughout the possible 20 year term. As the case was presented, the value of the property was less than what was paid because the capitalisation of market rental as at April 1993 yielded a figure less than $960,000.
The plaintiff has not persuaded me that it paid more than the market value of the property when it paid $960,000 in April 1993. Evidently, there is room for some variation in the outcome of a valuation exercise. A valuation in an amount a little less than $960,000 would not have been erroneous. But it does not follow that by paying $960,000 the plaintiff paid more than the then market value of the property.
Essentially, then, I do not accept Mr Dudakov’s opinion; and I consider that the material relied upon by Mr Norman justifies his valuation. The following matters are pertinent: first, Mr Dudakov’s opinion was founded on methodology which made an informed guess about market rental in 1993. The guess was at odds with the evidence. Mr Dudakov assumed that rental (derived from turnover) would have been 7% greater in 1997 than it was in 1993. In fact, turnover in 1992/93 was[45] $558,958, whereas turnover for 1996/97 was $520,000.
[45]I take Mr Norman’s figures, said not to be materially different from the precise figures.
Second, Mr Dudakov accepted the propriety of Mr Zala’s rental determination of $109,000 per annum as at April 1997. I was not provided with Mr Zala's report; only his determination. So I do not know what methodology he applied in arriving at his determination. At face value, however, if a determination of rental as at 1997 of $109,000 per year was correct on a turnover in 1996/97 of $520,000, it seems to me difficult to say that a rental of $120,000 was inappropriate on a turnover in 1992/93 of $558,958. Expressing rental as a percentage of turnover, the difference was only about 0.5%. Further, as at April 1993 a purchaser had the potential advantage of indexation of rent in the last three years of the initial term.
Third, if it be permissible to look at turnover trends in determining market rental then the pattern was one of increase between 1992/93 and 1993/94; whereas it was one of decrease between 1995/96 and 1996/97.
Fourth, according to Mr Dudakov turnover figures which he had seen pertaining to the initial term should be characterised as stagnant. If that was an appropriate characterisation it would follow that a rental of $109,000 per annum was as appropriate in 1993 as it was in 1997. Mr Dudakov’s methodology would then demand that in determining the value of the property as at April 1993 a premium should be added to the core component because the actual and prospective rental in the initial term was above market value. According to a calculation undertaken by plaintiff’s counsel a valuation of $903,000 would be arrived at. But is it correct to say that turnover was stagnant in the initial period of the lease? I think not. These are the figures:
1992/93 $558,958
1993/94 $577,836
1994/95 $524,665
1995/96 $546,966
1996/97 $520,000
Save for 1995/96, the trend was down after a peak in 1993/94. The 1996/97 turnover was 9% less than in the peak year.
Fifth, Mr Norman’s opinion was that the “maximum level of rental value that could be attributed to the subject premises” over a 10 year period was “of the order of” $120,000 per annum. Those 10 years disclosed annual turnover as low as about $520,000 and as high as about $600,000. The witness might be taken to have attached the maximum rental to the year of highest turnover. It could then be argued that 1992/93 was not the year of highest turnover; in which case Mr Norman’s evidence would not support a rental of $120,000 and capitalisation to a value of $960,000. But Mr Norman made it clear that a relevant consideration in valuing the property as at April 1993 was that there was then an upwards trend in turnover; a trend reversed between 1995/96 and 1996/97. He accepted that rental as at 1993 could have been determined in the range of $115 – 120,000. That, he said, justified a conclusion that $120,000 was substantially in accordance with what would be regarded as a market value rental [46].
[46]T.128.
Sixth, I noted earlier that Mr Norman had qualified his evidence that the appropriate capitalisation rate was 12.5%. What he said in that connection was that if rent had been fixed at, say, $110,000 in 1993 then the prospect for rental growth would have been greater, in which case a capitalisation rate of 12% might have been justified. That proposition was not squarely put to Mr Dudakov; and I do not attach any great importance to it. I note, however, if only to provide a check on approaches which I have earlier considered, that capitalisation of $110,000 at 12% would produce a figure of about $917,000; to which an amount might be added so as to reflect excess rent in the initial term of the lease – this yielding a valuation not far short of $960,000.
In all, conformably with what I said earlier, I consider that $960,000 was towards the upper end of permissible variation in valuation of the property as at April 1993; but not an amount beyond that which was permissible.
It is not necessary, in light of my conclusion that the plaintiff has not established any loss and damage, to deal with the causation issue which I earlier identified. That issue is not altogether straightforward. This is not the occasion to attempt to resolve points of general principle. Nonetheless, for the sake of completeness I should say a little about the competing submissions, and offer some tentative conclusions.
As I noted a little earlier, defendants’ counsel submitted that his clients’ assumed breach of retainer or negligence, pertaining to the operation of the exercise of option provisions, was unrelated to the reason why the plaintiff paid too much (on its case) for the property. It paid too much because the actual rent exceeded market rent, and because the actual rent when appropriately capitalised yielded a sum which exceeded the market value of the property. In those circumstances causation, according to the application of legal principle, was excluded. The situation was said by counsel for the defendants to be different from that where a purchaser pays too much for a property by reason of a valuer’s negligent valuation. Counsel relied upon Banque Bruxelles Lambert S.A. v Eagle Star Insurance Co Ltd[47]; Trust Co of Australia v Perpetual Trustees WA Ltd and ors[48]; Kenny & Good Pty Ltd and anor v MGICA (1992) Ltd[49]; Mallesons Stephen Jaques v Trenorth Ltd[50] and Cadoks Pty Ltd v Wallace Westley and Vigar Pty Ltd[51].
[47][1997] AC 191 particularly at 214 per Lord Hoffman.
[48](1997) 42 NSWLR 237 particularly at 248.
[49](1997) 77 FCR 307; and, in the High Court (1999) 199 CLR 413.
[50][1999] 1 VR 727.
[51][2000] 2 VR 569.
Counsel for the plaintiff submitted that this was a simple case of a purchaser entering into a transaction by reason of negligent advice. The loss and damage in consequence of its doing so was not all the money which it expended; but rather the amount by which the money expended exceeded the value of what had been purchased. Why the purchaser had paid too much was beside the point. It was a "no transaction" case. Counsel cited McGregor on Damages[52]; Ford and anor v White and Co[53]; Camsan Pty Ltd v Curtain[54]. He submitted that Lord Hoffman’s approach to causation in Banque Bruxelles had not been adopted by the High Court in Kenny & Good. There, the March v Stramare[55] test had been reiterated.
[52]16th ed, paragraphs 1269-1271.
[53][1964] 1 WLR 885.
[54](1990) V Conv R 54-364.
[55]March v E & MH Stramare Pty Ltd (1991) 171 CLR 506.
I make these observations. First, much reliance was placed by counsel for the defendants on the speech of Lord Hoffman in Banque Bruxelles. That was a valuer’s case, as was Kenny & Good. It concerned the particular problem of a negligent overvaluation and of a purchaser’s loss attributable at least in part to a general decline in property values. Kenny & Good raised a somewhat similar problem, the loss being suffered by a mortgage insurer rather than a purchaser. In Kenny & Good, at first instance, Lindgren J said[56] in what Gummow J described as a correct observation,[57] that in Banque Bruxelles:
“… their Lordships have defined the valuer’s duty in a manner which purports to foreclose questions of causation, remoteness and measure of damages, which have, at least conventionally, been treated as distinct from the formulation of duty.”
[56](1996) 140 ALR 313 at 371.
[57](1999) CLR at 413.
Gummow J said of Banque Bruxelles that it:
“is now treated in England (and, it would appear, in New Zealand) as specifying a duty of care with a settled and limited scope, which applies where the plaintiff has provided funds or other financial accommodation on security of property against a negligent valuation thereof by the plaintiff.”
The Banque Bruxelles approach was not adopted in Kenny & Good, which was a valuer’s case, albeit with particular features. It was specifically rejected by Lindgren J at first instance. Neither in the Full Federal Court nor the High Court was this said to have been wrong. It is true that in the High Court McHugh J[58] said that the case really fell for resolution on its own facts; and that “accordingly it is not necessary to formulate general principles as the House of Lords sought to do in Banque Bruxelles for the determination of the quantification of damages generally in cases of negligent valuations of property”[59]. Moreover, as I understand it, his Honour approached the case as one akin to contract, in which context the nature and scope of the valuer’s duty, and as well remoteness of damage was to be considered; whereas other members of the court dealt with the case as one in common law negligence. Nonetheless, there was a general insistence in Kenny & Good that duty, breach, causation and remoteness must be dealt with by reference to the individual circumstances of the particular case. This was inconsistent with the Banque Bruxelles approach which, as Gummow J said, involved the formulation of a duty “at some level of abstraction from any particular facts”[60], quite apart from the issue created by the duty thus stated foreclosing questions of causation, remoteness and measure of damages.
[58](1999) CLR at 430-431.
[59]Ibid, at 458.
[60]Ibid, at 445.
Second, there is no warrant, in terms of precedent, for applying the Banque Bruxelles approach to non-valuer cases in Australia. Trust Co was disposed of by a finding of no negligence. It would have been disposed of adversely to the plaintiff by recourse to principles of causation as they have been developed in Australia[61]. It is true that McLelland CJ in Eq said that the Banque Bruxelles approach “may be taken to represent the law in Australia in a case of the present kind[62]; and his Honour no doubt considered that such an approach would yield a similar outcome. But this was, strictly, obiter; and it predated Kenny & Good. Moreover, Trenorth by intent applied the modern Australian test of causation in deciding that the true cause of the plaintiff’s loss was its fraudulent conduct; or else that the plaintiff’s fraud severed a link in the causal chain. That is incompatible with the Banque Bruxelles approach.
[61]42 NSWLR at 248 B-F and 251 C.
[62]Ibid, at 249 G.
Third, the authorities cited by counsel for the plaintiff would not necessarily assist a resolution of the causation issue in its favour. Ford v White was concerned with the measure of damages, not causation. Further, the advice given was pertinent to why the purchasers paid the price that they did; though in the end it gained them nothing because the court concluded that they had acquired a property equal in value to the price actually paid. Camsan v Curtain was another measure of damages case. There again the negligent advice was pertinent to why the plaintiff paid the amount that it did – in that case an amount greater than the market value of the land. In short, it may be said of those two cases that the problem did not there arise of the advice alleged to be in breach of retainer or negligence being unrelated to the reason for overpayment, and thus to the difference between price paid and market value.
Fourth, it is necessary to closely examine the facts of the particular case in order to ascertain not only the existence but also the scope of the common law duty of care. In the present case the duty alleged was a duty to advise the plaintiff as to the import of the lease, particularly, for present purposes, with respect to whether there was any possibility that rental thereunder could decrease, either within the initial term or on any renewal. The contract of retainer, it is here convenient to say, allegedly contained a like obligation.
Fifth, there having been breach of the common law duty thus described, according to the Australian approach questions of causation, remoteness and measure of damages would need to be considered. As to the first, the test is that of commonsense and experience: March v E. & M.N. Stramare Pty Ltd[63]; Medlin v State Government Insurance Commission[64]. Curiously, commonsense and experience has not uncommonly been different for trial judges and courts on appeal. March v Stramare is one instance. There the judgment at first instance was restored on appeal to the High Court, having been successfully appealed to the South Australian Full Court. Medlin was another instance. There the High Court differed both from the trial judge and the South Australian Full Court. In Trenorth the Court of Appeal differed from the trial judge. The High Court never had its say in that case. The plaintiff’s appeal was settled in the course of the hearing[65].
[63](1991) 171 CLR 566 at 515-516.
[64](1995) 182 CLR 1 at 6.
[65]Another recent example of the phenomenon is National Australia Bank Ltd v Nemur Varity Pty Ltd [2002] VSCA 18 where the Court of Appeal reversed an aspect of my decision at first instance, discerning that I had – despite plainly stating the appropriate test – allowed myself to be subverted by the “but for” test; and not taken account of the fraud of a non-party to the proceeding: see per Phillips JA at paragraph 1 and Batt JA at paragraph 41.
Given the shifting sands of commonsense and experience, my tentative conclusion is that the plaintiff would establish the necessary causal link between the duty which the defendants breached and the loss which the plaintiff suffered. I will not expand, in the circumstances, upon that provisional conclusion.
Sixth, both in tort and in contract, the issue of remoteness of damage would then need to be considered. The test of remoteness is not, of course, the same in the two cases[66]. Counsel did not argue the question of remoteness at all, let alone in the differing contexts of tort and contract. In the circumstances I decline to essay a provisional conclusion as to the outcome of the application of the pertinent principles to the facts of this case.
[66]See, for example, National Australia Bank v Nemur Varity, ibid, at [43]-[44] per Batt JA and Cadoks Pty Ltd v Wallace Westley and Vigar Pty Ltd (2000) 2 VR 519 at paras 199-208.
Judgment
There must be judgment for the defendants.
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