Richardson v McKinnon - [2001] NSWSC 388

No judgment structure available for this case.

CITATION: Richardson & Anor v McKinnon [2001] NSWSC 388

CURRENT JURISDICTION: Common Law

FILE NUMBER(S): SC 20181/99

HEARING DATE(S): 21, 22 & 23 November 2000

JUDGMENT DATE:
16 May 2001

PARTIES :

John Herbert Richardson
(First Plaintiff)
Judith Richardson
(Second Plaintiff)
Robert Munro McKinnon
(Defendant)

JUDGMENT OF: Master Harrison

COUNSEL :
Mr R McKeand with
Ms C Morris
(Plaintiffs)

SOLICITORS:
Mr K Tapsell of
Watkins Tapsell
(Defendant)
Warren McKeon Dickson
(Plaintiffs)

CATCHWORDS: Separate determination of issues - liability - causation - professional negligence - drafting of sublease

LEGISLATION CITED: Law Reform (Miscellaneous Provisions) Amendment Act
Fair Trading Act
Contracts Review Act

CASES CITED: Astley & Ors v Austrust Limited (1998-99) 197 CLR 1
Voli v Inglewood Shire Council (1963) 110 CLR 74
Wheeldon v Burrows (1879) 12 ChD 31
Wenham v Ella (1972) 127 CLR 454
Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232
Froom v Butcher [1976] QB 286
Gunning v Fellows (1997) 25 MVR 97
Pennington v Norris (1956) 96 CLR 10
Sungravure Pty Limited v Meani (1964) 110 CLR 24

DECISION: I make the following findings:; (1) The defendant was negligent and breached his retainer when he drafted the sublease to give two different descriptions of the demised premises. Both the defendant's negligence and breach of contract caused the plaintiffs to suffer damage assessed as the costs expended in a construction or rectification suit in this court. This amount is to be quantified at a future date.; The court orders:; (2) The costs of the hearing before Master Harrison are reserved.

56

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

MASTER HARRISON

WEDNESDAY, 16 MAY 2001

20181/99 - JOHN HERBERT RICHARDSON & ANOR
v ROBERT MUNRO McKINNON
JUDGMENT (Separate determination of issues;

drafting of sublease)

1 MASTER: The plaintiffs are John Herbert Richardson (first plaintiff) and Judith Richardson (second plaintiff). The first and second plaintiffs were at all material times the head lessees under Crown special leases 1989/1 and 1989/2 of lots 276 and 277 respectively in deposited plan 728098, Kiama Harbour, Kiama (Lots 276 and 277). Broadly speaking the building was an old renovated cargo shed. There were two shops, namely, Shop 1, the fish and chip takeaway and Shop 2 the fresh seafood shop or “wet fish shop”. Mr Robert Munro McKinnon the defendant, is a solicitor. He carried and carries on practice as a solicitor trading as R M McKinnon & Co from premises situated at 18 Manning Street, Kiama. The plaintiffs (the Richardsons) are claiming damages for professional negligence against defendant arising out of his retainer to prepare a lease of premises known as Lot 276 Crown Special Leases 1989/1 and 1989/2 at Kiama Harbour, Kiama.

2 On 21 July 2000 David Kirby J made an order by consent that pursuant to Part 31 r 2 of the Supreme Court Rules that all questions in the proceedings other than quantification of damages be decided separately. If the plaintiff is successful on liability quantification of damages is to be assessed at a future date. The plaintiffs relied on their affidavits both sworn 6 September 2000, the affidavits of John Desmond French sworn 8 November 2000 and Neville Moses sworn 20 December 1999 together with a statement of Neville Moses dated 19 July 2000 (Ex B). The defendant relied on his affidavit sworn 25 November 1999 together with his statement dated 22 June 2000 (Ex 1). All of the deponents were cross examined.

3 It is not disputed that in or about October 1992 there existed a retainer between the plaintiffs in accordance with instructions given by the first plaintiff on behalf of the plaintiffs. The instructions given were accepted by the defendant in a conference. It is common ground that it was an implied term of the retainer by the plaintiffs of the defendant that he would exercise all due care, skill and diligence in performing the plaintiffs’ retainer.

4 The defendant was admitted as a solicitor in June 1969 and commenced his own legal practice in 1970. His practice is a fairly general one with its main focus on conveyancing, including leasing. By 1992 he had gained experience in drafting Crown leases but had not drafted a Crown sublease until the plaintiff instructed him to do so. The defendant had also served as a councillor on Kiama Council for the period 1974 until 1983 and from 1987 until 1995. Over the years the defendant developed a practice of having lunch about 200 metres from the plaintiffs’ premises from time to time. After lunch he walked and swam in the Kiama Harbour area. From the early 1990’s until 1995, the defendant talked to the plaintiffs during the lunch break on numerous occasions. The discussions would take place about 10 to 15 metres outside the shop.

Chronology of events

5 The affidavit of John Richardson sworn 6 September 2000 and the statement of Robert McKinnon dated 25 November 1999 give the following chronology of some undisputed events. These are:

(1) Mr Richardson has entered into several leases prior to the one the subject of these proceedings (t 6).

(2) In 1982 the takeaway fish and chip shop was run by the Richardsons in Shop 1. From about 1983 John Richardson held the rights of permissive occupancy granted by the Crown over Lot 277 and from March 1986 over Lot 276.

(3) In 1985 the takeaway fish and chip shop was run by Richardsons in Shop 1. The dive shop moved out of Shop 2 to Lot 277.

(4) From 1985 until 1989 the take away fish and chip shop was run by Richardsons in Shop 1. Shop 2 was unused, except for the museum upstairs.

(5) From 1989 until January 1991 the plaintiffs operated a takeaway business in Shop 1 and the new fresh seafood business in Shop 2 at the picturesque Kiama wharf premises. By 1990, the plaintiffs decided that running both businesses had become too difficult for them. In January 1991, the first plaintiff’s brother Ray Richardson (Ray) and his partner Margaret Smith (Margaret) bought from the plaintiffs the fish and chip shop operating in the front shop for the sum $150,000. They paid $50,000 cash and the first plaintiff agreed to vendor finance for the balance of $100,000. Additionally, Ray and Margaret were to pay rent in the sum of $100 per week. From January 1991 until 31 March 1993, Ray and Margaret operated the fast food business and paid rent. There was no formal written sublease document created.

(6) In late 1991 the Richardsons, their son, Neville and wife Leanne purchased property at 20 Kanahooka Road, Dapto as tenants in common in equal shares.

(7) On 12 October 1992 there were conversations between the first plaintiff and the defendant concerning the necessity for a formal sublease between the Richardsons and Ray and Margaret Richardson. In January 1993 there were further conversations between them. These conversations are critical and will be covered in more detail later in this judgment.

(8) In February 1993 there was an oral agreement made between the Richardsons and Graham Wilcox for the sale of a half share in the fresh seafood business in Shop 2.

(9) On 31 March 1993 the sublease between the plaintiffs and Ray Richardson and his partner was executed.

(10) In July 1993 Graham and Rosanna Wilcox paid to the Richardsons $90,000 and between $13,000 and $25,000 to creditors for their half share interest in Shop 2.

(11) From July 1993 until July 1994 the Richardsons worked in Shop 2 with the Wilcoxes.

(12) On 17 August 1993 Kiama Seafood Sensations Pty Ltd incorporated with the Wilcoxes and Richardsons as equal shareholders.

(13) From July 1994 until January 1997 the Richardsons did not work in Shop 2. During this time the Wilcoxes retained the profits from the business.

(14) In August/September 1994 John Richardson asked the defendant to prepare auction contracts of the Crown leases. The contract was subject to the existing lease for Shop 1 and provided for a lease back to the Richardsons of Shop 2. There were discussions with Margaret Richardson about vacating Shop 1 and with the Wilcoxes about vacating Shop 2.

(15) On 1 September 1994 the defendant wrote to the Richardsons advising them that it was “essential” to have a formal agreement for vacant possession with Margaret and Ray Richardson over Shop 1.

(16) On 15 October 1994 the sale of the leases on the Kiama complex were passed in at auction for $720,000.

(17) Between November and December 1994 negotiations between the Richardsons, the Wilcoxes and the Spicers for the purchase of the Crown leases took place. From the end of 1994 the Richardsons ceased to work in the fresh seafood business.

(18) On 13 December 1994 the defendant was instructed by the Richardsons to draw up an option agreement in favour of the Wilcoxes and Spicers. The defendant also acted for Ray and Margaret Richardson in the sale of the Shop 1 business to the Wilcoxes and Spicers.

(19) On 22 December 1994 the option agreement was exchanged and the sale of Shop 1 exchanged and settled.

(20) In March 1995 the option period expired. The defendant was instructed to draw up contracts for sale of the Crown leases to Kiama Developments Pty. Ltd, subject to the lease over Shop 1.

(21) On 24 March 1995 Mr John French of Kiama Developments Co Pty Limited exchanged contracts with the Richardsons for the purchase of special leases 1989/1 and 1989/2 being Lots 276 and 277. The contract provided for vacant possession to be given of the building constructed on Lot 276 but subject to the sublease of the area known as Shop 1. Settlement was due to take place in September 1995. Mr French received legal advice to the effect that he could not draw down finance and complete the sale of the special leases at Kiama until the dispute over the area of the Shop 1 sublease had been resolved. His company completed the sale in May 1997. Prior to completion, Mr French was aware that the covenant of restraint of trade only covered Lot 277 and that he could open an ice cream shop in competition with the takeaway fish and chip shop if so desired.

(22) In August 1995 Neville and Leanne Richardson commenced legal proceedings for the appointment of trustees of sale of the family home.

(23) In 25 August 1995 the Wilcoxes and Spicers issued proceedings in the Supreme Court (these proceedings and the judgment will be referred to in more detail later in this judgment).

(24) On 28 August 1995 the Wilcoxes and Spicers gave to the Richardsons a document acknowledging that the restrictive covenant operated over the whole of 276 as well as 277 and that they had the right to shared storage in the building on Lot 276. The defendant advised that they could not sign this document because they would be in breach of contract.

(25) On 5 September 1995 the Richardsons instructed the defendant to write to the bank requesting them to exercise their power of sale.

(26) In August 1996 the bank exercised the power of sale.

(27) On 4 Sept 1996 Hulme J delivered judgment.

(28) On 16 May 1997 settlement of the contract with Kiama Developments Pty Ltd took place.

6 In this chronology I have not referred to the Spicers involvement in the fresh seafood business because it is the subject of dispute. It is referred to later in this judgment.

Instructions to draft the sublease

7 According to the defendant, shortly after the first plaintiff’s visit to the defendant in about October 1992, he attended the office of the defendant a second time to discuss the sublease. In cross examination the first plaintiff said that he could not remember whether he attended a second conference or whether this conversation took place via telephone. In any event both the first plaintiff and the defendant agreed that there were two conversations about the sublease, one of which occurred in October 1992. The second conversation occurred in January 1993. The second plaintiff Mrs Richardson, the plaintiff’s wife gave evidence that she attended the October conference.

The first plaintiff’s (Mr Richardson’s) version of events

8 The first plaintiff recalled having a preliminary conversation with the defendant which included words to the following effect:

“John: ‘Bob, I’m going to lease the fish and chip shop to my brother, Ray. Ray and Margaret need a written lease because their Credit Union wants security before it will lend them any money to purchase new equipment for the shop.’

McKinnon: ‘Are they going to continue to run the fish and chip shop?’

John: ‘Yes, the shop would comprise the original Shop 1 - the fish and chip shop.’

McKinnon: ‘Who is your lease from?’

John: ‘The Crown.’

McKinnon: ‘I’m not familiar with Crown leases. I’ve never done one of those before. I’ll have to look into that side of it and I’ll get a sublease prepared.’”

The first plaintiff’s version of the October 1992 conversation

9 On that second occasion the first plaintiff had a conversation with the defendant which occurred in October 1992. He does not recall his wife being present. The first plaintiff’s version of the conversation included words to the following effect:

John: ‘We’re leasing Ray and Margaret the fish and chip shop and we want it written into the lease that we will share with them the storeroom at the northern end of the building.’

McKinnon: ‘What are the dimensions of the shop and what’s the duration of the lease?’

John: ‘I don’t know exactly. I had better go and measure it.’

McKinnon: ‘But if you don’t complete the DA in time you will need to have a rent review in any case. What arrangements are you going to make for Ray and Margaret during the construction?”

John: ‘We can work around him and move him last. I will do the external features first like closing in the verandah and glassing in the extension.’

McKinnon: ‘I have been speaking to their solicitor Trevor Ackerman and he says they are also concerned about what will happen at the completion of the DA.’

John: ‘Yes, I know. They don’t want a possible future purchaser of the building competing with them on Lot 277.’”

10 The first plaintiff returned to the shop and recalled that he and Ray measured the area of Shop 1. He then telephoned the defendant’s office and had a further conversation with the defendant which included words to the following effect:

“John: ‘The dimensions of the fish and chip shop are about 7 metres by 4 metres. We’ve decided on a 4 year lease with another 4 years after that. The lease is going to separate Shop 1 from the fresh fish shop in Shop 2. Judith and I are going to continue to run that one. The rent is going to be $1429.58 per month and we’ll put it up to $3250 when the development is done under the DA.’”

11 It is the first plaintiff’s evidence that the defendant did not ask him for an actual plan or drawing of Shop 1.

The second plaintiff’s version of events

12 The second plaintiff’s version is that she recalled that in about October 1992 she went to the defendant’s office with the first plaintiff and that they were all looking at a plan on the defendant’s desk. From memory she says that the plan contained a drawing of Shop 1 and a drawing of fish tanks. She recalled that the first plaintiff was standing on her right looking over the plan and she was seated at the desk. They had a conversation which included words to the following effect:

“McKinnon: ‘What size is shop 1?’

John: ‘I don’t know. I will go down and measure it.’

McKinnon: ‘What about the rent?’;

John: ‘At the moment it is $300 per week but it will have to be more than that.’

McKinnon: ‘Check on some comparable rents in the main street to get an idea what to charge. What about the disruption to Ray and Margaret’s shop while the development is going on?’

John: ‘We can do most of the development around them.’

Judith: ‘I think they will be able to continue until the very end of the renovations and then move Ray’s cookers around to the other wall.’

McKinnon: ‘You will need clause in the sub-lease for a rent review date in case you don’t get the development finished before then.’

13 The second plaintiff recalled leaving the defendant’s office with her husband and going down to the Shop where she saw her husband measure the area of Shop 1 with Ray. She remembered this event because it took 15 minutes for her to find a tape measure and her husband became angry with her for taking so long. On the last day of hearing the first plaintiff explained that he attempted to contact his brother Ray overnight so that he could give evidence about the taking of measurements. He telephoned Ray’s son and daughter and left a message. Ray did not return his brother’s telephone call.

14 There are some consistencies with the plaintiffs’ evidence namely both plaintiffs say they told the solicitor that they were unaware of the dimensions of the shop and would have to measure it. Both plaintiffs also refer to the issue of the future potential disruption to the operation of the shop while the renovations were carried out and there was to be an annual rent review clause included in the lease.

15 However there are difficulties with Mrs Richardson’s evidence. Firstly, as previously stated the first plaintiff stated he was on his own (t 11.40) and at para 35 of his affidavit he stated that he did not recall her being present. Her affidavit evidence differs from her husband’s in that she mentioned that her husband spoke of the rent being $300 per week and that the solicitor told them to check on comparable rents in the main street to get an idea what to charge. She does not mention the competition between Lots 276 and 277. Her husband’s affidavit makes no mention of this. The second plaintiff’s evidence is at odds with her husband and the solicitor over whether a plan was show to the solicitor. Both her husband and solicitor say that there was not one.

16 The defendant’s contemporaneous notes do not indicate that the second plaintiff was present at this hearing. As previously stated her husband does not recall her being present. It is my view that Mrs Richardson is mistaken. It is most unlikely that she was at the conference so I do not accept her evidence in relation to the purported conversation.

The defendant’s version of events

17 No surprisingly, the defendant’s version of events differs from the plaintiffs’ versions. In October 1992 the defendant recalled that in a conference the first plaintiff said:

“I want a sublease to my brother Ray and Margaret Smith over lot 276 DP 728098, special lease 89/1. The rent will be $1,429.58 per month until the premises are altered in accordance with some plans approved in 1992 by Kiama Council. When the building alterations are completed, the rent is to be $3,250 per month. The term is to be 4 years from 1 January 1993 with a four year option. There will be no increases in rent, but they are to pay increase in any lands department rent. That is $15,300 per annum at the moment. They are also to pay the garbage rates and the whole of the increase in the Council and water rates. The rent is to be reviewed one year from completion of the alterations to be determined by a valuer, Bob Twiley.”

18 The defendant has no independent recollection of this meeting but has reconstructed the conversation from his contemporaneous notes. When being cross examined the defendant said that the first plaintiff may have told him that the plans had been lodged but he still thought that the first plaintiff told him the plans had been approved. There is no specific mention of the words “approved or lodged” in his notes. The notes say “$1,429.58 per until premises altered in acc. With plan …./92 of KMC”. The defendant gave evidence that it would have been his practice to put “lodged” if the plans were lodged but had not yet been approved. Hence he concluded that he had been told that the plans had been approved. The DA application was not actually approved in final form until October 1993.

19 While the defendant was not sure whether the first plaintiff brought documents with him to this meeting, he is certain that no plans were produced. If the first plaintiff had brought documents he may have shown the defendant a rate notice which was the source from which the DP number was obtained. Alternatively, the defendant says he could have called the Council and spoken to the rate clerk to ascertain this information. The defendant remembered that he telephoned the Lands Department to ascertain a term of the lease while the first plaintiff was in attendance at his office. The defendant is quite certain that the plaintiff gave him the lot number and special lease number.

20 After receipt of instructions, the solicitor carried out searches. He initially drafted a sublease on the basis the land was old system title. This initial lease refers to Lot 276. There is no reference to the words “part of”. The preparation of this lease is consistent with the defendant being told that the fish and chip shop was contained in Lot 276. When the solicitor became aware that his assumption of the old system title was incorrect, he redrafted the lease on the basis of real property title. Copies of the draft lease were forwarded to his clients and the solicitor Trevor Akerman acting for Ray and Margaret. On 9 December 1992, the defendant wrote to the plaintiffs forwarding a letter from Ray and Margaret’s solicitor which requested them to agree to a condition that the plaintiffs were not permitted to sell cooked seafood, soft drinks, ice creams or takeaway food items from Lot 277. The plaintiffs agreed to this restriction which was subsequently incorporated in the lease and in this proceedings referred to as “the covenant in restraint of trade”.

Conversation between the first plaintiff and defendant in January 1993

21 On 12 January 1993, the defendant’s evidence is that the first plaintiff had a telephone conversation with him. Once again the source of the solicitor’s recollection is his contemporaneous file note. To the best of his recollection the conversation was as follows:

“He said: ‘I will pay half of the water rates, the rent is now $400 per week. It is part of lot 276.’

I said: ‘What part is it?’

He said: ‘It is the fish shop on the southern end of the lot’.

I said ‘Is it separate?’

He said: ‘Yes’.

I said ‘Has it got a separate entrance?’

He said: ‘Yes’.

I said: “You can’t have a lease unless the premises are separate from the rest of it’.

He said: ‘Yes, it is separate’.

I said: ‘You can call it Shop 1, and you can put a 1 on it’.”

22 The solicitor’s evidence is that January 1993 was first time that any reference was made to Shop 1 by the first plaintiff. It was also the first time that the first plaintiff had mentioned that the area known as Shop 1 covered only part of Lot 276. This is disputed by the first plaintiff who said that he told the solicitor in October 1992 that the “lease is going to separate Shop 1 from the fresh fish shop in Shop 2”. They both agree that at some state in the discussion the word “separate” was used but they each understood the word was used in an entirely different context. The defendant has a file note (Ex 2) dated 12 January 1993 which recorded “(1) pay ½ water rates (2) rent $400 per week = $1733.33 and (3) Part Shop 1 Kiama Wharf”. The sum of $400 ($1,733.33) rental represents an increase from the earlier sum of $1,429,58 per month referred to by both the first plaintiff and the defendant. Mr Richardson said that he told the defendant that the sublease was to relate to the takeaway servery and cooking area (t 23.35).

23 From these conflicting accounts it is necessary to determine what was actually said during these conversations. I observed the plaintiffs and the defendant carefully when they were giving evidence and being cross examined. I formed the view that the defendant gave frank and truthful evidence. I came to a quite different view in relation to the first plaintiff’s evidence and I have serious reservations with it. There are numerous examples of his inconsistent evidence but I shall confine my comments to three important areas where he gave evidence, firstly, the storeroom; secondly, whether Shops 1 and 2 were separate; and thirdly, the sale of the family home.

24 The first plaintiff’s evidence is that at the conference in October 1992 he told the defendant that he wanted it written into the lease that they would share the storeroom at the northern end of the building with his brother and his partner. The first plaintiff gave evidence that the need for his brother to use the storeroom did not come much later than the Christmas rush but in 1993 (t 30). Then the first plaintiff stated during cross examination that it was not true that the discussion between his brother and himself about the storage area occurred in 1993. Further, the first plaintiff’s evidence in relation to what he told his brother about his use of the storeroom is inconsistent. Initially Mr Richardson denied that he told his brother that the storage area was not part of the sublease but that he could continue to use it. He then stated “No, I don’t deny having said something like that, I can’t recall saying that”. Finally, he agreed that he told his brother that the storage area would not be part of the sublease (t 28.40). It is my view that it is very unlikely that the first plaintiff raised the storeroom issue with the defendant in October 1992 as the necessity for the use of the storeroom came about in 1993. Also the first plaintiff’s account recorded above is inconsistent with him telling his brother that the storage area would form part of the sublease. The first plaintiff’s evidence on this issue is unconvincing. I find that the solicitor had not been told that the storeroom nor any part of the premises were to be shared.

25 The first plaintiff found himself in a difficult position when giving evidence because in the earlier court proceedings he admitted that he had understood that the Wilcoxes and the Spicers were asserting that Shop 2 was shared by whoever was running Shop 1 (t 20.15). In the earlier proceedings it was in Mr Richardson’s interests to establish that Shop 1 was separate from Shop 2 and his evidence in those proceedings was to that effect. In these proceedings he was presenting a case that the shops were not separate because the purpose of the lease was to separate the businesses. (It was common ground that the sublease was also necessary because it was a prerequisite for his brother and partner to obtain finance). Hence the first plaintiff in these proceedings gave evidence to the effect that the businesses shared the storeroom (referred to above).

26 The plaintiff stated that in January 1991 there was a dividing wall between Shops 1 and 2 (aff 6/9/2000, para 7). He also deposed that as at 14 June 1996 the premises built on that Crown land are divided into a separate Shop 1 which is a takeaway fish and chips business (“the takeaway”) and a separate Shop 2 which is a fresh seafood retail business (“the fresh seafood”) and a mezzanine level built over the top of Shop 2. The mezzanine level can only be accessed by stairs from within Shop 2 (aff 14/6/96 para 2). At paragraph 7 of that affidavit the first plaintiff said “In accordance with Council approval, I erected the diving wall in Lot 276 dividing off the dive shop and thereby creating Shop 1”. At paragraph 9 he swore that “Between November 1985 and January 1991, Judith and I operated the business of Shop 1. We occupied only the area of Shop 1 as constructed and fitted out by me and approved by Kiama Council. We could not and did not use any other space in any other part of Lot 276. The dive shop, dive school, charter service and radio room occupied the whole of the other part of Lot 276”. In evidence in these proceedings Mr Richardson admitted that he swore that the above was true. When he was asked “and is it true?” He replied “No, it is not unfortunately” (t 19.35). Thus he has admitted giving untrue evidence which is not a matter treated lightly by this court.

27 In the previous proceedings at Ex 3 JHR2 Appeal Book Vol 4, p 311.33-55 the first plaintiff said:

28 Finally, at Ex 3 JHR2 Appeal Book Vol 4 p 330.51-58 the first plaintiff was asked about an auction contract in which reference was made to Shop 2 which was an error. Mr Downes QC asked:

29 In these proceedings on the issue of whether the shops were separate, Mr Richardson gave the following evidence:

30 It appears that since 1991 at the latest, Mr Richardson has always held the view that Shop 1 and Shop 2 were separate. Hence, it is most unlikely that Mr Richardson told the solicitor that it was the lease that was going to separate Shop 1 from Shop 2.

31 Another topic upon which the first plaintiff gave evidence which is troubling is whether or not he knew that there were court proceedings taken by his son and daughter-in-law in relation to the sale of the family home. This would have been a matter of considerable concern to the first plaintiff. The home at Kanahooka was owned by the plaintiffs and their son Neville and his wife Leanne in equal shares. On 11 August 1995 Neville and Leanne Richardson made application to the Supreme Court for the appointment of trustees for the sale of the Kanahooka Road property (Exs 5 & 6). A letter concerning these court proceedings was written by Neville’s solicitor to the defendant dated 11 August 1995. The first plaintiff denied that Leanne and Neville took proceedings to sell up the family home. According to the first plaintiff “No, they never” (t 59.15). He denied having a dispute with his son and daughter-in-law about their entitlement to a share of the family home (t 63.50). Finally the first plaintiff agreed that between August 1995 and the end of 1996 there was such a dispute going on (t 64.8).

32 On 5 September 1995 the Richardsons informed the defendant that the property could not be sold as there was a dispute with Neville and Leanne. The first plaintiff instructed the defendant to write to NAB (defendant’s aff 22/6/2000 para 47) requesting them to exercise their power of sale over the property rather than take any action under the mortgage of leases at Kiama Wharf. The first plaintiff alleges that his solicitor sent this letter without authority from him. However on 27 September the first plaintiff instructed his new solicitor to write a similar letter (Ex 6). This dispute was ultimately resolved by National bank selling the home (t 71.50, 72 & 73.5-30). The first plaintiff’s evidence on this topic is inconsistent and unconvincing. Overall, it is my view that the first plaintiff’s evidence can only be accepted where there is corroboration. It is my view that his evidence had been tailored in furtherance of his case. I accept and prefer the defendant’s evidence particularly in relation to the conversations concerning the sublease.

33 From the October consultation with the first plaintiff, it was reasonable for a competent and prudent solicitor to understand that his instructions were to prepare a sublease for the whole of Lot 276 covered by special lease 1989/1. The defendant had not been told that only part of Lot 276 was being rented out. Nor was the defendant told that the use of storeroom was shared by Shops 1 and 2. Nor was the solicitor told the dimensions of the area to be subleased. There was a discussion about dimensions with the defendant but I find that this occurred much later in 1994 when the sale of the leases documentation was being prepared. The solicitor sought the measurements of Shop 2 not Shop 1. In October 1992 on the basis of what the first plaintiff told the defendant he did not think it necessary go and have a look at the shop.

34 While I accept the defendant’s evidence above in relation to what he was told about the premises by the first plaintiff, it is also necessary to take into account what knowledge he had gained from his own observations of the premises. I have reproduced a photograph of the premises which shows the fish and chip servery.

(Ex D photo 3)

35 In October 1992 from the defendant’s own knowledge and observations of the premises, I make the following findings. The solicitor was aware that -

(1) Customers who wished to buy fish and chips would go to the servery (where the counter was situated where the people are standing in the photograph above). In order to reach the servery they would have to cross the verandah. The servery counter may have been able to be lifted up to allow employees to egress the front entrance. The servery is located at the southern end of the building.

(2) The area of the fish and chip shop was small and narrow. Facing and parallel to the servery area there was a wall at the back of the shop. The defendant was not aware of whether or not there was a door in this wall at the back of the shop.

(3) In addition to the servery, there was another set of access doors in the building.

(4) The verandah provided a means of access around the sides of the building. There is no verandah on the eastern side of the building. (see Ex J).

(5) The defendant knew that John and Judith Richardson occupied the area immediately behind the access doors on the western side and that area was not part of the fish and chip shop.

(6) That Lot 277 was largely vacant but had a wooden lean to unit built upon it.

(7) Although the defendant gave an answer in cross examination that he had been told that the first plaintiff intended to continue to operate Shop 2 business behind Shop 1 on Lot 276 in October 1992 I do not think that the defendant knew that both shops were on Lot 276 at that time. The rest of his evidence both in affidavit and oral form is to the contrary. Up to 1992 I accept the defendant did not have a plan which showed the areas that comprised Lots 276 and 277. I find that in October 1992 the defendant was not aware of the actual boundaries of Lot 276 (t 111.10). He had been told by the first plaintiff that the fish and chip shop occupied the whole area of Lot 276 and had accepted this statement as being true. The defendant formed the view that the verandah walkway was included the area known as Lot 276.

(8) The plaintiffs had lodged a development application with the Council in relation to the northern end of the building. This development would not affect the area that the fish and chip shop occupied.

(9) The defendant was not aware that the area known as mezzanine level which was a maritime museum was located above what was later to become known as Shop 2. He had been up there once and remembered that it was a confined space. He was unaware whether the mezzanine floor space area was above Shop 1.

36 From this information, it is my view that it was still reasonable for the defendant to have formed the view that the plaintiffs were leasing the whole of Lot 276 to his brother and his partner. However by November 1992, the defendant had seen a plan similar to DP 726742 ( p 30 Ex to first plaintiff’s affidavit). After the defendant received a copy of DP 728098 in November 1992, he admitted that he should have known that the fish shop was contained in Lot 276 but the fish shop did not comprise of all of Lot 276. The defendant admitted that the proprietor of the fish and chip shop would be walking through other parts of Lot 276. However, in January 1993 after the subsequent conversation with the first plaintiff, he formed the view that what the first plaintiff intended leasing was physically separated from the other parts of the building and that he could physically define that on site by calling it “Shop 1”. The solicitor explained that when he was an articled clerk it was during the time of protected tenancies and the idea that to have a lease it is necessary to have exclusive use of an area of the premises by a lessee. This concept had been reinforced by his master solicitor.

37 The plaintiff has claimed for breach of contract and in tort for negligence. In Astley & Ors v Austrust Limited (1998-99) 197 CLR 1 it was held that the plaintiff has the choice whether to sue in tort, contract or both. It was also held that in contract there is no reduction in damages for contributory negligence. However, subsequent legislation, the Law Reform (Miscellaneous Provisions) Amendment Act has altered the law under Astley. Where there are concurrent and co-extensive claims for negligence and breach of contract, the breach of contract damages are to be reduced for contributory negligence. The allegation in breach of contract is that in breach of an implied term of the retainer the defendant failed to exercise all due care, skill and diligence in performing his retainer (para 7 ASC).

38 It was not disputed that the defendant owed a duty of care to the defendants. The plaintiffs’ allegations in negligence are firstly, that the defendant failed to include an adequate definition of the area to be leased; and secondly, the defendant should not have included in clause 1 of annexure A of the sublease a demise of the whole of Lot 276. As previously stated to the extent that the description of the property on the first page of the lease, namely, “Part of the Land Identifier 276/728098, being Shop 1, Kiama Wharf” was not the same as the description in annexure A to the lease, namely “Lot 276 in DP 728098”, the defendant admitted that there was a breach of the retainer. Thirdly, it is alleged that the defendant failed to advise the Richardsons that the sublessees may have rights in areas in excess of Shop 1, and that the sublessees would be entitled to an easement in the nature of easements of necessity and that these rights should be included in the sublease and fourthly the defendant failed to expressly include a grant of such rights in the sublease (para 12 ASC).

39 It is an implied term of the retainer and included in the nature of the duty of care in negligence that a solicitor is bound to exercise due care, skill and diligence. He or she is not required to have an extraordinary degree of skill or the highest professional attainments. But he or she must bring to the task he undertakes the competence and skill that is usual among solicitors practising their profession and he or she must use due care. If he or she fails in these matters and the person who employed him or her thereby suffers damage, he or she is liable to that person - see Voli v Inglewood Shire Council (1963) 110 CLR 74 at 84.

40 Mr Moses prepared reports and gave evidence. He swore an affidavit dated 20 December 1999 and a statement dated 19 July 2000. He is a solicitor of the Supreme Court of New South Wales and was admitted on 8 March 1963. Since 1970 he has been a partner in the firm of Messrs Murphy & Moloney (now Murphy & Moloney with Pryor Tzanne & Wallis) and is now a senior partner. From 1969 until 1975 Mrs Moses was a Challis lecturer in Conveyancing at Sydney University Law School Since about 1972 he has been a member of Law Society Property and Conveyancing Committees and a member of the Law Society Liaison Committee with the Office of State Revenue since about 1983. He is also a co-author of a text book “Strata Titles” first published in 1978 by the Law Book Company. Over the years Mr Moses has acted in a considerable number of leases of shop premises with shared facilities. Two issues are canvassed, namely whether referring in the lease to Shop 1 was sufficient and whether the clause in the sublease referring to common areas would adequately cover the use of the common areas by the sublessees of Shop 1.

41 According to Mr Moses, the principle reason for drafting a lease from the point of view of the lessor is to provide certainty in the arrangement between the parties recognising the potential for dispute if these matters are not clearly set out in the lease document. At the outset of his giving evidence, Mr Moses acknowledged that a solicitor will accept a statement of facts that a client tells him, provided he (the solicitor) has no reason to doubt them. Whether the client understands what the solicitor is advising him is a matter of judgment on the solicitor’s part. In relation to this issue, as previously stated the defendant had no reason not to believe what the first plaintiff had told him and it was reasonable for him to accept what was said.

42 In preparing his report Mr Moses made a number of assumptions, namely, that the plaintiff retained the defendant with instructions to prepare a sublease of the takeaway fish shop, to enable the grant of such a sublease of Shop 1, the plaintiffs were lessees of the Crown of certain land adjacent to Kiama Harbour, namely Lots 276 and 277 in DP 728098. Lot 276 comprised an old cargo shed. The old cargo shed consisted of a ground floor on which Shop 1 and Shop 2 were located as well as mezzanine level. At all material times two separate businesses were conducted from the old cargo shed on Lot 276. One business was a takeaway fish and chip business conducted from part of the old cargo shed known as Shop 1. The second business was a wet fish (fresh fish) business conducted by the plaintiffs from the remainder of the old cargo shed known as Shop 2. The fish and chip business in Shop 1 was located at the southern end of the building. The wet fish business in Shop 2 was located at the northern end of the building. Much of the mezzanine level was in fact used by the Shop 1 business though not exclusively. It was conceded that the defendant was not told that much of the mezzanine level was in fact used by the Shop 1 business. Even if the defendant was not aware of this fact, it did not cause Mr Moses to alter his opinion. Relevantly, the defendant was aware that customers had to stand on the verandah to gain access to the servery. It appears this fact was not considered by Mr Moses.

43 Mr Moses was of the opinion that it is the usual practice of a competent and prudent solicitor when drafting a lease or sublease of the nature of that entered into in respect of Shop 1, to obtain from the proposed lessor details of the area to be leased and particulars of any ancillary rights in relation to access and shared facilities which are to be granted to the tenant. However when Mr Moses was shown a Westfield Shoppingtown Miranda lease for a shop (Ex 8) where the demised land is described as Shops 2037 and 2038, he agreed that this was standard practice for a prudent solicitor to adopt where there is more than one shop on a title. He also said that the description of common areas in the Shoppingtown lease is a general one like that appearing in the memorandum in these proceedings.

44 Mr Moses in his statement dated 20 December 1999 was asked to read the Court of Appeal decision and was asked to infer that had the solicitor acting for the sublessor made appropriate enquiries from his client at the time the sublease was prepared he would have been instructed as to at least some of the rights of the sublessee which the court ultimately ordered to be the subject of the easements.

45 It is now convenient to refer to the decisions by Hulme J and the Court of Appeal.

(i) Equity proceedings

46 In August 1995 there were legal proceedings instituted against the plaintiffs in this court in the equity division, which were heard before Hulme J over a period of 9 days. On 4 September 1996 Hulme J delivered judgment in proceedings between Graham Wilcox as first plaintiff, Rossana Wilcox (the Wilcoxes) as second plaintiff, John William Spicer as third plaintiff and Birgitta Spicer as fourth plaintiff (the Spicers), John Herbert Richardson as first defendant, Judith Dean Richardson as second defendant, John French as third defendant, Kiama Development Company as fourth defendant, Ray Joseph Richardson as fifth defendant and Margaret Ann Smith as sixth defendant.

47 The plaintiffs in the statement of claim sought firstly a declaration that the true construction of the sublease was for the whole of Lot 276; secondly, rectification of the sublease to confer exclusive catering rights of Lots 276 and 277; and thirdly, damages or variation of contract under the Fair Trading Act and Contracts Review Act. There were additional claims seeking a declaration as to what part of Lot 276 is covered by the lease and seeking an order restraining sale of leases except subject to the plaintiffs’ rights and if the sublease was not all of Lot 276 there was an implied term that the lessees would have reasonable rights of access to the entrance to the building on the western side and to those parts of Lot 276 ordinarily occupied and used in connection with Shop 1 business.

48 Hulme J found that the precise area of the demised premises was 4060 square feet plus an added area of a public lavatory. His Honour also found that the restraints of trade covenant applied to Lot 277 only. A summary in relation to the alleged misrepresentations is as follows. Hulme J found that the first and second representations were not made. Representation 3 was allegedly made in May 1994 by Mr Richardson that the land the subject of the term and condition of restraint of trade was all the land in Lots 276 and 277 (JHR1, p 157.5). Hulme J found that this representation was made and was wrong (JHR1, p 161.3). The Court of Appeal agreed with this finding (JHR1, p 194.3). Representation 4 by Mr Richardson was allegedly made in December 1993 and May 1994 and late in 1994 that the Wilcoxes and Spicers would have sole catering rights to Lots 276 and 277 (JHR1, p 158-159). Hulme J found that representation was made and it was wrong (JHR1, p 161.3). The Court of Appeal agreed with this finding (JHR1, p 194.3). Representation 5 was allegedly made by Mr Richardson that the renovations to the premises located on Lot 276 in accordance with the development application 116/92 would be carried out in mid 1995 (JHR1, p 159-160). Hulme J did not find it necessary to make findings as to their truth or falsity (JHR1, p 162.3). Hulme J found that there was no reliance on this because the leases had to be sold because of financial pressure from the bank (JHR1, p 162.6). Representation 6 was allegedly made by Mr Richardson that as a result of those renovations, the Wilcoxes and Spicers would enjoy a right of occupation of the entire premises located on Lot 276 (JHR1, p 159.9-160.2). Hulme J did not find it necessary to make findings as to their truth or falsity (JHR1, p 162.4). Hulme J found that there was no reliance on this because the leases had to be sold because of financial pressure from the bank (JHR1, p 162.6). Representation 7 allegedly made by Mr Richardson that until such time as the renovations were completed, the Richardsons would share with the Wilcoxes and Spicers some storage space in the premises located on Lot 276 (JHR1, p 160.5). Hulme J found that this was not false (JHR 1, p 162.5). Representation 8 allegedly made by Mr Richardson was that the rental to be paid for the premises would be sustainable once the renovations were completed (JHR1, p 160.9). Hulme J was not satisfied that this was false (JHR1, p 162.5). His Honour decided that the case based on misrepresentation failed because even if such representations were made, they were not relied upon.

49 On 12 September 1996, Hulme J referred the quantification of mesne profits to a master for assessment. It is common ground that no action has been taken to have this referral heard by a master.

Court of Appeal decision

50 The Spicers and Wilcoxes appealed to the Court of Appeal. On 31 July 1997 the Court of Appeal delivered a judgment (per Meagher, Handley and Powell JA). Powell JA agreed with Meagher and Handley JJA’s conclusions. The appeal was allowed. Handley JA referred to the lengthy and complex trial and the multitude of claims and stated that although the Court of Appeal are reversing the trial judge, it was doing so on only one ground which was not fully argued before the trial judge. His Honour was referring to the easements of necessity.

51 Mr Meagher JA stated that the first and indeed the main question posed by the case was what were the assigned sub-demised premises. Meagher JA commented that normally, of course, the question would not arise as the documents would make it quite clear. In this case they did not. His Honour (at p 2) reconstructed the events that led to the inconsistency that gave rise to the lease and stated they were that initial draft of the sublease was drafted as if it were a sublease of the whole of Lot 276, as the opening description of the premises was simply folio identifier 2761728098, it then being apparent that part only was intended, the words “part of the” were added, that having presented a problem of identifying what part, the description was further amended by adding the words “being shop , Kiama Wharf, Kiama”. However, all this was achieved at the expense of leaving unresolved two major difficulties; one was that no consequential amendments were made to the subsequent part of the sublease which treated the demised premises as being the whole of Lot 276; and the other was that the sublease did not define (or even suggest a definition of) what was meant by the words “Shop 1”. True there was a map annexed to the sublease. That map did not indicate any “Shop 1”, but did raise an additional complexity by referring to some portion of Lot 276 as “existing fish shop”. The sublease was intended to extend to part of Lot 276, what was known as the southern shop.

52 The second issue decided by the Court of Appeal was in relation to additional ancillary rights. The Court of Appeal held that Hulme J interpreted the test in Wheeldon v Burrows (1879) 12 ChD 31 too narrowly. The Court of Appeal (per Meagher and Handley JJA at p 7) came to the view that the Wilcoxes and Spicers had rights of a Wheeldon kind to additional areas that were used with proprietors of the northern shop, ie, quasi easement of a “continuous and apparent” nature which was “reasonably necessary for the enjoyment of that land granted” by the sublease. Handley JA (at p 17) described the easements of necessity extended well beyond the storeroom and included the icebox; the ground floor outside the servery, including the part of the coolroom accessible from the wet fish business; the sink, the filleting boards, filleting bay; rights of access to and from the internal door to the servery; access to the stairs, mezzanine floor; access to and from the external door on the western side of the building; and the southern bay which contained the hot water heater, cool room, motor, exhaust fan and other facilities. These easements arose from the evidence adduced by the Wilcoxes and the Spicers as to the prior use of the premises before the lease was executed.

53 It is important to note that before Hulme J, Mr Richardson denied that any of these uses existed and did not tell his solicitor that they existed. In the current proceedings Mr Richardson maintained his denial that Ray ever used the filleting bay.

54 The third argument was whether the covenant for restraint of trade covered Lot 276 as well as Lot 277. This argument did not trouble Meagher JA. According to His Honour the words of the covenant were crystal clear. The words forbid competition from Lot 277 with Lot 276. Further, the purchaser understood the covenant only applied to Lot 277. In these proceedings Mr French the purchaser’s evidence was the same as in the proceedings before Hulme J.

55 The fourth and most time consuming issue at the trial concerned the alleged misrepresentations. I have referred to these misrepresentations in detail earlier. The Court of Appeal agreed with Hulme J that even if these misrepresentations were made there was no reliance placed upon them. Mr Meagher JA stated that it was not difficult for Hulme J to conclude that the Spicers and Wilcox’s placed no reliance on a representation to the opposite of their beliefs.

Decision in relation to costs

56 The matter was remitted to Hulme J to deal with costs. On 30 October 1998 His Honour ordered:

2. The Plaintiffs are to pay the Third Defendants’ costs, providing however that the costs payable under this order shall not exceed the cost of one representation and to the extent to which this proviso reduces the amount the Plaintiffs shall be liable to pay, the claim of each Third Defendant shall abate proportionally.

3. Disallow all the costs between the Plaintiffs’ solicitor and the Plaintiffs’ of an incidental to the preparation and duplication of the affidavits of Mr and Mrs Wilcox and of Mr Spicer of 7 December 1995.”

57 Returning to the expert evidence given in these proceedings, Mr Moses said that in these circumstances he would have expected the solicitor, acting in accordance with usual practice, to have included reference to those rights (or such of them as the sublessor conceded) in the sublease. Mr Moses considered that had there been a reference to those rights or some of them in the draft sublease prepared by the sublessor’s solicitor the question of a proper delineation of all of the relevant rights would have been raised and the parties would have negotiated the terms of the sublease in a form which would have been sufficiently specific so as not to leave any significant doubts as to the sublessee’s rights, thus avoiding the possibility of any serious disputes in the future.

58 It is Mr Moses’s opinion is that it is not standard practice to rely on the implication of such rights which are obviously vague and uncertain and which may ultimately lead to the need for a court application to clarity them. It was Mr Moses overall view that it was accepted among practitioners in this area that easements of necessity may be implied in relation to such matters as access when premises are leased for a particular purpose (particularly when the memorandum contained a definition of common areas and a covenant not to obstruct, misuse or damage them - see clause 4(i)) in the memorandum). In the sublease executed on 31 October 1993, the common areas are defined in the memorandum Z691346A (which is incorporated into the lease). Paragraph 1(f) states:

“‘common areas’ means the entrances, exits and pathways to and from the building and the parking areas vestibules hallways passageways and stairways forming part of or adjacent to the building and the toilets and washrooms in the building and all parts of the building used by the lessor and tenants and occupiers in common with each other.”

59 In paragraph 4 the lessor covenants with the lessee not to obstruct, misuse or damage the common area of any part thereof. Mr Moses did not favour a negative covenant and would have altered that had he been acting for the lessee. If rights of ingress and egress are required Mr Moses would have preferred to include a short positive clause along the following lines:

“The Lessee shall have the benefit of the following rights and liberties:

For itself its employees agents and invitees (in common with the Lessor and other persons authorised by the Lessor) to use the common areas for the purposes of ingress and egress to the demised premises.”

60 Mr Moses noted from the assumptions which he was asked to make that the shop the subject of the sublease was one of two in a building in which services and facilities were shared as opposed to a building which comprised two separate and distinct shops with defined areas and independent access and the like. Mr Moses stated that had the latter circumstances applied he could understand that there would have been little necessity to consider the inclusion of provisions delineating the rights of the sublessor and sublessee in relation to matters such as access, easements for user and so on. Because of earlier findings that the defendant was told by the first plaintiff that the shops were separate, the latter circumstances are applicable. Hence it was the view of Mr Moses that it was not necessary for the plaintiff to consider matters such as access and easements for the user and in the circumstances which existed in this case, these matters should have been the subject of instructions and included in the sublease. Further Mr Moses accepted that the Westfield Shoppingtown lease was drafted in accordance with standards expected from a solicitor exercising due care, competence and skill. I accept these views.

61 Based on Mr Moses’ evidence, it is my view that even though the defendant was aware that the customers were required to cross the verandah to gain access to the servery of the fish and chip shop he was entitled to rely on the first plaintiff’s instructions that Shops 1 and 2 were separate by describing the premises as “Part of Lot 276 known as Shop 1” he was exercising due skill and care that is usual amongst solicitors practicing a general practice which undertakes conveyancing. I also accept the view of Mr Moses that it was not necessary that the defendant included clauses relating to access and easements for the user. Further, I find that in the circumstances outlined above the drafting clause relating to common property was adequate as it did not fall below the standard expected of a prudent and competent solicitor. Nevertheless, the description in the lease of the demised property was ambiguous. On the front page the premises was shown as “Part of the Land Identifier 276/728098 being Shop 1, Kiama Wharf, Kiama”. In annexure A, clause (1) described the demised property as “Lot 276 in DP 728098” and this ambiguity led to one of the issues raised in the court proceedings being argued. By failing to pick up this ambiguity, the solicitor fell below the requisite skill and care of a solicitor practicing in conveyancing and to this extent the solicitor breached the duty of care he owed the plaintiffs. To this extent he was also in breach of his retainer.

62 The defendant submitted that the damages claimed are too remote and that they were not caused by the defendant’s negligence. The damages sought by the plaintiffs are those incurred when they became involved in protracted litigation because the defendant failed to describe the area to be leased. As previously stated the defendant admits that there was an ambiguity in the description in that a correction made in an early draft of the lease was not also made in Annexure A to the lease. As previously stated the defendant admitted that this ambiguity was an issue raised by other parties to litigation, but denied that it caused the losses alleged by the plaintiffs.

63 More specifically, the plaintiffs have sought that the Richardsons pay their own legal costs and disbursements in the equity division and the Court of Appeal proceedings; secondly, that costs awarded against the Richardsons in the equity proceedings (¼ of $172,056.53, possible 1/8th contribution from co-defendant unlikely); thirdly, costs awarded against the Richardsons in the Court of Appeal proceedings (possibility of equal contributions from co-respondents unlikely) less fidelity fund claim; fourthly, capital loss on sale of the family home by mortgage in possession, current market valuation less actual sale price; fifthly, the Richardsons’ alternative accommodation expenses after eviction from the family home by mortgage in possession for the period of November 1996 to date being 12 weeks @ 200 per week - 24 weeks at $460 per week and 150 weeks @ $200 per week; sixthly, Crown lease rents; and seventhly, interest and charges paid to the National Australia Bank from September 1995 until 14 May 1997.

Remoteness in contract

64 In Wenham v Ella (1972) 127 CLR 454 Gibbs J discussed the issue of remoteness in contract at 471.

C Czarnikow Ltd. v Koufos

"The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation."

C. Czarnikow Ltd v Koufos

Victoria Laundry (Windsor) Ltd v Newman Industries Ltd.

65 In a recent article in The Journal of Contract Law: (2000) Vol 16, No. 1-2, Tilbury and Carter explain the difference between the test of remoteness in contract and tort as follows:

Alexander v Cambridge Credit Corp

"The word 'contemplation' seems to be used… in the sense of 'thoughtful consideration or perhaps 'having in view the future'. It emphasises that, if the parties had thought about the matter, they would have really have considered that the result had at least a 'serious possibility' of occurring."

Czarnikow Ltd v Koufos (1969)

not unlikely to occur

the Wagon Mound (No.2)

Wyong Shire Council v Shirt

66 According to the plaintiffs it could have reasonably been supposed to have been in the contemplation of both parties that firstly if due skill were not exercised in defining the premises, the subject of the sublease and the rights associated with the demise that a dispute involving litigation would eventuate in order to ascertain the parties rights; secondly, a consequence of such a dispute would be the incurring by the Richardsons of solicitor/client and party/party costs; thirdly, a further consequence would be delay in the opportunity the Richardsons had to deal with their interest in Lots 276 and 277 by way of sale or otherwise; fourthly, in the event that the Richardsons attempted to sell their interest in Lots 276 and 277 the conduct of such litigation would delay the completion of such sale and fifthly, such a delay would prevent the Richardsons from making use of the proceeds of sale to discharge the mortgage over their home.

67 It is necessary to consider what would have happened had the sublease been properly drafted to refer solely to part of Lot 276 known as Shop 1. There are other factors that are relevant particulars, such as the first plaintiff’s undocumented business dealings with the Spicers and the Wilcoxes. In February 1993, it was the first plaintiff’s evidence that he and his wife orally agreed to sell a half share of the Shop 2 business to the Wilcoxes for $90,000 (Aff J Richardson para 45, p 11). In July 1993, the Wilcoxes paid $90,000 to the Richardsons and either $13,000 or $25,000 to creditors (para 46). On 17 August 1993, the Richardsons and Wilcoxes formed a company, Kiama Seafood Sensations Pty. Ltd, for the purpose of running the business in Shop 2 (para 45, p 12, and p 63-65). There was no contract for sale of the business, drawn up between the Richardsons and Kiama Seafood Sensations Pty Ltd. Nor was any lease drawn up between Kiama Seafood Sensations Pty. Ltd. and the Richardsons: Par 46. Yet Kiama Seafood Sensations Pty Ltd paid the rent (para 48). Nor was there any documentation drawn up as to how the contribution of $103,000 (or $115,000 as claimed by the Wilcoxes: see JHR2 p 51)) was to be treated. The parties in the litigation, appear to have agreed that the business of Shop 2 was run as a "partnership" between the Richardsons and the Wilcoxes (Judgment of Hulme J: JHR1P.132).

68 It is my view that the first plaintiff chose not inform his solicitor about the Wilcoxes buying a half share in the fresh seafood business. Nor did the first plaintiff chose to inform the defendant that he and the Wilcoxes had set up a company Kiama Seafood Sensations Pty Limited. Even on 2 August 1994 when the first plaintiff instructed the defendant to draw up a contract for the sale of the leases with vacant possession over everything except Shop 1 the first plaintiff did not make any mention of the agreement they had with the Wilcoxes nor the Spicers. The contract provided for vacant possession of Shop 2, but subject to the purchaser completing the purchase of the business of Shop 1 from Margaret Smith and Ray Richardson at the same time. Consequently when the defendant drew up the auction contract he made no reference to the Wilcoxes nor the Spicers.

69 In September 1994, John Richardson gave evidence that he had an oral agreement with Margaret Richardson for vacant possession of Shop 2. This was not documented, contrary to Mr McKinnon’s specific advice that it should be formalised (Aff McKinnon, RMM2-16, p 30).

70 On 1 September 1994 the defendant wrote to the plaintiffs about the necessity to have an agreement with Margaret Smith and Ray Richardson for the increased rent, and an agreement in writing for them to give vacant possession. The defendant stated that as the plaintiffs would be offering the property with vacant possession it was essential that they have a formal agreement with Margaret Smith and Ray whereby they agree to vacate the property on the plaintiffs request and in payment to them of $180,000. The defendant was concerned that the Richardsons wanted to enter into a contract with vacant possession over the whole of Lot 276 but without having an agreement for surrender over Shop 1 (RMM2-16, p 30). The first plaintiff’s disregarded this advice. On 8 September 1994 the first plaintiff telephoned the defendant and said not to draw up an agreement with Margaret Smith to give vacant possession on payment of $180,000 because she wants to go. He said that if an investor bought the property he would take over Margaret’s shop at the high rent. The first plaintiff gave evidence that he was aware that if Margaret did not vacate the property he would not be able to give vacant possession after selling the property at action but he considered that although there was a possibility of it occurring it was a very remote one (t 51.25).

71 In September 1994, John Richardson gave evidence that there was an agreement between him and Graham Wilcox that vacant possession of Shop 2 would be given because they could continue to run the wholesale business from the Richardson’s home (Aff 6 Sept. 2000, para 59). This agreement to vacate was also not documented. In December 1994, John Richardson alleged an agreement reached in the offices of the Wilcoxes and Spicer’s solicitors, in the absence of Mr McKinnon, for the sharing of parts of Shop 2. In relation to Shop 2, the first plaintiff acknowledged that without a formal agreement with the Wilcoxes for vacant possession, there would be a problem if the Wilcoxes changed their mind. However decided to take the risk that this would not happen (t 54.5). He took the risk and lost.

72 The first plaintiff in his affidavit sworn 18 June 1996 (JHR2, Appeal Book Vol 1 p 195) cited the reason that he was unable to complete the contract with Kiama Development Co Pty Limited was because he was unable to give vacant possession of Shop 2, not because of the uncertainty of the area of Shop 1. The first plaintiff gave a notice to vacate dated 13 September 1995 to the Wilcoxes. Later the first plaintiff found out that the Wilcoxes refused to give up occupation of the wet fish Shop 2, he sought to re-enter. The Wilcoxes refused to give vacant possession because the effect of giving vacant possession was to destroy the business carried on at Shop 2 in which the Wilcoxes had invested at least $113,000 (and possibly $115,000) and which was not documented in any way. The Wilcoxes were also concerned that their business carried on in Shop 1, and for which they and the Spicers had paid $180,000, would not be the only fish and chip shop on the Kiama Wharf premises.

73 Mr Richardson was aware that the restraint of trade clause in the lease did not apply to Shop 2 before he exchanged contracts with Kiama Developments Pty Limited (t 55). He was also aware that a purchaser could start up a fish and chip shop in competition with the Wilcoxes and the Spicers (t 56.15-56). The first plaintiff could have avoided this dispute if he had varied the lease before exchange so that the restraint of trade clause operated over the whole of Lot 276, and to come to an agreement with the Wilcoxes and Spicers over the shared areas. Prior to the sale of the sublease the Wilcoxes and Spicers asked the first plaintiff to sign a document (Aff deft p 56). The first plaintiff now denies or does not recall that he wanted to sign this (t 59.55-60.20), but the defendant’s file note dated 28 August 1998 is unequivocal. It states:

74 The first plaintiff wanted to sign it because this was one of the many “informal” agreements he had with the Wilcoxes and Spicers. However, if he signed this letter it would have put him in breach of contract with Kiama Developments Co Pty Limited.

75 In the second half of 1994 when the defendant drafted the auction agreement the solicitor was not aware that the plaintiffs were in financial difficulties and were in arrears with their payments due to the National Bank.

76 On 13 December 1994 the defendant received instructions from the Richardsons to draw up an option agreement with the Wilcoxes. At the same time he received instructions from Ray Richardson and Margaret Smith to draw up an agreement for sale of Shop 1 to the Wilcoxes and Spicers. The defendant perceived that there was no conflict in his acting on this matter he agreed to act for them. Margaret Smith had a power of attorney for Ray, as he was in gaol at the time. Ms Smith did not mention anything to the defendant about shared use of the premises in the areas outside Shop 1. The defendant’s evidence is that he would have had to disqualify himself from acting in the matter in view of his previous instructions from the Richardsons. It was not until June 1995 that the defendant first became aware that the plaintiffs were in financial difficulties.

77 It is my view the primary cause of the litigation between the Richardsons, the Wilcoxes and the Spicers was the failure of all of those parties to obtain legal advice about their business dealings with each other and to properly document it. There were a number of business dealings between the Richardsons and the Spicers and Wilcoxes that were not documented. These business dealings with the Spicers were not conveyed to the Richardsons’ solicitor, the defendant. The solicitor was left in the dark. Even when legal advice was given to the first plaintiff he chose to disregard it. The first plaintiff disregarded the solicitor’s advice concerning the importance of having agreements with the tenants for vacant possession upon sale of the leases.

78 It is my view that on the information available to the defendant when the contract was made, a reasonable person in his position would have realised that in the future the property could be sold subject to the lease over Shop 1 and if the premises were not properly described there would be a dispute over what property referred to in the lease was actually covered and this dispute could lead to litigation. The issue is whether the defendant should be held responsible for all the plaintiffs’ costs of the litigation in the Equity and Court of Appeal proceedings, ie, whether these losses can be considered to have fairly and reasonably arisen naturally from the breach of contract (per Wenham).

79 The ambiguity in the description of the demised property was one of three main issues that were disputed in the the earlier proceedings. The misrepresentation evidence and arguments took up most of the nine days of hearing time. It was the inability of the plaintiffs being able to complete the sale of the subleases that caused the plaintiff to be involved in the earlier litigation. It is my view that what would have been in reasonable contemplation of the parties at the time of making the contract, should there have been an ambiguity in the description of the demised premises it could fairly and reasonably have been considered that legal proceedings in the equity division seeking construction or rectification were taken. There was never an ambiguity in the drafting of the restraint of trade clause. A number of misrepresentations were found to have been made by Mr Richardson when he knew the true situation and those misrepresentations. This misrepresentation cannot be said to have fairly and reasonably arisen naturally from the ambiguity in the description of the sub-demised property of Shop 1. The primary reason that caused the litigation to be brought was that the plaintiffs failed to enter into an agreement for vacant possesion of Shop 2 with the Spicer and the Wilcoxes.

80 The issue of the restraint of trade covenant is too remote. It cannot be said to have arisen from the ambiguity in the description of the sub-demised property. These earlier proceedings would have been taken by the Wilcoxes and the Spicers notwithstanding the ambiguity in the description of the shop because the Wilcoxes had invested at least $113,000 and the Spicers at least $180,000, but due to the restraint of trade clause covering only Lot 276 a fish and chip shop may have competed for business next door in Lot 277. It was the representations made by Mr Richardson and the unwritten business arrangements that caused the Wilcoxes and the Spicers to end up in litigation

81 For the reasons given earlier, it is my view that the costs in the Court of Appeal are too remote. The loss of the family home was caused by a dispute between the plaintiffs and their son and his wife. The plaintiffs and their son brought proceedings in this court and the first plaintiff rather than settle with his son, his son’s wife decided to allow the bank to sell the property. The accomodation expenses after eviction are related to the dispute between the plaintiffs and their son and his wife not the ambiguity in the lease. The defendant did not cause the plaintiffs to incure those expenses. In relation to the Crown sublease rents, there is an outstanding order for the quantification of mense profits which has been to a master for assessment. This has not been done. However, it is my view that the loss is not attributable to the solicitor’s actions. The interest and charges paid to the National Australia bank from September 1995 until 14 May 1997 are too remote. The loss did not flow naturally from the breach of the contract nor is it a loss of the kind that should have been within the parties contemplation. It could not have been in the comemplation of the parties that the plaintiffs would fail to document subsequent dealing.

82 When the contract was made the equity suit would have taken at the highest one day plus in court and the costs of the equity suit are to be determined at a latter date. These proceedings could have been heard expeditiously so as to allow the sale of the lease could have been completed at the due date.

Causation in negligence

83 I have previously referred to an article in the Journal of Contract Law which examines the distinction of remoteness for breach of contract and in tort. In Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 Hayne J said at para 113:

“The search for causal connection between damage and negligent act or omission requires consideration of the events that have happened and what would have happened if there had been no negligent act or omission. It is only by comparing these two sets of facts (one actual and one hypothetical) that the influence or effect of the negligent act or omission can be judged. If the damage of which the plaintiff complains would have happened without the intervention of the negligent behaviour, it will often be possible to conclude that the negligent behaviour was not a cause of that damage. Thus, to take examples cited in Prosser and Keeton on the Law of Torts:

-a failure to fence a hole in the ice plays no part in causing the death of runaway horses which could not have been halted if the fence had been there ;

-a failure to have a lifeboat ready is not a cause of the death of a person who sinks without trace immediately upon falling into the ocean ;

-the omission of crossing signals by an approaching train is of no significance when a car driver runs into the sixty-eighth car in the line .”

84 Kirby J in Chappel at para 3, said:

“If, but for the negligent act or omission, the actual damage suffered by a plaintiff would not have occurred, it will often be possible, as a practical matter, to conclude the issue of causation in the plaintiff's favour. Similarly, where the damage would probably have happened anyway, it will often be possible to conclude that the act or omission was not the cause for legal purposes. In this sense, the "but for" test, so qualified, remains a relevant criterion for determining whether the breach of duty demonstrated is a cause of the plaintiff's damage . However, it is not the exclusive test.”

85 Gaudron J in Chappel v Hart at 238 stated:

“Questions of causation are not answered in a legal vacuum. Rather, they are answered in the legal framework in which they arise. For present purposes, that framework is the law of negligence. And in that framework it is important to bear in mind that the body of law operates, if it operates at all, to assign a duty to take reasonable steps to prevent a foreseeable risk of harm of the kind in issue.”

86 It is foreseeable that if the defendant drafted a sublease which had an ambiguous description of the sub-demised premises there would be a dispute between the lessee and lessor in the future. This ambiguity would need to be resolved either by negotiation or court proceedings. The court proceedings would have been in the form of a suit for rectification or construction. It is my view the other heads of damages claimed by the plaintiffs were not foreseeable. They were not foreseeable as a possibility of occurring. They are far fetched and fanciful. They were caused by a failure to document business dealings and statements made by the first plaintiff to the Spicers and the Wilcoxes which the first plaintiff knew not to be true.

Contributory negligence

87 In considering the question of apportionment the court is required to reduce the damages recoverable “to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility for the damage”. The inquiry is not concerned with the cause of the accident but with the cause of damage - see Froom v Butcher [1976] QB 286 at 292-293. Contributory negligence is measured by the failure of the plaintiff to take reasonable care for his own safety - see Gunning v Fellows (1997) 25 MVR 97 at 99. It is the degree of departure from the standard of care of the reasonable man - see Pennington v Norris (1956) 96 CLR 10 at 16. Therefore it is an objective test and not subjective, as applied to someone such as the plaintiff. The standard of care is to be measured against that of ordinary prudence - Sungravure Pty Limited v Meani (1964) 110 CLR 24 at 36.

88 The plaintiffs were not responsible for the ambiguity in the description of the premises in the sublease. They did not cause the solicitor to fail to put in the words “part of” and “known as Shop 1, Kiama Wharf, Kiama” in the annexure to the sublease. There should be no reduction of damages for contributory negligence.

89 I find that the defendant was negligent and breached his retainer when he drafted the sublease to give two different descriptions of the demised premises. Both the defendant’s negligence and breach of contract caused the plaintiffs to suffer damage. This damage was the costs of a rectification or construction suit in this court. These costs are to be assessed at a future date. Costs are reserved.

90 I make the following findings:

(1) The defendant was negligent and breached his retainer when he drafted the sublease to give two different descriptions of the demised premises. Both the defendant’s negligence and breach of contract caused the plaintiffs to suffer damage assessed as the costs expended in a construction or rectification suit in this court. This amount is to be quantified at a future date.

The court orders:

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Last Modified: 05/16/2001

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Citations

Richardson v McKinnon [2001] NSWSC 388

Cases Citing This Decision

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Cases Cited

6

Statutory Material Cited

3

Astley v AusTrust Ltd [1999] HCA 6

Wenham v Ella [1972] HCA 43

CITATION:	Richardson & Anor v McKinnon [2001] NSWSC 388
CURRENT JURISDICTION:	Common Law
FILE NUMBER(S):	SC 20181/99
HEARING DATE(S):	21, 22 & 23 November 2000
JUDGMENT DATE:	16 May 2001
PARTIES :	John Herbert Richardson (First Plaintiff) Judith Richardson (Second Plaintiff) Robert Munro McKinnon (Defendant)
JUDGMENT OF:	Master Harrison

COUNSEL :	Mr R McKeand with Ms C Morris (Plaintiffs)
SOLICITORS:	Mr K Tapsell of Watkins Tapsell (Defendant) Warren McKeon Dickson (Plaintiffs)
CATCHWORDS:	Separate determination of issues - liability - causation - professional negligence - drafting of sublease
LEGISLATION CITED:	Law Reform (Miscellaneous Provisions) Amendment Act Fair Trading Act Contracts Review Act
CASES CITED:	Astley & Ors v Austrust Limited (1998-99) 197 CLR 1 Voli v Inglewood Shire Council (1963) 110 CLR 74 Wheeldon v Burrows (1879) 12 ChD 31 Wenham v Ella (1972) 127 CLR 454 Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 Froom v Butcher [1976] QB 286 Gunning v Fellows (1997) 25 MVR 97 Pennington v Norris (1956) 96 CLR 10 Sungravure Pty Limited v Meani (1964) 110 CLR 24
DECISION:	I make the following findings:; (1) The defendant was negligent and breached his retainer when he drafted the sublease to give two different descriptions of the demised premises. Both the defendant's negligence and breach of contract caused the plaintiffs to suffer damage assessed as the costs expended in a construction or rectification suit in this court. This amount is to be quantified at a future date.; The court orders:; (2) The costs of the hearing before Master Harrison are reserved.