Spectrum Ophthalmics Pty Ltd v Ryan
[2010] VSC 19
•10 February 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 7420 of 2007
| SPECTRUM OPHTHALMICS PTY LTD | Plaintiff |
| v | |
| MICHAEL AUGUSTUS RYAN and JEANNETTE EID | Defendants |
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JUDGE: | BEACH J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 2-5 February 2010 | |
DATE OF JUDGMENT: | 10 February 2010 | |
CASE MAY BE CITED AS: | Spectrum Ophthalmics Pty Ltd v Ryan & Anor | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 19 | |
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LEGAL practitioners – Solicitor – Scope of retainer – Solicitor retained to draft amendment to agreement – Scope of duty of care – Breach of retainer – Breach of duty of care.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N.P. Jones | McKean Park |
| For the Defendants | Mr J.J. Gleeson SC with Mr D.A. Ferrari | Minter Ellison |
HIS HONOUR:
Introduction
On 1 October 2000, Spectrum Ophthalmics Pty Ltd, the plaintiff, entered into a distribution agreement with Ioltech SA, a company organised and existing under the laws of France. The distribution agreement appointed Spectrum as the exclusive distributor in Australia and New Zealand of certain ophthalmic products owned or controlled by Ioltech.
In July 2001, Spectrum, through its sole director, Mr Peter Grech, commenced to negotiate with Ioltech about proposed amendments to some of the clauses of the distribution agreement. The clause of relevance so far as this proceeding is concerned is clause 11.1, which provided for the term and potential renewal of the distribution agreement.
In August 2001, Mr Grech, having reached an agreement with Ioltech concerning an amendment to clause 11.1, contacted his solicitor, Ms Jeannette Eid, the second defendant, in relation to the drafting of the proposed new clause 11.1. There were discussions between Mr Grech and Ms Eid. On 15 August 2001, Ms Eid produced two redrafts of clause 11.1.
On 15 October 2001, Mr Grech, on behalf of Spectrum, executed an amendment to the distribution agreement. Spectrum claims that the amendment was based upon Ms Eid’s redrafting of clause 11.1 and that the redrafting was done negligently and/or in breach of retainer, resulting in Ioltech being able to terminate the distribution agreement at a point earlier than had previously been agreed between Spectrum and Ioltech.
Spectrum claims that, by reason of the negligence and/or breach of retainer of Ms Eid, it lost the amount of profit that it would have made under the distribution agreement from the date of its termination to the date when the agreement would have been on foot but for the negligence or breach of retainer. In this proceeding, Spectrum seeks damages in this amount against Ms Eid and the other partner of her firm in 2001, the first defendant. As the facts of this proceeding concern only Ms Eid, it will not be necessary to refer to the first defendant again.
On 27 July 2009, Evans AsJ ordered that, pursuant to r 47.04, the following questions be heard and determined separately before the trial of this proceeding:
“(a) What were the terms, nature and scope of the retainer between the plaintiff and the defendants in or about August 2001?
(b) What was the scope of the duty of care owed by the defendants to the plaintiff in or about August 2001?
(c) Was there a breach of the retainer or of the duty of care by the defendants in or about August 2001?
(d) If there was a breach of the retainer or of the duty of care by the defendants in or about August 2001, what was the breach of the retainer or of the duty of care?”
This is the trial of those preliminary questions. In substance, the preliminary questions (which were formulated by an agreement between the parties) were designed to achieve a trial of the issues of breach of retainer and negligence. For the reasons given below, I have determined these issues against the defendants.
Background facts
On 25 February 2000, Mr Grech consulted Ms Eid concerning what was then only a proposed distribution agreement involving Ioltech. Three days later, Ms Eid gave Mr Grech written advice[1] in respect of some of the clauses in the proposed distribution agreement. In respect of the clause of the proposed distribution agreement concerning its term, Ms Eid said:
“The term of the contract should give you security of tenure, one year would not be sufficient, three years would not be sufficient. We would think that it may be more to both parties’ benefit if the term is ten years with two further terms of ten years each by way of option. This will enable you to plan strategies and implement your strategies as you grow therefore you need security of tenure. If the company believes the territory that you have requested may include too many countries for locking themselves in for a ten year term you should then keep to the back of your mind that you could negotiate that certain countries could drop off during the ten years if you don’t prove yourself in those countries …”
[1]Exhibit 2.
Having received Ms Eid’s advice, Mr Grech then proceeded to negotiate with Ioltech about the terms upon which Spectrum would enter into a distribution agreement with it. These negotiations were largely undertaken without any further request for advice or assistance from Ms Eid,[2] and culminated in the execution of the distribution agreement on 1 October 2000.[3]
[2]But cf the letter from Ms Eid to Mr Grech dated 20 July 2000 (Exhibit 4) in which Ms Eid confirmed that it was “imperative” that Mr Grech obtain a clause from Ioltech that would give him comfort “to feel that [he had] security of tenure”.
[3]Exhibit A.
Clause 11.1 of the distribution agreement provided:
“ARTICLE 11 – TERM AND TERMINATION
11.1 Term – The term of this agreement will be from the EFFECTIVE DATE [1 October 2000] and will continue for an initial period ending on the fifth anniversary of this date. This agreement is automatically renewable for successive 1 (one) year, unless one of the parties gives written notice to the other party, but not less than sixty (60) days prior to the end of the current period, that it does not intend to renew the agreement. Upon termination of this agreement, DISTRIBUTOR [Spectrum] shall not be required to provide COMPANY [Ioltech] with any information regarding the market for the PRODUCTS in the TERRITORY [Australia and New Zealand], including without limitation, customer lists. If for any reason, the COMPANY should have a change of ownership, this agreement shall be valid and remain in force.”
While clause 11.1 refers to the distribution agreement as being automatically renewable “for successive one year”, it seems tolerably clear that Spectrum and Ioltech regarded clause 11.1 as granting a term of five years with renewable periods of one year unless either party gave 60 days’ written notice that it did not wish to renew the agreement for the next period. Thus, clause 11.1 provided for an initial term of five years which could not be terminated without cause.[4] Further, unless 60 days’ notice was given before the end of a particular period, then the agreement was automatically renewed for a further year – which period itself could not be terminated without cause.
[4]Provisions dealing with termination for cause were contained in clause 13. It is not necessary to set those provisions out.
After Spectrum executed the distribution agreement, Mr Grech became concerned about the operation of clause 11.1. Two aspects of its operation concerned him. Mr Grech’s first concern was that regulatory approval was needed before he could actually engage in selling the various products the subject of the agreement and, in the absence of the necessary regulatory approvals, the real commencement date of the agreement was slipping further into the future and shortening the practical length of the initial term of the agreement (it expiring on 1 October 2005).
Mr Grech’s second concern related to the one year renewal periods. Mr Grech’s view was these successive one year periods were not long enough to allow him to order the affairs of Spectrum should notice be given by Ioltech of an intention not to renew. This concern conformed with advice Mr Grech had received from Ms Eid on 28 February and 20 July 2000 as to the importance of having the distribution agreement run for a term that was long enough to make the undertaking worthwhile and financially sound.
As a result of these concerns, Mr Grech, on behalf of Spectrum, entered into further negotiations with Ioltech as to amendments that might be made to the distribution agreement. In July and August 2001, various amendments were proposed by both sides. Ultimately (in August 2001), Mr Grech again retained Ms Eid.
The retaining of Ms Eid in August 2001
On 14 August 2001, Mr Grech faxed (on Spectrum’s letterhead) a one page handwritten note as follows:[5]
[5]Exhibit E.
“Dear Jeannette,
As discussed,
amendment proposal OK’d by both parties for Spectrum/Ioltech agreement. However, email message from Ioltech indicate that 2 year notice is conditional and is proposed to be included in agreement which is acceptable to me.
*Could you please review the amendments to ensure the proposed changes are legally correct.
*I look forward to your response.
Kind regards,
Peter Grech.”
Together with this note, Mr Grech faxed a two page document headed “Amendment”, being the amendment said to have been “OK’d by both parties”. Additionally, he included in the fax a copy of the email referred to in his note. The amendment document set out the proposal so far as clause 11.1 was concerned as follows:
“ARTICLE 11 – TERM AND TERMINATION
11.1 Term: The term of this agreement will start from the date of TGA and health rebate approval of HYDROPHILIC ACRYLIC intra-ocular lenses and will continue for an initial period ending on the fifth anniversary of this date. This agreement is automatically renewable for successive 3 (three) year periods, unless one of the parties gives written notice to the other party, but not less than 2 years prior to the end of the current period, that it does not intend to renew the agreement. [Deleted]. Upon termination of this agreement, DISTRIBUTOR shall not be required to provide COMPANY with any information regarding the market for the PRODUCTS in the TERRITORY, including without limitation, customer lists unless requested by the law. However, DISTRIBUTOR is obliged to keep records of his customers for a fifteen year period. If for any reason, the COMPANY should have a change of ownership, this agreement shall be valid and remain in force.”
The email referred to in Mr Grech’s note provided:
“2 years notice: We agree on a 2 years notice, only if Spectrum is engaged to have a commercial activity with IOLTECH equale (sic) or superior to the one of the year preceeding the notice. Moreover during the 2 years notice IOLTECH will be free to denounce the exclusivity of Spectrum in the territory and Spectrum will be free to register other products from another company but obliged to keep on selling IOLTECH products during this period.”
Mr Grech gave evidence that the discussion referred to in his note was a reference to a meeting between himself and Ms Eid approximately seven days before 14 August 2001. Ms Eid denied any such meeting. There is no file note of any such meeting. Mr Grech’s diary contains no note of any such meeting (notwithstanding his diaries contain entries in respect of other meetings with Ms Eid). In the circumstances, I am not prepared to accept that there was any meeting with Ms Eid in the days leading up to 14 August 2001. In my view, it is likely that the discussion referred to in Mr Grech’s note was a brief telephone discussion concerning the fact that Mr Grech wanted Ms Eid to ensure that clause 11.1 was redrafted in a form suitable to him. That is not to say that I think Mr Grech was untruthful in his evidence. Having seen both Mr Grech and Ms Eid give evidence, I formed the view that both were truthful and both endeavoured to give an honest account of matters as they believed them to be. Mr Grech and Ms Eid were both doing their best to recollect conversations and the sequence of events that occurred more than eight years ago. Ms Eid frankly conceded that her recollection was confined to what was written in her file notes and the documents. So far as Mr Grech is concerned, it is clear from what he said and wrote about these events when the distribution agreement was terminated in February 2006 that his ability to recount accurately what occurred in 2001 was as limited as Ms Eid’s.[6]
[6]See for example the fourth paragraph of Mr Grech’s email of 15 February 2006 (Exhibit Q) in which he refers to a notice period of 12 months rather than two years, and Mr Grech’s statement to Ms Eid on 16 February 2006 (as recorded in his note: Exhibit R) that he had only seen one of Ms Eid’s two redrafts in August 2001.
Ms Eid gave evidence that on 15 August, Mr Grech telephoned her. She told him that she had not had an opportunity to read the documents he had faxed to her. Ms Eid’s evidence was that Mr Grech asked her to draft a clause. She agreed that she would draft something and send it to him. Whilst Mr Grech does not admit that this conversation occurred, it is supported by a file note of Ms Eid’s. Given the existence of this file note and the fact that Ms Eid then drew a clause, it seems likely that a conversation of the kind referred to by Ms Eid occurred on the morning of 15 August.
At 11.14am on 15 August, Ms Eid’s secretary (working at another office of Ms Eid’s firm) faxed to Mr Grech Ms Eid’s first redraft of clause 11 in the following terms:
“ARTICLE 11 – TERM AND TERMINATION:
11.1 Term:
The commencement date is the date upon which approval of the HYDROPHILIC ACRYLIC intra-ocular lenses by TGA and approval of the Health Rebate whichever is the latter for a period of five (5) years.
11.2Termination:
This agreement can be terminated by either party giving the other a minimum of two (2) years prior written notice, however on the condition that SPECTRUM has performed commercially equal to or better than the previous financial year’s trading.
11.3Trading:
During the two (2) year’s notice period IOLTECH (sic SPECTRUM) will be free from the exclusivity granted herein and will be free to register other products from other companies and trade in other companies products but will continue to be obliged to sell IOLTECH product during such period.
11.4Upon Termination:
Upon termination of this agreement the distributor shall not be required to provide the company with any information regarding the market for the products in the territory including without limitation the supply of customer lists unless request by Law. However the distributor will continue to be obliged to keep records of his customers for a fifteen (15) year period. This agreement shall survive a change in ownership of the company with the knowledge of the distributor.”
At 12.25pm on 15 August 2001, Mr Grech faxed back to Ms Eid a copy of her first redraft with handwritten annotations. Of most significance was the handwritten annotation “but so that this notice cannot be given during the first three years of the first term” which was inserted immediately after the words “prior written notice”. There is a dispute between Ms Eid and Mr Grech as to whether this document was faxed back to Ms Eid after a conversation between them (Ms Eid contending that there was such a conversation and that she told Mr Grech to write this particular annotation on the document and fax it back to her – and Mr Grech contending that this was not so and that these words were his idea). In any event, Ms Eid undertook a second redraft of clause 11.1. This second redraft was faxed to Mr Grech at 1341 on 15 August 2001 and was in the following terms:
“ARTICLE 11 – TERM AND TERMINATION:
(a)Term:
The commencement date is the date upon which approval of the HYDROPHILIC ACRYLIC intra-ocular lenses by TGA and approval of the Health Rebate whichever is the latter for a period of five (5) years.
The term shall automatically be renewed for successive periods of three (3) years each from the expiration date of the first term.
Termination:
This agreement may at the option of either party be terminated by either party giving the other a minimum of two (2) years prior written notice, but so that this option cannot be exercised unless a minimum of two (2) years remain during any term of this agreement or any renewal thereof. However this option is on the condition that SPECTRUM has performed commercially equal to or better than the previous year of the current term.
(b)Trading:
During the two (2) year’s notice period IOLTECH (sic SPECTRUM) will be free from the exclusivity granted herein and will be free to register other products from other companies and trade in other companies products but will continue to be obliged to sell IOLTECH product during such period.
(c)Upon Termination:
Upon termination of this agreement the distributor shall not be required to provide the company with any information regarding the market for the products in the territory including without limitation the supply of customer lists unless request by Law. However the distributor will continue to be obliged to keep records of his customers for a fifteen (15) year period. This agreement shall survive a change in ownership of the company with the knowledge of the distributor.”
There was a dispute between Mr Grech and Ms Eid as to the precise sequence of events on 15 August 2001, the identity of the person who first suggested the inclusion of the words “but so that this notice cannot be given during the first three years of the first term” and the substance of what was said by each of them on the telephone that day. As I have said, Ms Eid’s recollection is confined to her file notes and the documents. On the other hand, Mr Grech’s recollection of the detail of what occurred in August 2001 has been shown to be, at best, suspect, having regard to what he said and wrote in February 2006.
Strictly speaking, it is only necessary to resolve the differences between Ms Eid and Mr Grech as to what each of them said to the other on 15 August 2001. To the extent that it is necessary to resolve the differences between them as to the sequence of events and the question of who first made the suggestion concerning the words “but so that this notice cannot be given during the first three years of the first term”, I prefer the version contended for by the defendants. This version is supported by Ms Eid’s file note that was dictated later on the 15th and ultimately typed on 17 August 2001. Notwithstanding the obvious criticisms that can be made of that typed file note, it represents the most contemporaneous record (so far as the sequence of events is concerned) in existence.
In my view, the most likely sequence of events in August 2001 was:
(a) There was a brief telephone discussion between Ms Eid and Mr Grech on or shortly prior to 14 August 2001 in which Mr Grech foreshadowed that he would fax to Ms Eid some documents concerning proposed amendments to the distribution agreement.[7]
[7]While it is probable that this conversation occurred on 14 August 2001, because it was only at 1.53am on 14 August that Ioltech conveyed its agreement in respect of the two year notice issue, it is not necessary to resolve the question of whether the conversation occurred on 14 August or in the days leading up to 14 August.
(b) On 14 August 2001, Mr Grech faxed the handwritten note, the two page amendment document and the email concerning the two year notice period[8] to Ms Eid.
[8]Exhibit E.
(c) On the morning of 15 August 2001, Mr Grech telephoned Ms Eid. Ms Eid was in conference and told Mr Grech that she had not read the documents he faxed to her. Ms Eid said that she would draft something (presumably after reading the documents), send it to Mr Grech for his consideration and then discuss the matter with him. It is probable that during this conversation Mr Grech conveyed that he was wanting this done sooner, rather than later.
(d) Later that morning, Ms Eid prepared a version of clause 11 (the first redraft). This was sent from another office of Ms Eid’s firm to Mr Grech. Mr Grech subsequently telephoned Ms Eid and a discussion ensued. At the time of this discussion, Mr Grech had the typed version of the first redraft and Ms Eid had a handwritten document from which the typed version had been prepared. During the course of the discussion, each made handwritten annotations to the version then in their possession. Both participated in the formulation of the addition of the words “but so that this notice cannot be given during the first three years of the first term”. At the conclusion of the discussion, Ms Eid asked Mr Grech to fax his typed version to the office where she was then located.
(e) After Mr Grech faxed his version of the first redraft to Ms Eid, there was another telephone conversation between them. Following this conversation, Ms Eid produced her second redraft of clause 11.
The dispute as to the substance of what was said on 15 August 2001
At some time during the afternoon of 15 August 2001, Ms Eid made a handwritten file note[9] of her discussions with Mr Grech. The handwritten file note provided:
“File note.
Spoke to Peter Grech 15 August. He said he is renegotiating the contract. He wants to have 5 x 3 not one. But they wanted to renegotiate the termination clause. He is happy with two years’ notice but wants to protect further terms.
They will not agree that the notice can’t be given in the first three years of the current term as first term. He is happy. He wants to protect second term. I said redraft so that two year[10] minimum should remain. That is in second term can only give notice in first year to allow him three years. During the second year’s notice period free from exclusivity and can register other products.”
[9]Exhibit 9.
[10]In evidence, Ms Eid read out the file note. In her evidence, she said the file note recorded “I said redraft so that second year …”. However it is clear that the word “second” should be “two”.
Ms Eid gave evidence that it was her usual practice to make handwritten notes when speaking to a client and that shortly thereafter she would dictate “a clear note”[11] to be placed on the file. Ms Eid said “I would most definitely either dictate the note as soon as possible either that day, if it’s possible, or the next day so that my flow of work continues”.[12]
[11]T199.27.
[12]T200.19 - .22.
Consistently with her usual practice, Ms Eid dictated a more detailed file note of her discussions with Mr Grech.[13] This file note was typed by Ms Eid’s secretary on 17 August 2001.[14] Ms Eid is unable to remember when she dictated the file note. In all probability, it was dictated on the evening of 15 August or at some time the next day.
[13]Exhibit 10.
[14]See the affidavit of Ms Gail Coon sworn 1 February 2010 (Exhibit 7).
Ms Eid’s typed file note is in the following terms:
“FILE NOTE
RE: GRECH
Spoke to Peter Grech on 15 August. He said that he was negotiating with the French people to increase his options by three years but he sent me some documents. I said yes. I haven’t had a chance to read them I have got people with me. He said can I draft the clause. He is happy with two years notice. I said I will draft something and I will send it to him for his consideration when I have finished with my clients and I will talk to him then. He said he is wanting to speak to them in a hurry. I said not a problem.
I telephone Di in Mitcham and asked her to fax to him the draft documents and said that she should ask him to contact us as soon as he receives it so we can discuss it.
Peter Grech rang back saying he has received my fax and I went through it with him. He said he wants a 5 x 3 instead of the one further option that he had before. They want a termination clause to be with notice with two years. He is happy to have a two year notice but he wanted to protect the further term. I then said if we want to achieve a no termination clause really what he should do is to have an amendment after the second line the word ‘written notice’ so that he can include the following – I asked him to write them down ‘but so that this notice can’t be given during the first three years of the first term’ and at the end we will protect some performance and said that however on condition that Spectrum has performed commercially equal or better than the year preceding. I also noted that in the trading paragraph in the first line Ioltech should read Spectrum. I said see if he can achieve that they shouldn’t give him notice in the first three years and that way it will be best for him. He said he will try. They are making him very anxious.
Spoke to Peter, he rang back in the afternoon saying that the two years notice they will not agree that they can’t give in the first three years as I have suggested but he is happy with that. He wants to protect the second term. I said that means that he can have notice at any time during the first term. He said he doesn’t think it would be. He said he wants a clause drafted so that he could make sure they don’t give him notice in the second term other than during the first year so that he is protected. I said if he could get to have that they can’t give him notice in the first three years and must give him notice only with two clear years to go it would be better. He said he has already had discussions with them. They are not interested. They want to only give him two years notice and will not restrict it to the first three years of the initial term. He wants to protect the second term. He wants me to redraft so that two years minimum should remain that is in the second term and can only give notice in first year of second term so that he knows he has got three years. I then suggested that the clause should read – ‘this agreement may at the option of either party be terminated by either party giving the other a minimum of two years prior written notice but so that this option can’t be exercised unless a minimum of two years remain during any term of this agreement or any renewal thereof. However this option is on the condition that Spectrum has performed commercially equal to or better than the previous year of the current term’. I told him to let us know how he went.
I then asked Di to fax it to him as soon as possible.”
While the typed file note records the three conversations that occurred between Mr Grech and Ms Eid on 15 August, when one examines the handwritten file note, one immediately sees that there is no note of the first telephone conversation. Further, if the only file note that was available was the handwritten one, then one might conclude from it that there was only one conversation between Mr Grech and Ms Eid on 15 August 2001. In evidence-in-chief, Ms Eid was asked whether her memory as to the sequence of events and what was said on 15 August 2001 was an actual memory or whether she was confined to looking at her file notes for the purpose of determining what took place. Ms Eid conceded that she was dependent upon her file notes, rather than any specific recollection. Indeed, in cross-examination Ms Eid stated that she was relying totally on her notes.[15] Nevertheless, for the reasons I have given above, I accept that there were three telephone conversations on 15 August 2001 in the sequence I have already described.
[15]See, for example, T207.3.
Mr Grech made no file notes of his conversations with Ms Eid in August 2001. However, the substance of his evidence was that the instructions he gave Ms Eid emphasised the importance of successive terms of the agreement and that each term must reach its end once it had commenced. Mr Grech’s evidence was that he conveyed these matters to Ms Eid prior to 14 August 2001 and that these matters formed the basis of their telephone conversations on 15 August 2001. Mr Grech gave evidence that when he received Ms Eid’s first redraft, he told her that it was not in accordance with his original instructions. He said this was the genesis for the insertion of the words “but so that this notice cannot be given during the first three years of the first term”. Mr Grech also gave evidence that when he received the second redraft, he became confused by the use of the words “minimum of” in two places in the termination clause. Mr Grech said that this caused him to ask Ms Eid whether the clause was “in line” with his instructions.[16] According to Mr Grech, Ms Eid told him that the termination clause was in line with his instructions.
[16]T72.25.
Mr Grech gave evidence that after 15 August 2001, he sought a reassurance from Ms Eid that the clause as drafted by her (the second redraft) conformed with his instructions that each term should reach its end. Mr Grech said that Ms Eid provided this reassurance.
The dispute over the substance of what was said in the telephone conversations between Ms Eid and Mr Grech on 15 August 2001 can be resolved by identifying what Ms Eid was initially retained to do. While I will deal with the terms of the retainer below, in their defence, the defendants admit that on or about 14 August 2001 they were retained to review the amendment document and to prepare an amendment to clause 11 as it appeared in the amendment document and to reflect the conditions set out in the Ioltech email of 14 August 2001. While the defendants contend that instructions given subsequently on 15 August 2001 changed the brief to one which required the drafting of a termination clause at the option of either party on a minimum of two years’ notice, on any view, no such instructions were given prior to the provision of the first redraft by Ms Eid. Ms Eid prepared the first redraft after the first telephone conversation on 15 August. There is nothing in Ms Eid’s typewritten file note in relation to the first telephone conversation which is inconsistent with the instructions given by facsimile on 14 August 2001. That is, consistently with Ms Eid’s own file note, her brief after the first telephone conversation and before the second telephone conversation on 15 August was the same as it was on 14 August 2001.
In providing the first redraft of clause 11, Ms Eid misunderstood what she had been requested to do. Properly understood, what was required of Ms Eid was the provision of an amendment that provided for an initial term of five years from regulatory approval and for rolling periods of three years which would occur unless either side gave written notice of two years, which two year period was to be subject to Spectrum performing at least as well as it had in the year preceding the giving of notice.
While I do not accept the detail of Mr Grech’s evidence concerning the specifics of what was said at particular points in time, I accept that at all times he was conveying that he had the concurrence of Ioltech to an amended term of the kind I have described. This is consistent with Mr Grech’s entire approach to the venture that the term of it had to be of sufficient length to justify committing Spectrum to it. In my view, it would have been extraordinary for Mr Grech to have acquiesced without demur in the proposition that Ioltech could give notice that the agreement would be terminated two years after its commencement. At the very least, one would have expected some discussion between Ms Eid and Mr Grech as to what had occurred to change the favourable position as disclosed by the documents faxed on 14 August 2001 to such an unfavourable position. There was, of course, no such discussion.
To the extent that Ms Eid’s file notes of the second and third telephone conversations on 15 August 2001 support the proposition that Mr Grech gave instructions that he had agreed with Ioltech that the agreement would be amended to provide for termination by either party giving the other a minimum of two years’ written notice, in my view, the file notes are a product of Ms Eid’s failure to understand what had been asked of her on 14 August 2001. Put another way, Ms Eid, having thought that her initial brief was to draft the termination clause, then had conversations with Mr Grech whilst in that mindset. While the file notes set out the sequence of events as I have described it, so far as the second and third telephone conversations on 15 August are concerned, they reveal no more than an obvious misunderstanding between Ms Eid and Mr Grech.
The defendants contend that even if I conclude that Ms Eid was wrong in her first draft when she drew a clause that would permit termination of the agreement two years into its first term, I should nevertheless find for the defendants if I accept that Ms Eid and Mr Grech discussed the insertion of the words “but so that this notice cannot be given during the first three years of the first term”. The defendants contend that (whoever originally thought of them) the insertion of these words would have cured any defect in Ms Eid’s first redraft, and therefore any mistake that might have been made by Ms Eid would have been cured. The defendants’ case is that the absence of these words from Ms Eid’s second redraft was as a result of a choice made by Mr Grech. However, the insertion of these words without more would not have completely cured the problem created by Ms Eid’s initial redraft. Inserting these words would only have prevented notice being given in the first three years of the first term. The insertion would not have prevented notice being given in year four or year five of the first term. If the insertion had been made, Ioltech could have given notice at the end of the fourth year; the notice would have had to have been a two year notice and the term would have run on for the fifth year and into the first year of the automatically renewed second period before bringing the agreement to an end at the end of the first year of the second period.
Additionally, the defendants place considerable weight on the typed version of Ms Eid’s file note where she records Mr Grech telephoning her in the afternoon and saying that Ioltech will not agree that they cannot give notice in the first three years. Reliance is also placed upon that part of the typed file note which records Ms Eid as apparently having said to Mr Grech that this means that Ioltech could give notice at any time during the first term. In my view, it is unlikely that a conversation of this kind occurred between Ms Eid and Mr Grech. As at 14 August 2001, Mr Grech had Ioltech’s agreement to amendments which would not permit termination without cause during the first five years of the agreement. If Ioltech’s position changed, then it would have had to have changed at some time between the first and third telephone conversations on 15 August. There is no evidence of any communication between Mr Grech and Ioltech during these hours. Mr Grech denied any such communication. Any such communication would have been unlikely, given the time difference between Mr Grech and those who he was negotiating with in France. If there had been any change of position by Ioltech on 15 August, I would have expected the circumstances of Ioltech’s change of position (and whether Mr Grech could do anything about it) to have been the subject of discussion and that this discussion would have been noted by Ms Eid.
I accept that if Mr Grech conveyed to Ms Eid that Ioltech would not agree to a clause that did not permit them to give notice in the first three years and that he was happy with this, then Spectrum’s claim must fail. The short point is that I do not accept that this is what Mr Grech said to Ms Eid. It runs counter to everything Mr Grech was trying to achieve and counter to the documents that had passed between Mr Grech and Ioltech to that point in time. It was submitted by the defendants that the email communications between Mr Grech and Ioltech showed Mr Grech to be an erratic negotiator, and it was put that he (for his own reasons) may have changed his position on the issue in August 2001. While Mr Grech may have attempted to impose arbitrary and meaningless deadlines on Ioltech and while some of the positions put in his emails may not always have been as measured or rational as they could have been, one thing is clear: Mr Grech was seeking an agreement with a term of sufficient length to justify engaging in the agreement or otherwise the agreement was not one worth entering into. This position did not change on 15 August 2001.
It was submitted by the defendants that Mr Grech was content with Ms Eid’s second redraft because, to put it bluntly, there was something in it for him. It was said that Mr Grech may have been happy with Ms Eid’s second redraft because it permitted him to terminate the agreement, when previously clause 11 had not given Spectrum any rights of termination. Additionally, it was put that Mr Grech might have preferred a clause which (to use the words of Senior Counsel for the defendants) “if he gets to three years, it gets to seven years”.[17] That is, it was contended that the benefit of Ms Eid’s second redraft was that provided no notice was given in the first three years of the contract, then no notice could be given in years four and five (in respect of either the first or second term) so that the agreement would remain on foot in years six and seven. All of this is speculation. There is no evidentiary basis for it. It is an inherently unlikely scenario and I reject it.
[17]T269.30 – 270.11.
Next, it was put that email communications between Mr Grech and Ioltech after 15 August 2001 disclosed that Mr Grech was well aware that the clause drafted by Ms Eid provided for termination at any time within the first three years upon the appropriate written notice. Specifically, I was referred to an email from Ioltech to Mr Grech of 19 September 2001 in which Ioltech asserted: “If you ever want to stop and vice versa, we have two years time to prepare ourselves”. It was suggested that this email showed that Ioltech and Mr Grech were dealing with each other in September 2001[18] on the basis that two years notice could be given at any time. Emphasis was placed on the words “If you ever want to stop”. However, read in context, Ioltech’s email meant no more than if either party ever wanted to stop as permitted by the agreement, then two years notice was required. Ioltech’s communication is not to be read as some sort of acknowledgment that the parties had agreed that notice could be given at any time. Not even Ms Eid’s second redraft (nor the amendment ultimately executed) permitted this course.[19]
[18]Before the amendment of 15 October 2001 was executed.
[19]According to Ms Eid’s second redraft, there had to be a minimum of two years remaining during a term before notice could be exercised – whereas the executed version provided for a one year moratorium.
Finally, it was put on behalf of the defendants that I should reject the plaintiff’s case because if Mr Grech was confused about the effect of Ms Eid’s drafting (and why her draft prevented the agreement from being terminated during the first five years), he would not have executed an altered version of Ms Eid’s second redraft. The amendment as ultimately executed between Spectrum and Ioltech differed from Ms Eid’s second redraft by replacing the expression “two years” where twice occurring with “one year” and by deleting the sentence “However this option is on the condition that Spectrum has performed commercially equal to or better than the previous year of the current term”. It was put that if Mr Grech did not understand how Ms Eid had achieved the protection of the first term by her draft, then he would not have agreed to these alterations without checking with her to ensure that they did not undermine the effect of what Ms Eid had drafted.
I reject this submission. Mr Grech’s evidence was that he did not believe that the deletion of the sentence to which I have referred and the reduction of the two year periods to one year periods could logically have altered the operation of the clause as drafted by Ms Eid. I accept that this was Mr Grech’s state of mind. The deletion of the relevant sentence could never have changed the meaning of clause 11 so far as the issue that is relevant in this proceeding is concerned. Similarly, if the clause had the meaning which Mr Grech says he was led to believe it had (as to protecting the first term), then changing “two years” to “one year” where twice occurring could not have altered the meaning of the term. I do not find Mr Grech’s belief in relation to these matters to be surprising or improbable.
If one looks only at the handwritten file note,[20] there is (as I have said) nothing about the first telephone conversation on 15 August. What is written concerning the second telephone conversation is equivocal (namely, “he is happy with two years notice but wants to protect further terms”). When one comes to the third conversation, there is a degree of ambiguity. Without more, it is difficult to determine what is meant by the statement that notice cannot be given “in the first three years of the current term as first term”. Further, having regard to the written communications from Ioltech then in existence, the important advice said to have been given (as noted in the typed file note) that this meant that Ioltech could give notice at any time during the first term was not recorded in the handwritten file note. Additionally, it is difficult to work out what is meant by the statement “he wants to protect second term” or how the suggested redrafting in fact protected this term.
[20]Exhibit 9.
The typed file note was dictated either at the end of 15 August 2001 (after Ms Eid had concluded her meetings for that day) or on 16 August. I accept that the typed file note records Ms Eid’s recollections of what occurred in respect of the matter on 15 August 2001. At the time it was dictated, Ms Eid had access to her redrafts, the handwritten annotations on the first redraft and the handwritten file note. There is no suggestion that in dictating the file note, Ms Eid was doing other than attempting to accurately set out what had occurred on 15 August. Whether it is a product of misunderstanding what Mr Grech said (as Ms Eid had similarly misunderstood her initial brief) or some miscommunication between Mr Grech and Ms Eid (each of them approaching the issue with their own mindset and belief as to what the underlying facts were) or some other process of miscommunication or misrecording, I am unable to say. It is sufficient to say that I do not accept that Mr Grech instructed Ms Eid on 15 August that Spectrum had agreed to an amendment which included provision for termination of the agreement by either party (Spectrum or Ioltech) giving the other party a minimum of two years prior written notice.[21] At all times on 15 August, Ms Eid’s instructions required her to prepare an amendment in accordance with the amendment document faxed on 14 August 2001 as modified by the email from Ioltech on 14 August 2001 and which was “legally correct”.
[21]Cf paragraph 8A of the defendants’ defence.
The preliminary questions
During the course of the hearing, I raised with counsel the breadth of the preliminary questions to be tried, the appropriateness of utilising the r 47.04 procedure in this case and some difficulties concerning the terms of the questions. While acknowledging there were issues with the questions, both counsel were keen for the trial to proceed as ordered with answers being given to the questions. Notwithstanding some hesitation, I adopted the course suggested by the parties. I turn now to answer the questions.
Question (a): What were the terms, nature and scope of the retainer between the plaintiff and the defendants in or about August 2001?
Question (a) is posed in unnecessarily wide terms. However, the parties agree that it (like the other questions) should be answered in the light of what is in dispute in the pleadings. In paragraph 5 of their defence, the defendants admit being retained on about 14 August 2001 to:
“(a) review proposed amendments to the Ioltech agreement contained in a document titled ‘Amendment’ to ensure they were legally correct; and
(b) prepare an amendment to Article 11 as it appeared in the document titled ‘Amendment’ to reflect the conditions set out in an email from Ioltech to Spectrum date 14 August 2001”.
It follows from what I have said above that the defendants’ admission set out above was correctly made. Consistently with my findings as set out above, the defendants were retained as admitted in paragraph 5 of their defence. However, they were also retained to provide any necessary advice in relation to the review and preparation of the amendment referred to above. So much was admitted by Ms Eid in evidence.[22]
[22]T216.20 – 217.11.
During the hearing, both of the parties filed three page documents setting out their proposed answers to the four preliminary questions. While one could debate the appropriateness or correctness of some of the text, it is sufficient to say (for the reasons given above) that the answer to question (a) is:
“In August 2001 the defendants were retained by Spectrum:
(a) to review proposed amendments to an agreement entered into between Spectrum and Ioltech on 1 October 2000 (‘the Ioltech agreement’) contained in a document entitled ‘Amendment’ to ensure they were legally correct;
(b) to prepare an amendment to clause 11 as it appeared in the document titled ‘Amendment’ to reflect the conditions set out in an email from Ioltech to Spectrum sent at 1.53am on 14 August 2001.
(c) to give any necessary advice in relation to the matters referred to in sub-paragraphs (a) and (b) hereof.”
Question (b): What was the scope of the duty of care owed by the defendants to the plaintiff in or about August 2001?
The plaintiff submits that the answer to this question should be:
“The scope of the duty of care owed by the defendants to the plaintiff was to comply with the plaintiff’s instructions in accordance with the standard of a reasonably competent and diligent solicitor.”
The defendants submit that the answer should be:
“The scope of the … (sic) duty of care owed by the defendants to the plaintiff was to:
(a) exercise due care and skill in carrying out the plaintiff’s instructions to redraft the amendment; and
(b) advise the plaintiff on the effect of the redrafted amendment on the plaintiff’s rights under the Distribution Agreement.”
These suggested answers highlight one of the difficulties with taking the course proposed by the parties. Both suggested answers are answers that could be given to question (b). There was no debate before me concerning the precise text of the answer to this question. In the circumstances, I propose to follow the language of the defendants’ formulation. However, in the end, the formulation of the answer to this question will not be determinative of the ultimate order in this proceeding.
Consistently with what I have said above, the answer to question (b) is:
“The scope of the duty of care owed by the defendants to the plaintiff was:
(a) to exercise due care and skill in carrying out the plaintiff’s instructions to prepare an amendment to clause 11 as it appeared in the document titled ‘Amendment’ to reflect the conditions set out in an email from Ioltech to Spectrum sent at 1.53am on 14 August 2001; and
(b) to advise the plaintiff on the effect of the amendment actually prepared.”
Question (c): Was there a breach of the retainer or of the duty of care by the defendants in or about August 2001?
For the reasons given above, I have concluded that Ms Eid misunderstood Mr Grech’s instructions on 14 and 15 August 2001. It was submitted on behalf of the defendants that not every error of judgment or every mistake constitutes a breach of duty or retainer. This is undoubtedly so.[23] Further, it was submitted that the question of breach was to be informed by the circumstances of the performance of the retainer – and in this case the circumstance that Mr Grech was “in a hurry to get the amendment finalised”.[24] The circumstances of the performance of the retainer are obviously a relevant matter to be looked at when examining the question of breach or no breach. However, the fact that Mr Grech was keen to have the amendment finalised quickly does not provide any answer in this case.
[23]See generally Carew Counsel Pty Ltd v French (2002) 4 VR 172 per Winneke P at paragraph [29].
[24]See paragraph 62 of the outline of closing submissions on behalf of the defendants.
During the course of final submissions, counsel for the defendants placed some reliance upon the letter from Ms Eid to Mr Grech enclosing Ms Eid’s first redraft. The letter provided:
“We refer to our telephone conversation with you this morning and after perusing Article 11 of the amendments to your agreement we suggest that Article 11 should read in the terms enclosed. Please read the document carefully then telephone with your comments.”
In my view, nothing in this letter provides any answer to the plaintiff’s claim. Specifically, if the first redraft constituted a breach of retainer or breach of duty, then this was not cured by asking Mr Grech to read the first redraft carefully and telephone with his comments. So far as it was sought to attack Mr Grech’s credit on the basis that he did not recollect receiving the letter, such attack was not made out. I have preferred Spectrum’s case on the substance of what instructions were given on 15 August because it accords with the documents and what was likely – rather than because of any specific evidence of Mr Grech’s as to what was actually said on 15 August.
Ms Eid fundamentally misunderstood what was required of her when she undertook the first redraft of clause 11. As a result of misunderstanding what was required of her, there was discussion between Ms Eid and Mr Grech concerning issues that would not have been capable of being described as they were in Ms Eid’s file notes had there been no misunderstanding. The first redraft of clause 11 was undertaken in breach of retainer and constituted a departure from the standard of care to be expected of a reasonably competent solicitor: it opened up for potential inclusion in the agreement an issue which had already been successfully negotiated and dealt with by Mr Grech. Having regard to my finding that Mr Grech did not at any time on 15 August 2001 acquiesce in the notion that clause 11 should permit either party to terminate on two years written notice, it follows that Ms Eid’s second redraft was similarly performed in breach of her retainer and the duty of care owed by the defendants to Spectrum.
For the reasons given above, the answer to question (c) is:
“Yes.”
Question (d): If there was a breach of the retainer or of the duty of care by the defendants in or about August 2001, what was the breach of the retainer or of the duty of care?
The plaintiff submits that question (d) should be answered in the following terms:
“The defendants failed to comply with the plaintiff’s instructions in accordance with the standard of a reasonably competent and diligent solicitor in that:
(a) the amendment to the Ioltech agreement drafted by the second defendant did not provide that each term of the Ioltech agreement must run its full course;
(b) the amendment to the Ioltech agreement drafted by the second defendant allowed Ioltech to terminate the agreement immediately it commenced thereby having the result that the first term of the Ioltech agreement did not run its full course; and
(c) the plaintiff did not give any instructions to the defendants that the amendment to the Ioltech agreement was to give Ioltech the right to terminate so that the first term of the agreement did not run its full term.”
Consistently with their submissions that there was no breach of duty or retainer, the defendants submit that it is unnecessary to answer question (d). The defendants did not put an alternative case (or form of words) in the event that they were unsuccessful on the breach of duty/retainer issue.
The effect of complying with Mr Grech’s instructions would have been to produce an amendment drafted by the second defendant which operated so that each term of the agreement (once it commenced) would run its full course (sub-paragraph (a) of the plaintiff’s suggested answer to question (d)). Further, an amendment drawn in accordance with Mr Grech’s instructions would not have permitted Ioltech to terminate the agreement immediately it commenced (sub-paragraph (b) of the plaintiff’s suggested answer to question (d)). For the reasons given above, sub-paragraph (c) of the plaintiff’s suggested answer to question (d) follows. Therefore, I would answer question (d) in the terms proposed by the plaintiff.
Conclusion
For the reasons given above, the answers to the preliminary questions will be as follows:[25]
[25]The preliminary questions are set out in paragraph [6] above.
“(a) In August 2001 the defendants were retained by Spectrum:
(i) to review proposed amendments to an agreement entered into between Spectrum and Ioltech on 1 October 2000 (‘the Ioltech agreement’) contained in a document entitled ‘Amendment’ to ensure they were legally correct;
(ii) to prepare an amendment to clause 11 as it appeared in the document titled ‘Amendment’ to reflect the conditions set out in an email from Ioltech to Spectrum sent at 1.53am on 14 August 2001.
(iii) to give any necessary advice in relation to the matters referred to in sub-paragraphs (i) and (ii) hereof.
(b) The scope of the duty of care owed by the defendants to the plaintiff was:
(i) to exercise due care and skill in carrying out the plaintiff’s instructions to prepare an amendment to clause 11 as it appeared in the document titled ‘Amendment’ to reflect the conditions set out in an email from Ioltech to Spectrum sent at 1.53am on 14 August 2001; and
(ii) to advise the plaintiff on the effect of the amendment actually prepared.
(c) Yes.
(d) The defendants failed to comply with the plaintiff’s instructions in accordance with the standard of a reasonably competent and diligent solicitor in that:
(i) the amendment to the Ioltech agreement drafted by the second defendant did not provide that each term of the Ioltech agreement must run its full course;
(ii) the amendment to the Ioltech agreement drafted by the second defendant allowed Ioltech to terminate the agreement immediately it commenced thereby having the result that the first term of the Ioltech agreement did not run its full course; and
(iii) the plaintiff did not give any instructions to the defendants that the amendment to the Ioltech agreement was to give Ioltech the right to terminate so that the first term of the agreement did not run its full term.”
I will hear counsel on the appropriate form of orders and on the issue of costs.
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