Talbot & Olivier v Shann
[2005] WASCA 34
•4 MARCH 2005
TALBOT & OLIVIER -v- SHANN & ANOR [2005] WASCA 34
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2005] WASCA 34 | |
| THE FULL COURT (WA) | |||
| Case No: | FUL:146/2003 | 2 NOVEMBER 2004 | |
| Coram: | MURRAY J TEMPLEMAN J ROBERTS-SMITH J | 4/03/05 | |
| 27 | Judgment Part: | 1 of 1 | |
| Result: | Appeal dismissed Cross-appeal allowed | ||
| B | |||
| PDF Version |
| Parties: | TALBOT & OLIVIER IAN DAVID SHANN DEBORAH JANE COWLING |
Catchwords: | Negligence Legal advice to solicitor who sold his property to clients Whether error in finding that solicitor's legal advisers undertook to provide advice and were under duty to provide advice Whether error in finding advice should have included presumption of undue influence and difficulty of rebuttal Cross-appeal on damages Whether error in denying award on basis that amounts paid by person other than plaintiff or that plaintiff did not provide documentary evidence of payment |
Legislation: | Nil |
Case References: | Chappel v Hart (1998) 195 CLR 232 McGuire & Tanzy v Makaronis (1997) 188 CLR 449 Northwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd (1984) 157 CLR 149 Royal Bank of Scotland plc v Ettridge (No 2) [2002] 2 AC 773 Bennett v Minister of Community Welfare (1992) 176 CLR 408 Chapman v Hearse (1961) 106 CLR 112 Craig v Troy (1997) 16 WAR 96 Delta Corporation Limited & Davy [2002] WASCA 125 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 Medlin v SGIC (1995) 182 CLR 1 Pegrum v Fatharly (1996) 14 WAR 92 Purkess v Crittenden (1965) 114 CLR 164 Rosenberg v Percival (2001) 205 CLR 434 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Shire of Brookton v Water Corporation & Ors [2003] WASCA 240 Sykes v Midland Bank Executor and Trustee Co Ltd (1971) 1 QB 113 Tubemakers of Australia v Fernandez (1976) 10 ALR 303 Wakim v McNally (2002) 121 FCR 162 Wood v Apple Introductions (Brisbane) Pty Ltd (in liq) (1990) ANZ ConvR 518 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : TALBOT & OLIVIER -v- SHANN & ANOR [2005] WASCA 34 CORAM : MURRAY J
- TEMPLEMAN J
ROBERTS-SMITH J
- Appellant (Defendant)
AND
IAN DAVID SHANN
First Respondent (First Plaintiff)
DEBORAH JANE COWLING
Second Respondent (Second Plaintiff)
ON APPEAL FROM:
For File No : FUL 146 of 2003
Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA
Coram : DEANE DCJ
Citation : SHANN v TALBOT & OLIVIER
File No : CIV 4074 of 1999
(Page 2)
Catchwords:
Negligence - Legal advice to solicitor who sold his property to clients - Whether error in finding that solicitor's legal advisers undertook to provide advice and were under duty to provide advice - Whether error in finding advice should have included presumption of undue influence and difficulty of rebuttal
Cross-appeal on damages - Whether error in denying award on basis that amounts paid by person other than plaintiff or that plaintiff did not provide documentary evidence of payment
Legislation:
Nil
Result:
Appeal dismissed
Cross-appeal allowed
Category: B
Representation:
Counsel:
Appellant (Defendant) : Mr G R Donaldson
First Respondent (First Plaintiff) : Mr A F Mizen
Second Respondent (Second Plaintiff) : Mr A F Mizen
Solicitors:
Appellant (Defendant) : Freehills
First Respondent (First Plaintiff) : Paiker & Overmeire
Second Respondent (Second Plaintiff) : Paiker & Overmeire
(Page 3)
Case(s) referred to in judgment(s):
Chappel v Hart (1998) 195 CLR 232
McGuire & Tanzy v Makaronis (1997) 188 CLR 449
Northwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd (1984) 157 CLR 149
Royal Bank of Scotland plc v Ettridge (No 2) [2002] 2 AC 773
Case(s) also cited:
Bennett v Minister of Community Welfare (1992) 176 CLR 408
Chapman v Hearse (1961) 106 CLR 112
Craig v Troy (1997) 16 WAR 96
Delta Corporation Limited & Davy [2002] WASCA 125
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
March v E & MH Stramare Pty Ltd (1991) 171 CLR 506
Medlin v SGIC (1995) 182 CLR 1
Pegrum v Fatharly (1996) 14 WAR 92
Purkess v Crittenden (1965) 114 CLR 164
Rosenberg v Percival (2001) 205 CLR 434
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
Shire of Brookton v Water Corporation & Ors [2003] WASCA 240
Sykes v Midland Bank Executor and Trustee Co Ltd (1971) 1 QB 113
Tubemakers of Australia v Fernandez (1976) 10 ALR 303
Wakim v McNally (2002) 121 FCR 162
Wood v Apple Introductions (Brisbane) Pty Ltd (in liq) (1990) ANZ ConvR 518
(Page 4)
1 MURRAY J: I have had the advantage of reading in draft the judgment of Templeman J. I agree with his Honour's reasons and conclusions.
2 In my opinion also the appeal should be dismissed and the cross-appeal allowed. I would vary the award of damages made by the trial Judge by the addition of a further sum of $7268.50, together with interest at the rate of 6 per cent per annum from the date of payment. Interest at that rate was indeed a component of the damages awarded by her Honour the trial Judge.
TEMPLEMAN J:
Introduction
3 The law relating to transactions between solicitors and clients is stated succinctly in Cordery on Solicitors, Section 1, Division F, [88] and [89]:
"The fiduciary nature of the solicitor/client relationship gives rise to a presumption of undue influence in any transaction entered into between the solicitor and his client. For this reason great care should be exercised if a solicitor is to buy property from, or sell property to, one of his own clients.
The presumption of undue influence is rebuttable and to ensure that the transaction will not be set aside the following steps should be taken:
(a) the client should receive independent advice, ie from a separate firm;
(b) a fair price, ascertained by an independent valuation of the property, must be paid;
(c) the client must be aware of all the relevant circumstances; …"
4 Subject to the qualification that the presumption of undue influence arises in any transaction between solicitor and client, may be too wide, I consider that these passages provide both an accurate statement of the law, and sound advice as to its application.
5 The qualification arises from the proposition stated by Lord Scott of Foscote, in Royal Bank of Scotland plc v Ettridge (No 2) [2002] 2 AC 773 at [156], that "the nature of the impugned transaction will always be
(Page 5)
- material". However, that qualification is not relevant in the present appeal.
6 The first respondent, Ian David Shann, is a solicitor. In August 1993, he and his wife, the second respondent, sold their leasehold interest in a property in Indonesia to clients of Mr Shann.
7 In September 1993 the clients alleged against Mr Shann that the transaction was "defective". They raised the presumption of undue influence.
8 In November 1993, Mr Shann sought legal advice for himself and the second respondent from the appellants, the firm of solicitors known as Talbot & Olivier. Mr Shann dealt with a partner in the firm, John Gerard Staude.
9 According to Mr Shann, Mr Staude did not advise him about the presumption of undue influence. Mr Shann, who was not himself aware of the existence of the presumption, did not, therefore, appreciate the weakness of his position as against the clients. Mr Shann claimed that he did not appreciate the position until he was advised by Queen's Counsel in July 1994, shortly after the clients had commenced proceedings in which they sought rescission of the sale transaction, and damages.
10 The respondents settled the clients' action in December 1994. They later commenced proceedings against Talbot & Olivier. They alleged that they had received negligent advice; and they, in turn, claimed damages. (Although the respondents also alleged that Talbot & Olivier were in breach of fiduciary duty, that allegation adds nothing to the claim in negligence. It requires no further consideration.)
11 The action was tried in the District Court. The respondents were successful. They were awarded damages of $39,600.
12 Talbot & Olivier now appeal against that decision. There is a cross-appeal by the respondents. They contend that the award of damages should have been greater.
The sale transaction
13 I take the facts relating to the sale transaction from that part of the trial Judge's reasons in which her Honour summarised Mr Shann's evidence. Although the Judge did not say she accepted Mr Shann's evidence about these matters, it was not contradicted. Only Mr Shann and
(Page 6)
- Mr Staude gave evidence at the trial: and in relation to the sale, Mr Staude knew only what he had been told by Mr Shann.
14 Mr Shann qualified as a solicitor in 1974 in Victoria. However, he did not practise law for some 20 years thereafter. During that period, he was engaged in commercial activities.
15 In January 1992, the respondents took a 20 year lease on a property ("the Property") at Ubud in Bali, Indonesia, with an option to extend the lease for a further 10 years.
16 In May 1992, the respondents left Indonesia for Western Australia where they intended to live. Despite the fact that Mr Shann had not practised previously as a solicitor, he joined the firm of Disspain Hughes in that capacity.
17 As a partner in the firm, Mr Shann dealt with two clients, Lindsay Wiltshire and Helen Rowland, who were apparently in a relationship. Mr Shann advised Mr Wiltshire about establishing a wine sales business in Bali. Mr Wiltshire had been referred to Mr Shann by Ms Rowland's father. At the same time, Mr Shann advised Ms Rowland about a matrimonial matter, albeit on an informal basis, and probably, without charge.
18 In the course of the professional relationship between Mr Shann and Mr Wiltshire, the latter expressed an interest in acquiring the Property: he had seen photographs of it at Mr Shann's office.
19 Ultimately, it was agreed that the respondents would assign the lease to Mr Wiltshire and Ms Rowland for a cash consideration of $US 90,000.
20 It was Mr Shann's evidence that when he discussed with Mr Wiltshire the assignment of the lease, he was not aware that he was acting in any particular capacity. However, Mr Wiltshire asked Mr Shann to prepare the documents necessary to effect the assignment. He agreed to do so, but told Mr Wiltshire it would be a good idea to have another person look at the documents as he was not experienced in property law (AB 25).
21 Despite this recommendation, Mr Wiltshire pressed Mr Shann to undertake the task immediately. Mr Shann therefore prepared an assignment of lease. He prepared also a document entitled "Statement of Circumstances". That document set out the history of the Property so far as the respondents were concerned. It referred to the lease, to the fact that
(Page 7)
- the respondents had paid the rent for a period of 20 years; and that the lease contained an option to extend for a further 10 years.
22 The Statement referred also to the fact that the Property had been sub-leased to the Bali International School for two years from 28 August 1992 until 28 August 1994, but that the respondents had arranged to repurchase the sub-lease so that they could transfer their interests to the purchasers free from that encumbrance.
23 At the time, the Property was occupied by the ex-headmaster of the Bali International School, a Dr Van Kampen. The Statement of Circumstances recited that the respondents would arrange to have Dr Van Kampen vacate the Property within a reasonable time after 28 August 1993 (when the sub-lease would terminate) and that they would seek rent for any occupation of the Property thereafter. The Statement of Circumstances concluded with the following paragraph:
"We have not made any representations to Lindsay Wiltshire that the laws of Indonesia and situation there are immutable and will never change but we have assured him that we have had no difficulty in the arrangements we had with [the freehold owner] nor has it been suggested to us that the arrangement is not legal under the current laws of the Republic." (AB 606-7)
24 In reasons to which I shall refer in more detail below, the trial Judge found that when Mr Shann prepared the Statement of Circumstances, he did not understand the extent of his fiduciary duty to Mr Wiltshire and Ms Rowland. The Judge found that Mr Shann understood it to be necessary to disclose the history of the Property and his dealings with it. However, her Honour held the Statement of Circumstances was not prepared for the purpose of discharging Mr Shann's fiduciary duty to the purchasers. Neither was Mr Shann's advice or recommendation that the purchasers obtain independent legal advice about the transaction. Mr Shann claimed to have offered the advice or made the suggestion out of prudence.
25 The Judge held:
"It appears clear to me on the evidence that at the time Mr Shann did not have a proper understanding and appreciation of what that fiduciary duty was or what it entailed." (AB 53)
(Page 8)
A dispute arises
26 Shortly after settlement, Mr Shann travelled to Bali and removed Dr Van Kampen's goods and servants from the Property. Then on 12 September 1993, Mr Wiltshire and Ms Rowland took possession. However, Dr Van Kampen reappeared and asserted that he had a right to possession. This was denied and he left, having installed two of his servants in the Property, together with those of Mr Wiltshire and Ms Rowland.
27 It was Mr Shann's evidence that he attempted to assist Mr Wiltshire and Ms Rowland to resolve the problems they were experiencing with Dr Van Kampen. On 16 September, Mr Shann wrote to Dr Van Kampen's lawyer in Indonesia and invited him to produce documentary evidence to support his claim to possession of the Property.
28 On 18 September, Mr Shann wrote to Mr Wiltshire setting out the steps he had taken and assuring Mr Wiltshire that Dr Van Kampen had no right to possession of the Property. Mr Shann assured Mr Wiltshire that he was doing all he could to solve the problem arising from Dr Van Kampen's claim.
29 Mr Shann's letter concluded in the following way:
"Quite frankly, I am no (sic now) reluctant to continue trying to beat my head against a brick wall if all I get is abuse from you. The situation is unfortunate and its resolution is very Indonesian. If you want to co-operate in getting van Kampen out of your hair, be patient and it will happen. If you don't want to and simply want to blame everyone else, then there is nothing I can or will do.
In view of your comments on the telephone yesterday I think it is inappropriate that I continue to act on your behalf in the legal matters with [Ms Rowland's father]. It is not proper for me to act as a lawyer for someone who has expressed complete lack of faith in my truthfulness and honesty. Unless you wish us to continue and instruct us in writing to that effect, I will close the files and return all unbilled moneys to you."
30 At the hearing of the appeal, counsel for the appellants submitted that the passage set out above demonstrated that Mr Shann was aware of the conflict between his personal and professional dealings with Mr Wiltshire and Ms Rowland. I do not accept that submission. In my view, the letter
(Page 9)
- was written on the basis that Mr Shann regarded Mr Wiltshire as a dissatisfied client: not as a purchaser with whom he had been in a fiduciary relationship.
The Sly & Weigall letter
31 On 3 November 1993, Sly & Weigall, solicitors acting for Mr Wiltshire and Ms Rowland, wrote to the respondents. The letter noted that the assignment of the lease of the Property had been signed on 26 August 1993, when Mr Wiltshire was a client of Mr Shann. It was said that Mr Wiltshire and Ms Rowland had not received independent legal advice in relation to the transaction.
32 The letter made various allegations about the respondents' failure to perfect the purchasers' title under Indonesian law. This was said to be a breach of the assignment agreement. It was then alleged that the respondents had failed to comply with certain obligations set out in the Statement of Circumstances.
33 The letter continued:
"On our instructions:
(A) You procured the signing of a defective contract by the use of undue influence (which is presumed from the solicitor client relationship which subsisted between Mr Shann and Mr Wiltshire).
(B) You have, in any event, breached that contract.
(C) Mr Shann made misrepresentations or negligently gave wrong or inadequate advice (or both) to our clients and generally failed to take proper steps for the protection of our clients.
You have placed our clients in a remarkably difficult position. Our clients are now obliged to take the steps which you or at least Mr Shann should have taken.
Our clients reserve all rights against you and advise you of their intention to issue proceedings against:
(a) you both; and
(b) Mr Shann and Messrs Disspain Hughes.
(Page 10)
- In particular (but without limitation of their other remedies) our clients reserve the right to rescind the contract and recover the price paid (and damages) if the steps they are to take do not produce a satisfactory outcome."
Mr Shann consults the appellants
34 It is common ground that Mr Shann consulted the appellants on 5 November 1993, when he saw Mr Staude and provided him with a copy of the Sly & Weigall letter. A few days later, Mr Shann prepared a detailed proof of evidence which he gave to Mr Staude.
35 The issues at trial included the instructions given by Mr Shann to Mr Staude, and the advice he gave. I shall refer below to the Judge's finding about these matters.
Further correspondence between the appellants and Sly & Weigall
36 On 18 November 1993, the appellants responded to the Sly & Weigall letter of 3 November. Save in respect of one matter, it is not necessary to refer to the letter in any detail. Essentially, it denied the allegations made in the letter under reply.
37 The matter worthy of mention is the following statement:
"Mr Shann suggested to Mr Wiltshire prior to the assignment of lease being signed that he obtain independent legal advice. We do not know whether or not he did so." (AB 678)
38 There followed some correspondence between Sly & Weigall and the appellants, culminating in a letter dated 15 March 1994 in which Sly & Weigall summarised their clients' position in relation to the assignment of lease. Relevantly for present purposes, the letter contained the following passages:
"Your clients' conduct falls well short of what the law requires of a vendor and very far short of the standard of conduct the law requires of a solicitor to his client.
Mr Shann did not (as you contend) advise our clients to obtain separate legal representation. He did not disclose to our clients the unlawfulness of the original Land Lease Agreement. He did not advise our clients that neither your clients nor our clients were qualified to hold land in Indonesia. On the contrary, Mr Shann expressly advised that the purported Assignment of
(Page 11)
- Lease he drew was lawful and effective under Indonesian law, that no further or other documentation was required and that the only step our clients were obliged to take was to obtain a visa which could be readily obtained when they returned to Indonesia.
This contract is presumed to have been procured as a result of the exertion of undue influence. As well as a presumption of law, it is a fact that undue influence was exerted. Your clients have not justified and cannot justify this transaction. To say the least, the transaction has been greatly disadvantageous to our clients. Our clients have paid over $134,000 as a purchase price, and more since, and have nothing whatever to show of it. They, and their children, have suffered great trauma. Ms Rowland gave birth to a son in January, two months premature, partly or wholly due to the trauma she suffered.
Mr Shann, our clients' solicitor, occupied a fiduciary position to our clients which obliged him, among other things, to avoid conflicts between duty and interest. In this transaction Mr Shann favoured his personal interest over his duty to his clients. Mr Shann in his professional capacity, failed to take reasonable care to protect our clients' interest and is liable on that basis for damages in tort, if not also in contract." (AB 710)
39 All of these allegations were denied in a "without prejudice" letter dated 20 April 1994 from the appellants to Sly & Weigall (AB 730-1).
A writ is issued
40 On 17 July 1994, Mr Wiltshire and Ms Rowland commenced an action in the District Court against the respondents and Disspain Hughes. The writ was endorsed with a claim that the lease assignment of 26 August 1993 should be set aside on the ground that it was deemed to have been procured by the undue influence of Mr Shann upon Mr Wiltshire and Ms Rowland. Further, or in the alternative, that relief was sought on the basis that the transaction had been procured by fraudulent or innocent misrepresentations by Mr Shann and/or Ms Cowling; and further or alternatively, on the basis that Mr Shann had breached his fiduciary duty to Mr Wiltshire and Ms Rowland as their solicitor and agent.
41 Several other claims were made, including claims for damages made on various bases.
(Page 12)
Queen's Counsel is consulted
42 On 28 July 1994, Mr Shann attended with Mr Staude on Michael Buss QC who had recently been briefed to advise. The trial Judge referred to Mr Shann's evidence about the conference. Her Honour said:
" … Mr Shann's recollection was that counsel began by making immediate reference to Law Society of New South Wales v Harvey [1976] 2 NSWLR 154. Mr Buss QC expressed considerable reservations regarding the [respondents'] prospects of success in defending a claim against them and was of the view that given a fiduciary duty existed, unless every salient point was found in the [respondents'] favour it was most unlikely that they could resist the claims of undue influence and breach of fiduciary duty. In view of that, Mr Buss QC advised that the [respondents] do everything possible to regain possession of the property in Bali in order to either re-lease, re-assign or sell it." (Reasons [42])
43 The Judge appears to have accepted Mr Shann's evidence. Later in her reasons her Honour said:
"Mr Staude's own evidence was that Mr Buss QC's advice in July 1994 in fact accorded with the view Mr Staude held as to Mr Shann's position from the outset, although there is no evidence that Mr Staude stated this specifically to Mr Shann until he wrote to him after that conference." (Reasons [124])
Mr Shann obtains a second opinion
44 Mr Shann sought a second opinion from Eric Heenan QC who on 2 September 1994 provided a written memorandum of advice. Mr Heenan was of the same view as Mr Buss in relation to the existence of Mr Shann's fiduciary duty to Mr Wiltshire and Ms Rowland. As the trial Judge said:
"The advice from Mr Heenan QC was essentially that the matter should be settled as expeditiously as possible on the best terms the plaintiffs could obtain …" (Reasons [46])
The action is settled
45 In the light of the advice received from Mr Buss and Mr Heenan, Mr Shann decided to settle the action. The parties entered into a Deed of
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- Compromise and Release on 18 November 1994 which brought the action to an end.
The action against Talbot & Olivier
46 It is not clear when the respondents commenced their action against the appellants. However, their Statement of Claim was not filed until 6 December 1999.
47 The essence of the respondents' claim was that from 5 November 1993 to 28 July 1994, they were advised by the appellants that the allegations made against them by Mr Wiltshire and Ms Rowland were of no substance and that any claim based on those allegations would be unlikely to succeed.
48 The respondents claimed also that the appellants failed to advise them about the existence of the fiduciary relationship between Mr Shann and Mr Wiltshire and Ms Rowland; and the consequent weakness of the respondents' position.
49 In their defence, the appellants alleged that on their instructions from Mr Shann, he knew he owed a fiduciary duty to Mr Wiltshire and Ms Rowland, and had not breached the duty because he had recommended that Mr Wiltshire and Ms Rowland obtain independent legal advice and had made full disclosure of all material circumstances.
The findings made by the trial Judge
50 As I have noted above, Mr Shann and Mr Staude were the only witnesses at the trial. In her reasons for judgment, the trial Judge summarised the evidence given by each of them and then made the following findings of fact (in which the Sly & Weigall letter of 5 November 1993 is referred to as "Exhibit P8"):
"At the first consultation on 5 November 1993 it is clear from the evidence that Mr Shann did wish to obtain legal advice as to his position relevant to the contents of Exhibit P8. It is obvious that Mr Shann appreciated that a reply would have to be sent with respect to the complaints and concerns raised. I accept that on the evidence Mr Shann was attempting to find an effective means of dealing with those matters. I consider it highly likely in general discussions at that first meeting that Mr Shann did advise Mr Staude about his general background in the law and the fact that he had not practised law in the formal sense for a considerable number of years, albeit that at the time he was a
(Page 14)
- partner in family law practice. The general tenor of Mr Shann's evidence relevant to his perception of the contents of Exhibit P8 in my view was that he saw it as raising issues more in a commercial context than in the context of any duties he may have owed Mr Wiltshire and Ms Rowland in the light of his particular relationship with them and the fact that he had entered a commercial transaction with them against that background. This is supported by the fact that he claimed in effect that Mr Wiltshire and Ms Rowland had got what they had paid for and that he conveyed to Mr Staude that he wanted the transaction maintained.
I do not accept that at that first meeting Mr Staude informed Mr Shann to the effect that the allegations or claims made in Exhibit P8 were hollow and of no substance because at that point Mr Staude did not have Mr Shann's proof of evidence and in the absence of material of that nature it is unlikely that a solicitor of Mr Staude's experience would make such a remark or give such advice. Rather I accept that in the circumstances Mr Staude advised Mr Shann, at least in part, that if Mr Shann's instructions generally were correct then his position was defensible."
I consider it to be the case that Mr Shann did not specifically advise Mr Staude that he knew nothing of the existence of the fiduciary duty existing between solicitor and client or any presumptions which flowed from the existence of such a relationship. Taken as a whole, however, both the contents of the statement of circumstances and the detailed proof of evidence provided by Mr Shann to Mr Staude indicate in my view that Mr Shann did not have full and proper appreciation of such matters. For this reason it cannot be concluded that Mr Shann knew and assumed the risk of liability to Mr Wiltshire and Ms Rowland based on an allegation in Exhibit P8. Mr Staude himself in evidence agreed that, for example, par 94A of Mr Shann's proof of evidence suggested it was written by a person who did not understand the true extent of a fiduciary duty owed by him and further Mr Staude acknowledged that there were inconsistencies in the manner in which Mr Shann instructed him as to the advice he had given to Mr Wiltshire and Ms Rowland about the desirability or necessity of obtaining independent legal advice regarding the transaction involving the property in Bali.
(Page 15)
- Relevant to par 56 of Mr Shann's proof of evidence, which refers to the drafting of the statement of circumstances, I accept that he instructed Mr Staude that he prepared the document relevant to a duty to disclose all relevant circumstances but I do not accept that Mr Shann said it was for the purpose of discharging his fiduciary duty. It appears clear to me on the evidence that at the time Mr Shann did not have a proper understanding and appreciation of what that duty was or what it entailed. He clearly understood that it was incumbent on him to disclose matters as to the history of the property and his dealings with it but it did not go further than that as far as I am able to discern on the whole of the evidence." (Reasons [106] - [109])
51 A little later in her reasons the Judge said:
"I accept Mr Staude's evidence that from the outset he advised Mr Shann that in his position as a solicitor, litigation over the matter was to be avoided at all costs for a variety of reasons, but particularly given that it would have a negative impact upon Mr Shann's professional reputation. There is no evidence that Mr Staude prior to July 1994 ever advised Mr Shann that the presumption of undue influence existing as between solicitor and client which is referred to in Exhibit P8 places an extremely heavy burden upon the solicitor to rebut the presumption.
The significance of the conflict as between Mr Shann's evidence and Mr Staude's evidence regarding the advice that was sought and that which was given, must be assessed in the light of Mr Staude's admission that he did not advise Mr Shann of the existence of the fiduciary relationship and the consequent presumption of undue influence which arose as a result and the potential weaknesses of the plaintiffs' position with respect to the allegations contained in Exhibit P8 until July 1994. The presumption, however, is specifically referred to in Exhibit P8 in the context of an alleged solicitor/client relationship said to have existed between Mr Shann and Mr Wiltshire and Ms Rowland.
It is evident in my opinion that Mr Staude undertook to advise Mr Shann regarding the allegations contained in Exhibit P8. The fact that the issue of undue influence was raised or mentioned in that document does not lead to a conclusion that
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- Mr Shann fully understood the concept of a fiduciary duty and the obligations that attend it even in the absence of Mr Shann asking any specific questions as to its meaning. I do not regard the fact that Mr Staude was dealing with a fellow practitioner to found a basis for Mr Staude's conclusion or understanding that whilst it was not discussed it was "taken as read" that Mr Shann was aware of it and what it meant. Although Mr Staude's evidence was he questioned Mr Shann in some detail regarding the allegations in Exhibit P8 there was no specific evidence from him as to what those questions were or, if asked, what answers were given to them." (Reasons [111] - [113])
52 The Judge's ultimate findings on liability are to be found in the following passages:
"In all of the circumstances I consider that Mr Staude was under a duty to provide advice to Mr Shann regarding the implications of the fiduciary relationship which was claimed to have existed between him and Mr Wiltshire and Ms Rowland. One would expect a solicitor in Mr Staude's position at the time to fully investigate whether there was a solicitor/client relationship existing and if the answer was not readily apparent to cause research to be undertaken relevant to the issue. Whether or not Mr Shann specifically asked for such advice to be given is not to the point. Mr Staude's advice to Mr Shann that if his instructions were correct, Mr Shann's position was defensible, failed to take into account the inadequacy of the statement of circumstances and the inconsistencies that existed in the proof of evidence. It was incumbent upon Mr Staude to independently assess the material before him rather than relying solely on Mr Shann's assertions as to the situation. This remained the case in my view notwithstanding that Mr Shann was himself a solicitor and a client who insisted on being actively involved in the management of the matter. Mr Shann's fiduciary obligation to Mr Wiltshire and Ms Rowland existed notwithstanding Mr Shann's claims that he had not acted for them with respect to the assignment of lease transaction.
…
Mr Staude gave evidence that he could not recall as a result of the consultations in November 1993 researching the law relevant to fiduciary duties or the presumption of undue
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- influence, but in my view it is clear on the evidence he did not do so at the time. Mr Shann should have been advised it would be very likely despite his assertions and instructions to the contrary, that he would be found by a court to be in a fiduciary relationship with Mr Wiltshire and Ms Rowland and also that he had obviously engaged in the financial transaction with them in circumstances where there was a strong likelihood the presumption of undue influence would apply and it would be extremely difficult to rebut. Whilst Mr Shann's instructions might be described as somewhat general in nature, Mr Staude owed a positive duty to the plaintiffs as their legal adviser to address the issue of rebutting the presumption of undue influence raised on all of the material provided in conjunction with Mr Shann's instructions: Wakim v McNally [2002] FCAFC 208 (3 July 2002).
Whilst I reject the claim that Mr Staude gave advice to Mr Shann that the allegations in Exhibit P8 regarding undue influence were without substance, on the whole of the evidence I find that in November 1993 and up until July 1994 Mr Staude failed to advise as he should have done, namely that the allegations were of substance as a matter of law or could be found to be so and further that he failed to stress that such allegations would be very difficult to rebut, placing as they did a very heavy onus upon Mr Shann. As a result the plaintiffs embarked upon a course of action whereby they attempted to maintain their position and perfect the contract with Mr Wiltshire and Ms Rowland and to resist the claims made against them." (Reasons [125] – [126])
The grounds of appeal in relation to negligence
53 In their notice of appeal, the appellants contend that the trial Judge erred in fact and in law in holding that:
"(a) Mr Staude undertook to advise Mr Shann regarding the allegations contained in a letter from Sly & Weigall dated 3 November 1993 (Exhibit P8) in November 1993, alternatively at any time before July 1994 when the writ of summons was served (Reasons for Judgment ('J'), par 113).
(b) Mr Staude was under a duty to provide advice to Mr Shann regarding the implications of the fiduciary
(Page 18)
- relationship which was claimed to have existed between him and Mr Wiltshire and Ms Rowland (prior to July 1994) (J par 118);
- (c) Mr Staude in November 1993 should have advised Mr Shann that the presumption of undue influence would apply thus making it difficult to rebut the allegations relevant to it and further that as a matter of law Mr Shann merely advising or, as he later said, suggested to Mr Wiltshire and Ms Rowland that they obtain independent legal advice would be insufficient to rebut the presumption: (J par 124)
(d) Mr Shann should have been advised that it would be very likely, despite his assertions and instructions to the contrary, that he would be found by a court to be in a fiduciary relationship with Mr Wiltshire and Ms Rowland and also that he had obviously engaged in financial transactions with them in circumstances where there was a strong likelihood the presumption of undue influence would apply and that it would be extremely difficult to rebut (in November 1993) (J par 125)
(e) During the period November 1993 to July 1994 Mr Staude failed to advise as he should have done about the import of the allegations of breach of fiduciary duty (J par 126)"
54 In relation to those matters, the appellants contend that the Judge should have held that:
"(a) There was no duty, whether express or implied, upon the appellant to provide to the respondents advice on the strengths of a claim for rescission of contract, until such a claim was made or threatened.
(b) Alternatively to 2(a), if it was part of the express retainer between the appellant and the respondents that such advice was sought, the respondents contributed to the losses by not requesting the advice be provided, when it was not, and the respondents' claim should be reduced accordingly."
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55 Later in their grounds, the appellants contend that until July 1994, there was no demand for rescission, which neither side wanted. No action for rescission had been commenced, and the respondents would not have wanted to incur the losses consequent on rescission (ground 2(f)).
56 Counsel for the appellants opened the appeal by categorising it as "a fact appeal". In my view, he was right to do so. However, I consider that the findings of fact made by the trial Judge were open on the evidence and clearly justified.
57 The Judge was entitled to accept Mr Shann's evidence that he was unaware of the presumption of undue influence which arose in the circumstances of the assignment of lease to his clients. Indeed, his ignorance was demonstrated by the contents of the Statement of Circumstances and his reaction to the advice given by Mr Buss in conference. In a letter dated 19 August 1994 to Mr Staude, Mr Shann wrote:
"I must say that I was considerably taken aback by the fact that this issue seems to be agreed by both you and (Buss QC) and yet this is the first time that it has been raised as a major (probably terminal) weakness in our case. Have we been ambushed or did we simply miss the importance of the fiduciary relationship (and its existence)?" (AB 749)
58 It was submitted by counsel for the appellants at the hearing of the appeal that the worst which could be said from Mr Staude's perspective was that a different emphasis was placed on Mr Shann's position by Mr Buss. I do not accept that submission. It is true that (as the Judge found) Mr Staude advised Mr Shann to avoid litigation "at all costs". This advice was not, however, based on the weakness of Mr Shann's position as a fiduciary, but on the fact that it was undesirable, from a professional standpoint, for a solicitor to be engaged in litigation with a former client.
59 It was not until Mr Buss advised, that Mr Shann's position became clear.
60 In the proof of evidence Mr Shann provided to Mr Staude he denied he had exercised actual undue influence on his clients: and he said he told Mr Wiltshire that "independent advice was available" (AB 971).
61 As Mr Staude admitted in cross-examination, that part of the proof suggested it had been written by a person who did not understand the true extent of the fiduciary duty arising in the present circumstances.
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62 It was therefore particularly important for Mr Staude to clarify Mr Shann's understanding of his position and to advise accordingly.
63 In any event, even if it had been clear that Mr Shann was fully aware of the existence of the fiduciary duty and its implications in relation to the presumption of undue influence, I consider that it would still have been necessary for Mr Staude to advise him in terms which took account of those matters.
64 I do not accept the contention that the Judge should have held that the appellants were under no duty to provide advice about the strength of a claim for rescission until that claim had been made or threatened. Although the Sly & Weigall letter of 3 November 1993 did not actually threaten rescission, the right to rescind was reserved expressly. In my view, a solicitor who is under an obligation to advise in circumstances in which it is said that a transaction has been procured by undue influence cannot exclude the possibility that rescission will be claimed, and should advise accordingly.
65 I do not accept the appellants' contention that the respondents contributed to their loss by not requesting that such advice be provided. Being ignorant of the relevant legal principles, Mr Shann was in no position to request that advice. It is not suggested that Ms Cowling was any better informed.
66 In the course of the hearing of the appeal, it was submitted by counsel for the appellants that because Mr Wiltshire and Ms Rowland were not long-standing clients of Mr Shann and because they were "commercial people" (TS 12) who had been told by Mr Shann to obtain independent advice, the presumption of undue influence could be rebutted.
67 This was not a matter raised in the grounds of appeal, nor was it an issue at the trial. It was alleged in the appellants' defence that on Mr Shann's instructions to them:
"(Mr Shann) was aware that he owed a fiduciary duty to Wiltshire and Rowland, but that he had not breached that duty in as much as he had recommended that they obtain independent legal advice in relation to the contract and had made a full disclosure of material circumstances affecting the contract." (AB 90)
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- However, there was no allegation that there had been a relatively short solicitor/client relationship between Mr Shann and Mr Wiltshire, such that the presumption of undue influence could be rebutted by proving an invitation to obtain legal advice.
68 In any event, the trial Judge found that Mr Wiltshire and Ms Rowland "were never advised by Mr Shann to obtain an independent valuation as they ought to have been, nor did Mr Shann provide them with one" (Reasons [121]).
69 As the Judge had earlier noted in her reasons, the Statement of Circumstances:
"Did not refer to the existence of the solicitor/client relationship, the fairness of the price for the assignment of the lease nor did it stress the necessity as distinct from any advisability of obtaining independent legal advice as to the transaction." (Reasons [114])
70 For all these reasons, I conclude that the Judge's findings on liability should be upheld. It is therefore necessary to consider the appeal in relation to her Honour's assessment of damages.
Damages
71 In assessing the claim made by the respondents for damages, the Judge referred to a number of authorities in which are set out the principles applicable in cases of this kind.
72 Her Honour noted that it was for the respondents to prove on the balance of probabilities that the appellants' negligence had caused each item of damage allegedly suffered by them: Chappel v Hart (1998) 195 CLR 232. This principle applies equally where negligence is alleged on the part of a fiduciary: McGuire & Tanzy v Makaronis (1997) 188 CLR 449 at 468.
73 Her Honour referred also to Northwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd (1984) 157 CLR 149 where a claim for loss based on negligent advice was unsuccessful because the claimant did not prove that had it been advised properly, it would have taken steps to ensure that no loss ensued.
74 Applying those principles, the Judge held the appellants to be liable for the following losses:
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- (1) $25,000; being legal costs paid to Sly & Weigall pursuant to the Deed of Compromise and Release of 18 November 1994
(2) $244.75, being stamp duty on the Deed (in fact, the amount is one-half of the duty)
(3) $500; being part of the fee paid by Mr Shann and Ms Cowling to Mr Heenan QC in respect of his fee for advice.
75 I deal with each matter in turn.
Sly & Weigall Legal Fees
76 It was provided by cl 1 of the Deed of Compromise and Release that the respondents were to pay Mr Wiltshire and Ms Rowland the sum of $160,000. This included the sum of $25,000 payable by bank cheque to Sly & Weigall. There was no direct evidence that the sum of $25,000 was in fact Sly & Weigall's costs. Further, by cl 4 of the Deed of Compromise and Release, each party was to pay its own costs and disbursements in relation to the District Court action and "in connection with the negotiation, preparation and execution of this Deed" (AB 800).
77 Despite this lack of evidence, the Judge said of the sum of $25,000 that "it comprises the legal costs of Sly & Weigall" (Reasons [139]).
78 In my view, the inference that the $25,000 did represent legal fees was well open. I do not accept the submission made by counsel for the appellant that the inference is equally open that the amount of $25,000 reflected the difference in value in Australian dollars of US$90,000 between August 1993 and November 1994, the purchase price for the assignment being payable in US dollars.
79 Nor do I regard it as significant that the letter of demand made by Sly & Weigall in 1994 did not include a demand for the payment of legal fees incurred by Mr Wiltshire and Ms Rowland to Sly & Weigall.
80 The Judge awarded Sly & Weigall's costs to be paid by way of damages on the basis that:
"Whilst there is no direct evidence that Mr Wiltshire and Ms Rowland would have agreed in November 1993 to a termination of the agreement, I consider that there is evidence upon which one can readily draw the inference that at about that time they would have reacted very favourably to such an offer
(Page 23)
- and in all probability would have agreed to settling the matter. They were in residence for a very short time after September 1993 before Ms Rowland left the property followed shortly thereafter by Mr Wiltshire and in effect they abandoned the premises and displayed little or no interest in returning there. I consider it highly likely that if they had been able to negotiate a settlement at that point in time they would have done so.
The [respondents] claim the legal costs they had to pay Sly & Weigall but nothing in relation to the amount of money they paid Mr Wiltshire and Ms Rowland by way of settlement. It is also the case that the [respondents] agreed to pay Mr Wiltshire and Ms Rowland an extra AUS$10,000 by way of damages because the [respondents] required time to pay, given they did not have the full amount of cash available immediately to meet the settlement claim. As I understand the evidence, Mr Shann said that he accepted their counter offer to settle in the sum of AUS$160,000 and AUS$25,000 of that was to go to Sly & Weigall by way of legal costs. The additional AUS$10,000 is not claimed as far as I can discern in relation to the legal costs of AUS$25,000 but rather relates to the counter offer which the [respondents] eventually agreed to accept. For this reason I do not see that the [appellant] is asked to take responsibility for the AUS$10,000, as submitted by counsel for the [appellant].
I have little hesitation in concluding that had the matter settled in about November 1993 the [respondents] would have in all probability been required to meet the legal costs of Sly & Weigall in any event. These costs, however, would in my view have been modest in the sense that it would appear Mr Wiltshire and Ms Rowland had consulted Sly & Weigall only a short time before the letter was written on their behalf and there is no suggestion that a large amount of legal work had been done on their behalf up to that point. The situation, however, some 12 months later in November 1994 was somewhat different, in that during the intervening 12 months one can draw the inference that a considerable amount of legal work had been done on behalf of Mr Wiltshire and Ms Rowland, including letters written to the defendant and telephone consultations between the solicitor at Sly & Weigall who was handling the matter and Mr Staude. In these circumstances I consider that causation has been established and I would allow this item." (Reasons [140] - [142])
(Page 24)
81 In my view, the Judge was justified in drawing the inference that if Mr Shann had been advised about the weakness of his position in November 1993, the respondents would have compromised with the same degree of alacrity that they demonstrated in November 1994. It is true that Mr Shann then delayed in order to obtain a second opinion. However, if he had received from Mr Staude in November 1993 the advice he received from Mr Buss in July 1994, he would not have required a second opinion.
82 The appellants contend that Sly & Weigall's legal costs were increased by their engaging in correspondence with the appellants in order to obtain disclosure of various documents relating to the history of the Property while in the ownership of the respondents. It is pointed out on behalf of the appellants that Mr Shann instructed them to adopt a somewhat intransigent attitude, thereby resulting in Sly & Weigall writing more letters than they would otherwise have done.
83 While this is true, Mr Shann was placed in the position in which he found himself because of the advice received from the appellants.
84 I do not accept that it is inconsistent with the terms of the Deed of Compromise and Release to regard the amount of $25,000 payable to Sly & Weigall as their costs. Indeed, I regard the payment – which was expressed by cl 1(1) of the Deed to be a payment to Mr Wiltshire and Ms Rowland – to be consistent with the terms of the Deed.
85 I therefore conclude that the Judge was justified in awarding the sum of $25,000 by way of damages in the way and on the basis she did.
Stamp duty on the Deed
86 The Judge said only of the claim for stamp duty that she considered it to be "proved and payable by the (appellants)" (Reasons [143]).
87 The appellants point to Mr Shann's evidence in which he said it was fair to say that if the matter had settled in November 1993 the terms of any settlement would have been incorporated in a written document (AB 407). That being so, the appellants contend, stamp duty would have been payable in any event.
88 That is so: but stamp duty is payable ad valorem, and the value of any settlement reached in November 1993 would have been some $25,000 less than it was a year later because Sly & Weigall's fees would have been lower. However, the amount of stamp duty payable on a hypothetical
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- Deed of Compromise and Release in November 1993 is likely to have been more than the sum of $244.75 claimed by the respondents, that amount being only one-half of the stamp duty on the Deed of November 1994.
89 In these circumstances, I would not disturb the Judge's award of stamp duty.
Mr Heenan's fees
90 The Judge allowed an amount of $500 towards Mr Heenan's fees on the basis that the respondents were able to prove that they had paid only that amount from their own resources. Her Honour said:
"In my view, taking into account the matters for which Mr Heenan QC was consulted and in relation to which he provided advice it is evident that they did flow from what occurred as a result of the advice originally given by Mr Staude to the (respondents) and followed by Mr Shann." (Reasons [149])
91 The appellants contend that if Mr Shann had received the advice in November 1993 which he received from Mr Buss in July 1994, it is likely he would have sought a second opinion in any event.
92 I do not accept that submission. Mr Shann's evidence was:
"In November 1993, if Mr Staude had advised me, 'Look, you haven't got a leg to stand on because this presumption of undue influence will damn you,' I would immediately have sought to settle the matter. It would not have been in my best interests to do anything else …" (AB 364)
93 In my view, it was reasonable for Mr Shann to seek a second opinion from Mr Heenan given the divergence in the advice given by Mr Staude and Mr Buss. Mr Shann was placed in that position because of the negligence of Mr Staude. In my view, therefore, the Judge was right to award damages under this head.
94 For these reasons I conclude that the appeal should be dismissed.
The cross-appeal
95 The respondents made a substantial claim for additional damages by way of cross-appeal. However, at the hearing of the cross-appeal, the
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- claim was limited to an amount of $7,268.50 being made up of the following three amounts:
(1) $3218.50 paid to the appellants on 21 September 1994;
(2) the sum of $850 paid to Mr Buss on 21 September 1994; and
(3) the sum of $3200 paid to Mr Heenan of which $2500 was paid in September 1994 and $700 in 1996.
97 The Judge apparently rejected the claims which are now the subject of the cross-appeal on the basis that the moneys in question (other than the $700 paid to Mr Heenan) had not been paid by the respondents personally, but paid on their behalf by the trustee of their family trust, Third Wave Pty Ltd ("Third Wave").
98 Mr Shann's evidence was that he and Ms Cowling were the sole directors and shareholders of Third Wave, which did nothing other than act as trustee for their family trust and derived its funds only from the respondents.
99 In my view, it matters not whether the relevant expenses were paid by Third Wave or any other person. Because the payments were made in respect of liabilities incurred by the respondents, they were properly the subject of an award of damages.
100 The amount of $700 paid to Mr Heenan is in a different category. That element of the claim was rejected by the Judge, apparently on the basis that Mr Shann could not provide any documentary evidence to prove the payment.
101 However, again, there is no doubt that the expense was incurred by Mr Shann: and there was no reason for her Honour not to accept his evidence that he had made the payment.
102 I therefore conclude that with all respect to the learned Judge, her Honour erred in disallowing the claims for damages now pursued by the cross-appeal. I would therefore allow the cross-appeal and award a further amount of $7268.50 by way of damages with interest thereon to be paid at 6 per cent per annum from the date on which the relevant amounts were paid.
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103 ROBERTS-SMITH J: I have read the reasons to be published by Templeman J. I agree with those reasons and have nothing to add.
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