Tasmanian Sandstone Quarries Pty Ltd v Legalcom Pty Ltd [2011] HCATrans 23

[2011] HCATrans 23

[2011] HCATrans 023

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A19 of 2010

B e t w e e n -

TASMANIAN SANDSTONE QUARRIES PTY LTD

Applicant

and

LEGALCOM PTY LTD

Respondent

Application for special leave to appeal

GUMMOW J
CRENNAN J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO ADELAIDE

ON FRIDAY, 11 FEBRUARY 2011, AT 11.51 AM

Copyright in the High Court of Australia

MR D.M.J. BENNETT, QC:   May it please the Court, I appear with my learned friend, MR A.L. TOKLEY, for the applicant.  (instructed by Scales & Partners)

MR M.G. EVANS, QC:   I appear with MR B.J. DOYLE for the respondent.  (instructed by EMA Legal)

MR BENNETT:   Your Honours, the question which the trial judge had to answer was correctly stated by him at page 43 of the application book in paragraph 207.  That specific question was whether the respondent should have advised the applicant to arrange inspection prior to settlement or, alternatively, itself to have arranged an inspection for that purpose.

The underlying principle which one has to use in answering that question can be expressed at a number of different levels of generality.  The broadest – and neither the broadest nor the narrowest would probably involve a special leave point – appears in the two cases referred to by his Honour at pages 44 and 45 – that is, Fox v Everingham and MacIndoe v Parbery.  I will not take your Honours to the details but the passages cited ‑ ‑ ‑

GUMMOW J:   Just a moment.  What do you say about the reference to Justice McLelland in paragraph 209?  That is correct, I would have thought.  Does that not make it difficult then to extract any particular wide‑ranging doctrinal issue?

MR BENNETT:   No, your Honour, because the retainer here was of a very general type.  The retainer found is at paragraph 60 on page 16:

the scope of the retainer changed as the circumstances unfolded and [the respondent] was retained as a legal advisor, to assist Mr Calabrese to achieve his goal of acquiring the quarry -

as legal adviser to assist in his goal - that is, to act for the purchaser.  The intermediate level of generality which we say is the special leave question, although no case has put it this way, but we say it is clearly correct and within the broad principles, is this, that a solicitor acting on the implementation of an agreement should explain any legal consequence of the contract which calls for specific action by a prudent client.  Now, the classic example of that ‑ ‑ ‑

GUMMOW J:   Wait a minute, Mr Bennett.  Does that not depend to a significant degree upon what is the practice of solicitors?

MR BENNETT:   It may be quantified by ‑ ‑ ‑

GUMMOW J:   Do you not need evidence as to their practice?

MR BENNETT:   Your Honour uses the word “depend”.  It may be affected by it, up or down, but the starting point is when a solicitor undertakes the responsibility of acting on the legal aspects of the implementation of a contract, particularly something like a standard contract for sale or purchase, if there is any legal consequence which calls for specific action by a prudent client we submit that included in the general principle is a duty to advise as to that.  One can do it by ‑ ‑ ‑

GUMMOW J:   Just a minute.  What do you say about paragraph 241 on page 51?  The only evidence we have of conveyancing practice was Mr Goldberg’s evidence – and he had been in practice for 28 years, I see, from paragraph 41 – in all his 28 years:

he had never received a report of a threat of damage or destruction to assets in the event that a sale of those assets proceeded.

There are remarkable circumstances, et cetera.

MR BENNETT:   That is a specific matter which may strengthen my case when one puts it at the lowest level of generality.  But at the level of generality we put it at, the duty arose because of a specific legal consequence of the contract, which I will show your Honours in a moment.  The analogy is the normal vendor/purchaser case where clearly a solicitor is negligent if he or she does not advise the purchaser to insure.  The solicitor needs to say the property is at the purchaser’s risk after contract, therefore, you should insure and perhaps even tell the client about Castellain v Preston and the risk of subrogation by the vendor’s fire insurer.

That is a legal consequence of the contract which calls for action by a prudent purchaser.  It does not matter very much whether the solicitor explains that the property is at the purchaser’s risk and that the vendor’s fire insurance will not help, or whether the solicitor says you should insure or whether the solicitor, if authorised to do so, takes out insurance on the purchaser’s behalf.  What matters is that the solicitor does have a responsibility to bring to the attention of the client a problem or to make sure the problem is avoided.

In this case, this is the converse of the usual case where one should advise insurance.  That converse arises because of one of the principal features of this case, which is not referred to by the trial judge or the Full Court, and that is clause 4.2 at application book 157.  Your Honours will see that that clause, perhaps unusually, provides that:

Title to, and risk in, the Assets . . . will pass to the Purchaser on Completion –

and of course, the court did rely on clause 7, which goes with that and says:

The Purchaser acknowledges that:

(a)he has examined or has the opportunity to examining the Assets prior to entering into this Agreement –

and purchase.  Clearly, (b) and (c) are read in the light of (a) and apply to the position at the agreement.  But when that is read with 4.2, if anything had happened to the assets since the purchaser inspected them and prior to completion, it was at least arguable, and probably right, that the purchaser could have avoided completion.

We do know, we have findings, of a number of matters.  The first is if the purchaser had been so advised by its solicitor it would have sought to inspect.  That is application book page 64, paragraph 296.  Your Honours need not go to it.  We know, secondly, that there was a 40 per cent that it would have been allowed to inspect – that is page 66, paragraph 302.  We accept that means damages get discounted by 60 per cent. 

Thirdly, we know it would not have completed.  That is paragraphs 318 to 319 at application book page 69.  So we know that there is a 40 per cent chance – we know he would have sought to inspect.  There is a 40 per cent chance he would have been allowed to.  If he had inspected and discovered it we know that he would not have had to complete because of the clause about risk.  That would have saved him a purchase price of $977,000.  That figure comes from application book page 27.  Your Honours need not go to it.  One gets it by adding some numbers, less the value of what the purchaser got. That was not proved but, being a deduction from damages, it is something which the respondent should have proved.

We submit that the important question which no case puts in this way is this.  If a solicitor is acting on the implementation of an agreement, the solicitor has a duty, we submit, to explain any legal consequences of the contract which call for specific action by a prudent client, such as insurance or such as here, in the unusual situation of this contract, inspection prior to completion.  The trial judge and the Full Court did not ask themselves that question.  While the facts clearly demonstrate a case falling within that principle, it is not applied and the determination is for the defendant.

I do not propose to deal with damages, except to say this, that if we succeed on the appeal, the case should go back for the assessment of damages.  The case seems to have been argued on a number of bases about the way damages should have been assessed and the courts seem to have taken a critical view of aspects of that, but no one seems to have considered the true basis, the true basis simply being the difference between what we paid and what we got, because had we been given the advice by the chain I have taken your Honours to, there was a 40 per cent chance that we would not have completed or had to complete.  So the damages are 40 per cent times $977,000, less the value of what we got.

So this Court will not need to be concerned with the lower court’s obiter in relation to damages.  There is no finding about damages, of course, as a matter of ratio because both courts found for the defendant on liability.  If we succeed, it should simply go back for those matters to be actually determined and they can be determined on the correct principle.

GUMMOW J:   What do you say as to the respondent’s argument at page 177, paragraph 2.1 through to 2.4:

the scope of the retainer was therefore a matter to be considered in the factual assessment of whether the solicitor failed to exercise reasonable care and skill.

MR BENNETT:   The answer to that is, your Honour, that there is, in effect, a finding in the passage I took your Honours to as to the scope of the retainer at page 16.  That is sufficiently general to raise the general question which we raise.

GUMMOW J:   But then the general question is narrowed somewhat, is it not, by 2.4:

The applicant did not submit that reasonable care and skill inevitably requires advice to carry out an inspection; rather it was contended that there were specific “risk factors” –

Then your client seems not to have been accepted as to what he said to the solicitor.

MR BENNETT:   Your Honour, in this Court we put as the principal factor and the main issue in this case – although no one seems to have thought of that below – the effect of clause 4.2.  That, we submit, just totally changes it all round.  The risk factors are factors which strengthen the case for the application of the principle in this particular case.  They, of course, are issues of fact and so on.  But the ultimate issue, we say, is the principle that a solicitor acting on the implementation of an agreement in the absence of some specific exclusion or something similar should explain the legal consequences of the contract which call for specific action by a prudent

client.  That is this case precisely.  We have the chain of causation leading to the 40 per cent of damages for loss of the chance.

Your Honours, in our respectful submission, the importance of the case is that no case seems to put the intermediate level of generality principle in the way I have put it.  In my respectful submission, it is important that it be put that way.  That would cover, as I say, the classic situation about advising the purchaser to insure, as well as, where risk is on the vendor, inspection prior to completion.  For those reasons we submit the special leave to appeal should be granted.

GUMMOW J:   Yes, thank you, Mr Bennett.  We do not need to call on you, Mr Evans.

Having regard to what appears in paragraph 2 of the respondent’s written submissions, we are not satisfied that any question of general principle such as that explained in oral submissions by counsel for the applicant does arise on this application.  Accordingly, special leave is refused with costs.

MR BENNETT:   If your Honour pleases.

AT 12.07 PM THE MATTER WAS CONCLUDED