TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd

[2014] NSWCA 255

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Hudson Investment Group Limited v Atanaskovic [2014] NSWCA 255

Hearing dates:

28, 29 April 2014

Decision date:

05 August 2014

Before:

Beazley P at [1];
Ward JA at [2];
Sackville AJA at [3]

Decision:

1. Appeal dismissed.

2. The appellant to pay the respondents' costs of the appeal.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:

TORTS - negligence - causation - client claimed damages for losses attributable to allegedly negligent drafting of a deed - negligence said to consist of a failure to draft key provisions so as to create a clear and unambiguous entitlement to receive payment of $9.5 million - the damages said to be the difference between $9.5 million and a lesser sum received by the client forced to compromise its claim by reason of the ambiguity in the deed - whether the alleged breach of duty caused the claimed loss - significance of the client failing to utilise other provisions in the deed to protect its interests - whether appropriate that the scope of the solicitors' liability should extend to the claimed loss

TORTS - negligence - whether drafting of ambiguous provisions in a deed breached the solicitors' duty of care - whether it is necessary to take account of the drafting of the entire document

Legislation Cited:

Civil Liability Act 2002 (NSW) ss 5A, 5B, 5D, 5E
Professional Standards Act 1994 (NSW)

Cases Cited:

Adeels Palace Pty Ltd v Moubarak [2009] HCA 48; 239 CLR 420
Australian Hardboards Ltd v Hudson Investment Group Ltd [2006] NSWCA 146
Donnellan v Woodland [2012] NSWCA 433
Equuscorp Pty Ltd v Glengallen Investments Pty Ltd [2004] HCA 55; 218 CLR 471
Henville v Walker [2001] HCA 52; 206 CLR 459
Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1
Hudson Investment Group Ltd v Atanaskovic [2013] NSWSC 64
Hudson Investment Group Ltd v Australian Hardboards Ltd [2005] NSWSC 931
Hudson Investment Group Ltd v Australian Hardboards Ltd [2006] HCATrans 617
Hudson Investment Group Pty Ltd v Australian Hardboards Ltd [2005] NSWSC 716
Hudson Investment Group v Australian Hardboards Ltd [2006] NSWSC 840
M'Kew v Holland & Hannen & Cubitts (Scotland) Ltd [1970] SC (HL) 20
Manzi v Smith [1975] HCA 35; 132 CLR 671
March v E. & M.H. Stramare Pty Limited [1991] HCA 12; 171 CLR 506
Paul v Cooke [2013] NSWCA 311
Re York Street Mezzanine Pty Ltd (in liq) [2007] FCA 922; 162 FCR 358
Roe v Minister for Health [1954] 2 QB 66
Strong v Woolworths Ltd [2012] HCA 5; 246 CLR 182
Trust Co of Australia v Perpetual Trustees WA Ltd (1987) 42 NSWLR 237
Wallace v Kam [2013] HCA 19; 87 ALJR 648

Category:

Principal judgment

Parties:

Hudson Investment Group Limited (Appellant)
John Ljubomir Atanaskovic (First Respondent)
Diana Angela Chang (Second Respondent)
Daniel Lee Farrugia (Third Respondent)
Anthony Geoffrey Hartnell (Fourth Respondent)
John Edward Mannix (Fifth Respondent)
Mark Stephen Pistilli (Sixth Respondent)
Daniel David Simmons (Seventh Respondent)

Representation:

Counsel:
N C Hutley SC / N E Furlan (Appellant)
D F Jackson QC / D F C Thomas (Respondents)

Solicitors:
Baker & McKenzie (Appellant)
Moray & Agnew Lawyers (Respondents)

File Number(s):

2013/58777

Publication restriction:

None

 Decision under appeal 

Jurisdiction:

9111

Date of Decision:

2013-02-11 00:00:00

Before:

Simpson J

File Number(s):

2007/265085

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant instructed the respondent solicitors to prepare a Deed that entitled the appellant to be paid the first $10 million of the proceeds of sale of the whole or any part of a large parcel of land owned by a company related to the appellant (Hardboards). Hardboards, which was a party to the Deed, was entitled to deduct a deposit of $3.5 million payable by it to the appellant on the signing of the Deed.

Hardboards subsequently separately disposed of two lots, comprising part of the land, for a total of $9.5 million. Hardboards, by then no longer controlled by the appellant, did not account for any of the proceeds. Hardboards claimed that on the proper construction of the Deed, it was required to account to the appellant only if it disposed of the whole of the land in one transaction.

The appellant later brought proceedings against Hardboards to recover the amount said to be due under the Deed. The appellant and Hardboards compromised the proceedings.

The appellant then commenced proceedings against the solicitors, alleging that they had been negligent in drafting the Deed because it did not clearly and unambiguously embody the appellant's instructions. The appellant sought damages, being the difference between the sum received by it on settlement of the claim against Hardboards and the amount it would have received had the Deed been drafted clearly and unambiguously.

The Court held:

1. If the Deed had been drafted clearly and unambiguously, it was likely that the appellant would have succeeded in claiming the proceeds of Hardboards' partial disposals of the land. Therefore, on the assumption that the solicitors breached their duty of care, the appellant satisfied the test for factual causation under the Civil Liability Act 2005 (NSW) s 5D(1)(a): [103]-[104], [120]-[121].

Adeels Palace Pty Ltd v Moubarak [2009] HCA 48; 239 CLR 420; Strong v Woolworths Ltd [2012] HCA 5; 246 CLR 182; applied.

2. The appellant failed to avail itself of a number of protections conferred by the Deed that, on the balance of probabilities, would have enabled it to avert the loss it claims to have suffered. In these circumstances, there was no basis for imposing liability on the solicitors for any negligence in drafting the Deed ambiguously. Thus the appellant had not demonstrated, as required by s 5D(1)(b) of the Civil Liability Act, that it was appropriate that the solicitors' liability should extend to the loss claimed by the appellant: [105]-[106], [122]-[129].

Wallace v Kam [2013] HCA 19; 87 ALJR 648; Paul v Cooke [2013] NSWCA 311; March v E. & M.H. Stramare Pty Ltd [1991] HCA 12; 171 CLR 506; Roe v Minister for Health [1954] 2 QB 66; applied.

Henville v Walker [2001] HCA 52; 206 CLR 459; M'Kew v Holland & Hannen & Cubitts (Scotland) Ltd [1970] SC (HL) 20; considered.

3. Obiter dicta The solicitors were only obliged to exercise reasonable care in giving effect to the appellant's instructions when drafting the Deed. They were not bound to draft the Deed in a manner that eliminated all ambiguity and uncertainty. Moreover, in determining whether the solicitors failed to exercise reasonable care, the protections accorded to the appellant by the Deed as a whole had to be considered. Viewed in that light, the solicitors did not breach the duty of care they owed to the appellant: [131]-[142].

Donnellan v Woodland [2012] NSWCA 433; Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1; Trust Co of Australia v Perpetual Trustees WALtd (1987) 42 NSWLR 237; considered.

(Sackville AJA and Ward JA agreeing, Beazley P not deciding)

Judgment

1. BEAZLEY P: I have had the advantage of reading in draft the reasons of Sackville AJA. I agree with his Honour's reasons and proposed orders, including his preferred position not to express an opinion on the question whether a solicitor will breach the duty of care to a client by reason of drafting provisions in a contract or deed that are ambiguous. As his Honour has observed, at [132], that, potentially, is a question of importance which is unnecessary to determine in this case, given the conclusion that the appellant has failed to establish that it was appropriate for the respondent's liability (assuming breach of duty) to extend to the harm caused by the negligence: see the Civil Liability Act 2002, s 5D(1)(b). For my part, I would prefer not to express an opinion as to whether the respondent had breached its duty of care, apart from commenting that, for the reasons given by Sackville AJA and for the additional reason that it was not alleged that the Entitlement Deed did not accord with the appellant's instructions, the appellant's claim may well have failed on that point.

1. WARD JA: I have had the advantage of reading in draft Sackville AJA's comprehensive reasons with which I agree. The appeal should be dismissed with costs.

1. SACKVILLE AJA: The appellant (Hudson) appeals against a judgment given by a Judge of the Supreme Court (Simpson J) on 11 February 2013: Hudson Investment Group Ltd v Atanaskovic [2013] NSWSC 64. Hudson claimed damages for breach of contract and professional negligence against the respondents, its former solicitors (Solicitors). Her Honour rejected Hudson's claim and entered a verdict for the Solicitors.

1. Hudson's claim for damages arises out of what is said to have been a breach of duty by the Solicitors in drafting an "Entitlement Deed", which was executed on 8 June 2001. The parties to the Entitlement Deed were Hudson and Australian Hardboards Ltd (Hardboards). At the time, Hardboards was a wholly owned subsidiary of Hudson, but the ownership structure subsequently changed.

1. Hudson's case is unusual. It says that the Solicitors were instructed to draft a deed between it and Hardboards that provided for Hudson to be paid the first $10 million of the proceeds of sale of the whole or parts of a large parcel of land in Queensland, comprising some 322 hectares, owned by Hardboards (Land). Hudson does not allege that the Entitlement Deed, on its proper construction, necessarily failed to give effect to the instructions communicated to the Solicitors. Rather it contends that the Solicitors drafted the Entitlement Deed in language which created a large degree of uncertainty as to whether the Deed provided for the first $10 million of the proceeds of disposal to be paid to Hudson, should Hardboards dispose of parts of the Land rather than as a single parcel.

1. Hudson commenced proceedings against Hardboards in May 2004, by which time Hardboards had ceased to be a wholly owned subsidiary of Hudson. After some contested litigation on other issues, Hudson filed Points of Claim in the proceedings on 6 October 2006 claiming that it was entitled under the Entitlement Deed to payment of $9.5 million, being the total amounts received by Hardboards in respect of disposal of parts of the Land. The Points of Claim accepted that the Entitlement Deed provided for the payment of a Deposit by Hardboards of $3.5 million, which was to be deducted (if paid) from the amounts received by Hardboards. However, the Points of Claim asserted that the Deposit of $3.5 million had not been paid. Hudson sought an order that there be an inquiry as to whether the Deposit had been paid under the Entitlement Deed. Hardboards defended the proceedings on the ground, among others, that the Entitlement Deed, on its proper construction, did not oblige Hardboards to pay any portion of the $9.5 million claimed because the Land had not been disposed of as a single parcel, but had been the subject of separate sales and transfers of particular lots comprising part of the Land.

1. Hudson argues that because of the uncertainty created by the Solicitors' negligent drafting of the Entitlement Deed, it was forced to compromise its claim against Hardboards for $6.1 million. Subject to a complication relating to the payment of a deposit, Hudson says that the difference between $9.5 million (plus interest) and the sum of $6.1 million received under the compromise represents the loss it sustained by reason of the Solicitors' breach of duty.

1. Hudson contends that the primary Judge erred in a number of respects. Its principal contentions are that her Honour should have found that:

• Hudson instructed the Solicitors that the Entitlement Deed was to provide for the first $10 million of the proceeds of disposal of the Land, whether disposed of as a whole or in parts, to be payable to Hudson (Ground 1);

• the Solicitors breached their contractual and tortious duties of care by drafting the Entitlement Deed in language that gave rise to a large degree of uncertainty as to whether it made provision for the first $10 million of the proceeds of disposal of the Land (whether in whole or in parts) was to be payable by Hardboards (Ground 2);

• the negligent drafting of the Entitlement Deed caused Hudson to suffer a loss (Ground 4); and

• the compromise reached with Hardboards was reasonable and took into account Hudson's disputed claim for a deposit of $3.5 million that should have been paid by Hardboards but was not (Grounds 5-8).

1. The Solicitors have filed a notice of contention seeking to uphold the primary Judge's decision on the grounds that:

• the Solicitors in drafting the Entitlement Deed did not act negligently or in breach of their contractual duties because the Deed was not unclear or ambiguous and, in any event, even if the Entitlement Deed was ambiguous, the Solicitors were neither negligent nor in breach of their contractual duties (Ground 1); and

• the primary Judge should have found that Hudson had suffered no compensable loss because (among other reasons) it had failed to take steps available to it under the Entitlement Deed that would have prevented the partial dispositions taking place, thereby avoiding the necessity to compromise Hudson's claim against Hardboards (Ground 2).

Background Facts

1. Prior to June 2001, Hudson was a company listed on the Australian Stock Exchange. Hudson held all the shares in Hardboards. Hudson was also a majority shareholder in Hudson Timber & Hardware Ltd (Timber). Mr McLeod was the Chairman and Managing Director of Hudson.

1. Hardboards was the registered proprietor of the Land, comprising 322 hectares in Bundamba, Queensland. The Land consisted of 15 separate lots (or parts of lots), one of which was used for Hardboard's manufacturing activities. Hardboards proposed to develop the Land into an industrial and business park.

1. On 27 November 2000, Hudson and Hardboards entered into the "Bundamba Project Heads of Agreement" (Heads of Agreement). The other parties were AH Group Ltd, another wholly owned subsidiary of Hudson, and Wingate Properties Pty Ltd (Wingate). The Heads of Agreement provided for Wingate to undertake a study to consider the options open to develop the Land owned by Hardboards and to maximise its value. "The Land" the subject of the Heads of Agreement was described in Schedule A by reference to 12 separate lots and three parts of lots (the latter being in the process of being subdivided), but excluded the lot used for Hardboard's activities. The parties estimated the value of the Land, excluding the existing operations, to be $10 million.

1. At some time prior to 8 May 2001, Hudson agreed to sell its shareholding in Hardboards to Timber. By a letter of that date Mr McLeod instructed Mr Simmons, a partner in the firm of Solicitors, to prepare a "simple Purchase and Sale Agreement". Mr Simmons had regularly performed work for the Hudson group of companies. Two employed solicitors, Mr Kyriak and Mr Restas, worked on these matters under Mr Simmons' supervision and direction.

1. Mr McLeod's initial instructions to the Solicitors contemplated that the Share Sale Agreement would provide for the first $10 million of profit from the sale of the Land to be paid to Hudson. Under Mr Simmons' supervision, Mr Kyriak prepared a draft "Share Purchase Agreement" and a draft "Entitlement Deed" (First Draft ED). Mr Kyriak forwarded the draft Entitlement Deed to Mr McLeod on 30 May 2001, pointing out that Mr Simmons had not had a chance to review it.

1. The First Draft ED departed from Mr McLeod's initial instructions. It recited that Hardboards had agreed to pay Hudson $10 million out of the proceeds it received from "any Disposal of the Land." The First Draft ED included the following provisions:

"3. PAYMENT TERMS

(a) Subject to clause 3(b), Hardboards shall make payment of the Consideration Amount to Hudson, in cash by bank cheque and without set off or deduction, within five business days of Hardboards receiving any Benefit from any Disposal of the Land (or any part thereof).

(b) To the extent that any Benefit received by Hardboards from any Disposal of the Land is less than the Consideration Amount, Hardboards shall pay the full amount of that Benefit to Hudson and the Consideration Amount shall be reduced accordingly. Hardboards shall remain obliged under clause 3(a) until the full amount of the Consideration Amount has been received by Hudson." (Emphasis in original.)

1. The "Consideration Amount" was defined to mean $10 million. "Disposal" was defined to mean:

"to part with legal or beneficial title to the Land or possession of the Land (or any part thereof) or any interest in the Land (or any part thereof) ..."

The First Draft ED also provided that Hardboards was to grant Hudson a first ranking registered mortgage "of all of the Land in security of Hardboards' obligations under this Deed".

1. In the meantime, on 28 May 2001, Mr Simmons transferred responsibility for the matter from Mr Kyriak to Mr Restas. In a conversation with Mr McLeod on 31 May 2001, Mr Restas confirmed that Mr McLeod's instructions were given only on behalf of Hudson and recommended that Timber should obtain independent advice. Mr McLeod declined to take the recommended course on the ground that Timber had an independent director who could review the documentation on its behalf. Thereafter Mr Restas regarded his role in the transaction as acting on behalf of Hudson and not on behalf of either Timber or Hardboards.

1. After a series of discussions with Mr McLeod, Mr Restas formed the view that it would be "simpler and neater" to have only one deed, rather than a separate Share Purchase Agreement and Entitlement Deed. Mr Restas proceeded to incorporate in a revised draft Share Purchase Agreement terms requiring Hardboards to pay moneys to Hudson "if the ultimate control over, or ultimate beneficial ownership in, [Hardboards] and/or the Land changes in any way". It appears that this draft was sent to Mr McLeod on 6 June 2001. Some of the language in this draft found its way into the Entitlement Deed subsequently executed by the parties.

1. On 7 June 2001, Mr Restas was told by Mr McLeod that he preferred to have two separate documents, rather than a single consolidated document. Mr Restas then prepared a revised draft Entitlement Deed (Second Draft ED) which incorporated a number of provisions from the revised draft Share Purchase Agreement. Mr Restas sent the Second Draft ED to Mr McLeod at 2.07 pm on 7 June 2001 under cover of an email. I shall refer to that email later.

1. On the same day, Mr McLeod told Mr Restas that Hardboards had paid the Deposit of $3.5 million. There was a dispute before the primary Judge as to whether the Deposit was ever paid, but there is no dispute that Mr Restas believed what Mr McLeod told him.

1. On 7 June 2001, Mr Restas wrote to solicitors in Queensland stating that Hudson had instructed the Solicitors that the contingent liability created by the Entitlement Deed was to be secured by a mortgage over the Land. Mr Restas requested the Queensland solicitors to prepare the mortgage.

1. On 8 June 2001 at 2.40 pm Mr Restas forwarded the final versions of the Entitlement Deed and Share Purchase Agreement to Mr McLeod. The email noted that the Entitlement Deed had been amended to provide that the mortgage would be in a form required by Hudson as Mr Restas had only been able to instruct the Queensland solicitors the previous day.

1. The Entitlement Deed was executed on 8 June 2001. It contained the following provisions:

"RECITALS

A ...

B ...

C Hudson proposes to sell all of the issued shares in the capital [of] Hardboards to [Timber] ... and, in connection with that sale, Hudson wishes to ensure that it retains the ability to participate in, and have the benefit of, some of the potential future benefits associated with the development and Disposal of the Land in accordance with the Heads of Agreement.

D ...

OPERATIVE PROVISIONS

1. DEFINITIONS

'Deposit' means $3,500,000;

'Disposal' has the meaning as defined in Clause 4;

'Land' has the same meaning as that term is defined in the Heads of Agreement;

'Mortgage' means the mortgage in the form required by Hudson;

'Sunset Date' means fifth anniversary of the date of this deed [8 June 2006].

2. DEPOSIT

(a) On signing this deed, Hardboards must pay the Deposit to Hudson.

(b) Hudson must:

(i) invest the Deposit until the earlier of the Disposal Date and Sunset Date in an interest bearing account with [the ANZ];

(ii) withdraw the Deposit and accrued interest on the required date and pay it to the party entitled to the Deposit under Clause 2(d).

(c) Interest on the Deposit is payable to the party entitled to the Deposit under Clause 2(d).

(d) (i) subject to paragraph (ii), Hudson is always entitled to the Deposit.

(ii) Hardboards is entitled to the Deposit if:

(A) this deed is terminated in accordance with Clause 3(e); and

(B) a Disposal does not occur prior to the Sunset Date and Hardboards has complied with its obligations under Clause 6(a).

...

4. PAYMENT

The parties agree that if the ultimate control over, or ultimate beneficial ownership in, the Land changes in any way (a 'Disposal') on or before the Sunset Date, Hardboards must, on the date of the Disposal, pay to Hudson the lesser of the following amounts:

(a) $10,000,000 less the Deposit; and

(b) the value of the aggregate consideration received by Hardboards in relation to the Disposal less the Deposit.

5. DISPOSAL UNDERTAKING

Hardboards agrees that it will not undertake a Disposal:

(a) which does not involve Hardboards ceasing to have all control over, or all of its beneficial ownership in, the Land; and

(b) unless it is on arms length terms and the consideration to be received is cash payable as at the date of the Disposal.

6. BEST ENDEAVOURS

(a) Hardboards shall use its best endeavours to develop and Dispose of the Land before the Sunset Date on the best possible commercial terms.

(b) Hardboards shall not do anything, suffer, or permit anyone else to do anything which may have the effect of diminishing the value of the Land.

7. NOTICE

Hardboards shall give Hudson prompt notice of Hardboards entering into any agreement or arrangement in respect of, or in any way dealing with the Land, which notice shall include a copy of any such agreement or arrangement.

8. SECURITY

Hardboards shall grant Hudson the Mortgage as and when required by Hudson."

1. Clause 5 of the Entitlement Deed was in substantially the same terms as cl 6.4 of the revised draft Share Purchase Agreement. Clauses 4, 5, 6 and 7 of the Entitlement Deed were identical to cll 3, 4, 5 and 6 (respectively) of the Second Draft ED which was sent by Mr Restas to Mr McLeod on 7 June 2001. The covering email sent by Mr Restas with the Second Draft ED gave the following explanation of the relevant provisions (the numbering refers to the Second Draft ED):

"In summary:

● Clause 2 deals with the 'Deposit' - Hardboards will only be entitled to it if it does not sell the 'Land' by the 'Sunset Date' and it has used all endeavours to develop and sell the 'Land';

● Clause 3 deals with the requirement to pay the balance of the $10 million in the event of a 'Disposal';

● Clause 4 effectively requires [Hardboards] to obtain HIG's consent in relation to part disposals, disposals that are not on arms length terms and disposals that are not for cash; and

● Clause 5 retains the concept of placing an obligation on Hardboards to develop and dispose of the 'Land' on the best possible commercial terms.

Please provide me with your comments (if any) at your earliest convenience."

Mr McLeod made no comments on the Second Draft ED.

1. It should be noted that cl 8 of the Entitlement Deed was different from earlier versions of the clause. Previously, the drafts required Hardboards to grant the Mortgage "at the date of this Deed". The change was apparently due to the difficulty in arranging the execution of a Mortgage of the Queensland Land in time.

1. On the same day as the Entitlement Deed was executed, 8 June 2001, Hudson and Timber executed the Share Purchase Agreement. The Agreement provided that, subject to the satisfaction of certain conditions precedent, Hudson would sell all its shares in Hardboards to Timber. The purchase price was $25 million, payable in cash, shares and options.

1. On 19 June 2001, Mr Restas was informed by the Queensland solicitors that $40,000 in stamp duty would be payable on the mortgage. The next day Mr McLeod instructed Mr Restas not to proceed with the mortgage because of the amount of stamp duty that would have to be paid. Mr Restas then wrote to the Queensland solicitors informing them that Hudson no longer required a mortgage to be prepared.

1. On 30 June 2001, Mr Choy, then the General Manager (Finance and Operations) of Hudson, was instructed to raise journal entries in Hudson's electronic ledger account. One of the electronic ledgers recorded transactions between Hudson and Hardboards and the changes in the amount (if any) due by each to the other. Mr Choy, in accordance with his instructions, made an entry in Hardboards' loan account in the Hudson ledger which had the effect of reducing Hudson's indebtedness to Hardboards by $3.5 million. The narrative for this entry was "000085 G/J Prepayment AH'S". A corresponding entry was made in Hardboards' accounts. No cash payment was made by Hardboards to Hudson.

1. On 31 May 2002, Mr Choy, on the instructions of Mr Knox (a consultant who acted as the Chief Financial Officer of the Hudson Group), reversed the journal entries made on 30 June 2001. On their face, these entries cancelled or reversed the $3.5 million reduction in Hudson's indebtedness to Hardboards. The effect was to increase Hudson's indebtedness to Hardboards by $3.5 million. No consideration was recorded for the entries.

1. On 14 January 2003, Hardboards transferred one lot (Lot 4), comprising a portion of the Land, to AH Bremer Park Pty Ltd (AH Bremer), a wholly owned subsidiary of Hardboards. The consideration was expressed to be "[t]o facilitate reorganisation of assets as between group companies".

1. Hudson's 2002 Annual Report, which was apparently prepared in early April 2003, recorded that discussions were under way for an industrial company to acquire about 19 hectares of the Land. The statement in the Annual Report makes it clear that Hudson, whether or not it formally consented to what became known as the "Capral Transfer", was aware of it before the event.

1. On 2 May 2003, AH Bremer transferred Lot 4 to Bremer Business Park Pty Ltd, a company apparently not associated with Hardboards, Timber or AH Bremer. The consideration stated in the transfer was $2,200,051.50. However, the primary Judge proceeded on the basis of evidence given by Mr Meers (a non-executive director of Hudson appointed in November 2003) that AH Bremer received approximately $2 million, exclusive of GST, from Bremer Business Park Pty Ltd as the consideration for the transfer. This transfer was referred to by the primary Judge as the Capral Transfer. No point has been taken in these proceedings that the Capral Transfer was made by AH Bremer rather than Hardboards itself.

1. In May and June 2003, the Hudson group underwent a major restructure. In consequence, Hudson's shareholding in Timber was reduced from a majority interest to a minority interest. Hardboards continued to be wholly owned by Timber. From that point Hudson's interests and those of Hardboards did not necessarily converge.

1. On 21 May 2004, Hudson commenced proceedings in the Commercial List of the Equity Division of the Supreme Court. I shall make further reference to these proceedings later.

1. Between 13 December 2004 and 14 November 2005 Hudson received separate advices from counsel and senior counsel that there were difficulties in construing the Entitlement Deed, particularly in relation to whether Hudson was entitled to any payment in the event of a partial disposal of the Land by Hardboards. Senior counsel advised that the formula in cl 4 of the Entitlement Deed was "flawed".

1. On 4 August 2005, Hardboards entered into a contract to sell approximately 53 hectares of the Land (Lot 2) to Seahampton Pty Ltd. It appears that this transaction (Seahampton Transfer) was completed the same day or shortly thereafter and the purchase price of $7.5 million paid to Hardboards. None of the proceeds of the Seahampton Transfer was paid to Hudson.

The Litigation

Proceedings Between Hudson and Hardboards

1. In its Commercial List Summons filed on 21 May 2004, Hudson named as defendants Hardboards, Timber, AH Bremer, Mr McLeod and Mr Holland (another director of Hudson). It sought declarations that two deeds that purported to amend the Entitlement Deed (Amending Deeds) were void on the ground that Mr McLeod did not have authority to enter into them on Hudson's behalf. Hudson also sought orders that the Entitlement Deed be specifically performed and that Hardboards (through AH Bremer) execute and deliver a mortgage in favour of Hudson to secure the sum of $10 million in accordance with the Entitlement Deed.

1. The Summons was heard by Einstein J in July 2005. As the primary Judge in the present proceedings noted (at [28]) no issue concerning the construction of cll 4 and 5 of the Entitlement Deed was litigated. His Honour gave judgment on 12 August 2005: Hudson Investment Group Pty Ltd v Australian Hardboards Ltd [2005] NSWSC 716. After a further hearing, his Honour made the declarations sought by Hudson and ordered specific performance of the Entitlement Deed: Hudson Investment Group Ltd v Australian Hardboards Ltd [2005] NSWSC 931. In addition, Einstein J ordered that Hardboards:

"forthwith to the extent not yet paid, pay to [Hudson] the $3,500,000 deposit in accordance with the Entitlement Deed".

1. Hardboards appealed to the Court of Appeal and Hudson filed a cross-appeal on an issue not relevant to the present appeal. The Court of Appeal in substance dismissed both the appeal and the cross-appeal: Australian Hardboards Ltd v Hudson Investment Group Ltd [2006] NSWCA 146. However, the Court of Appeal varied one of the orders made by Einstein J so as to require Hardboards to execute and deliver a mortgage in such form as the parties might agree or, in default of agreement, as settled by an Associate Justice. An application by Hudson for special leave to appeal to the High Court from the decision of the Court of Appeal was dismissed: Hudson Investment Group Ltd v Australian Hardboards Ltd [2006] HCATrans 617.

1. On 15 June 2006, shortly after the Court of Appeal delivered judgment, Hudson's solicitors (not the respondents to the present appeal) wrote a letter of demand to Hardboards' solicitors. The letter alleged that Hardboards had disposed of parts of the Land for an aggregate consideration in excess of $10 million, but had paid nothing pursuant to its obligations under cl 4 of the Entitlement Deed. The letter demanded payment of $10 million or, if Hardboards complied with a separate demand to pay the Deposit, $6.5 million.

1. Hardboards' solicitors responded the next day disputing that the reversal of the journal entries of 30 June 2001 had reinstated Hardboards' obligation to pay the Deposit. That obligation had been discharged by the journal entries. The letter also disagreed with Hudson's assertion that the transfers, either together or alone, constituted a "Disposal" within the meaning of cl 4 of the Entitlement Deed. Accordingly, Hardboards denied any liability to Hudson.

1. On 19 July 2006, Hudson filed a notice of motion in the proceedings seeking an order that Hardboards pay $10 million or, in the alternative, $3.5 million. This motion was ultimately dismissed on 21 August 2006: Hudson Investment Group v Australian Hardboards Ltd [2006] NSWSC 840. On the same date, a separate summons filed by Hardboards seeking a declaration that it owed no moneys under the Entitlement Deed was stayed. On 1 September 2006, Hudson filed an amended notice of motion in the proceedings. Among the orders sought by Hudson were the following:

"2. An order that [Hardboards] pay [Hudson] the sum of $6,500,000.

3. In the alternative to Order 2, an order that [Hardboards] pay [Hudson] the value of the aggregate consideration received by [Hardboards] in relation to the Disposal (as defined in the Entitlement Deed) less the sum of $3,500,000.

4. An order that ... there be an inquiry into and a determination of whether the Deposit (as defined in the Entitlement Deed), or any part of the Deposit, was paid by [Hardboards] to [Hudson] in accordance with the Entitlement Deed."

1. Hudson filed Points of Claim in the proceedings on 6 October 2006. Hudson pleaded that:

• Hardboards had not paid the Deposit under the Entitlement Deed;

• the Capral and Seahampton Transfers were "Disposals" within the meaning of cl 4 of the Entitlement Deed; and

• by reason of the Disposals, Hudson became entitled to a payment of $9.5 million less the Deposit from Hardboards pursuant to cl 4(b) of the Entitlement Deed.

1. In its Amended Points of Defence, Hardboards pleaded, among other things, that a "Disposal" under the Entitlement Deed meant "disposal of the whole of the Land." The particulars of the defence included that cll 4, 5 and 6 of the Entitlement Deed had to be construed together so as to give effect to the objective intentions of the parties.

1. Hardboards also filed a cross-claim seeking return of the Deposit under cl 2(d)(ii)(B) of the Entitlement Deed (relating to the Sunset Date).

1. On 8 June 2007, Hudson and Hardboards executed a "Settlement and Release Deed" (Settlement Deed). Clause 2.1 provided as follows:

"Hardboards must pay $6.1 million to Hudson pursuant to clause 4 of the Entitlement Deed ... on the execution of this deed ..."

The parties consented to the making of orders disposing of the proceedings by dismissing Hudson's claims for relief and Hardboards' cross-claim.

The Current Proceedings

1. Hudson commenced proceedings against the Solicitors by filing a statement of claim on 6 June 2007, two days before the Settlement Deed was executed. Hudson's case was ultimately pleaded in the Further Amended Statement of Claim (FASOC) filed on 15 December 2010.

1. The key allegations in the FASOC were as follows:

"12. [Hudson] instructed [the Solicitors] that the Entitlement Deed should provide that in the event the ultimate control over, or ultimate beneficial ownership in, the Land or any part or parts of it, changed in any way on or before the 5th anniversary of the date of the Entitlement Deed, Hardboards must pay to [Hudson] the first $10 million of the proceeds received by Hardboards in relation to the disposal of the Land or any part or parts of it, less any deposit that had been paid ('the Entitlement Instruction').

...

15. The Entitlement Deed did not clearly and unambiguously embody the Entitlement Instruction.

...

30. In the circumstances set out in paragraph ... 15 [the Solicitors] acted negligently and breached [their] duty of care.

Particulars of Negligence

(i) [The Solicitors] did not:

(A) use reasonable skill, care and diligence in executing their instructions and drafting the documentation;

(B) give careful, accurate and competent advice and representation in relation to the terms and entry of the Entitlement Deed; and

(C) ensure that the Entitlement Deed entered into clearly and unambiguously embodied the instructions and intentions of [Hudson];

(ii) [The Solicitors] drafted clauses 4 and 5 of the Entitlement Deed in terms that were ambiguous;

...

32. By reason of the negligence of [the Solicitors], [Hudson] has suffered loss and damage.

Particulars

(b) [Hudson's] recovery of payment from Hardboards under the Entitlement Deed has been delayed.

(c) [Hudson] has lost the benefit of a carefully drafted Entitlement Deed ... and has recovered less than $9.5 million and interest in respect of the Capral Disposal and the Seahampton Disposal."

Primary Judgment

1. The primary Judge observed (at [5]) that the claim primarily involved two clauses in the Entitlement Deed which the Solicitors had conceded were contradictory. (On the appeal, Mr Jackson QC, who appeared with Mr Thomas for the Solicitors, did not accept that counsel then appearing had made any such concession).

1. Her Honour recorded (at [44]) that Hudson had submitted:

"(i) that [the Solicitors] were instructed that the first $10 million of the proceeds of any sale (whether of the whole or of any part) of the land was to be paid by Hardboards to Hudson. (The salient part of this contention is that the instructions contemplated and envisaged, whether explicitly or implicitly, that the land might be sold in stages, or in separate parcels);

(ii) that, in including in the Entitlement Deed (in clause 5) an express prohibition on partial sales of the land, [the Solicitors] acted contrary to that instruction;

(iii) that, by reason of the inclusion of clause 5 in the Entitlement Deed:

'there is only one certain circumstance in which Hudson is entitled under the deed to enjoy the right to be paid the first $10 million of the proceeds of the land, relevantly, a change in the ultimate beneficial ownership of the whole of the land ...' (bold added);

(iv) that, when Hardboards disposed of parts of the land (in contravention of clause 5) uncertainty arose as to:

(a) the entitlement of Hudson to be paid under clause 4;

(b) the measure of any damages for breach of clause 5;

(v) that, as a consequence of what it characterises as negligent drafting of the Entitlement Deed by Mr Restas, Hudson became engaged in protracted and expensive litigation.

...

(vi) that the damage suffered by Hudson is to be quantified at $6,867,712.33 (including interest to 9 January 2012)."

1. The primary Judge noted (at [45]) that Hudson had not made a separate claim for payment of the Deposit of $3.5 million, but contended that that sum should be a component of any damages awarded. However, her Honour considered it unnecessary to determine whether the Deposit had been paid (at [47]). Hudson had conceded that the failure to pay was not connected with the negligence or breach of contract alleged against the Solicitors. Since damages could be awarded only for losses consequent upon a breach of duty, this part of Hudson's claim had to fail.

1. Her Honour was not prepared to find that Hudson had given instructions to the Solicitors in the terms pleaded by it (at [51]). Mr McLeod had not given evidence and the documentation did not establish that the Solicitors were instructed to prepare the deed in terms that recognised the possibility of part disposals of the Land. Nonetheless, her Honour accepted (at [52]) that certainly Hudson and probably Mr Restas envisaged that the Land would be disposed of otherwise than by the sale of the whole 322 hectares.

1. The primary Judge said (at [53]-[54]) that, except for one important piece of evidence, it may have been that cl 5 was negligently drafted in contravention of the "implied instruction and common understanding". The important evidence was Mr Restas' email of 7 June 2001 (see at [24] above), which had drawn Mr McLeod's attention to cl 5 of the Entitlement Deed and the reasons for including it. Her Honour inferred that:

"Mr McLeod read and understood Mr Restas' email and, even if tacitly, but in accordance with past practice, accepted the advice Mr Restas gave and the resulting clause. In other words, even if an instruction had been given in the terms pleaded ... that instruction was overtaken by later events. Mr McLeod's instruction to proceed with two separate documented agreements, contrary to Mr Restas' advice, clearly establishes that he was actively involved in the process."

1. In any event, her Honour considered (at [55]) that the inserting of cl 5 was not causative of any loss or damage to Hudson:

"The clause was not an issue in any of the litigation involving the parties. It has nothing to do with the failure of Hardboards to make payments to Hudson in accordance with clause 4 following the Capral and Seahampton transfers, nor the failure (if it be the case) of Hardboards to give notice to Hudson of the proposed transfers. Any adverse consequences to Hudson have arisen out of non-compliance with the terms of the Entitlement Deed."

1. The primary Judge found (at [57]) that Hudson was entitled to $6 million ($9.5 million, less the Deposit of $3.5 million), but it had received $6.1 million. It was true that Hudson experienced a delay in receiving its money, but this was not attributable to any aspect of the drafting of the Entitlement Deed:

"58. ... It is attributable, it seems, to default on the part of Hardboards in honouring its obligation under the Entitlement Deed. It may be attributable to Hudson's failure to protect its own interests in enforcing the provisions of the Deed. In part at least, that may depend on what notice Hudson had of the transfers.

59. It was contended that any failure on Hudson's part to take steps to enforce its rights under the Entitlement Deed could, in turn, be attributed to the clumsiness of the drafting, and the consequent uncertainty as to the meaning of either clause 4 or clause 5, and that this was the cause of the litigation. However, as can be seen from the account of the litigation ...none of it was directed to the construction of either of those clauses. ... In any event, the suggestion is purely speculative. There is no evidence that Hudson withheld attempting to enforce its rights under the Entitlement Deed to any such uncertainty.

60. I do not accept that Hudson has sustained any loss at all; it has recovered the money to which it was entitled under the Entitlement Deed in respect of the proceeds of sale. True it was, there was some delay in its receiving those funds, but, as I have said, that was not because of the manner in which the Entitlement Deed was drafted. If it is correct that Hudson has not been paid the deposit of $3.5 million, that is entirely attributable to its own failure to ensure that it was paid. It has nothing to do with the drafting of the Entitlement Deed. So much was conceded."

Submissions

Hudson's Submissions

1. Mr Hutley SC, who appeared with Mr Furlan for Hudson, summarised Hudson's case as follows:

• a central purpose of the Entitlement Deed, on Hudson's instructions, was to confer on Hudson a right to receive up to $10 million upon the happening of specific events, including partial disposals of the Land;

• the Solicitors appreciated that the Land would be disposed of by the sale of parts rather than the whole;

• Hudson instructed the Solicitors that the payment obligations should be triggered by partial sales of the Land;

• the Solicitors breached their duty by drafting the Entitlement Deed so that there was a very large degree of uncertainty as to whether it actually conferred on Hudson a right to payment on partial sales;

• it was reasonably foreseeable that a dispute would arise as to Hudson's entitlement by reason of the uncertainty; and

• Hudson reasonably compromised its claim against Hardboards, thus incurring a loss due to the Solicitors' breach of duty.

Ground 1

1. Mr Hutley submitted that the primary Judge erred in failing to find that Hudson had given instructions to the Solicitors in the terms pleaded in the FASOC. Mr Hutley contended that Mr Restas' own evidence made it clear that he had in fact received such instructions. He understood that he was to draft the Entitlement Deed so that Hudson would receive the first $10 million from disposal of the Land, including part disposals, with Hudson to be paid the amount received from each part disposal until it received an aggregate sum of $10 million.

Ground 2

1. Mr Hutley submitted that the Solicitors breached their contractual and tortious duty of care to Hudson by drafting the Entitlement Deed in language that gave rise to uncertainty as to whether the Deed made provision for the first $10 million of the proceeds of disposal of the Land (whether in whole or in parts) to be payable to Hudson. The uncertainty was created by:

• the ambiguous language of cl 4 of the Entitlement Deed, in particular the ambiguity as to whether it applied to a partial disposal of the Land; and

• the great difficulty in reconciling the prohibition on partial disposals of the Land in cl 5 with the contention that cl 4 applied to partial disposals of the Land.

1. Mr Hutley acknowledged that senior counsel appearing for Hudson at the trial had accepted that the better view of cl 4, if it stood alone, was that it applied to partial disposals and thus would trigger payment obligations. However, senior counsel had made it clear that cl 4 itself was not free from doubt and that when the Entitlement Deed was read as a whole, as it had to be, the meaning was uncertain. This contention was supported by the opinions given by other counsel to Hudson, all of which commented on the infelicitous drafting of the Entitlement Deed and some of which expressed the view that Hudson was not entitled to any portion of the $10 million on a partial disposal of the Land.

1. Mr Hutley stated in oral argument that it was not a necessary part of his case that the Entitlement Deed, on its true construction, did not apply to partial disposals of the Land and he did not invite the Court to decide that this was the correct construction. He accepted that not every ambiguity in a document drafted by solicitors will give rise to a claim in negligence by the client. If, however, solicitors draft an agreement that is attended by such doubt as to whether it achieves its intended objective that it is reasonable for the client to settle disputed litigation, a claim can arise.

1. The way Mr Hutley put Hudson's submission is consistent with Hudson's pleading. Having alleged the "Entitlement Instruction" Hudson pleaded that:

"The Entitlement Deed did not clearly and unambiguously embody the Entitlement Instruction."

This failure was alleged to constitute a breach by the Solicitors of their duty to use reasonable skill, care and diligence in its discharge of its retainer by Hudson.

Ground 3

1. Hudson challenged the primary Judge's finding (at [54]) that Hudson's instructions concerning partial disposals were effectively overtaken by Mr Restas' email of 7 June 2001 and Mr McLeod's acceptance of the contents of that email. Mr Hutley submitted that the email did not alert Mr McLeod to the uncertainty created by the drafting of the Entitlement Deed. In particular, the email did not explain that cl 5 might preclude Hudson from claiming any of the $10 million in the event of a partial disposal of the Land.

Ground 4

1. Hudson challenged the primary Judge's finding (at [55]) that the inclusion of cl 5 in the Entitlement Deed was not causative of any loss or damage to Hudson. Mr Hutley submitted that it was the negligent drafting of the Entitlement Deed (not merely cl 5) that created a foreseeable opportunity for Hardboards to deny Hudson's entitlement to the proceeds (totalling $9.5 million) from the Capral and Seahampton transfers. Hardboards had resisted Hudson's claim to be paid the proceeds on the ground that the Entitlement Deed, properly construed, created no such entitlement. It could readily be inferred that if the Entitlement Deed had not been drafted so as to create uncertainty, Hardboards would have had no credible basis to resist Hudson's claim and could not have done so.

1. In this respect, the primary Judge incorrectly found (at [59]-[60]) that any delay in Hudson receiving moneys from Hardboards was not due to the drafting of the Entitlement Deed because none of the litigation was directed to the construction of cll 4 or 5 of the Deed. This finding overlooked Hudson's pleaded case in support of its claim, which expressly relied on cl 4 of the Entitlement Deed, and Hardboard's defence, which squarely raised cl 5 as supportive of its construction of cl 4.

1. Mr Hutley also contended that her Honour should have specifically found that the compromise reached by Hudson, whereby it accepted $6.1 million in satisfaction of its claim, was reasonable and that therefore there was no breach in the chain of causation and damage. Hudson had advice that the settlement was reasonable having regard to the uncertainty concerning the construction of the Entitlement Deed.

Grounds 5-8

1. Mr Hutley made it clear that Hudson was not contending that the Solicitors were responsible for the non-payment of the Deposit (if indeed it had not been paid), since Mr McLeod had told Mr Restas on 7 June 2001 that Hardboards had paid the Deposit of $3.5 million. Nonetheless, Mr Hutley submitted that the primary Judge erred in failing to find that Hardboards had not paid the Deposit. Had such a finding been made, so he argued, it would have undercut the primary Judge's assumption that Hudson had received a settlement of $6.1 million in respect of a claim which, in substance, was only for $6 million (being $9.5 million said to be due under the Entitlement Deed, less the Deposit of $3.5 million). In truth, Hudson's claim was for $9.5 million, plus interest. By settling for $6.1 million, it had effectively lost $3.4 million plus the value of its claim for interest.

1. Mr Hutley submitted that cl 2 of the Entitlement Deed, on its proper construction, required Hardboards to pay the Deposit in cash. So much followed from the requirement in cl 2(b)(i) for Hudson to invest the Deposit. The journal entries made on 30 June 2001 could not satisfy the requirement that Hardboards pay the Deposit in cash. In any event, there was evidence that auditors reviewing Hudson's accounts had advised Hudson that the journal entries of 31 May 2002 appear to have reversed or nullified the earlier entries and thus the Deposit had not been paid by Hardboards. There was expert accounting evidence to similar effect.

1. Mr Hutley next submitted that it did not ultimately matter whether the Deposit had been paid. Mr Meers, who negotiated the compromise on Hudson's behalf, received advice from Hudson's auditors that the Deposit had not been paid by reason of the reversal of the journal entries in Hudson's ledger that had taken place on 31 May 2002. Mr Meers had approached the negotiations on the basis that Hudson's claim included the unpaid Deposit of $3.5 million. The issue had not been mentioned by Hardboards in the course of negotiations, but it could readily be inferred that the ultimate settlement sum reflected, among other claims, Hudson's claim that Hardboards remained liable under the Settlement Deed to pay the Deposit. That inference was supported by the fact that Hudson's Points of Claim in the proceedings against Hardboards included a claim for payment of the Deposit.

Ground 9

1. Hudson submitted that if its claim against the Solicitors succeeded, the damages award should take account of the fact that the Settlement Deed included a compromise of Hudson's claim against Hardboards for interest on payments due under cl 4 of the Entitlement Deed. The claim for interest was said to amount to $2,020,150.00 at the date the Settlement Deed was entered into, calculated as follows:

• interest on the sum of $2 million due in respect of the Capral Transfer from 16 May 2003 to 8 June 2007 ($741,041.10); and

• interest on the sum of $7.5 million due in respect of the Seahampton Transfer from 4 August 2005 until 8 June 2007 ($1,279,109.59).

1. Hudson recognised that if, contrary to its submissions, Hardboards had paid the Deposit, the interest calculation would be different. Hudson's written submission calculated the interest claim incorporated in the Settlement Deed in those circumstances at $1,023,288.00.

1. Hudson submitted that the fact that the claim for interest was incorporated in the Settlement Deed demonstrated that her Honour erred in finding that the negotiated settlement of $6.1 million fully compensated Hudson for its claimed loss ($9.5 million less the Deposit of $3.5 million). Even if the Deposit had been paid, so Hudson argued, it had still suffered a loss.

Damages

1. In written submissions provided after the hearing, Hudson quantified its loss at $5,420,150.00 as at 8 June 2007 (the date of the Settlement Deed), plus such interest as would accrue thereafter until judgment. This sum assumed that the Deposit had not been paid and represented $3.4 million (the difference between $9.5 million and the settlement proceeds of $6.1 million), plus interest of $2,020,150.00. Hudson accepted that the maximum amount it could recover against the Solicitors was $4.5 million, because of the limits on liability imposed by the Solicitors Scheme approved under the Professional Standards Act 1994 (NSW).

1. If the Court found that the Deposit had been paid, Hudson's primary position was that its damages amount to $923,288, plus interest after 8 June 2007. That figure was calculated as follows:

Capral sale	$2.0 million
Seahampton sale	$7.5 million
Interest Capral, Seahampton, August 2005 - 8 June 2007 on $6,000,000 (674 days)	$1,023,288
$10,523,288
Less
Deposit	$3.5 million
Settlement recovery	$6.1 million
$9,600,000
Loss at 8 June 2007	$923,288

1. Hudson's submissions recognised that, assuming the Deposit to have been paid, there were other ways in which its damages might be calculated. These depended on matters of fact that were not the subject of findings made by the primary Judge, such as the proportion of the settlement sum that should be attributed to Hudson's claim against Hardboards for the Deposit.

The Solicitors' Submissions

Breach of Duty

1. The Solicitors emphasised that Hudson has never asserted that the Entitlement Deed, as drafted, did not reflect Hudson's instructions. Hudson had maintained against Hardboards that the Entitlement Deed entitled it to recover up to $10 million in respect of partial disposals of the Land. Hudson did not plead, as against the Solicitors, that the Entitlement Deed, on its proper construction, did not confer such an entitlement.

1. Mr Jackson submitted that a solicitor who drafts a clause in an agreement that is ambiguous does not act negligently. Solicitors do not warrant the correctness of their advice; they are obliged only to exercise reasonable care in carrying out their duties. Thus a solicitor who is instructed to draft a document is not negligent merely because a court concludes that, objectively construed, it bears a different construction than the one intended.

1. Moreover, so Mr Jackson argued, it is almost inevitable that a contractual clause or agreement will be capable of bearing more than one meaning. A finding that the Solicitors were negligent would require a departure from the correct test, which required Hudson to establish that no qualified lawyer in the position of the Solicitors acting reasonably would have drafted the agreement in the manner complained of.

1. The advices given to Hudson demonstrated only that the Entitlement Deed was capable of being construed in different ways. None of the opinions suggested that it was untenable to contend that the Entitlement Deed entitled Hudson to payments in the event of partial disposals of the Land.

Causation

1. The Solicitors submitted that the primary Judge was correct to conclude that, even if they had been negligent in drafting the Entitlement Deed, that negligence was not causative of any loss to Hudson. They pointed to a number of matters.

1. First, Hudson had settled its dispute with Hardboards for more than it was entitled to receive. The Settlement Deed provided for Hardboards to pay $6.1 million pursuant to cl 4 of the Entitlement Deed. Hudson was entitled under cl 4 to receive only $6 million ($9.5 million in respect of the Capral and Seahampton transfers, less the Deposit of $3.5 million). Thus Hudson had received its full entitlement under cl 4 of the Entitlement Deed.

1. Secondly, Hudson claimed for losses said to include the unpaid Deposit of $3.5 million, yet Hudson accepted that any failure by Hardboards to pay the Deposit could not be attributed to the Solicitors in any way.

1. Thirdly, bearing in mind that Mr McLeod did not give evidence, there was no evidence that if the Solicitors had drafted the Entitlement Deed differently, both Hudson and Hardboards would have agreed to execute it.

1. Fourthly, Hudson engaged in conduct which either severed the chain of causation between the Solicitors' alleged negligent drafting and the loss it claims, or sounded in contributory negligence. In particular, Hudson failed:

• to obtain the mortgage to which it was entitled under cl 8 of the Entitlement Deed, thus effectively abandoning a mechanism that would have ensured that it was paid the amounts due under the Entitlement Deed or prevented part disposals of the Land;

• to prevent the Capral Transfer notwithstanding that Hudson was aware of it in advance and that the part disposal breached of cl 5 of the Entitlement Deed; and

• to take action to prevent the Seahampton Transfer in contravention of cl 5.

1. Fifthly, on Hudson's construction of the Settlement Deed, Hardboards paid an undissected sum of $6.1 million to compromise Hudson's claim. Since there is no way of knowing how much of this sum should be allocated to Hudson's claim for payment of the Deposit of $3.5 million, Hudson could not demonstrate that the settlement was reasonable.

Hudson's Interest Claim

1. The Solicitors point out that it was not until July 2006 that Hudson sought payment of moneys due to it under cl 4 of the Entitlement Deed. This was five years after the execution of the Entitlement Deed and over three years after the Capral Transfer. The primary Judge was correct to find that none of this delay was due to any negligence by the Solicitors in drafting the Entitlement Deed. In these circumstances, they contend that Hudson cannot claim damages in the form of interest on money due under cl 4 of the Entitlement Deed.

Reasoning: Factual Findings

1. It is convenient to deal first with challenges to the findings of fact made (or not made) by the primary Judge.

Instructions to the Solicitors

1. Her Honour was not prepared to find that instructions were given to the Solicitors in the terms pleaded by Hudson: that is, that the Entitlement Deed was to provide for Hudson to receive the proceeds of a partial disposal of the Land, up to the maximum of $10 million. In declining to make such a finding, her Honour relied on the absence of evidence of oral instructions from Mr McLeod to the Solicitors, whether to Mr Simmons or Mr Kyriak. It will be recalled that Mr McLeod did not give evidence.

1. Her Honour did not refer expressly to Mr Restas' evidence as to his understanding of the instructions given to him by Hudson. Mr Restas in his affidavit stated that he did not understand that his instructions were those pleaded by Hudson as the "Entitlement Instruction". However, in cross-examination he gave very clear evidence as to his understanding. He accepted that he understood that the Entitlement Deed was to be drafted so that Hudson would receive the first $10 million of the proceeds of sale of the Land. The cross-examination continued as follows:

"Q. So as and when there were any part disposals and proceeds were produced it was your understanding of your instructions at this point that what was to happen was that Hudson was to have a right in this entitlement deed to get that first $10 million?

A. Yes.

...

Q. Yes, putting [the Deposit] to one side. So if, for example, a part of the broad acreage was sold off early in the piece rather than incorporated in a larger ongoing development the right that you were going to have pursuant to these instructions to write into the entitlement deed was a right for Hudson to get the proceeds of that sale, correct?

A. Yes.

Q. And then if a second parcel was sold as you understood your instructions they were to write into the entitlement deed a right to Hudson to get the proceeds of the sale of that next parcel up to the point where we reached an aggregate of $10 million?

A. Yes, an aggregate.

Q. That was your understanding of your instructions, that Hudson was to get the first 10 million?

A. Leaving aside the deposit, yes.

...

Q. So I want to get this clear. It was your understanding of your instructions given on this occasion that Hudson's right to receive this first $10 million was to be a right given to it under the entitlement deed?

A. Yes

Q. Not qualified, limited or negated by any other provision of the deed?

Damages

1. Since Hudson's appeal must be dismissed, it is not necessary to quantify Hudson's damages. In any event, an assessment of damages would require further findings of fact to be made. For example, it would be necessary to determine whether Hudson's delay in claiming the proceeds of the Capral and Seahampton Transfers was attributable to the Solicitors' negligence in drafting the Entitlement Deed. Thus I do not consider it appropriate to assess the damages that would have been awarded had Hudson's appeal succeeded.

1. Nonetheless, I should note that if damages had to be assessed, the following matters would be taken into account:

• as I have found, Hardboards paid the Deposit of $3.5 million on 30 June 2001; and

• little or none of the settlement sum of $6.1 million is to be attributed to Hudson's claim to be paid the Deposit (since on an objective assessment its claim was worth very little, if anything).

It would follow that Hudson's damages would not exceed the sum of $923,288 (as at 8 June 2007), as calculated in Hudson's written submissions (at [73] above). The figure might turn out to be considerably less, depending on further findings that might be made.

1. Hudson's appeal must be dismissed. Hudson must pay the Solicitors' costs.

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Decision last updated: 05 August 2014