Teare v Littler & Anor

[2005] HCATrans 170

[2005] HCATrans 170

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B65 of 2004

B e t w e e n -

MARK GEORGE TEARE

Applicant

and

ALAN JOHN LITTLER

First Respondent

SUSAN ELIZABETH LITTLER

Second Respondent

Application for special leave to appeal

HAYNE J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON MONDAY, 21 MARCH 2005, AT 2.50 PM

Copyright in the High Court of Australia

MR T.F. BATHURST, QC:   If the Court pleases, I appear with my learned friend, MR R.P.S. JACKSON, for the applicant.  (instructed by Brian Bartley & Associates)

MR M.M. STEWART, SC:   May it please, your Honours, I appear with my learned friend, MR A.P.J. COLLINS, for the respondents.  (instructed by Quinn & Scattini)

HAYNE J:   Yes, Mr Bathurst.

MR BATHURST:   The issue which, in our respectful submission, warrants a grant of special leave in the present case is whether a solicitor who is retained in a conveyancing transaction, has an obligation to provide unsolicited advice to a client that a corporate lessee may be unable to pay rent in the future and a third party guarantee should be obtained.  The context in which the issue arises in the present case is where the solicitor was requested to act by the client’s financial adviser who, up to the time of exchange of contracts, or perhaps more accurately the Queensland terminology, the time the contract was entered into, was the only person who dealt with the solicitor.  The chronology ‑ ‑ ‑

CALLINAN J:   Mr Bathurst, I was going to ask you.  The contract was actually signed by the respondents before the solicitor saw it, is that correct?

MR BATHURST:   The chronology was this.  In September 1998 the respondents’ financial adviser, Ms Price, gave the respondents advice they should invest in this Coolum Beach project.  She also suggested the respondents would retain the applicants.  The applicants then received the contract from the solicitors for the vendor.  He passed it on and forwarded it to Ms Price.  If your Honours could go to page 44 of the book, your Honours will there find the letter which was sent by the applicant to the second defendant, which was the company that Ms Price operated under:

We thank you for your instructions . . . 

We confirm that we have delivered to your office the following for execution by Mr and Mrs Littler:

1.        Contract of Sale in duplicate

2.        Disclosure Statement

Following execution would you please return the documents to our office and at the same time if you could advise us of the name of the financier -

and then for some reason the date of birth and then it was a request in a postscript to identify the relevant lot that the purchaser was buying from the plan.

On 6 October the applicant received back from Ms Price the contract executed by Mr and Mrs Littler together with the information and the confirmation he sought.  He then caused the contract to be forwarded to the vendors at which point of time it was executed by the vendor.  There is no suggestion that he did not have authority to do that.

CALLINAN J:   Up until this stage, he had never had any discussions at all ‑ ‑ ‑

MR BATHURST:   He had no discussions at all with any of them.

CALLINAN J:   Never troubled to find out anything from them at all.  It was all done through the intermediary of the so‑ called financial adviser.

MR BATHURST:   But in considering that matter, your Honour, it is necessary, in our respectful submission, to bear in mind what was found against him was that he should have given advice as to the capacity of the corporate lessee.

CALLINAN J:   Well, is that so or should he merely have given advice that perhaps they should have looked into the question whether the company was, to use the common parlance, a two dollar company, and whether some thought perhaps should be given to obtaining personal guarantees from the directors or shareholders?

MR BATHURST:   We submit no, in this context, and as far as a solicitor is concerned generally.  So far as this context is concerned, Mr and Mrs Littler had a financial adviser.  One would assume, and a solicitor would be entitled to assume, that a financial adviser advising on an investment of this nature would have satisfied him, her or itself as to the ‑ ‑ ‑

CALLINAN J:   Well, Mr Bathurst, there is no duty of care owed to the financial adviser by your client.  The duty of care was owed to the respondents.

MR BATHURST:   The retainer was with the respondent.  We could ‑ ‑ ‑

CALLINAN J:   Why would not the solicitor have at least asked whether the financial adviser had considered this question, the one that I just put to you about personal guarantees?

MR BATHURST:   Because, irrespective of there being a duty of care, we would submit that the solicitor is at least entitled to assume that the financial adviser has advised on the adequacy of the investment.  We would go further than that.

HAYNE J:   But is that the point?  Advising on the adequacy of the investment or advising on performance of the obligations under the contract which he, the solicitor, is responsible for forming.

MR BATHURST:   The solicitor’s obligation, we would accept and this was said in Fox v Everingham and Henderson v Amadio which the judge who gave principal judgment relied on.  The solicitor has an obligation to advise on the contract and on matters in relation to the contract which would be relevant to a decision in whether to go ahead with the purchase and if so, on what terms.  But what we do say is that that function does not extend to advise whether a lessee, purchaser or for that matter any other counter‑party to a contract has financial capacity to meet its obligations or whether additional protection should be obtained.

Take this case, this is not a case where there was an immediate default.  The lessee continued to meet its obligations for a period of two years.  What is being put is either that in all cases there is an obligation to advise – if there is a proprietary company as a lessee – (a) you should get a guarantee or, for some reason, in the particular circumstances of this case there is not and, we would submit, in circumstances where there is a financial adviser as an intermediary, the obligation simply does not arise. 

HAYNE J:   Let it be assumed that relationships were inverted and the solicitor was acting for vendor.  Would it be part of the vendor’s solicitor’s function to advise that if a nominee clause is to be included in the contract and a corporate purchaser is nominated, guarantee should be obtained?

MR BATHURST:   It would depend on the circumstances.  For example, it would depend on the initial deposit that was obtained.  In those circumstances, perhaps yes, but again ‑ ‑ ‑

HAYNE J:   What is it, then, that takes that case apart from this?  The intervention of the financial adviser, is it?

MR BATHURST:   The intervention of the financial adviser, the long term nature of the lease and, we submit, notwithstanding the concession I make to your Honour in relation to the particular type of case your Honour referred to me, the general proposition that solicitors do not – it is no part of a solicitor’s function to advise generally on financial risks attaching to the project.  Suppose, for example, the solicitor may not know one way or another whether the nominee, to take your Honour’s example, is a company of substance or whether, even if it is not a company of substance, parent companies will support it.  Does the obligation, we might respectfully ask rhetorically, extend the solicitor inquiring into the financial substance of the nominee?

HAYNE J:   I should flesh the example out by saying it is the standard Victorian auction contract that is read at every auction you go to that the nominee clause contains the directors’ guarantee provision.  The example is thus unfair, Mr Bathurst, as you were about to remark.

MR BATHURST:   I am going to plead two jurisdictions.  It is usually ‑ ‑ ‑

CALLINAN J:   Mr Bathurst, whenever you have a private company lessee, and that is what it was here, was it not ‑ ‑ ‑

MR BATHURST:   Yes.

CALLINAN J:   I would have thought it would have almost been de rigueur to suggest to the client that personal guarantees were at least desirable just on the mere fact that one would have seen its list as officers – I can speak from experience of almost 40 years ago, one would have seen leases to private companies that had, that insisted the lessor insisting upon the provision of personal guarantees because of the mere fact of a private company.

MR BATHURST:   We would submit that what your Honour says, with respect, is quite correct.  On many occasions lessors will insist on personal guarantees because of their knowledge of either the particular circumstances of the lessee company or because it is generally a prudent thing to do but the question, in our respectful submission, is whether it is part of a solicitor’s obligation in all cases because this case, there is no exceptional circumstance to this case ‑ ‑ ‑

HAYNE J:   Well, save it is a long term.

MR BATHURST:   Save it is a long term ‑ ‑ ‑

HAYNE J:   Which is perhaps the most pressing of the circumstances.

MR BATHURST:   No, I should add, in fairness the solicitor knew it was a three dot company but paid-up capital does not amount to very much these days, in our respectful submission, not that we are making this a ‑ ‑ ‑

CALLINAN J:   Am I right, was your client urged upon the respondents by the vendor?

MR BATHURST:   No, by the financial adviser.  There is no evidence to suggest that the vendor was in any way a party to it.  There were findings of misleading and deceptive conduct against the financial adviser relating to information the financial adviser had provided.  There was no suggestion the solicitor knew that information had been provided, or there is no finding the solicitor knew that information had been provided or that it was misleading. 

HAYNE J:   So does it come to whether it was an available view that part of the solicitor’s retainer in settling a form of contract for long‑term relationship in connection with land with proprietary company extends to advising a guarantee clause where there is a financial adviser who has introduced the project.

MR BATHURST:   We put it this way.  When your Honour says is it an available view, that was a view that was taken obviously by the two courts below and a view taken by an expert called on behalf of the respondent.  So in that sense it was available, but, we submit the position is this, that the proposition must boil down to, in any case, perhaps except in the most short‑term leases, there is an obligation on a solicitor to either investigate the financial capacity of the lessee or alternatively, to insist on guarantees and presumably ‑ ‑ ‑

CALLINAN J:   Or, at least, to alert the purchasers to the fact that it is a proprietary company and that an investigation of the capacity of the company might be desirable.  Even that might have prevented what happened here.

MR BATHURST:   In this case, we would submit with respect, and to this extent it does become factually specific, the solicitor was entitled to rely on the financial adviser and even if that be wrong it is not part, in our respectful submission, of a solicitor’s function to advise them on the appropriateness or otherwise of the bargain which they propose to enter into as distinct from the effect of the contract in which they are entering into.  Now, the solicitor was not criticised at all in relation to the latter matter.  He in fact gave some advice on 16 October.  Your Honour will find that summarised in the defence commencing at page 5 of the book.  The relevant part is the letter at - your Honours see paragraph 8(b)(i) there is a reference to a letter of 16 October.  In subparagraph (E), which your Honours will find on the next page, your Honours will see there is a reference to what the contract of sale provides for in relation to the lease and then going over to page 7 (ii) there is a note:

“We note that Linda Price as your financial advisor has advised you on the commercial viability of the investment purchase and its taxation implications as applying to your particular financial

circumstances and that our instructions to act in this matter do not extend to advising you on the investment potential or the benefits or risks associated therewith” -

Now, that was done admittedly after the contract was entered into although the respondents contended they could still have got out of the contract had they been advised of the need for a guarantee but the reason I read that is to show that at least subsequently there was no objection taken to that letter.  The parties were proceeding on the assumption that Ms Price was the advisor. 

HAYNE J:   Had that been executed before retainer or at the point of retainer, would that exception clause have had any work to do in this case?

MR BATHURST:   We would submit not, because it does not fall within the retainer in any event. 

HAYNE J:   So it is not that it is excepted from the retainer by that specific exception, it is at the prior point that you say ‑ ‑ ‑

MR BATHURST:   We say the prior point ‑ ‑ ‑

HAYNE J:   Yes, I understand.

MR BATHURST:   Your Honours, we submit the point is important.  There are a number of cases presently in the Queensland courts in which similar issues have arisen in relation to purchases of units in complexes of this nature.  It is important to the legal profession generally.  If the implied obligation extends to advising on the financial capacity of a counter-party or, for that matter we would submit, warning a vendor to be careful to – a purchaser, I am sorry, to a vendor or a lessor to be careful to investigate that as distinct from simply advising on the terms of the contract and matters of titles, the onus cast on solicitors will be far greater and many solicitors, in our respectful submission, and for that matter members of the Bar, are neither qualified nor experienced enough to give such advice.

HAYNE J:   There is a case called Blue Star Line v Rahcassi, Mr Bathurst, which says that whatever the words “a man of commerce” mean, they do not extend to a practicing barrister. 

MR BATHURST:   With the greatest respect, the same thing can be applied to…..conveyance.  They are entitled to assume that the purchasers have made, or the vendors or lessors have made their investigations on those matters.  They are our submissions, if the Court pleases.

HAYNE J:   Thank you, Mr Bathurst.  We need not trouble you, Mr Stewart.

In our opinion, there are insufficient prospects of success of an appeal to warrant a grant of special leave in this matter.  Special leave to appeal is accordingly refused with costs.

Adjourn the Court.

AT 3.08 PM THE MATTER WAS CONCLUDED