THORPE -v- LOCHEL & ORS [2005] WASCA 85

Reported Decision:	(2005) 31 WAR 500
Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2005] WASCA 85
Court:	THE COURT OF APPEAL (WA)
Case No:	FUL:78/2004	Heard:	21 & 22 FEBRUARY 2005
Coram:	STEYTLER P ROBERTS-SMITH JA PULLIN JA	Delivered:	11/05/05
No of pages:	48	Judgment Part:	1 of 1
Result:	Appeal allowed in part
Category:	B
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Parties:	ANDREW CECIL THORPE KLAUS DIETER LOCHEL PETRA BRIGITTE LOCHEL OLYMPIC HOLDINGS PTY LTD BONDGATE PTY LTD
Catchwords:	Solicitor Breach of contract, duty of care and fiduciary duty Damages Equitable compensation Damages for physical inconvenience and associated mental suffering Contract Construction of clause acknowledging interest of third party
Legislation:	Rules of the Supreme Court 1971 (WA), O 63 r 10 Trade Practices Act 1974 (Cth), s 52, s 82
Case References:	Addis v Gramophone Co Ltd [1909] AC 488 Athens-MacDonald Travel Service Pty Ltd v Kazis [1970] SASR 264 Bahr v Nicolay (No 2) (1988) 164 CLR 604 Bailey v Bullock [1950] 2 All ER 1167 Baltic Shipping Co v Dillon (1993) 176 CLR 344 Boncristiano v Lohmann [1998] 4 VR 82 Burton v Pinkerton (1867) LR 2 Ex 340 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Fink v Fink (1946) 74 CLR 127 Hamlin v Great Northern Railway Co (1856) 1 H & N 408; 156 ER 1261 Heywood v Wellers [1976] QB 446 Hobbs v The London & South Western Railway Co (1875) LR 10 QB 111 Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 Stedman v Swan's Tours (1951) 95 SJ 727 Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 Zoneff v Elcom Credit Union Ltd (1990) 94 ALR 445 Afkos Industries Pty Ltd v Pullinger Stewart [2001] WASCA 372 Bartlett v Arbuckle [2004] WASC 169 Butt v M'Donald (1896) 7 QLJ 68 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Foran v Wight (1989) 168 CLR 385 King v Poggioli (1923) 32 CLR 222 McNally v Waitzer [1981] 1 NSWLR 294 Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165 Roadshow Entertainment Pty Ltd v C E L Home Video Pty Ltd, unreported; NSWCA; Library No CA40550/95 (Priestley JA); 11 September 1995 Secured Income Real Estate (Australia) Ltd v St Martins Investments (1979) 144 CLR 596 Stewart v Layton (1992) 111 ALR 687

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : THORPE -v- LOCHEL & ORS [2005] WASCA 85 CORAM : STEYTLER P

ROBERTS-SMITH JA

PULLIN JA

HEARD : 21 & 22 FEBRUARY 2005 DELIVERED : 11 MAY 2005 FILE NO/S : FUL 78 of 2004 BETWEEN : ANDREW CECIL THORPE

Appellant (Third Party)

AND

KLAUS DIETER LOCHEL

PETRA BRIGITTE LOCHEL

First Respondents (Defendants)

OLYMPIC HOLDINGS PTY LTD

BONDGATE PTY LTD

Second Respondents (Plaintiffs)

ON APPEAL FROM:

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Coram : MCLURE J

Citation : OLYMPIC HOLDINGS PTY LTD & ANOR -v- LOCHEL & ANOR [2004] WASC 61

File No : CIV 2312 of 1996

(Page 2)

Catchwords:

Solicitor - Breach of contract, duty of care and fiduciary duty - Damages - Equitable compensation - Damages for physical inconvenience and associated mental suffering

Contract - Construction of clause acknowledging interest of third party

Legislation:

Rules of the Supreme Court 1971 (WA), O 63 r 10

Trade Practices Act 1974 (Cth), s 52, s 82

Result:

Appeal allowed in part

Category: B

Representation:

Counsel:

Appellant (Third Party) : Mr K J Martin QC & Mr P D Quinlan

First Respondents (Defendants) : Mr J R Birman

Second Respondents (Plaintiffs) : Mr M M Mony de Kerloy

Solicitors:

Appellant (Third Party) : Pynt & Partners

First Respondents (Defendants) : Birman & Ride

Second Respondents (Plaintiffs) : Mony de Kerloy

Case(s) referred to in judgment(s):

Addis v Gramophone Co Ltd [1909] AC 488
Athens-MacDonald Travel Service Pty Ltd v Kazis [1970] SASR 264
Bahr v Nicolay (No 2) (1988) 164 CLR 604
Bailey v Bullock [1950] 2 All ER 1167
Baltic Shipping Co v Dillon (1993) 176 CLR 344
Boncristiano v Lohmann [1998] 4 VR 82

(Page 3)

Burton v Pinkerton (1867) LR 2 Ex 340
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Fink v Fink (1946) 74 CLR 127
Hamlin v Great Northern Railway Co (1856) 1 H & N 408; 156 ER 1261
Heywood v Wellers [1976] QB 446
Hobbs v The London & South Western Railway Co (1875) LR 10 QB 111
Kooky Garments Ltd v Charlton [1994] 1 NZLR 587
Stedman v Swan's Tours (1951) 95 SJ 727
Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484
Zoneff v Elcom Credit Union Ltd (1990) 94 ALR 445

Case(s) also cited:

Afkos Industries Pty Ltd v Pullinger Stewart [2001] WASCA 372
Bartlett v Arbuckle [2004] WASC 169
Butt v M'Donald (1896) 7 QLJ 68
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
Foran v Wight (1989) 168 CLR 385
King v Poggioli (1923) 32 CLR 222
McNally v Waitzer [1981] 1 NSWLR 294
Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165
Roadshow Entertainment Pty Ltd v C E L Home Video Pty Ltd, unreported; NSWCA; Library No CA40550/95 (Priestley JA); 11 September 1995
Secured Income Real Estate (Australia) Ltd v St Martins Investments (1979) 144 CLR 596
Stewart v Layton (1992) 111 ALR 687

(Page 4)

1 STEYTLER P: I have had the advantage of reading the judgment of Pullin JA, with whom Roberts-Smith JA is in agreement. Save in respect of one issue, I also agree with Pullin JA.

2 The issue upon which I find myself in respectful disagreement with the majority is that concerning the trial Judge's award of damages in respect of the physical discomfort and inconvenience, and consequential mental distress, which, she found, had been suffered by Mr and Mrs Lochel.

The Pleadings

3 In their statement of claim dated 14 October 2003 against their former solicitor, Mr Thorpe, Mr and Mrs Lochel allege (par 10B) that, in breach of the terms of the retainer agreement, alternatively in breach of fiduciary duties owed by Mr Thorpe to the Lochels arising out of the retainer agreement, Mr Thorpe had, in the course of representing the Lochels since the commencement of the proceedings the subject of this appeal, "conducted them in such a way as to cause undue delay, stress, hardship and unnecessary expense to … [the Lochels]". The particulars to that paragraph complain, amongst other things, of delay in filing an appearance, delay in filing a defence (resulting in the entry of a default judgment which then had to be set aside), commencing (and then discontinuing) an appeal against a costs order without instructions, failure to attend status conferences on three occasions and failure to advise the Lochels of his conflict of interest in representing them and (in any timely way) of the consequences thereof.

4 Then, in par 11, the Lochels allege that by reason of Mr Thorpe's negligence, breaches of the terms of the retainer and breaches of fiduciary duty variously pleaded in par 9 (which pleads a number of matters concerning Mr Thorpe's advice and conduct in respect of the transactions the subject of the retainer), 10A (which pleads other such matters), 10B and 10C (which is not presently relevant), they have suffered loss and damage. This is particularised, in par 11.3, as encompassing stress, anxiety, loss of enjoyment of life, physical discomfort and inconvenience and, in respect of Mr Lochel, clinical depression, which is said to have stemmed from the proceedings.

5 Finally, in a schedule prepared on their behalf which further particularises their damages, the Lochels claim, in item 13, an amount of $100,000 for "Mental anguish, anxiety, pain, physical discomfort, inconvenience".

(Page 5)

The Evidence

6 Evidence in support of this head of the damages claim was given by Mrs Lochel. Mr Lochel did not give evidence.

7 In her written statement, which was tendered in evidence, Mrs Lochel mentioned that on 10 July 1996, the day after Mr Thorpe had been asked to act on behalf of her and her husband, she met with him. She told him that she and her husband were "totally frustrated" at the delays in settlement of the property transactions into which they had entered (being those which later became the subject of the proceedings), that they had planned to return to Germany (their country of origin) as soon as settlement was completed, that they had placed their furniture in storage and sold their car in anticipation of the settlement and that they were living in a house with "almost no furniture in it".

8 The events giving rise to the litigation then followed, over a number of months. Eventually, on 31 January 1997, Mr and Mrs Lochel flew to Germany. She said, in her statement (par 74), that they had been "desperate to complete … [their] travel arrangements".

9 Mrs Lochel's statement then records that, while in Germany, she and (implicitly) her husband heard "very little" from Mr Thorpe, although she tried to telephone him on several occasions. She said that he did not seek their instructions on any aspect of the Court proceedings (not even in respect of the draft defence and counterclaim) and that they did not receive copies of any documents or correspondence until they received a letter (sent by facsimile transmission) dated 16 May 1997 in which Mr Thorpe apologised for "the delay in replying to … queries" and said that the action "has gone quite slowly and is now becoming a real epic". She said that Mr Thorpe did not ask them anything about their defence.

10 The next communication received by the Lochels from Mr Thorpe was a faxed letter dated 28 July 1997, informing them that a mediation conference had been scheduled for 4 August 1997 and that, while they would normally be required to attend, he would attend on their behalf. He asked them to telephone him some time prior to the conference so that he might discuss the position with them. Thereafter, Mrs Lochel said, Mr Thorpe failed to keep her and her husband informed albeit, as they later discovered, a number of events had occurred in respect of which their instructions should have been sought. She said that she and her husband were "constantly worried about the lack of progress in … [the] proceedings" and that they had "little or no feedback from … [their] solicitor".

(Page 6)

11 Counsel for Mr Thorpe suggested that, notwithstanding this evidence, Mr and Mrs Lochel could not have been too concerned about the position, given that the (few) written exchanges which took place were expressed in polite terms. However, it seems to me that little can be inferred from this, given that the Lochels were, so far as the litigation was concerned, in Mr Thorpe's hands and would not have wished to antagonise him.

12 On 26 July 1998, two years after Mr Thorpe had been engaged by them and 18 months after they had returned to Germany, Mr and Mrs Lochel returned to Australia. They did so, Mrs Lochel said, "primarily to deal with the litigation" (par 110 of her statement). In the course of her oral evidence at the trial Mrs Lochel said that she and her husband had to return "because nothing was happening and we were worried … that we couldn't stand it any more and … we were thinking of going back and … [dealing ourselves] with it" (transcript page 521). She said that this was the only reason they came back to Australia (transcript page 595) and that they had not intended to return there (transcript pages 522 and 592).

13 Mrs Lochel was cross-examined at some length on this aspect of the claim. She was asked about her husband's psychiatric problems. In the course of that exchange she said (in a passage relied upon by counsel for Mr Thorpe) that this aspect of her claim was "for … [her] husband" and that there was "nothing in [it] for me" (transcript page 591). However, it is obvious from the pleadings and from the conduct of the trial generally on behalf of the Lochels that the claim under item 13 was made not only on behalf of her husband, who, she said, had become increasingly anxious and distressed during the course of the litigation, but also on her own behalf. It is apparent from Mrs Lochel's evidence that both had been inconvenienced and that both had suffered, as a consequence, from stress and anxiety.

The Trial Judge's Findings

14 The trial Judge, in that part of her judgment which deals with this aspect of the damages claim, first considered the case of Baltic Shipping Co v Dillon (1993) 176 CLR 344 (to which I shall return below). She mentioned, as one of the categories of exception to the general rule that damages for anxiety, disappointment and distress are not recoverable in actions for breach of contract, cases in which physical inconvenience has been caused. She said (at [262]) that, because the general rule is grounded

(Page 7)

in policy rather than logic, she did not understand the principles in negligence or equity to be wider than those in contract.

15 She then turned to the facts. She found (at [263]) that there was uncontradicted evidence that the Lochels had suffered physical inconvenience and discomfort as a result of the delay in settlement of their property transactions, because they had sent their furniture to Germany and were living in spartan conditions. She said that she was also satisfied that the Lochels had "suffered consequential mental distress". She found that Mr Thorpe was responsible for the delay between mid-November 1996 and 15 January 1997 (although, as was pointed out by counsel for Mr Thorpe, no claim had been specifically pleaded in this respect).

16 The trial Judge went on (at [264]) to accept Mrs Lochel's evidence that Mr Thorpe did not seek the Lochels' instructions on significant aspects of the Court proceedings and that, while they were in Germany, they received little or no feedback from him and were consequently worried about the lack of progress in the action. She also accepted Mrs Lochel's evidence that, as a result, she and her husband returned to Australia on 26 July 1998 primarily to deal with the litigation.

17 Then, having found that the evidence was insufficient to satisfy her that Mr Lochel's psychiatric condition was causally connected with the litigation, the trial Judge said (at [266]):

"However, I am satisfied that the defendants suffered physical inconvenience and discomfort as a result of these proceedings. I accept that Mr Thorpe's conduct (or more appropriately misconduct) of the proceedings resulted in unacceptable delays in the action, that he failed to communicate with his clients and that these were material factors in the defendants' decision to return to Perth. I also accept Mrs Lochel's evidence that they sold their Seascapes property [a property which they had purchased in Mandurah] and moved into rented accommodation in order to fund this litigation. In those circumstances I would award the defendants damages for physical discomfort and inconvenience as well as the consequential mental distress associated therewith. From all accounts, Mr Lochel has had little or nothing to do with the proceedings. However, I am satisfied that the physical inconvenience would have caused mental distress to both defendants. There is little to guide the quantification of this head of claim. I would award $30,000."

(Page 8)

The Grounds of Appeal

18 There are two grounds of appeal which have been raised on Mr Thorpe's behalf in respect of this aspect of the judgment of the trial Judge. They read as follows:

"16 The learned Judge erred in fact and in law, by concluding that the Lochels suffered physical inconvenience and discomfort, and consequential mental distress, as a result of the existence of the Action, when the learned Judge should instead have found:

16.1 there was no valid basis raised in law for an award of damages for claimed physical inconvenience and discomfort, or consequential mental distress applying

Baltic Shipping v Dillon

(1993) 176 CLR 344;

16.2 there was no or no sufficient evidence that any particular identified aspects of the litigation of the Action or Thorpe's conduct associated with defence of the Action on behalf of the Lochels, had contributed causally, or at all, to any adverse medical condition suffered by Mr or Mrs Lochel;

16.3 further the overwhelming weight of evidence established that the Lochels voluntarily and consciously chose over time to continue with the Action and to press their counterclaim against Olympic therein, to the extent that any conduct on the part of Thorpe earlier than 22 November 2000 [when Mr Thorpe ceased to act on behalf of the Lochels] could not in any event have been shown as causative of any injury to the Lochels' [sic].

17 Alternatively, the learned Judge erred in law and in fact in

17.1 awarding the unexplained or unreasoned sum of $30,000 to the Lochels jointly against Thorpe, on an expressed basis of physical inconvenience, discomfort and consequential mental distress, as a result of the Action when there was no basis established for such an award.

(Page 9)

17.2 concluding (see reasons para [266]) that Thorpe's conduct of the proceedings had resulted in unacceptable delays in the action, when there was no or no sufficient evidence to support that causative conclusion."

19 It was acknowledged, during the course of the appeal (appeal transcript page 175), that these grounds raise no issue of quantum. Rather, the contention is that no basis, whether in fact or law, was made out for an award of any kind.

The Alleged Deficiency in the Pleadings

20 Before dealing with the applicable legal principles, and their application to the facts of this case, I should say something about the alleged deficiency in the Lochels' pleading, albeit there is no ground of appeal specifically raising this.

21 While it is true, as I have said, that there is no specific allegation in the pleading against Mr Thorpe that the Lochels suffered physical inconvenience and discomfort as a result of the delay in settlement, the trial appears to have been conducted upon the basis that there had been such, and that this gave rise, in part, to their claim for damages. Counsel for the Lochels, in that part of his written closing submissions which dealt with item 13 of the schedule of damages, contended (par 180), seemingly without objection, that Mr Thorpe was responsible for the fact that the Lochels "were delayed from moving to Germany [and] suffered the extended discomfort and inconvenience of living … without a car, on milk crates and in a state of anxiety until the end of January 1997". As will be apparent, Mrs Lochel's unchallenged evidence was that this state of affairs had existed from a time even prior to the existence of Mr Thorpe's retainer. In my opinion it is too late for counsel for Mr Thorpe now to rely upon the alleged deficiency in the pleading, no such objection having been taken at the trial, or in the grounds of appeal. The deficiency could, if necessary, even now be remedied by amendment pursuant to O 63 r 10 of the Rules of the Supreme Court 1971 (WA), there being no suggestion that it resulted in any prejudice to Mr Thorpe at the trial.

The Case Law

22 That brings me to the applicable legal principles.

(Page 10)

23 The general rule, albeit often criticised (see, for example, Athens-MacDonald Travel Service Pty Ltd v Kazis [1970] SASR 264 at 274, per Zelling J, and Baltic Shipping at 361 - 362, per Mason CJ, 381, per Deane and Dawson JJ, and 396 - 397, per McHugh J), is, as the trial Judge correctly recognised, still that damages for anxiety, disappointment and distress are not recoverable in actions for breach of contract: Hamlin v Great Northern Railway Co (1856) 1 H & N 408; 156 ER 1261; Addis v Gramophone Co Ltd [1909] AC 488; Fink v Fink (1946) 74 CLR 127 and 142 - 143; and Baltic Shipping at 361, per Mason CJ, 380, per Deane and Dawson JJ, and 394 - 395, per McHugh J. However, over time, a number of exceptions to the rule have developed. These are conveniently enumerated in the judgment of Mason CJ in Baltic Shipping, at 363. Only two of the exceptions are relevant for present purposes, being those identified by the trial Judge. Courts have awarded compensation for physical inconvenience suffered by a plaintiff as a consequence of a breach. They have also awarded damages for mental suffering which is a direct consequence of physical inconvenience resulting from a breach.

24 In Burton v Pinkerton (1867) LR 2 Ex 340 the plaintiff had agreed with the defendant to serve, for 12 months, as one of the crew of a ship of which the defendant was master. He sailed for Rio De Janeiro with the ship. When the ship arrived there, the plaintiff learned that hostilities had commenced between Spain and Peru. The defendant had agreed to place the vessel under the direction of Peruvian warships, exposing the plaintiff to unanticipated danger. He consequently left the ship in Rio, as a result of which he suffered a number of inconveniences. He later sued the defendant for damages. The Court held that the plaintiff "was … entitled to something under the head of general damage for some of the inconveniences and annoyances he had suffered" (per Bramwell B at 349).

25 In Hobbs v The London & South Western Railway Co (1875) LR 10 QB 111 the plaintiff, with his wife and two children, bought tickets on the defendant's railway from Wimbledon to Hampton Court, by the midnight train. They got into the train, but it did not go to Hampton Court. It went instead to Esher, where the plaintiff and his family were compelled to get out. By that time they could not get any conveyance to their home or accommodation at an inn. They consequently walked to the plaintiff's house, a distance of between four and five miles. All of the Judges (Cockburn CJ and Blackburn, Mellor and Archibald JJ) held that the plaintiff could recover damages for physical inconvenience.

(Page 11)

26 In Bailey v Bullock [1950] 2 All ER 1167 the plaintiff brought proceedings against his solicitor for breach of duty in failing to obtain possession of the plaintiff's house. The plaintiff and his family were forced to seek temporary shelter at the home of his in-laws, and to stay there for some 18 months in circumstances which were both uncomfortable and inconvenient. He was awarded damages for that discomfort and inconvenience.

27 In Stedman v Swan's Tours (1951) 95 SJ 727 the plaintiff made arrangements with the defendant, a firm of travel agents, for the provision of superior rooms with a sea view in a first-class hotel. In fact, the rooms which were reserved for his party were very inferior and had no sea view. They could not obtain other accommodation and their whole holiday was spoiled. On an appeal, the Court of Appeal awarded general damages, following the law as expressed in Bailey v Bullock. The leading judgment was given by Singleton LJ, who said that damages could be recovered for appreciable inconvenience and discomfort caused by breach of contract. He also said that it might be difficult to assess the amount to be awarded, but it was no more difficult than to assess the amount to be given for pain and suffering in a case of personal injury.

28 In Athens-MacDonald Travel Service (where Zelling J considered these, and other, cases) a travel agency contracted with the plaintiff to make the necessary travel arrangements to enable him and his family to spend a three-month holiday in Cyprus. Because the agency failed to make the necessary arrangements, the plaintiff was obliged to cut his holiday short by three weeks and, during his holiday, had to spend a good deal of time and trouble attempting to make alternative arrangements. Because his holiday was cut short, the plaintiff was unable to do a number of things which he would otherwise have done. Zelling J upheld the decision of a Special Magistrate by which the plaintiff had been compensated for the inconvenience suffered by him. He said (at 274) that it was a fallacy to say that "physical inconvenience" included only "what one is compelled to do and not what one is compelled not to do" and that it was "just as much discomfort and inconvenience on a tour to spend a day doing nothing … or seeing something for the second time when one has planned something new and different for that day - when one has only a limited number of days at one's disposal - as to be forced to do something actively to try and retrieve a situation brought about by the contract being broken".

29 In Zoneff v Elcom Credit Union Ltd (1990) 94 ALR 445 it was common cause that the measure of damage under s 52 and s 82 of the

(Page 12)

Trade Practices Act 1974

(Cth), being akin to that in tort, permitted the recovery of damages for distress, inconvenience and anxiety if, at least, such damages were reasonably foreseeable (see at 468, per Hill J).

30 I have said that, in Baltic Shipping, Mason CJ (with whom Toohey and Gaudron JJ were in agreement) recognised a number of exceptions to the general rule, including the two categories of cases to which I have referred. (He added, at 362, that the general rule "rests on flimsy policy foundations and conceptually is at odds with the fundamental principle governing the recovery of damages".) Deane and Dawson JJ, in that case, also referred, with apparent approval, to cases in which an award of damages for breach of contract had included compensation for mental distress in circumstances in which the breach of contract had directly caused physical inconvenience (page 381). McHugh J, too, reviewed a number of the relevant cases in this respect (pages 398 to 405) before concluding (at 405) that the Court should recognise that damages for distress or disappointment are recoverable in an action for breach of contract if, inter alia, it is consequent upon the suffering of physical inconvenience.

31 Finally, in Boncristiano v Lohmann [1998] 4 VR 82, a case concerning a building dispute, Winneke P, with whom Charles and Batt JJA were in agreement, said, at 94, after reviewing a number of cases, that it appears now to be accepted in England and Australia that awards of general damages can be made to building owners who have suffered physical inconvenience, anxiety and distress as a result of a builder's breach of contract, "but only for the physical inconveniences and mental distress directly related to those inconveniences which have been caused by the breach of contract" (page 94).

This Case

32 That brings me back to this case. In my opinion it was open to the trial Judge (who, as I have said, did not understand the principles in negligence to be wider than those in contract) to find that Mr and Mrs Lochel had suffered physical inconvenience and discomfort in the respects mentioned by her.

33 As to the delay in settlement, it seems plain enough that the spartan conditions in which the Lochels were living at the time of their first meeting with Mr Thorpe gave rise to physical inconvenience and discomfort and that Mr Thorpe knew this to be so. I can see no distinction, in that respect, between the inconvenience and discomfort suffered in this case and that, for example, suffered in Bailey v Bullock,

(Page 13)

the difference being one, only, of degree. It is also plain enough that that inconvenience and discomfort, and the consequential mental distress suffered by Mr and Mrs Lochel, continued for a good deal longer than it would otherwise have done as a consequence of the delay in settlement. The trial Judge found, at [211], that, were it not for breaches by Mr Thorpe of his duty to exercise reasonable skill and care, the Lochels would have settled their property transactions by 15 November 1996. Had that happened, they would have been able to leave for Germany on, or shortly after, that day. Instead, they had to live in continuing discomfort until 31 January 1997, some 11 weeks later.

34 It also seems to me that it was open to the trial Judge to find that the need for Mr and Mrs Lochel to fly back to Perth on 26 July 1998, and for them to have to sell their Mandurah property to fund the litigation and hence to move into rented accommodation, amounted to physical discomfort and inconvenience. I can see no reason why the need to make special (and unwanted) travel arrangements and then to have to engage in unwanted travel should not be regarded as physical inconvenience. Also, the need to sell their Australian property and move into rented accommodation (when they would have preferred to be in Germany) seems to me also to amount to physical inconvenience. The Lochels had not wanted to come back to Perth, or to sell their Mandurah home, or to move into rented accommodation. Had there been no litigation, they would not have done any of these things. The trial Judge found, at [211], that, were it not for Mr Thorpe's breaches of duty, the legal proceedings would have been avoided.

35 Even putting Mr Thorpe's responsibility for the existence of the litigation to one side, Mr and Mrs Lochel would not, on Mrs Lochel's uncontradicted evidence, have travelled to Perth for the purposes of the litigation when they did (years prior to the commencement of the trial) were it not for the lack of progress in the litigation, brought about by Mr Thorpe's breaches of duty, and Mr Thorpe's failure to obtain their instructions or keep them informed. I should say, as regards the lack of progress, that it seems to me to have been open to the trial Judge to find that there had been no adequate progress, given Mr Thorpe's delay in entering an appearance and then in lodging a defence, the defence and counterclaim having eventually been lodged only on 19 August 1997, months after the filing of a substituted statement of claim on 3 April 1997. Moreover, little progress had been made in the litigation by July 1998, when the Lochels returned to Perth.

(Page 14)

36 It also seems to me to have sufficiently appeared from Mrs Lochel's evidence that she and her husband suffered from stress and anxiety as a direct result of each of the aspects of physical inconvenience to which they had been subjected.

37 Finally, I should deal with the proposition that Mr Thorpe was not responsible for this head of damage because the Lochels did not have to continue the litigation and "voluntarily and consciously" chose to do so. This proposition does not seem to me to be sustainable. We were not referred to any evidence which suggests that the Lochels could have settled the litigation on a basis which recognised their rights as against Mr Thorpe. Nor could they reasonably have been expected to abandon their defence and third party proceedings in order to avoid the inconvenience, anxiety and stress to which they were subjected. There is no suggestion that the defence and third party proceedings were unreasonably maintained.

38 For all of these reasons, I would have dismissed each of grounds 16 and 17. It follows from my agreement with Pullin JA as regards the other grounds of appeal that I would have dismissed the appeal.

39 ROBERTS-SMITH JA: I have had the benefit of reading in draft the reasons for decision of Steytler P and Pullin JA. Subject to the following comments, I agree with the reasons and conclusion of Pullin JA.

40 In respect of ground 16, I agree with the other members of the Court that although the general rule is that damages for anxiety, disappointment and distress are not recoverable in actions for breach of contract, there are some limited exceptions to that rule. They were identified by Mason CJ in Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 363. Those which are pertinent to this case are compensation for physical inconvenience suffered by a plaintiff as a consequence of the breach of contract and mental suffering, the direct consequence of physical inconvenience resulting from such a breach.

41 The trial Judge found that the appellant's (mis)conduct of the litigation which resulted in unacceptable delays in the action and his failure to communicate with the first respondents were material factors in their decision to return to Perth and that they sold their Seascapes property and moved into rented accommodation in order to fund this litigation. Thus, the physical inconvenience which her Honour found to be the foundation of the award in this respect was the airline flight from Germany to Perth and selling the Seascapes property and consequently

(Page 15)

living in rented accommodation. The latter was not that accommodation which was described as "spartan" in which they were living when they first instructed Mr Thorpe. I agree with the observations of Pullin JA about this and with his conclusion that there is here no sufficient causal link shown between the particular physical inconvenience and Mr Thorpe continuing to act whilst in a position of professional conflict.

42 I would uphold grounds 16.2 and 17.1, each for the reasons given by Pullin JA.

43 PULLIN JA: This is an appeal by the appellant (Mr Thorpe) against McLure J's judgment in which she held the first respondents ("Lochels") liable to pay damages to Bondgate Pty Ltd for breach of contract and held that Mr Thorpe was liable to indemnify the Lochels due to his breach of contract, breach of tortious duty and breach of fiduciary duty.

The Spearwood land and the Owners Deed

44 The Lochels owned land at Spearwood and entered into an arrangement to rezone and develop the land along with other neighbouring landowners. A company called Coburg Nominees Pty Ltd, trading as Urban Focus, agreed with the landowners to do the work to achieve this. As a result the owners, including the Lochels and Urban Focus, executed a Deed dated 20 June 1994 whereby Urban Focus agreed to carry out the necessary action to achieve the rezoning and to implement and make arrangements for the subdivision of the land. Pursuant to this Deed, the landowners agreed to offer, make available and transfer to Urban Focus, their land to facilitate consolidation for the purposes of the subdivision.

45 Clause 27 of the Owners' Deed read:

"The landowners authorise the Manager to negotiate for and establish the required level of funding to carry out the development works, pay for the development costs and in exercising the powers conferred upon the Steering committee by clause (30) hereof. The landowners agree to offer and make available and transfer to the Manager pursuant to the terms and provisions of the attached and duly executed Deed of Trust the total nett area of their respective land areas to facilitate its consolidation for subsequent subdivision and for mortgage security purposes. Registration of such mortgage shall be pursuant to and in conformity with the Nett Area Plan prepared for each Stage of the Project."

(Page 16)

46 Clause 28 provided that the land owners should constitute a steering committee.

47 Clause 41 of the Owners' Deed read:

"In recognition of the covenants and agreements entered into between the landowners, the Steering Committee and the manager, the landowners within the PDA hereby COVENANT AND AGREE with the Manager not to sell their property or any portion thereof without first offering the land to the Steering committee through the Manager. In the event that the landowner is unable to reach agreement with the Steering Committee as to the purchase price of the subject land, the landowner shall then have the right to offer the land for sale on the open market on such terms and conditions as he thinks fit, but subject to the express condition that the person or company to whom the subject land is sold transferred mortgaged charged or otherwise disposed of or encumbered shall first be required to enter into a Deed of Covenant or agreement to be prepared by the Manager or his nominee at the expense of the Owner or of the other person or company whereby the purchaser covenants with the Manager to observe perform and be bound by the provisions of this DEED and attached DEED OF TRUST as if it were the owner herein described."

48 Clause 43 of the Owners' Deed read:

"The Manager will be at liberty at any time during the term of the Project, to register against each Owners land as described in Schedule One hereof an absolute caveat to protect and preserve its interest in agreements and covenants entered into with the landowners pursuant to the terms of this Deed."

49 Clause 45 read:

"To empower the Manager to perform and/or carry out the works acts or things pursuant to the terms and provisions of this Deed the Landowners AGREE and have executed the attached DEED OF TRUST which Deed forms and constitutes a part of this DEED."

50 There was attached a Deed of Trust pursuant to which Urban Focus was appointed trustee on behalf of the landowners. Clause 2 of the Deed

(Page 17)

of Trust provided that Urban Focus was to hold any land in the name of Urban Focus as trustee on behalf of the landowners.

51 It is important for what comes later to mention that the effect of these provisions was that the owners, including the Lochels, were obliged to transfer their land to Urban Focus. If and when Urban Focus became the registered proprietor of the legal estate in the land it would hold it on trust for the owners for the purposes set out in the Owners' Deed. In other words, Urban Focus would hold the land to allow for consolidation of titles and subdivision and then subsequent sale. The entitlement to a transfer of title to the land conferred an equitable interest in an estate in fee simple in the land on Urban Focus which by cl 43 could be protected by a caveat.

Negotiations to sell the Spearwood land and Mandurah land

52 The Lochels wished to sell their Spearwood land. The land was offered to the Steering Committee under the Owners' Deed and it declined to purchase. The land was then marketed through an estate agent. The estate agent who handled the matter was a Mr Domhoff. The Lochels gave to Mr Domhoff a copy of the Owners' Deed. Mr Domhoff mentioned the Lochel land to Mr Bacich who was the controller of Olympic Holdings Pty Ltd and Bondgate Pty Ltd (when it was incorporated).

53 Mr Domhoff told Mr Bacich "that he could only buy the land subject to assuming the Lochels' obligations under the terms of the Owners' Deed. I gave him a copy of the Owners' Deed."

54 Mr Domhoff said that Mr Bacich said that "he thought he could get out of the owners' deed. He asked me what return I thought could be achieved if he developed the land himself."

55 When Mr Bacich signed the offer to purchase the Spearwood land on behalf of Olympic, Mr Domhoff was present. Mr Domhoff gave evidence that:

"At the time that he signed it I emphasised that any purchase of the land was conditional upon the purchaser accepting the vendors' obligations under the Owners' Deed. I inserted a clause about the Owners' Deed on the offer and I ensured that Mr Bacich initialled it. I attached a copy of the Owners' Deed to the offer. I think that Mr Bacich also initialled the attached Deed."

(Page 18)

56 Mr Bacich's company Olympic and another company called Frisquet Pty Ltd owned some land at Mandurah. Olympic and Frisquet wanted to sell this land and so on 26 April 1996, on the day when Mr Bacich, on behalf of Olympic, signed the offer to purchase the Spearwood land, the Lochels made an offer to purchase the Mandurah land. Both of these offers were accepted. Her Honour called them the "Olympic contract" (the one relating to the Spearwood land) and the "Mandurah contract" (the one relating to the Mandurah land).

Terms of the Olympic contract and the Mandurah contract

57 Conditions 5 and 6 of the Olympic contract provided that it was subject to the sale and settlement of the Mandurah contract and provided that the Olympic contract was subject to Olympic and its solicitors completing "due diligence" on the Spearwood property and advising of satisfaction of the study within 14 days of acceptance of the offer.

58 Clause 7 of the Olympic contract read as follows:

"The purchasers acknowledge receipt of the signed copy of the Owners' Deed for Stage 8 dated 20/6/94 attached hereto and marked with the letter 'A'."

59 The settlement date was stated to be a date to coincide with settlement in relation to the Mandurah land or 30 days from completion of diligence, whichever was the later. There were general conditions for the sale of land incorporated and they contained three clauses that I should mention. The first was cl 2(1) which read:

"The property is sold free from encumbrances except:

(a) as specified in the contract …"

60 The second was clause 18 which provided that neither party was entitled to terminate the contract on the ground of the other's default unless a default notice was served stipulating a period of not less than 14 days from service of the notice to remedy the default. Clause 19 provided that if the purchaser was in default then subject to condition 18, the contract could be terminated.

61 In the Mandurah contract the settlement date was specified as being 14 days from the strata plan being in order for dealing and there were special conditions that the contract was subject to the sale and settlement of the Spearwood land with settlement to be simultaneous with settlement

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on the Olympic contract. The price specified in the Olympic contract was $640,000 and the price in the Mandurah contract was $390,000.

62 On 14 May, Olympic informed the Lochels that the contract for sale of the Spearwood property was unconditional in relation to the due diligence clause. On 28 June 1996 the strata plan in relation to the Mandurah property was in order for dealing and 14 days later on 12 July 1996, settlement was due under the Mandurah contract and, in consequence, also due on the Olympic contract.

The construction of cl 7 of the Olympic contract

63 I now turn to consider the first issue raised on the appeal and that is about the correct construction of cl 7 of the Olympic contract.

64 Her Honour at [42] reached this conclusion about cl 7:

"I conclude that the Olympic (and Bondgate) Contract did not impose an obligation on the purchaser to assume the defendants' rights and obligations under the Owners Deed or require the purchaser to enter into a Deed of Covenant with Urban Focus."

65 Mr Thorpe, in his appeal, contends that her Honour erred in her conclusion that no obligations were imposed on Olympic by cl 7. In this regard the appellant relied on Bahr v Nicolay(No 2) (1988) 164 CLR 604 to which the trial Judge was not referred. Bahr v Nicolay was concerned with whether, in the circumstances of that case, an equitable interest in land could be enforced against a person who became the registered proprietor. There is therefore much discussion in that case about indefeasibility of title and priorities which is not directly relevant to this case. However, underlying that discussion and fundamental to it, in the reasons for decision of Mason CJ, Dawson and Brennan JJ, was a contractual construction point.

66 In that case the Bahrs owned land on which there was located a shop from which the Bahrs conducted their business. To raise finance, the Bahrs entered into a contract with a financier Mr Nicolay to sell the land to Nicolay but subject to conditions that the Bahrs would lease the land for three years (thereby allowing them to remain in possession of the store) and subject to a condition that they could repurchase the land when the lease expired. Nicolay then sold the land to the Thompsons and in the contract between them there was a condition 4 which read:

(Page 20)

"That the purchaser acknowledges that an agreement exists between Walter Bahr and Joanna Maria Bahr and Marcus Grenville Nicolay as stamped and signed on the 5th of March 1980."

67 The Thompsons became the registered proprietor. When the lease was coming to an end the Bahrs wrote to the Thompsons, seeking to repurchase the land. The Thompsons claimed that they had indefeasible title and would not sell to the Bahrs. Litigation then commenced.

68 It was argued by the Thompsons that cl 4 amounted to mere notice of the existence of the Bahrs equitable interest and that notice was not fraud and that s 68 of the Transfer of land Act therefore conferred indefeasible title on Thompson. As to this point, Mason CJ and Dawson J noted that, in its terms, cl 4 merely acknowledged the existence of the earlier agreement. It is then necessary to set out a lengthy passage from the judgment at 616-617 because of the relevance of all that was said in it to this case:

"What then was the purpose and effect of cl 4 of the agreement between the first and the second respondents? The matrix of circumstances in which the agreement was made throws up three significant factors. First, the making of an agreement between the first and second respondents which would result in the destruction of the appellants' existing rights, or allow the destruction of those rights, by registration of a transfer in favour of the second respondents in circumstances whereby the rights became [

sic

] unenforceable would expose the first respondent to liability for breach of contract: see the discussion by Jordan CJ in

Queensland Insurance v AMF Insurance

(1941) SR (NSW) 195, at pp 200-201. Secondly, as we have seen, upon registration of such a transfer, the combined effect of ss 68 and 134 would, in the absence of fraud, bring about the destruction of the appellants' rights. Thirdly, at least until registration of such a transfer, the appellants' equitable interest under the 1980 agreement, being first in time, had priority over the interest of the second respondents as purchasers under their agreement with the first respondent.

Viewed in this setting, cl 4 of the later agreement was designed to do more than merely evidence the fact that the second respondents had notice of the appellants' rights. If that were the only purpose to be served by the acknowledgment it would

(Page 21)

achieve nothing. It would enable the second respondents to destroy the appellants' interest and would leave the first respondent exposed to potential liability for breach of contract at the suit of the appellants. In the circumstances outlined it is evident that the purpose of cl 4 was to provide that the transfer of title to lot 340 was to be subject to the appellants' rights under cl 6 of the 1980 agreement in the sense that those rights were to be enforceable against the second respondents.

At first glance it might seem that the words of cl 4 are inadequate to achieve this purpose. But an acknowledgment of an antecedent agreement in an appropriate context may amount to an agreement or undertaking to recognize rights arising under that antecedent agreement. And here the inferences to be drawn from the matrix of circumstances are so strong that they necessarily influence the interpretation of cl 4. These inferences provide a secure foundation for imputing an intention to the parties and reading cl 4 as a reflection of that intention: …"

69 In my view all that was said there applies with equal force to cl 7 of the Olympic contract. The matrix of the "three significant factors" exists here. First, the making of an agreement between the Lochels and Olympic would result in the destruction of the rights of Urban Focus and the other landowners, or allow the destruction of those rights by registration of a transfer in favour of Olympic in circumstances whereby the rights became unenforceable and would expose the Lochels to liability for breach of contract. Secondly, upon registration of the transfer, the combined effect of s 68 and s 134 of the Transfer of Land Act would bring about the destruction of the rights of Urban Focus and the landowners, and thirdly, at least until registration of such a transfer, the equitable interest of Urban Focus on behalf of the landowners under the Owners' Deed, being first in time, had priority over the interest of Olympic as purchaser under the Olympic agreement which it had entered into with the Lochels.

70 I should briefly mention that the Lochels were in fact in breach of the Owners' Deed by not requiring Olympic to enter into a deed of covenant before entering into the Olympic contract, but that would have exposed the Lochels only to nominal damages, in circumstances where they had by cl 7 of the Olympic contract obliged Olympic to recognise the Urban Focus rights under the Owners' Deed. If cl 7 is not construed to oblige

(Page 22)

Olympic to recognise the rights of Urban Focus then the Lochels would have been exposed to substantial rather than nominal damages.

71 Brennan J reached the same conclusion, at 648, as Mason CJ and Dawson J, when he said:

"I construe cl 4 not as a mere acknowledgment of a fact but as a term of the contract limiting the purchasers' interest by defining the interest to which the purchasers' title should be subject."

72 I should mention before I complete my discussion of Bahr v Nicolay that the other two Judges, Wilson and Toohey JJ dissented on this point because they said that although cl 4 was included to give effect to the "understanding" that the vendor and purchasers were bound to observe the resale arrangement, cl 4 "may have been of itself insufficient for that purpose".

73 As a result of the consideration of that case, I would, using the words of Mason CJ and Dawson J, conclude that cl 7 amounted "to an agreement or undertaking to recognise rights arising under" the Owners' Deed. In my view, the inferences to be drawn from the matrix of circumstances are so strong that they necessarily influence the interpretation of cl 7 and they provide a secure foundation for imputing an intention to the parties in reading cl 7 as a reflection of that intention.

74 The final point I make about Bahr v Nicolay is that Brennan J had regard to what was said between the parties before the contract was concluded, whereas Mason CJ and Dawson J considered that evidence was inadmissible. I have set out what was said between the parties before the Olympic contract was signed, but like Mason CJ and Dawson J I do not rely upon those conversations in reaching my conclusion. See also Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337

75 As a result, I would uphold the appellant's ground of appeal (ground 3) that her Honour erred in her construction of cl 7 of the Olympic contract. The result is that under the Olympic contract, Urban Focus was entitled to exercise its rights under the Owners' Deed against Olympic. The rights of Urban Focus therefore constituted an "encumbrance" within the meaning of the general conditions of the Olympic contract. Clause 2 acknowledged that the sale was free of encumbrances, save as "specified" in the Olympic contract. Clause 7 did "specify" the rights of Urban Focus on behalf of the landowners under the Owners' Deed. So the sale was subject to the Owners' Deed.

(Page 23)

76 However, it will be seen from what follows that the appellants' success on this ground does not result in the appeal being allowed.

Early events after entry into the Olympic contract and the Mandurah contract

77 On 16 May 1996 the Lochels, pursuant to the Owners' Deed, signed a transfer of the Spearwood land to Urban Focus and gave it to Urban Focus which then lodged a caveat over the Spearwood property.

78 Olympic wished to substitute Bondgate for Olympic in the Olympic contract. Bondgate and Urban Focus communicated with each other and Urban Focus informed Bondgate that Urban Focus would withdraw its caveat if Bondgate signed a deed of covenant in accordance with the Owners' Deed.

The Lochels instruct Mr Thorpe to act

79 On or before 9 July 1996 the Lochels' agent instructed the appellant Mr Thorpe to act for them as their solicitor in relation to both the Olympic contract and the Mandurah contract. This was by letter from Peter James Settlements, the Lochels' previous settlement agent, dated 9 July 1996. The letter instructed Mr Thorpe that the date for settlement was 12 July 1996 because the strata plan was in order for dealing 14 days before that date. The letter informed Mr Thorpe that the Owners' Deed had been initialled by Olympic "in acknowledgment that this Deed did form part of the contract pursuant to clause 7 thereof".

80 The letter continued:

"… we were requested by Peter Bacich, a Director of Olympic Holdings Pty Ltd, that we reduce the purchase price of both the property being sold by Mr and Mrs Lochel and the property being purchased by Mr and Mrs Lochel as he felt the price of both these properties was approximately $40,000.00 over market value. Accordingly, and without prejudice, we forwarded to Olympic Holdings Pty Ltd their nominee being Bondgate Pty Ltd, new front sheets of the Offer and Acceptance documents reflecting the reduction in purchase price and a request that these be signed and returned.

We will then approach the Lochel's [sic] to ascertain if they were prepared to agree with the reduction in purchase price. We would then have had discussions with the solicitors acting on behalf of Olympic Holdings Pty Ltd and request that they

(Page 24)

carry out the necessary steps to ensure that the existing Contract is correctly cancelled and the new Contract put in place. No further action was taken with this request. The Contracts have not been returned by Olympic Holdings Pty Ltd or Bondgate Pty Ltd and we feel that there would be no requirement to assist with the accommodation and that the existing Contracts were still on foot and would proceed.

Without further prejudice, it is advised that the vendor companies' Director, Peter Bacich, is sometimes extremely difficult to get on with and we understand is in the habit of quite regularly delaying his settlements and, at the end of the day, tendering the settlement monies without any interest or penalties. In this circumstance, you will require to take instructions from the Lochels.

However, we feel the best course of action would be for the Contracts to be cancelled, the Lochel's property re-sold as our Real Estate Agency has a second purchaser who is quite willing to take over the sale and then sue Olympic Holdings for loss and damages.

Mr and Mrs Lochel have booked a trip to Germany three times in anticipation of settlement. They are now living in their home with very little furniture, having had their furniture containerised for moving to Germany and are, of course, anxious to finalise this matter."

81 Mr Thorpe immediately contacted Mony de Kerloy who was acting for Olympic, Bondgate and Frisquet. Mr Thorpe asked Mony de Kerloy to contact him urgently to arrange settlement on 12 July 1996. On 10 July 1996 Mr Thorpe threatened to issue a default notice if settlement did not take place. On 10 July 1996 Mr Thorpe also met Mr and Mrs Lochel who repeated what was said in the 9 July letter of instructions. Settlement did not take place on 12 July 1996 and on 16 July 1996 Mr Thorpe issued a default notice. As her Honour noted in her reasons for decision, this default notice was not relied upon and nothing more need be said about it.

82 A dispute then developed between Urban Focus and Olympic/Bondgate about what was required under the Owners' Deed. It is unnecessary to go into the details but in short, Urban Focus would not withdraw its caveat unless agreement was reached.

(Page 25)

83 On 26 July 1996 Mony de Kerloy wrote to Mr Thorpe saying that it was expected that their client was in a position to settle on both properties on 30 August 1996. The letter requested Mr Thorpe to send the Deed of Covenant (required under the Owners' Deed) for signing in exchange for Urban Focus' withdrawal of caveat. The letter concluded by asking whether the Lochels "will agree to the new contract on the basis that it more adequately reflects the true value of the properties." This was a reference to a proposal to reduce the purchase price in each of the two existing contracts by $40,000.

The 30 July 1996 letter

84 Mr Thorpe responded to Mony de Kerloy by letter dated 30 July 1996. I must set this out in full because what was said in the last paragraph is the foundation for the judgment in favour of Bondgate against the Lochels. It read:

Attention: Kirsty Bennett

Dear Sirs

254 HAMILTON ROAD AND 1670 CARAVAL WAY - OLYMPIC HOLDINGS PTY LTD AND LOCHEL

We refer to previous correspondence regarding the above and in particular to your facsimile transmission of July 24 and your letter of July 26. We enclose herewith copy correspondence from Messrs Majteles & Salmon dated July 26 1996. Paragraph number 2 is misconceived.

The land was offered to the Steering Committee who declined to purchase. However, the balance of the items (paragraphs 3 and 4) are in order. Coburg Nominees Pty Ltd is entitled to insist that it not be placed in any worse position than that in which it currently stands in respect of our client. Accordingly, not only should the Deed of Covenant be executed by your client but so should a transfer. In any event, Coburg Nominees Pty Ltd may require any party to the Deed to tender an executed transfer at any time. In the current circumstances notice has effectively been given that at the moment of execution of the Deed Coburg Nominees requires an executed transfer to be tendered.

(Page 26)

If your client wishes to negotiate a different arrangement with Urban Focus and Coburg Nominees Pty Ltd then it should do that direct. As the matter currently stands your client's conduct in refusing to execute a transfer amounts to a repudiation of its obligations under the contract which repudiation our client does not at this stage accept. However, unless the matter can be satisfactorily resolved by midday on Friday with settlement to be effected that afternoon we are instructed that our clients will at that time accept your client's repudiation and terminate the contract.

In respect of the re-drawn contracts we are instructed that our client will tender the executed new contracts and memoranda of transfer if your client will resolve its differences with Urban Focus and Coburg Nominees Pty Ltd. If they cannot be resolved then our client will rely upon the existing contracts.

Yours faithfully

(signed)

A C THORPE"

Bondgate contract and amended Mandurah contracts and the Bondgate promises

85 Her Honour found that this letter gave rise to what were called the "Bondgate promises" which involved, it appears to me, a novation discharging Olympic as a party in relation to the Spearwood land, introducing Bondgate as a new party and substituting two new contracts on similar but varied terms. The two "redrawn" contracts were called by her Honour the "Bondgate contract" and the "amended Mandurah contract".

86 The Bondgate contract was similar to the Olympic contract. The purchase price however, was reduced to $600,000, settlement was still to coincide with settlement on the other contract, and cl 5 and cl 6 were in the same terms as conditions 5 and 7 of the Olympic contract. Bondgate replaced Olympic as the purchaser. The other terms were the same as in the Olympic contract.

87 The amended Mandurah contract was similar to the Mandurah contract, although the purchase price had been reduced by $40,000 and

(Page 27)

otherwise settlement was still to be simultaneous with settlement in relation to the Spearwood property. The parties remained the same.

88 Her Honour found that the Bondgate contract and the amended Mandurah contract were to replace the Olympic contract and the Mandurah contract, subject to two conditions. The two conditions were that:

(a) Bondgate was to "resolve the Urban Focus impediments" and

(b) Bondgate had to be "relevantly ready, willing and able to settle".

This new contractual arrangement was called the "Bondgate promise".

89 Sometime in June the Bondgate contract and the amended Mandurah contracts were prepared, executed by the parties and then held by Mr Thorpe. Her Honour found that the Bondgate conditions had to be satisfied before the Olympic contract was terminated.

90 Mr Thorpe does not challenge her Honour's findings and conclusions as to the existence and enforceability of the Bondgate promise.

Events in August, September and November 1996

91 I now return to the chronology of events. Further argument took place between Urban Focus and Mony de Kerloy about what was required under the Owners' Deed but details about that argument are irrelevant. All that I need say is that by 23 August 1996, Urban Focus and Bondgate reached agreement resolving their differences. Mr Thorpe was told about this. I should add that throughout, Urban Focus was not much concerned about whether the purchaser of the Spearwood land was to be Bondgate or Olympic and at times referred to those parties as "Bondgate/Olympic".

92 During all of this the Lochels were showing admirable restraint. But by 28 August 1996 Mr Thorpe said that he was considering issuing a new default notice and on 13 September 1996 a default notice was issued. The default notice was directed to Olympic and correctly so. This is because by that date the conditions which would bring the Bondgate contract and the amended Mandurah contract into being had not been satisfied, because Bondgate had not arranged finance and was therefore not ready, willing and able to perform.

(Page 28)

93 The time for compliance with the default notice was fixed at 15 days which meant that there had to be compliance by the end of September 1996.

94 On 27 September 1996, Mr Thorpe wrote to Mony de Kerloy in the following terms. I must set it out in full:

"Dear Sirs

254 HAMILTON ROAD, SPEARWOOD - LOCHEL TO OLYMPIC HOLDINGS PTY LTD

We confirm your previous advices that settlement in the above matter cannot proceed because your client's financiers have declined to advance funds in the current circumstances.

We confirm that our clients have been expecting settlement since June this year and can wait no longer. We further confirm a default notice was forwarded to your offices and to the registered office of your client on the 13th September 1996. We further confirm that that notice is to expire next week. If your client proposes to settle prior to the expiration of the notice please contact us as a matter of urgency.

Yours faithfully

(signed)

A C THORPE"

95 On 3 October 1996, Mony de Kerloy wrote to Mr Thorpe referring to the letter of 27 September 1996. I must set this out in full because the appellant based much of his argument on the effect of this letter:

"Dear Sir

PURCHASE OF 254 HAMILTON ROAD, SPEARWOOD

We refer to your letter dated 27 September 1996.

Your client's [sic] were aware or should have been aware before entering into the contract of sale that the Owner's Deed was at an end as a result of two parties being released from the Deed. It is now your client's responsibility to obtain that release and provide clear title before settlement can proceed.

(Page 29)

Clear title includes a release of your clients by Urban Focus from the Owners Deed.

We confirm that our client has lodged a caveat over the property to protect its interests as purchaser under the contract.

Unless your client can deliver clear title to the property our client will have no alternative but to seek an order from the Supreme Court for specific performance of the contract.

Yours faithfully

(signed)

MONY DE KERLOY

3 October 1996"

96 This letter has been the subject of much analysis, first in her Honour's reasons for decision and then again during submissions on this appeal. Her Honour held that this letter was written on behalf of Olympic. This conclusion is challenged by the appellant who says that the letter was written on behalf of both Olympic and Bondgate, and that the demand for the delivery of "clear title" was in effect a repudiation of the Bondgate promises by Bondgate. It was clear that Mony de Kerloy was acting for both Olympic and Bondgate. The point is, however, that the letter was simply responding to the letter of 27 September 1996 and the subject of that letter was the default notice which had been directed to Olympic. I do not agree with the appellant's submissions that this letter of 3 October 1996 can be read as a repudiation of the Bondgate promise. I would therefore dismiss the ground of appeal (ground 6 and 7) about her Honour's findings in this regard. In any event, it seems to me that this letter disappears into history and loses its significance because of subsequent events. Even if the letter did amount to repudiation of the Bondgate promise, the repudiation was not accepted. In any event, as her Honour said, repudiation and acceptance were not pleaded, and counsel at the hearing before us expressly denied that when Mr Thorpe purported to terminate the Olympic contract on 4 November 1996 that he did so in acceptance of the alleged repudiation in the 3 October letter. After the 30 October 1996 letter the parties continued to deal with each other on the basis that steps were being taken to try and fulfil the Bondgate conditions.
(Page 30)

The Smart Investments contract and other events after 30 October 1996

97 There were important events which occurred immediately after Mony de Kerloy's letter of 3 October 1996. The Lochels, via their agent, then resold the Spearwood land. This might be regarded as very unwise given that Mr Thorpe had not terminated the Olympic contract. However, the Lochels said that they thought that the Olympic contract had come to an end. The sale of the Spearwood land by the Lochels was to Smart Investments Pty Ltd by contract dated 4 October 1996. The sale price under that contract (see AB 1356) was $600,000, settlement was six weeks from acceptance and there was a condition 8 which read:

"If there is a delay in Settlement by the previous Purchaser refusing to remove his caveat the vendor will not be liable for any cost or penalty caused by the delay."

98 The arrangement with Smart Investments Pty Ltd also included an exchange of properties. The second agreement required the Lochels to purchase some land from Mr Zielinski, a director of Smart Investments Pty Ltd, but the terms of that agreement are not relevant, save that it had a similar provision about delay in settlement as in the contract just referred to.

99 Mr Zielinski of Smart Investments gave evidence at the trial that he knew about the transactions involving Olympic and Bondgate, thought that these contracts had come to an end, that he regarded the Lochels as "innocent" and if there was a problem he would not insist on his contract if a court held that the Lochels were obliged to sell to either Olympic or Bondgate. However, what he did not say was that if Bondgate/Olympic and the Lochels wished to settle under the Olympic contract, he would attend at settlement and withdraw Smart Investments' caveat over the Spearwood land title which it had lodged to protect its contract.

100 Her Honour found that the Lochels' entry into the Smart Investments contract was a repudiation of the Olympic contract and the Mandurah contract and that this breach "prevented them from terminating the Olympic contract on 4 November 1996". The appellant challenges that conclusion on appeal in ground 8. However, for reasons which appear later, it is not necessary to consider this ground because success or failure on this ground of appeal will have no overall effect on the outcome of the appeal. I should mention however, that another ground of appeal (ground 8A) contended that the Smart Investments contract did not amount to repudiation because the Smart Investments' contract "was only entered by Lochels' and Smart Investments on the basis of that contract

(Page 31)

being performed following a prior valid termination of the Olympic contract, and so there was no repudiatory consequences from its entry." (See ground 8.3). I disagree with that contention. In my view the evidence makes it clear that Mr Zielinski of Smart Investments was only prepared to give up the Smart Investments contract if a court determined that the Olympic contract was valid. If the parties to the Olympic contract had had to wait until a court resolved that issue, that would not have established that the Lochels were ready, willing and able to settle on 4 November 1996 if the Lochels' readiness, willingness and ability to settle on that day was relevant to the outcome of this appeal (which I conclude later it was not).

101 A further month went by. There were telephone calls between Mr Thorpe and Ms Bennett of Mony de Kerloy. Mr Thorpe knew that Urban Focus and Bondgate had reached an accord. He knew that the only impediment to the fulfilment of the promise was if Bondgate did not arrange finance. Mr Thorpe continued to act on the basis that the Bondgate promise was still on foot. However, over at the real estate agent's office, the Lochels' agent was acting as though the contracts involving Bondgate and Olympic had been terminated. The agents wrote to local authorities telling them that the contracts had come to an end and that the Smart Investments' contract was on foot.

102 There were telephone conversations between Mr Thorpe and Ms Bennett on 22 October and 25 October 1996. In the conversation on 22 October Ms Bennett informed Mr Thorpe that Bondgate had arranged finance. She asked Mr Thorpe to give her the Bondgate and the amended Mandurah contracts so she could stamp them. Mr Thorpe declined to do so. On 25 October 1996 she brought up the subject of settlement and the need for the preparation of a settlement statement. On 29 October 1996, Bondgate's financiers had prepared mortgages and were ready to attend settlement.

103 On 30 October 1996 Ms Bennett discovered the existence of the Smart Investments' caveat. She was surprised by this and immediately rang Mr Thorpe about it. On 30 October 1996, in that telephone conversation between Mr Thorpe and Ms Bennett, Mr Thorpe said the Smart contract took into account the Olympic contract, which it did not.

104 On 1 November 1996, Mony de Kerloy wrote to Mr Thorpe as follows:

"Dear Sir

(Page 32)

PURCHASE OF 254 HAMILTON ROAD, SPEARWOOD

We refer to recent correspondence in relation to this matter.

We note that there has been another caveat lodged over the property pursuant to an alleged contract for the sale of Lot 254 Hamilton Road, between the Lochel's as vendors and Smart Investments Pty Ltd as purchasers.

We confirm that you have advised us that there are certain conditions on this contract which take into account Olympic's position.

Our client continues to be ready, willing and able to settle on the above contract.

Please put your clients on notice that if they are not ready willing and able to settle within 24 hours or provide us with a specific date for settlement within the next (7) seven days then our client will be seeking specific performance of the contract and penalty interest.

Please let us know whether your client is in a position to settle on the above contract."

105 The appellant submits that when Mony de Kerloy said their client was ready, willing and able to settle, that this should not be taken at face value. However, the fact is that Bondgate was indeed ready, willing and able to settle. It had satisfied both of the Bondgate conditions and it now wanted to settle. I see no reason why the letter should not be read as an accurate statement of Bondgate's position.

106 On 1 November 1996, Mony de Kerloy also wrote a letter to Kott Gunning. Kott Gunning were the solicitors acting for Smart Investments. The letter asked them to remove the Smart Investments' caveat and stated that if the caveat was not removed prior to settlement, their client would be claiming damages.

The 4 November 1996 letter

107 On 4 November 1996 Mr Thorpe wrote to Mony de Kerloy in the following terms:

"Dear Sirs

(Page 33)

OLYMPIC HOLDINGS PTY LTD AND LOCHEL - 254 HAMILTON ROAD, SPEARWOOD

We refer to your facsimile transmission of November 1 1996.

The content therein misrepresents your client's position as it had been stated to us over recent weeks. In particular, we refer to your letter of October 10 1996 confirming the conversation wherein your Ms Bennett advised that your client was still unable to obtain finance and was considering repurchasing our clients' mortgage with a view to bringing about a partial settlement by reducing our clients' on-going liabilities.

To the extent that it may be necessary, our client hereby terminates the contract as a consequence of your client's failure to comply within time with either of the default notices served upon it.

Yours faithfully

(signed)

A C THORPE"

The substantial issue in this case is about the effect of this purported termination.

108 Mr Thorpe's case requires an acceptance of his view, expressed in his letter of 4 November 1996, that the 1 November 1966 letter from Mony de Kerloy contained a misrepresentation or should not be taken at face value. Counsel for Mr Thorpe harkened back to the 3 October 1966 letter, and submitted that it (the 3 October letter) should be read as a letter from Bondgate. He asked that the demand by Bondgate for clear title be treated as a repudiation of the Bondgate conditions and contends that this attitude continued unaltered through until 1 November 1996. I disagree with that submission. I have explained earlier why I disagree, and why I think the 3 October 1966 letter passed into history, and became irrelevant because of the events in October which must have made it plain that Bondgate was working its way towards satisfying the Bondgate conditions.

109 I agree with her Honour's assessment that it can be inferred from Mr Thorpe's conduct that on receipt of Mony de Kerloy's letter of 1 November 1996 he finally came to grips with the events that had occurred during a period of inattention to the Lochel's affairs, and without

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reference to, or further instructions (either general or specific) from his client, purported to terminate the Olympic contract. Her Honour also said that Mr Thorpe's conduct was suggestive of panic [201]. Well before then and before he issued the September default notice (her Honour found) Mr Thorpe had been given instructions to terminate the Olympic contract. He failed to do so but the Lochels and the agent thought he had done so. The Lochels then sold to Smart Investments, therefore making it impossible for them to settle on the Bondgate contact. Mr Thorpe belatedly realised what had happened and then acted without instructions, and purported to terminate the Olympic contract. By the time he did this however, the Bondgate conditions had been satisfied and it was the Bondgate contract and the amended Mandurah contract which were then on foot.

Purported termination of the Olympic contract ineffective

110 The appellant in ground 1 asserts that the 4 November 1996 letter "validly" terminated both the Olympic contract and the Bondgate promise. I will deal first with the contention that it terminated the Olympic contract.

111 In my opinion the purported termination of the Olympic contract was ineffective because that contract had already come to an end. It came to an end as soon as the Bondgate conditions were satisfied. I note that her Honour considered the effect of Mr Thorpe not tendering the new contracts and that she concluded that this had no relevant effect because Mr Thorpe's clients could not rely on their wrongful act to say that the Olympic contract was still on foot and could be terminated for breach. That conclusion was not challenged. The Bondgate conditions were satisfied when Bondgate obtained finance before the end of October 1996, and certainly by 1 November when Mony de Kerloy told Mr Thorpe that their client was ready, willing and able to settle. The 4 November 1996 termination of the Olympic contract was therefore the purported termination of a non-existent contract.

112 I now refer to the contention that the letter "validly" terminated the Bondgate promise. In my opinion it did not do so because the Lochels had no valid reason for terminating the Bondgate promise. Bondgate was by that date ready, willing and able to settle. If by the letter Mr Thorpe intended to refer to the Bondgate contract, it was therefore a repudiation of the Bondgate contract and the amended Mandurah contract. In any event, the letter referred in the heading to the Olympic contract not the Bondgate contract. Ground 1 must therefore be dismissed.

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113 Some of the grounds of appeal contended that the Lochels were ready, willing and able to settle (ground 2, 4, 5 and 8), but in my opinion those contentions are irrelevant because by 4 November 1996 the Lochels had no right to terminate the Bondgate contract. It is only relevant to enquire whether a party is ready, willing and able to settle if that party does have a right to terminate the contract. I repeat that the Lochels had no such right in relation to the Bondgate contract and I repeat that in any event Mr Thorpe, on behalf of the Lochels, purported to terminate the non-existent Olympic contract. He did not claim to be terminating the Bondgate contract.

114 The Lochels breached the Bondgate contract by refusing to settle and so Bondgate sued for and was correctly held to be entitled to damages from the Lochels.

Breach of contractual and tortious duties by Mr Thorpe

115 Her Honour began by correctly noting that a breach of a solicitor's duty to exercise reasonable care and skill is not established merely because legal advice is wrong. Breach will be established if the opinion or advice is not to the standard expected of a reasonably competent solicitor.

116 Her Honour concluded that Mr Thorpe failed to exercise reasonable care and skill in advising, in September 1996, that Olympic was in breach and that the defendants were ready, willing and able to settle and that the Lochels could validly terminate the Olympic contract. However, as a result of the appellant's success in relation to ground 3, and in relation to the proper construction of cl 7 of the Olympic contract, I consider that her Honour erred in reaching that conclusion. However that does not mean that the appellant succeeds on the appeal for the following reason.

117 The second breach complained of, and which her Honour referred to in [194], was that Mr Thorpe failed to terminate the Olympic contract in accordance with the Lochels' instructions, within a reasonable time. Her Honour concluded that there was no window of opportunity in which termination could have taken place, but I disagree with that conclusion. Her Honour made a provisional finding at [198] which applies in view of my construction of cl 7 of the Olympic contract. Her Honour said that:

"If, contrary to my finding, the [Lochels] … were ready willing and able to settle up to the time of entering into the Smart Investments Contract, Mr Thorpe would be in breach of his duty to exercise reasonable care and skill in failing to confirm both

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that there was no material change of circumstances and the [Lochels'] earlier instructions and thereafter terminate the Olympic Contract before 4 October 1996."

118 In my view the Lochels were ready, willing and able to settle up until 4 October 1996 (when they entered into the Smart Investments' contract). Mr Thorpe was instructed to terminate the Olympic contract in September 1996, and he did not do so as soon as the time specified in the default notice expired. That is the cause of all the problems that have followed. By failing to comply with their instructions, Mr Thorpe was in breach of his contractual obligations and general duty of care.

119 I also agree with her Honour's conclusion that Mr Thorpe breached his duty in causing Mrs Lochel to understand that the Olympic contract had been validly terminated by the time the Lochels executed the Smart Investments contract and by failing to advise the Lochels that by entering into the Smart Investments contract they had committed a serious breach of the Bondgate promise (see [193]).

Grounds 11, 13 and 14

120 Ground 11 of the grounds of appeal reads:

"The learned Judge erred in law in concluding that Thorpe had failed to exercise reasonable care and skill as a solicitor in advising the Lochels:

11.1 that Olympic was in breach of the Olympic contract;

11.2 the Lochels were ready, willing and able to settle the Olympic contract; and

11.3 the Lochels could validly terminate the Olympic contract;

when Thorpe was correct in his advice as to the Lochels on these issues, or further, when having regard to matters in grounds 1 to 8 above, a competent solicitor in the position of Thorpe, even if held by a court ultimately to be wrong in law about these issues could still reasonably have reached the same conclusions without negligence, and accordingly have advised a client in terms as Thorpe did."

121 I agree with the contention in this ground of appeal that her Honour erred in concluding that Mr Thorpe breached his duty in advising that the Lochels were ready, willing and able to settle (by the end of September)

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and that they could terminate the Olympic contract (before 4 October). On my construction of cl 7 of the Olympic contract Mr Thorpe was correct to advise the Lochels that they could terminate the Olympic contract in September 1996. Her Honour found (provisionally) that Mr Thorpe should have acted on his instructions to terminate the Olympic contract. Her Honour found that Mr Thorpe should not have caused Mrs Lochel to understand that the Olympic contract had been validly terminated by the time the Lochels executed the Smart Investments contract. Thus, success on ground 11 does not save Mr Thorpe from the award of damages for breach of contract and in tort.

122 This conclusion also deals with ground 13, save for ground 13.2. These grounds, in effect, contend that her Honour should have accepted the evidence of Mr Thorpe to the effect that he had told Mrs Lochel to sign no offer without Mr Thorpe first seeing it, that it had to be drawn in a way that made acceptance subject to the Olympic contract not proceeding, and that Mrs Lochel replied with words to the effect that she would show him any offer before signing it. In my view, even if that ground succeeded, it would have no effect because it does not overcome the simple fact that Mrs Lochel had instructed Mr Thorpe to terminate the Olympic contract. If he had complied with that instruction he would have done so before the Smart Investments contract was entered into, in which case an examination of what Mr Thorpe advised or did not advise in relation to the Smart Investments contract would not have mattered. I would therefore dismiss ground 13.

Ground 14

123 I now turn to ground 14 which contends that her Honour erred in concluding that, on the "hypothesis [that] had Thorpe properly discharged his duties as solicitor to the Lochels by keeping Mrs Lochel better informed … that the Lochels would have instructed Thorpe at the end of September or early October 1996 that the Lochels wished to perform … the Bondgate Promise and thereby avoided embroilment in the Action". This ground, however, ignores the fact that her Honour found that Mr Thorpe had been instructed to terminate the Olympic contract and that if he had carried out that instruction before the Bondgate conditions had been satisfied, that all contractual arrangements between the Lochels and Olympic and Bondgate would have come to an end. Mr Thorpe should have carried out that instruction as soon as the 15 day period specified in the 13 September default notice expired.

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Breach of fiduciary duty owed by Mr Thorpe to the Lochels

124 Her Honour found at [243]:

"… I am satisfied that in acting for the [Lochels] in the action Mr Thorpe was in a position of conflict of interest because his acts and omissions are at the heart of the questions in issue in the plaintiffs' claim against the [Lochels]. He and his firm were in a real sense defending his actions and advice, what little there was of it."

125 Her Honour adopted the statement of Thomas J in Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 at 589 that:

"There is, in such circumstances, a danger that the client will not be represented with the objectivity and independence which the client is entitled to and which the court demands. There is no sound reason to presume or accept that the solicitors must first have the opportunity to clarify whether their client is liable as a result of their actions or of acting on their advice before confronting the conflict."

126 One of Mr Thorpe's omissions was his failure to terminate the Olympic contract. Her Honour concluded at [191] that although Mr Thorpe considered that he could terminate the Olympic contract, he could not do so (because of her Honour's construction of cl 7 of the Olympic contract). However, as appears from the above, I take a different view of cl 7 from her Honour and I have upheld the appellant's argument in this regard.

127 Her Honour recorded Mr Thorpe's view about the situation at [184] where she said:

"Mr Thorpe's uncontradicted evidence, which I accept, was that his view in September 1996 was that all matters associated with Urban Focus had been resolved, that Olympic was clearly in breach of the Olympic Contract, that the defendants were not in breach and would be able to comply with their obligations at settlement and that he conveyed this information to Mrs Lochel before the issue of the September default notice. Nothing was said to her thereafter by Mr Thorpe to alter that assessment."

128 Mr Thorpe, of course, denied that he was instructed to terminate the Olympic contract but her Honour found at [190] that Mrs Lochel did

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instruct Mr Thorpe before the issue of the September default notice that the Lochels wanted to terminate the Olympic contract. It follows that Mr Thorpe was in breach of duty to his client. He failed to carry out his instruction to terminate the Olympic contract immediately after the period in the September default notice expired.

129 Once the default notice time expired at the end of September, Mr Thorpe could have terminated the Olympic contract. Furthermore, Mr Thorpe thought that he could terminate. If Mr Thorpe had done so, then the Lochels would not have been in the impossible situation of having sold the Spearwood property to two purchasers.

130 Olympic issued a writ in November 1996 seeking specific performance of the Olympic contract. Although the action was amended, much later, to bring in Bondgate, which then sued and succeeded on the Bondgate promise, the situation in November 1996 was that Mr Thorpe was acting for the Lochels who were defending an action by Olympic for specific performance of the Olympic contract. He had been instructed to terminate that contract and he had not done so. That put him in an impossible position of conflict. Mr Thorpe should have immediately informed the Lochels that he could not act to defend a claim to enforce a contract which he had been instructed to terminate, and which instructions he had not carried out.

131 I am therefore of the opinion that her Honour was correct on the weight of the authorities to which the trial Judge referred. Mr Thorpe was in breach of his fiduciary duty. Ground 15 consequently fails.

Damages for physical inconvenience, discomfort and mental distress - Ground 16 and 17

132 Her Honour awarded $30,000 to the Lochels against Mr Thorpe by way of damages under this head. Although her Honour does not expressly say so, I assume this award was by way of damages for breach of contract and the breach of the general law duty to exercise reasonable care.

133 The Lochels in par 10B of their re-amended third party statement of claim, pleaded that:

"In breach of the terms of the retainer, alternatively in breach of the fiduciary duties, [Mr Thorpe] has in the course of representing the defendant since the commencement of these proceedings conducted them in such a way as to cause undue

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delay, stress, hardship and unnecessary expense to the [Lochels]."

134 Particulars of conduct were given in relation to this paragraph. I need not set them out because I will refer in a moment to the findings that her Honour made. Paragraph 11 of the Lochels' statement of claim against Mr Thorpe read that:

"By reason of [Mr Thorpe's] negligence and breaches of retainer … alternatively his breaches of … fiduciary duties, and the matters pleaded in paragraphs … 10B … the [Lochels] have suffered or will suffer loss and damages."

135 Particulars were given of the loss and damages, relevantly [11.3] reading:

"Stress, anxiety, loss of enjoyment of life, physical discomfort and inconvenience and, in respect of the first named defendant, clinical depression, stemming from these proceedings."

136 Her Honour found that Mr Thorpe, in the course of representing the Lochels in the action, conducted in such a way as to cause "undue delay, stress, hardship and unnecessary expense." [237] and his conduct fell well below the standard of a competent solicitor. The conduct, which her Honour said was particularised and largely uncontentious, was that Mr Thorpe:

"(1) failed to file an appearance on behalf of the defendants within the time specified in the

Rules of the Supreme Court

(WA);

(2) failed to file a defence on behalf of the defendants in accordance with orders made by the Court resulting in the plaintiff entering default judgment against the defendants and making it necessary for Mr Thorpe to apply for and obtain orders setting the judgment aside;

(3) without instructions, commenced an appeal against orders made in respect of costs;

(4) without instructions, consented to orders discontinuing the appeal and fixing the costs payable by the defendants in the sum of $600;

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(5) failed to attend status conferences on the defendants' behalf on three dates in 1997; …"

137 The claim was quantified by the Lochels at $100,000 and was particularised as Item 13 in the Lochels' schedule of "damages" being for "mental anguish, anxiety, pain, physical discomfort, inconvenience."

138 When her Honour dealt with Item 13 of the claim for damages, she referred to the High Court's decision in Baltic Shipping Co v Dillon (1993) 176 CLR 344 and to the general rule that damages for anxiety, disappointment and distress are not recoverable in actions for breach of contract. Her Honour said that "the Baltic Shipping general rule being grounded in policy rather than logic, I do not understand the principles in negligence (as distinct from intentional torts) or equity to be wider than those in contract." [262] Her Honour also noted that the general rule was subject to exceptions which relevantly include where physical inconvenience has been caused to the other party or where there is a breach of an express or implied promise to provide pleasure, relaxation or freedom from distress. Her Honour found that there was no relevant implied (or express) term. Her Honour found that Mr Lochel's psychiatric condition was not causally connected with the litigation.

139 I now refer to two paragraphs in her Honour's reasons where she refers to "physical inconvenience". The first is at [263] where she said:

"The uncontradicted evidence is that the [Lochels] suffered physical inconvenience and discomfort as a result of the delay in settlement. They had sent their furniture to Germany and were living in spartan conditions. I am satisfied that the defendants also suffered consequential mental distress although Mr Thorpe is only responsible for the delay between mid November 1996 and 15 January 1997."

140 Her Honour then said at [266]:

" … I am satisfied that the [Lochels] suffered physical inconvenience and discomfort as a result of these proceedings. I accept that Mr Thorpe's conduct (or more appropriately misconduct) of the proceedings resulted in unacceptable delays in the action, that he failed to communicate with his clients and that these were material factors in the defendants' decision to return to Perth. I also accept Mrs Lochel's evidence that they sold their Seascapes property and moved into rented accommodation in order to fund this litigation. In those

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circumstances I would award the defendants damages for physical discomfort and inconvenience as well as the consequential mental distress associated therewith. From all accounts, Mr Lochel has had little or nothing to do with the proceedings. However, I am satisfied that the physical inconvenience would have caused mental distress to both defendants. There is little to guide the quantification of this head of claim. I would award $30,000."

141 Ground 16 of the appellant's grounds of appeal contend that:

"16.1 there was no valid basis raised in law for an award of damages for claimed physical inconvenience and discomfort, or consequential mental distress applying Baltic Shipping v Dillon …;

16.3 further the overwhelming weight of evidence established that the Lochels voluntarily and consciously chose over time to continue with the Action and to press their counterclaim against Olympic therein, to the extent that any conduct on the part of Thorpe earlier than 22 November 2000 could not in any event have been shown as causative of any injury to the Lochels."

142 This ground, and particularly grounds 16.2 and 16.3 therefore requires a consideration of the evidence which was as follows. Mrs Lochel said that she and her husband had migrated to Australia from Germany in 1982 and that they had lived there ever since. Mrs Lochel had been a real estate agent in Germany and a principal of her own business but had not worked as such in Australia. Her husband worked as a bricklayer in Germany and in Australia. They had purchased the Spearwood land in 1988 and they built a house on the land. When the negotiations with Olympic began, it became clear that the arrangement was one which would involve them purchasing a residence on the Mandurah land. They liked the Mandurah land property and were happy

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to acquire it to be used as their home in Australia. They had planned to return to Germany as soon as settlement was completed and had booked airfares for that purpose. They placed their furniture in storage and sold their car in anticipation of the settlement. They were living in a house with almost no furniture in it and they had no income. They were therefore living in "spartan conditions" even before Mr Thorpe was instructed. They told Mr Thorpe all of this at the time that they first met with him on 10 July 1996. On 31 January 1997 after the litigation began they flew to Germany. Mrs Lochel said that she heard very little from Mr Thorpe when she was in Germany, although she tried to telephone him on several occasions. He did not seek her instructions as to any aspect of the court proceedings and the Lochels did not receive copies of any documents or correspondence, save for a facsimile in May 1997. Mr Thorpe did not tell them that they were ordered to pay Olympic's costs of setting aside the default judgment, which had been entered against the Lochels for default in relation to some step in the proceedings. They were not told about an appeal against the costs order and they did not know about the resolution of that appeal. Mrs Lochel said that while they were in Germany she was constantly worried about the lack of progress in the proceedings and that she had little or no feedback from Mr Thorpe. On 26 July 1998 they returned to Australia primarily to deal with the litigation.

143 In examination-in-chief, Mrs Lochel was asked why she should be able to claim the travel expenses of going to Germany and she said that it was because they had to come back to Australia "… because nothing was happening and we were worried, you know, that we couldn't stand it any more and then we were thinking of going back and deal ourselves with it." (AB 449) In cross-examination she said that the only reason they came back to Australia was because the litigation was unfinished (522). It was put to her that there was nothing in correspondence before November 2000 in which she or her husband complained about how Mr Thorpe had been dealing with the proceedings and Mrs Lochel commented "Well, how could I? I hardly get him. There wasn't hardly any calls from them." (524) The appellant also points to the fact that her Honour found that Mr Thorpe failed to communicate with his clients and that this was a material factor in the Lochel's decision to return to Perth [266]. The little communication there was between Mr Thorpe and the Lochels showed no signs of tension or distress. On 16 May 1997 Mr Thorpe wrote to the Lochels telling them that the action had gone quite slowly and was becoming a "real epic". He briefly explained that Olympic had joined a further defendant, being the people who were to loan the purchase moneys

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to Olympic. He enclosed the latest statement of claim, said that he was dealing with the defence and ended by saying that "I trust that life back in Germany is to your liking". Mrs Lochel responded, thanking him for the fax. The appellant referred to another facsimile dated 18 November 1997 from Mrs Lochel sending some papers, asking Mr Thorpe to let them know what else was needed and thanking him for a facsimile that he had sent.

144 From this review of the evidence, the appellant contended that even though the events that her Honour found had occurred, the Lochels were not aware of those events and that any distress they suffered was the kind of distress that many litigants suffer as a result of being caught up in litigation.

145 The question is whether as a result of these events the Lochels made out their claim on the facts. First though, is the question as to whether the law permits any award at all. The High Court in Baltic Shipping Co v Dillon stated the general rule that damages for anxiety, disappointment and distress are not recoverable in actions for breach of contract (Mason CJ (361), Toohey J agreeing, Brennan J (368 - 369), Deane and Dawson JJ (381), McHugh J (404 - 405)).

146 There are however, exceptions to the general rule. The exception which applied in Baltic Shipping v Dillon was the exception that damages may be awarded for distress, vexation and frustration where the very object of the contract as been to provide pleasure, relaxation or freedom from molestation (Mason CJ (363), Brennan J (370 - 371), Deane and Dawson JJ (381), McHugh J (405)).

147 The contract between Mr Thorpe and the Lochels in this case was clearly not a contract, the object of which was to provide enjoyment, relaxation or freedom from molestation. In other words, it was not a thwarted holiday case like the Baltic Shipping case was. Nor is this a freedom from molestation case like Heywood v Wellers [1976] QB 446, where the plaintiff instructed a solicitor to obtain an injunction to protect the client from molestation and the solicitor negligently failed to do so. The client suffered damages for the mental distress she suffered in consequence of being molested. The contract between the client and the solicitor in that case had as its object, the protection of the client from molestation of the kind which occurred.

148 Another exception to the general rule was mentioned as obiter in Baltic Shipping v Dillon, that being that damages may be awarded as

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compensation for mental suffering consequent upon physical inconvenience as a result of the defendant's breach of contract. See Mason CJ (363), Deane and Dawson JJ (381) and McHugh J (405). The appellant did not argue that such an exception does not exist.

149 It might be recognised immediately, that there are likely to be difficulties in determining what amounts to "physical inconvenience" which may give rise to a claim for damages for this purpose. This difficulty was discussed by Zelling J in Athens-MacDonald Travel Service Pty Ltd v Kazis [1970] SASR 264 at 274. Because the Baltic case was not concerned with this exception, it did not discuss any principles which might guide courts in this respect. However, the case of Hobbs v The London & South Western Railway Co (1875) LR 10 QB 111 was cited by Mason CJ, Brennan and McHugh JJ in the Baltic Shipping case as an example of a case falling within this exception. In Hobbs, the plaintiff with his wife and two children of 5 and 7 years old, took tickets on the defendant's railway from Wimbledon to Hampton Court by the Midnight train. They got into the train but it did not go to Hampton Court but went along another branch to Esher where the party was compelled to get out. The plaintiff was unable to get any conveyance to take him home and was unable to obtain accommodation at an inn. The group therefore walked to the plaintiff's house, a distance of between four and five miles where they arrived at about 3 am. They were awarded damages. This case would have been entirely unexceptional if the party had hired a carriage, if they could have found one, and gone home. They could then have claimed damages for the cost of the carriage. The only point here, however, was that the inconvenience could not be measured by an expenditure of money, but the activity of walking home was the substitute for the train trip which should have delivered them home. Cockburn CJ said in Hobb's case that damages were allowed because the inconvenience was the "immediate" effect of the breach; McHugh J in the Baltic Shipping case quoted this part of Cockburn CJ's judgment with approval.

150 I now turn to the facts and the findings which have been made in this case. There is some uncertainty about why her Honour awarded damages under this head. In [263] her Honour noted that the uncontradicted evidence was that the defendant suffered physical inconvenience and discomfort "as a result of the delay in settlement". Her Honour refers to the fact that they sent their furniture to Germany and were living in "spartan conditions".

151 In my opinion, if that is the foundation for the award of damages under this head, then it is in error for two reasons. First, because the

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Lochels' pleadings never claimed that there was inconvenience associated with delayed settlement. The pleadings and particulars allege that the inconvenience arose out of the conduct of the litigation. Secondly the Lochels had packed their furniture into containers and were living in spartan conditions even before they instructed Mr Thorpe. This is clear from the 9 July 1996 letter containing Mr Thorpe's initial instructions. However this was probably not the foundation for the award of damages.

152 As the appellant submits, it seems that the "real basis" for the award is to be found in [266] which I have quoted above. I agree. It is clear from that paragraph that the conduct of the litigation is the foundation for the award of damages under this head. Her Honour awarded damages because Mr Thorpe failed to communicate with his clients and she held that this failure to communicate and the unacceptable delays in the action were material factors in the Lochels' decision to return to Perth. Her Honour also accepted evidence that the Lochels sold their house in Australia and moved into rented accommodation in order to fund the litigation. These two matters, ie the inconvenience of returning to Perth from Germany and the inconvenience of having to shift from their existing property into rented accommodation, were the foundation for the award of $30,000.

153 The "inconvenience" of travelling by air from Germany to Perth, in my opinion, does not qualify as "physical inconvenience" justifying an award of compensation. The Lochels continued to own a home in Western Australia so it is likely that at some stage they may have wanted to fly to Perth from Germany. However, even if that were not so, a plane journey is not in my opinion an event which can be categorised as "physical inconvenience" warranting an award of damages. Furthermore, if the case had been properly conducted, Mr Thorpe would have asked Mrs Lochel to return to Australia so that a proof of evidence could be taken from her. This was litigation with a complex history and telephone conferences would not have been a satisfactory way of taking a proof of evidence and taking instructions. Thus if a properly conducted case required Mrs Lochel to fly to Perth from Germany it is not, in my opinion, logical to say that Mrs Lochel suffered "physical inconvenience" by flying to Perth to see Mr Thorpe. She merely did what she would have done if Mr Thorpe had not been negligent in the conduct of the proceedings. I have only mentioned Mrs Lochel because, as her Honour found at [66], Mr Lochel had "little or nothing" to do with the proceedings. Her Honour's conclusion that the proceedings "would have" caused him mental distress is, in my respectful opinion, no basis for an award of damaged to Mr Lochel.

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154 If living in rented accommodation is said to be the physical inconvenience justifying the award then there is no evidence about what the physical inconvenience might have been. In Bailey v Bullock [1950] 2 All ER 1167 such evidence was given. In that case a solicitor was held to be in breach of contract in failing to secure possession of the plaintiff's house. The solicitor deceived the plaintiffs into thinking he had taken action to secure possession when he had done nothing. Barry J said at 1171:

"The plaintiff has given me detailed evidence as to the conditions obtaining in his parents-in-law's house during the long period that he was forced to reside there. He and his wife had a small boy, then aged, I think, about 6. They were compelled, all three of them, to share one bedroom. Then, his father-in-law and mother-in-law were both elderly people, one seventy-one and the other seventy. He has described to me in detail the discomforts and inconveniences of a life which he was forced to live for so long a time."

155 No such evidence was given about the conditions under which the Lochels were living in the rented accommodation. My understanding is that the "spartan conditions" referred to in [263] of her Honour's reasons was not a reference to the rented accommodation in which the Lochels lived after they returned from Germany.

156 Furthermore, this was not a case like Bailey v Bullock where the solicitor was instructed to gain possession of premises which the plaintiffs wished to occupy. Mr Thorpe's retainer was to act in relation to the settlement of two contracts and to terminate them in the event of default. The alleged inconvenience of living in rented accommodation when the Lochels returned to Australia in relation to the conduct of the litigation could not be said to be the "immediate" effect of the breach of the original retainer. The inconvenience of living in rented accommodation did not have the immediacy which the breach of contract had in Hobbs' case, where the plaintiff and his family had to walk home rather than be carried by train as the contract provided. Furthermore, there is no evidence that if the litigation had been properly conducted that the Lochels would not have sold their home and lived in rental accommodation. Her Honour merely found at [266] that the Lochels "sold their Seascapes property and moved into rented accommodation in order to fund this litigation". Her Honour did not find that these events occurred as a result of the litigation being negligently conducted.

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157 Finally, the "physical inconvenience" of living in rented accommodation does not satisfy the requirements of either limb of Hadley v Baxendale insofar as a claim is based in breach of contract. It is also too remote to be compensable in tort for breach of the duty to act with reasonable care in relation to the settlement of the contracts and termination of the contracts.

158 If equitable compensation may be awarded in equity for "physical inconvenience", (a point not mentioned save in passing during submissions),then the inconvenience of living in rented accommodation is not related in any way to the particular breach of fiduciary duty which was found to have occurred. The breach of fiduciary duty occurred when Mr Thorpe acted when in a position of conflict. I am conscious of the debate about whether or not common law concepts of causation or remoteness are relevant in these circumstances: see Meagher, Gummow and Lehane "Equity Doctrines and Remedies", 4th ed, 23-020 and what was said by the High Court in Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 at [35] - [40]. I will assume (but not decide) that these concepts do not apply under Australian law in the present circumstances, but even so there still has to be some relationship or connection between the breach of fiduciary duty and the damage for which compensation is claimed. Here the inconvenience of travel and of living in rented accommodation flows from the conduct of the litigation. This inconvenience would have happened even if Mr Thorpe had instructed other solicitors to conduct the litigation rather than act when in a position of conflict. Thus, it is my view that the fact that the Lochels lived in rented accommodation and the fact that they flew from Germany to Perth had no relationship, connection or link with the fact that Mr Thorpe acted as solicitor on the record when he should not have done so. I would therefore uphold this ground of appeal.

159 I would therefore allow the appeal in relation to ground 16 and reduce the judgment against Mr Thorpe by $30,000. I would otherwise dismiss the appeal.

Thorpe v Lochel

THORPE -v- LOCHEL & ORS [2005] WASCA 85