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Court of Appeal of Vanuatu |
IN THE COURT OF APPEAL OF
THE REPUBLIC OF VANUATU
(Appellate Jurisdiction)
CIVIL APPEAL CASE No. 33 of 2003
BETWEEN:
TROY NEEL AND JASMINE NEEL and ERAKOR ISLAND RESORT
Appellants
AND:
GARRY BLAKE
First Respondent
AND:
NIGEL MORRISON
Second Respondent
AND:
EDWARD NALIAL
Third Respondent
Coram: Chief Justice Vincent Lunabek
Justice Bruce Robertson
Justice John von Doussa
Justice Daniel Fatiaki
Justice Hamlison Bulu
Counsel: Mr. P.T. Finnigan and Mr. J. Malcolm for appellants
Mr. D.L. Williams SC and Ms C. Osborne for the respondents
Date of hearing: 7th & 8th June 2004
Date of judgment: 10th June 2004
JUDGMENT
This is an appeal from a decision of the Supreme Court which dismissed a claim by the appellants against the respondents for damages for breach of contract of retainer, for negligence, for equitable damages, and for equitable compensation together with interest and cost.
The respondents are the partners in a firm of solicitors in Port Vila which acted for the appellants in connection with the purchase by them of the leasehold of Erakor Island and the business assets of Erakor Island Ltd. That company conducted a tourist resort (the resort) on Erakor Island. The business effectively passed to the appellants under the purchase.
At trial, the appellants contended that the respondents wrongfully failed to give them information of which the respondents, in particular Mr Blake, were aware or should have been aware, that there had been an earlier contract with another party for the acquisition of the resort for Aus $1.5 million. Consequently the respondents contended they paid an excessive amount as they paid US $1.5 million for the resort.
The appellants formulated their claim as the difference between the two amounts, in round terms at the date of the purchase, Aus $1.5 million.
The trial judge found that there had been no breach of the contract of retainer, no negligence and no breach of a fiduciary relationship. In particular, he found that neither the terms of the retainer nor the relationship between the parties arising in the circumstances of the case imposed a duty on the respondents to advise the appellants about the wisdom of their transaction at that price. Further, the trial judge held that the appellants had not suffered any loss as evidence led by the respondents was accepted that the resort was in any event worth US $1.5 million at the time of the purchase.
Background
The background facts were either common ground between the parties, or were not disputed at trial. The following summary is taken mainly from the summary given by the trial judge, although in places it is expanded by reference to correspondence between the parties.
Mr and Mrs Michael Nicholas beneficially owned the resort from 1982 until they sold it to the appellants in 2000. They resided mainly in Australia and employed staff to manage the resort. For two to three months each year they resided in the resort for periods of up to two or three weeks at a time. In 1986 they decided to place the resort, including the leasehold, on the market. Unfortunately, in February 1987 the island suffered a cyclone and the accommodation and facilities were significantly damaged. A proposed auction was cancelled. The resort was closed down until December that year while the accommodation and office facilities were rebuilt.
In November 1990 Mr Nicholas was diagnosed with lung cancer. He found it increasingly difficult to breathe during the wet season. He again considered selling the resort. In late 1991 he was advised by a property consultant that he should ask US $1.5 million. In 1992 he placed the resort on the market through a Hawaiian agent, Ms Karen Jeffery of Pacific Island Investments Ltd. This company held itself out as specialising in consulting, marketing, finance and brokering of boutique and resort hotels, and in providing a comprehensive service for serious investors in the Pacific Area.
Because of the economic situation in Australia, the resort was not actively marketed between 1993 and mid-1997. Mr Nicholas then engaged a few property consultants to market the resort at a price of US$1.6 million. Some interest was shown in 1997 when the asking price was reduced to US$1.5 million.
For a short period in mid-1999 Mr Nicholas offered the resort for sale through a New Zealand agent for US $1.3 million, and an inquiry was received from an interested purchaser.
On 27th September, 1999 Mr Nicholas received an offer of US $1.3 million for the resort. That offer involved the payment of the purchase price over a period of two years, and was declined.
In or about October 1999, when Mr Nicholas was extremely debilitated by his illness, his wife was diagnosed as suffering from a neurological disorder. They decide that they wanted to end their involvement with the resort and return to Australia before the wet season set in. Accordingly, they accepted an offer of Aus $1.5 million from a Mr Thies and Ms Elder (Thies and Elder) with whom they had been negotiating since February of that year. An earlier offer had been rejected, but this one was accepted because the arrangement was that the deposit would be paid within 14 days of the contract, and the sale would be completed by 1st December 1999.
In October 1999 Mr Nicholas also received an e-mail from Ms Jeffery indicating that the appellants were interested in purchasing the resort, and would be visiting Vanuatu that month. However, Mr and Mrs Nicholas had already signed the contract with Thies and Elder for Aus $1.5 million by the time they arrived.
The appellants’ interest in the resort arose in the following way. The first appellant, Mr Neel, was a professional baseball player in Japan, and had been for some time. The second appellant, Mrs Neel, had been a model and actress. In early 1999 they were planning to marry. They had accumulated funds. They decided to purchase an island resort to provide them with an ongoing income and an attractive lifestyle. On searching the web they were attracted to Erakor Island, and they contacted Ms Jeffery to register their interest. She advised them that the advertised price of US $1.5 million was not really negotiable, and another party was negotiating with the vendors.
By 25th October 1999 Thies and Elder had not paid the full deposit. It became apparent to Mr Nicholas that they were not able or ready to perform the contract. He instructed Ms Jeffery to negotiate a sale of the resort to the appellants for US $1.5 million.
The appellants made an offer to purchase the resort through Ms Jeffery for US $1.5 million. The offer was accepted and an agreement was signed with Mr and Mrs Nicholas on 1 November 1999 to purchase all the shares in Erakor Island Ltd for that amount. A deposit of a US $150,000 was paid. After the contract had been signed Ms Jeffery advised the appellants they should use the Vanuatu solicitors, Ridgway Blake Lawyers.
Mr Ridgway was contacted by Ms Jeffery by fax on 16 November 1999. She and her firm had no established relationship with Ridgway Blake Lawyers. The fax said Pacific Island Investments acted for the appellants, and Mr Nicholas had recommended Mr Ridgway to act as the appellants’ solicitors. (It is quite apparent from the evidence that Ms Jeffery at different stages was acting for the appellants even though she was at the same time acting for Mr and Mrs Nicholas.) The fax attached information about the appellants and said that they were “extremely well qualified to own and operate a small resort facility such as Erakor”. Short histories about each of the appellants were given in support of that statement.
Mr Ridgway in turn contacted Mr Neel the same day by fax. That communication enclosed information about his firm, and a Cost Agreement for the appellants' consideration if Mr Ridgway's firm was to be instructed. On the morning of 17 November 1999 Mr Neel telephoned Mr Ridgway to confirm that he was to act. According to the unchallenged evidence of Mr Ridgway, during that discussion Mr Neel said that he had a financial adviser in the United States who was helping him with the purchase.
By inference Mr Ridgway's firm was instructed on the terms set out in the information enclosed with his fax of 16 November 1999. In so far as those terms might be expected to throw light on the scope of the retainer, it is unhelpful. The Costs Agreement is headed PROVISION OF LEGAL SERVICES - PURCHASE OF ERAKOR ISLAND RESORT. Clause D1.2 of the document provides-
If accepted this Cost Agreement will apply to the provision of legal services to the above from time to time.
The bundle of documents included with the fax and the Cost Agreement do not identify what legal services were to be provided in connection with the purchase of the resort. As the trial judge and the parties at trial recognized, it is necessary to go to the surrounding circumstances to ascertain what services were to be provided, and as a consequence the nature and extent of the duty imposed on the respondents.
In a fax of 17 November 1999 to the appellants, Mr Ridgway noted that he had been informed by Ms Jeffery that the 10 per cent deposit had already been paid, and that another 10 per cent was due to be paid on 22 November, 1999. Mr Ridgway noted that he had been advised that the resort was already under a contract and in these circumstances he expressed concern that the appellants could be at risk of losing their deposit if their contract did not settle. The appellants had already been informed by Ms Jeffery at about the time they entered into the contract with Mr and Mrs Nicholas that there was another contract already in existence on the resort, but that the vendors were not happy with the purchasers.
Unknown to Mr Ridgway and the appellants until at least a few days later, Thies and Elder through their solicitors Geoffrey Gee and Partners had registered a caution on the Erakor Island lease on 16 November, 1999. On 17 November 1999 Mr Ridgway received a fax from Geoffrey Gee and Partners, who it seems mistakenly thought Mr Ridgway's firm was acting for Mr and Mrs Nicholas, saying that Thies and Elder did not accept that their contract had been validly rescinded. The letter concluded:
... we have heard suggestions that the property has in fact already been sold to another party in Australia for a greater sum. You will appreciate any such details will come out at trial if not sooner and accordingly we request details of any such dealings at this time.
Mr Ridgway forwarded a copy of this letter to the appellants on 17 November, 1999. By then, he had received a copy of the contract the appellants had signed on 1 November 1999. Mr Ridgway offered advice on a number of clauses in the contract, and enclosed a draft of a letter to Ms Jeffery that he recommended that they sign suggesting that it could be in the best interest of the appellants, who still wanted to purchase the resort, and Mr and Mrs Nicholas if the contract signed on 1 November 1999 was terminated. The advice included the observation that termination
..may also have the effect of saving the Vendor from some embarrassment if the Thies matter was brought to trial, as there would not be any agreement to sell the property (for a higher price) on foot.
At trial the appellants put in issue whether they were made aware in November 1999 that the Thies and Elder contract was for a lower price than they had agreed to.
Mr and Mrs Nicholas agreed to the cancellation and the deposit was refunded.
On 1st February, 2000 Mr Ridgway ended his partnership with Mr Blake, and their former firm was continued under the proprietorship of the present respondents. Mr Ridgway took up residence in Australia, and joined an Australian firm of solicitors, Tress Cox and Maddox. That firm was acting for Mr and Mrs Nicholas to have the caution lodged by Thies and Elder removed. On 2 March 2000 Tress Cox and Maddox asked Mr Blake to act as their agent in Vanuatu in connection with the removal of the caution. After considering the propriety of doing so, as his former firm had acted for the appellants, Mr Blake accepted the instruction and his firm was instrumental in having the caution removed. In the course of acting in this capacity as agent for the solicitors for Mr and Mrs Nicholas, Mr Blake swore a short affidavit of urgency in proceedings to remove the caution. The affidavit had been prepared by Tress Cox and Maddox, and annexed a bundle of correspondence and a copy of the contract for sale and purchase between Mr and Mrs Nicholas and Thies and Elder. The purpose of the annexure was to demonstrate the contract was for the sale of shares, and created no interest in land that could support a caution. The contract revealed that the agreed consideration was Aus $1.5 million, but as appears later in this judgment there is an issue whether Mr Blake actually came to know the amount of the sale price before an eventual sale of the resort to the appellants was completed.
On 3 March 2000, Mr Blake was advised by Ms Jeffery that the appellants would shortly be re-submitting their offer. Thereafter, during March 2000 Mr Blake gave advice to the appellants about information they would need to include in an application to the Vanuatu Foreign Investment Board (VFIB) for approval of the purchase by them of the resort. Mr Blake also faxed to the appellants the necessary application form.
By 17 May, 2000 the VFIB form had not been returned by the appellants. Mr Blake sent them an account dated 30th April, 2000. The covering letter said that Mr Blake understood the matter was on hold for a number of reasons, including proceedings in the Supreme Court of Vanuatu to have the caution removed. The letter asked the appellants to "confirm the current status of the matter". The undated reply from Mr Neel said "we are still trying to purchase the Island".
Early in June the caution was removed by order of the Supreme Court.
On about 10 June, 2000, Mr Blake received, without prior notice from anyone, copies of draft contracts for the sale and purchase of the resort from Tress Cox and Maddox who were still acting for Mr and Mrs Nicholas. The documents state the consideration at US $1.5 million. Once the caution was removed, Ms Jeffery on behalf of the appellants had renewed the offer to purchase at that price. The renewed offer was not made through Mr Blake.
On 10 June, 2000 Mr Blake faxed the appellants saying that they had probably heard that the caution had been removed, and that he had received draft contracts which he would review. Mr Blake reminded the appellants that they needed VFIB approval and the consent of the custom owners was required for the transaction to proceed.
Mr Blake's letter concluded:
I would be grateful if you would forward me a fax to confirm your agreement to proceeding with the negotiation of the agreements with a view to signing contracts in due course.
Mr Neel replied on behalf of the appellants:
Glad to hear the caution ...has been removed. And yes we are still a keen buyer. ... We would be grateful if you could proceed with the negotiations of the agreements and please forward as well any paperwork to Karen Jefferies (sic).
It is convenient to refer to this reply as the “June 2000 instructions”. Again the nature and extent of the legal services to be provided by the respondents was not spelt out, and it is necessary to ascertain this from the surrounding circumstances.
On 11 June, 2000 Mr Blake received from Ms Jeffery a copy of a long e-mail addressed to the solicitor in Tress Cox and Maddox who had prepared the draft contracts for Mr and Mrs Nicholas, commenting on perceived errors and omissions in the recording of the appellants' agreement to purchase.
In the weeks that followed leading up to 23rd July, 2000 Mr Blake corresponded at length with Ms Jeffery and Tress Cox and Maddox about the terms and conditions of the proposed contracts, but price (save for a question whether it included VAT) was not discussed.
On the 19 July, 2000 Ms Jeffery arrived in Vanuatu, and delivered to Mr Blake a substantial bundle of papers about the resort and its trading figures, described as a due diligence package.
On 23 July, 2000 the appellants arrived in Vanuatu, and Mr Blake met them for the first time.
On 24 July, 2000 at a meeting in his office Mr Blake went through the proposed contract documents with the appellants explaining the structure of the transaction, and amendments he had proposed including additional warranties which he had negotiated. He pointed out the contract was now to purchase the assets of Erakor Islander Ltd, not the shares in the company, and that the contract was now subject to finance. Earlier, Mr Blake had been advised that Ms Jeffery would arrange the finance for the appellants. She had also arranged at the appellants' request for Hawaiian architects to travel to Erakor Islander to inspect the resort and to draft plans for a proposed expansion. These were not matters which Mr Blake was asked to attend too.
The warranties are set out in Schedule 3 to the contract. The schedule is subject to a disclosure letter addressed to the appellants and signed by Mr and Mrs Nicholas. Included in that letter is the following:
We're making the following general disclosures:
......
We authorise the Purchaser's Solicitors to disclose all information known to them in relation to the disputes with Elder and Thies.
This part of the disclosure letter is heavily relied on by the appellants before this Court, but it seems that it was not drawn to the attention of the trial the judge.
The appellants were in possession of the due diligence package at that time. Mr Blake suggested to them that they might like to meet someone independent to look at the accounts and to provide them with accounting services. He suggested accountant, Mr Law, whose office was nearby. The appellants did not take up the suggestion. They informed Mr Blake that they had already sought some assistance from a Canadian accountant.
The appellants did not discuss the appropriateness of the price they had offered with Mr Blake. Mr Blake's evidence at trial about his role was as follows:
To my mind the deal as to price had already been done between Mr and Mrs Neel, and Mr and Mrs Nicholas with the involvement of Ms Jeffery. At no time did I regard my retainer as extending to including negotiation of the purchase price. For this reason, I did not pay any particular attention to the purchase price contained in the contract and I regarded my role as to negotiate and finalise the legal aspects of the contract. At no time did either Mr or Mrs Neel asked me for advice about the purchase price of the lease and business assets of Erakor Island Ltd or about the value of those assets. I did not advise Mr and Mrs Neel about the value of those assets or the price they should offer to purchase them.
For the same reason he said he did not pay much attention to the Thies and Elder contract which had been annexed to his affidavit in the Supreme Court. Later he added in his evidence that he would not have given the appellants advice about the price, had they asked, as he had no expertise which would have permitted him to do so.
The contracts were signed and exchanged on 25th July 2000 in Vanuatu. The appellants left Vanuatu on 26th July, 2000. They signed the VFIB application form before they left.
In August 2000 Ms Jeffery took steps on behalf of the appellants to apply for finance, one application being made to Westpac Banking Corporation (Westpac). Westpac approved a loan on 3 November 2000. Mr Blake then acted for Westpac in preparing mortgage documents for the transaction.
The appellants returned to Vanuatu on 14 November, 2000. Mr Blake attended to many incidental matters on their behalf including changing the name of a company, applying for residency permits and for other necessary permits.
An issue arose over lease payments due to the custom owners under the lease of Erakor Island. That led to Mr and Mrs Nicholas agreeing to carry vendor finance of US $220,000 from the agreed price.
The transaction was settled on 21st November 2000, and the appellants thereupon became the owners of the resort.
Before approving a loan to the appellants, Westpac obtained a valuation of the resort, including the leasehold, from Mr Brian Cox of Brisbane for mortgage security purposes. He valued the resort at US $1.5 million, and on completion of proposed refurbishment and expansion at US $2.65 million.
The appellants' claim against the respondents asserted that Mr Blake had failed to advise them that he had acted as the agent for the vendors, Mr and Mrs Nicholas, in the removal of the caution, and had failed to advise them of the amount of the lesser offer made by Thies and Elder.
The trial and the findings of the trial Judge
At trial each of the appellants gave evidence, as did Mr Blake. Each of these parties was extensively cross-examined, and disputed issues of fact turning on credit were canvassed. Mr Nicholas also gave evidence. He spoke about his reason for entering into the contract with Thies and Elder, and about the later sale to the appellants. Mr Nicholas said that he would not have been willing to sell the resort to the appellants for less than US $1.5 million because they were not able to settle the purchase by 1st December, 1999. He said he had earlier rejected the offer of US $1.3 million from another party because the payment was to be over two years. This aspect of Mr Nicholas’ evidence was not challenged by the appellants in cross-examination.
The appellants and the respondents each called a valuer to give an opinion about the value of the resort at the date of settlement (21st November, 2000). The appellants’ witness, Mr Dakuidreketi, valued the resort at Aus $1.25 million. The respondents called Mr Cox as their witness. He confirmed that in his opinion the resort was worth US $1.5 million at the date of settlement.
Significant contentious issues about which there was a major dispute at the trial concerned:
These issues were resolved by the findings made by the trial judge on credit, and by reference to written documents which passed between the parties and their advisers.
The trial judge made the following findings on credit:
The claimant Mrs Neel, the first witness, throughout her evidence seemed to find it difficult to directly answer the precise questions, particularly questions which seemed difficult for her case. She tended to prevaricate and obfuscate particularly when it suited her, and at other times I found her to be plainly evasive.
The other claimant Mr Neel proved to be vague and unconvincing. He was not sure of contents of various conversations except where it suited his claim.
On the other hand the defendant Mr Blake declined to be categorical about whether he had told the claimants that his firm had acted as agent for the vendor's solicitors in the removal of caution but he was under the impression that he had done so. It would have been easy and beneficial to his case for him to have been definite about that but he resisted that obvious temptation. I found him to be fair candid and open.
...
In summary, I find that the evidence of the claimants as a whole was unsatisfactory, unreliable and contradictory and I do not accept their evidence in relation to matters of dispute. I find that the claimants were simply looking around for a scapegoat when they realised that their dreams were unfulfilled and endeavoured to sheet home their perceived loss to the defendants.
In the course of canvassing the evidence of witnesses, including concessions made in cross-examination, and with the aid of the findings on credit, the trial Judge recorded the following findings:
... I find that Mr Blake approached the question of his firm acting as agent for Tress Cox and Maddox, and inferentially acting for the vendors, in a proper, mature and reasonable fashion and exercised his decision on a proper basis. He said he took into account that the agreement between Mr Thies and Ms Elder and the vendors had been terminated. He considered that the Claimants could not proceed with the purchase of the resort until the caution was removed. He reached the conclusion that there was a common interest in having the caution removed and, once the caution was removed, the Claimants and Mr and Mrs Nicholas could proceed with an agreement in the same or similar terms as the initial agreement if they so wished. I find that there was a proper assessment of the circumstances and an appropriate decision to reach and there was no conflict of interest arising, because the vendors and Claimants had a commonality of interest in having the caution removed, and there was a clear identity of interest in having that result achieved. In any event, I find as a fact that I accept the evidence of Mr Blake that he advised the Claimants specifically that his firm had acted as agents for the vendors' solicitors Tress Cox and Maddox in the removal of that caution. In any event, I find that there was simply no conflict of interest.
The finding that Mr Blake specifically advised the appellants that he was acting for the vendors' solicitors is strenuously challenged as one of the grounds of this appeal.
Critically, and central to the claims of breach of retainer, negligence, and breach of fiduciary duty, the trial Judge held:
As to the purchase of the resort, I find that there was no duty on Mr Blake to offer unsolicited advice on the wisdom of the transaction even bearing in mind the information which he had come into possession of as to the precise earlier contractual price ....... Clearly Mr Blake had no personal interest in the transaction and was, in the words of the authorities, not a party with any adverse interest.... I find that Mr Blake did not breach any fiduciary relationship with the Neels in not revealing the specific purchase price of the earlier agreement and I find that he acted efficiently and competently throughout and did not prefer the interest of the vendors over the interests of the Claimants.
................
As to the retainer, I accept that primarily solicitors are retained to deal with legal matters and not commercial or financial matters and that the terms of retainer were agreed to [in the Cost Agreement and the June 2000 instructions]. Certainly that required the Defendants to perform their retainer on the basis that they owed the Claimants a duty to exercise reasonable care and skill. I find that the Defendants certainly did that. I find that Mr Blake did not offend the principle in Sector v Ageda (1973) Ch 30. He had no personal interest and was never a party with an adverse interest to that of the Claimants.
I find that the Claimants have failed to prove on the balance of probabilities that the Defendants, and in particular Mr Blake, have breached the contract of retainer or have been negligent or that the Claimants have satisfied the court that it should intervene by a way of equitable damages or equitable compensation.
In any event, I find that the claimants have failed to establish on the balance of probabilities that they have suffered any loss. To succeed in their claim they must prove damage and, in particular, must show to the Court that the asset they purchased was not worth the US $1.5 million at the time that they purchased it. They have failed to do so.
The Grounds of Appeal
The grounds of appeal are long and detailed, but raise seven broad grounds.
Ground 1 challenges the finding that Mr Blake specifically advised the appellants that he was acting as agent for the solicitors for Mr and Mrs Nicholas in respect of the removal of the caution.
Grounds 2, 3 and 5 challenge findings that there was no failure to disclose information that should have been disclosed, that there was no relevant conflict of interest, and that there was no breach of the retainer.
Ground 4 contends that the trial Judge erred in his approach to loss, and failed to recognize a claim for loss of a chance to negotiate the second sale and purchase at a lower price.
Ground 6 is related. It concerns an application before this Court to receive fresh evidence directed to showing that Mr Nicholas' evidence that he would not have sold to the appellants for less than a US $1.5 million should not be believed, and, on the contrary, that he was prepared during at least the early part of 2000 to consider selling for Aus $1.5 million.
Ground 7 challenges the Judges' acceptance of the valuation evidence of Mr Cox, and the rejection of the evidence of the appellants' valuer, Mr Dakuidreketi.
Extension of time
Before turning to these grounds of appeal, it is necessary to note that the appeal may have been instituted outside the 30 day time limit provided for in the Court of Appeal Rules 1973. The appellants seek an extension of time which the respondents neither consent nor oppose. Judgment was delivered on 3 October, 2003. A Notice of Motion of Appeal was filed on 26 October, 2003, but did not contain Grounds of Appeal. Grounds of Appeal were eventually filed on 24 November, 2003. The delay was apparently caused partly by the solicitor handling the matter for the appellants being overseas, and partly because overseas counsel had been instructed to settle the grounds of appeal. This case raises important questions about the alleged liability of a senior legal practitioner of this Court. There are strong reasons in the public interest why these allegations should be settled by this Court. In so far as an extension of time is necessary for this appeal to proceed, an extension is granted.
Ground 1
In support of Ground 1, the appellants stress that Mr Blake in his evidence only said that he "believed" he had told the appellants that he was acting on behalf of the vendors in the removal of the caution, but he conceded that he had no certain recollection of doing so. For example, letters from Mr Blake to the appellants did not confirm a finding of disclosure. On the other hand, the appellants in their evidence each denied that they had been informed. It is contended that absent any supporting evidence, the trial Judge should have accepted the appellants' evidence.
We find this submission to be untenable for several reasons. It seeks to reverse a finding of the trial Judge on credit. In support of the credit findings the trial Judge gave cogent examples from the evidence which demonstrated the conclusions that he reached. The trial Judge had the benefit of seeing and hearing the appellants and Mr Blake give evidence during a trial that lasted several days. As appellate courts have stressed time and again, they do not enjoy the same advantage, and will not interfere with findings on credit save in exceptional circumstances of the kind discussed in State Rail Authority of NSW v Earthline Constructions Pty Ltd (in liq) and others [1999] HCA 3; (1999) 160 ALR 588, Fox v Percy [2003] HCA 22; (2003) 197 ALR 201 and Whisprun Pty Ltd v Dixon [2003] HCA 48; (2003) 200 ALR 447. This is not a case of the exceptional kind identified in those cases. In this case on the evidence the credit findings were not only open, but well justified for the reasons given by the trial Judge.
The trial judge assessed Mr Blake to be a fair, candid and open witness who acted in relation to the removal of the caution in a proper mature and reasonable fashion. In this circumstance it was open to the Judge to be satisfied on the balance of probabilities that Mr Blake's belief was to be accepted.
In reality, the appellants seek to raise the standard of proof from on the balance of probabilities to a state of near certainty. To do so would be contrary to law. Moreover, the submission overlooks that it is a claimant, not the defendant, who carries the onus of proof to establish essential facts on which the claim is based. If at the end of the trial there is real doubt about the fact, the claimant fails to discharge that onus. At best from the appellants' viewpoint, the situation can be put no higher than that.
Finally, on this aspect of the appeal, the appellants contend that: "Even if this Court upholds the Judge's finding, Mr Blake remains in breach because he did not obtain the Neels' informed consent to acting which he admitted in evidence ". What Mr Blake admitted is that he did not tell the appellants the amount of the consideration stated in the Thies and Elder contract, and that he gave no advice to the appellants about price. This aspect of the submission raises the very same issue which is the subject of Grounds 2, 3 and 5 of the appeal, and is discussed below.
Grounds 2, 3 and 5
These grounds together challenge the conclusion of the trial Judge that the respondents, in particular Mr Blake, were not in breach of any duty to make the appellants aware that the Thies and Elder contract price was Aus $1.5 million.
For reasons which follow, we are of the opinion that the conclusion of the trial Judge is correct, and accordingly that the appeal must fail.
This conclusion is based on the peculiar and unique facts established by evidence, and in particular that the appellants themselves quite extraordinarily at no point in all the time that they had dealings with Mr Ridgway or Mr Blake showed any interest at all in whether the price they had agreed through Ms Jeffery was appropriate. As the trial Judge found, they showed a complete lack of interest in the price, which, because of an emotional desire to own the resort “come what may”, was irrelevant to their consideration. This makes the case, on its facts, unusual in the extreme.
This is not a case where, because the clients were unsophisticated or disadvantage by age, ill-health or infirmity, the circumstances of the relationship with their solicitor gives rise to an obligation on the part of the solicitor to give commercial advice. Here, from the outset of the relationship and during its continuance, the respondents were given to understand that the appellants were relatively wealthy, that they had a substantial source of income, that they had investments and business experience that suited them to operating the resort, that they had a financial adviser in the States and had received accounting advice from an acquaintance in Canada, and that they had the services of Ms Jeffery who had arranged an architectural inspection of the resort and was arranging finance. It is against this background that the obligations arising from the relationship must be determined.
The legal principles which govern this case are not in dispute. It has not been suggested in this Court that the trial judge misapprehend those principles. The case is one which turns on its peculiar facts, not on any extension of these principles.
The trial judge correctly acknowledged that a solicitor is classically a fiduciary to his client, and as such owes certain duties. That however is only the start of the necessary analysis to determine the nature and scope of those duties in a particular case. A similar analysis is required whether the duties contended for by the appellant are said to arise from the contract of retainer, or in tort. The starting point, and principal source of a solicitor's duty in each of these fields of law is the solicitor's retainer, being the "legal services the solicitor agreed to provide": see generally Beach Petroleum NL v Kennedy [1999] NSWCA 408; (1999) 48 NSWLR 1 at 45-48.
In the performance of their retainer, solicitors owe to their clients a duty to exercise reasonable care and skill, typically with inherent duties owed in tort: Astley v Austrust Ltd (1999) 197 CLR 1. But to postulate that general duty as being part of the obligation arising under the retainer again only begins the analysis.
To advance that analysis in a particular case regard must first be had to the actual terms of the retainer. However, in this case, neither the Cost Agreement nor the June 2000 instructions spell out the nature and scope of the retainer, and do not provide the answer.
It is well established that a solicitor's retainer does not generally extend to giving advice of a commercial nature: Yager v Fishman & Co [1944] 1 All E R 52. In Amadio Pty Ltd v Henderson [1998] FCA 823; (1998) 81 FCR 149 the Full Court of the Federal Court of Australia said that:
Commercial advice, for example as to the market value of a property or the likely profitability of the business is not ordinarily the function of a solicitor.
When attention is focused on the facts of this case, the legal services which the respondents agree to provide were to put into legal form the transaction which had already been agreed as to subject matter (the resort) and the price (US $1.5 million) between the vendors and the purchasers. The circumstances of this case are aptly covered by the advice of the Privy Council in Clarke Boyce v Mouat [1994] 1 AC 428 at 437; (1993) 3 NZLR 641 at 648:
When a client in full command of his faculties and apparently aware of what he is doing seeks the assistance of a solicitor in the carrying out of a particular transaction, that solicitor is under no duty whether before or after accepting instructions to go beyond those instructions by proffering unsought advice on the wisdom of the transaction. To hold otherwise could impose intolerable burdens on solicitors.
In Spector v Ageda (1973) Ch 30 at 48, to which the trial Judge referred, Megarry J said;
A solicitor must put at his client's disposal not only his skills but also his knowledge, so far as is relevant; and if he is unwilling to reveal his knowledge to his client, he should not act for him. What he cannot do is to act for the client and at the same time withhold from him any relevant knowledge that he has: see, e.g. Moody v Cox [1917] 2 Ch 71.
Thus, the question for decision boils down to whether in the circumstance of this case, having regard to the background circumstances established by the evidence, the provision of information about price and the commercial wisdom of the transaction was within or beyond the instructions to provide legal services, or put another way, was the giving of information about price relevant to the legal services to be provided by the retainer?
This is the crux question. The appellants in presenting their case to this Court have repeatedly posed the question as whether Mr Blake should have told them that the Thies and Elder price was Aus $1.5 million. That formulation of the question carries the implication that Mr Blake was withholding information that he actually knew. To pose the question in this form is apt to be misleading in the circumstances of this case. We have earlier in the judgment noted that there is an issue as to whether Mr Blake actually knew the Thies and Elder price. In his evidence he did not say that he did know it, only that he had annexed a bundle of documents to an affidavit, one of which contains the information. He was not asked in the course of his evidence whether he read the contract at the time and noticed the price. Rather, his evidence was that he did not pay any particular attention to the price. That evidence was not challenged. The case at trial put by the appellants was that Mr Blake should be fixed with knowledge of the price as it was within his power to have ascertained it - that is, he had constructive notice not actual knowledge of the price.
If the question is posed (as we think it should be), as to whether it was relevant to give information about price, that question is in accordance with the way the case was presented by the appellants at trial.
As the arguments of counsel before this court developed, we understood both counsel to accept that this was the central question. At times the word "material" was substituted for "relevant" but in either form the question is the same.
It will be noted that the trial judge made a specific finding that the earlier price was "irrelevant to their consideration of the purchase of the resort". As the appellants, although aware that the earlier sale had been for a lower price, made no inquiries about price and never raised the issue with the respondents, we think that the finding of the trial Judge was fully justified. That finding disposes of the claim against the appellants.
In the course of argument, both before the trial Judge and before this Court, the appellants contended that the respondents had a conflict of interest in that their firm had acted for Mr and Mrs Nicholas in the removal of the caution, and that this somehow attracted liability because the respondents did not tell the appellants the amount of the Thies and Elder price. We consider this submission is misconceived. In Beach Petroleum at 89 the Court of Appeal of New South Wales said:
In a situation of alleged conflict of duty and duty, there must be a "real sensible possibility of conflict". It is not enough to identify "some conceivable possibility" which may result in a conflict.
We agree with the conclusion of the trial Judge that there was not a real conflict of interest in the respondents acting on the removal of the caution. On the contrary, the interests of the two parties were aligned.
More importantly, the fact that the respondents acted for Mr and Mrs Nicholas did not give rise to the respondents obtaining information that they were under an obligation to keep confidential to Mr and Mrs Nicholas, and not pass on to the appellants. On the contrary, information about the Thies and Elder price was revealed by the documents annexed to Mr Blake's affidavit. No legal professional privilege could attach to that information. Moreover, the disclosure letter which accompanied the warranties in the appellants' second contract permitted the disclosure of information about the Thies and Elder contract. Thus, the information was freely available. Ultimately the same question that we have identified above arises: was it relevant for the respondents to give information about price to the appellants. If it was, they failed to discharge that duty. If it was not, and absent any inquiry for that information by the appellants, there was no duty to give it, and no breach of duty in not giving it.
Ground 4 - loss of a chance
The finding that the appellant suffered no loss, unless set-aside in this Court, is fatal to the whole of the appellants' claim, even if a breach of duty of some kind is otherwise established.
Undoubtedly in a case where the wrongful conduct of a defendant removes from a claimant the opportunity to pursue a legitimate transaction, the loss of the chance to gain there from may sound in damages. In the circumstances of the present case the loss allegedly suffered by the appellants could have been approached as a loss of a chance to negotiate for a more favourable purchase price. However, the finding of the trial Judge that there was no loss because the resort was worth what the appellants paid for it does not consider this approach. On the contrary, the trial Judge treated the claim as one for loss caused by the purchasers paying more than the resort was worth. Did the trial Judge fall into appealable error in taking this approach?
In civil proceedings between parties to a commercial dispute, it is for the parties through their pleadings and the conduct of their case to identify the issues which the court is called upon to adjudicate. In this case, the appellants' in their Statement of Claim pleaded:
28. By reason of the defendant's (sic) breach of fiduciaries (sic) duties, breaches of contract and/or negligence, the plaintiffs have suffered loss and damage.
Particulars
(a) The difference between the price agreed by Erakor Island Ltd and Elder on (sic) and Thies and the price of the second contract being the difference between Aus $1.5 million and US $1.5 million the First and Second Defendants (sic) to be paid for the resort and paid by the Third Plaintiff using funds borrowed by the Third Plaintiff and guaranteed by the First and Second Plaintiffs and the value of the Resort being Aus $1.5 million.
Further particulars of the alleged loss were sought and given several times, but each time the claim was quantified as the difference between the two prices. The appellants’ opening once again put the claim on this basis, and the appellants led the evidence of Mr Dakuidreketi. His evidence was countered by that of Mr Cox called by the respondents. At the close of the case the pleadings and evidence remained in this form. Although in final addresses the respondents' counsel pointed out that there was no claim for damages for lost opportunity, no application to amend the pleadings was made.
Where a civil claim is pleaded and presented on one basis, it is only in an exceptional case that an appellate court will consider a reformulation of the claim on a different basis which was not before the trial court: see University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481. This may be permitted where the new formulation seeks to apply a different legal interpretation to a document or the law and where the changed formulation does not raise any new factual issue or seek to qualify findings of fact in a way that could have been addressed by the parties in evidence at trial. But where a party has presented a case on one basis, and the other side has led evidence and presented its case in response, and has not addressed factual issues raised by the alternative approach, an appeal court will hold the first party to the way in which the case was presented at trial. This is particularly so where it is likely that the case was presented at trial in that way to gain some tactical advantage.
In this case the evidence of the two valuers would have been of little or no relevance had the case been presented as a "loss of a chance" case. Rather, other evidence would have been called directed to explaining what pressures there were on Mr and Mrs Nicholas to sell, and the possibility that they would have taken a lower price. These issues were not explored at all at trial. The evidence of Mr Nicholas that he would not have sold for a lesser price to the appellants was not challenged. Had there been a challenge, it is likely that there would have been additional evidence on the topic.
More importantly, we are not persuaded that the appellants did not present their case in the way they did to obtain a tactical advantage. As presented, the appellants' case posed an "all or nothing" situation for the decision of the Judge, and it would appear that the appellants banked on obtaining a finding based on their evidence that the resort was only worth Aus $1.5 million. On the other hand, if the case had been presented as one involving a loss of a chance, the Court could well have been attracted to an assessment of the loss at only a modest sum, much less than Aus $1.5 million. Such a possible outcome was avoided under the approach which the appellants adopted.
In our opinion this is not a case where the appellants should be permitted to present a different case on appeal. Ground 4 therefore fails.
Ground 6
It follows from the conclusion just expressed that the issue raised by Ground 6 does not arise. Nevertheless, we have considered the submissions made by the appellants in support of their application that fresh evidence should be received. That evidence is a series of letters passing between Mr and Mrs Nicholas and their solicitors, and Thies and Elder from November 1999 through to early March 2000 in which it is said that Mr and Mrs Nicholas indicate a preparedness to enter into a fresh contract of sale with Thies and Elder for a price of Aus $1.5 million.
The conditions which must be fulfilled by a party seeking to have fresh evidence receive by an appellate court are well established: see Orr v Holmes [1948] HCA 16; (1948) 76 CLR 632 at 640 and Commonwealth Bank of Australia v Quade (1991) 178 CLR 134 at 139-140.
The first of these conditions is that the evidence could not have been procured by the exercise of reasonable diligence for use at the trial. In the present case a review of the discovery given before trial by the appellants indicates that much of the correspondence said to constitute fresh evidence was already in the possession of the appellants and their solicitors. Moreover, the terms of that correspondence indicate the likelihood of the existence of the other correspondence identified as fresh evidence. The fundamental first condition for the reception of fresh evidence is therefore not met, and this ground of appeal in any event must fail.
That the correspondence was not used to cross-examine Mr Neel at trial seems to us to provide further support for the conclusion that there was a deliberate choice on the part of the appellants to disavow a claim based on a loss of a chance, and to opt for damages on the basis that the resort was not worth what they paid for it.
Ground 7
This ground of appeal by attacking the valuation evidence of Mr Cox seeks to challenge the finding that the resort was worth what the appellants paid for it, and that they therefore suffered no loss. In light of the conclusion already reached that the respondents were not in breach of any duty to disclose the price of the Thies and Elder contract, a decision on this ground is not necessary to determine the outcome of the appeal. However, as the claim in any event would fail if there is no loss, we have considered the submissions made by the parties.
The trial judge in his reasons comprehensively rejected the valuation of Mr Dakuidreketi finding "his evidence and his valuation to be inaccurate, unreliable, unconvincing, and unhelpful". Detailed reasons for that conclusion were given. In the course of argument before this Court counsel for the appellants was driven to concede that there were major errors in Mr Dakuidreketi's reasoning, and that his valuation could not be supported.
However, counsel sought to demonstrate by reference to calculations which counsel had made, based on the capitalization of historic trading figures, that Mr Cox's valuation was wrong. The calculations in reality advanced a fresh basis for a valuation which was not in accordance with the "highest and best use" basis which both valuers accepted at trial as appropriate, and which Mr Cox had used. The approach used in counsel's submissions had not been put to Mr Cox. The approach constituted an attempt to advance a different case before this Court to the one that was canvassed at trial. The ordinary rule discussed under Ground 4 that parties are bound by the course they adopted at trial applies equally to expert valuation evidence: see Chilcotin Pty Ltd v Cenelage Pty Ltd [1999] NSWCA 11. For this reason alone we consider the submissions made in support of Ground 7 cannot be accepted.
Further, the trial judge had the advantage of hearing both valuers give evidence, and listening to their valuation methods and reasoning being tested in cross-examination. Notwithstanding criticisms made by counsel for the appellants about aspects of Mr Cox's opinions, it was open to the Judge to give weight, as he did, to the wide experience of Mr Cox, and to accept his ultimate opinion that the resort was worth US $1.5 million.
Finally, on this ground of appeal, it should be noted that even if we had been persuaded that Mr Cox's valuation was deficient in some respect, such that the trial judge should not have accepted it, that would not alter the result on the question of loss. The fact remains that Mr Dakuidreketi's evidence was for good reason rejected. Thus, the appellants had failed to establish that the resort was worth less than US $1.5 million. That would be the situation if the respondents had called no valuation evidence, and would remain the situation if the Court was not persuaded by the evidence from Mr Cox. If Mr Cox's valuation were now to be rejected, the court would simply be left with no valuation evidence, and the appellants would not have proved their case.
Conclusion
The appeal must be dismissed and there will be an order accordingly. The appellants must pay the respondents' costs of the appeal, including the interlocutory application to admit fresh evidence.
Dated at Port-Vila this 10th day of June 2004
BY THE COURT
Vincent LUNABEK CJ
J. Bruce ROBERTSON J
John von DOUSSA J
Daniel FATIAKI J
Hamlison BULU J
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