Re WCW Pty Ltd v Bolster and Co [1993] FCA 2 (6 January 1993)

FEDERAL COURT OF AUSTRALIA

Re: W.C.W. PTY LTD
And: BOLSTER AND CO.
No. Q G87 of 1992
FED No. 3
Number of pages - 19
Negligence

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Einfeld(1), Foster(1) and Drummond(1) JJ.

CATCHWORDS

Negligence - duty of care - solicitor for purchaser - sale of pate making business and premises - no evidence to justify finding of negligence against solicitor on ground that he failed to advise purchaser to seek warranties from vendors as to it being lawful to carry on business on premises the subject of the sale.

Trade Practices Act 1974 (Cth) s. 52

Norwest Refrigeration Services Pty Ltd v. Bain Dawes (W.A.) Pty Ltd [1984] HCA 59; (1984) 157 CLR 149

HEARING

BRISBANE
6:1:1993

Counsel for the appellant: J.J. Clifford QC and T.D.O.J. North

Solicitors for the appellant: Primrose Couper Cronin Rudkin

Counsel for the respondent: D.J.S. Jackson QC

Solicitors for the respondent: Mallesons Stephen Jaques

ORDER

THE COURT ORDERS THAT:
1. The appeal be dismissed.

2. The appellant pay the respondent's costs of and incidental
to the appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

EINFELD, FOSTER AND DRUMMOND JJ. This appeal arises out of an action by the appellant which purchased a pate making business and the premises in which it was carried on from the third and fourth respondents ("the vendors") in February 1988. By January 1990 the business had failed and the appellant ceased to trade; it commenced this action in January 1991. The appellant's claim for damages against the vendors was principally founded upon a contravention of s. 52 of the Trade Practices Act 1974 (Cth). It was framed on the basis that the vendors were knowingly concerned in or parties to contraventions of s. 52 by the first and second respondents, who were incorporated brokers whom the vendors engaged to sell the business. The appellant also claimed damages from the vendors for fraud and for negligent mis-statement. The fifth respondent, who is the lone respondent to this appeal, was a firm of solicitors a member of which, Bolster, attended to the transfer of the business from the vendors to the appellant. The firm was alleged to bear responsibility for the loss and damage which the appellant said it suffered as a result of the other respondents' misconduct because the firm was in breach of its retainer and guilty of negligence. All of the claims were dismissed by Olney J at first instance.

2. The core of the complaint made by the appellant against the brokers and the vendors was that they misrepresented to the appellant that it was lawful to manufacture pate at the particular premises and to sell the product of the business under the name "pate".

3. The use of the particular premises and the sale of the product as pate were subject to a complex regulatory scheme administered by three separate bodies, the Department of Primary Industries, the Health Department and the Gold Coast City Council. The trial judge generally accepted the evidence of the vendors in preference to that of the appellant as to the dealings that took place between them both prior to and after contract. He also found that the vendors at all relevant times believed, on reasonable grounds, that the meat content of their product was in accordance with the regulations, that it could be sold as pate, and that their premises did not require registration under any statutory provision. His Honour found that whether it was due to the complexity of the regulatory regime or whether it was because of bureaucratic inertia, none of the three regulatory authorities showed any concern about the manner in which the vendors conducted their business. None of those authorities did anything to suggest to the vendors that their belief that, so long as the meat content of the product was less than 51% they could conduct their business without interference from the regulators, was wrong. Olney J found that the brokers had not contravened s. 52 and, accordingly found that the vendors were not liable to the appellant under the Trade Practices Act. His Honour also found for the vendors on the appellant's claims in deceit and negligence, findings which necessarily followed from his rejection of the evidence of the appellant's main witness, Wakefield, as being in many respects "positively false", and from his acceptance of the evidence of the vendors themselves.

4. The case the appellant pleaded against the solicitor was to the effect that prior to executing the contracts for the purchase of the business, the appellant by its director, Wakefield, engaged the solicitor under a retainer obliging the solicitor to act with reasonable care, skill and diligence as the appellant's solicitor and specifically obliging it:

(a) to advise regarding proper terms to be included in the
contracts;
(b) to advise as to any matters necessary to protect the
appellant's interests in entering into the contracts;
and
(c) to act as solicitor for the appellant in respect of
the purchase pursuant to the contracts "if and when
they were executed".

5. The appellant went on to allege (in paragraph 20 of the statement of claim) that the solicitor, in breach of the implied term of its retainer and negligently:

(a) failed to ascertain which licenses were required for
the lawful manufacture of the product on the premises;
(b) failed to ascertain what requirements had to be met
for the lawful sale of the product as pate;
(c) failed to advise the appellant to ascertain the
matters referred to in sub-paragraphs (a) and (b)
above; and
(d) failed to advise that there should be included in the
terms of the contracts:
(i) a warranty that pate could be lawfully
manufactured on the premises;
(ii) a warranty that the product manufactured by
the business could be lawfully sold as pate;
and
(iii) a term that the appellant would be able to
rescind the contracts for breach of either
of these warranties.

6. The appellant's case at trial against the solicitor depended on acceptance of the evidence of Wakefield. His evidence was that, having collected the draft contracts from the brokers on 17 February, 1988, he later that day attended at the office of the solicitor, had a discussion with Bolster concerning the matter and left the draft contracts with him. Wakefield said he returned much later, probably shortly after 29 February, 1988, when he signed the contracts on behalf of the appellant, having discussed aspects of the transaction with Bolster in the intervening period. Olney J found that Wakefield in fact signed the contracts on 17 February, 1988, the same day he took them to Bolster, and that much of his evidence was "pure fabrication designed with no purpose other than to mislead the court into believing that the contracts were signed at a later date", designed, that is, to support the case that the solicitor had plenty of time before the contracts were signed to find out the matters and to give the appellant the advice referred to in paragraph 20(a) to (d) of the statement of claim. Understandably, the trial judge's conclusion as to Wakefield's general lack of creditworthiness was not challenged in this appeal. Olney J also found that while Bolster was a much more creditworthy witness than Wakefield, his lack of recollection of a number of details and the absence of much in the way of contemporary records "has meant that many vital questions have been left unanswered". The trial judge found that, although the vendors were not pressing to have the contracts signed, Wakefield, on behalf of the appellant, was very keen for the contracts to be executed on the day he got the drafts from the brokers, 17 February, 1988. He concluded:

"Everything points to the fact that (Wakefield) was
determined to sign the contracts on 17 February, 1988 and
his consultation with Bolster on that day must be viewed in
that context. And when that is done I do not think that
Bolster can be said to have breached the terms of his
retainer or failed to exercise the appropriate degree of
care which the occasion demanded. Clearly, Wakefield's
conduct was not that of a prudent purchaser and on 17
February, 1988 Bolster's response was appropriate to the
occasion. There is therefore no substance in the
applicant's complaint that Bolster failed, at that stage, to
have done the things pleaded in paragraph 20 of the
statement of claim."

7. No challenge is made to the trial judge's decision to dismiss the claim against the solicitor other than on the ground that his Honour ought to have found that the case pleaded in paragraph 20(d) of the statement of claim was made out.

8. Counsel for the appellant submitted that, while the trial judge did not deal in his reasons with this particular case, in view of the evidence which he accepted, the Full Court is in as good a position as he "to determine whether an appropriate warranty should have been inserted and whether it would have been sufficient to protect" the appellant as purchaser.

9. Although the trial judge did not deal with this issue, apart from his reference to the allegations in paragraph 20 of the statement of claim in the passage from his reasons set out above, this Court is empowered to draw inferences of fact from the evidence, a power that can be readily exercised where inferences arise from the facts found by the trial judge.

10. However, the difficulty for this Court in accepting the appellant's invitation arises from the circumstances that the trial judge rejected the whole of the evidence of the appellant's witness Wakefield unless it was independently corroborated, that the solicitor, Bolster, had no relevant recollection and that overall, the evidence relevant to this whole issue of negligent failure to advise is extremely limited. Although the claim in paragraph 20(d) of the statement of claim was not abandoned by the appellant, this particular issue was not litigated at the trial to anything like the extent that it could have been explored in evidence. Paragraph 6.8 of the report of Purcell, a witness for the appellant, and his very brief cross-examination at page 390 of the transcript and the cross-examination of another of the appellant's witnesses, Spence, at pages 514-515 appear to be the only direct evidence that touches on this issue.

11. The appellant recognises that it can succeed only if this Court is prepared to draw the inferences necessary to establish this particular claim. Wakefield did not give any direct evidence as to what the appellant's attitude would have been if the solicitor had proffered the advice the subject of the allegations in paragraph 20(d) of its pleading. There is authority that inferences should not be drawn in favour of a party who has called a witness who could have given direct evidence on the relevant subject matter if that party has refrained from asking the crucial questions: see Commercial Union Assurance Company of Australia Ltd. v Ferrcom Pty. Ltd. (1991) 22 NSWLR 389 at 418-419. The appropriateness of this Court applying such a principle where the trial judge rejected as unworthy of credit the witness for the appellant who could have been asked the critical questions may be doubted. But in any event, we do not think the appellant should be taken to have refrained from asking Wakefield the critical questions: we think it more likely that the questions were not put because at the trial, the parties were very largely concerned with a host of other issues.

12. The consequence is, however, that even if this Court were prepared to draw inferences from the evidence available to it in favour of the case the appellant seeks to make out here against the solicitor, the appeal must fail unless that body of evidence is sufficient to enable all the necessary inferences to be drawn to justify a finding of negligence by the solicitor in the manner contended for by the appellant. There is no basis upon which, if the evidence is incomplete, the appellant is entitled to have the matter sent back for re-trial. The appellant must stand or fall on the evidence it chose to put before the trial judge on the issues upon which it now claims to be entitled to judgment against the solicitor.

13. The argument by the appellant's counsel that the trial judge should have found that the solicitor was negligent in failing to advise the appellant as to the desirability of taking warranties of lawfulness is deceptively simple. It was asserted that the risks to the appellant of the user of the premises and of the sale of the product turning out to be unlawful were obvious, and that the remedy - taking appropriate warranties - was so easy to apply that the solicitor was bound to proffer advice to include appropriate warranties in the contract.

14. The proposition conceals, however, the magnitude of the appellant's task in proving its case against the solicitor here.

15. Before this particular case against the solicitor could have been established, the appellant would have had to prove first, that as a result of the solicitor's failure to give the advice, it lost an opportunity to seek warranties that would have provided it with protection in the events which have happened; secondly, that it would have accepted that advice; thirdly, that it would have required such warranties from the vendors; and fourthly, that either the vendors would have agreed to warranties in a form that would have given the appellant a right of action against them in the events which have now happened or, if they had refused to do so, that the appellant would not have signed the contract: see Norwest Refrigeration Services Pty. Ltd. v Bain Dawes (W.A.) Pty. Ltd. [1984] HCA 59; (1984) 157 CLR 149 at 172-3. Even if a negligent failure to advise can be established, a failure to prove these matters does not merely deprive the appellant of an entitlement to limited damages for the loss of the chance of obtaining protective warranties; it means failure to establish the cause of action: ibid, at 173.

16. On the very limited evidence relevant to this issue which is available, nothing more than speculation is possible on each of these matters which the appellant has to prove on the probabilities before it is entitled to a verdict against the solicitor on the ground of a negligent failure to advise.

17. The appellant's counsel acknowledged that there was no acceptable direct evidence from the appellant that it would have acted on advice, if proffered by the solicitor, to insist on warranties of lawfulness. Nor is there any evidence from the appellant that it would not have gone ahead with the contracts if such warranties were not forthcoming. However, it was submitted that it should be inferred that the appellant would have accepted advice from the solicitor to seek warranties as to lawfulness because the solicitor did advise, before the contract was executed, the inclusion of special condition 38 in the contract, and the appellant obviously accepted that advice. But special condition 38 is a warranty by the vendors that the takings were $139,000.00 per annum and that, for the year ending 30 June, 1987, the takings were as set out in the vendors' profit and loss statement. It is really only an elaboration of special condition 32, which is a warranty by the vendors that the profit and loss statement for the year ending 30 June, 1987 was true and correct. Special condition 32 was already included in the draft contract when Wakefield first brought it to the solicitor. It had apparently already been agreed to by the vendors.

18. There is, we think, a significant difference between the appellant taking the solicitor's advice to include in special condition 38 an elaboration of a warranty that the vendors were already prepared to give, on the one hand, and the appellant taking the solicitor's advice to seek warranties covering matters which it had never discussed with the vendors, on the other, i.e., warranties as to the lawfulness of the use of the premises and of the sale of the product. That the appellant was prepared to take the solicitor's advice on the one warranty in circumstances in which, as found by the trial judge, it was determined to sign the contracts on the same day it first approached the solicitor, is not sufficient, given the paucity of evidence on the matter, to justify the drawing of an inference by this Court that it would also have taken the solicitor's advice on another warranty, if it had been proffered.

19. Even if, in view of the evidence concerning the solicitor's action in inserting special condition 38 into the contract, it could be inferred that if the solicitor had recommended the seeking of warranties of lawfulness, the appellant would have heeded that advice, it is still a matter of speculation only whether the vendors would have agreed to give a warranty of lawfulness. What the vendors' reaction would have been to a request that they agree to the inclusion in the contract of warranties binding them for six years that the use of the premises for pate manufacture and the sale of the product as pate were lawful was not touched on in evidence. In cross-examination on behalf of the solicitor designed to establish an implied term of the sale agreement that the activities could lawfully be carried on on the premises, one of the vendors, Mrs Brain, gave answers in reliance on which the judge found that "if the question of legality had been raised the vendors would have had it examined by lawyers". Even though the vendors did not retain lawyers to act for them in connection with the sale of their business to the appellant, in view of this unchallenged finding, it can be inferred that, if the appellant on legal advice had sought warranties, the vendors would have sought their own legal advice. Whether in that event the advice to the vendors would have been that they should agree to warranties that might have exposed them to liability for up to six years is a matter of speculation, as is whether, if the vendors did seek and receive such advice, they would have been prepared to act on it and agree to the warranties even though it is quite clear that, at the time, they believed everything was lawful.

20. Nor is it possible to come to any conclusion on the evidence, which the trial judge regarded as reliable, whether, if a particular warranty had been sought by the appellant on its solicitor's advice and the vendors either refused to give any such warranty or had offered a different warranty which may not have given the appellant any protection in the events that have happened, the appellant would have been content to accept the different warranty or would instead have refused to sign the contract. If Wakefield on the solicitor's advice had sought warranties as to lawfulness from the vendors prior to the appellant signing the contracts, there is, we think, a distinct possibility that the vendors would have then shown him the letter from the Gold Coast City Council which one of the vendors, Van Ryn, in fact showed and discussed with Wakefield on 23 February, 1988 and that Wakefield would have been just as satisfied prior to signing the contract with that information as showing that everything was lawful as he was on 23 February.

21. It is in any event unlikely that the appellant would have been prepared to put up with the delay that would necessarily have been involved in seeking and negotiating such warranties in a form which would be acceptable to both sides. The findings were that the appellant, through Wakefield, was very keen to buy the business and was insistent on 17 February, 1988, the day Wakefield first approached the solicitor, that the contracts be signed. It may be that his Honour in the passage from his reasons which we have set out above dismissed the appellant's claim that is now pressed on this very basis. But even if it is accepted that these conclusions were not directed to this particular claim, the appellant's insistence on signing the contracts on 17 February presents a real obstacle to the claim now pressed.

22. Moreover, the evidence is not such as to require a finding that the solicitor was in breach of duty in failing to draw the appellant's attention to the desirability of warranties of lawfulness being included in the contract. We were referred to nothing in the evidence that suggested that the solicitor should have been alert to the possibility that any aspect of this business, which had been in operation for some years, might be unlawful. Given the time pressures put on him by the appellant, there is no basis for a finding that he was negligent in failing to discover that the regulatory system was complex and that there might therefore be some risk that pate making on the premises in question and the sale of the product as "pate" could both be unlawful, and that he should have advised the appellant accordingly.

23. This is so notwithstanding Bolster's own so-called "special" knowledge that butcher shops were licensed. Many if not all business activities are subject to some form of town planning and other regulatory control. Food businesses usually have special requirements. This general knowledge should no doubt be imputed to every reasonably competent practitioner. But there is no basis for requiring him to suspect any risk that the manufacturing activities on the premises in question might be unlawful. In view of the very limited time available to him, the question comes down to whether a reasonably prudent solicitor should have urged his client to take, or at least to seek, warranties which might be wholly unnecessary, for all he knew.

24. We do not think that such a failure to advise necessarily constitutes negligence: whether it is so must always depend on the particular factual setting in which the omission to advise occurs. It is doubtful that, even if the solicitor turned his mind to the possibility of seeking warranties of lawfulness (and again there is no evidence on this point), he would in the circumstances have been negligent if he did not raise the matter with his client when it was apparent that the client was demanding that the contracts be signed that day. These were circumstances in which it would be impossible for warranties to be framed, sought and, if necessary, negotiated and agreed. But even if it should be held that Bolster was duty bound, in his state of ignorance and notwithstanding the time pressures on him to advise the client to seek warranties of lawfulness, all the other difficulties remain for the appellant in completing its proof of this particular case of negligence.

25. The appellant's expert witness, Purcell, in paragraph 6.8 of his report, after dealing with the searches which in his opinion a solicitor acting for the purchaser of a business should carry out before a contract is signed, said:

"Whether or not any or all of the searches and inquiries
referred to above had been completed prior to execution of
the contract, the solicitor should have sought to include
any special conditions and/or warranties which may have
appeared necessary for the protection of the purchaser. For
example, the solicitor should have inserted a warranty in
the business contract, to the effect that the use of the
premises for the purposes of manufacturing and/or selling
pate was lawful."

26. This opinion was not explored in evidence. The difficulties in acting on it to make the findings we are asked to make for the appellant are manifest. To say that "the solicitor should have inserted a warranty in the business contract" overlooks the fact that whether such a warranty could have been inserted in the contract was not for the appellant or its solicitor alone to determine. Further, in view of the complexity of the regulatory scheme, it is not at all clear that warranties of lawfulness "may have appeared necessary for the protection of the purchaser" to a reasonably competent solicitor in the position of Bolster and Co. on 17 February, 1988 even with its experience in the conveyancing of butchers' shops. The officials administering it then wrongly believed (as did the vendors) that so long as the meat content of the product was less than 51%, the vendors' operations were lawful. They did not depart from this belief until well after the appellant took over the business.

27. Counsel for the appellant submitted that the duty of the solicitor to the appellant extended to proffering advice on the need for warranties of lawfulness even if such advice went beyond the terms of his retainer to advise on warranties concerning financial aspects of the business. He took, as his starting point, the statement of Deane J in Hawkins v Clayton (1988) 164 CLR 539 at 579:

"The relationship of solicitor and client is, as has been
seen, a relationship of proximity which ordinarily involves
the combination of those elements with respect to
foreseeable loss which may be caused to the client by the
performance of professional work. It is a relationship of
proximity of a kind which may well give rise to a duty of
care on the part of the solicitor which requires the taking
of positive steps, beyond the specifically agreed
professional task or function, to avoid a real and
foreseeable risk of economic loss being sustained by the
client. Whether the solicitor-client relationship does give
rise to a duty of care requiring the taking of such positive
steps will depend upon the nature of the particular
professional task or function which is involved and the
circumstances of the case."

28. It was submitted that his Honour's view of the ambit of a solicitor's duty of care to his client may be wider than that of some of the other members of the Court in that case.

29. There is, however, no need to consider this question here. Even if it be assumed that the solicitor was under a duty to proffer advice to the appellant on the desirability of including warranties of lawfulness, either because that duty arose from the terms of the retainer or because it arose outside the retainer and from the relationship of proximity, the appellant must fail in its attempt to show that it is entitled, on the evidence before this Court, to a finding that the solicitor is liable to compensate the appellant for breach of that duty. Moreover, there is a paucity of evidence on the issue of just what was the retainer here. It was for this reason that the trial judge was unable to find what the precise terms of the solicitor's retainer by the appellant was. This is not therefore an appropriate case in which to explore the question whether the ambit of a solicitor's duty of care to his client is limited by the retainer or whether it can, in certain circumstances, extend more widely than the retainer.

30. The appeal will be dismissed with costs.