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Supreme Court of New South Wales - Court of Appeal |
Last Updated: 24 September 2004
NEW SOUTH WALES COURT OF APPEAL
CITATION: PATTERSON v. BRUINSMA & 2 ORS [2004] NSWCA 279
FILE NUMBER(S):
40398 of 2003
HEARING DATE(S): 31/05/2004
JUDGMENT DATE: 23/09/2004
PARTIES:
Dean Anthony Patterson t/as DA Patterson Partners - Appellant
Peter Bruinsma, Clara Adriana Bruinsma, William Cecil Mansfield & June Mansfield - Respondents
JUDGMENT OF: Handley JA Sheller JA Bryson JA
LOWER COURT JURISDICTION: District Court
LOWER COURT FILE NUMBER(S): DC 9031 of 2000
LOWER COURT JUDICIAL OFFICER: Rolfe DCJ
COUNSEL:
D. Davies SC and A.M. Colefax - Appellant
J. Anderson - Respondents
SOLICITORS:
Colin Biggers & Paisley - Appellant
Gibson Howlin - Respondents
CATCHWORDS:
PROFESSIONAL NEGLIGENCE - solicitor- acted for developer and homeowners in complex development agreement providing for demolition of 2 houses, construction of 5 units, sale of 3 units, homeowners to receive 1 unit + $100,000 each and developer to pay expenses and keep proceeds - decisions on construction of development agreement as to holding and applying parts of purchase prices received in advance of settlement- decisions on duty of care owed by solicitor to homeowners in dealings between them and his other client the developer- solicitor held liable to indemnify homeowners against liability for damages they incurred to purchaser of one unit when sale could not be completed as developer misapplied proceeds of sale- decision on complex special facts and construction of agreement.
LEGISLATION CITED:
DECISION:
Appeal dismissed with costs.
JUDGMENT:
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
40398/03
HANDLEY JA
SHELLER JA
BRYSON JA
THURSDAY 23 SEPTEMBER 2004
1 HANDLEY JA: I agree with Bryson JA.
2 SHELLER JA: I agree with Bryson JA.
3 BRYSON JA: The appellant is Dean Anthony Patterson (Mr Patterson) who is a solicitor and practises as DA Patterson Partners. The respondents are Peter Bruinsma, Clara Adriana Bruinsma, William Cecil Mansfield and June Mansfield. (I will refer to the respondents as Bruinsma and Mansfield). Before embarking on a more careful statement of the unusual facts of this appeal I will sketch them in outline, necessarily without complete accuracy. Bruinsma and Mansfield owned two houses side by side in Dolans Bay, also called Caringbah. On 27 August 1998 they entered into a Development Agreement with Mitchell Classic Homes Pty Limited (MCH) and its two directors, Graham Lawrence Mitchell and his brother Grant Lee Mitchell (the Mitchells). The Development Agreement was prepared by Messrs Watkins Tapsell & Nolan Solicitors who then acted for Bruinsma and Mansfield but are not parties to this litigation. According to the Development Agreement MCH was to redevelop the land on which the two houses stood and build five town houses. The Mansfields were to retain Unit 1, the Bruinsmas were to retain Unit 5, and each couple was to be paid $100,000 by MCH. Units 2, 3 and 4 (residual units) were to be sold. MCH was to arrange finance for the project from GIO Finance on mortgage, to provide any finance required in addition to that borrowed on the mortgage, to control the project, and to receive any profits or bear any loss. As Bruinsma and Mansfield were the owners of the land, they were to be the vendors in the sales of the residual units and the mortgagors in the mortgage to GIO Finance, and they were to sign all documents as required within three business days after the documents were submitted by MCH.
4 In November 1998 Mr Grant Mitchell resigned as a director of MCH; soon afterwards he became ill with cancer and had surgery in early 1999. In February 2001 he was diagnosed as having terminal metastatic melanoma. He gave evidence on affidavit and orally at the hearing of the proceedings; he was then undergoing chemotherapy (Red 59). After Mr Grant Mitchell resigned Mr Graham Mitchell came to have sole control of MCH. Early in the development the appellant Mr Patterson, who was acting for MCH and the Mitchells, accepted instructions to act for Bruinsma and Mansfield as well. Before the development project was completed Mr Graham Mitchell arranged for two residual units to be sold: Unit 4 to Don Stein Investments Pty Limited (Don Stein), and Unit 2 to Mr and Mrs Miller (the Millers). Arrangements were made that Don Stein pay the whole of the purchase price ($390,000) and the Millers pay a large part ($250,000) of the total purchase price of $400,000 before completion. Ordinarily when purchase moneys are paid on settlement it is necessary to pay all or part to the mortgagee to obtain a discharge or partial discharge of mortgage, but the purchase moneys paid before completion were received by Mr Graham Mitchell or nominally by MCH and were not paid to the mortgagee GIO Finance. In agreeing or appearing to agree to these arrangements Bruinsma and Mansfield were overreached by Mr Graham Mitchell and MCH in several ways.
5 When the project was completed MCH did not repay the mortgage debt so that titles could be transferred to purchasers of Units 2, 3 and 4. Sales of Units 2 and 3 were completed, but GIO Finance took control of Unit 4, sold it and applied the proceeds towards the mortgage debt. The result was that Don Stein which had paid the full purchase price for Unit 4 could not be given title. Bruinsma and Mansfield broke their contractual obligation to Don Stein by not completing the agreement to sell Unit 4, but did not receive the purchase money of $390,000 which had gone to Mr Graham Mitchell. Don Stein sued Bruinsma and Mansfield and recovered damages for failing to complete the sale. Bruinsma and Mansfield cross-claimed against Mr Patterson their solicitor alleging negligence in his conduct of their affairs, and were given judgment against Mr Patterson for damages which included the amount of their liability to Don Stein. Bruinsma and Mansfield obtained titles to Units 1 and 5 with the benefit of $108,000 worth of additional work performed by MCH on their units, but they did not receive $92,000 of the total $200,000 which MCH was contractually obliged to pay them. The damages awarded to them against Mr Patterson also included $92,000 for this loss. Mr Patterson appeals.
6 I now turn to a more careful statement of facts important for disposition of the appeal.
7 Don Stein gave Notices to Complete the agreement dated 21 May 1999 for the sale of Unit 4 for $390,000 and eventually required completion on 3 November 2000, and as Bruinsma and Mansfield did not complete Don Stein terminated by notice of 6 November 2000. The proceedings were commenced in the District Court on 8 November 2000 when Don Stein as plaintiff sued Bruinsma and Mansfield as defendants for damages of breach of contract. Don Stein did not at any time claim specific performance and could not have realistically done so as GIO Finance sold Unit 4 to another purchaser Mr Mellor in exercise of its power of sale on default under the mortgage. Proceeds of this sale, and of sales of Units 2 and 3, brought about redemption of the mortgage, and Units 1 and 5 became free of the mortgage. Although there was a body of evidence about the value of Unit 4 the title to which Don Stein had failed to obtain, damages were assessed on the basis of Don Stein's having lost the $390,000 which was paid on account of the purchase price. The Trial Judge gave judgment for Don Stein for damages of $499,093 against Bruinsma and Mansfield; this judgment has not been challenged on appeal, and Don Stein is not a party to the appeal.
8 In their Cross-claim filed on 20 December 2000 Bruinsma and Mansfield cross-claimed for a number of remedies against Don Stein, MCH, both the Mitchells and Mr Patterson. They lost their cross-claims against Don Stein and Mr Grant Mitchell, and the cross-claims against MCH and Mr Graham Mitchell were not pursued as MCH was in liquidation and Mr Graham Mitchell was bankrupt. None of these decisions is challenged on appeal. The appeal relates only to the judgment given by the Trial Judge for Bruinsma and Mansfield against Mr Patterson for $613,175; and to a Bullock Order relating to costs in favour of Bruinsma and Mansfield against Mr Patterson.
9 The Trial Judge's findings of fact on the claim against Mr Patterson were based largely on acceptance of the evidence relating to that claim given on behalf of Bruinsma and Mansfield. Mr Patterson did not give any evidence. Mr Grant Mitchell, who was a cross-defendant, gave evidence and was accepted by the Trial Judge as a reliable witness. The Trial Judge found that Bruinsma and Mansfield were honest witnesses, although they were honestly mistaken in some ways. Mr Bruinsma and Mr Mansfield advanced a case and gave evidence which was in part quite confused, particularly about the state of the contract for the sale of Unit 4 to Don Stein at the time when they signed it. When they first learnt of the contract and saw it about July 2000 they thought and asserted that their initials on it were forged. They were also confused about the identity of the Mitchell brother who brought the contract to them to sign; the evidence of Mr Grant Mitchell and the Trial Judge's findings establish that it was Mr Graham Mitchell who did this. These confusions caused them a great deal of trouble in their unsuccessful claims against Mr Grant Mitchell and Don Stein, but had little to do with the merits of their claim against Mr Patterson.
10 Mrs Mansfield was unable to give evidence about the circumstances of the claim against Mr Patterson because of memory problems and Mrs Bruinsma gave evidence which the Trial Judge regarded as of no weight as she was totally overwhelmed by the litigation and dreadfully upset for very understandable reasons. The Trial Judge referred in his judgment to Bruinsma and Mansfield's "complete naivety". At a number of points the events show that they were completely naïve, and their untutored simplicity offered golden opportunities for exploitation; it would have been plain to any solicitor dealing with them that they had a strong need for careful advice and close attention to their interests.
11 There are seven parties to the Development Agreement dated 27 August 1998. These are MCH, Mr Graham Mitchell and Mr Grant Mitchell, Mr and Mrs Mansfield who owned 6 Lehane Plaza Dolans Bay and Mr and Mrs Bruinsma who owned 8 Lehane Plaza Dolans Bay.
12 The purpose of the Development Agreement is summarised in its Recitals which state that Bruinsma and Mansfield were the registered proprietors of the land, that MCH wished to undertake a development project on the land, that Bruinsma and Mansfield agreed to allow MCH access to the land to undertake the project, and that MCH agreed to pay $100,000 to the Bruinsmas and $100,000 to the Mansfields and to construct one unit for each couple. The project to be undertaken by MCH is summarised in the definition of the term "Development" in the Development Agreement:
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
"Development" means the demolition of existing dwellings on the Land, the Registration of the Plan, and the construction of 5 Units substantially in accordance with the Development Consent and the Plans and Specifications.
13 I will now examine MCH's entitlements under the Development Agreement to receive, control and dispose of proceeds of sale of the residual units. Relevant provisions in the Development Agreement include the definition of the term "Project" in Cl.1.1:
"Project" means obtaining all necessary approvals for the Development and the construction and completion of the Development substantially in accordance with the Development Consent and all Council and other relevant approvals, consents, permits and licences.
Other relevant provisions are:
2. THE PROJECT
2.1 [Bruinsma and Mansfield] and [MCH] acknowledge:
(a) [MCH] will have control of the Project;
(b) [Bruinsma and Mansfield] will provide [MCH], the Builder and the agents, contractors, employees, consultants and advisers of each of them unlimited access to the Land for the purpose of the Project;
(c) [Bruinsma and Mansfield] will sign all such documents, papers, contracts, mortgages, deeds of partition and other documents as required under this Agreement, within 3 business days (or such other period as specified in this Agreement) after they are submitted by [MCH] ; and
(d) The Project Manager may limit, restrict or exclude the access of any person to the Land or any part of it except that the Project Manager must allow [Bruinsma and Mansfield] access to the Land at reasonable times and with reasonable notice.
MCH was the project manager.
14 Clause 8 is in the following terms:
8. FUNDING FOR PROJECT DEVELOPMENT
8.1 Funds for implementing Project
[MCH] will make available sufficient funds for the implementation of the Project in accordance with the terms of this Agreement.
8.2 Grant of Mortgage
(a) [Bruinsma and Mansfield] will at the request and the cost of [MCH] grant a mortgage over the Land in favour of a Lending Authority nominated by [MCH] as security for the repayment by [MCH] of the amount advanced by the Lending Authority. The principal sum secured by the mortgage over the Land will not exceed the Mortgage Maximum.
(b) [Bruinsma and Mansfield] will within 7 days of receipt sign all papers, documents and mortgages and guarantees required so that the money will be advanced on the security of the Land to enable the Project to be completed.
(c) [MCH] will be responsible for and make all payments under any mortgage to the Lending Authority. [MCH] and the Guarantor indemnify the Owners against any claim of the Lending Authority to the Land in regard to any mortgage advanced to [MCH] and secured by the Land.
(d) [Bruinsma and Mansfield] will answer all requisitions made by the Lending Authority in relation to the title to the Land, and if required by [MCH] or the Lending Authority pay all arrears of rates and other taxes pertaining to the Land.
(e) [MCH] will, within 35 days of the sale of the Residual Units, cause the mortgages secured by the Land to be discharged. [MCH] must fund such discharge from the sale of the Residual Units, and if the proceeds of such sale are not sufficient to facilitate the discharge then the balance will be paid by [MCH].
15 Clause 9 is as follows:
9. RIGHT OF [MCH] TO CONSTRUCT
9.1 [Bruinsma and Mansfield] grant [MCH] the right to construct the Units on the Land and on completion thereof and registration of the Plan Bruinsma shall retain Unit 5 and Mansfield shall retain Unit 1.
9.2 On or before completion of the sale of the last of the Residual Units to be sold [MCH] will pay the sum of $100,000.00 to Bruinsma and the sum of $100,000.00 to Mansfield.
9.3 Interest accrues on any amount payable under clause 9 14 days after it becomes due at the rate of 10% per annum.
9.4 [MCH] shall at all times retain possession of the Property and all materials used or to be used in the construction of the Units.
9.5 Within a reasonable time after the date of Practical Completion or earlier (if required by [MCH]) [Bruinsma and Mansfield] will at the request of [MCH] execute all documents and do all such things necessary to effect and complete the sale of the Residual Units or transfer to [MCH] or its nominee freehold title to the Residual Units.
9.6 [MCH] will control the sale of the Residual Units and subject to provision of clause 8.2 (e) shall be entitled to receive and obtain the whole of the proceeds of sale of the Residual Units less the amount paid to the Lending Authority to discharge the mortgages secured over the Land.
9.7 [MCH] will pay or cause to be paid any stamp duty payable in relation to the transfer of title to [MCH] or its nominees of the Residual Units.
16 Clause 21 provides:
21. CAVEAT
[MCH]'s interest under this Agreement is an interest in the Land and Mitchell may lodge a caveat to protect its interest.
17 Clause 2.1(a) provides that MCH was to have control of the project, and project was defined in terms which do not refer to receiving or dealing with proceeds of sale. By cl.2.1(b) MCH and various persons representing it were to be allowed unlimited access to the land for the purpose of the project; by cl.2.1(d) the entitlement of Bruinsma and Mansfield to access to the land was restricted; by cl.4.1 Bruinsma and Mansfield were to vacate the land and MCH was to pay their relocation expenses and rent until practical completion; by cl.9.4 MCH had an entitlement to retain possession of the land and material used in construction; by cl.21 MCH's interest was an interest in land and a caveat might be lodged to protect it. Although these provisions conferred on MCH a contractual licence which the parties agreed was to be an interest in land, they did nothing to alter the fee simple ownership and registered proprietorship of Bruinsma and Mansfield.
18 Other clauses deal with remedies on default (cl.10), obligations of MCH to proceed diligently with and complete the development within nine months and to rectify and make good any defects and faults (cl.11), guarantee by Mr Graham Mitchell and Mr Grant Mitchell to Bruinsma and Mansfield of performance of MCH's obligations (cl.12), rebutting partnership between MCH and Bruinsma and Mansfield and preventing assignment or encumbrance without consent (cl.15); and a number of other provisions.
19 The Development Agreement must be construed in the setting of commercial practicalities and practices which attend carrying out a development project with finance raised on mortgage over the land under development and then realising the proceeds of the venture by selling strata units created by the project. In the ordinary course purchasers of units are not willing to pay the whole purchase price, and will not pay more than a deposit of 5 or 10 % before completion and transfer of title. There cannot be transfer of title until the building is completed, a Strata Plan is registered, and the strata unit is freed from the mortgage by a full or partial discharge. Mortgagees are not prepared to release part of their security without receiving part or all of the proceeds of sale as payment of the mortgage debt so that there is an adequate security margin between the amount of the remaining debt and the value of the remaining security. The terms of the Development Agreement show no contemplation that the ordinary course would be departed from and do not deal in explicit terms with what was to happen if purchase money (other than deposits) was paid before completion, transfer of title, partial release of mortgage and reduction of the mortgage debt.
20 As Bruinsma and Mansfield were the mortgagors and owned the land which was charged with the mortgage repayment, they were liable to repay the mortgage debt. They needed to have events follow the ordinary course I have described, to have the proceeds of sale available for mortgage repayment, and to have and exercise control over any balance of purchase money received in advance. As title to the land remained with Bruinsma and Mansfield, and they were to be the vendors in any sales while MCH had no necessary place as a party to an agreement for sale, Bruinsma and Mansfield would be entitled to receive and retain any such payment in advance of completion except in so far as the Development Agreement made some other provision. Provisions of the Development Agreement relating to the right to and the disposition of purchase money are to be understood in the context of Bruinsma and Mansfield's need and entitlement to receive purchase money as vendors except in so far as the Development Agreement provided otherwise, and of their interest in protecting themselves in this way. It is necessary to look closely to the Development Agreement and to come to conclusions about what provisions it made for entitlements to receive, control and dispose of proceeds of sale.
21 The possibility was discernible that the amount received on the sales of the three residual units might not be sufficient to discharge the mortgage, which would leave Bruinsma and Mansfield with encumbered titles to their remaining units. By cl.8.1 MCH was to make sufficient funds available for the implementation of the development. By cl.8.2 Bruinsma and Mansfield were to grant a mortgage at the request and cost of MCH in favour of a lending authority for the mortgage maximum of $600,000, with the consequence that if more than $600,000 was required for implementation MCH would have a contractual obligation to make sufficient further funds available. By cl.8.2(c) MCH was responsible for and was to make all payments under the mortgage and indemnify Bruinsma and Mansfield. By cl.8.2(e) MCH had an obligation to cause the mortgages to be discharged within 35 days of the sale of the residual units, and to fund that discharge from the sale of the units, and if not sufficient, to pay any balance. (Clause 8.2(e) refers to mortgages in the plural, although only one was authorised).
22 Under cl.9.5 Bruinsma and Mansfield were obliged if so requested by MCH after practical completion to transfer freehold titles to Units 2, 3 and 4 to MCH or its nominee; this was an alternative to their obligation to complete sales at the request of MCH. That is to say, within the operation of cl.9.5 it was possible that Bruinsma and Mansfield might part with titles to Units 2, 3 and 4 otherwise than in the context of a sale to an outside vendor and receipt of purchase money. No such event happened. If such an event had happened the vendor in any later sale might have been MCH or its nominee.
23 The terms of the Development Agreement show overall that when the agreement had been fully performed Bruinsma and Mansfield were to have or retain two units and $200,000, but that MCH was to be entitled to all other proceeds of the venture. MCH had an obligation under cl.9.2 to pay $200,000 to Bruinsma and Mansfield on or before completion of the sale of the last residual unit (and the time at which MCH was obliged by cl.8.2(e) to cause the mortgage to be discharged was a little later).
24 Provisions of the Development Agreement which conferred control over the proceeds of sale on MCH are cll. 9.6 and 8.2(e); cl.9.6 was subject to cl.8.2(e) and only conferred a right to receive and obtain proceeds of sale if cl.8.2(e) was first complied with. MCH's right to receive and obtain proceeds of sale conferred by cl.9.6 was subject to the obligation in cl.8.2(e) to fund discharge of the mortgage from the proceeds of sale of the residual units, and the entitlement of MCH to receive and obtain proceeds under cl.9.6 related to the proceeds of sale less the amount paid to discharge the mortgage; it did not relate to the whole of the proceeds of sale of the residual units. It is not the meaning and effect of these provisions that the Development Agreement conferred on MCH a right to receive and dispose of purchase money received before completion free of any controls.
25 The ordinary course followed by purchasers in paying purchase money (other than deposits) only against title made it unlikely, in the state of affairs in the contemplation of the parties when they entered into the Development Agreement, that any proceeds (apart from deposits) of sale of the residual units would be received and obtained except in the context of discharge or partial discharge of the mortgage. But when as (most unusually) happened on two occasions, both times to the knowledge of Mr Patterson, purchasers made significant payments in advance of completion, those payments were not paid to GIO Finance nor received by Bruinsma and Mansfield. Bruinsma and Mansfield had a contractual entitlement and a strong interest to see that the proceeds were available to fund discharge of the mortgage. MCH came under the obligation in cl.8.2(e) to fund discharge of the mortgage from those proceeds, and became entitled under cl.9.6 to receive and obtain only proceeds not paid to GIO Finance to discharge the mortgage.
26 Although cl.9.6 did not in express terms create an obligation on MCH to make a payment to GIO Finance to discharge the mortgage, and spoke only of the amount which MCH was entitled to receive and obtain as the whole of the proceeds for sale "less the amount paid to [GIO Finance] to discharge the mortgages" (in what could be read as neutral language imposing no obligation to make such a payment), it is necessary to imply an obligation and a promise to pay any purchase money in that way in the context of the commercial practicalities and practices to which I referred, and in the context of the terms of cl.8.2(e); so that if payments of purchase money were received in advance of completion and transfer of title it was MCH's contractual obligation that the moneys would be either paid to the lending authority or set aside in some identifiable way so as to fund discharge of the mortgage. If such an implication were not made provisions of cll.8.2(e) and 9.6 would be futile. Clause 9.6 operated as an inroad into what would otherwise be the right of Bruinsma and Mansfield to receive the whole purchase money as vendors themselves, in which case the money would be available for their own protection against the mortgage debt. The Development Agreement would be absurd if its true meaning and effect were that, although MCH was obliged to fund discharge of mortgage from the sales of the residual units, and MCH was entitled to receive and obtain proceeds of sale less the amount paid to discharge the mortgage, MCH was contractually entitled to receive such money and dispose of it according to its own decision without paying the money to GIO Finance to fund the discharge of mortgage.
27 In negotiations which led to the Development Agreement of 27 August 1998 Messrs Watkins Tapsell & Nolan Solicitors of Kirrawee acted for Bruinsma and Mansfield, and that firm drafted the Development Agreement. At that stage Mr Patterson acted for MCH and the Mitchells, who were all parties to the Development Agreement.
28 A few days after the Development Agreement was entered into Mr Patterson wrote to MCH on 2 September 1998 referring to a then proposed sale of Unit 3 to the Millers and said to the effect that the solicitors acting for Bruinsma and Mansfield had requested $300 to peruse the contract of sale and attend on their clients to sign it. Mr Patterson commented to the effect that the amount was excessive and the work was duplicated, and that his firm was prepared to attend on Bruinsma and Mansfield for no addition of charge to have the necessary documents signed. He said "We can understand if [Bruinsma and Mansfield] wished to have a `second opinion' on the documents but we do not feel that this should be at your expense." He went on to comment that there would be a duplication of costs to MCH which could be $600 for each sale. (I cannot see why this would be so, as the Development Agreement did not require MCH to pay Bruinsma and Mansfield's solicitor's costs for such attendances). Mr Patterson also said he would consider an allowance of $100 per unit to be reasonable (Blue 2/504).
29 This letter shows that at that time Bruinsma and Mansfield and their then solicitors thought it appropriate that the solicitors should peruse contracts of sale, attend on their clients to sign them and make professional charges for these attendances, and Mr Patterson knew this and saw these attendances as an opportunity for Bruinsma and Mansfield to obtain a second opinion on the documents. The letter also shows that Mr Patterson was prepared to undertake professional responsibility to Bruinsma and Mansfield and to attend on them to have the necessary documents signed.
30 Mr Grant Mitchell wrote to Bruinsma and Mansfield on 3 September 1998 (Blue 2/505) enclosing Mr Patterson's letter and saying "Considering the problems you have had with your solicitor to expedite all transactions, I would prefer to use Dean Patterson in this matter" and asked for their views. These letters caused Bruinsma and Mansfield to decide to instruct Mr Patterson. Bruinsma and Mansfield wrote to Mr Patterson on 11 September 1998 saying that they "... would agree with your assessment of the situation. We would indeed be thankful for your preparedness to act on our behalf in relation to the attendance of the necessary documents in order to complete the sale of Units 2, 3 and 4." They further requested that the documents be sent directly to them rather than to Watkins Tapsell & Nolan Solicitors.
31 Mr Patterson accepted these instructions and acted for Bruinsma and Mansfield. He did not give Bruinsma and Mansfield any advice or warnings on possible implications or difficulties arising from his acting for them as well as for MCH and the Mitchells. It is clear that it was Mr Patterson's contemplation from the beginning of his acting for Bruinsma and Mansfield that they wished to have a second opinion on the documents directed to their interests and whether they should sign them. There is no sign that the clearly possible conflict of loyalties and of duties entered into Mr Patterson's consideration. It is possible that Mr Patterson took the view, later expressed in submissions on appeal, that it was the obligation of Bruinsma and Mansfield to sign whatever documents were set before them. From then on Mr Patterson regarded himself as acting for Bruinsma and Mansfield in relation to the sales of the residual units, and he sent them bills of costs which show that he so regarded himself, although there is no sign in evidence or in the findings that consideration of their interests ever affected his course.
32 In acting for them on the sale of the residual units under the provisions of the Development Agreement, it was Mr Patterson's duty to consider and protect his clients' rights under the Development Agreement including their contractual entitlements relating to disposition of proceeds of sale. This was not an arcane or obscure matter depending on some difficult reading of the Development Agreement; notwithstanding the pains I have taken to state the basis of my opinion, Bruinsma and Mansfield's interest in and entitlement to the proper disposition of proceeds of sale are, in my view, obvious on a whole reading of the Development Agreement. A reading in which MCH was contractually entitled to deal with such proceeds in an uncontrolled manner would be absurd, and the interest of Bruinsma and Mansfield in having proceeds of sale directed towards reduction of the mortgage debt, which was charged on the land they owned and on units which at the end of the project they were entitled to occupy as their homes, had an obvious and strong claim on Mr Patterson's attention.
33 Provisions of subcll.2.1(c) and 8.2(a) and (b) in the Development Agreement obliged Bruinsma and Mansfield to sign documents of many kinds there referred to. In the course of submissions in support of the appeal the appellant's leading counsel contended to the effect that Mr Patterson was not obliged to give advice because Bruinsma and Mansfield had an obligation to sign whatever documents MCH submitted, and counsel's contentions treated the words "as required" in cl.2.1(c) as referring to any requirement made by MCH. In my view cl.2.1(c) did not confer on MCH an entitlement to require that Bruinsma and Mansfield sign whatever documents, and whatever contracts containing provisions suitable to MCH, that MCH required, so that it would be a breach of the Development Agreement on their part if they did not sign any documents submitted within three business days. In my opinion the words "as required" in subcl.2.1(c) refer to documents reasonably required under the Development Agreement and in accordance with obligations in it, and did not confer on MCH an unrestricted right to make any requirement thought suitable to itself. There was no such right, and "required" refers to what the Development Agreement required. When documents were submitted by MCH to Bruinsma and Mansfield, and in particular when documents were prepared by Mr Patterson for submission, it fell within Mr Patterson's professional duty to consider and if necessary to give advice to Bruinsma and Mansfield on whether they were documents as required under the Development Agreement, and to advise whether Bruinsma and Mansfield were obliged by subcl.2.1(c) to sign them.
34 I do not accept the related contention to the effect that Mr Patterson had no obligation to give any advice on such occasions because Bruinsma and Mansfield would be in breach of contract if they did not sign documents within three business days, so that taking any time to consider and make objections would be perilous to his clients' interest. Clause 10 relating to default created a procedure for a remedy notice which would give twenty business days to remedy any breach before termination; there was no real risk that there would not be an opportunity to give any proper consideration to a document before this machinery was run through. It is true that there might be an entitlement to claim damages without giving a remedy notice, and that that right might accrue after three business days, but that did not alter Mr Patterson's professional obligation to consider, give advice and obtain instructions from Bruinsma and Mansfield whenever they were asked to sign a document he prepared or knew of.
35 Avoiding all breaches of contract should not have been Mr Patterson's only consideration; it might be prudent to commit some breach such as delaying executing a document for a few days with the risk of whatever damages that might cause so as to give proper consideration to whether it should be executed. In two sales of residual units where Mr Patterson acted for Bruinsma and Mansfield, arrangements were made (of which Mr Patterson knew) for purchase moneys to be paid otherwise than to Bruinsma and Mansfield without there being any arrangement for their payment in reduction of the mortgage; in these cases Mr Patterson was obliged to point out the obligation of MCH to fund discharge of the mortgage from the proceeds of sale, and to bring under consideration what arrangements in the interests of Bruinsma and Mansfield ought to be required to ensure that MCH's contractual obligation was carried out. The first and most obvious arrangement was to pay the sums received to GIO Finance, but if that were not done, consideration was required of some other arrangement to bring it about that the proceeds of sale were used to fund discharge of the mortgage, and to bring it about that the only funds which MCH received and obtained were available subject to cl.8.2(e) and calculated after deducting the amount paid to GIO Finance for the reduction of mortgage debt.
36 I turn to the circumstances of the agreement for sale of Unit 2 to the Millers.
37 The Millers indicated interest in purchasing Unit 3 even before the Development Agreement was made, and Mr Grant Mitchell then told Mr Mansfield that the Millers had deposited $40,000 "as a bond" which I suppose means as a deposit. An agreement to sell Unit 3 to the Millers was entered into soon after, but by January 1999 the Millers wished to buy Unit 2 instead of Unit 3 and Mr Patterson sent Bruinsma and Mansfield a fresh contract of sale relating to Unit 2 on 20 January 1999, saying "The original contract will be rescinded simultaneously with exchange of this new contract." This contract was exchanged and bore date 2 February 1999 (Blue 1/200). The GIO Finance Mortgage was signed soon after the exchange of contracts with the Millers. Bruinsma and Mansfield agreed to a request from MCH to allow the funding by GIO Finance to be increased by a further $110,000 towards the end of 1999, and signed a deed which gave effect to this.
38 The contract was on a standard form with special conditions dealing among other things with its being a sale "off the plan" which was not to be completed until completion of the building work and registration of the Strata Plan. A standard term (cl.16.7) provided for payment of the balance purchase price on completion; the price was $400,000 and the deposit of $40,000 was to be held by Mr Patterson. Another standard term cl.20.5 provided "A party's solicitor can receive any amount payable to the party under this contract or direct in writing that it is to be paid to another person."
39 In April 2000 the project had not reached the stage where the Strata Plan could be registered; so it was not possible to complete the sale to the Millers. Mr Graham Mitchell in a letter to Bruinsma and Mansfield on 10 April 2000 referred to the steps still outstanding before registration of the Strata Plan and said: (Blue 2/389-390)
At present Mr and Mrs Miller have a problem with their pension benefits because of the money they have on term deposit for settlement. Therefore, they want to pay $250,000.00 now and the balance on settlement, and this will solve their problem.
G.I.O Finance:
G.I.O currently have first mortgage security over the whole development valued at $2 million for a $600,000.00 advance (30%).
Mitchell's:
What we are asking is that this payment of $250,000.00 be released to us enabling us to access our equity now, which would be of great assistance to us and our equity partner in Unit 4.
Once registration has taken place and settlement is affected, you will have your homes released immediately along with Miller's. G.I.O would be left with Unit 3 and 4 valued at $800,000.00 with only a $400,000.00 advance (50%) so the security position is still very strong.
On the last sale of the units, we will settle with you both as per our Joint Venture Agreement.
We would greatly appreciate your approval of this request. It would need to be confirmed in writing for the records, and if you feel it necessary, please contact your solicitor for advise [sic].
Once again, we appreciate your consideration for this matter.
In this letter Mr Graham Mitchell signed his name as "Director G.L. Mitchell Homes Pty Ltd" which is a different company to MCH.
40 On 11 April 2000 Bruinsma and Mansfield signed the letter of 10 April 2000 to indicate their agreement and returned it to Mr Graham Mitchell. When the letter is read in the context of the Development Agreement what Bruinsma and Mansfield agreed to was the release of the $250,000 part proceeds of sale to MCH, not to G. L. Mitchell Homes Pty Ltd; this appears from the content under the heading "Mitchell's" in the letter and from the reference to "enabling us access our equity now," given that only MCH could be thought of as having an equity, not G. L. Mitchell Homes Pty Ltd.
41 Mr Graham Mitchell's letter was seriously misleading and the statements in it were not a frank or complete statement of the possible impact of releasing the $250,000 on the position of Bruinsma and Mansfield. The reference to release of $250,000 as being "of great assistance to us and our equity partner in Unit 4" was very misleading and entirely misrepresented the position of Don Stein in relation to Unit 4. The statements about the security available to GIO Finance were misleading given the fact that Don Stein had a contractual entitlement to title to Unit 4 and had already paid the whole of the purchase price on the unit. In particular, the statements that "G.I.O would be left with Unit 3 and 4 valued at $800,000.00 with only a $400,000.00 advance (50%)" and that "the security position is still very strong" even though $250,000 was released was entirely misleading; to speak of the impact on GIO security without going on to refer to the contract for sale to Don Stein and the payment of the purchase price by Don Stein was extremely misleading because access by the GIO Finance to Unit 4 which Don Stein had paid for would generate grave problems under Bruinsma and Mansfield's obligations to Don Stein (and this later happened). The reference to a $400,000 advance was false as far more than $400,000 later had to be paid to GIO Finance. The letter also misstated the GIO Finance advance as $600,000; in fact however it was $710,000 having regard to a varying deed to increase the mortgage amount which Bruinsma and Mansfield had executed a few months earlier.
42 Mr Patterson had some part in the arrangements for payment of $250,000 on account of the sale to the Millers of Unit 2. On 6 April 2000 (earlier than the letter of 10 April 2000 and the endorsed authorisation) he gave an authority (Blue 76) to the conveyancing service which represented the Millers to make the cheque payable to GIO Finance (see also Red 96). On 11 April 2000 Mr Patterson gave the conveyancing service another authority referring to the authority of 6 April 2000 and requested "Please make the cheque payable to G.L. Mitchell Homes Pty Ltd." The conveyancing service replied on 12 April 2000 by a letter to Mr Patterson's firm enclosing a bank cheque in favour of G.L. Mitchell Homes Pty Ltd for $250,000. A receipt (Blue 1/77) dated 12 April 2000 was issued to the Millers on behalf of MCH for this part payment. As Mr Patterson required the cheque to be in favour of G.L. Mitchell Homes Pty Ltd and it was actually drawn in favour of that company it is improbable that MCH in fact received that amount. The Millers occupied Unit 2 from about the time of their payment.
43 Standard term cl.20.5 of the contract of sale did not confer any authority on Mr Patterson relating to the proposed payment of $250,000, as the contract did not make provision for purchase money to be payable before completion. Mr Patterson did not communicate with Bruinsma and Mansfield to obtain any instructions about the disposition of the $250,000, and gave them no advice on the subject. Mr Patterson had no instructions or authority from Bruinsma and Mansfield to give the direction for payment to GIO Finance, although that direction was obviously appropriate in Bruinsma and Mansfield's interests. Nor did he have instructions from them to give a different direction for payment to G.L. Mitchell Homes Pty Ltd. The Trial Judge inferred (Red 96) that Mr Patterson was aware of the contents of the letter of 10 April 2000 when he gave the direction to make the cheque payable to G. L. Mitchell Homes Pty Ltd. Counsel challenged the Trial Judge's inference that Mr Patterson saw the letter, but there was a strong basis for this inference in the evidence as it is highly improbable that Mr Patterson as a solicitor would act on authority in writing for payment of $250,000 to G. L Mitchell Pty Ltd without seeing it. There was a simple lack of authority or instructions to empower Mr Patterson to give the direction of 11 April 2000. If he had communicated with Bruinsma and Mansfield or obtained their instructions his duty as their solicitor would have required him to give consideration to their interests overall and to give them advice about whether they should authorise such payment to G. L. Mitchell Homes Pty Ltd.
44 Mr Neville Moses solicitor gave expert evidence relating to Bruinsma and Mansfield's case against Mr Patterson. Mr Moses' evidence was admitted without objection. Some matters which he gave in evidence were probably conclusions about the application of the law to facts, but as they were not objected to, and do not appear to be incorrect in relation to the facts found by the Trial Judge, this gives rise to no difficulty. The Trial Judge's findings relating to Mr Patterson's retainer include:
I am therefore comfortably satisfied that Mr Patterson was the solicitor acting for [Bruinsma and Mansfield] on the sale of Villas 2, 3 and 4 and that he was instructed by [them] to prepare and complete the contracts for sale of those villas consistently with [their] obligations under the Development Agreement. (Red 82)
45 Mr Moses' evidence also dealt with the impact on Mr Patterson's position and obligations of his acting both for MCH and for Bruinsma and Mansfield. The Trial Judge found (Red 84)
Mr Moses was of the opinion, given that the Development Agreement was in place, that there was nothing wrong in Mr Patterson having accepted instructions to act for both the defendants and the company. Nevertheless, having undertaken that obligation, it was in Mr Moses' opinion essential that Mr Patterson, in accordance with the usual practice of standard and competent solicitors, should have acted on behalf of the defendants as he would have if he were acting for them only and to advise them accordingly. Specifically, he was aware of the provisions of the Development Agreement, having acted for the Company in relation to it.
46 The Trial Judge also said (Red 85):
In Mr Moses' opinion, it would have been clear to Mr Patterson that the obvious intent of the development agreement was that there would be a progressive discharge of the GIO mortgage on the property as sales of the units preceded and, in light of clause 8.2(e) in particular, it must have been absolutely clear to Mr Patterson that the proceeds of any sale of any residual unit (meaning Villas 2, 3 or 4) would be applied first to obtain partial discharge of the GIO mortgage over that Villa. Mr Moses noted that Mr Patterson had directed that the cheque for $250,000, being the advance payment made by the Millers concerning Villa 2, was to be paid to GIO. Mr Moses noted that this arrangement had changed and that Mr Patterson was aware that the Company had procured, by way of the letter dated 10 April 2000, instructions for the amount of $250,000 to be paid to it. In those circumstances Mr Moses' opinion was that if Mr Patterson had been acting solely for the defendants and it had come to his knowledge that they were proposing or had signed such a letter, then Mr Patterson as a matter of usual practice should have cautioned the defendants that at least the amount still owing to the GIO under the mortgage should be verified prior to the defendants agreeing to the $250,000 being paid to the Company. Mr Moses said in his opinion he would have expected Mr Patterson, although acting for both parties, to have taken this course when he was given the written instructions as to payment of the cheque. Further, even if he had not been acting for the defendants, he would have expected Mr Patterson, assuming he was acting for the Company, as a matter of usual practice (apart from the matter of professional courtesy) to have contacted the defendants' solicitor and pointed out that the direction to pay the $250,000 directly to the Company had been received and seeking confirmation that the defendants had received appropriate advice prior to agreeing to that payment. It is clear on the evidence that Mr Patterson took none of these steps.
The Trial Judge also accepted opinions expressed by Mr Moses to the effect that on receipt of the authority endorsed on the letter of 10 April 2000 Mr Patterson ought to have contacted Bruinsma and Mansfield as his clients to confirm that they gave the direction after having been fully informed of the state of affairs relating to development and in particular relating to the mortgage.
47 If Mr Patterson had acted appropriately in the interests of Bruinsma and Mansfield he would have advised them or otherwise protected their interests in the disposition of the purchase money in accordance with the Development Agreement, the meaning of which I discussed earlier. In any reasonable course of conduct on Mr Patterson's part, knowledge of the contents of the letter of 10 April 2000 should have activated him to take energetic steps for the protection of the interests of his clients Bruinsma and Mansfield. When the clients in one interest brought the solicitor an authorisation from the clients in a different interest consisting of their signing consent at the foot of such an unsatisfactory letter, in all reasonableness, a solicitor acting for them should have been prompted to ascertain how much the mortgage debt really was and to contact the clients giving authorisation directly, proffer advice and obtain further instructions. The need for such action was particularly clear in view of the untutored simplicity of Bruinsma and Mansfield.
48 If Mr Patterson had adhered to his original course of directing that the money be paid to GIO Finance, Bruinsma and Mansfield would have had appropriate protection. Mr Patterson was negligent in departing from that course; he was negligent even if Bruinsma and Mansfield had by endorsing the letter of 10 April 2000 given an authorisation for the payment to MCH. Underlying the authorisation of Bruinsma and Mansfield to release the $250,000 to MCH there must have been a belief or assumption that it could be expected that MCH's obligations to Bruinsma and Mansfield with respect to completing the project, discharging the mortgage and paying them $200,000 could be met even though $250,000 was released to MCH and not directed towards repayment of the mortgage debt. Any consideration of their interests would have shown Mr Patterson that this assumption had been made and that the situation obviously called for direct instructions, consideration of Bruinsma and Mansfield's interests and giving appropriate advice. Mr Patterson's breaches of duty were made worse by his directing payment to G.L. Mitchell Homes Pty Ltd. The fact that the letter and endorsed authority were returned directly to Mr Graham Mitchell, who was associated with MCH for which Mr Patterson was also acting, should have enhanced Mr Patterson's vigilance; it was obviously unsuitable and risky for his clients on one side of these transactions to communicate directly or indirectly with Mr Patterson through clients on the other side of these transactions.
49 The sale to the Millers was later settled and title was transferred to them, but of course only after allowing them credit for $250,000 which they had paid in advance; and that amount of purchase money never became available to pay towards the mortgage debt.
50 I turn to the circumstances of the agreement for sale of Unit 4 to Don Stein.
51 Shortly before 20 May 1999 Mr Graham Mitchell told Mr Bruinsma that he had a mate to whom he owed a favour and that he wanted to sell his mate Unit 4 at a reduced price. He further said that Mr Bruinsma would not have to worry about his $100,000 "because we will make sure you still get that." Mr Bruinsma told Mr Mansfield about this conversation. Later Mr Graham Mitchell telephoned Mr Mansfield and asked him to set up a meeting "where we can have this option contract signed regarding my mate" (Red 68). Mr Graham Mitchell attended on Bruinsma and Mansfield on 20 May 1999, produced a document to which he referred as an "option contract," told them that the document was drawn up by Mr Patterson and requested that they sign it. Mr Mansfield had the belief that the document was a form of option. There is a large body of evidence about the state of the document when it was signed. Findings by the Trial Judge establish that at that stage the document showed the sale price to be $390,000, Mr Stein was the purchaser, and there were a number of blank spaces. Bruinsma and Mansfield signed the document and initialled it at various places, and it was then taken away by Mr Graham Mitchell.
52 Contracts were exchanged in an attendance between Mr Grant Mitchell purportedly on behalf of Bruinsma and Mansfield and Mr Matthews, solicitor on behalf of Don Stein. Before the exchange there was a course of negotiation between Mr Stein and Mr Grant Mitchell, who had an earlier association with Mr Stein as both were involved in a joint development of an industrial complex at Castle Hill carried out by Starconia Pty Ltd. The Trial Judge's findings examined this course of negotiation in detail, as it was necessary to do having regard to the circumstances which the purchase price of Unit 4 came to be $390,000. (These circumstances are no longer important in this appeal).
53 The Trial Judge found that Mr Mansfield's understanding when he signed the contracts relating to Unit 4 and also to Units 2 and 3, was that the proceeds of sale would be applied in reduction of the mortgage debt owing to GIO Finance until such time when the debt was extinguished. This was an altogether reasonable belief, as it accorded with Bruinsma and Mansfield's entitlement under the Development Agreement. Before July 2000 Mr Mansfield thought that the document he signed was no more than an option and Mr Bruinsma did not know that there had been an exchange as he was told by Mr Graham Mitchell about October or November 1999 that the mate who was interested in purchasing Unit 4 did not then want it. In fact however contracts were exchanged on 21 May 1999, and as a result Bruinsma and Mansfield were contractually bound. It was for breach of contractual obligations in this exchange of contracts that Bruinsma and Mansfield became liable to pay large damages to Don Stein.
54 Mr Patterson had no communication with Bruinsma and Mansfield regarding the preparation or execution of an option contract, the contract of sale or any other documents relating to the sale. Mr Patterson had no instructions from Bruinsma and Mansfield to prepare a contract or to exchange contracts; and indeed they gave no instructions to anybody which authorised the exchange of contracts. Nor did Mr Patterson tell them that contracts were exchanged and that an agreement to sell Unit 4 to Don Stein had been effected. The Trial Judge made findings which establish that Bruinsma and Mansfield first heard that there had actually been a sale to Don Stein on receipt of Mr Patterson's letter of 14 July 2000. Although Mr Patterson was acting for Bruinsma and Mansfield in the sense that acting for them on the sales of the residual units was within his retainer earlier formed, that he purportedly represented them in connection with sale transactions in various ways, and that he later rendered bills of costs for doing so, in practical terms he gave them no advice and did nothing whatsoever to protect or to act in their interests.
55 The form which the contract took when exchanged on 21 May 1999 was not the same as it took when shown to and signed by Bruinsma and Mansfield; alterations were made in the contract after Bruinsma and Mansfield signed it, both before and at exchange of contracts, and these were significant alterations which were quite radical in their total effect. The reference to the selling agent was deleted, the provision requiring deposit to be held by the vendors' solicitor (Mr Patterson) was deleted, and there were other alterations. One effect of the alterations was that the vendors were to be the deposit holder. (However Bruinsma and Mansfield did not ever hold a deposit). Another alteration was that Don Stein and not Mr Stein personally became the purchaser.
56 Most significantly Special Condition 28 was inserted before the exchange of contracts without the knowledge of or authorisation by Bruinsma and Mansfield. Special Condition 28 is entitled "Release of Purchase Price." It commenced (Blue 2/308) "28.1 The purchaser has agreed to pay and release to the vendors the whole of the purchase price on exchange of this contract." It went on to deal in detail with rights in respect of the purchase money, including subcl.28.4 which is in these terms:
28.4 As security for and in consideration of the advance of the purchase price made by the Purchaser to the Vendors:>
28.4.1 the Purchaser acknowledges that the Vendors have reduced the purchase price from $440,000.00 to $390,000.00;
28.4.2 the Vendors procure that Grant Lee Mitchell and Marion Mitchell grant to the Purchaser an unregistered second mortgage over the whole of Folio Identifiers- 13/608269 subject to a registered first mortgage St George Bank for a principal sum of $140,000;
28.4.3 the Vendors will not borrow any further capital for the development of the project site;
28.4.4 the Vendors will procure that Starconia Pty Limited in its capacity as trustee of the Mitchell Family Trust will grant an unregistered third mortgage over its one quarter interest in that property known as 151-155 Showground Road, Castle Hill being the whole of the land in Folio Identifiers 1/124529 and 10/15186;
28.4.5 the securities referred to in sub-clauses 28.4.2 and 28.4.4 above will be collateral to one another and collateral to this contract.
57 The obligations incurred under subcl.28.4 were very extensive, and quite remarkably unusual; but the manner in which exchange was effected means that Bruinsma and Mansfield were obligated by these clauses although they had never heard of them.
58 The Trial Judge found that Bruinsma and Mansfield did not know that the whole amount of the price of the sale of Unit 4 to Don Stein was to be released on exchange of contracts or shortly thereafter. They did not know this because they had been deceived by Mr Graham Mitchell about the terms of the contract and because Special Condition 28 was not in the contract when they signed it, and they were not told of it, although it was a remarkably unusual condition not only in respect of the time of payment of the price but even more so in respect of the provisions relating to giving Don Stein cross-security. The Trial Judge also found that Mr Patterson did know about the inclusion of Special Condition 28, and failed to give Bruinsma and Mansfield any advice about it, or about an amendment to subcl.28.4.2 which was made at the point of exchange.
59 Plainly it was Mr Patterson's duty, having regard to the alterations made to the contract, and even more plainly in the presence of unusual provisions such as subcl. 28.4, to attend on Bruinsma and Mansfield as his clients and explain the provisions of the contract to them; he did nothing of this kind. It was also plainly his duty to attend on exchange and either prevent or control any alterations being made to the form of contract to which Bruinsma and Mansfield had not agreed; of course he did not do that either. He instead allowed Mr Grant Mitchell to attend on behalf of Bruinsma and Mansfield on exchange; and Mr Grant Mitchell represented interests entirely different to those of Bruinsma and Mansfield and was an altogether unsuitable person to be put in a position to effect an exchange or to alter the terms of the contract of sale.
60 Whether Bruinsma and Mansfield actually had an obligation under the Development Agreement to sign the contract is not truly in point because the contract as exchanged was not in the form it was in when they signed it, and they had never been asked to sign it in the form it was in when exchanged; they were never asked to sign a contract with Special Condition 28 in it, or even told of the existence of Special Condition 28 at any relevant time. If they had seen Special Condition 28 and had been advised it is highly likely that it would have turned their minds to what was to happen to the purchase money paid in advance and to what significance might be attributed to the provisions about cross-security.
61 By a series of payments from 24 May 1999 to 14 June 1999 Don Stein paid sums totalling $396,790 on account of the purchase price of Unit 4. No part of this purchase money was paid to Bruinsma and Mansfield, Mr Patterson, or GIO Finance, and Bruinsma and Mansfield had given no written or other authority authorising anyone other than themselves to receive payment of the purchase money. Receipts issued in the name of MCH for two of the payments totalling $196,790 went into evidence (Blue 2/438) but in the circumstances no confident finding could be made about where the purchase money went, except that it is certain that it was not paid to Bruinsma and Mansfield, Mr Patterson or GIO Finance, and it is very unlikely that it was paid to MCH.
62 On 24 May 1999 Mr Matthews wrote to Mr Patterson asking for his assistance in relation to "Mr Mitchell's undertaking to arrange to have the collateral security on the home owned by his wife and himself executed on Monday" and for a Solicitors' Certificate in respect of mortgages granted by Starconia Pty Ltd and by Mr and Mrs Grant Mitchell. Mr Matthews' letter also said: (Blue 2/432)
The contract sum is being paid directly by Mr Stein to Mr Mitchell.
As a matter of formality, I would be grateful if you could forward a letter to us confirming that your vendor clients authorise and direct our client to pay the purchase price directly to Mr Mitchell.
63 Mr Patterson acted for the persons who gave the mortgage securities for which Special Condition 28.4 provided. In a letter to Mr Matthews dated 31 May 1999 Mr Patterson said among other things: (Blue 2/433)
We note our client's instructions to pay the proceeds of the loan to G. Mitchell.
64 On 16 June 1999 Mr Graham Mitchell, signing himself as Director of MCH, wrote to Mr Stein personally a letter headed "Re Loan Confirmation", confirming receipt of a total of $396,000, referring to the transaction as a loan and the amounts paid as "$10,000 above the agreed loan amount," and suggesting an adjustment. Mr Matthews saw this letter and naturally enough had difficulty in understanding the reference to the loan.
65 Standard term cl.20.5 of the contract of sale authorised Mr Patterson to direct in writing that any amount payable to the party under this contract be paid to another person; but again there was no such authorisation conferred on Mr Patterson as the contract did not make provision for purchase money to be received before completion, except for what was said in Special Condition 28. Special Condition 28 did not give Mr Patterson any authority to allow purchase money to go to MCH or to anyone other than the vendors, and he had no authority to allow that from any source, yet while he was conducting the sale on Bruinsma and Mansfield's behalf, he informed Mr Matthews that the release of the whole of the purchase price to G. Mitchell was in accordance with his clients' instructions; there was no basis for him to tell Mr Matthews this. Mr Patterson had no such instructions and had no instructions from Bruinsma and Mansfield such as he spoke of in the letter of 31 May 1999. A clearer piece of solicitor's professional negligence in the conduct of conveyancing business would be hard to imagine.
66 If arguably the terms of the Development Agreement entitled MCH to receive payments of purchase money, any such entitlement existed, as the views I have expressed earlier show, only subject to its obligations relating to payment to GIO Finance for the reduction of the mortgage debt, in the carrying out of which Bruinsma and Mansfield had an interest to the protection to which Mr Patterson's retainer extended. Since the Development Agreement had that meaning, there should not have been a direction by Mr Patterson for payment to G. Mitchell. There was also an aura of uncertainty, in the factual context, about who was referred to as G. Mitchell.
67 The Trial Judge dealt (Red 90-91) with whether Mr Patterson's retainer obliged him to provide advice on the implementation of the Development Agreement and on any commercial decisions made in connection with the Development Agreement. His Honour concluded (93-94) that Mr Patterson ought to have taken steps to ensure that the whole of the proceeds of the sale of Unit 4 (or such part as necessary to obtain a partial discharge to give Don Stein a clear title) were paid to GIO Finance, that failure to take such steps constituted breach of Mr Patterson's retainer which obliged him to obtain Bruinsma and Mansfield's instructions as to payment of the proceeds of sale and ensure that they were paid to GIO Finance. The Trial Judge also found that there was breach of retainer in Mr Patterson's failing to attend on Bruinsma and Mansfield to execute the contract, to advise them and to properly obtain their instructions about the terms of the contract including specifically the inclusion of Special Condition 28. The Trial Judge regarded these failures as breaches of Mr Patterson's duty of care.
68 The Trial Judge found that if Mr Patterson had carried out his obligations to Bruinsma and Mansfield the fraud of inserting Special Condition 28 into the contract after they signed it would not have been carried out. Mr Patterson's failures left Bruinsma and Mansfield unprotected with respect to the unauthorised disposition of the whole of the purchase money for Unit 4, and an opportunity to be protected against the mortgage debt was permanently lost. By the time Don Stein gave Notice to Complete and Notice of Termination late in 2000 MCH was in liquidation and was in no position to fulfil its indemnity or other payment obligations. Bruinsma and Mansfield lost their defence of the claim by Don Stein on the basis that they were bound to the terms of the contract as exchanged with alterations which they did not know of, and of which Mr Patterson knew and to which he gave his approval although he had no instructions or authority from Bruinsma and Mansfield to do so. Their default and liability for damages to Don Stein were caused directly by Mr Patterson's breaches of duty.
69 The Trial Judge also accepted the opinion of Mr Moses to the effect that on the sale of Unit 4 it was Mr Patterson's duty acting for Bruinsma and Mansfield to ensure that the whole of the proceeds of sale or such part as was necessary to partially discharge the title to Unit 4 from the mortgage was paid to GIO Finance. Mr Moses further said that Mr Patterson's failure to do this was a failure to achieve the usual standards of ordinarily prudent solicitors acting in such a transaction. In accepting and acting on these opinions the Trial Judge reached correct conclusions.
70 The Trial Judge also found (Red 95-97) that it was Mr Patterson's duty and that it was reasonable for Bruinsma and Mansfield to expect Mr Patterson to take positive steps to protect them by advising them of what might happen in the event that the whole of the proceeds of sale were made available, as Mr Patterson directed, to "the Mitchells," instead of being applied in the reduction of the mortgage debt. The Trial Judge was of the view that the existence of this duty was shown by observations in Hawkins v. Clayton [1988] HCA 15; (1990) 164 CLR 539 by Deane J at 579, which relate to a duty to take positive steps beyond the specifically agreed professional task or function to avoid a real and foreseeable risk of economic loss. These conclusions (Red 96-97) relate not only to Mr Patterson's conduct of affairs relating to the proceeds of sale of $390,000 of Unit 4, but also relating to the part payment of $250,000 on account of the sale of Unit 2 to the Millers.
71 After consulting new solicitors, Messrs Cassidy Gibson and Howlin, Bruinsma and Mansfield sold Unit 3 to a purchaser named Mapledoram on 28 August 2000 for $419,356.00. This sale was settled on 10 October 2000, and on settlement Messrs Cassidy Gibson and Howlin obtained a partial discharge of Unit 3 from GIO Finance and paid the net sale proceeds of $407,069.12 in reduction of the mortgage. GIO Finance sold Unit 4 by auction on 8 May 2001 for $340,000. As it happens the purchaser was Mr Mellor who is Mr Bruinsma's son-in-law; this led to the sale being examined in the context of the valuation of Unit 4 for the purpose of assessment of Don Stein's damages. The Trial Judge found that the sale was an arm's-length transaction at the best price obtainable at the time and that Mr Bruinsma was not involved. This question is no longer important.
72 Messrs Cassidy Gibson and Howlin also acted for GIO Finance when that company sold Unit 4 to Mr Mellor, and on the settlement of that sale on 13 June 2001 the proceeds of sale of $326,025.84 was paid to GIO Finance and applied in reduction of the mortgage. In addition they acted for Bruinsma and Mansfield when the sale of Unit 2 to the Millers was settled on 22 June 2001; of the proceeds of that sale $29,480.72 was paid to GIO Finance, on the final discharge of its mortgage, and $74,781.35 became available to Bruinsma and Mansfield; and the solicitors accounted for that sum to them (Blue 523-532). In this way Units 1 and 5 came to be free of mortgage.
73 The three sums paid to or collected by GIO Finance from the sales from 10 October 2000 to 22 June 2001 totalled $762,574.78. If $640,000, which is the total of the sale price of $390,000 for Unit 4 sold to Don Stein and the $250,000 on account of the sale to the Millers, had been directed to GIO Finance the amount required to discharge the mortgage would have been correspondingly less; these figures, derived from Messrs Cassidy Gibson and Howlin's Consolidated Statement (Blue 524) suggest that only $122,574.68 would have been required to discharge the mortgage, but this is only a general indication as although earlier payments would have greatly reduced the interest under the mortgage, there might have been additional charges such as commission on the sale to the Millers. Although precision is not available, it is clear that most of the sums totalling $355,526.56 which became available on settlement of the sales to Mr Mellor and the Millers would have been available for MCH to meet its obligations, including its obligations to pay $92,000 to Bruinsma and Mansfield.
74 I now turn to the submissions put forward by the appellant's counsel.
75 The first submission in support of the Appeal proceeded after it was conceded that it had been established by findings at first instance that Mr Patterson breached his retainer by failing to attend on the vendors to execute the Don Stein contract, that he failed to advise Bruinsma and Mansfield and properly to obtain their instructions relating to the inclusion of Special Condition 28 and its ramifications and that he failed to advise Bruinsma and Mansfield about the amendment to subcl. 28.4.2 (relating to substituted security). However it was contended that these findings of breaches did not relevantly cause any loss to Bruinsma and Mansfield, and that this made irrelevant the Trial Judge's conclusions to the effect that Mr Patterson ought to have taken steps to ensure that the whole of the proceeds of the sale of Unit 4 were paid to GIO Finance, and that Mr Patterson should have cautioned Bruinsma and Mansfield to verify the amount owing to GIO Finance under the mortgage before they agreed to the sum of $250,000 received from the Millers being paid to MCH. The first submission turned on the meaning and effect of the Development Agreement and its provisions relating to dealing with proceeds of sales. It was contended that there was no indication in the Development Agreement that there would be a gradual reduction or partial discharge in the debt to GIO Finance. It was also contended that in cl.8.2(e) the reference to MCH's obligation to discharge the mortgage "within 35 days of the sale of the Residual Units" was a reference to completion of all sales; and the submission should be understood to convey the corollary that until 35 days after completion of all sales there was no obligation to cause the mortgage to be discharged or to pay any money from sales towards the mortgage debt. It was contended that on the true meaning of the Development Agreement, MCH had a right to have the proceeds of sale of the residual units paid to it, had no contractual obligation about disposing of those moneys and no further obligation to GIO Finance until the last residual unit had been sold.
76 For reasons which I have given earlier when expressing views about the meaning and effect of the Development Agreement, I conclude that MCH did not have the right to have proceeds of sale paid to it, other than such proceeds as were available after meeting obligations relating to discharge of the mortgage and complying with cl.8.2(e). The contractual provisions (in the Don Stein Contract) and the post contractual arrangements (about the Miller Contract) which resulted in receipt of all and part of the purchase moneys before completion would not at the time of the Development Agreement be in the contemplation of anyone who knew of the commercial practicalities and practices which I referred earlier, and there is no sign in the text of the Development Agreement that they were actually contemplated. Purchasers want unencumbered title on payment of purchase price, not only in their own interests but also so as to be able to mortgage that title themselves to borrow the purchase money. The strange cross-security arrangements in Special Condition 28 serve to illustrate this need for protection: it substitutes cross-security for title as the purchaser's protection. I also reject a further development of this contention, which was to the effect that Bruinsma and Mansfield would not have been able to refuse to agree to the release of the proceeds of sale of both Units 4 and 2 without themselves being in breach of the Development Agreement.
77 It was submitted that the Development Agreement obliged Bruinsma and Mansfield to sign the authorisation endorsed on the letter of 10 April 2000 as a document required under the Development Agreement, and hence that it would have been pointless for Mr Patterson to give them advice about it. In my view the Development Agreement did not have that meaning. Bruinsma and Mansfield had no obligation to give such an authorisation as they endorsed on the letter of 10 April 2000, and would not have been in breach of their contractual obligation if they had refused to give the authorisation, or if they had later countermanded it. The same could be said if they had authorised the purchase money from the sale to Don Stein to be paid to MCH or to Mr Graham Mitchell, but the force of so saying is blunted as they were not asked for such authorisation, did not ever give it and were not told that the Don Stein purchase money was available, or of the contractual provision which made it available.
78 It was contended that cl.9.2 of the Development Agreement contemplated that Bruinsma and Mansfield's entitlement to receive $200,000 from MCH might be paid before completion of the sale of the last residual unit, and that this assisted the reading in which earlier proceeds of sale should have been paid to MCH; it was said that this was the only way that it would be possible for MCH to pay the $200,000 to Bruinsma and Mansfield before completion of the sale of the last residual unit. In my view this has no substance as it was, at least in concept, possible that MCH might pay the $200,000 from other resources earlier than otherwise obliged to pay it. The contention which I have rejected was not accommodated to the whole terms of cl.8.2(e), or to the obligation of MCH to fund discharge from the sales of residual units, with the implications that there must be a fund and that without discharge the fund could not be used in any other way.
79 It was then contended to the effect that the circumstances in which Special Condition 28 came to be part of the Don Stein contract, and Mr Patterson's breaches of duty in connection therewith, had not caused loss, because if Bruinsma and Mansfield had been properly advised about Special Condition 28 the inescapable inference was that they would have proceeded anyway, because there was no detriment to them in that Special Condition. It was further submitted that there was no evidence that Bruinsma and Mansfield would not have signed Special Condition 28 if they had known about it and had been properly advised. They did not in their evidence say in literal terms what their response would have been in those events.
80 In my opinion it is overwhelmingly probable that if they had known about it and had been properly advised, according to the meaning of the Development Agreement, they would have declined to adopt Special Condition 28 or to sell Unit 4 to Don Stein on any terms like Special Condition 28. The subterfuge and fraud by which Special Condition 28 was included in the contract without their being told about it assist this conclusion.
81 A related submission was that Bruinsma and Mansfield would have had to proceed with the contract even if they had been properly advised of Special Condition 28 as they were obliged to sign whatever was set before them; this was plainly wrong. Special Condition 28 was highly unusual and if its terms were known could only prompt searching inquiry as to the circumstances in which Don Stein was to pay the purchase price in advance but was to receive cross security from interest not associated with Bruinsma and Mansfield. The Special Condition would have required careful consideration, explanation and advice before it could reasonably have been adopted by Bruinsma and Mansfield. Investigation and consideration would have extended beyond the mere terms of Special Condition 28 into what was to happen to the purchase money, which according to its terms was payable to Bruinsma and Mansfield and not to MCH.
82 I conclude, quite to the contrary of this contention that if Bruinsma and Mansfield had been properly advised about Special Condition 28 the inescapable inference is that they would have not have proceeded; that they were not obliged to accept Special Condition 28 and that if their rights and interests had been respected and they had not been deceived, the purchase price received from Don Stein would, if received at all, have been directed to the GIO Finance mortgage. I reject subsidiary contentions to the effect that if Bruinsma and Mansfield had failed to agree to release the purchase price to MCH they would have been in breach of the Development Agreement, or that they would have been unlikely to become entitled to $200,000 on completion; I reject the contention that MCH had no contractual obligation to use the proceeds of sale to reduce the mortgage advance, and that Mr Patterson had no obligation to give proper advice to Bruinsma and Mansfield.
83 Contentions were developed relating to an amendment effected at the point of exchange at the instance of Mr Matthews, solicitor for Don Stein, to subcl. 28.4.2 relating to cross security. As Special Condition 28 should not have been in the contract at all, let alone amended at the point of exchange without authorisation, this contention does not require separate consideration.
84 Counsel for the appellant made several further submissions based on the view that the Development Agreement did not require purchase moneys to be paid to GIO Finance as they became available. The view I have taken of the meaning of the Development Agreement has the consequence that these submissions do not require separate consideration.
85 The appellant's counsel made a number of further submissions attacking inclusion of $92,000 in the damages awarded against Mr Patterson, being the unpaid portion of the entitlement to post completion payments totalling $200,000. It was submitted correctly that Mr Patterson did not warrant that Bruinsma and Mansfield would receive that payment. It was further contended that it had not been shown that there was some causal relationship between Bruinsma and Mansfield's entering into the Don Stein contract and release of the purchase price to MCH, and the later loss of the $92,000.
86 The finding and conclusion by the Trial Judge relating to the application of the $390,000 is directly related to Bruinsma and Mansfield's claim that the damages should include indemnification by Mr Patterson against their liability to Don Stein. The connection between misdirection of the $250,000 and their claim for damages is a little less direct, as notwithstanding the misdirection of $250,000 the sale to the Millers was completed without Bruinsma and Mansfield being sued by the Millers for damages.
87 The Trial Judge treated the misdirection of the payment of $250,000 as relevant to Bruinsma and Mansfield's claim relating to their loss of $92,000 of the moneys payable to them after completion. The Trial Judge said (Red 97):
Again, in light of the provisions of Clause 8.2(e) of the Development Agreement, Mr Patterson had an obligation to advise the defendants that the release of the $250,000 to the Company could result in the defendants losing out if the funds were not applied in reduction of the GIO mortgage. In other words, there was a real and foreseeable risk of economic loss being sustained by the defendants if [MCH] was allowed to use the $250,000 instead of it being applied in reduction of the mortgage debt. The nature of the risk was, quite simply, that the defendants may not see their $200,000 when the project was complete. Accordingly, I am satisfied that Mr Patterson breached his retainer and his duty of care to the defendants by failing to advise them properly or at all in relation to the matters contained in the letter of 10 April 2000 and the consequences of agreeing to [MCH]'s request contained in that letter. As a result, the defendants are entitled, in their own right, to recover damages from Mr Patterson in respect of those breaches.
That is to say, the Trial Judge treated risk of loss of the post-completion payment as a foreseeable consequence of Mr Patterson's not ensuring proper application of the $250,000.
88 The Trial Judge did not expressly relate the loss of $92,000 to entering into the Don Stein contract, whereas his findings clearly related that loss to Bruinsma and Mansfield's agreement to the early payment from the Millers and to its disposition. The receipt of $250,000 took place about a year after the receipt of sums totalling $390,000, much closer to time of completion of the building, registration of the Strata Plan and opportunities to complete sales and bring the project to a conclusion; this may explain why the Trial Judge took a different view of the causative effects of the two payments.
89 When dealing with the assessment of damages the Trial Judge said (Red 99):
In their own right the defendants claim damages against Mr Patterson as a result of each family not receiving the amount of $100,000. The evidence establishes that the proceeds of sale of Villas 2, 3 and 4 were as follows:
Villa 2 (Miller) (Exhibit 9, document 5) $400,000
Villa 3 (Exhibit 9, document 14) $425,000
Villa 4 $390,000
$1,215,000
As against this, the evidence establishes that the cost of construction was $838,000 (Exhibits 6 and 7). That cost, of course, allows for the mortgage debt to the GIO which was eventually discharged once Villa 4 was sold by the GIO. On this basis the funds left over after the sales should have been:
$1,215,000
less $838,000
$277,000
Approaching the matter this way, it will be seen that the amount of [$200,000] should have been available to the defendants as registered proprietors on settlement of the sale of the three Villas. However, the evidence establishes that the defendants have only received $108,000 of this amount (T176.10 - 178.14; T199.25). In this regard, when counsel for the defendants handed up his written submissions, it was clear that the arithmetic in them, specifically paragraph 39, was wrong and so leave was given for an affidavit to be filled to correct those arithmetical errors. To the extent that Mr Howlin's affidavit sworn on 27 November 2002 goes beyond the evidence relating to the amount of $108,000, the Court does not read it because to do so would be to allow a re-opening of the defendants' case, which was not the subject of the grant of leave. Accordingly, the defendants are entitled to damages in the amount of $92,000 (being the total amount of $200,000 for both families, less the sums received by them totalling $108,000).
90 The effect of this reasoning is that the project would have yielded $277,000 to MCH in excess of the cost of the project, and although it is not fully set out in the findings the Trial Judge must have adopted reasoning to the effect that if Mr Patterson had not committed breaches of his duty the sums of $390,000 in respect of the sale of Unit 4 and $250,000 in respect of the sale of Unit 2 would have been directed to repayment of the GIO Finance mortgage debt, that the default in payment of the debt taken with the overall surplus of the project showed that large sums of money to which MCH was entitled were probably misapplied, and that if Mr Patterson had acted properly MCH's affairs would probably have been conducted on a regular basis and its resources would have been available to make proper payments.
91 The probabilities of Bruinsma and Mansfield's actually being paid $92,000 on completion of the sale have to be addressed on the supposition that the discipline of conformity with the Development Agreement was maintained; that discipline would have eliminated or greatly reduced opportunities of Mr Graham Mitchell to misapply funds of MCH; either the funds would go to GIO Finance, or they would be preserved as a fund as contemplated by cl.8.2(e). Enforced regularity of dealings with funds would have enhanced the probability that $92,000 would be available to meet the obligation, and also would have enhanced the probability of its actually being paid, as cl. 9.2 provides, on or before completion of the sale of the last of the residual units. The Trial Judge regarded this probability as having been established, and in my opinion there is no reason to see this as an error. It is true that the money could have been stolen even if Mr Patterson had behaved with appropriate vigilance, but vigilance on his part would have greatly diminished the possibility of that outcome.
92 Attempts were made by counsel to reconstruct the financial position and outcome of the Development Project so as to show that but for misdirection of sums totalling $640,000 the project would have yielded sufficient funds to pay $92,000 to Bruinsma and Mansfield. These attempts were not successful, as the material put in evidence on that subject does not enable a clear view of the overall outcome of the project to be formed. It is not surprising that Bruinsma and Mansfield did not adduce such proofs, as means of knowledge of the facts were not in their hands. Causation fell to be dealt with on more general considerations.
93 While the proof that $92,000 would have been available in those circumstances is not highly concrete, the line of reasoning to the effect that, in a successful project, if the discipline of directing money in a proper way to repaying the mortgage debt had been imposed on MCH and sums totalling $640,000 had been dealt with properly MCH probably would have been in a position to pay and would have paid an obligation of $92,000 on or before settlement of the last sale well satisfies, in my opinion, the test of common sense appraisal required by March v. E & M N Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506 at 515 (Mason CJ) 524 (Toohey J) 525 (Gaudron J). I am of the view that the probabilities strongly favour MCH's having had $92,000 available to meet this obligation before or on the completion of the last of the three units to be sold. Although the Trial Judge's expressed reasoning on causation is not, to my reading, altogether clear, it is plain that his Honour saw the misapplication of $250,000 received from Millers as a cause of or as contributing to the failure of MCH to meet this obligation. The conclusion that it is probable that if $250,000 had not been misapplied in April 2000 MCH would have been able to meet and would have met an obligation to pay $92,000 on completion of three sales late in that year is the reasonable and correct conclusion on causation. The probabilities are even stronger if regard is also paid to the probable course of events if there had not been a misapplication of $390,000 in May 1999.
94 Counsel for Mr Patterson contended that the Trial Judge was in error in making a Bullock Order requiring Mr Patterson to pay costs which Bruinsma and Mansfield had been ordered to pay Don Stein and Mr Grant Mitchell.
95 As well as defending the claim by Don Stein, Bruinsma and Mansfield brought a cross-claim against Don Stein. The defence and the cross-claim were based on allegations of fraud and misleading conduct on the part of Don Stein, and a claim for relief under the Contracts Review Act 1980. The claims related to the circumstances in which the contract of sale was exchanged in a form substantially different to the document which Bruinsma and Mansfield had seen and signed, to the insertion of the page bearing Special Condition 28, and also to a number of other material alterations. These aspects of the proceedings were unfortunately complicated because Mr Mansfield and Mr Bruinsma first thought that their initials on the Don Stein contract had been forged, and they were (not unnaturally) confused about the state the contract had been in when they saw and signed it, and adopted positions from which they later had to withdraw. Bruinsma and Mansfield were entirely unsuccessful, as their evidence did not really raise anything for consideration in support of the claims that Don Stein and its solicitor Mr Matthews had participated in the fraud and deceptions practised on Bruinsma and Mansfield. Bruinsma and Mansfield were ordered to pay Con Stein costs of the claim and cross-claim. Don Stein asked the Trial Judge to order costs against Bruinsma and Mansfield on the indemnity basis, and the Trial Judge refused to do so for reasons which his Honour stated with care; this part of the decision has not been challenged.
96 Bruinsma and Mansfield also cross-claimed against Mr Grant Mitchell, who actually attended on exchange of the Don Stein contract and took part in arrangements with Mr Matthews for some of the alterations which took place. This cross-claim was unsuccessful and Mr Grant Mitchell whose evidence the Trial Judge accepted was not found to have been involved in the fraud associated with the Don Stein contract. Again Bruinsma and Mansfield were ordered to pay costs, but the Trial Judge declined to order that the costs payable by Bruinsma and Mansfield to Mr Grant Mitchell be assessed on the indemnity basis.
97 Bruinsma and Mansfield applied for and Mr Patterson resisted a Bullock Order (Bullock v London General Omnibus Company [1906] 1 KB 264) requiring Mr Patterson to indemnify them against the costs so payable to Don Stein and Mr Grant Mitchell. After written submissions, the Trial Judge's decision was stated in his judgment of 22 May 2003 (Red 103). The Trial Judge after reviewing case law adopted this test: "It follows from those decisions that the test is whether, as between the defendant/cross-claimants and the fourth cross-defendant, the cost which the cross-claimants had been ordered to pay to the plaintiff and Grant Lee Mitchell were reasonably incurred. In particular, the Court must take into account the conduct of the fourth cross-defendant in considering whether it was proper or appropriate for the cross-claimants to join the plaintiff and Grant Lee Mitchell" (Red 107). After reviewing the contentions before him the Trial Judge found (Red 108) that the conduct of Mr Patterson materially contributed to and made it proper for Bruinsma and Mansfield to join Don Stein and Mr Grant Mitchell as parties to the cross-claim and said: "Otherwise, there was a risk that the cross-claimant may not have brought their claim against all relevant parties; although, of course, as it turns out, the plaintiff and Grant Lee Mitchell were successful in defending the cross-claim. I am therefore satisfied that the conduct of the fourth cross-defendant were such as to justify the making of a Bullock Order" (Red 108).
98 In contending that this decision was erroneous counsel for Mr Patterson referred to the practice relating to costs where unnecessary allegations of fraud are made; see Harkins v. Butcher & Anor [2002] NSWCA 237; (2002) 55 NSWLR 558 at 575-576 (Handley JA). This reference is not relevant to the claim for a Bullock Order, but to the claim of Don Stein and Mr Grant Mitchell for indemnity costs, which the Trial Judge considered but rejected. The Bullock Order against Mr Patterson was strongly based on the part taken by Mr Patterson in the formation of the Don Stein contract; it was Mr Patterson's professional responsibility to attend on Bruinsma and Mansfield as vendors, and to make sure that they understood and approved of the terms of the contract and particularly of any unusual Special Conditions, and it was also his responsibility to attend on exchange and to ensure that the document as exchanged accorded with his client's understanding about the contract into which they were to enter. Mr Patterson did none of these, and left the attendances on the vendors as his clients and on exchange to the Mitchell brothers who were altogether unsuitable custodians of the interests of Bruinsma and Mansfield; with the result that they became contractually bound to terms they had never heard of, of which they were unlikely to approve if they had known of them and in respect of which they had no protection from professional attendances which Mr Patterson should have made. It is retrospectively known that they were mistaken to bring cross-claims against Don Stein and Mr Grant Mitchell, but Mr Patterson's conduct of their affairs contributed very largely with their predicament and misunderstandings. In my opinion no error appears in the Trial Judge's decision to make a Bullock Order.
99 In my opinion the Court of Appeal should order: The appeal is dismissed with costs.
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LAST UPDATED: 23/09/2004
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