Heenan v Di Sisto & Ors [2008] NSWCA 25 (11 March 2008)

Last Updated: 12 March 2008

NEW SOUTH WALES COURT OF APPEAL

CITATION:
Heenan v Di Sisto & Ors [2008] NSWCA 25


FILE NUMBER(S):
40794/06

HEARING DATE(S):
8 February 2008

JUDGMENT DATE:
11 March 2008

PARTIES:
Timothy John Heenan - Appellant
Pasquale Di Sisto - First Respondent
Angela Di Sisto - Second Respondent
Susanne More Di Sisto - Third Respondent

JUDGMENT OF:
Mason P Giles JA Mathews AJA

LOWER COURT JURISDICTION:
Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S):
ED 4654/03

LOWER COURT JUDICIAL OFFICER:
Macready AsJ

LOWER COURT DATE OF DECISION:
13 November 2006

LOWER COURT MEDIUM NEUTRAL CITATION:
Di Sisto & Ors v Skyworld Developments Pty Ltd & Ors [2006] NSWSC 1182

COUNSEL:
D Davies SC & B McManus - Appellant
C Harris SC - Respondent

SOLICITORS:
Colin Biggers & Paisley - Appellant
Willis & Bowring, Miranda - Respondent

CATCHWORDS:
Damages - solicitor's negligence - sale of adjacent properties - failure to advise to make contracts interdependent - purchaser sought to complete on one only - eventually did not complete on either - loss on re-sale - whether loss caused by negligence - assessment of loss according to the possibilities or probabilities - contract price as correct starting-point for assessment of loss on re-sale - discretionary interest.

LEGISLATION CITED:


CATEGORY:
Principal judgment

CASES CITED:
Allied Maples Group Ltd v Simmons & Simmons [1995] EWCA Civ 17; (1995) 1 WLR 1602;
Bradshaw v McEwens Pty Ltd (HC, 27 April 1951, unreported);
Daniels v Anderson (1995) 37 NSWLR 438;
Di Sisto v Skyworld Pty Ltd [2005] NSWSC 723;
Gove v Montague Mining Pty Ltd [2000] FCA 1214;
Hall v Foong [1995] SASC 5381; (1995) 65 SASR 281;
Hanflex Pty Ltd v NS Hope & Associates (1990) 2 Qd R 218;
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; 217 CLR 640;
Kizbeau Pty Ltd v W G & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281;
Malec v J C Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638;
Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd [1984] HCA 59; (1984) 157 CLR 149;
Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332;
Sussman v Symes (McLelland CJ in Eq, 4 July 1994, unreported);
Sykes v Midland Bank Executor & Trustee Co Ltd (1971) 1 QB 113;
WCW Pty Ltd v Bolster (Full Federal Court, 6 January 1993, unreported);
Wynn v New South Wales Insurance Ministerial Corporation [1995] HCA 53; (1995) 184 CLR 485;

TEXTS CITED:


DECISION:
(1) Appeal allowed in part and cross-appeal allowed; (2) Set aside the order that the fourth defendant pay damages to the plaintiff in the sum of $505,898.00, and in lieu thereof order that the fourth defendant pay damages to the plaintiffs in the amount calculated by the parties and advised to the Registrar in accordance with order 3; (3) Direct the parties to calculate the damages payable in accordance with these reasons and advise the Registrar of the amount within 10 days from this date; (4) Liberty to apply within 21 days from this date in the event that the parties are unable to agree upon the calculation of damages in accordance with order 3, application to be made in the first instance by letter to the Associate to Giles JA; (5) Respondents pay 75 per cent of the appellant’s costs of the appeal, and to have a certificate under the Suitors Fund Act if otherwise entitled thereto.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40794/06

ED 4654/03

MASON P

GILES JA

MATHEWS AJA

Tuesday 11 March 2008

HEENAN v DI SISTO & ORS

Judgment

1 MASON P: I agree with Giles JA.

2 GILES JA: The respondents owned adjoining properties at Marrickville, the first and second respondents owning 33 Petersham Road (“No 33”) and the first, second and third respondents owning 126 Livingstone Road (“No 126’). The appellant acted as their solicitor in the sale of the properties to a developer, Skyworld Development Pty Ltd (“Skyworld”). He was found to have been negligent in so acting, in that he did not seek instructions as to whether the contracts for sale of the two properties should be made interdependent or suggest that that should be done.

3 The damages for the respondent’s loss were thereafter assessed by Macready AsJ: Di Sisto v Skyworld Pty Ltd [2006] NSWSC 1182. The sale price of No 33 was $1,100,000. The sale price of No 126 was $1,000,000. Skyworld failed to complete the contracts. The core of the damages was the losses on re-sale of the properties, $340,000 in the case of No 33 and $20,000 in the case of No 126. Adjustments were made to take account of the deposits, rent received and it seems other matters: the details do not appear in the appeal papers. Interest was added at the Supreme Court rates for one year from the contractual dates for completion. Orders were made that the appellant ”pay damages to the plaintiffs in the sum of $505,898.00” and “pay the plaintiffs’ costs of the proceedings”.

4 This is an appeal and cross-appeal from his Honour’s decision. Although no point was taken, there should have been separate orders in favour of the first and second respondents in relation to No 33 and in favour of the first, second and third respondents in relation to No 126, and that correction should be made if an order for payment of damages remains.

5 The principal questions in the appeal were whether the appellant’s negligence had caused any loss to the respondents at all, and if it had whether his Honour erred in failing to assess the damages on the basis of loss of a chance. There were subsidiary questions in relation to the starting-point for loss on re-sale and costs. The respondents cross-appealed in relation to interest,

The facts in outline

6 No 33 and No 126 had common rear boundaries. In the latter part of 2002 Mr Wilson Hu of Skyworld negotiated with the first respondent, Mr Pasquale Di Sisto, for the acquisition by Skyworld of No 126 alone. Mr Di Sisto, who at all times acted on behalf of the other respondents, said that he would not sell No 126 alone and wanted $2,100,000 for No 33 and No 126 sold together. In due course Skyworld agreed.

7 The appellant was retained on behalf of the respondents. He prepared two contracts for sale, in one of which the first and second respondents agreed to sell No 33 to Skyworld for $1,100,000 and in the other of which the first, second and third respondents agreed to sell No 126 to Skyworld for $1,000,000. Contracts were exchanged on 20 December 2002. The contractual dates for completion were 31 July 2003. Completion of the one contract was not made dependent on completion of the other.

8 Unknown to the respondents, Mr Hu had been negotiating to purchase the adjoining property 124 Livingstone Road (“No 124”). On 24 February 2003 Skyworld entered into a contract to purchase No 124. In April 2003 Skyworld told the respondents, by a letter from its solicitor, that a business partner Stamfords Constructions Pty Ltd (“Stamfords”) would join in the development of the properties. It asked that they agree to rescission of the contract for the sale of No 33 to Skyworld and a new contract for its sale to Stamfords.

9 The respondents did agree. On 19 May 2003 a deed of rescission was executed and new contracts for the sale of No 33 to Stamfords were exchanged. The new contract also provided for completion on 31 July 2003. Completion was not made interdependent with completion of the contract for the sale of No 126 to Skyworld.

10 On 24 May 2003 the contract for the purchase of No 124 by Skyworld was completed.

11 As at 31 July 2003 Skyworld was ready and willing to complete the purchase of No 126, but Stamfords and its purported directors could not be found. As later determined by Palmer J, Stamfords was a sham put in place by Mr Hu. The respondents refused to complete the contract for the sale of No 126 without simultaneous completion of the contract for sale of No 33. Skyworld insisted on completion of the contract for sale of No 126.

12 Proceedings were brought by the respondents in which, amongst other relief, they claimed to have the deed of rescission and the new contract for the sale of No 33 to Stamfords set aside, so that the contract for the sale of No 33 to Skyworld remained on foot. Skyworld cross-claimed in the proceedings for specific performance of the contract for the sale of No 126.

13 In reasons published on 22 July 2005 Palmer J found that the substitution of Stamfords for Skyworld as the purchaser of No 33 was a fraudulent scheme of Mr Hu and Skyworld. Having acquired No 124, Skyworld proposed to carry out a development on No 124 and No 126, and No 33 was worthless to it as part of that development. Skyworld procured its release from the contract requiring that it purchase No 33, and left the respondents with a sham purchaser in its place. His Honour ordered that the deed of rescission be set aside, and declared that the contract of 20 December 2002 for the sale of No 33 to Skyworld “remains a valid and subsisting contract”.

14 As to Skyworld’s claim for specific performance, his Honour said (Di Sisto v Skyworld Development Pty Ltd [2005] NSWSC 723) -

“93 However, Mr and Mrs Di Sisto have refused to complete the contract for No 126 only because of the fraud practised on them by Skyworld in procuring them to rescind the contract for No 33, which was to be settled at the same time as the contract for the sale of No 126. Mr and Mrs Di Sisto clearly wished to abide the result of these proceedings and, in refusing to settle the contract for No 126 before then, they were in my view taking a reasonable attitude.

94 Now that the contract between Mr and Mrs Di Sisto and Skyworld for the purchase of No 33 is reinstated, there is no suggestion in the evidence that Mr and Mrs Di Sisto will refuse to perform either of the two contracts according to their terms.

95 The two contracts are, of course, not interdependent and if Skyworld now refuses to complete the contract for the purchase of No 33 while proffering completion of the contract for the purchase of No 126, Mr and Mrs Di Sisto will not be entitled to refuse performance of the contract for No 126.

96 However, that situation has not yet arisen and it may never arise. As I have said, in my view, Mr and Mrs Di Sisto were justified in taking the attitude which they did to settlement of the contract for sale of No 126 up to the present time. In those circumstances, and bearing in mind that the difficulty in which Mr and Mrs Di Sisto were placed arose entirely out of the fraudulent conduct of Skyworld, I do not think that, as a matter of discretion, it is appropriate now to make any of the orders sought in Skyworld’s Cross Claim.

97 The Cross Claim will therefore be stood over generally to abide performance of Skyworld’s obligations under both contracts. If Mr and Mrs Di Sisto persist in refusing to perform the contract for the sale of No 126, the Cross Claim may then be pursued by Skyworld.”

15 The proceedings before Palmer J included a claim against the appellant for damages for loss suffered by reason of breach of his contract of retainer or of his duty of care. Accepting the expert evidence of Mr Neville Moses, his Honour said -

“88 Bearing in mind that Mr Heenan knew that the subject properties were adjoining and were being sold for development, that the contracts were to be exchanged and completed at the same time, and that they were regarded by the Di Sisto family as “one transaction to be effected by two different contracts”, I have no doubt that, in accordance with the standards of a prudent and competent solicitor, Mr Heenan ought reasonably to have recognised a paradigm case which required him to expressly enquire from Mr and Mrs Di Sisto whether they wished the contracts to provide that settlement of the sales be made interdependent. There can be no doubt that if Mr Heenan had sought such instructions, they would have been given. Indeed, I would say that a prudent and competent solicitor would have realised from what had been said to him by Mr Fielding on 13 December 2002 that it was implicit in his instructions that settlement of the two contracts be made interdependent.

`

89 Accordingly, I hold that in failing either to seek instructions from Mr and Mrs Di Sisto as to whether the contracts for sale of Nos 33 and 126 to Skyworld should be made interdependent or in failing to suggest that such provision should be included in the contracts, Mr Heenan failed to act in accordance with the standards of a prudent and competent solicitor so that he was in breach of his contractual and tortious duty of care to Mr and Mrs Di Sisto.”

16 His Honour had earlier observed that the respondents were exposed to loss by reason of the appellant’s negligence only if Skyworld completed the contract for the purchase of No 126 but failed to complete the contract for the purchase of No 33 and a judgment against it for breach of contract was not fully satisfied. His Honour therefore followed his finding of negligence last set out with -

“90 As I have indicated above, Mr Heenan’s negligence may not occasion loss to Mr and Mrs Di Sisto: Skyworld may fully perform its obligations under the contract for the sale of No 33 as well as performing its obligations under the contract for the sale of No 126. However, if Skyworld completes only the contract for No 126 and if a judgment against it for breach of contract for the sale of No 33 cannot be recovered in full, Mr Heenan will be liable for the loss, if any, which Mr and Mrs Di Sisto suffer thereby. Had the two contracts been interdependent, Skyworld would not have been able to put Mr and Mrs Di Sisto in the position of having to re-enter the market to sell No 33 on its own rather than in conjunction with No 126.

91 In those circumstances, the parties have agreed that the assessment of the damages for which Mr Heenan may be liable to the Plaintiffs should abide performance of Skyworld’s obligations under both contracts. I think that that is an appropriate course.”

17 On 8 December 2005, when ordering that the proceedings be referred to an Associate Judge for assessment of damages, Palmer J ordered “that the issue of costs of the whole proceedings be determined by the Associate Justice”. His Honour’s reasons for taking this course as to costs were not disclosed in the appeal papers.

18 As it happened, Skyworld failed to complete the purchase of both No 33 and No 126. On 3 August 2005 the first and second respondents served on Skyworld a notice to complete the contract for the sale of No 33, and on 18 August 2005 the first, second and third respondents served a notice to complete the contract for the sale of No 126. The notices called for completion later in August and in September 2005. Skyworld did not complete, and the respondents terminated the contracts.

19 On 5 October 2005 the first, second and third respondents exchanged contracts for the re-sale of No 126 for $930,000. On 26 October 2005 the first and second respondents exchanged contracts for the re-sale of No 33 for $650,000. The contracts were completed on 16 November 2005 and 8 December 2005 respectively.

20 There was no direct evidence of why Skyworld failed to complete the contracts in August and September 2005. It went into liquidation on 13 April 2006. The liquidator knew of no assets and had no means of tracing assets, as the directors had failed to lodge a statement of affairs. What had happened to No 124 was not disclosed in the evidence. There was no worthwhile evidence of Skyworld’s financial position at times prior to April 2006 – a balance sheet which had been before Palmer J, of doubtful value in any event, was not tendered before the Associate Judge.

The decision of Macready AsJ

21 In identifying as an issue raised by the appellant whether, if it had been sought that the contracts for the sale of No 33 and No 126 be interdependent, Skyworld would have proceeded with the purchase of the properties, his Honour said at [18] that -

“If it was found that there was a possibility of Skyworld agreeing to interdependency of the contracts, it was submitted that such a chance was very slim and damages should be reduced accordingly.”

There was no other reference to possibility or chance in his Honour’s reasons.

22 His Honour first determined the issue so identified. In the consideration of such evidence as there was going to whether Mr Hu would have agreed to interdependency, his Honour said that “[t]he inference which I am asked to make must be made in accordance with the civil standard of proof”, and referred to the formulation of that standard in Bradshaw v McEwens Pty Ltd (HC, 27 April 1951, unreported); relevantly that “you need only circumstances raising a more probable inference in favour of what is alleged”. His Honour concluded -

“27 Plainly, Skyworld was prepared to pay the price demanded by the plaintiffs. Skyworld obtained a clause in the contracts allowing it to make a development application and it took immediate steps to process that application. When it did so in early January, it found it had difficulty with the development it was considering. This, no doubt, focussed its attention on 124 Livingstone Road.

28 There was no exchange on 124 Livingstone Road until 24 February 2003 and nothing in the evidence suggests that there was an advanced stage of negotiation for that purchase at the end of 2002. On the available evidence it seems that at exchange and shortly thereafter Skyworld was intent on proceeding with the purchase from the plaintiffs. In all these circumstances it seems that the more probable inference is that Skyworld would have accepted a condition that the contracts be interdependent.”

23 His Honour then considered “whether Skyworld would have settled on both properties ... at 31 July 2003”. He recorded the appellant’s submission that the respondents “had not proved” that it would have done so. After careful discussion, the essence of his reasoning and the statement of his conclusion was -

“40 The evidence of Mr Hu is that a development of 124 and 126 Livingstone Road with 19 townhouses would produce a profit of $1.4M. However, if one takes the purchase price of No 33 ( $1.1M) into account the profit would have been $300,000 plus whatever the stand-alone value of No 33 was at the time. The evidence suggests that at December 2002, the stand alone value was between $600,000 and $630,000. Thus, the total profit was likely to be in the order of $900,000. Such a profit would, no doubt, be balanced against a loss of deposits of $165,000, if a decision were made not to complete once the problems with No 33 emerged and No 124 Livingstone Road had been acquired, to allow an alternative development. Based on these facts it seems likely that the purchaser would have continued and completed both the purchase of No 126 Livingstone Road and 33 Petersham Road.”

24 His Honour then said -

“41 This means that the plaintiff is entitled to recover damages against the fourth defendant. The amounts claimed are $222,017.73 for 126 Livingstone Road and $557,988.13 for 33 Petersham Road. These amounts include interest at the contract rate of 10% pursuant to clause 7 of the contract from 31 July 2003 to the time of re-sale. The claim is based upon the non-receipt of the balance of purchase monies.

42 In the circumstances where the damages are based upon the premise that settlement would have occurred on 3 July 2003, the claim should not reflect the contract rate which would be applicable to a claim against Skyworld. Instead, it should be an amount to compensate the plaintiff for non-receipt of funds up until re-sale. The Supreme Court rate would be appropriate and given the uncertainty in respect of re-sale, having regard to the vendor’s attitude about prices he wished to receive, I think an amount for one year would be appropriate.”

25 As to costs, his Honour relevantly said only that “[s]o far as costs are concerned, the defendant should pay the plaintiff’s [sic] costs”.

26 His Honour directed that the parties bring in short minutes to reflect the judgment. As I have indicated, the calculation of the judgment sum was not disclosed in the appeal papers.

The respondents’ damages

27 Putting aside nominal damages for breach of contract, the respondents were entitled to such damages as would put them in the position they would have been in had the appellant done what he should have done; that is, had he sought instructions as to whether the contracts for the sale of No 33 and No 126 should be made interdependent or suggested that they should be made interdependent. That position was not limited to having interdependent contracts, but extended to the commercial outcome of having interdependent contracts; the contracts were steps in achieving a commercial transaction. Deciding what the respondents’ position would have been involved past hypothetical events. If the appellant had so suggested and sought instructions, would the respondents have instructed him that the contracts should be made interdependent? Would Skyworld have agreed? Even if contracts were exchanged with interdependency clauses, it was not inevitable that Skyworld would have completed the contracts: would it have completed them?

28 As a general proposition past hypothetical events in the assessment of damages are not decided on the balance of probabilities, by which satisfaction that it is more likely than not that they would in fact have occurred establishes for the assessment that they would have occurred. Rather, the damages are assessed according to the degree of probability that the events would have occurred, provided that the probability is not so low as to be speculative or so high as to be practically certain: Malec v J C Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638 at 643. As was stated with particular reference to commercial transactions in Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 at 355, “damages for deprivation of a commercial opportunity ... should be ascertained by reference to the court’s assessment of the prospects of success of that opportunity had it been pursued”.

29 There is, however, an initial question of causation: has the negligence or other wrong caused the loss of a chance? This is decided on the balance of probabilities. As was also stated in Sellars v Adelaide Petroleum NL at 355 -

“ ... the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities.”

30 In the present case, what the respondents lost by the appellant’s negligence was the opportunity, or less formally the chance, of achieving the commercial outcome of receiving $2,100,000 on the sale of No 33 and No 126 to Skyworld. Providing they established causation, they were entitled as damages to the value of that lost chance. Damages from a negligent solicitor on the basis of loss of a chance has been recognised in a number of cases, and it is unnecessary to cite them.

31 In many of the cases the negligence has lain in failure to bring proceedings within time, and whether it caused the loss of a chance of some value has not been in issue. In the present case, the respondents lost the chance which would have arisen through advice to make the contracts interdependent, and in order to establish causation had to prove that if properly advised they would have instructed the appellant to do so. The principle was stated in Sellars v Adelaide Petroleum NL at 353 -

“ ... when the issue of causation turns on what the plaintiff would have done, there is no particular reason for departing from proof on the balance of probabilities notwithstanding that the question is hypothetical.”

32 Whether the respondents would have instructed the appellant that the contracts should be made interdependent is just as much a past hypothetical event as whether Skyworld would have agreed. As Professor Fleming observed in “Probabilistic Causation in Tort Law: a Postscript” (1991) 70 Can Bar Rev 136 at 140, all causal inquiries involve might-have-beens, but the balance of probabilities has been applied to what the plaintiff would have done if properly advised by the defendant solicitor in, for example, Sykes v Midland Bank Executor & Trustee Co Ltd (1971) 1 QB 113; Allied Maples Group Ltd v Simmons & Simmons [1995] EWCA Civ 17; (1995) 1 WLR 1602; Hanflex Pty Ltd v NS Hope & Associates (1990) 2 Qd R 218; and Hall v Foong [1995] SASC 5381; (1995) 65 SASR 281. See also Daniels v Anderson (1995) 37 NSWLR 438, an auditor’s negligence case in which, after a detailed consideration of Sellars v Adelaide Petroleum NL and other cases, this Court said at 530 that “the issue of causation should be approached upon the basis of proof upon the balance of probabilities with the qualification that an assessment of whether the chance which is said to have been lost had a value is to be made upon the possibilities or probabilities of the case” and for the issue of causation asked whether the directors would have acted to avert the loss if properly informed by the auditor.

33 I adopt this approach to whether the respondents would have instructed the appellant that the contracts should be made interdependent. As will appear, it would not matter if what the respondents would have done was according to the degree of probability. Whether Skyworld would have agreed and whether it would have completed the contracts, however, are part of the valuation of the lost chance, to be ascertained by reference to the degree of probabilities or possibilities.

34 I should, however, refer to Gove v Montague Mining Pty Ltd [2000] FCA 1214 on which the respondents relied. The plaintiff claimed against its solicitors for negligent advice in relation to a commercial agreement. It was held that the plaintiff had failed to prove that any negligence caused it loss because it did not call evidence of what it would have done if the correct advice had been given. Some of their Honours’ discussion at [31]-[70] appears to have regarded proof on the balance of probabilities as applicable not only to what the plaintiff would have done if the correct advice had been given, but also to whether the opposite party would have agreed to an additional clause in the agreement and whether the absence of the clause “was a material cause of putting [the plaintiff] in the situation where it had to accept a less valuable bargain”. However, it appears that the focus of the discussion was on what the plaintiff would have done, and so far as the discussion went further it was influenced by an earlier decision of the Full Federal Court in WCW Pty Ltd v Bolster (6 January 1993, unreported) which in turn relied on Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd [1984] HCA 59; (1984) 157 CLR 149. Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd must now be read in the light of Sellars v Adelaide Petroleum NL and Daniels v Anderson, and of the principles now established. In my view whether Skyworld would have agreed was to be approached according to the degree of probability rather than on the balance of probabilities.

Did the appellant’s negligence cause any loss at all?

35 The appellant submitted that it did not, because the absence of interdependency clauses had no connection with Skyworld’s failure to complete both contracts. He accepted that it might have made a difference if Skyworld had completed the contract for the sale of No 126 but not the contract for the sale of No 33, as envisaged by Palmer J in [90] of his reasons set out above, but said that those circumstances had not come about. Skyworld failed to complete the purchase of both No 33 and No 126, and in the appellant’s submission the absence of interdependency clauses made no difference; so any loss suffered by the respondents was not caused by his negligence. The submission should not be accepted.

36 The absence of an interdependency clause plainly was material to Skyworld’s later conduct, since its stance in July 2003 (and so far as appears until Palmer J gave judgment in July 2005), was that it wanted completion of the contract for the sale of No 126 but did not want to purchase No 33. The injection of the sham Stamfords showed the lengths to which Mr Hu would go to get rid of an obligation to purchase No 33. Had the contracts been made interdependent, any agreement to substitute Stamfords would equally have involved interdependent contracts, and Mr Hu would not have reason to attempt the fraudulent substitution of Stamfords, but if he attempted it he would not have succeeded in his fraudulent scheme. Skyworld would not have been able to complete the contract for sale of No 126 unless the other contract was also completed.

37 As I have said, it was not inevitable that Skyworld would have completed the contracts. When 31 July 2003 arrived it may have been unwilling or unable to unable to complete. But the absence of interdependency clauses did make a difference because in July 2003 Skyworld would have been faced with completion of both purchases or of neither purchase. That Skyworld would have completed neither purchase came into the valuation of the lost chance by reference to the degree of probabilities or possibilities.

38 The appellant’s submission was more correctly that it should be found Skyworld would have failed to complete both purchases even if the contracts had been interdependent, to a degree of probability amounting to practical certainty whereby the lost chance had no value. If so found, it could be said that the absence of interdependency clauses made no difference, but as a conclusion rather than as the occasion for the respondents’ failure to recover damages. For the reasons next given, it should not be so found.

Causation - a chance was lost

39 The respondents establish that a chance was lost as a result of the appellant’s negligence if, on the balance of probabilities, they would have accepted his suggestion made in seeking instructions that the contracts be made interdependent. Compare the application of the balance of probabilities to entry into the Pagini contract in Sellars v Adelaide Petroleum NL at 356 and to whether the directors would have acted to avert the loss if properly informed in Daniels v Anderson at 529, 539.

40 It was found by Palmer J at [88] that there was no doubt that if the appellant had sought the instructions, they would have been given. This does not seem to have been in contest before Macready AsJ. Interdependency was entirely in accord with Mr Di Sisto’s insistence that Skyworld purchase both properties, and it was plain that interdependency was in the respondents’ interests – hence the negligence found against the appellant. The probability that Mr Di Sisto would have appropriately instructed the appellant is high; if according to the degree of probability, to the point of certainty.

Valuation of the lost chance

41 Valuation by reference to the degree of possibilities or probabilities rested essentially upon the two issues considered by Macready AsJ. Conceivably there could have been other issues on which turned the probability of achieving the commercial outcome of concluded sales to Skyworld for $2,100,000, but none was suggested.

42 It appears to me, with respect, that his Honour misdirected himself in determining the two issues.

43 Although noting the appellant’s submission that the chance of Skyworld agreeing to interdependency of the contracts was very slim and damages should be reduced accordingly, which was in accord with valuing the loss of a chance, in determining that issue his Honour approached the inference as one to be made in accordance with the civil standard of proof on the balance of probabilities. He stated his conclusion in terms of “the more probable inference ... that Skyworld would have accepted a condition that the contracts be interdependent”.

44 When coming to the second issue, his Honour addressed the appellant’s submission that the respondents had not proved that Skyworld would have settled both properties on 31 July 2003. He stated his conclusion in the terms that “it seems likely that the purchaser would have continued and completed both the purchase of No 126 Livingston Road and 33 Petersham Road”.

45 While the calculation of the damages was not thereafter spelt out, there is no suggestion in the reasons that degrees of probabilities or possibilities were taken up. It appears that the more probable inference and the likelihood expressed by his Honour were translated, on the basis of proof on the balance of probabilities, to recovery of the full losses on re-sale.

46 The parties put submissions as to the degrees of probabilities and possibilities, for this Court to value the lost chance should it find error.

47 In my opinion, there was a fairly high probability but not a certainty that Skyworld would have agreed to interdependency of the contracts. Mr Hu did not give evidence before Macready AsJ, but evidence he had given before Palmer J was tendered in the assessment of damages. He had been cross-examined as to whether he would have accepted an interdependency clause in the contracts. He would say only that he would have considered it. At the time he was negotiating for the purchase of No 124. If he then had in mind jettisoning No 33, he might have been reluctant to agree to interdependency; on the other hand, he would have been conscious that, if he did not agree, the respondents would not sell either of their properties to him. He needed No 126 for Skyworld’s development, and until at least February 2003 steps were being taken towards a development involving No 33. The learned Associate Judge’s inference was in my view correct, and I would put upon it an 80 per cent probability that Skyworld would have accepted a condition that the contracts be interdependent.

48 The probability or possibility that Skyworld would have completed the contracts, if interdepency clauses had required that it purchase both properties, is a more complex matter. It is material that Skyworld failed to complete both contracts in August - September 2005 (see generally as to regard to matters known at the time of assessment of damages Kizbeau Pty Ltd v W G & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 at 291-6; HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; 217 CLR 640 at [39]). That, however, does not provide a sure guide to what it would have done in July 2003. Two years had passed, there was evidence (albeit in general terms) that by early 2004 the real estate market began to wane and during 2004 values declined, and it may be that by mid-2005 those behind Skyworld had washed their hands of it and left it to empty liquidation. There was no evidence of when No 124 passed out of Skyworld’s hands.

49 In July 2003 Skyworld plainly enough wanted to proceed with the development involving No 126 and No 124. It may well have been prepared to complete the purchase of No 33 in order to obtain No 126 if that was required by interdependency clauses. It had completed the purchase of No 124, and there must have been commitment to the joint development. As Macready AsJ explained in his [40] set out above, the evidence indicated that there would still have been a profit in the development, although it would have been less than the profit if Skyworld were not saddled with No 33. That Skyworld would have been liable in damages if it failed to complete may have provided an added reason to complete, since at the time it owned No 124 and presumably had some equity in the property which it would not wish to lose. Again, I agree with his Honour’s conclusion that it was likely that Skyworld would have completed the two contracts, and would attribute to it a probability of 70 per cent.

50 The two probabilities should be combined in order to value the lost chance, see Sussman v Symes (McLelland CJ in Eq, 4 July 1994, unreporeted); Malec v J C Hutton Pty Ltd at 646. Seventy per cent of 80 per cent is 56 per cent. Any aura of mathematical precision should be rejected; the ultimate question is the probability or possibility of receiving from Skyworld $2,100,000 for the two properties, and “[d]amages founded on hypothetical evaluation defy precise calculation” (Malec v J C Hutton Pty Ltd at 640 per Brennan and Dawson JJ; their Honours were dissenting, but this was adopted in Wynn v New South Wales Insurance Ministerial Corporation [1995] HCA 53; (1995) 184 CLR 485 at 489). It is appropriate to stand back and arrive at an overall probability, which in the present case I put at 60 per cent. The respondents were entitled to recover as damages 60 per cent of their losses on re-sale of the respective properties.

The starting point for loss on re-sale

51 The appellant submitted that the losses on re-sale were not the differences between the contract prices and the prices on re-sale, but the difference between the true values of No 33 and No 126 in December 2002 and the prices on re-sale. He said that the contract price for No 33 was inflated, on a relatively arbitrary apportionment of the total price of $2,100,000 for the two properties, and that its true value in December 2002 was between $600,000 and $630,000, and that the evidence warranted the conclusion that the true value of No 126 in December 2002 was $870,000 and at most “970,000. In his submission, no loss was suffered.

52 Were the submission otherwise sound, there could be a question whether the assessment of loss should pay regard to the two properties as a package; that question would be complicated by the difference in the vendors. However, the submission is unsound. The appellant said that a solicitor does not guarantee performance by the person contracting with the solicitor’s client. That is correct, but is not to the point. The damages recoverable by the respondents from the appellant are to compensate for the loss of the chance of receiving $1,100,000 and $2,000,000 from Skyworld in payment for the properties, not the loss of the chance of selling them at market value. That is why $1,100,000 and $1,000,000 are the correct starting points.

Interest

53 The respondents submitted that the period for which interest was awarded should not have been the one year from 31 July 2003. They accepted that the Supreme Court rates of interest were appropriate. But they said that an award of interest under s 100(1) of the Civil Procedure Act 2005 was to compensate them for being kept out of their money, and that the “uncertainty in respect of re-sale having regard to the vendor’s attitude about prices he wished to receive” to which Macready AsJ referred was unclear and did not provide a reason for limiting the period for which interest should be awarded.

54 The appellant responded that the award of interest under s 100(1) was discretionary and there was no entitlement to interest. He said that his Honour had been referring to the respondents’ choice not to re-sell the properties, or at least No 33, shortly after 31 July 2003, and that it was not shown that his Honour acted upon a wrong principle or a misapprehension of the facts or otherwise in appealable error.

55 I respectfully find his Honour’s reasons in relation to interest unclear. There appears to be confusion of two aspects of compensation to the respondents. The difficulty is in the statement that interest “should be an amount to compensate the plaintiff for non-receipt of funds up until re-sale”. The respondents were kept out of the $2,100,000 from 31 July 2003 until they received a lesser sum on resale in November-December 2005, but their compensation for that loss, if claimable, was properly part of their damages claimable from the appellant. Any interest under s 100(1) was interest on the amount for which the appellant was liable to the respondents (see “on the whole or any part of the money”, meaning the money referred to in “proceedings for the recovery of money”). Re-sale of the properties was not the terminus of compensation for being kept out of that money. Re-sale enabled the loss for which the appellant was liable to be ascertained. The respondents were kept out of that money from 31 July 2003 until judgment.

56 In my opinion his Honour proceeded upon a wrong basis, and it is not necessary to explore what he meant by the uncertainty of resale, because the regard to the time of resale was misconceived. Treating the question as one of interest pursuant to s 100(1) of the Civil Procedure Act, as the parties did, on accepted principles the interest should run from 31 July 2003 until judgment.

Costs

57 The order made by Palmer J on 8 December 2005 left “the issue of costs of the whole proceedings” to the Associate Judge. The proceedings were concerned with claims between the respondents and Skyworld, as well as with the claim by the respondents against the appellant. Macready AsJ made an order whereby the costs payable by the appellant included the costs of the claims between the respondents and Skyworld. The appellant submitted that the fraud of Mr Hu and Skyworld was not attributable to his negligence, and that the discretion miscarried in making him liable to pay the respondents’ costs of the discrete claims between them and Skyworld.

58 His Honour gave no reasons for the costs order. We were provided with written submissions or notes of submissions made to him. It is evident that the respondents submitted that they should have an order for the costs of the proceedings without limitation, and the appellant submitted that there should be departure from the ordinary course of full responsibility of a co-defendant for costs in essence because of the different positions in the proceedings of Skyworld and the appellant. The submission called for his Honour to explain why he made the order he did; it is unfortunate that no reasons were given. Absence of reasons, however, was not a ground of appeal.

59 While the respondents’ claim against Skyworld was distinct from their claim against the appellant, the occasion for the claim was Skyworld’s endeavour to complete the purchase of No 126 alone, in order to undertake the development of No 126 and No 124 without the unwanted No 33. From that came the fraudulent scheme and the claim for specific performance. The respondents did not, as was rather faintly suggested by the appellant, unreasonably fail to avoid the litigation by terminating the contracts shortly after July 2003 – there was the cross-claim for specific performance, and the respondents were entitled to seek to hold Skyworld to what appears to have been favourably priced contracts. Had there been interdependency clauses, it is unlikely the litigation would have arisen as it did. Consistently with the 60 per cent probability to which I have come, the likelihood is that Skyworld would have completed both purchases. If the occasion arose to re-exercise the discretion, in my opinion the order best doing justice between the appellant and the respondents would be that the appellant should pay the whole of the costs of the proceedings, because in substance the proceedings as between the respondents and Skyworld arose out of the appellant’s negligence. Accordingly, the appeal in this respect should fail.

The result

60 It will be necessary for the parties to calculate the amount for which the respondents should have judgment against the appellant. The core of the damages will be reduced by 40 per cent of $360,000, that is, by $144,000. The same adjustments should be made. The interest will be on a lesser sum, and may or may not increase, but any increase will not make up for the $144,000. The appellant has had mixed success in the appeal and the respondents have succeeded in the cross-appeal, but overall the appellant has succeeded in reducing the amount for which he is liable. The costs order made below should stand, and the respondents should pay 75 per cent of the appellant’s costs of the appeal.

61 I propose the orders -

1. Appeal allowed in part and cross-appeal allowed.

2. Set aside the order that the fourth defendant pay damages to the plaintiff in the sum of $505,898.00, and in lieu thereof order that the fourth defendant pay damages to the plaintiffs in the amount calculated by the parties and advised to the Registrar in accordance with order 3.

3. Direct the parties to calculate the damages payable in accordance with these reasons and advise the Registrar of the amount within 10 days from this date.

4. Liberty to apply within 21 days from this date in the event that the parties are unable to agree upon the calculation of damages in accordance with order 3, application to be made in the first instance by letter to the Associate to Giles JA.

5. Respondents pay 75 per cent of the appellant’s costs of the appeal, and to have a certificate under the Suitors Fund Act if otherwise entitled thereto.

62 MATHEWS AJA: I agree with Giles JA.

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LAST UPDATED:
11 March 2008