Tapp v Gray [2011] NSWSC 44 (7 February 2011)

Last Updated: 12 April 2011

Supreme Court New South Wales

Case Title:	Tapp v Gray
Medium Neutral Citation:	[2011] NSWSC 44
Hearing Date(s):	7 February 2011
Decision Date:	07 February 2011
Jurisdiction:
Before:	Harrison AsJ
Decision:	(1) The Court enters judgment that the defendant is to pay damages to the second plaintiff in the sum of $290,845.50. The Court orders that: (2) The defendant is to pay to the second plaintiff interest up to judgment pursuant to s 100 of the Civil Procedure Act 2005, on the award of damages in the amount of $298,282.31. (3) The defendant is to pay the plaintiffs' costs of these proceedings.
Catchwords:	DAMAGES - torts - negligence - lawyer - loss of opportunity - assessment of damages
Legislation Cited:	Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005 Limitation Act 1969
Cases Cited:	Nikolaou v Papasavas, Philips & Co (No 2) [1989] HCA 11; (1989) 166 CLR 394 Tabet v Gett [2010] HCA 12; (2010) 240 CLR 537 Tapp v Official Trustee in Bankruptcy [2009] FMCA 1264
Texts Cited:
Category:	Principal judgment
Parties:	Peter Haynes Tapp - First Plaintiff Neville Keith Tapp - Second Plaintiff Roger Winchester Gray - Defendant
Representation
- Counsel:	Counsel: N Furlan - Plaintiffs
- Solicitors:	Solicitors: Mason Lawyers - Plaintiffs
File number(s):	2010/18464
Publication Restriction:

Judgment

1. HER HONOUR: This is an assessment of damages arising from the negligence of a solicitor who was retained by Messers Tapp to give advice in relation to joint venture agreements. By notice of motion filed 10 November 2010, pursuant to Rule 16.7 of the Uniform Civil Procedure Rules 2005, the plaintiffs, Peter Haynes Tapp and Neville Keith Tapp, seek the assessment of damages as against the defendant, Roger Winchester Gray. The defendant was advised of the hearing date but elected not to attend court because he had neither the financial resources or the wherewithal to be involved in these proceedings.
   

Introduction

2. The plaintiffs, Peter Haynes Tapp ("Peter") and Neville Keith Tapp ( "Keith"), are brothers. The defendant, Roger Winchester Gray ("Gray"), is a bankrupt former solicitor. His practising certificate was suspended in 2007. Leave to commence and continue these proceedings against Gray in bankruptcy was given, on terms, by the Federal Magistrate's Court of Australia on 2 December 2009: see Tapp v Official Trustee in Bankruptcy [2009] FMCA 1264.
   
3. The proceedings are for the recovery of damages for Gray's professional negligence as solicitor for Peter and Keith (and a company with which they were associated). Initially, Gray's professional indemnity insurer (LawCover) conducted the proceedings on his behalf. LawCover subsequently withdrew and Gray took no steps to conduct the proceedings himself.
   

Background to the claims against Gray

4. For the purposes of this judgment, I have largely adopted the submissions of Mr Furlan counsel acting for the plaintiffs.
   
5. The plaintiffs claimed breaches by Gray of contractual and tortious duties owed to them as their solicitor. Gray's negligence relates to events that transpired whilst he was acting for the plaintiffs over a period of time commencing in 1994 and ending in 2007. Peter first approached Gray in 1994 to obtain his advice and professional services in relation to a joint venture that the brothers had entered into with a property developer named Barry Harrison ("Harrison"). Gray was formally retained in about February 1998, pursuant to a written costs agreement dated 30 March 1998.
   
6. The purpose of the joint venture was to develop and sell for profit real property. It was formed during one or more conversations between the brothers and Harrison during 1993. Its terms were never reduced to writing or made the subject of a more formal written agreement. Those terms were to the effect that, inter alia:
   

(a) the three men would participate in the joint venture as equal partners with all profits realised to be distributed equally among them;

(b) at the outset, Keith would contribute approximately $160,000 for the purposes of the joint venture;

(c) the joint venture would identify properties suitable for redevelopment, purchase those properties, develop them and then sell them for profit; and

(d) Keith's capital contribution (together with interest) would be repaid out of the proceeds of the sale of those properties before profits were distributed.

7. In 1994, Keith borrowed a total of $159,000 from St George Bank Ltd which he contributed to the joint venture. $129,000 was obtained pursuant to an interest only loan secured by a mortgage over real property owned by Keith and his wife. $30,000 was obtained pursuant to a "line of credit" facility. The joint venture then purchased a property Glendale for the sum of $123,000 using Keith's funds. The purchase was made by Silpoll Pty Ltd ("Silpoll") on behalf of the joint venture. Keith and Harrison were the directors of Silpoll. Keith owned six of its shares (three of which he held on trust for Peter). Harrison owned the remaining three shares.
   
8. In 1994, the joint venture purchased a second property at Toukley for $140,000. The purchase was made in the name of Benloz Pty. Harrison was a director of Benloz. Peter and Keith had no interest in this company. The purchase was made using funds borrowed by Silpoll from M C Mortgage Services Pty Ltd and secured by a mortgage over the Glendale property. A personal guarantee was given by each of Keith and Harrison.
   
9. In 1995, the joint venture sold the Glendale property for $125,000. The funds were used to repay part of the loan from M C Mortgage Services Pty Ltd and to fund other costs of the joint venture. $24,524.56 was deposited into the trust account of a solicitor named Bruce Hansen for this purpose.
   
10. During 1995 and 1996, the joint venture progressed its plan for the redevelopment of the Toukley property by obtaining:
    

(a) development approval to "erect five units in a single and two storey residential flat development" on the land; and

(b) a valuation report prepared by Gregory Jones (of Robertson & Robertson Consulting Valuers), dated 5 June 1996. The report gave an estimated value of the property's gross worth "on completion" of $770,000.

11. During 1997 and 1998, the relationship between Peter and Harrison broke down. On 2 July 1998, Benloz Pty Ltd sold the Toukley property to Perma-Fit Finance Pty Ltd for $200,000. The sale was made without the consent or knowledge of Peter or Keith. Neither Peter nor Keith received any of the proceeds of sale.
    
12. As a result of the unauthorised sale, Peter and Keith were denied the opportunity to further participate in the redevelopment of the Main Road property and to receive their respective shares of joint venture monies in accordance with the 1993 agreement. On 2 July 1998, Peter and Keith became entitled to take action against Harrison for breaches of the joint venture agreement.
    

The claims against Gray

13. The plaintiffs claim Gray owed the Tapps a contractual duty:
    

(a) to use reasonable skill and care in the provision of legal advice and legal services to them and Silpoll; and

(b) to give advice in relation to, and take all reasonable steps in furtherance of and towards the protection of, the interests of the Tapps and Silpoll.

In addition, Gray owed the Tapps a tortious duty to exercise reasonable skill and care in the provision of legal advice and legal services to them.

14. Prior to the unauthorised sale, Peter had expressed to Gray his concerns as to the state of legal ownership of the Toukley property and sought his professional opinion and assistance so as to ensure that his and his brother's interests were properly protected. It is alleged that in breach of his duties, Gray failed to take adequate steps to preserve those interests prior to the 2 July 1998 sale. In particular, he did not lodge a caveat with respect to the Toukley property. Consequently, the brothers lost their ability to prevent the unauthorised sale of the Toukley property.
    
15. Between 2 July 1998 and 2 July 2004, it is alleged that in further breach of his duties, Gray failed to advise the brothers as to their rights to take action against Harrison for breach of the joint venture agreement. The plaintiffs suggest that Gray failed to take adequate steps to protect and preserve the brothers' causes of action against Harrison. Specifically, he did not initiate litigation against Harrison on their behalf before the relevant causes of action became statute barred. Consequently, the brothers lost their rights to sue Harrison for damages.
    
16. Gray's negligent failure to properly protect and preserve the brothers' rights against Harrison is the subject of the brothers' claims against him in these proceedings.
    
17. On 12 December 2010, default judgment was entered and these proceedings were set down for hearing today for assessment of the plaintiffs' damages.
    

Damages

18. The Tapps' causes of action against Gray arose on 2 July 2004 (when their causes of action against Harrison became statute barred): s 14(1)(a) of the Limitation Act 1969. The High Court considered the appropriate measure of damages in a case of a lost opportunity to conduct litigation in Nikolaou v Papasavas, Philips & Co [1989] HCA 11; (1989) 166 CLR 394. In that case, Mason CJ said at 399:
    

"In such a situation a court's goal is to determine what amount of money would put the plaintiff in the position he would have been in had the solicitor not been negligent. That inquiry requires that the court ascertain, as best it can, how large an award the plaintiff would have received in the underlying action."

19. The correct measure of Peter and Keith's loss is the likely damages that would have been awarded to them in proceedings against Harrison which, but for Gray's negligence, they would have been able to initiate.
    
20. It is well established that in a lost opportunity case, a Court must do its best to assess the measure of a plaintiff's loss despite any difficulties associated with making the assessment: see Tabet v Gett [2010] HCA 12; (2010) 240 CLR 537 at [49].
    
21. Mr Furlan submitted that the Tapps' lost an opportunity to conduct litigation against Harrison with undeniably strong prospects of success. Harrison was guilty of a flagrant breach of the joint venture agreement which resulted in the brothers' losing all chance of receiving a benefit in connection with the sale of the Main Road property. Harrison, one of the joint venturers sold the Toukley property for $200,000 and did not make any payments to the Tapps.
    
22. Mr Furlan submitted that if the joint venture had proceeded with the planned redevelopment and sale of the Toukley property, a total of $211,768 would have been available to repay Keith for his initial capital contribution and the interest he paid on the loan monies used to finance that contribution. The Robertson & Robertson valuation report estimated the value of the Toukley property on completion of the proposed development to be $770,000. Gregory Jones in his affidavit sworn 25 January 2011 stated that the sum reflects his expert opinion as to the value of the Toukley property as at 5 June 1996. After deducting development costs of $495,600, the total potential return to the joint venture remaining would have been $274,400. However, before the property could be sold, it would have been necessary to discharge the mortgage on title in favour of M C Mortgage Services Pty Ltd (at the time of the unauthorised sale, the mortgagee was owed $62,632.00).
    
23. Keith was entitled to recover from the joint venture his contribution of $159,000, plus interest paid by him up to the time of the unauthorised sale, totalling $64,380.61. Accordingly, at the time of the unauthorised sale, Keith would have been entitled to $211,230.61 from the joint venture. There would have been sufficient funds available from the sale of the redeveloped Toukley property ($211,768) to enable the joint venture to repay Keith in full.
    
24. Both of Keith's loans were repaid in May 2005. As a result of the unauthorised sale, Keith incurred further interest charges between 2 July 1998 and May 2005 totalling $79,614.89. I accepted that but for Gray's negligence, this amount would also have been recoverable against Harrison in proceedings for breach of the joint venture agreement. This loss is recoverable from Gray in these proceedings as part of Keith's losses.
    
25. I assess damages in Keith Tapp's favour in the sum of $290,845.50. Additionally, Keith Tapp seeks interest up to judgment under s 100 of the Civil Procedure Act 2005 calculated as follows. Firstly, on the sum of $211,230.61 from 2 July 1998 to 7 February 2011 (in the amount of $254,596.61 ); and secondly, on the sum of $79,614.89 from 10 May 2005 to 7 February 2011 (in the amount of $43,685.70).
    

(1) The Court enters judgment that the defendant is to pay damages to the second plaintiff in the sum of $290,845.50.

The Court orders that:

(2) The defendant is to pay to the second plaintiff interest up to judgment pursuant to s 100 of the Civil Procedure Act 2005, on the award of damages in the amount of $298,282.31.

(3) The defendant is to pay the plaintiffs' costs of these proceedings.

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