District Court of WA|2013-01-18|Before: Mr J

DERRY DEW PTY LTD -v- MACKINLAY [No 2] [2013] WADC 9 (18 January 2013)

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA

CITATION : DERRY DEW PTY LTD -v- MACKINLAY [No 2] [2013] WADC 9

Landlord and tenant - Deed of assignment and variation of a lease - Whether illegal and void - Severance - Professional obligations of a solicitor - Failure to advise - Assessment of damages

Judgment for the plaintiff in the sum of $264,347.20

Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99

Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 164 CLR 64

Farleigh Investments Pty Ltd v Reefking Pty Ltd [2002] WASC 115

Landall Construction & Development Co Pty Ltd v Bogaers [1980] WAR 33

Livingston v Rawyards Coal Company (1880) 5 App Cas 25

Medlin v State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1

Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451

Permanent Building Society (in liq) v Wheeler (1992) 10 WAR 109

SST Consulting Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516

Stone James & Co v Investment Holdings Pty Ltd [1987] WAR 363

Wilson International Pty Ltd v International House Pty Ltd [1983] WAR 243

1 EATON DCJ: The plaintiff is the trustee for the Haslett Family Trust. Its shareholders and directors are Alan Haslett and his wife, Pamela Jean Haslett. They lived for many years in Cranbrook, a small rural town in the Great Southern region of Western Australia. From 1978 to 1987 Mr Haslett worked as an engineer for the local shire. From 1987 to 1997 he and his wife owned and managed the Cranbrook General Store. Thereafter, it seems, they moved to the metropolitan area. They presently live in Forrestfield, a suburb of Perth in Western Australia.

2 In early 2003 Mr Haslett conceived the idea of purchasing a business known as the Forrestfield Tavern. I gather that he had been, for awhile, a patron there and had got to know the manager, a man by the name of Tim Robinson. They began negotiations. The idea was born of his desire, given his country background, to conduct his own business in a bucolic setting. He considered the Forrestfield Tavern to be like a 'country pub.'

3 His plan was, not unexpectedly given his age, aimed at providing for his retirement. He regarded the tavern as being a good business. The plan involved investing part of his savings in acquisition of the business, working in it and building it up with a view to, in the longer term, selling it, hopefully at a profit, the proceeds being his retirement fund.

4 In late 2003 or early 2004 Mr Haslett approached an accountant, Edward Paulak, and told him that he was considering purchasing the tavern. Tim Robinson had provided Mr Haslett with various financial papers including a list of the tavern's plant and equipment dated 22 December 2003. Mr Haslett provided Mr Paulak with the tavern's profit and loss statement and some documents relating to a loan, instructing him to consider them. The financial information provided by Mr Haslett was, in the opinion of Mr Paulak, 'sketchy and vague.'

5 By an agreement dated 20 December 2003 Mr Haslett and his wife, as the then trustees of the Haslett Family Trust, offered to purchase the goodwill of the tavern including its business name, plant, furniture, fixtures, fittings, chattels, stock-in-trade and other assets for $230,000 plus stock at valuation. The contract allocated $170,000 to the goodwill of the business and $60,000 to plant and equipment. Stock-in-trade was specified at $20,000 over and above the purchase price.

6 The contract was conditional upon, inter alia, the purchaser advising the vendor or his agent in writing of approval of finance on or before the latest date for approval as specified and the purchaser receiving written approval from the landlord or managing agent of an assignment of the existing lease. As to the former, the agreement referred to a loan of $100,000 and to 15 February 2004 as the latest date for approval. It seems that the Hasletts' applied for a business loan in the sum of $125,000 to Westpac Banking Corporation. They were successful.

7 As to the latter, the agreement referred to the landlord as being Naomis Christo Vellios and to a lease with a then current annual rental of $72,000 expiring on 6 March 2018. The vendors were expressed to be Timothy James Robinson and Cancon Pty Ltd. The latter was the lessee of the tavern.

8 The then current lease had been executed on 6 March 1998. The lessor was Naomis Christo Vellios. Mr Robinson and his wife were guarantors for Cancon Pty Ltd, the lessee. The term of the lease was expressed to be 20 years commencing on 3 March 1998 and expiring on 2 March 2018.

9 Their offer to purchase the tavern was further expressly conditional upon:

The purchaser reading and accepting the current lease and proposed assignment of the lease.
The landlord/lessor agreeing to assign the lease to the purchaser with the following variations:
1. for the remaining period of the lease the rent payable shall be $70,000 per annum with no annual percentage increase;
2. an option of 'renewal' of the lease - a 1 by 10 year or 2 by 5 year term/s, be inserted into the lease agreement
This contract is subject to the director of The Liquor Licensing approving the transfer of the liquor license to the purchaser.
All plant and equipment to be in good working order save and except for 2 only non-operational air-conditioning units and one only temprite (lounge bar) which are to be accepted as is by the purchaser.

10 In evidence-in-chief before me, Mr Haslett said that he made the offer conditional upon being granted 10 years of options because he planned to work in the business for at least 10 years and then sell it with a long lease.

11 In mid to late January 2004 there was a meeting at the tavern attended by Mr Vellios, his accountant Len Blythe, Mr Robinson and Mr Haslett. It seems agreement was reached for an assignment of the lease because the defendant, a law firm, was instructed by Mr Haslett to prepare a document giving effect to that agreement. In due course Cancon Pty Ltd, the plaintiff and Mr Vellios executed a document entitled 'Deed of Assignment and Variation' (hereinafter referred to as 'the Deed'). The plaintiff had become the trustee of the Haslett Family Trust. Mr and Mrs Haslett executed the document as guarantors. Clause 2 provided that:

(a) the lessor's consent; and

(b) the assignee's agreements in this assignment

the Assignor assigns the lease free from encumbrances to the assignee for the residue of the term together with the benefit of the options subject to the performance by the assignee of the lessee's obligations (except to the extent, if any, that they are modified by this assignment as set out in item 7).

12 The document varied the original lease as to the provision for rent reviews and with respect to options to renew providing, so far as the latter were concerned, that the lessee might renew the term for a period of five years commencing from the day following the end of the term and for a further term of five years commencing from the day following the end of the renewed term. There were also variations of the provision in the original lease for repair and in respect of a proposed beer garden.

13 Settlement occurred on 24 March 2004. Mr Haslett took over management of the tavern.

14 Before long there were disagreements between Mr Haslett and Mr Vellios as to a range of matters culminating, in late 2004 or in early 2005, with Mr Haslett approaching the Small Business Development Corporation for advice. A Mr Robertson, of that organisation, informed Mr Haslett that his lease was invalid because it did not have town planning approval. Mr Robertson suggested that Mr Haslett seek legal advice and contact the Town Planning Department. He was informed by an officer of that department that the lease was invalid because it was for a period in excess of 20 years and one day. He spoke with his accountant who recommended a lawyer. The lawyer recommended another firm, Joanne Matich and Associates, as being better able to give advice as to the problems encountered by Mr Haslett. He met with Ms Matich and they, together, settled on the terms of a letter to be sent to Mr Vellios. She subsequently advised, by letter dated 6 October 2005, that Mr Vellios was seeking legal advice and would, in due course, reply to their correspondence.

15 By letter of 14 November 2005 a Mr Cole of Allens Arthur Robinson, solicitors wrote to Ms Matich advising, inter alia:

... we observe that the lease documentation between our respective clients (in the form of the original lease and the deed of assignment and variation) are less than perfect in the manner in which they address each of our respective client's rights and interests. A prospective outcome of negotiations between us could lead to the redocumentation of the lease arrangements between our respective clients.

16 Attached to that letter was a document entitled 'Memorandum of Comments and Observations Lease Terms relating to Forrestfield Tavern.' That document suggested that 'the options of renewal in the terms of the deed of assignment and variation are void as being contrary to s 20(1) of the Town Planning and Development Act 1928, it being understood that no requisite approval in terms of that legislation was obtained prior to the options being granted.' Correspondence as between Joanne Matich and Associates and Allens Arthur Robinson ensued in the mutual expectation that, by negotiation, a revised lease arrangement might be agreed upon and other disputes satisfactorily settled.

17 By letter of 9 February 2006 Mr Cole advised Ms Matich that Mr Vellios was seeking a second opinion from 'a lawyer relation of his.'

18 On 20 February 2006 Mr Gavan Kelly of Wojtowicz Kelly Legal, solicitors, contacted Ms Matich. By letter of 1 March 2006 he wrote to her confirming that he acted for Mr Vellios and declaring that 'the lease is void in light of the provisions of s 20 of the Town Planning and Development Act as consent has not been first obtained pursuant to the provisions of the Act.' Mr Kelly suggested that both clients might have claims against the defendant in relation to the preparation of the Deed. There were, said Mr Kelly, two courses available, the first being that the plaintiff vacate the premises and bring an action against the defendant for damages and the second being the possible negotiation of a new lease with Mr Vellios. With the latter in mind he made a proposal for settlement. By letter of 3 March 2006 Joanne Matich and Associates rejected that proposal concluding:

We are also instructed to advise that it is not our client's wish to simply walk away from his investment, nor does our client wish to be involved with protracted litigation. Unfortunately, should a commercial resolution not be reached, and soon, our client is of the view that there is no alternative. Accordingly, we would welcome a review of your client's proposal.

19 In a telephone conversation on 14 March 2006 Mr Kelly advised Ms Matich that his client would not be reconsidering his proposal. She then discussed matters with her client and received instructions to obtain counsel's opinion.

20 On about 27 March 2006 Mr M J Feutrill, of counsel, provided a memorandum of preliminary advice. In particular, he had been invited to advise as to whether the plaintiff was bound to perform its obligations under the lease dated 6 March 1998 and the Deed stamped 25 March 2004, if not, as to whether the plaintiff would be entitled to vacate the premises without penalty and whether it would be entitled to damages from Mr Vellios in the event that the lease and deed were unenforceable and in the event of the premises not being vacated.

21 Mr Feutrill expressed the opinion that either the Deed or the lease as varied by the Deed was void and that the plaintiff was, therefore, entitled to vacated the premises without penalty, there being no valid and enforceable assignment of the lease or variation of the terms of the lease. He expressed the further opinion that, if the tenure of the plaintiff was a periodic tenancy from month to month, it may be entitled to restitution and damages from Mr Vellios. It might also, in those circumstances, be able to terminate the tenancy on giving Mr Vellios one months notice.

22 On about 31 March 2006 the plaintiff gave Mr Vellios a document entitled 'Notice to Terminate' in the following terms:

NOTICE is hereby given that DERRY DEW PTY LTD (A.C.N 017 848 635) of 38 Hilltop Place, Kelmscott (and care of its solicitors Joanne Matich & Associates, PO Box 690, Nedlands WA 6909) intends to vacate the premises known as the Forrestfield Tavern situated at 40 Cumberland Road, Forrestfield Western Australia ONE (1) calendar month from the date of service of this Notice.

This Notice is given pursuant to section 72 of the Property Law Act 1969.

23 Ms Matich followed the service of the notice with a letter to Wojtowicz Kelly dated 3 April 2006. Referring to it she said:

This action has been forced upon our client as a consequence not only of your client's failure to enter into any meaningful discussions in relation to the lease but also a complete failure on the part of your client to undertake lessor's works.

She went onto say that her client was prepared to offer Mr Vellios 'one final opportunity' to reconsider his position in relation to the lease, rental and term, adding that the opportunity to do so was 'a very narrow window' given that the notice of termination had been served.

24 Not many days later there was a telephone conversation as between Mr Kelly and Ms Matich. In consequence she advised Mr Haslett in the following terms:

Gavan Kelly has telephoned me (after meeting with Norm Vellios this morning) and advised me that his client has elected to accept the termination notice (ie elected not to enter into any further discussions in relation to the new lease).

She also spoke of the possibility of placing the defendant on notice, in other words, of informing the defendant of the possibility of legal proceedings against him.

25 On 27 November 2008 the plaintiff filed a writ of summons in this court accompanied by a statement of claim alleging against the defendant negligence in failing to advise the plaintiff that the deed was illegal, void and of no effect, in failing to advise the plaintiffs of the steps required to be taken in order to comply with the provisions of the Town Planning and Development Act and in failing to prepare a variation of assignment of lease that was not illegal or void or of no effect. The plaintiff claimed damages.

26 The pleadings comprise an amended statement of claim, a re-amended defence and a reply. It is common ground that:

(a) the defendant is and was at all material times a solicitor practising from 2 Sleat Road, Applecross, Western Australia;

(b) Mr Vellios was at all material times the owner of the property at 40 Cumberland Road, Forrestfield more particularly described as Lot 1 the subject of diagram 75240 and being the whole of the land comprised in certificate of title volume 1830 folio 643;

(c) at all material times until around March 2004 Cancon Pty Ltd owned and operated the Forrestfield Tavern at that property and leased the premises pursuant to a written lease with Mr Vellios dated 6 March 1998;

(d) the defendant owed the plaintiff a duty of care in tort to exercise the care and skill to be expected of a reasonably competent solicitor in performing his duties pursuant to the retainer;

(e) the defendant owed a duty to give advice reasonably necessary to protect the plaintiff's interest in the transaction to assign and vary the lease;

(f) on or around 20 December 2003 Mr and Mrs Haslett entered into an agreement with Cancon Pty Ltd pursuant to which they and/or their nominee agreed to purchase the business of the Forrestfield Tavern for the sum of $230,000 plus stock, that agreement being wholly in writing in a document entitled 'Agreement to Purchase a Business (as a going concern)' between the Hasletts and Cancon Pty Ltd dated 20 December 2003; and

(g) it was an express written term of the purchase agreement that the purchase of the business was conditional upon Mr Vellios agreeing to assign the lease over the premises to Mr and Mrs Haslett and/or their nominee with the following variations:

That the rent payable being $70,000 per annum with no annual percentage increase and either an option of renewal of the lease of 10 years or two options of renewal each being five years.

(h) in or around January or February 2004 Mr Haslett, on behalf of the plaintiff, gave instructions to the defendant to prepare the Deed.

27 By par 15 of the amended statement of claim the plaintiff pleads that the Deed contravened s 20(1) of the Town Planning and Development Act because it did not deal with the premises as a defined portion of land depicted on a plan or diagram publically exhibited in the public office of the Department of Land Administration and granted, without the approval of the Western Australian Planning Commission (hereinafter referred to as 'the Commission'), a lease to occupy the premises for a term exceeding 21 years including the renewed term and the further renewed term. The defendant denies that the Deed contravened the Act as alleged and pleads that it dealt with the land, the subject matter of the lease, as a defined portion of the land and, in consequence, no approval by the Commission was required.

28 The defendant denies that the Deed was, as alleged by the plaintiff, illegal, void and of no effect.

29 The plaintiff particularises its allegation of negligence by asserting that the defendant failed to exercise the care and skill to be expected of a reasonably competent solicitor in performing his duties pursuant to the retainer as between the plaintiff and the defendant by:

(a) failing to advise the plaintiff that the Deed was illegal, void and of no effect;

(b) failing to advise the plaintiff of the steps required to be taken in order to comply with the provisions of the Act; and

30 Further and in the alternative the plaintiff alleges that the defendant negligently failed to give advice reasonably necessary to protect the plaintiff's interest in the transaction to assign and vary the lease and that it failed to protect the plaintiffs from a real and foreseeable risk of economic loss by failing to give appropriate advice and initiating action to guard against economic loss.

31 The plaintiff's plead that by reason of the defendant's alleged negligence and/or breach of the retainer the plaintiff was required to vacate the premises and suffered loss and damage.

32 The plaintiff particularises its loss and damage as follows:

33 The plaintiff's case against the defendant is that, pursuant to the plaintiff's instructions, the defendant, or an employee, prepared the Deed subsequently executed by all of the parties, that it contravenes s 20(1) of the Town Planning and Development Act 1928 and resulted in the parties to the Deed committing an offence under s 27 of that Act and was 'illegal, void and of no effect'.

34 In response the defendant denies that the Deed contravenes s 20(1) of that Act, does not admit that the parties to the Deed committed an offence pursuant to s 27 of the Act and denies that the Deed was 'illegal, void and of no effect'.

35 Section 20(1)(a) of the Act provides as follows:

Subject to section 68 of the Environmental Protection Act 1986, to this section and to section 20B, a person shall not, without the approval of the Commission, lay out, grant or convey a street, road or way, or either lease or grant a licence to use or occupy land for any term exceeding 10 years including any option to extend or renew the term or period, or lease and grant a licence to use or occupy land for terms in the aggregate exceeding 10 years, including any option to renew or extend the terms or periods, or sell land or grant any option of purchase of land, unless the land is dealt with by way of such lease, licence, sale or option of purchase as a lot or lots ...

36 Reducing that provision to the extent that is material to the circumstances of the case before me it prohibits a person from, without the approval of the commission, leasing land for any term exceeding 10 years including any option to extend or renew the term or period, unless the land is dealt with by way of such lease as a lot or lots.

37 By s 2 of the Act the term 'lot' is defined to mean:

... a defined portion of land depicted on a plan or diagram publicly exhibited in the public office of the Department of Land Administration, or deposited in the Department within the meaning of the Transfer of Land Act 1893 or Registry of Deeds and for which a separate Crown grant, certificate of Crown land title, qualified certificate of Crown land title, or certificate of title has been or can be issued; or depicted on a subdivisional plan or diagram, whether so exhibited or deposited or not, but which is, whether before or after the coming into operation of the Town Planning and Development Act Amendment Act 1956 approved by the Commission and includes the whole of the land the subject ... of a certificate of title registered under the Transfer of Land Act 1893 ...

38 Section 20(1)(d) of the Act provides as follows:

In subsection (1)(a) 'land', in relation to the leasing or the granting of a licence to use or occupy or, where applicable, the leasing and the granting of such a licence, does not include the whole or a portion of a building where ... the leasing or the granting of a licence does not relate to any land other than that building or portion, and is for a term or period (including any option to renew or extend the same) not exceeding 21 years.

A reference in paragraph (d) to the whole or a portion of a building includes a reference to any area outside that whole or portion, which area is ... used for the purpose of ingress to or egress from that whole or portion, advertising, parking vehicles, storing goods, loading or unloading goods or passengers or for any other purpose necessary or desirable for the convenient occupation of that whole or portion.

40 Counsel for the plaintiff, in opening his case, told me that what had been leased by the plaintiff and what became the subject of the Deed was the tavern, being the building on the land, but not the land itself, explaining that the Act was infringed because there was a dealing with a portion of the property for longer than 21 years which made the Deed, according to the authorities, illegal, void and unenforceable.

41 Counsel for the defendant, in opening his case, told me that it was quite clear from the terms of the Deed that it dealt with the entirety of the lot on which the tavern was situated and was, therefore, being a lot, not in contravention of s 20(1) of the Act.

42 In order to succeed in its claim against the defendant the plaintiff must succeed in its contention that the Deed is void by virtue of the provisions of the Act. That contention requires, firstly, a consideration of both the lease and the Deed as to what was conveyed by way of lease and subsequently assigned and, secondly, as to whether, as a matter of statutory interpretation, the latter is void as alleged.

43 As to the lease and the Deed the primary duty of a court in construing an instrument is to endeavour to discover the intention of the parties as embodied in the words they have used in the instrument: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109 - 110; Permanent Building Society (in liq) v Wheeler (1992) 10 WAR 109, 118 - 119. It is the objectively ascertained intention of the parties, as expressed in the instrument, that matters, not the parties' subjective intentions. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood those terms to mean: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 [22].

44 An instrument must be construed as a whole. Where different parts of a contract appear to be inconsistent, the court should attempt to construe the contract in a way that avoids any inconsistency and renders those parts harmonious: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (109 - 110).

45 The lease of 6 March 1998 conveyed to the lessee the premises described in item 1 of the schedule including all the lessor's fixtures, fittings and appurtenances located on the leased premises including the chattels listed in the schedule. The lessor conferred a right upon the lessee, its agents, servants, employees and customers 'in common with the lessor's other tenants' to use common areas.

46 Item 1 of the schedule describes the leased premises as 'the Forrestfield Tavern situated at 40 Cumberland Road, Forrestfield in the State of Western Australia'.

47 Clause 2 provides various definitions for the purpose of the lease document. It defines 'common areas' to mean any areas of the land or other land or property owned by the lessor and any building erected thereon not demised to any lessee and intended for use by all lessees of the lessor and their respective customers and agents with each other. It defines 'land' to mean all that piece of land described in item 2 of the schedule. That item describes 'land' as 'lot 1 the subject of diagram 75240 together with the right to enter upon portion of lot 2 on diagram on 75242 marked 'A' on the said map hereon for the purpose of exercising certain rights as set out in transfer E25143 and being the whole of the comprised in certificate of title volume 1830 folio 643.'

48 The land the subject of certificate of title volume 1830 folio 643 comprises 5162m² or about 1.276 acres. Lot 1 on diagram 75240 is a rectangle with a frontage on Cumberland Road of 102.72 metres and with a depth of 50.25 metres. The Forrestfield Tavern occupies a portion of the southern end of lot 1 with its principal access for vehicles from Cumberland Road adjacent to the southern boundary. The northern portion of the lot is scrub or bush.

49 The lease refers not only to the leased premises but also to 'the land' and to common areas, the latter meaning any areas of the land owned by the lessor and any building erected thereon not demised to any lessee and intended for use by all lessees of the lessor and their respective customers and agents. The lease differentiates between the leased premises and the land. Clauses 7.4 and 7.5 refer to either 'the building' or 'the buildings' comprising the leased premises.

50 In my view the lease clearly contemplates that there might be more than one lessee on the land, each operating a separate business and each with separate customers and agents. Clause 16.11.7 of the lease provides that the leasor shall have the right to subdivide the land pursuant to the Strata Titles Act 1895.

51 Clause 16.18 of the lease provides that if the aggregate of the term of the lease exceeds 21 years or if, for any other reason, the lease should require the consent of the Commission then it shall be subject to such consent being given. That clause relates to s 20(1)(d) of the Act which applies where a lease does not relate to any land other than a building or portion of a building and is for a term not exceeding 21 years. In such circumstances approval is not required. Given the presence of that clause I infer that whoever drew the lease contemplated that, the term being 20 years without options to renew and the leased premises relating to a building and areas used for the purpose of ingress egress, advertising, parking, goods storage, loading or unloading goods or passengers, the lease did not, as drawn, offend s 20(1) of the Act.

52 In his final submissions counsel for the defendant contends that the lease is obviously a standard form lease with special conditions added in cl 16.21 and particular definitions added to the schedule. I agree, in general terms, with that submission. My conclusion, however, is that the lease is a lease of that portion of lot 1 which is occupied by the Forrestfield Tavern accompanied by a right of the lessee, its agents, servants, employees and customers to use the common areas. The special conditions at cl 16.21 allow the lessee to make certain alterations to the building comprising the tavern and grant approval to the lessee to build an outside wall in respect of a proposed beer garden, such additional work to be approved by the local and liquor licensing authorities. Finally, the special conditions involve a grant to the lessee of sufficient area of land to accommodate six parking bays as determined by the local and liquor licensing authorities. Those special conditions suggest that there might be an expansion of the tavern to accommodate a beer garden and extra car parks to accommodate extra customers. In my view, in the event of the premises being so extended those changes would be incorporated within the leased premises as defined by the lease. I conclude that the leased premises are, therefore, a portion of lot 1 the subject of diagram 75240.

53 It does appear to be unarguable that what was assigned by the Deed, in terms of an estate or interest in land, was that which was conveyed by the lease. What was assigned, in terms of the obligations and entitlements of the parties to the lease were those obligations and entitlements, as created by the lease and varied by the Deed.

54 The Deed describes the leased premises, in item 3 of the schedule as:

The Forrestfield Tavern situated at 40 Cumberland Road, Forrestfield, in the State of Western Australia being Lot 1 on Diagram 75240 together with the right to enter upon portion of Lot 2 on Diagram 75240 marked 'A' on the said map for the purpose of exercising certain rights as set out in Transfer E25143 and being the whole of the land comprised in Certificate of Title Volume 1830 Folio 643.

In my view, what was assigned must have been that which was conveyed by the lease. The words used by whoever drew the Deed must be construed accordingly.

55 The Deed, by cl 8 provides that the lease is modified as set out in item 7 of the schedule. That item has five parts referred to as A, B, C, D and E. Parts A and B deal with rent and rent reviews, respectively. Part C creates two successive options to renew, each of five years, the first starting on the day following the end of the term of the lease and the second starting on the day following on the end of the renewed term. Part D deals with repairs to the premises and part E deals with the proposed beer garden, granting permission to the lessee to create one 'within the premises'.

56 The effect of the grant of the options was to extend the potential term of the lease from 20 years from 3 March 1998 to 30 years ending on 2 March 2028. The effect of the variation so far as rent was concerned was to provide for rent reviews on 3 March of 2009, 2014, 2018 and 2023, respectively

57 What was conveyed by the lease was a term in excess of the 10 years referred to in s 20 (1) of the Act. What was conveyed, however, might not have required approval under that section if it was a the whole or a portion of a building, by virtue of s 20(1)(d) of the Act as further elaborated in s 20(1)(da). The provisions of the Deed relating to options extend the term of the lease to 30 years, well outside the limit imposed by s 20(1)(d)(ii) of the Act. It follows that the effect of the Deed is to render the transaction subject to approval by the Commission, regardless of whether the interest conveyed relates to a building or a portion of a building or not.

What is the Effect of a Failure to obtain the Approval of the Commission?

58 Section 20(1) of the Act makes no reference to the consequences of contravention. Section 27 of the Act creates an offence, providing that any person who contravenes or fails to comply with s 20(1) is guilty of an offence. A penalty in monetary terms is specified.

59 In Landall Construction & Development Co Pty Ltd v Bogaers [1980] WAR 33 the Full Court of the Supreme Court of Western Australia had to deal with a contract made in 1969 in which a lady sold 9.5 acres of her 10 acre lot subject to approval pursuant to s 20(1) of the Act. No plan of subdivision was lodged because deep sewerage was not available to the site and the local authority had not introduced its town planning scheme. The purchaser had paid a deposit. It paid rates and taxes on the site until the end of June 1975 and interest on the balance of the purchase price until 1 September 1974. On 19 February 1975 the vendor gave notice of rescission and purported to forfeit the deposit. The purchaser sued for refund of the deposit.

60 In the Full Court both Wickham J and Wallace J delivered lengthy written reasons. The former said that the central question was whether the purchaser could recover its money from the vendor in circumstances where there had been a failure of consideration due to the contract being illegal. He began his analysis with the observation that 'Section 20 of the Town Planning Act has in recent years given continuous trouble.' He then outlined the history of the section. Having done so he concluded as follows:

In my opinion, an agreement to sell land which is not at the date of the agreement in lots, and which is expressed to be subject to approval by the Board of a plan of subdivision, is not and never was an infringement of s 20 of the Act.

61 He held that the purchaser was not entitled, on a correct interpretation of the contract, to a transfer until approval of a plan of subdivision which would have enabled the transfer of the 9.5 acres as a lot. Both judges concluded that the contract was not tainted with illegality and that the purchaser could recover the consideration paid.

62 In Wilson International Pty Ltd v International House Pty Ltd [1983] WAR 243 Smith J dealt with an agreement made on 12 February 1975 between the parties purporting to lease land comprising a parking area within a building. The plaintiff had entered into possession of the premises on 1 May 1972 and had either paid or tendered payment of the rent as specified in the agreement. The defendant, by notice in writing dated 8 March 1979 called upon the plaintiff to quit the premises with one month. The plaintiff sued for specific performance of the lease.

63 The area was not and had never been a lot as defined in the Act. The agreement was rectified by the parties by a further agreement dated 31 January 1979. The term granted by that later agreement exceeded the period prescribed in s 20(1)(a) of the Act. His Honour considered whether the agreement was rendered illegal and void or whether it should have been considered unenforceable until the relevant approval was obtained.

64 His Honour observed that s 20 of the Act is silent as to the consequences of a failure to obtain approval but considered, in light of the wording of s 20B of the Act that the legislative intent was to stamp with illegality and to render void an agreement in contravention of s 20(1)(a) unless the agreement in question might be brought within the terms of s 20B. The plaintiff's claim for specific performance was dismissed.

65 It is pertinent to note that in Landall Construction v Bogaers the agreement to purchase was expressly conditional upon approval and was executory. The Wilson International Pty Ltd v International House Pty Ltd case was quite different in that regard. So is the matter before me.

66 In Stone James & Co v Investment Holdings Pty Ltd [1987] WAR 363 Burt CJ said (369):

In my opinion the approval of the Board required by the subsection is an approval to the doing of any of the acts therein mentioned and it must be obtained before that act is done. I so held in Glentham Pty Ltd v City of Perth [1986] WAR 205. I still adhere to the opinion which I there expressed. As at the date of that decision it had been held in many cases decided over a number of years that an agreement caught by s 20(1)(a) of the Act entered into without the approval of the Board is illegal and void and nothing has been submitted to us which would lead me to think that those cases were wrongly decided and that they should be over-ruled.

67 That was a case in which a law firm prepared a lease of a store in a shopping centre for a term of 10 years with two 5 year options to renew. Approval of the Board (as it was then called) had not been sought or granted when the tenant gave notice to the landlord that it intended to vacate the premises in about five weeks time on the basis that the lease entered into was illegal and void by reason of non-compliance with the Act. The tenant had been in possession of the premises and paying rent for about three years and four months. The landlord compromised its dispute with the tenant over the termination to mitigate its damages and the sued the solicitors who had prepared the lease in contract and tort for negligence. The trial judge found that the firm had been negligent and an appeal failed.

68 In the matter before me the Deed was entered into without the approval of the Commission. It was an agreement made after the coming into operation of the Town Planning and Development Act Amendment Act 1967. It did incorporate cl 16.18 of the lease which provided that it was subject to approval by the Commission but no application for approval was made within three months of its execution. It could not be said to be executory. It was, therefore, not saved by s 20B of the Act. It was, therefore, illegal and void.

69 The defendant submits that on a proper construction of the lease the land which was leased was the whole of a lot. I have concluded to the contrary. The defendant further submits that the Deed makes it clear that 'the new lease which it brought into effect between the lessor and the plaintiff was of the whole of the lot of land.' I have again concluded to the contrary. That which was conveyed in terms of an estate or interest in the land by the lease was that which was conveyed by the Deed.

70 In response to its two contentions, with which I do not agree, the defendant submits that the Deed did not contravene s 20(1) of the Act because the land the subject of the Deed was dealt with as a lot. That, in my view, was not the case.

71 The defendant's fall-back position is that the two options to renew within the Deed were severable. The defendant submits that, as a matter of common law, the options in the Deed may be severed because they do not alter the nature of the lease, rather, its extent. The defendant urges that I follow the decision of McKechnie J in Farleigh Investments Pty Ltd v Reefking Pty Ltd [2002] WASC 115. Counsel for the plaintiff submits that I should not follow that decision.

72 The case before his Honour involved a lease entered into on 31 August 1998 in respect of land at 198 Brisbane Street, Northbridge, the site of the Northbridge Hotel. His Honour concluded that the lease was in breach of s 20(1)(a) of the Act and therefore illegal and void.

73 A party to the action argued that his Honour should severe the offending portion of the lease relating to a residential portion of the building and a car bay. His Honour embarked upon a survey of authorities relevant to the question of severance and concluded as follows:

The reservation to the lessor of Penthouse 402 and one car bay is very much ancillary to the main contract to lease the Hotel Northbridge and in contemplation of the Hotel Northbridge redevelopment. The lessor wishes to waive a clause which is entirely for its benefit. Waiver will not materially affect the contract for lease in any practical manner other than slightly increasing the area of property which the lessee will hold without any increase in rental payments.

Public policy does not require the whole of the lease to be struck down. Without the penthouse 402 and one car bay provision, there is no breach of section 20(1)(a). Applying the principles derived from the cases I have set out, I conclude that it is just and sensible to severe the offending portion of the lease so as to make the balance of the lease conform with section 20(1)(a).

74 In the matter before McKechnie J the lease was for an existing hotel building and its surrounds. It contemplated that the lessor would construct extensions consisting of a basement car park, three levels of single room apartments and, on the fourth level, three penthouse apartments. The lessor would occupy one of the units, penthouse 402, and one car bay, when the additions were completed. His Honour examined exactly what was conveyed in the lease at the date of its execution. At that point there stood on the land an existing building. There was a proposal to, in due course, erect a new building. The lease, he concluded, was for the whole of the land in certificate of title volume 1937 folio 598 accept for one 2 bedroom unit, penthouse 402 and one car bay, both yet to be constructed.

75 His Honour concluded that part of the land excluded from the definition of 'leased premises' did not exist at the time of the lease. There were plans which, if carried into effect, would mean that, in the future, such a piece of land would exist. There would then be two lots, one comprising the leased premises and the other comprising penthouse 402 and one car bay. He said:

The words of section 20(1)(d)(i) are unambiguous and require approval of an already constructed building and not one to be approved in the future. This also accords with the policy and purpose of the Act. Under section 20(1)(a), prior approval of the commission is required before subdivision. In respect of a building to be constructed one cannot know at the time of the lease whether it will comply with an approval granted by a local government.

76 His Honour concluded that the lease was in breach of s 20(1)(a) and therefore illegal and void.

77 The matter before McKechnie J was dealt with in chambers. It involved an action for a declaration that, upon its proper construction, a lease was entered into in contravention of s 20(1)(a) of the Act and was therefore void for illegality. The defendant sought, in the event of there being a declaration to that effect, an order severing portion of the lease. Both the lessee and the lessor filed affidavits in support of their respective positions. His Honour did not regard the differences between the two affidavits as being 'particularly material for present purposes'. As at the date of the hearing, the new building contemplated in the lease had been constructed pursuant to approvals granted by the relevant local authority. In making the order for severance his Honour concluded that it was 'just and sensible' to do so, noting that to do so would not affect the contract for lease in 'any practical manner.'

78 Clause 16.15 of the lease in the matter before me provides as follows:

To the extent that any one or any more of the provisions herein contained is prohibited by any applicable law including without limitation the Trade Practices Act 1974 (as amended) and/or the Retail Shops Act such provisions and each of them shall to such extent be ineffective without invalidating or modifying the remaining provisions hereof which shall continue in full force and effect as if the provisions so prohibited had not been included herein as from the date hereof.

In final submissions counsel for the defendant suggested that:

As a matter of contractual agreement (cl 16.15) the parties agreed that the options clause would not operate if prohibited by the Town Planning and Development Act 1928 (WA).

That, with respect, is an unwarranted extrapolation. The options provision was not in existence as at the date of execution of the lease and the clause makes no reference whatsoever to the Act. It does provide that if one or more of the provisions of the lease is prohibited by any applicable law such provisions shall, to such extent, be ineffective.

79 Section 20(1)(a) of the Act deals not with the provisions of a lease but rather with the lease itself. Section 20B provides that where an agreement to lease has been entered into with approval of the Commission the agreement shall be deemed not to have been entered into in contravention of s 20(1) in certain circumstances and concludes, if those circumstances apply, that nothing in that subsection renders the agreement illegal or void by reason only that the agreement was entered into before the approval of the Commission to the subdivision was obtained. As Burt CJ observed in Stone James & Co v Investment Holdings Pty Ltd an agreement to do an act prohibited by s 20(1)(a) of the Act entered into without the approval of the Commission is illegal and void.

80 The defendant contends that, as a matter of common law, the options clause may be severed. In SST Consulting Pty Ltd v Rieson [2006] HCA 31; (2006) 225 CLR 516 the High Court was called upon to consider the structure and meaning of s 4L of the Trade Practices Act 1974 and whether that section engaged common law rules of severance. Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ said [41] as follows:

Are some common law 'rules' relating to severance nonetheless engaged by the reference made in s 4L to the extent of severance of the offending provision?

Posed in this way the question assumes that there is a single set of readily identified and stable rules that would be engaged. But, as Kitto J said in Brooks:

'Questions of severability are often difficult, and tests that have been formulated as useful in particular classes of cases are not always satisfactory for cases of other kinds.'

In Carney v Herbert, Lord Brightman, speaking for the Privy Council and with reference to the statement by Kitto J, added:

'There are not set rules which will decide all cases.'

Not least is that so because questions of 'severance' arise in different circumstances. In public law, what have been called common law rules of severance were devised to preserve valid portions of subordinate legislation after textual surgery to remove the invalid portions. The term 'severance' is also used to described what is done when a contractual term is ignored as being too uncertain to admit of enforcement but other promises in the contract are enforced. Further, 'severance' is a term employed in considering the enforceability of provisions of contracts other than provisions whose making or enforcement is illegal or contrary to one of heads of public policy. Different considerations arise in these various cases.

But different circumstances may arise in cases of illegality from those that fall for consideration when the enforcement of certain provisions is contrary to public policy. That is why it is necessary to distinguish between cases in which a promise made by a party to a contract is void and unenforceable, but not illegal, and cases in which the contract or the performance of a promise would be illegal. And as Jordan CJ rightly observed, there is particular difficulty in identifying the limits of a doctrine that permits enforcement of a legal promise associated with, but said to be severable from, an illegal promise:

'It is difficult to see how, in principle, a legal promise associated with an illegal promise can ever be enforceable unless it is supported solely by a separate consideration so exclusively attributable to it that there are in substance two independent contracts and not one composite contract.'

82 In the matter before me there are not two independent contracts but one composite contract. The illegality is encompassed within the Deed which assigned and varied the lease by way of the inclusion of options, in such a way as to offend, in the absence of approval, s 20(1) of the Act. Thus, the illegality of the Deed is not divisible. There is no separate consideration exclusively attributable to the grant of the options in that the parties struck a bargain acceptable to them both. Central to that bargain was the term of the lease and the options provided for.

83 There is, in any event, a sense of artificiality about the proposition that the options clause in the Deed might be severed. That contemplates partial illegality and the enforcement of the lease to the extent that the illegal part can be separated. In the matter before me, such a course is no longer available. The lease has, to all intents and purposes, been abandoned. Questions of severance can really only be raised against the plaintiff as part of a contention that it might have, rather than serving notice of termination, taken steps to enforce what was left of the Deed following severance. Clearly, it did not take that step. Had it done so, and succeeded, the plaintiff might have made the best of a bad bargain.

84 The suggestion of severance is predicated on there being illegality. The claim against the defendant, in contract and tort, is that it failed to exercise due care and skill in failing to advise the plaintiff that the Deed was illegal, in failing to advise of the steps required to be taken in order to comply with the provisions of the Town Planning and Development Act and in failing to prepare a variation and assignment of the lease that was not illegal. The plaintiff pleads that, had the defendant advised that the Deed was illegal it would not have been executed and the plaintiff would have elected not to proceed with the agreement to purchase the tavern.

85 The plaintiff pleads that by reason of the alleged negligence and/or breach of retainer it was required to vacate the premises and suffered loss and damage. It is in that context that a consideration of severance arises. The remaining three issues are, therefore, in the light of the illegality, whether the defendant breached its duties to the plaintiff either in contract or tort, whether the defendant has suffered loss or damage by reason of that breach and if so, whether the defendant has failed to mitigate that loss or damage. Once those issues are settled there will remain the quantification of the plaintiff's loss, if any.

86 There is very little evidence as to the instructions given by the plaintiff to the defendant. In late December 2003 or early January 2004 Mr Haslett appointed settlement agents to act on the purchase of the business. He was recommended to the defendant because he needed an assignment of the lease. The lease was forwarded to the defendant, possibly by the settlement agent. Mr Haslett spoke to someone at the defendant's office, requesting preparation of an assignment and variation of the lease. There was, it seems, as between the plaintiff and the defendant no 'face to face' meeting but rather, telephone conversations. Mr Haslett recalls informing someone at the defendant's office that the lessee of the premises purchased would be the plaintiff.

87 In volume 1 of the trial bundle (at 67) is a letter which appears to be in draft on the letterhead of the defendant addressed to Mr Haslett and dated 6 January 2004 confirming, inter alia, instructions to draft an assignment and variation of the lease of the Forrestfield Tavern. It confirmed receipt of the lease made on 6 March 1998. It had been reviewed for the purposes of preparing the Deed. The letter is said to enclose a draft assignment. I assume that the letter was, once settled, forwarded to Mr Haslett with a copy of the draft assignment. He did not retain the latter.

88 On about 6 February 2004 he received a letter, by email, from the defendant confirming his instructions to draft an assignment and variation of the lease of the Forrestfield Tavern. In volume 1 of the trial bundle (at 75) is a copy of an email from Richard Staynor, then employed as a senior associate of the defendant, dated 4 February 2004 to Mr Haslett with a copy to, it would seem, the settlement agency, concerning the Forrestfield Tavern. The email included an attachment referred to by Mr Staynor as 'an amended version of the Assignment.' He confirmed Mr Haslett's advice that the assignee would be the plaintiff and that Mr Haslett and his wife would be guarantors for the plaintiff. In particular, Mr Staynor asked Mr Haslett to check cl B3 of item 7 in the draft Deed which provided:

In every case, a review of the rent has the effect of increasing the rent by a factor equal to the sum of the annual increases of the preceding CPIs for the period.

89 In evidence-in-chief Mr Haslett said that he did not receive any advice from the defendant to the effect that the two options to renew were invalid or that there might be issues as to their validity. Further, he said, the defendant did not advise him that he should obtain planning approval of the Deed. He would not, he said, have purchased the business had be been advised that the options to renew the lease were invalid. He said further:

If I had known that it was necessary for planning approval to be obtained in order to have the options on the lease, I would only have purchased the tavern business after that planning approval had been obtained. I would not have risked my retirement fund on the basis that planning approval may or may not have been obtained. Had I been given the option to purchase the tavern business without the options that I had requested, I would not have proceeded with the purchase. It was essential to me that I have an opportunity to operate business for at least 10 years. I intended to spend a significant amount of time building up and improving the business and then sell it. I did not believe that I would be able to sell the business for a profit if it did not have a long lease remaining. It was for that reason that I had sought the options.

90 Essentially, the plaintiff, having acquired or being in the throes of acquiring a business, instructed the defendant to prepare a document which would effect an assignment of the lease of the business premises and the variations to that lease agreed to as between the landlord and the plaintiff. The defendant accepted those instructions and, in due course, produced the Deed, later executed by the parties and put into effect.

91 Reverting to the pleadings, it is common ground that the defendant owed the plaintiff a duty of care in tort to exercise the care and skill to be expected of a reasonably competent solicitor in performing his duties pursuant to the retainer and owed a duty to give advice reasonably necessary to protect the plaintiff's interest in the transaction to assign and vary the lease. Those duties, fall, in my view, within the ambit of a duty to be competent. The plaintiff's action is couched both in contract and tort.

92 In Dal Pont, G E, Lawyers' Professional Responsibility (5th ed, 2013) [4.150] is the following passage:

For breaches of contract, the damages ordinarily represent the difference between the position that would have been created by full performance of the retainer and the position that has actually been created by the breach. A claim for damages in tort is directed to putting the client in the position that he or she would have been in had the tort not been committed; the question to ask is how much worse off the client is as a result of the lawyer's breach of duty. Contract and tort as a basis for liability differ also in that, at general law, contributory negligence is a defence in tort but not in contract, although statute has rectified this anomaly. So where the client's own negligence has contributed to her or his loss, the court may reduce the quantum damages that would have otherwise have been awarded to the client.

A further difference is that in contract damages are available as of right upon proof of a breach; in tort the availability of damages requires proof that the breach of duty caused the client loss. Lacking the causative element, a lawyer's breach of the duty to be competent attracts only nominal damages in contract. This explains why, as a general principle, for limitation purposes, time runs from the date of the breach in contract, but is triggered by the occurrence of damage in tort.

93 Given my finding that the Deed did contravene the provisions of the Act and was therefore illegal and void, there is an inevitable conclusion that the defendant was in breach of its duty of competence owed to the plaintiff. Even if there were uncertainty as to the contravention or potential contravention, having regard to the terms of the Deed, the duty owed by the defendant to the plaintiff required the defendant to alert the plaintiff to the relevant provisions of the Act and to the need for compliance with them. The dangers posed by failure to comply with s 20(1) of the Act were or should have been well known by competent conveyancers in Western Australia there having been, over the decades, a substantial amount of reported and unreported litigation arising from contravention or alleged contraventions of that section.

94 In my view, the defendant's breach of its duties owed to the plaintiff, both in tort and in contract are well established. The plaintiff would be entitled to recover damages, if there is a causal link between the execution of the Deed and the effect of it and the events which followed particularly in the first few months of 2006.

95 I have found that the defendant breached its duty to the plaintiff. The contract for purchase of the tavern was expressly conditional upon Mr Vellios agreeing to an assignment of the lease by the vendor to the purchaser with certain express variations to the terms of the lease including options to renew the then current term for a period of 10 years, either by means of two 5 year options or one 10 year option. It was that condition which was, inter alia, agreed to by the parties and which was then included in the plaintiff's instructions to the defendant. It was the inclusion of that clause which rendered the Deed void and illegal. I conclude that, had the plaintiff been advised of that problem, as it should have been, there would have been three courses open to it. It could have proceeded with the purchase conditional upon approval under the Act. It could have walked away from the transaction. Finally, it could have returned to the bargaining table with the vendor and Mr Vellios to thrash out an agreement as to an assignment of the lease which was acceptable to all and did not offend the Act.

96 What happened in the absence of appropriate advice from the defendant was that the plaintiff paid out a considerable amount of money and significantly altered its position, acting on the assumption that it had a valid long lease of the premises. It went into possession of the tavern and ran the business for about 10 months before being alerted to the suggestion that its tenure might not be what had been assumed. The plaintiff then, sensibly, sought legal advice. In due course counsel's opinion was obtained. It was to the effect that the Deed was void and unenforceable, that the plaintiff, in consequence, was a periodic tenant on a month-to-month basis and that it was entitled to terminate that tenancy upon giving the landlord one month's notice.

97 Counsel's opinion is dated 27 March 2006. By then the plaintiff had been in possession of the premises and running the tavern for about two years. Upon receipt of the opinion from counsel, Ms Matich, the plaintiff's solicitor, provided a copy to Mr Haslett and on the following day discussed its content with him. He, on behalf of the plaintiff, instructed Ms Matich to prepare a notice of termination and, at the same time, write to Mr Vellios' solicitor in an attempt to negotiate a new lease. Ms Matich prepared both documents and, having done so, sent copies by facsimile transmission to Mr Haslett on 31 March 2006. He gave instructions to serve the notice and send the letter. She did so, sending the termination notice to Mr Kelly by facsimile transmission on 3 April 2006 and the letter dated 3 April 2006 to him at about the same time.

98 The letter confirmed the plaintiff's 'intention to vacate the premises known as the Forrestfield Tavern', informing Mr Kelly that the action had been forced upon the plaintiff 'as a consequence not only of your client's failure to enter into any meaningful discussions in relation to the lease but also a complete failure on the part of your client to undertake lessor's works'. The reference to the failure to undertake lessor's works was a reference to the, by then, longstanding dispute between Mr Haslett and Mr Vellios as to the latter's alleged failure to contribute any funds to capital works at the tavern.

99 At the beginning of the next paragraph Ms Matich made passing reference to the validity of the lease and embarked upon an attempt to persuade Mr Kelly that his client, Mr Vellios, should enter into negotiations towards a new lease 'on terms and conditions that would be commercial to both parties.' In cross-examination counsel for the defendant put to Mr Haslett that the letter did not assert that the lease was void and therefore did not need to be terminated. He replied:

No, but I didn't read it to - to be that. What I read it to be at the time, and what the instructions were I was to forget about the validity of the lease, let's get on and see if we can negotiate the lease, renegotiate the lease.

100 The proposition that the lease was void had been squarely advanced by Mr Kelly on behalf of Mr Vellios in his letter to Ms Matich of 1 March 2006. Both the plaintiff and Mr Vellios were in receipt of the same legal advice, to the effect that the Deed was void. Indeed, it was Mr Kelly, in the letter of 1 March 2006, who had suggested that the plaintiff might, in those circumstances, vacate the premises on the basis that it did not have a secure lease.

101 Counsel for the defendant submits that the plaintiff caused its own damage by giving the termination notice. In my view, that submission is not sustainable because the damage was already done. The plaintiff had suffered a considerable loss from the moment it executed the Deed by reason of the fact that it had dramatically altered its position in reliance on the lease being a valid and enforceable document. The plaintiff purchased the business of the Forrestfield Tavern and took possession of it under the misapprehension that it had a valuable asset, namely a profitable business and certainty of tenure until 2028 assuming the exercise of the options to renew. Those circumstances would have enabled Mr Haslett to build up the business, as planned, and sell it with a substantial balance of the term still to run such that a potential purchaser might find the proposition attractive.

102 Counsel for the defendant submits that service of the termination notice was a break in the chain of causation. It was a notice of the plaintiff's intention to vacate the premises within a specified time, one calendar month from the date of service. It was said to have been served pursuant to s 72 of the Property Law Act. That section provides, relevantly, that a periodic tenancy or a tenancy of uncertain duration may be terminated by one month's written notice by either party to the other expiring at any time whether at the end of a rent period or not. It is clear that the plaintiff would not have been seeking to enter into negotiations with Mr Vellios were it not for the fact that he had been advised that the Deed was void and unenforceable and his knowledge that Mr Vellios was in receipt of identical advice. Both the plaintiff and Mr Vellios were aware that the plaintiff's tenure was that of a periodic tenant, capable of termination by either party at short notice. That altered context had been brought about directly as the result of the defendant's negligence. That altered context then shaped the events that occurred in the early months of 2006.

103 The plaintiff, when alerted to the potential problem with the validity of the Deed took the prudent step of obtaining legal advice in the form of counsel's opinion. That opinion confirmed the suggestions earlier made that the deed was void and unenforceable. In that altered context the plaintiff sought further legal advice as to the next step.

104 In his letter of 1 March 2006 Mr Kelly had indicated that Mr Vellios was prepared to offer the plaintiff a new lease for a term of 12 months at a rental of $82,000 per annum plus GST, the rent to be reviewed at three year intervals. The Deed had varied the lease by providing for two consecutive options to renew for a term of five years each, a rental of $72,000 per annum (inclusive of GST) to be reviewed at four or five year intervals with the last review on 3 March 2023. It would appear that Mr Vellios was prepared to take advantage of the altered context to improve his position to the detriment of the plaintiff. He was asking for a substantial increase in rental and other terms less favourable to the plaintiff than had existed under the Deed. He was able to do that because he had been advised that he was no longer bound by the Deed. That circumstance was a direct result of the defendant's failure to give proper advice to the plaintiff.

105 It is true that in the letter of 1 March 2006 Mr Kelly had indicated Mr Vellios' willingness to 'spend a minimum of $50,000 and a maximum of $100,000 on the refurbishment of the Tavern in accordance with a list of works prescribed by your client.' The problem with that proposal was that Mr Haslett no longer trusted Mr Vellios to do what he promised to do. His experience during his time at the tavern and the experience of the previous lessee both contributed to that lack of trust.

106 In pursuance of his contention that the notice of termination was a break in the causal chain in that it had been served for reasons other than the validity of the lease, counsel for the defendant pursued the point in cross-examination of Mr Haslett. He was asked:

None of those reasons relate to the invalidity of the lease, do they?

Well, you may say that but those - those reasons were related the - in - to the validity of the lease in respect of if I didn't have a lease and couldn't get something done or - from him and had no trust in the person, what am I supposed to do? That was the question I asked myself for it. And my question was, I was in a - in a no win situation. That's like the old saying, a rock and a hard place. Because of - because of the lease was declared void I didn't have a lease. So I had nothing. Now, maybe - I don't know - I don't - I don't want to go overboard with this but I'm just trying to explain the situation that I was in with regards to the difficulty with the negotiations of the lease and trying to get a reasonable lease.

107 Mr Kelly's letter did, however, send a message to the plaintiff to the effect that Mr Vellios was, at least, open to the re-negotiation of a further lease, albeit that his starting point, from the plaintiff's point of view, was harsh.

108 Ms Matich replied to Mr Kelly by letter of 3 March 2006, concluding with the following words:

In summary, we are instructed to seek a more commercial and acceptable proposal from your client by close of business on Friday 11 March 2006.

We are also instructed to advise that it is not our client's wish to simply walk away from his investment, nor does our client wish to be involved with protracted litigation. Unfortunately, should a commercial resolution not be reached, and soon, our client is of the view that there is no alternative. Accordingly, we would welcome a review of your client's proposal.

109 In a telephone conversation of 14 March 2006 Mr Kelly advised Ms Matich of his client's intransigence. Counsel's advice served to confirm the plaintiff's parlous situation. What the plaintiff did, in an attempt to resolve that situation was done in that context and with the benefit of legal advice.

110 In Medlin v State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1, 6 Deane, Dawson, Toohey and Gaudron JJ said:

For the purposes of the law of negligence, the question whether the requisite causal connection exists between a particular breach of duty and particular loss or damage is essentially one of fact to be resolved, on the probabilities, as a matter of common sense and experience. And that remains so in a case such as the present where the question of the existence of the requisite causal connection is complicated by the intervention of some act or decision of the plaintiff or a third party which constitutes a more immediate cause of the loss or damage. In such a case, the 'but for' test, while retaining an important role as a negative criterion which will commonly (but not always) exclude causation if not satisfied, is inadequate as a comprehensive positive test. If, in such a case, it can be seen that the necessary causal connection would exist if the intervening act or decision be disregarded, the question of causation may often be conveniently expressed in terms of whether the intrusion of that act or decision has had the effect of breaking the chain of causation which would otherwise have existed between the breach of duty and the particular loss or damage. The ultimate question must, however, always be whether, notwithstanding the intervention of the subsequent decision, the defendant's wrongful act or omission is, as between the plaintiff and the defendant and as a matter of common sense and experience, properly to be seen as having caused the relevant loss or damage. Indeed, in some cases, it may be potentially misleading to pose the question of causation in terms of whether an intervening act or decision has interrupted or broken a chain of causation which would otherwise have existed. An example of such a case is where the negligent act or omission was itself a direct or indirect contributing cause of the intervening act or decision.

111 In the matter before me the act of serving the notice of termination was a deliberate, considered act by the plaintiff but it was an act caused by the defendant's failure to properly advise the plaintiff as to the efficacy of the Deed. The service of the notice must be seen in the context of what was happening at the time. The plaintiff was attempting to salvage from the damage already suffered a situation which would enable him to continue as the lessee of the tavern in what he regarded as a commercially realistic situation. In my view, the causal connection between the defendant's failure to properly advise the plaintiff and the plaintiff's ultimate loss is clear. The service of the notice did not break that causal chain.

112 In its statement of claim the plaintiff particularised its loss and damage as follows:

113 Prior to trial the plaintiff further particularised those items. The $230,000 was, of course, the sum of $60,000 attributable to the plant and equipment and $170,000 attributable to goodwill paid to Cancon Pty Ltd on 11 February 2004.

114 The wasted expenses totalling $65,979.57 are, as listed, a combination of legal fees, accounting fees, government charges and bank charges.

115 The plaintiff provided a schedule of interest paid to Bankwest in the sum of $65,052.84, the first payment having been made on 22 April 2004 and the last on 18 June 2012.

116 The defendant's position, so far as the pleadings were concerned was, of course, that the plaintiff was not entitled to recover any damages there being no proven cause of action. In the event of there being a proven cause of action the defendant contended, firstly, that the plaintiff caused its own damage by giving the termination notice, secondly, that any liability on the part of the defendant is limited to the value of the business, objectively determined, not the price paid by the plaintiff, thirdly, that the plaintiff's calculation of its losses involved an element of double accounting, fourthly, that the plaintiff failed to mitigate its damage in failing to successfully renegotiate a lease or sell the business and finally that it did so also in failing to sell the plant and equipment that was returned to him.

117 By facsimile transmission of 19 April 2006 Ms Matich advised Mr Haslett that Mr Kelly had informed her by telephone on that day that Mr Vellios accepted the termination notice. He had also indicated an interest in acquiring the plant and equipment of the business. Mr Vellios' response to the termination notice was confirmed in a letter sent by Mr Kelly to Ms Matich on 19 April 2006.

118 On 24 April 2006 Ms Matich again wrote to Mr Kelly with a further proposal that the plaintiff and Mr Vellios enter into a commercial retail shop lease on terms acceptable to both parties and their solicitors, that the leased premises be described as the tavern together with a licence to use six car bays at the rear of the building for a term of 20 years comprising an initial term of five years with three further five year options and a commencement rental of $60,000 per annum inclusive of GST. The proposal contained other components and sought a response by no later than 5.00 pm on 26 April 2006. On that day, by a facsimile transmission dated 26 April 2006 Mr Kelly advised Ms Matich that he had been unable to obtain his client's instructions in relation to the proposal and requested an extension until 5.00 pm on 28 April 2006. On that day, again by facsimile transmission dated 28 April 2006, Mr Kelly advised Ms Matich that Mr Vellios had given instructions, that he rejected the plaintiff's proposal and that he intended to enter into a new lease with another tenant. That proposed tenant, a Mr Barnett, was, said Mr Kelly, prepared to purchase the existing stock and some of the plant and equipment and would attend the premises on 1 May 2006 for the purpose of making an offer to do so. Discussions continued during April and May 2006 as between Ms Matich and Mr Kelly on behalf of their respective clients concerning the fate of the stock and plant and equipment.

119 It is not clear on the evidence precisely when the plaintiff vacated the premises but it would appear to be, as a matter of fact, on or about 3 May 2006. In a letter of 16 May 2006 Mr Kelly wrote to Ms Matich and, in passing, referred to 4 May 2006 as being the day when his client took over the control of the premises'.

120 As a result of its acquisition in December 2003 the plaintiff was the owner of the plant and equipment acquired at that time and, as at 3 May 2006, was the owner of the stock in trade of the business.

121 According to Mr Haslett on about 4 May 2006 he, on behalf of the plaintiff, agreed that Mr Vellios could purchase all the merchantable stock for $35,000. That agreement appears to have been subject to a stocktake conducted by an independent stocktaking assessor. Upon completion of the stocktake and a report from the assessor, the plaintiff received from Mr Vellios a bank cheque in the sum of $43,623.10 in respect of all stock.

122 So far as plant and equipment was concerned the parties continued to negotiate. Despite apprehension on the part of the plaintiff of an agreement as to the sale of the plant and equipment nothing was resolved and on 15 August 2006 Mr Kelly, by letter of that date, advised Ms Matich that the Forrestfield Tavern was then being operated by a Ms Fay Christou. It further advised that the plaintiff's plant and equipment had been 'stacked in the lounge area and the kitchen' and that removal from the premises was requested by 4.30 pm on Friday 18 August 2006. At about that time Ms Matich advised Mr Haslett of the content of the letter.

123 In cross-examination Ms Haslett agreed that in the middle of August 2006 some of the plant and equipment from the tavern was delivered to him in a taxi truck. Exhibit B2 is a list of plant and equipment relating to the Forrestfield Tavern as at 22 December 2003. It compromised items of a substantial and practical worth in the context of the operation of a tavern such as billiard tables and accessories, television sets and cash registers. It also contained items of, arguably, little or no worth such as decoration and commercial signage. In the latter category were a collection of Harley Davidson motorcycle pictures, a depiction of Elvis Presley on a Harley Davidson motorcycle and a wall hanging promoting 'Tooheys KB lager'.

124 At the time of purchase the parties to that agreement settled on a figure of $60,000 for all of the items listed in exhibit B2.

125 So far as an assessment of damages is concerned, there is no practical difference between the damages said to have been caused by a breach of the retainer or the contractual relationship between the plaintiff and the defendant and damages said to have been caused by the defendant's negligence. The plaintiff is entitled to be put into the same position, as far as money can do it, as he would have been had the wrong not been committed: Livingston v Rawyards Coal Company (1880) 5 App Cas 25, 39. But for the defendant's failure to properly advise, the plaintiff would not have proceeded with its contract to purchase the Forrestfield Tavern because the conditions imposed upon that contract could not have been complied with in the absence of approval by the commission. The defendant contends that its liability is limited to the value of the business, objectively determined as opposed to the price paid by the plaintiff. In pursuance of that contention the defendant submits that the plaintiff had already determined the purchase price of the business and become contractually bound to pay that price prior to seeking any advice from the defendant. It relies upon the following passage from the opening submission of counsel for the plaintiff at trial as follows:

It's also a point raised by the defendant in the defence that the agreement for the sale and purchase of the business was made prior to the retainer of the defendant in relation to the deed of assignment and that's commons ground as well. That is accepted, so the agreement for the sale and purchase came first. That was done without reference to the defendant. The defendant was then instructed to prepare a deed of assignment and variation.

126 The agreement to purchase the business dated 20 December 2003 was subject to certain special conditions incorporated in annexure A to that agreement. It was expressly subject to and conditional upon the purchaser reading and accepting the current lease and proposed assignment of lease and the landlord agreeing to assign the lease to the purchaser with the variations already outlined. Given the express condition to the effect that the sale was subject to and conditional upon the purchaser reading and accepting the current lease and proposed assignment of lease, it could not, in my view, be said that the plaintiff had become contractually bound to pay the agreed purchase price prior to seeking advice from the defendant in that the obligation to pay the balance of the purchase price was clearly conditional. It is true that the agreed purchase price was arrived at prior to the defendant being retained to prepare the assignment but that is, in my view, beside the point.

127 The plaintiff did purchase something of value. What it paid must be regarded as the 'market value' at the time. The plaintiff, unaware of the status of the deed in terms of its efficacy, operated the business as it would have done in pursuance of Mr Haslett's long-term plan for it. What was purchased, in terms of plant and equipment and stock were utilised in the course of that business. The larger component of the purchase price was, however, the amount paid for goodwill.

128 In Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 164 CLR 64, Deane J said (116):

The general principle governing the assessment of compensatory damages in both contract and tort is that the plaintiff should receive the monetary sum which, so far as money can, represents fair and adequate compensation for the loss or injury sustained by reason of the defendant's wrongful conduct. The application of that general principle ordinarily involves a comparison, sometimes implicit, between a hypothetical and an actual state of affairs: what relevantly represents the position in which the plaintiff would have been if the wrongful act (i.e. the repudiation or breach of contract or the tort) had not occurred and what relevantly represents the position in which the plaintiff is or will be after the occurrence of the wrongful act. While the general principle is the same in both contract and tort, the rules governing its application in the two areas may differ in some circumstances. Those differences are largely the result of historical considerations in that they reflect distinctions between causes of action rather than reasoned development or exegesis of the law.

129 Had the plaintiff been properly advised by the defendant as to the requirements of the Town Planning Act it is fair to say that the transaction would not have proceeded in the way that it did. In the absence of appropriate advice the plaintiff paid the purchase price in the expectation that his tenure would be for a particular duration taking into account the plaintiff's stipulation as to options to renew. Had the plaintiff been properly advised there would have either been no transaction or a transaction negotiated resulting in, perhaps, different terms and a different purchase price.

130 In written submissions counsel for the defendant contends that the value of the tavern deteriorated significantly after the first year of trading by the plaintiff, suggesting that the plaintiff paid a premium for the business and/or the post-acquisition management of the business resulted in a reduction of sales and consequently, reduced value. Counsel for the defendant contends that the expert evidence adduced demonstrates that when the plaintiff ceased operating the business in 2006 its value was in the range of $103,576 - $140,318.

Australian Broadcasting Commission v Australasian Performing Right Association Ltd

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (214 paragraphs)

DERRY DEW PTY LTD -v- MACKINLAY [No 2] [2013] WADC 9 (18 January 2013)

Parties

Legislation Cited (8)

Cases Cited (6)