BHCP Pty Ltd (ATF BHCP Trust) v Reliable Constructions

The Cross-Claim Against TDP

1. The Coxons' pleaded that on or about 4 October 2016, prior to executing the Loan Documents, they retained TDP to provide them "with legal advice regarding the terms and effects of these agreements, in particular the personal guarantees to be provided by Mr Coxon and Mrs Coxon, and the mortgage over their house." This was to be defined in "the Retainer". (Paragraph 41 of the Cross-Claim).
2. The pleading, in its paragraph 42, went on to allege that it was a term of the Retainer that: 1. TDP would exercise reasonable care, skill, and diligence carrying out the retainer; and 2. Provide appropriate legal advice to their clients (having regard to their age, education, legal sophistication and the legal complexity of the Facility Deed, General Security Agreement, and Deed of Director Guarantee) regarding: 1. The terms and effect of the Facility Deed, in particular clause 11 of the Facility Deed; 2. The extent of Mr and Mrs Coxon's personal liability pursuant to the guarantee and mortgage; 3. The alternatives available to avoid Mr Coxon and Mrs Coxon assuming personal liability for Reliable's debts and liabilities; and 4. The consequences for Reliable if Mr Coxon and Mrs Coxon refused to provide the guarantee and mortgage as sought by BHCP.
3. It can be seen that the terms of the Retainer as pleaded in paragraph 42 had the effect of expanding the original ambit of the defined expression "the Retainer".
4. I shall refer to this as "the Extended Pleaded Retainer".
5. The allegations of breach pleaded in paragraph 45 of the Amended First Cross-Claim are that Ms Borrow-Jones: 1. Failed to thoroughly read and consider the terms of the Facility Deed; 2. Failed to have regard to the purpose of the loan or the circumstances surrounding the transaction; 3. Failed to make inquiries in relation to the 'Project', being the Works under the Construction Contract, which was referenced throughout the Facility Deed; 4. Failed to explain the unusual nature and legal and practical effect of clause 11 of the Facility Deed headed 'Payments to third parties regarding the 'Project''; 5. Failed to advise in relation to the default interest rate under clause 7.4 of the Facility Deed; 6. Failed to explain the extent of Mr Coxon's and Mrs Coxon's liability under the Facility Deed; 7. Failed to recommend to Mr and Mrs Coxon that they not agree to provide personal guarantees or a mortgage over their family home; 8. Failed to advise their clients to seek independent accounting and financial advice regarding the position of Reliable and whether Mr and Mrs Coxon should undertake to guarantee the performance of Reliable's obligations under the Construction Contract; 9. Failed to advise Mr and Mrs Coxon that they should not expose themselves to personal liability in circumstances where that they were not parties to the Construction Contract and where Reliable had little assets from which to meet any liability incurred pursuant to the Facility Deed; 10. Failed to advise as to alternative options available to Reliable, Mr Coxon and Mrs Coxon; and 11. Failed to adequately prepare and complete the NSW Law Society Schedule 4/4A Part 2 Acknowledgement of Legal Advice by Proposed Guarantor form.
6. As a consequence of the allegations of breach, in paragraph 46 Mr and Mrs Coxon further pleaded that they: 1. Were not aware of the alternatives available to them to avoid a personal liability for Reliable's debts; and 2. Signed the Facility Deed, including the personal guarantees and mortgage, not understanding their true legal and practical effect.
7. The Coxons went on to allege the following further breaches of the Retainer/duty: [45A] Ms Borrow-Jones ought to have inquired of Mr Coxon and Mrs Coxon about the progress of the Works comprising the Project, the costs incurred to date, whether the contract price had been or would be varied to account for those costs, whether the contract price would cover those costs, and accordingly, whether Reliable would make a loss on the Project for which Mr Coxon and Mrs Coxon would then incur a personal liability under the Facility Deed, General Security Agreements and Deed of Director Guarantee. [45B] Ms Borrow-Jones should have advised Mr Coxon and Mrs Coxon that it was legally open to them to let Reliable fail and be placed into liquidation if they could not renegotiate the Construction Contract with Devrand, and that doing so would not have incurred any personal liability on their part or risked losing their family home.
8. TDP plead that as a consequence of a conversation between Mr and Mrs Coxon and Ms Borrow-Jones at TDP's offices on 4 October 2016 their retainer was to: 1. Review the Loan and Guarantee Documents; 2. Advise the Cross-Claimants as to the terms and effect of the Loan and Guarantee Documents; and 3. If the Cross-Claimants wished to execute the Loan and Guarantee Documents, witness their signatures on all relevant documents.
9. As would be expected, TDP admit that they owed a duty to exercise reasonable care, skill, and diligence in the discharge of their retainer (as pleaded by them), but deny any breach of that duty.
10. TDP denied the terms of the Extended Pleaded Retainer.
11. They pleaded that the retainer as asserted by them was carried into effect without breach.

The Issues

1. The principle issues in the proceedings thus became: 1. The nature and extent of the solicitors retainer ("the Retainer Issue"); and 2. Whether that retainer was carried into effect with reasonable care and skill ("the Breach Issue").
2. The Retainer Issue is primarily a question of law. The Breach Issue is a mixed question of fact and law, although one in which credit issues loom large.
3. It is to those credit issues that I now turn.

The Credit Issues

1. It is obviously central to a determination of both of the principal issues in the proceedings for a determination to be made as to what occurred at the conference between Ms Borrow-Jones and Mr and Mrs Coxon. Unfortunately, the competing versions as to what occurred are fundamentally at odds with each other.
2. In broad terms, the competing contentions were as follows.
3. Mr and Mrs Coxon gave evidence that in reality they received virtually no advice by Ms Borrow-Jones. They maintained this position notwithstanding the fact that they both executed a statutory declaration to the contrary effect. In addition, they also executed an acknowledgement of the provision to them of legal advice. They did so in their capacity as both borrowers and guarantors. In that acknowledgment, they also acknowledged the statutory force of the declaration which they had given (Exhibit XD7, pages 1377-1382 of the Joint Court Book; see also Tp 67.17-31; Tp 142.37-46).
4. Ms Borrow-Jones, on the other hand, gave evidence of having provided what, at least at a prima facie level, was a perfectly adequate practical description of the nature and effect of the Loan Documents much as to constitute the fulfilment of her retainer. I have qualified this proposition with the qualification "prima facie level" as the cross-claimants' claim that, even if I accepted Ms Borrow-Jones' evidence, the duty of care imposed upon her had been breached. In other words, it was contended that even on her view as to what occurred, Ms Borrow-Jones' explanation of the terms of the Loan Documentation was inadequate. In order to determine this argument, the issue as to the true nature and extent of a solicitor's retainer must be resolved.

The Coxons

1. Before becoming a builder, Mr Coxon was a carpenter. There was no evidence as to how long he had been involved in the building industry. He gave evidence that the contract which he had entered into with the developer in respect of the East Gosford Townhouses was the first occasion on which he had quoted in relation to a multi-dwelling construction project.
2. He ultimately accepted that at the time of entering into the Loan Documents he had a working knowledge of the concepts which underlie a mortgage of real property (Tp 54.15-16; Tp 70.23-29).
3. His position, however, in relation to his understanding of the concepts underlying a mortgage, and the fact that he was signing one, was a tortured one.
4. When the developer asked for details as to the couple's equity in their home, preparatory to establishing whether the Developer's Advance could be secured by a mortgage over their home, he said that he did not understand that this was the proposal. Yet he appeared to accept that he knew that his wife sent that information to the developer (Tp 50.7-13; Tp 50.30).
5. Despite his admission that he knew what a mortgage was (Tp 54.15), he denied understanding that by the proposed mortgage he was in effect giving a charge over his house (Tp 54.26-27).
6. Notwithstanding that the document which he was executing in Ms Borrow-Jones' presence was marked as a mortgage, he was "perhaps" aware that he was signing a mortgage (Tp 65.43), then "not sure" (Tp 65.43). He then said that all he thought he was doing in signing the agreement was that he was signing an agreement to say that he owed the developer money (Tp 65.46-49). Through all this confusion he was "absolutely" sure that he did not believe that the Developer's Advance would be secured against his home (Tp 66.2).
7. Mr Coxon maintained that he was unfamiliar with the concept of a personal guarantee (Tp 54.33-40). This was so notwithstanding that there was evidence that he had given a personal guarantee to a supplier with whom he dealt (Exhibit XD5), and in relation to car and equipment finance agreements (Exhibit XC5; Tp 112.31-32). I find it difficult to accept that a builder/tradesman such as Mr Coxon, operating through the vehicle of a small proprietary company, would not be familiar with the broad nature and effect of personal guarantees. I do not accept that Mr Coxon did not have that understanding.
8. Indeed, Mr Coxon's own evidence was that it was he who told Ms Borrow-Jones that both he and his wife had to give personal guarantees as part of the proposed transaction with the developer (Tp 59.32-37), this, self-evidently, is a fact incompatible with the stated ignorance of the whole concept of a personal guarantee.
9. Mrs Coxon had very limited involvement in the family business. As I understood her evidence, that involvement was limited to the provision of bank statements to their accountant, each quarter for the preparation of quarterly business activity statements. She also provided the statements annually for the purposes of preparation of the company's tax return.
10. Mrs Coxon's evidence on the question as to whether she knew of the basic nature of a personal guarantee was also somewhat tortured. She stated that she did not know what a personal guarantee was until after she executed that such document in Ms Borrow-Jones' presence (Tp 123.8-10).
11. Later at Tp 133.7-8 she appeared to accept that she understood that the developer had required that she and her husband provide a personal "agreement" to repay the loan (see also Tp 132.11).
12. She said that she had read the developer's email indicating that he required personal guarantees (Tp 132.11), but she said that at the time she not have a "full understanding of what that meant" (Tp 132.14).
13. Mrs Coxon's evidence was that she did understand the basic concepts underlying a mortgage of real property (Tp 132.13-15).
14. What was perfectly clear is that by the time the developer offered to make the advance to them, the Coxons felt themselves to be under considerable financial pressure. At the time the developer agreed to make the advance to them, the Coxons had been unable to achieve an extension of their mortgage secured loan from Westpac. They considered themselves to have no practical alternative other than to take up the developer's offer. It was against this background that they attended on Ms Borrow-Jones.
15. Ms Borrow-Jones' evidence is that she was told by the Coxons that the Developer's Advance was non-negotiable. I accept this evidence, as it is inherently likely that said, as it was the case.

Ms Borrow-Jones

1. Ms Borrow-Jones was admitted to practice as a solicitor on 2 December 2005. In that year she moved to London and worked for a firm doing primarily commercial and intellectual property work. This work frequently involved reviewing and providing advice in relation to commercial agreements. She returned to Australia and between June 2006 and July 2008, she was employed as a solicitor at Gadens Lawyers working solely in the area of banking and finance, which work involved her in dealing with many commercial loans and guarantees. From 2008 to 2009, she was employed as a solicitor in the commercial development division of Kells Lawyers. Her practice in that period again involved banking and finance in the course of which she dealt frequently with commercial loans and guarantees. In the period from 2010 to 2012, she worked for a legal rights advocacy organisation in Switzerland.
2. In August 2012, she commenced employment at TDP as a senior associate. Her practice included the provision of intellectual property and commercial advice. She continued to deal regularly with matters involving commercial and personal loans and guarantees. In September 2016, she was promoted to the role of senior counsel at TDP.
3. Thus, at the date of the relevant conference, Ms Borrow-Jones was a solicitor with in excess of 10 years' experience, primarily in commercial law, banking, and finance.
4. Ms Borrow-Jones gave evidence that it was common for her to be asked to see clients with whom the firm had no previous dealings, for the purposes of advising on loan documentation of the type as was sought by the Coxons. She said that on average this happened 3 to 4 times per week. She said that the practice of TDP was to reserve a time for a one-hour conference for that purpose. She says that this was what occurred with to the Coxons. She said as a result of the need to provide advice and services in such circumstances to suit what was usually a client's urgent timeframe, over the years she acquired a skill in providing that advice in a concise and timely manner.
5. Ms Borrow-Jones gave her evidence as to what occurred at the conference with the Coxons in a very thoughtful, careful, and considered way. She was unshaken in cross-examination. It was suggested to her that she had no actual recollection of the conference, but rather her evidence was reconstructed by reference to invariable practice. She denied this. She told the court that she had an actual recollection of the conference, and that her evidence was of what actually occurred at the conference, which was consistent with her practice.
6. In both cross examination and re-examination, she was able to describe detail of the conference such as where the Coxons, and their young children (who were also in attendance), were seated at the conference. She was able to do so unhesitatingly. This evidence was uncontradicted.
7. Ms Borrow-Jones explained that at least part of the reason why she had an actual recollection of the conference was that, by dint of the fact that the Coxons' children were in attendance, Ms Borrow-Jones did not conduct the conference in her office, but rather arranged for it to occur in the firm's boardroom.
8. I have little doubt that the careful and considered witness that Ms Borrow-Jones presented as in the witness box reflects her careful professional persona as a solicitor. I thus have little doubt that Ms Borrow-Jones is a careful, prudent, and experienced commercial solicitor who would have provided the advice which she deposes that she provided to the Coxons.
9. Lest it be thought that in saying this I have ignored the many appellate warnings regarding demeanour based decisions as to credit (for example State Rail Authority of NSW v Earthline Construction Pty Limited (1999) 160 ALR 578 at [617] - [618] and Fox v Percy (2003) 214 CLR 118 at [31]), I should add that in preferring Ms Borrow-Jones' evidence to that of the Coxons I have taken into account objective facts, and the inherent probabilities as to what occurred. In doing so, I am particularly conscious of Atkin LJ's pithy observation that "an ounce of intrinsic merit on a document in the evidence, that is to say, the value of comparison of evidence with known facts, is worth pounds of demeanour" (Societe d'Avances Commerciales v Merchants' Marine Insurance Co (1924) 20 LI.L. Rep. 140).
10. I have taken into account the inherent unlikelihood that Ms Borrow-Jones would have so egregiously neglected her obligations to her clients as to effectively provide them with no advice as to the nature and effect of the documents, when to her knowledge that was the sole purpose of the Coxons' visit to her.
11. I also have taken into account the inherent improbability that she would have compounded that gross negligence by first allowing her clients to give statutory declarations to the effect that she had in fact advised them of the nature of the obligations which they were proposing to undertake. I also find it inherently improbable that she then would have witnessed an acknowledgement by her clients of that fact, if it did not occur.
12. Counsel for the Coxons did not suggest any motive for Ms Borrow-Jones to neglect her obligations in that fashion, which is hardly surprising. None exists.
13. In this regard it is well to note that the statutory declarations of her clients, and their signed acknowledgement of having received her advice, may well represent fraudulent representations when provided to the developer. In addition, the content of the statutory declarations may well represent a breach of the Coxons' oaths (section 25 of the Oaths Act 1900 (NSW) ("Oaths Act")).
14. If Ms Borrow-Jones had in fact conducted herself in the manner for which the Coxons contend, she arguably would have been party to their fraudulent misrepresentation, and potentially an aider and abetter of their breach of the Oaths Act.
15. It is obviously not necessary to draw any conclusions as to these matters. They are relevant, however, as illustrating that the Coxons, in reality, make very serious allegations against Ms Borrow-Jones, which require proof to a cogent level (Briginshaw v Briginshaw [1938] 60 CLR 336; Neat Holdings Pty Limited v Karajan Holdings Pty Limited (1992) ALJR 170). I am not satisfied that the Coxons have discharged the onus which they bear to the Briginshaw standard, and I wish to emphasise, or to any other standard.
16. There are other factors which objectively point to the fact that Ms Borrow-Jones gave the explanation which she asserts. The first is her file note of the meeting with the Coxons. This document is, of course, not a transcript of what occurred. It was not intended to be. That said, the file note suggests that an explanation of the documents to be explained was made consistently with her evidence. It also includes a note of the genesis of the transaction, and the fact that the Coxons' home and personal property were at risk.
17. As to the risk that the transaction represented to the Coxons' home, Ms Borrow-Jones gave evidence that it was her practice in conferences of this type to draw a stylised representation of a house, and put a cross through it. This image she then showed to her clients to graphically demonstrate the risk to her clients' home which the proposed transaction entailed. She gave evidence that she followed that course on this occasion. The file note corroborates her evidence.
18. Mr and Mrs Coxon, on the other hand, deny that this occurred.
19. A further matter which goes to the inherent probabilities as to what occurred in the meeting is the fact that on the Coxons' version of events, they received no legal advice, of any substance, in relation to the documents which they were proposing to execute. This is so despite the fact that, to their knowledge, obtaining such advice was the sole reason for them attending on Ms Borrow-Jones.
20. I find the proposition that they did not protest their asserted lack of advice on this central matter to be highly improbable. I find the proposition that they proceeded to pay for the conference, which on the Coxons' version of events was valueless, to also be inherently unlikely.
21. In this regard it is well to note that Mr Coxon, in his affidavit of 1 August 2018, stated that he attended the conference as he "felt concerned that I did not understand the Loan Documents" (at [67]). Yet, on his evidence, his wife and he received no advice which would permit him to understand the Loan Documents.
22. As I shall discuss later in these reasons, the fact that the Coxons denied that they were advised by Ms Borrow-Jones that clause 11 of the Loan Facility Agreement permitted the developer to make payments to third parties, which would form part of the Developer's Advance.
23. Dealing with the issue at the credit level, I find that this evidence cannot sit with the fact that from shortly after executing the Loan Documents to the Coxons' knowledge the developer began making such payments to third parties. Indeed he provided to Mr Coxon on a monthly basis a statement of these payments. There was neither query nor protest by either Mr or Mrs Coxon as to the fact that these payments were being made. Mr Coxon's lack of query or protest is entirely inconsistent with ignorance on the part of the Coxons of the effect of clause 11 (Tp 83-85).
24. Indeed, far from eliciting puzzlement or indignation at the fact that Mr Randall was making the payments, Mr Coxon thanked him for making them, and asked him to make specific payments to third parties (Exhibit XC2, page 808 of the Joint Court Book).
25. At the end of the day, Mr Coxon appeared to resile from his contention that he was unaware of the fact that the developer was paying third parties (Tp 75.7-22).

Conclusions on Credit

1. I have already referred to certain aspects of the Coxon's evidence in relation to their understanding of the basic nature and effect of mortgages and personal guarantees. I reject their evidence as to the extent to which it denies, or is equivocal as to that understanding.
2. I find that the Coxons' did have a basic understanding of the nature and effect of mortgages and personal guarantees.
3. I further find that at the time that the Coxons attended on Ms Borrow-Jones, they were under financial and personal stress. They considered that they had no alternative other than to enter into that transaction with the developer, whose terms were non-negotiable. In these circumstances it is overwhelmingly likely that they saw their attendance on Ms Borrow-Jones as being an empty gesture on their part; an empty action necessary to fulfil one of the of the developer's requirements before he would make the Advance.
4. In such circumstances, it is unlikely that they paid much attention to Ms Borrow-Jones' advice. They knew that they were giving a mortgage and personal guarantees, and that the terms of the Loan Documents, including clause 11, were not negotiable. At best, I find that they no longer recall Ms Borrow-Jones' advice.
5. It follows that I accept the evidence of Ms Borrow-Jones in its entirety, and I reject the evidence of the Coxons' to the extent that it is inconsistent with Ms Borrow-Jones' evidence.

The Retainer

1. It is an important starting point in the legal analysis of the matter to determine the terms of the retainer. The retainer, of course, is a contractual construct, however it is also crucial in determining the extent of the solicitor's tortious obligations.
2. The Coxons' evidence was that they told Ms Borrow-Jones that they needed advice about the Loan Documentation (affidavit of Anna Coxon dated 1 August 2018 at [26], affidavit of Rhys Coxon dated 1 August 2018 at [57]). At the end of the day, I did not understand that proposition to be in doubt. This in effect is what they pleaded as "the Retainer".
3. The real battleground between the parties was as to whether the Retainer went beyond the provision of this advice

The Experts

1. Both parties qualified experts, were very experienced solicitors, whose practices involved lengthy experience in the provision of advice in relation to commercial agreements of the nature of the Loan Documents.
2. These expert solicitors gave evidence as to their opinions on the scope of the TDP retainer, and their opinions as to the scope and nature of the duty of care that arose therefrom. They also gave opinions as to breach. While grateful for their assistance, I wish to note that I have not relied upon the experts' reports or their oral evidence in any respect in relation to these proceedings.
3. In my view, the issues in respect of which they gave evidence were questions of law, which it is for the court to decide. The limits on the utility of expert evidence in solicitor's negligence cases have often been the subject of judicial comment (see for example MB v Protective Commissioner [2000] NSWSC 718 per Hodgson CJ in Eq).

The Applicable Legal Principles

1. The parties were agreed on the applicable legal principles. The cross-defendants summarised these principles in the following manner: [59]…formulating the scope and content of a solicitor's general duty of [care] were summarised by Gleeson JA in Lauvan Pty Limited & Anor v Bega & Ors (2018) 330 FLR 1; [2018] NSWSC 154 ([421]-[426]). In summary: the terms of a solicitor's the retainer will usually set out the scope of the duty with respect to their clients; matters falling beyond the ambit of the retainer may still attract a duty owed by the solicitor to act in respect of it, however the existence of any such responsibility always depends on the circumstances; solicitors must ensure that clients understand the documents they are to execute and the consequences of executing them, especially in relation to unusual provisions; solicitors are not ordinarily required to advise upon the wisdom of transactions in relation to which they act. However, depending on the circumstances known to the solicitor, the performance of the retainer may require more than an explanation of the legal effect of documents, but also the obvious practical implications of the client's entry into the transaction the subject of advice; it is necessary to consider what material facts were known to the solicitor in order to determine the obligations of the retainer; regarding retainers in relation to mortgage transactions, the provision of independent legal advice should involve proper and adequate advice about the consequences of entering into the contract. If the solicitor is put on notice that the client's interests are endangered unless further steps are taken, a duty may arise to bring attention to that concern. The emphasis that should be placed on any apparent risks will depend on the circumstances.
2. The Coxons emphasised the need for a solicitor to provide practical advice: [3] This claim raises squarely the issue identified by the Court of Appeal in Provident Capital Ltd v Papa (2013) 84 NSWLR 231 at [6]: … many clients look to and rely on an advising lawyer, not as the expounder of legal doctrine, but as the confidential adviser about the law, and its practical intersection with life. That is why they seek advice.
3. There is a debate in the authorities as to whether a solicitor owes a "penumbral duty" which extends beyond the retainer. What is not in dispute, however, is that the "proper execution of a solicitor's retainer to give independent legal advice concerning a loan and mortgage transaction may, depending on the circumstances known to the solicitor, require more than an explanation of the legal effect of the documents to be executed" (Provident Capital Ltd v Papa [2013] NSWCA 36 at [75] ("Papa")).
4. As Allsop P said in Davy v Davy [2009] NSWCA 8 at [76], after referring to the existence of a "penumbral" duty being doubtful, his Honour stated: If, however, the solicitor during the execution of his or her retainer learns of facts which put him or her on notice that the client's interests are endangered or at risk unless further steps beyond the limits of the retainer are carried out, depending on the circumstances, the solicitor may be obliged to speak in order to bring to the attention of the client the aspect of concern and to advise of the need for further advice either from the solicitor or from a third party.
5. It should also be noted that the authorities make it clear that it is well-established that solicitors are not ordinarily required to advise upon the wisdom of transactions in relation to which they act (Polkinghorne v Holland [1934] 51 CLR 143 at [158] ("Polkinghorne"); Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at [418] ("Citicorp Australia")).
6. The issue of the scope of the retainer, and its possible breach, in this matter comes down to the issue as to whether, in the circumstances of the case, there were facts known to Ms Borrow-Jones which were such as to require her to go beyond an explanation of the legal effect of the Loan Documents proposed by her clients to be executed.
7. The Coxons contended that there were such facts. These facts, they asserted, gave rise to their assertion of the Extended Pleaded Retainer. As the issues were refined, I understood that the proposition that facts were known to Ms Borrow-Jones which gave rise to the Extended Pleaded Retainer was primarily put on two bases.
8. First, it was submitted that once Ms Borrow-Jones became aware of the existence of the simple works contract, she should have called for it, analysed it, and advised that it did not constitute Mr and Mrs Coxon as guarantors of Reliable's obligations pursuant to it.
9. It was common ground that Ms Borrow-Jones did not ask to see the simple works contract, and thus did not advise upon it.
10. I found this submission to suffer from undue artificiality. Regardless of whether the simple works contract constituted the Coxons as personal guarantors of Reliable's obligations under it or not, the Loan Documents which Ms Borrow-Jones was considering most assuredly did constitute them as personal guarantors of Reliable's obligations under the Developer's Advance. The Coxons knew this before they met Ms Borrow-Jones, who explained this to them in perfectly adequate terms.
11. To my mind, the fact that they did not have a pre-existing personal liability under the building contract was not germane to the advice which Ms Borrow-Jones was called upon to give, and did give. What was crucial was that Ms Borrow-Jones explained that the Loan Documents, which they were now contemplating executing, did include a personal guarantee.
12. The Coxons next contended that, having been given instructions as to the broad genesis of the transaction proposed to be entered into with the developer, Ms Borrow-Jones should have embarked on an examination of the alternatives to executing the Loan Documents which may be available to them.
13. The submission proceeded that Ms Borrow-Jones should have advised them to revert to the developer and say that they were only prepared to accept the advance as an unsecured loan.
14. The Coxons told Ms Borrow-Jones that the proposal put to them by the developer was not negotiable. This clearly was the case given that he had told them in writing that he required his advance to be secured, as if it was being made by a bank (Exhibit XC1, page 204 of the Joint Court Book; Tp 53.29-34, 53.40-42, and 132.6-11). In this regard it should be noted that in order to make the advance the developer was borrowing against the security of his own property, so it was unlikely he would on lend it on an unsecured basis. In these circumstances, the facts known to the solicitor, far from dictating that she explore the transaction further, should have confirmed in her mind that there was no need to explore the other options available to her clients, as on her instructions there appeared to be none.
15. The Coxons, on the contrary, at hearing submitted that there were two alleged options available to them. They substituted that Reliable could threaten to walk away from the site unless the loan was made on an unsecured basis. The second was that they should consider putting Reliable into voluntary administration.
16. There is no merit in these contentions. The duty of a solicitor is not to advise on the wisdom of the transaction (Polkinghorne; Citicorp Australia). This, at the end of the day, is what this submission involves. Embarking on such a course of traversing alternative potentially available scenarios would involve Ms Borrow-Jones in advising as to the consequences to both Reliable and Mr Coxon personally of, first, defaulting on Reliable's obligations under the simple works building contract. This in turn would involve her engaging in an exploration of the financial position of Reliable to ascertain whether default under the terms of the simple works building contract may endanger Reliable's solvency.
17. This enquiry would inevitably have required her to advise her clients to obtain the financial advice from a financial advisor, and possibly from an insolvency practitioner. It would only be after the obtaining of such advice that Ms Borrow-Jones could begin to be able to provide Mr and Mrs Coxon advice as to the possible negative consequences of the alternative courses allegedly available, as submitted by the Coxons. Such advice would not only involve consideration of the effect of such proposed actions on Reliable, it would also involve consideration of the effect of Reliable's insolvency on the capacity of Mr Coxon to continue to trade as a builder on his own account. The advice, no doubt, would also have touched on the need for Mr and Mrs Coxon to form a view as to the reputational damage which might follow such a course.
18. In this regard it should be noted that Mr Coxon was in broad terms aware of the risk to his capacity to engage in the calling of a builder in his personal capacity following Reliable's insolvency (Tp 35.25-27). No doubt cognisant of that risk, Mr Coxon never suggested an interest in going down that path.
19. I do not believe that there was either a tortious or contractual obligation on Ms Borrow-Jones to go beyond the provision of the advice to Mr and Mrs Coxon as to the terms of the Loan Documents which she provided.

The Clause 11 Issue

1. The Coxons also contended that Ms Borrow-Jones' advice in relation to clause 11 of the Facility Deed was inadequate and in breach of her duty.
2. Clause 11 of the Facility Deed is in the following terms: 11. Payments to third parties regarding the Project The Lender may at its absolute discretion and without the need to give notice or seek consent of the Borrower or the Guarantors pay monies to third parties in respect of the project including, but not limited to, subcontractors and suppliers who have contracted with the Borrower and the amount of such monies paid will from the date of the payment form part of the Advance. For the avoidance of doubt, whilst the Lender has the right to pay monies pursuant to this clause, it has no obligation to do so.
3. "Advance" is defined in the deed as follows: [Advance] means from time to time the sum of all amounts paid by the Lender to the Borrower if any and any amounts paid by the Lender pursuant to clause 11 of this Deed (at any time including before the date of this Deed) if any, to a maximum of $200,000.00 plus interest and costs and expenses with respect to same.
4. "Loan" is defined as follows: [Loan] means at any time and from time to time, the aggregate amount outstanding of the Advances and all other advances if any which have at that time been provided under this Deed by the Lender to the Borrower and/or Guarantors and/or to any person or entity towards part of or all of the costs of any invoice related to the Project (at any time including before the date of this Deed).
5. Ms Borrow-Jones' evidence was that as clause 11 was an unusual clause she drew it to the Coxons' attention and stated: "This means the developer can pay third parties, including Reliable's subcontractors and suppliers, without consulting you and that money will form part of the loan."
6. She says that the Coxons said in reply, "Yes, we are aware." (Affidavit of Davina Borrow-Jones dated 28 May 2019, page 1316 of the Joint Court Book, at [48]).
7. The Coxons asserted that the effect of clause 11, and the two definitions to which I have referred, was that while the Advance (as defined) was limited to $200,000, while the Loan (as defined) was an aggregate figure which could include clause 11 advances, which were uncapped. They contend that the uncapped nature of the third party advances was not explained to them.
8. The first matter relevant to this contention is that even if Ms Borrow-Jones' view of the proper construction of clause 11 was ultimately adjudged by a court to be incorrect, this would not necessarily lead to the conclusion that her advice was negligent (see Rowling v Takaro Properties (1988) 2 WLR 418 at [430] and Studer v Boettcher [2000] NSWCA 263 at [263]). Put another way, being incorrect does not necessarily mean that a solicitor is negligent. The fact that a difficult contractual clause or statutory provision may be capable of two constructions does not render advice negligent because a Court subsequently took a different view.
9. In any event, in my view Ms Borrow-Jones' construction of clause 11 and the definitions of Advance and Loan is the preferred construction. In my opinion the definition of "Advance" is designed to ensure that the clause 11 payments were to form part of the concept of Advance, capped at $200,000.00. The concept of Loan was to encompass the Advance and all sums paid dehors the Facility Agreement.
10. I should add that the clauses, to the extent to which they were ambiguous, would be interpreted contra proferentum, that is to say, against the interest of the developer and thus in accordance with the interpretation which I prefer.
11. I believe that I have addressed the Coxons' case on breach as it was ultimately argued before me. For more abundant caution however, I shall set out my conclusion on each pleaded allegation of breach, albeit in a rolled up manner.
12. The allegations of breach pleaded in sub paragraphs 45(a), (b), (e), and (f) are not established on my findings as to what occurred at the conference.
13. As to the breach pleaded in subparagraph 45(c). I find that beyond what she was informed about the project, Ms Borrow-Jones had no duty to further enquire.
14. The allegation of breach in respect of subparagraph 45(d) is not made out for the reasons set out in my findings of fact as to what occurred at the conference and my analysis of clause 11.
15. The subparagraph 45(g) pleaded obligations did not form part of Ms Borrow-Jones' retainer.
16. As to subparagraph 45(h), I do not believe that this formed part of Ms Borrow-Jones' retainer, and in any event, I have accepted Ms Borrow-Jones' evidence that she did caution the Coxons to seek financial advice if they were concerned as to the financial prudence of the proposed transactions.
17. As to subparagraph 45(i) this is not factually established on my findings as Ms Borrow-Jones said that she would not enter into the transaction herself due to the risk of her losing her home. In addition, I find that her retainer did not in fact require the provision of this advice.
18. For the reasons set out above, I do not consider the solicitor's retainer required Ms Borrow-Jones to provide the advice pleaded in subparagraphs 45(i) and 45(j). Further, Ms Borrow-Jones in fact did tell her clients that she would not enter the transaction herself (Affidavit of Davina Borrow-Jones dated 28 May 2019 at [77]).
19. As to subparagraphs 45(k) this was not advanced in any manner, nor was it explained or particularised.

Conclusion on Breach

1. I find that the Coxons have not established any breach of duty on the part of Ms Borrow-Jones, and thus have not established vicarious liability on the part of TDP.

Causation

1. My conclusions on breach of duty of course render it unnecessary for me to decide issues of causation.
2. Nonetheless, it may be helpful if I express my views on that issue. As they are unnecessary for the purposes of judgment, I shall express them in summary form only.
3. The Coxons' case was that if Ms Borrow-Jones had provided an appropriate explanation of the Loan Documents, including an exploration of the alternatives to executing the Loan Documents which were available to them, they would not have executed the Loan Documents.
4. I do not accept that this is the case. In my view, the Coxons correctly appreciated that they had no real alternative other than to take up the Developer's advance by executing the Loan Documents. I find that even if Ms Borrow-Jones had not breached her duty, as the Coxons contend, they would have entered into the agreement with the developer in any event.
5. In that regard, it should be noted that the attempts to refinance their home loan had to date been unsuccessful, and, as the cross-defendants correctly contended, such refinance would not have been sufficient to meet the demands of both the incomplete townhouse project, and the other expenditure for which it was required.
6. Furthermore, the so-called "Gentleman's Agreement" is of some importance here. The existence of this agreement arose for the first time in the oral evidence of Mr Coxon. The thrust of Mr Coxon's evidence was that he and Mr Randall had agreed that the Loan Documents would not be enforced at all, or perhaps as to 100% of the Advance. As it was not reduced to writing, Mr Coxon referred to it as a "Gentleman's Agreement". The agreement was formed before the execution of the Loan Documents. Mr Coxon said that he had trusted Mr Randall to honour it.
7. In those circumstances I find that that "the Gentleman's Agreement" led the Coxons into the belief that the documents which they were proposing to execute, at the end of the day, would not expose them to an appreciable risk. This was so as they believed that their obligations arising under the Loan Documents would not be enforced by the developer, either at all, or not as to 100%.
8. As such, in my view, the ultimately misguided comfort which they took from "the Gentleman's Agreement" led the Coxons to consider that the obligations which they were undertaking were in reality not significant, and as a consequence they would have executed the Loan Documents regardless of Ms Borrow-Jones' advice.
9. This conclusion on causation is strengthened in my mind by the fact that the Coxons believed that the developer at the conclusion of the project would also honour his representation to them that he would categorize a substantial part of the works as contractual variations. This would have the practical consequence that any sums payable under the Loan Documents would to a significant degree be reduced by the value of the contractual variations.
10. Indeed, it was a representation allegedly made by the developer to the Coxons to the effect that it was not necessary for the agreement as to the variations to be set forth in writing, which comprised a significant part of their cross-claim against the developer.
11. The comfort given by the alleged representation by the developer as to contractual variations would, to my mind, have strengthened the Coxon's belief that the execution of the Loan Documents was not a matter of significant financial moment to them, and thus reinforces my conclusion that they would have executed the Loan Documents regardless of Ms Borrow-Jones' advice.
12. The clause 11 issue has a further aspect, indeed it is twofold, both of which deny causative effect to any breach by Ms Borrow-Jones in relation to it. The first is that the Coxons were well aware of clause 11, as its effect was discussed with Mr Randall prior to the execution of the Loan Documents. Indeed the underlying concept was embraced by Mr Coxon.
13. The second causative aspect is that to the extent that the argument was advanced that clause 11 allowed the Developer a wide discretion to make any payments of any description, which payments were not subject to a contractual cap becomes purely academic given the events which transpired. No such payments were made. On the contrary, the evidence was that Mr Coxon agreed with the payments being made as and when they were made.

Damages

1. I should also add one matter in relation to damages, which given my findings, is obviously strictly unnecessary.
2. The Coxons particularise their damages as being at $683,240.39 plus interest thereon. This sum includes the sum of $520,000.00 paid by them to the developer's company in settlement of the developer's claim against it and its cross-claim against the developer's company.
3. There was no evidence led by the Coxons in the proceedings to prove the reasonableness of this settlement. A party wishing to visit a settlement sum on its opponent by way of damages must prove the reasonableness of that settlement (Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603).

Conclusion

1. The third to sixth cross-defendants are entitled to judgment and verdict against the cross-claimants.

Orders: 1. That there be judgment and verdict for the 3rd to 6th cross-defendants against the cross-claimants; 2. That any party wishing to be heard on the question of costs notify my associate of that fact on or before 4pm on Tuesday 11 August 2020 ("Notification"). 3. That in the event of Notification, the notifying party shall file and serve any evidence and submissions on the question of costs on or before 4:00pm on 13 August 2020. 4. That the non-notifying party file and serve any evidence and submissions which it wishes to make on the questions of costs on or before 4:00pm on 17 August 2020. 5. That the filing of the documents referred to in orders (2) to (4) be effected by way of email transmission to my associate. 6. That any question as to costs so raised be decided on the papers. 7. That in the absence of Notification the cross-claimants pay the 3rd to 6th cross-defendants' costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 September 2020