Cassis & Anor v Kalfus

(a) Had a duty to advise the plaintiff to obtain legal advice before committing himself to it;

(b) Had a duty to document the joint venture agreement;

(c) Had a duty to advise the plaintiff that the joint venture agreement would have been in breach of s 119 of the Legal Practitioners' Act and hence illegal and/or unenforceable;

(d) Had a duty not to mislead the plaintiff as to his true financial position; and

(e) Had a duty to advise the plaintiff to have an independent check made of his (the defendant's) financial worth. 55 In his statement of claim, the first-named plaintiff alleges that had the defendant not breached the above duties (and had the first-named plaintiff known of the true financial position of the defendant and the true earnings from his legal practice and that the proposed agreement was unlawful and/or unenforceable), the first-named plaintiff would not have proceeded with the joint venture. The claim for common law damages consequent upon the breaches set out in paras 20A, 20B and 21 of the statement of claim. In essence it is that if the plaintiff had not proceeded with the joint venture -

(i) he would not have left his previous employment and become a director and shareholder of IGC;

(ii) he would not have borrowed money and mortgaged his property;

(iii) he would not have entered into the White and Versaro transactions;

(iv) he would not have given a guarantee to Mr Roden;

(v) he would not have been liable to pay the creditors of IGC. 56 He has alleged that if he had not proceeded with the joint venture he would have remained in the employment of the French company until 2001 when he turned 65. 57 In paragraph 25 of the statement of claim the plaintiff has alleged that by reason of the breaches of common law duty to the first-named plaintiff, the first-named plaintiff suffered the following recoverable loss and damage:

(a) Loss of salary he would have earned at CMA (between 1 July 1993 and 15 October 2001 being $664,000 plus interest from 1 July 1993;

(b) All monies paid or payable by the first-named plaintiff consequent on the collapse of IGC and in particular: (i) Moneys paid in December 1993 with respect to the White and Versaro mortgages - $6,745; (ii) Monies paid in March 1995 to discharge the White mortgage ($288,675 less $70,000 attributable to home loan mortgage) - loss $218,675; (iii) Payments made pursuant to the White mortgage by the first-named plaintiff during late 1994 - approx $7000;

(iv) The Roden judgment debt - $106,250; (v) Interest payable on unpaid portion of the Roden judgment - $36, 735 as at March 1999 and continuing;

(vi) Roden's legal costs, estimated at $30,000; (vii) The first-named plaintiff's legal costs "defending the Roden judgment" - $7000; and (viii) Monies paid by the first-named plaintiff to creditors of IGC - $48,000 and interest thereon (at 10%). 58 So far as the claim for compensation for breach of fiduciary duty is concerned, the first-named plaintiff makes the same claim as that referred to above. 59 The first-named plaintiff has also maintained, as it would seem to me, quite independently of his other allegations of breach of duty, that the defendant breached a duty of care owed to him because he negotiated "and entered into on behalf of himself the first plaintiff and IGC, an agreement with the French Company of 27 February 1989 for the buy out of CMA which, inter alia, made inadequate provision for the sole distribution in Australia of the French Company products" and "he failed to secure a formal agreement with the French Company (inter alia in relation to sole distribution) as contemplated in the agreement of 27 February 1989." 60 He asserts that had he, the first-named plaintiff, been aware of these breaches of duty "and their ramifications" he would not have agreed to the buy out of CMA and, as a result, would not have suffered the losses and damage previously set out - that is, all losses suffered by him up to and including defending of the proceedings in equity brought against him by Mr Roden. 61 The first-named plaintiff also makes a number of allegations of breach of duty against the defendant arising out of the various loans made to the first-named plaintiff and secured by the first-named plaintiff over his property. He claims, for example, that the defendant ought to have prevented him from entering into the White and Vesaro transactions because the defendant knew that the money advanced was to be used for the business of IGC (which of course was also known to the first-named plaintiff and which was the reason why he entered into the transactions). He has alleged also that the defendant was in breach of an obligation to him because he would not "inject some cash into the business". It is alleged that all the losses suffered by the first-named plaintiff arising out of the personal loan under the "Roden" transaction were the fault of the defendant, in that although the defendant told him the proposed transaction was "a bad deal", he also told him that he had no choice but to enter into it, however, as I have said, it was the first-named plaintiff himself who made the decision to proceed with the transaction.

The Joint Venture 62 The terms of the joint venture are not easy to discern. In my opinion the "letter of comfort" does not fully set out the matters agreed between the parties. On one view of the matter not a great deal turns on this, because the first-named plaintiff is not suing in contract, and he is not making any claim for tortious misrepresentation. However, doing the best I can, I would conclude that, as I have said above, the defendant represented to the first-named plaintiff that there were profits from his practice over and above the $100,000 which would be available to the "pool" and that the purpose of the "pool" was to provide a fund from which money could be made available to the company intending to take over the business of CMA or if capital were not needed both the first-named plaintiff and the defendant would share the "pool" equally. The defendant was contributing no capital to the proposed new company, and the profitability of it would depend in large part on the performance of the first-named plaintiff. It was assumed between the parties that such legal work as was necessary to give effect to the joint venture would be undertaken by the defendant. 63 But, in my opinion, the obligation of the defendant went beyond that. He promised to contribute to the "pool". Indeed, the defendant must have believed that his obligations went beyond merely undertaking routine legal work because on at least two occasions (in October 1991 and December 1993) he personally undertook to indemnify the first-named plaintiff for 50 per cent of his personal liability. 64 An attempt has been made to cast the defendant in a more villainous light than simply misrepresenting the profitability of his practice and failing to contribute money to meet some of the debts of the first-named plaintiff. It was submitted that, over a period of time, the defendant manoeuvred the first-named plaintiff into a position from being 50 per cent responsible for the debts of IGC to having to bear the whole of the losses himself. Thus it was submitted that, in respect of the transactions referred to above, the defendant moved from allowing his property to be mortgaged to secure overdraft facilities etc (even though the first-named plaintiff was more exposed than the defendant by reason of the greater equity he had in the property) through to merely guaranteeing (without security) the debts of the first-named plaintiff and finally, as in the Roden transaction, leaving debts incurred by the first-named plaintiff entirely on his own shoulders. 65 I do not accept this submission. I find the defendant did not contribute moneys to IGC, because he had none. I do not think the defendant manoeuvred the first-named plaintiff into any position, as alleged by him. Throughout all the transactions the first-named plaintiff knew perfectly well what he was committing himself to do, and was prepared to undertake obligations to keep IGC afloat. He accepted in the case of the White and Vesaro transactions that the defendant could provide a guarantee only and in the case of Roden transaction he was providing no support at all. 66 The first-named plaintiff was, as I have already said, a successful businessman. He made his own decisions concerning whether to proceed with these transactions or not. He was at all relevant times anxious that the company should succeed. That it didn't was not due to a fault on the part of the defendant. It was due, as I have said, to CMF taking away the sole agency agreement. 67 I do not accept, for example, that the defendant committed the first-named plaintiff to an agreement with CMF which made inadequate provisions for the sole distribution in Australia of CMF's products, or that he failed "to secure a formal agreement with the French company (inter alia in relation to sole distribution) as contemplated by the agreement of February 1989". As I have earlier mentioned, the three year period with a possible three year option was discussed by the first-named plaintiff and the defendant. The first-named plaintiff was fully apprised of all relevant circumstances and determined to proceed with the venture. 68 On my understanding of the joint venture, it may have been open to the plaintiff to have maintained an action in breach of contract, by reason of the defendant failing, when requested, to contribute money to the "pool" which both parties accepted was to be used by IGC. At least that was a possibility. However, the first-named plaintiff is not suing the defendant in contract or, as I have said, in tortious misrepresentation. 69 Were there any aspects of the relationship between the first-named plaintiff and the defendant that gave rise to fiduciary obligations and which were breached by the defendant? 70 A solicitor does not necessarily incur fiduciary obligations when entering into a joint venture agreement simply because, by profession, he happens to be a solicitor. Nor, in my opinion, does the relevant relationship of solicitor and client exist when, as in the present case, and as part of the joint venture agreement a solicitor undertakes to carry out certain legal work on behalf of both joint venturers. However, such a relationship could arise, in my opinion, in circumstances where by reason of the solicitor's special knowledge, he may find himself committing his co-venturer to a transaction that may be unenforceable or illegal. 71 In Marcolongo v Manattrussi [2000] NSWSC 834, Young J had occasion to review the law concerning the nature of a duty owed in contract, negligence and breach of fiduciary duty, where one party to a commercial transaction was a solicitor. 72 At p 11 of the judgment his Honour cited with approval the observations of the first circuit of the United States Court of Appeal in Sheinkoph v Stone 927 F 2d 1259 (1991) where it was said - "Human beings routinely wear a multitude of hats. The fact that a person is a lawyer, or a physician, or a plumber, or a lion tamer, does not mean that every relationship he undertakes is or can reasonably be perceived as being, in his professional capacity. Lawyers/physicians/plumbers/lion tamers, sometimes act as husbands, or wives, or fathers or daughters, or sports fans, or investors, or business men. The list is nearly infinite. To imply an attorney client relationship, therefore, the law requires more than an individual's subjective, unspoken belief that the person with whom he is dealing who happens to be a lawyer, has become his lawyer. If any such belief is to form a foundation for the implication of a relationship of trust and confidence, it must be objectively reasonable under the totality of the circumstances." 73 Young J, in Marcolongo v Manattrussi found no fiduciary duty but had occasion to make the following observation - "Fiduciary duties have become a bit of a slogan these days. If a plaintiff cannot think of any other reason for suing a defendant, often breach of fiduciary duties seems to be the way in which the plaintiff puts his or her case. The present case involves the idea that because the first defendant was a solicitor, and because there are a number of utterances in leading cases as to the very arduous duties that lie on solicitors in the fiduciary sense, and because the solicitor/client is one of those relationships from which one can usually presume a fiduciary duty, ergo the defendant must be liable. However, as Hayne J said when speaking extra judicially recently, cases such as the present are to be decided by principle and not by slogans." 74 Later still when referring to the identification and characterisation of duties arising from legal and equitable obligations said - "The problems are not met by some adherence to a formula but to considering whether, on the whole of the material, there has been an unconscious use by the solicitor who is a party to the transaction of his or her position of advantage in circumstances where the person in the position of the client was reasonably expecting a person in the position of a solicitor to act solely on his or her behalf." 75 I have already referred to what I understand to be the terms of the joint venture between the parties. I have come to the conclusion that, with the exception of the possible claim for breach of fiduciary duty with respect to the operation of s 119 of the Legal Practitioners Act there was no relevant duty of care either in law or as a fiduciary that was breached by the defendant as claimed in these proceedings. The first-named plaintiff and the defendant entered into a business relationship. When it was appropriate (with the exception of s 119 of the Legal Practitioners Act) the defendant advised the plaintiff to get independent advice - as, for example, with respect to the share option agreement. 76 In the present case I have come to the conclusion that, with the exception of one matter, there was no aspect of the relationship between the first-named plaintiff and the defendant which gave rise to a relevant solicitor and client relationship. The exception I am referring to is the claim of the first-named plaintiff, if made out, that he was not adequately advised concerning the potentially illegal or unenforceable obligation assumed by the defendant with respect to sharing the proceeds of his practice with another person. 77 In 1988-9 section 119 of the Legal Practitioners Act 1987 provided as follows - "119.(1) It is professional misconduct for a solicitor to share with another person the receipts of a business of the kind usually conducted by a solicitor unless - (a) the other person holds a current practising certificate issued by the Law Society Council; or

(b) the Law Society Council has first given its consent. (2) If a solicitor is employed under a contract of service, subsection (1) does not operate to limit any right of the employer to recover costs in relation to the conduct of business by the solicitor on behalf of the employer." 78 It is to be recalled that in the "Letter of comfort" the defendant confirmed that the net profit from his legal practice and that of IGC would be "pooled or aggregated and then shared by us on an equal basis". 79 In evidence defendant has denied he undertook this obligation. I am satisfied, however, that he did. Mr Lowey, accountant, has given evidence that he told the first-named plaintiff that the defendant could not commit fifty per cent of his profits, after expenses, because to do so would be in breach of s 119 of the Legal Practitioners Act. On behalf of the first-named plaintiff, Mr Roberts SC, has submitted that the advice given by Mr Lowey was wholly inadequate, and that the first-named plaintiff should have been referred to another independent lawyer particularly as he had difficulty in believing that there could be any prohibition on a solicitor sharing the profits of his practice with another person. But, the illegality or potential illegality to which his mind was directed by Mr Lowey seems to have had little impact on the first-named plaintiff. The first-named plaintiff after being told by Mr Lowey continued with the transaction believing, as I would infer, that the promise of the defendant to allow him 50 per cent of the profits of the defendant's practice after expenses had been met could and would be honoured. 80 If it be the fact that the defendant was in breach of the fiduciary duty to the first-named plaintiff by reason of his failure to ensure that he received independent legal advice concerning the potentially unenforceable promise by the defendant to share with him the profits of his firm and that what was proposed contravened s 119 of the Legal Practitioners Act 1987, then, as it would seem to me, a question arises whether the claim is barred by operation of s 23 of the Limitation Act 1931. Section 14 of the Limitation Act relevantly provides - "(1) An action on any of the following causes of action is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims: (a) the cause of action founded on contract (including quasi contract) not being a cause of action founded on a deed);

(b) a cause of action founded in tort, including a cause of action for damage for breach of statutory duty, and (c) … (d) …" 81 Section 23 provides - "Sections 14, 16, 17, 18, 20 and 21 do not apply, except so far as they be applied by analogy, to a cause of action for specific performance of a contract or for an injunction or for other equitable relief." 82 It is the claim of the first-named plaintiff that the defendant was in breach of his fiduciary obligation towards him by not insisting that he obtain independent legal advice. It is the same claim he makes in tort and, in my opinion, by analogy s 23 operates to impose a limitation period of six years from the running of the date on which the cause of action first accrues. Leaving to one side the question of causation, the breach of fiduciary duty, if it occurred, occurred in 1989 and the damage suffered by the first-named plaintiff, ie the potentially unenforceability of the defendant's promise occurred at that time. Moreover, on any view of the matter, the first-named plaintiff was told by Mr Lowey of problems associated with the defendant's promise. Accordingly, I would find, that even if the claim of breach of fiduciary duty were made out with respect to the failure by the defendant to ensure the first-named plaintiff received independent legal advice, concerning the enforceability of his promise to make part of his profits from his legal practice available to the "pool" the claim was statute barred by the end of 1995. 83 As I have said the plaintiff may have been (and probably was) liable in contract but no claim is made in contract for the reason I surmise, that any such claim would be statute barred. To my knowledge there is no case which establishes that, in commercial dealings between two parties at arms length there is a relevant duty of care on one party to the other simply because the party on whom the obligation is alleged to lie happens to be a lawyer. It is true that the relationship of solicitor and client raises obligations in law as well as in equity but I know of no case where the principle is extended to purely commercial dealings as in the present case (with, as I have said, the exception I have found with reference to s 119 of the Legal Practitioners Act).

Causation 84 The plaintiffs' case appears to be (whether in tort or for breach of fiduciary duty) that had the breaches (all of them) not occurred, the first-named plaintiff would not have entered into the joint venture agreement, and would have remained for another fourteen years in the employ of CMA earning approximately $100,000 per year. 85 If, contrary to my earlier finding the defendant was in breach of a fiduciary duty to the plaintiff in failing to ensure he had independent advice before entering into an agreement with him that involved the defendant making available profits from his practice to be paid into the "pool", question still aarises, as I have said, as to whether that breach of fiduciary obligation had any connection with the losses claimed by him. 86 The primary purpose of equitable damages is compensatory. Statements have been made in the books to the effect that an obligation imposed on a fiduciary is not limited or influenced by common law principles governing the remoteness of damage, foreseeability or causation. However as was pointed out in Beach Petroleum v Kennedy (1999) 48 NSWLR 1 at 93 it is not the law that where breach of fiduciary duty is established the court is not permitted to determine what would have happened if the duty had been performed. As I have found in this case the first-named plaintiff was made aware from Mr Lowey at least of the provisions of s 19 of the Legal Practitioners Act. 87 I understand the authorities to adopt the view that although foreseeability and causation may not be readily transposed into claims for breach of fiduciary duty there must, however, be a commonsense view of causation. Even if I accept the second-named plaintiff's assertion that had he been given the independent advice it was said he should have been given he would not have "gone out on his own" the question still remains whether the losses claimed by him were relevantly caused by the assumed breaches of fiduciary duty. 88 The first-named plaintiff has pitched his case upon the basis that his losses are the result of all the breaches said to have been committed by the defendant. That is to say that all losses that he has suffered between the time IGC collapsed and the time when he was compelled by court order to repay Mr Roden these losses were the result of all these breaches referred to above. 89 As I have said, what brought the business of IGC to a halt was the loss of the distributorship. It may have been the case (although I am by no means satisfied that this is so) that had there been some money in the "pool", the business of IGC may not have collapsed as it did, or may have survived for longer than it did. It would seem to be the first-named plaintiff's case that even if the business had continued to be profitable for ten or twenty years and thereafter ran into financial difficulties the defendant was responsible for any losses sustained by him because of the breach of fiduciary duty to advise the first-named plaintiff that he should seek independent advice before entering into an arrangement which involved the defendant's sharing with him the profits of his practice. 90 As I have said the plaintiff has elected to pitch his case upon the basis of the combined totality of breaches in 1988 and 1989 had the consequence that all losses sustained by the first-named plaintiff in any way connected with the operation of IGC are the responsibility of the defendant. As have said the only breach I have found was his failure to advise the first-named plaintiff that he should get independent advice concerning the operation of s 119 of the Legal Practitioners Act but, as I have also said, he had that advice from Mr Lowey, an accountant, and elected to proceed notwithstanding it. 91 Because I have come to the conclusion, that the defendant is not liable to the first-named plaintiff it is unnecessary for me to pursue further the first-named plaintiff's claims for aggravated and exemplary damages or his claim that he is entitled to damages for personal injury consequent upon his commercial loss. I am prepared, however, to express the view that an action in law in negligence in the present circumstances, even if successful, did not avail the plaintiff of a claim for aggravated or exemplary damages. Nor do I think, even if the first-named plaintiff were successful, he would be entitled to damages for personal injury said to arise as a consequence of his economic loss.

The case for the second-named plaintiff 92 In the middle of 1989 the second-named plaintiff, having previously expressed her concern to the first-named plaintiff, that he had given up a secure and well paid position as managing director, to go out on his own, was anxious that she should be legally recognised as the half owner of the Leeton Avenue property. 93 On the first-named plaintiff's instructions, the defendant prepared a transfer of the first-named plaintiff's interest in the Leeton Ave property to the first-named and second-named plaintiffs as joint tenants. The transfer was executed but not registered. The defendant has said that it was not registered because the first-named plaintiff told him not to do so. The second-named plaintiff does not assert that she was led to believe that the transfer was registered. In an unchallenged statement by way of affidavit the defendant's secretary swore that she told the second-named plaintiff that her husband had said that the transfer was not to be registered and that she, the second-named plaintiff said she would speak to her husband about it. That was in 1989. The second-named plaintiff has denied the conversation. 94 Mr Roberts has submitted that I should not accept the evidence of Ms Kremastos, the defendant's secretary. However, as I have said she was not cross-examined about the matter. I was told from the bar table that the second-named plaintiff had some difficulty when giving evidence in the first proceedings. When she gave evidence before me she appeared unable to cope with the stress of being in the witness box. It is for that reason that, on this issue, I do not find her evidence to be reliable - not because she is consciously untruthful but because in all the circumstances I have doubts as to whether she is able objectively to state what happened in 1989. 95 Mr Roberts has submitted that I should find that it was in fact the defendant himself (and not the first-named plaintiff) who gave Ms Kremastos instructions not to register the transfer. That is to say it was submitted that the entire fault was that of the defendant and the first-named plaintiff had nothing to do with it. I do not accept this submission. 96 Contrary to the submission of the defendant I have come to the conclusion that the he did have a fiduciary obligation to the second-named plaintiff notwithstanding that the work undertaken for her was undertaken upon the instructions of the first-named plaintiff. The defendant has admitted that he did not register the transfer because he was told not to do so by the first-named plaintiff. But in my opinion he had an obligation to the second-named plaintiff and that obligation was not discharged simply because the first-named plaintiff asked him not to register the transfer which, I find, is why it was not registered in 1989. After all the defendant knew the first-named plaintiff was not particularly anxious for the property to be transferred from his name into the names of himself and his wife. To discharge the obligation he had to the second-named plaintiff the defendant should have obtained her (not the first-named plaintiff's) instructions not to register the transfer and to advise her that if he did not do so her interests in the future may not have been protected in the absence of lodging a caveat over the property. But this advice was not given to her. Unlike the transaction between the first-named plaintiff and the defendant the relationship between the second-defendant was one where confidence was reposed in the defendant by the second-named plaintiff. It was not a commercial transaction. There was no express retainer by the second-named plaintiff but the defendant knew he was acting for her to give effect to the transferring of the Leeton Avenue property from the first-named plaintiff to the first and second-named plaintiffs as joint tenants. 97 I regard the obligation of the defendant as a continuing obligation and certainly the obligation was in existence when the Leeton Avenue property was being offered by the first-named plaintiff as security against loans entered into by him in 1991 when the defendant acted for the first-named plaintiff and the advance from NAB was secured over the Leeton Avenue property. 98 Accordingly, I find the second-named plaintiff has succeeded in establishing that the defendant was in breach of the fiduciary duty he owed her and the loss she is now claiming is directly attributable to that breach. These are not, however, the losses set out in the Statement of Claim. In final submissions on her behalf it has been submitted that Hodgson JA correctly formulated the claim she was making. His Honour said - "The written submissions put it at around $288,000.00, namely the difference between the value of the house and the $162,000.00 which the second appellant received from the sale proceeds of the house. In my opinion, at the very highest the second appellant's claim would be for one-half the value of the house ($225,000.00) less one-half the $70,000.00 or thereabouts still owing from the finance used to obtain the house, less the $162,000.00 which the second appellant [the second-named plaintiff] actually received, giving a figure of $28,000.00. Indeed, the claim would probably be less than this: the evidence did not show any realistic chance of getting rid of the BNP's $200,000.00 charge, so that this $200,000.00 plus the first appellant's share of the $70,000.00 ($235,000.00 in all) also had to come out of the property. $225,000.00 of this would come from the first appellant's share, leaving $10,000.00 to come from the second appellant's share, reducing her claim to about $18,000.00." 99 In written submissions the second-named plaintiff has adopted that formulation of her claim and seeks that amount of money together with $15,888.28 being interest calculated from 1995 to the date of hearing of the suit. In my opinion she is entitled to a verdict in that amount. 100 She has also claimed past economic loss consequent upon physical injury the result of her commercial loss in the amount of $137,500 being the loss of her earnings due to personal illness from January 1995 to June 2000 together with interest on past economic loss of $60,684 with a "cushion" for future economic loss consequent upon personal injury. She has also claimed for aggravated and exemplary damages in an amount unspecified. I am of the opinion that she is not entitled to aggravated or exemplary damages. In my opinion there is nothing in the circumstances that calls for either exemplary or aggravated damages. I have found the defendant should have attended more closely to the interests of the second-named plaintiff but, bearing in mind that he had received instructions from the second-named plaintiff's husband, the first-named plaintiff, I do not think his conduct, should be characterised as conscious wrong-doing in contumelious disregard of the second-named plaintiff's rights. Nor do I think she is entitled to damages for personal injury much less aggravated or exemplary damages. 101 My conclusions accordingly are as follows - 1. As between the first-named plaintiff and the defendant there will be a verdict for the defendant.

2. As between the second-named plaintiff and the defendant there will be a verdict for the second-named plaintiff in an amount of $18,000 together with interest calculated from June 1995 to the date of judgment.

3. The parties are to file short minutes to give effect to this conclusion.

4. The first-named plaintiff to pay the defendant's costs of so much of the proceedings as is referable to the claim made by the first-named plaintiff to the defendant.

5. The defendant to pay so much of the costs of the second-named plaintiff as is relevant to her claim. **********

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