HEARING DATES: 20, 21, 23 September, 8 November 1999

Professions and trades - Lawyers - Duties and liabilities to client - Transactions and proceedings on behalf of clients - Exercise of skill - Liability for negligence - What constitutes negligence - Failure to take any instructions or consider any law - Waiver of condition in a contract - Election.

Central Trust Co v Rafuse (1986) 31 DLR (4th) 481; Vulic v Bilinsky [1983] 2 NSWLR 472, applied.

Contracts - General contractual principles - Discharge, breaches and defences to action for breach - Repudiation and non-performance - Election and rescission - Loss or waiver of right to rescind - General principles of doctrine of election - What constitutes an election.

Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634; Khoury v Government Insurance Office of New South Wales [1984] HCA 55; (1984) 165 CLR 622, applied.

Commonwealth v Verwayen (1990) 170 CLR 394, referred to.

Estoppel - Estoppel in pais - Equitable estoppel - General principles - The nature of the doctrines of waiver and election.

Commonwealth v Verwayen (1990) 170 CLR 394, applied.

Judgment Number: [1999] TASSC 123

1 The plaintiffs' claim against the defendant firm of solicitors is for damages for negligence and/or breach of contract. The plaintiffs' allegation is that the solicitors acted negligently in the provision of legal advice with respect to a contract that they had entered into for the purchase of a house at Jasanda Drive, Montrose.

2 In 1994, the plaintiffs were living at 3 Vela Street, Howrah. They had lived there for the previous 14 years. At the end of 1993, the plaintiffs sold a delicatessen business that they carried on in the Bank Arcade, Hobart. After the sale of this business, the plaintiffs were left owing $12,000, the repayment of $8,000 of which was secured by way of mortgage over their Vela Street home.

3 For some time prior to the sale of the delicatessen, the plaintiffs had been trying to sell their property at Vela Street. The overheads on the house were high and the living area was no longer suitable for the plaintiffs' needs. Following the sale of the delicatessen, both plaintiffs were out of work for a long time and the need to sell Vela Street became more acute. The plan was to use the proceeds of sale to pay off all debts and buy a smaller, cheaper and more suitable home, free of encumbrances.

4 By November 1994, Mrs Cohen had found clerical work at the Royal Hobart Hospital which provided her with a net weekly income of $330, but Mr Cohen was still unemployed.

The contract for the sale of 3 Vela Street, Howrah

5 The plaintiffs' real estate agent found a buyer for the Vela Street property. The purchaser was a Mr How and the purchase price was $145,000. The contract was dated 4 November 1994. It was not subject to any conditions precedent, other than one to the effect that there were no restrictions on the use of the property for residential purposes. Clause 3 provided that completion take place on or before "30 days from this date". 4th December 1994 was a Sunday. Mr Cohen said that the real estate agent told him that the purchaser was adamant that vacant possession must be given on settlement day.

The contract for the purchase of Lot 26 Jasanda Drive

6 Armed with the contract for the sale of Vela Street, the plaintiffs went looking for another home. They found one in the course of construction at Jasanda Drive, Montrose. The owner/builder, a Mr Berry, wanted $120,000 for the house when it was completed. The plaintiffs were keen to buy it for the house suited their requirements, and the proceeds of the sale of Vela Street would be sufficient to enable them to pay off their debts and buy it without raising finance.

7 Mr Berry's father was a real estate agent, employed by Roberts Limited. He drew up a contract for the purchase of Jasanda Drive for $120,000. Clause 3 of the contract provided for completion on 4 December 1994, the same day that completion of the contract for the sale of Vela Street was due to take place.

8 Mr Cohen said that he took the contract, unsigned, to Mr Dowd, a partner in the defendant firm. Mr Dowd had been the plaintiffs' solicitor for many years. Mr Cohen said that he wanted to know if the contract was in order for him and his wife to sign. By this stage, the contract for the sale of Vela Street had arrived in the defendant's office, having been sent there by the real estate agent. Mr Dowd had asked a newly employed solicitor, Mr Peter Bingham, to act for the plaintiffs with respect to the sale of Vela Street.

9 It was not Mr Dowd's recollection that Mr Cohen brought the unsigned contract into him. His memory was that the contract was sent unsigned into his office by an agent, presumably, Mr Berry senior. Nothing really turns upon this difference, but a note on the file kept by Mr Bingham tends to prove that Mr Dowd's recollection should be preferred to that of Mr Cohen. At all events, it was common ground that the unsigned contract was considered by both Mr Dowd and Mr Bingham and redrawn with two new clauses. One clause related to the completion of the house in accordance with plans and specifications and one clause, cl 16, related to the completion of the plaintiffs' contract for Vela Street. Clause 16 was drafted by Mr Dowd. It provided:

"This Agreement is specifically subject to and conditional upon the Purchaser effecting a contemporaneous settlement of their unconditional sale of 3 Vela Street Howrah in Tasmania to V S How by 4th December 1994."

10 Mr Dowd said that he inserted that clause in the contract to protect the plaintiffs in the event that the contract for the sale of Vela Street did not complete, leaving the plaintiffs without the funds to complete the purchase of Jasanda Drive. He said that where "two contracts are involved" he inserted such a clause "as a matter of standard form". The contract for the plaintiffs' purchase of Jasanda Drive is dated 17 November 1994 and was signed by all parties.

11 The file concerning the purchase of Jasanda Drive was also handed to Mr Bingham. Mr Bingham said that his first contact with Mr Cohen was after the unsigned contract had been sent to his office, presumably, by Mr Berry senior. A file note in Mr Bingham's handwriting dated 14 November 1994, enables me to find that on the morning of that day Mr Cohen saw Mr Bingham in the defendant's office and the two of them went through the terms of the redrafted contract. At that time, although a title search had been requested, the results were not to hand. From the file note, I find that Mr Cohen took the contract with him when he left the consultation that morning. He intended to sign it, arrange to have his wife sign it and then return it to Mr Bingham that afternoon, by which time it was hoped that the results of the title search would be to hand.

12 The next file note confirms that that is precisely what happened. In the afternoon of 14 November, Mr Bingham explained to Mr Cohen the results of the title search and took from him the signed contract for the purchase of Jasanda Drive.

13 I find by inference that Mr Bingham forthwith sent that signed copy to Mr Berry senior for the contract is, as mentioned, dated 17 November 1994 and a certified copy of it was sent by Mr Berry to Mr Bingham with a letter dated 18 November 1994.

14 Mr Cohen said, and I accept, that after the contract for the purchase of Jasanda Drive had been signed, he was over there every day checking on progress. He said that doubts arose as to whether the house would be ready for occupation by completion day. Mr Cohen said that he saw the agent who negotiated the sale of Vela Street and asked him to ask Mr How if the Cohens could remain in occupation of Vela Street after completion day as their new house might not be ready by then. Mr Cohen said that the agent told him that he had spoken to Mr How, but Mr How was not agreeable to any delay in obtaining possession. I do not accept Mr Cohen's evidence that the agent told him that Mr How "was absolutely adamant that we had to be out of Vela Street at 10 o'clock on the day of settlement", for it is inconceivable that any particular time for settlement had even been contemplated at that stage.

15 Mr Cohen said that he then told Mr Berry that if Jasanda Drive was not finished by settlement day, they would have nowhere to live. I should interpolate here that all parties assumed that settlement day would be Monday, 5 December 1994 and not Sunday, 4 December 1994 as provided in both contracts. The probabilities are that cl 3 of both contracts was varied by the solicitors acting for the parties to make completion day Monday, 5 December, instead of Sunday, 4 December 1994. In the events that happened, nothing really turns on this.

16 The events between 23 or 24 November 1994 and 5 December 1994, were the subject of conflicting accounts in the evidence. The plaintiffs claim that Mr Berry said that they could move into Jasanda Drive on Friday 2 December 1994 and that on 23 or 24 November 1994, both Mr and Mrs Cohen consulted Mr Bingham in his office and asked him "would it be all right if we moved into Jasanda Drive the weekend before completion?" and that Mr Bingham said, "No problems at all". The plaintiffs further claim that on Friday, 2 December 1994, Mr Cohen telephoned Mr Bingham and asked him if it was all right if they moved into Jasanda Drive that weekend. The plaintiffs' case is that Mr Bingham said, "Okay, go ahead".

17 The plaintiffs' claim is that Mr Bingham was negligent on 23 or 24 November and on 2 December 1994 in that on each occasion he failed to advise them that by taking possession, they may be waiving or otherwise losing the benefits conferred upon them by cl 16 in the contract for the purchase of Jasanda Drive.

18 In the events that happened, the plaintiffs moved into Jasanda Drive on 3 and 4 December 1994, but Mr How did not complete the contract for the purchase of Vela Street and the deposit was forfeited. The plaintiffs did not have the money to complete the purchase of Jasanda Drive. It is common ground that there was an hour long conference between Mr Dowd and the plaintiffs on 12 January 1995, during the course of which the plaintiffs claim that Mr Dowd's advice was that they could not resist an action by Mr Berry for specific performance of the contract for the purchase of Jasanda Drive because they had gone into early possession. The plaintiffs' claim is that that advice was incorrect and, in the circumstances, given negligently. The plaintiffs claim that as a result of the advice they received, they borrowed money to complete the purchase of Jasanda Drive and thus owned two houses for quite some time until they were able to resell Vela Street. The costs of taking this course of action constitute the damage sought to be recovered by these proceedings, for it is the plaintiffs' case that had they been given correct legal advice on either 23 or 24 November, and/or 2 December 1994, they would not have gone into possession and, further, had they been given correct legal advice on 12 January 1995, they would have vacated Jasanda Drive and returned to Vela Street. All of these claims are in issue. They raise complex questions of fact and law.

Did the plaintiffs' seek Mr Bingham's advice on 23 or 24 November 1994 and/or 2 December 1994?

19 The defendant maintained two files, one for the sale of Vela Street and one for the purchase of Jasanda Drive. There is no note on either file of any attendance by the plaintiffs on the defendant between 14 and 28 November 1994. Mr Bingham said in evidence that he had no recollection of any attendance upon the plaintiffs between those dates, but very fairly, said that he was unable to deny that there had been an attendance as claimed by the plaintiffs. Mr Bingham said that it was his practice to make a note of everything. Of course, as Mr Sealy, counsel for the plaintiffs submitted, and Mr Bingham conceded, absence of a file note of an attendance on the plaintiffs does not necessarily mean that there was no such attendance. However, it is relevant that all other attendances by Mr Bingham appear to have been noted, and in several instances the events recorded in the notes are not in accordance with Mr Cohen's recollection of events.

20 There were aspects of some of Mr Cohen's evidence that have led me to conclude that his account of the relevant events may not be completely accurate. He was a difficult witness in that he insisted on giving his version in his own way, rather than answering questions put to him by his counsel, but this is not the matter that affected his credit. Many of Mr Cohen's answers in cross-examination contained ex post facto justification for what he claimed took place, especially when he was confronted with a conflicting note on the solicitor's file. For example, the file for the purchase of Jasanda Drive contains a copy of a letter dated 28 November 1994 that Mr Bingham said he wrote to Mr and Mrs Cohen. The letter sought instructions with respect to several matters. Mr Cohen said he had no recollection of receiving that letter, but conceded that he must have done. He denied giving instructions with respect to the matters raised in the letter. This is quite contrary to a file note made by Mr Bingham dated 2 December 1994. Mr Cohen justified his denial by asserting that the letter did not require him to give instructions, because he was employing a solicitor to look after his affairs and he would know the answers to the questions raised in the letter. On many occasions in his cross-examination, Mr Cohen said, in answer to questions concerning what he had said or done, that he "felt" that he had said certain things or done certain things. For example, Mr Jackson, counsel for the defendant, put to Mr Cohen that he saw Mr Bingham twice on 14 November 1994, once in the morning and once in the afternoon, as the file note records. Mr Cohen said:

"I feel that I went back there - I think I went back there maybe the next day or a day later when he had the new contract ready and then he opened it up and he said, 'This is the new contract', and he pointed to the clause. He said, 'There it is, take it away, have a - you know, go through it, is there any problems [sic], what have you, take it away, get your wife to sign it and bring it back'."

21 On a considerable number of occasions, Mr Cohen answered that he "would" or "would not" have done or said something. The following question and answer is typical:

"... all right I'll put it to you, you don't recall saying anything to Mr Bingham that morning at all about going into Jasanda Drive, do you? ... I didn't - I can't recall specifically saying it because by handing over the keys I would have automatically thought that he knew that we'd moved, because how would - I had no keys for Vela Street."

22 Accordingly, I have reached the clear view that where there was a conflict between Mr Cohen's evidence and a note on the solicitor's file, the latter should be preferred over the former. I hasten to add that I am not expressing the view that Mr Cohen deliberately gave incorrect evidence, but I suspect that the passage of time, the anxiety of the litigation and the tendency for self justification, have all combined to affect the accuracy of his recollection of the critical events.

23 Mr Cohen's account was that after signing the contract to purchase Jasanda Drive and before 23 or 24 November 1994, he became concerned that Jasanda Drive may not be ready for him and his wife to live in when settlement day arrived. Mr Cohen said that after his agent had told him that Mr How would not agree to the plaintiffs staying in Vela Street after settlement day, he asked Mr Berry if he could move into Jasanda Drive over the weekend of 3 and 4 December 1994. He said that Mr Berry agreed to permit them to do this. Mr Cohen said he then went to consult Mr Bingham. He said that this was on 23 or 24 November 1994. Mr Cohen said that he and his wife went to see Mr Bingham in his office without an appointment at the end of the afternoon. He said it was a very brief consultation. He said that he just asked Mr Bingham if it was all right for them to move into Jasanda Drive on the weekend before the settlement day, and Mr Bingham said, "No problems at all".

24 In his evidence, Mr Cohen went on to say that after consulting Mr Bingham, he went to see Mr Berry and told him that their solicitor had said that it would be all right for them to move in that weekend. He then said:

"I said to Peter [Berry], 'Could you get in contact with your solicitor or can you get your father to get in contact with your solicitor and see if it's okay if you can give me the keys and we can move in'."

25 There are two aspects of this account that cause me to doubt it. First, if the concern was that Jasanda Drive would not be finished by settlement day, early possession of that property does not seem an appropriate answer to that concern. Second, if Mr Berry had given his consent to early possession before Mr and Mrs Cohen saw Mr Bingham, why was it necessary for Mr Cohen to tell Mr Berry to see his solicitor to see if the Cohen's could take early possession?

26 Mrs Cohen gave evidence corroborating her husband's account of the consultation with Mr Bingham on 23 or 24 November 1994. Both plaintiffs said that it was the only time Mrs Cohen saw Mr Bingham. Mrs Cohen recounted that they tried to get "extra time" at Vela Street because they did not know if Jasanda Drive would be finished by settlement day.

27 Mrs Cohen's account of what transpired in Mr Bingham's office that day was identical to that given by her husband. In cross-examination, Mrs Cohen said that she understood that Mr How was adamant that they were to vacate the Vela Street property by 10am on settlement day. She said that at the meeting with Mr Bingham on 23 or 24 November, he told her that 10 o'clock was the appointed time for settlement, but that could not be correct. When Mrs Cohen was pressed in cross-examination about whether Mr Bingham had told her that 10 o'clock was the appointed hour for settlement, she finally conceded that Mr Bingham had said nothing at all to her about settlement being arranged for 10 o'clock in the morning. Mrs Cohen claimed, as did her husband, that she recalled Mr Bingham saying, "No problems at all".

28 Notwithstanding the evidence of Mr and Mrs Cohen that there was a consultation with Mr Bingham on 23 or 24 November 1994, I am not persuaded upon the balance of probabilities that such a consultation occurred. In addition to the two matters to which I have referred which affect the credit of the plaintiffs on this issue, the evidence that there was a consultation on 23 or 24 November 1994, is inconsistent with the solicitor's file.

29 There is a note dated 28 November 1994 in Mr Bingham's handwriting that Mr Cohen telephoned. The first part of the note concerns the whereabouts of the title deeds to the Vela Street property. The other part reads:

30 Mr Bingham's evidence, consistent with the note, was that Mr Cohen telephoned him on 28 November and said that Jasanda Drive would not be completed by settlement day and he was to postpone settlement for a week. The solicitor's file contains a draft hand written letter addressed to the solicitors for the purchaser of Vela Street. Mr Bingham said he wrote that letter. Mr Bingham explained that at that time he drafted all his correspondence by hand as he did not have a dictating machine. The letter said (formal parts omitted):

"Unfortunately the house into which our clients will be moving upon completion of the sale to your client will not be available for occupation until the 12th December next. We regret therefore that our client will not be in a position to settle this matter until that date."

31 The letter was not engrossed and sent because the next day Mr Cohen telephoned Mr Bingham again and told him that the house would be ready after all and that Mr Bingham was to "aim to settle on Monday 5/12". The note goes on to read, "[Mr Cohen] will advise on Thursday if any problems".

32 According to the plaintiffs' evidence, by 23 or 24 November they had reached an agreement with Mr Berry that they could move into Jasanda Drive over the weekend of 3 and 4 December. If that version is correct it is inconceivable that Mr Cohen would have telephoned Mr Bingham on 28 November and told him, in effect, that they could not move into Jasanda Drive on settlement day and that Mr Bingham was to delay settlement of Vela Street for a week. Further, the draft letter to Mr How's solicitors, written in accordance with the instructions as noted, is inconsistent with the plaintiffs' evidence that before 23 or 24 November 1994 it had been made abundantly plain to them that Mr How would not permit the Cohens to remain in Vela Street after 10am on the settlement day.

33 The solicitor's file records that there was a burst of activity on 28 November 1994. Letters were written by Mr Bingham to the local council, the Hydro-Electric Commission, Mr Badenach, the solicitor for Mr Berry and to the plaintiffs, as already mentioned. The next hand written note is dated 2 December 1994. It reads:

34 The first two lines provide answers to the questions asked of the plaintiffs in Mr Bingham's letter dated 28 November 1994. As I have already noted, Mr Cohen denied that he gave Mr Bingham answers to the questions asked by that letter. The reference to Mr Cohen arranging keys for the new house is consistent with the proposition that by Friday 2 December 1994, he had already made an arrangement with Mr Berry that they would enter into possession of Jasanda Drive over the weekend. Mr Cohen said that during the course of the telephone conversation with Mr Bingham on 2 December 1994, he said:

"'Peter, I've arranged to pick up the keys for Jasanda Drive today, is everything okay, I'm going to move in on the weekend', and he said 'Okay, go ahead'."

"Had there been a statement of that nature I would have made a note of it and would have taken steps to arrange early possession if that were required. That note [on the file] simply means that I did not have to arrange to collect keys at the settlement."

36 The adverse findings that I have made with respect to the credit of the plaintiffs on the issue of seeking advice from Mr Bingham on 23 or 24 November about them taking possession prior to settlement date are such that I cannot be satisfied on the balance of probabilities that Mr Cohen did speak to Mr Bingham in the terms that he claimed he did on 2 December 1994.

37 The plaintiffs did move out of Vela Street and took possession of Jasanda Drive over the weekend of 3 and 4 December 1994.

38 On Monday morning, 5 December 1994, Mr Cohen went to see Mr Bingham. There is a file note of this attendance. At that time, both Mr Bingham and Mr Cohen believed that settlement of both contracts would take place that day. The note reads:

Brought in transfer and requisitions and keys - agent has a set

39 On that attendance, Mr Cohen gave Mr Bingham the signed transfer for the sale of Vela Street and answers to requisitions on title that Mr Bingham had earlier sent to him. Mr Bingham said that he did not then know that the plaintiffs had already taken possession of Jasanda Drive. In cross-examination he said that the new phone number did not alert him to the possibility that the plaintiffs may have gone into possession because at that stage the common expectation was that settlement would take place later that day. Taking into account the findings that I have already made, I am not persuaded that it is more probable than not that Mr Bingham knew on 5 December 1994 that the plaintiffs had already taken possession of Jasanda Drive, although I find that he must then have expected them to do so either that day or the following day.

40 On the morning of 5 December 1994 Mr Henry, solicitor for Mr Berry, and Mr Bingham arranged to settle at 3pm that day, but that afternoon Mr Henry rang to put off settlement until 3pm the next day, 6 December 1994. Later the same day, Mr Badenach, also telephoned Mr Bingham. Mr Badenach said that there might be a week's delay in settling the contract for the sale of the Vela Street property. He asked Mr Bingham to find out if Mr and Mrs Cohen would rent Vela Street to Mr How for a week.

41 The next day, 6 December 1994, Mr Badenach again asked Mr Bingham if Mr How could take possession of Vela Street prior to settlement. That day, Mr Bingham phoned Mr Cohen to discuss this proposal and said that he learnt for the first time that they had taken possession of Jasanda Drive over the weekend of 3 and 4 December 1994. I accept Mr Bingham's evidence with respect to this.

42 On 7 and 8 December 1994, Mr Bingham tried to get Mr Badenach to complete the contract of sale of Vela Street on his client's behalf, but to no avail. By 11 December it was known that Mr How had been hospitalised with some kind of mental illness and it seemed that the prospects of settlement of the Vela Street contract were fading. Mr Cohen instructed Mr Bingham to issue a notice to complete. The notice was issued on 12 December 1994 and required Mr How to complete the purchase of Vela Street on 9 January 1995. Mr Cohen also instructed Mr Bingham to give notice to quit to the tenants to whom Mr How had let Vela Street. This was done.

43 In the meantime, the plaintiffs remained in possession of Jasanda Drive. Mr Henry advised Mr Bingham on 12 December 1994, that Mr Berry wanted $150 per week rent until completion occurred. The same day, Mr Henry issued a notice requiring the plaintiffs to complete the purchase of Jasanda Drive on 3 January 1995. On 15 December 1994, Mr Bingham wrote to Mr Henry in the following terms:

"I refer to the Notice to Complete dated 12 December 1994.

The entitlement of the Vendor to serve such a notice is denied. Despite the Purchasers using all reasonable endeavours to ensure that clause 16 of the contract herein was fulfilled, the settlement required to take place thereunder has not occurred."

44 The same day, Mr Henry telephoned Mr Bingham. The file note reads:

He says Ps waived cl 16 by taking possession and by giving verbal undertaking that matter would settle within next couple of days

45 The phone call was followed by a letter dated 16 December 1994 written in response to Mr Bingham's letter claiming that Mr Berry was not in a position to issue a notice to complete. The letter said:

"Your clients clearly waived the benefit of Clause 16 by taking possession of the property on an unqualified basis and by their advice to the vendor that the sale of their property would be completed within a few days."

46 All the solicitors involved in these transactions continued to make every effort to find the funds to enable Mr How to finalise his contract for the purchase of Vela Street, but were unsuccessful. Mr Bingham passed the file to Mr Dowd and the Christmas break intervened.

47 Early in January 1995, Mr Berry's solicitor threatened to commence proceedings for an order that the plaintiffs perform the contract for the purchase of Jasanda Drive. The plaintiffs made an appointment to see Mr Dowd at 2pm on 12 January 1995. The purpose of the appointment was to obtain legal advice as to the appropriate course of action. Mr Berry's solicitor agreed not to serve the writ until after the plaintiffs had seen Mr Dowd and taken his advice.

48 In order to prepare for the meeting with the plaintiffs, Mr Dowd consulted a partner of his, Mr Toomey. Mr Dowd said he did this because "he's considered an expert in the field". In answer to a question from me, Mr Dowd explained that Mr Toomey was an expert "in the field" because of his "pronounced ability" which was recognised by members of the legal profession.

49 Mr Toomey dictated to Mr Dowd the advice that the latter should give the plaintiffs at the forthcoming consultation. This is the dictated advice:

(b) if no, then vacate new ppty & fight writ for specific performance.

- & then either sue for specific performance or put on market & sue for damages.

2 Whichever exercise/option [sic] is pursued it will not be inexpensive"

50 The consultation with the plaintiffs lasted for about an hour. Naturally, they were distressed about the position they were in. Mrs Cohen was in tears. Mr Dowd went through the note that Mr Toomey had dictated to him. The plaintiffs said that they asked Mr Dowd why they could not rely on cl 16 of the contract for the purchase of Jasanda Drive and that he told them, in effect, because they had entered into possession of the premises. The plaintiffs said that they then asked Mr Dowd why the same proposition did not apply to Mr How. They said that Mr Dowd told them that Mr How was a man of straw and that they were people of bricks and mortar. With respect to the threatened action by Mr Berry for an order for specific performance, the plaintiffs said that Mr Dowd told them that they would lose it.

51 Both plaintiffs said, and I accept their evidence in this respect, that had they learnt on 12 January 1995 that they could have rescinded the contract for the purchase of Jasanda Drive and returned to Vela Street, they would have done so. At this time, Mr Cohen was still out of work and the only income the plaintiffs had was Mrs Cohen's salary of $330 per week. The object of the whole exercise was to eliminate debt, not to increase it. The plaintiffs said that they were not advised that they could rescind both contracts and, accordingly, had no option but to try and find bridging finance to enable them to complete the purchase of Jasanda Drive. This they eventually were able to do and the Vela Street property was sold after a considerable period of time.

52 Mr Dowd denied that he told the plaintiffs that they would lose if they defended the action that Mr Berry threatened to bring for an order for specific performance. He conceded that he told the plaintiffs that by going into possession they may have "prejudiced their position". Mr Dowd was unable to explain what he meant by that advice. He conceded that he may have added that he told the plaintiffs that "their case was not that strong because of having taken possession of Jasanda Drive". When asked what he meant by the advice that the plaintiffs might have prejudiced their position or weakened their position, Mr Dowd said:

"Well the best terminology, your Honour, I can use in the circumstances is that their legal position, in my view, may well have been weakened. I can't use any other terminology."

53 It is not surprising that Mr Dowd was unable to use any other terminology for neither he nor, so far as Mr Dowd was aware, Mr Toomey:

* took any instructions from the plaintiffs to ascertain the facts relevant to any election, estoppel and/or waiver that may have occurred; nor

* undertook a scintilla of legal research with respect to the situation which the plaintiffs were in.

Further, it was quite clear at trial that Mr Dowd still had no useful knowledge of the relevant law. Mr Toomey did not give evidence.

54 Mr Dowd rightly conceded that on 12 January 1995, the plaintiffs sought from him and were entitled to receive from him, competent legal advice. The advice was given without taking any appropriate instructions and without any reference to relevant legal principles. A reasonably competent solicitor is expected to have a sufficient knowledge of the fundamental issues and principles of law applicable to the work he has agreed to undertake to enable him to perceive the need to ascertain the law on relevant points and to look at that law before giving advice. See Central Trust Co v Rafuse (1986) 31 DLR (4th) 481; Vulic v Bilinsky [1983] 2 NSWLR 472. In this respect, Mr Dowd failed to exercise the standard of care that the law required him to exercise at the consultation on 12 January 1995. I find that although Mr Dowd may not have expressly said to the plaintiffs that they would lose the threatened litigation, I am well satisfied that during the course of the hour long consultation on 12 January 1995, he conveyed the clear impression that that was his advice.

55 The onus is on the plaintiffs to establish that it is more probable than not that the defendant was in breach of the duty of care that it owed them when they were advised by Mr Dowd to the effect that they would probably lose the threatened action for specific performance, and that by reason of such advice they have suffered damage. Involved in the latter element is the proposition that the advice they were given was incorrect, for if the advice that they were given was correct in law, then no damage was suffered by reason of the breach of the duty of care and/or contract of retainer. Consequently, the plaintiffs must establish on the balance of probabilities, that a reasonably competent solicitor would have advised them that they were entitled to rely upon cl 16 of the Jasanda Drive contract, give notice to Mr Berry that the contract had been rescinded and return to Vela Street.

Clause 16 of the contract for the sale of Vela Street

56 Clause 16 is a little convoluted. The words "specifically subject to and" are surplusage. There is a difficulty about effecting a contemporaneous settlement without borrowing funds, but the intention of the parties is clear. The intention expressed by cl 16 is that the obligation to complete the contract for the purchase of Jasanda Drive depended upon the completion of the contract for the sale of Vela Street on (as varied) 5 December 1994. Both counsel agreed that this was the proper construction of cl 16. See Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537.

57 On behalf of the defendant, Mr Jackson submitted that on the weekend of 3 and 4 December 1994 the plaintiffs elected to perform the contract for the purchase of Jasanda Drive by entering into possession and such election was irrevocable. Consequently, the defendant contends that the advice given was correct, albeit by chance, and the plaintiffs have suffered no damage by reason of any breach of the duty of care. For the plaintiffs, Mr Sealy submitted that the act of going into possession was no more than a waiver of cl 16 and as Mr Berry did not act to his detriment, such waiver did not estop the plaintiffs from relying on the terms of that clause.

58 In Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634, Mason J (as he then was) said at 655 - 656:

"A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, ie, when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract. It matters not whether the right to terminate the contract is conferred by the contract or arises at common law for fundamental breach - in each instance the alternative right to insist on performance creates a right of election. (at p655) [emphasis added]

Essential to the making of an election is communication to the party affected by words or conduct of the choice thereby made and it is accepted that once an election is made it cannot be retracted (R v Paulson [1921] 1 AC 271, at p 284; Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41, at p 55)."

59 The Jasanda Drive contract, cl 16 conferred no rights on the plaintiffs until completion day. It only conferred a right if completion of the Vela Street contract did not take place on 5 December 1994. In that event cl 16 gave the plaintiffs the right to terminate the Jasanda Drive contract by notice to Mr Berry or his solicitor. Accordingly, at the time the plaintiffs went into possession, it could not be said that they were electing between two inconsistent rights. Election is not a matter of intention. "It is an effect that the law annexes to conduct which would only be justifiable if an election had been made one way or the other;" per Kitto J in Tropical Traders Ltd v Goonan & Anor [1964] HCA 20; (1964) 111 CLR 41 at 55.

60 Further, knowledge of the relevant facts by the party seeking to make the election is an essential element in the doctrine. See Sargent's case, per Stephen J at 642 et seq and per Mason J (as he then was) at 656 et seq. Statements to the like effect are to be found in Wallace v Hermans [1974] HCA 42; (1974) 131 CLR 672; Elder's Trustee and Executor Co Ltd v Commonwealth Homes & Investment Co Ltd [1941] HCA 31; (1941) 65 CLR 603 at 617; O'Connor v S P Bray Ltd (1936) 36 SR (NSW) 248. At the time of taking possession the plaintiffs did not know whether cl 16 conferred upon them any rights at all. For these reasons I reject Mr Jackson's submission that the plaintiffs' act of going into possession on 3 and 4 December constituted an election and in consequence, the advice given on 12 January 1995 was correct.

61 Did the plaintiffs waive any rights that might have been conferred upon them by cl 16 by going into possession and, if yes, what was the legal effect of them so doing? It has been doubted whether there exists a doctrine of waiver separate from the doctrine of estoppel. The existence of waiver as a separate doctrine was considered at some length in Commonwealth v Verwayen (1990) 170 CLR 394. In that case, Mason CJ said at 406:

"As often as not, the term 'waiver' is used to describe the result of the application of various principles rather than to designate a particular legal concept or doctrine. The consequence is that the expression 'waiver' has been the subject of robust criticism, notably by Dr Ewart in his work Waiver Distributed, (1917); see also Bysouth v Shire of Blackburn and Mitcham (No 2) (1928) VLR 562 at p 579; Larratt v Bankers and Traders' Insurance Co (1941) 41 SR (NSW) 215 at p 226; Kammins Ballrooms Co Ltd v Zenith investments (Torquay) Ltd, [1971] AC, per Lord Diplock at pp 882-883. This is because 'waiver' is an imprecise term capable of describing different legal concepts, notably election and estoppel.

It has been doubted that waiver exists as a defence or answer in any case except where it is used as an alternative designation for some other defence or answer, for example, election, estoppel or new agreement: Bysouth, per Lowe J at p 579. Generally speaking, as Jordan CJ pointed out in Larratt (at pp 226-227), an existing legal right is not destroyed by mere waiver in the sense of an express or implied intimation that the person in whom the right is vested does not intend to enforce it: see Mulcahy v Hoyne [1925] HCA 17; (1925) 36 CLR 41 per Isaacs J at pp 55-56; Atlantic Shipping and Trading Co v Louis Dreyfus and Co (1922) 2 AC 250 per Lord Sumner at pp 261-262. In these cases, unless consideration is present, something in the nature of an election or an estoppel is required."

"'Waiver' is an imprecise term and is used to describe what is done in a variety of circumstances rather than to assert any particular legal process. However, where it is not used in the sense of election between mutually exclusive alternatives, if it has any identifiable legal consequence, it is generally indistinguishable from estoppel." [Emphasis added].

"In my view, waiver, by that name, has a role to play. And it is a role which involves no confusion with variation of contract or promissory estoppel. It may be seen as a form of election between inconsistent rights, in the former of the categories mentioned by Mason J in Sargent, at p 655. Election implies that a choice must be made between two rights which are mutually exclusive."

64 However, Toohey J did treat waiver as a process by which a party is prevented from raising a defence, but did not, unlike the Chief Justice, treat it as depending upon an estoppel. McHugh J said at 497:

"Some of the cases which debar 'a person from raising a particular defence to a claim against him', however, stand outside the categories of election, contract and estoppel. They are sui generis. They are cases where a statute has conferred a right on A, subject to the fulfilment of a condition for the benefit of B, and B has waived the condition by taking the next step in the course of procedure without insisting on A fulfilling the condition. In my opinion, the true basis of the decisions in these cases is that, where the existence of a statutory right depends upon the fulfilment of a condition precedent, a person entitled to insist on the fulfilment of that condition may dispense with its compliance unless it is enacted for the benefit of the public, and that person will be held to have waived compliance with the condition if he or she knowingly takes or acquiesces in the taking of a subsequent step in the course of procedure laid down by the statute after the time for the other person to fulfil the condition has passed. These cases are also, to a certain extent, anomalous. They should be strictly confined so as not to conflict with the more established doctrines of election, contract and estoppel."

65 Gaudron J took the view, at 486, that a party may not waive a statutory right in which the public have a general interest. In Freshmark Ltd v Mercantile Mutual Insurance (Australia) Limited [1994] 2 Qd R 390, Dowsett J, at 396, took up the task of analysing the views of the members of the Court in Verwayen on the subject of waiver and reached the conclusion, at 403:

"The better view is that a mere indication of an intention not to rely upon contractual rights will not generally constitute a waiver sufficient to bar a future action to enforce such rights. Waiver should not be seen as an alternative weapon to estoppel in the war against the doctrine of consideration. However, where a party elects between alternative rights available under a contract, such election will usually be final."

66 I respectfully agree with the conclusion of Dowsett J and uphold Mr Sealy's submission that the taking of possession of Jasanda Drive on 3 and 4 December 1994 and before cl 16 conferred a right to rescind was not an election. It might be called an act of waiver, but as Mr Berry did not act to his detriment in response to the taking of possession, the waiver did not operate to estop the plaintiffs from exercising the right conferred by the contract for the purchase of Jasanda Drive, cl 16 if Mr How failed to complete the contract for the sale of Vela Street on 5 December 1994.

67 Mr Henry's request to delay the settlement of the Jasanda Drive contract until 6 December was agreed to by the plaintiff's agent, Mr Bingham and accordingly, cl 16 was thereby varied to confer the right to rescind if settlement of the contract for the sale of Vela Street did not complete until 6 December.

What were the plaintiffs' rights in consequence of the failure to complete the Vela Street contract?

68 As I have said, no effective election can be made unless the party alleged to have made an election has knowledge of the facts that give rise to the right to make an election. In Sargent v ASL Developments Ltd (supra), Stephen J carefully analysed the authorities in Australia and the United Kingdom which deal with the nature of the knowledge required to make an effective election. His Honour observed, at 642, that these authorities are "somewhat at variance". Having examined the authorities, his Honour considered that a distinction may perhaps be drawn between cases involving contract and cases not involving contract. He observed, at 645, that this distinction may provide a measure of reconciliation between conflicting authorities, and said:

"Where election is in question between contracting parties and, as in these appeals, the contract itself confers the inconsistent rights there can be no question whether a party had knowledge of his choice of rights. He is deemed to know the terms of his own contract and the rights it confers, at all events he cannot take advantage of his own ignorance (L'Estrange v F Graucob Ltd (1946) 2 KB 394, at pp 403, 406); moreover he must take his contract as bearing whatever meaning the court will assign to it when it is called upon to interpret it, he is bound 'by the interpretation which a court of law may put upon the language of the instrument.' (Stewart v Kennedy, per Lord Watson [1890] UKHL 1; (1890) 15 App Cas 108, at p 123)."

69 His Honour concluded this part of his reasons for judgment by saying, at 645:

"In the present appeals I conclude that, contrary to the appellants' contentions, all that need be established in order for the doctrine of election to apply is knowledge by the vendors of the facts giving rise to inconsistent legal rights; the appellants are to be taken to know of their rights of rescission conferred by cl 16 and, of course, of their right to enforce the contracts according to their terms."

70 McTiernan ACJ agreed with the reasons for judgment of Stephen J. At 658, Mason J, the remaining member of the Court, reached the same conclusion, when he said:

"If a party to a contract, aware of a breach going to the root of the contract, or of other circumstances entitling him to terminate the contract, though unaware of the existence of the right to terminate the contract, exercises rights under the contract, he must be held to have made a binding election to affirm."

71 The proposition laid down in Sargent's case concerning the nature and extent of the knowledge necessary to make an effective election was subsequently applied in Wallace v Hermans (supra) and Khoury v Government Insurance Office of New South Wales [1984] HCA 55; (1984) 165 CLR 622 at 633 - 634. The same proposition was enunciated (obiter dictum) by Lord Diplock in Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 when he said at 883:

"We are not concerned in the instant appeal with the first type of waiver. This arises in a situation where a person is entitled to alternative rights inconsistent with one another. If he has knowledge of the facts which give rise in law to these alternative rights and acts in a manner that is consistent only with his having chosen to rely on one of them the law holds him to his choice even though he was unaware that this would be the legal consequence of what he did".

72 Application of these authorities leads to the conclusion that on 6 December 1994 the plaintiffs were in a position to make an effective election to either rescind the contract for the purchase of Jasanda Drive or affirm it. Does this mean that the advice given on 12 January 1995 was incorrect? On 12 December 1994, six days after the right to rescind arose, Mr Henry issued a notice to complete the contract. On 15 December 1994, nine days after the right to rescind arose, Mr Bingham advised Mr Henry in writing that:

* Mr Berry was not entitled to serve a notice to complete.

* Clause 16 of the contract had not been fulfilled.

73 In his closing submissions, Mr Sealy argued that Mr Berry was not entitled to serve a notice to complete and thus Mr Bingham's written advice to this effect was correct. I reject that submission. Without deciding, because it is unnecessary to do so, it may be said that on 6 December Mr Berry was entitled to terminate the contract because cl 16 had not been fulfilled. See Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 441 - 442; Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571 at 591 - 592. However, on 12 December 1994 he elected to proceed with the contract by giving Mr Bingham a notice to complete which fixed the time for performance of cl 3 as 3 January 1995. Upon the evidence given at the trial, it appears that Mr Berry was, at the time of giving the notice to complete, in a position to perform his contractual obligations, this being the condition precedent for the issue of an effective notice to complete. See Halkidis v Bugeia [1974] 1 NSWLR 423. On 6 December 1994, the plaintiffs also had the right to rescind the contract. Although the right to terminate arose upon the non-fulfilment of cl 16, the contract did not automatically thereupon come to an end. See New Zealand Shipping Co Ltd v Societe des Ateliers et Chantiers de France [1919] AC 1; Newbon v City Mutual Life Assurance Society Ltd [1935] HCA 33; (1935) 52 CLR 723; Charles Lodge Pty Ltd v Menahem [1966] VicRp 18; [1966] VR 161 at 164 - 165. It continued with full force and effect notwithstanding the non-fulfilment of cl 16 until the plaintiffs either exercised the right to rescind by notice to that effect to Mr Berry or elected, by unequivocal words or deeds, to complete the contract in accordance with its terms. Accordingly, until the plaintiffs rescinded the contract they were bound by cl 3 to complete the purchase

Did the plaintiffs elect to perform the contract?

74 Mr Bingham did not advise Mr Henry that the plaintiffs had decided to rescind the contract. His letter of 15 December only advised, as everyone concerned was well aware, that cl 16 had not been fulfilled. The plaintiffs remained in possession. The day fixed by Mr Henry for completion, 3 January 1995 passed and the plaintiffs remained in possession. There is no doubt that on 6 December 1994 the plaintiffs were entitled to rescind the contract and vacate Jasanda Drive, but they remained in possession with the requisite knowledge of their right to rescind or perform the contract and after Mr Berry had, by the notice to complete called upon them to complete the contract.

75 Whether or not conduct amounts to an election is a question of fact. See Larratt v Bankers and Traders Insurance Co Ltd (1941) 41 SR (NSW) 215. The conduct must be unequivocal. The pleadings allege that there was negligence by the defendants between 28 November and 2 December 1994 but the plaintiffs have not made out those allegations by reason of the findings of fact that I have made. In addition, the statement of claim, pars15 and 18 allege that there was negligence on 12 January 1995 (par18 erroneously refers to the date as 11 January). By that date, the plaintiffs had been in possession for just over five weeks. During the majority of that time they knew that Mr Berry had determined to treat the contract as if it was in full force and effect. The plaintiffs remained in possession after the day fixed by Mr Berry's solicitor for completion of the contract. Between 6 December and 12 January there was no evidence of any communication from either the plaintiffs or the defendant to Mr Berry or his solicitor which might indicate that notwithstanding that the plaintiffs remained in possession of Jasanda Drive, that conduct did not constitute an unequivocal election to complete the contract. The file notes show that during this period the defendant told Mr Henry that every endeavour was being made to raise the finance necessary to enable the plaintiffs to complete the purchase. Payment of rent to Mr Berry was consistent with an election to complete the contract at the earliest possible date.

76 In these circumstances the only finding reasonably open on the evidence is that by at least 12 January 1995, the plaintiffs had elected to proceed with the contract and that they were no longer entitled to rescind it. The advice Mr Dowd conveyed to them on that day was correct. In consequence, the plaintiffs have suffered no damage by reason of the breaches of duty of care and contract of retainer pleaded in the statement of claim, pars15 and 18.

77 Both counsel addressed upon the basis that in order to succeed the plaintiffs had to establish negligence on 23 or 24 November 1994, and/or 2 December 1994 and/or 12 January 1995. However, a prudent solicitor in the position of the defendant would have considered the legal rights of the plaintiffs upon becoming aware that they had gone into possession and that a right to rescind the contract had thereafter arisen. On 6 December Mr Bingham became aware that the plaintiffs had gone into possession and on the same day he was aware of the facts that gave them the right to rescind the contract. Mr Dowd became aware of the same facts a little later when Mr Bingham returned the files to him. I am unable to find precisely when Mr Dowd became aware of these facts, but a file note in his handwriting indicates that he was aware of them by at least 20 December 1994. In their closing addresses, neither counsel made submissions with respect to the proposition that the defendant was negligent on and shortly after 6 December 1994 by failing to advise the plaintiffs that a right to rescind the contract arose on 6 December. The statement of claim, par17 alleges in general terms that:

"In breach of the duty referred to in paragraph 8 hereof and of the retainer referred to in paragraph 9 hereof the Defendant failed to advise the Plaintiffs that the act of entering into possession of Jasanda Drive prior to settlement of the Jasanda Drive agreement was an act capable of constituting a waiver of the condition."

78 The statement of claim, pars8 and 9 allege in general terms the relevant duty, limited in the case of negligence to "all material times" and in the case of contract confined to "the Plaintiffs' said business and affairs". It seemed to me arguable, that these pleadings encompass a failure to advise appropriately on or shortly after 6 December 1994. As this question was not addressed by counsel I gave them an opportunity to make submissions with respect to it before proceeding to judgment. After hearing these submissions I have reached the conclusion that Mr Jackson was correct when he contended that par 17, read in the light of the way in which the case was conducted and in the light of the closing submissions made on behalf of the plaintiffs, can only be construed as a reference to the plaintiffs' act of entry into possession and does not encompass remaining in possession thereafter.

79 In the alternative Mr Sealy sought leave to amend the statement of claim to add a new par 17A to plead negligence by failing to advise "prior to 3 January 1995 that the act of remaining in possession of Jasanda Drive after 3 January 1995 was an act capable of constituting a waiver of the condition." Mr Jackson opposed the application. He rightly submitted that the issue raised by proposed par 17A was never in controversy between the parties, that no, or only insignificant, evidence was led of events that occurred between 6 December 1994 and 12 January 1995 and that it is not known what advice was sought or offered during that period because no question was asked about it. Mr Jackson submitted that if the proposed amendment was made it would cause the defendant grave prejudice if judgment was given against it on facts that were never in issue in the litigation and in respect of which there had been no pre-trial procedures and no evidence in chief or in cross examination.

80 Upon careful reflection I have come to the conclusion that I should refuse to grant the application to amend the statement of claim for the reasons advanced on behalf of the defendant. It was not suggested that any injustice could be cured by an order for costs or an adjournment, nor was it suggested that the hearing be reopened and evidence adduced.