D'Agostino v Anderson

Judgment 1BATHURST CJ: The issue for determination in this case is whether the respondents' claim against their former solicitor, the appellant, is statute barred. 2On 17 September 2003, the respondents (the Andersons) exchanged contracts for the sale of land and sale of a business relating to the purchase of a chiropractic clinic in Green Valley, NSW. The appellant's firm (D'Agostino) was instructed to act for the Andersons in relation to the purchase. 3Settlement occurred on 12 November 2003. Unbeknownst to the Andersons, development consent for the use of the dwelling as a chiropractic clinic had lapsed in or about March 2003. On 12 July 2004, the Andersons received a notice to this effect from the local council. It stated: "The carrying out of this activity [the chiropractic clinic] requires Council's development approval prior to such activity being undertaken. Perusal of Council's records reveals that such approval has lapsed. Accordingly, you are hereby directed to immediately cease this unauthorised activity forthwith from the property, unless you comply with this request or show cause to Council within fourteen (14) days as to why you should be permitted to continue, Council will be forced to take appropriate legal action. Enclosed for your convenience is Council's Development Application form, schedule of fee's [sic] and a list of information that Council requires to be submitted with the development application. The fully completely application form is to be submitted to Council together with three (3) copies of plans of the proposal. The submission of a Development Application does not guarantee approval, each application is assessed individually in accordance with the Environmental Planning and Assessment Act 1979 and Council's Planning Instruments. Your urgent attention to this matter is requested." 4An application for development consent was eventually commenced, but upon clear indication from the Council that it would be unsuccessful unless the clinic was substantially downsized it was withdrawn on 3 March 2005. The Andersons continued to run the business at the property until December 2005, when it had to be vacated. The Andersons relocated the business, which ultimately failed, and sold the Green Valley property in March 2006 for considerably less than the price for which they had purchased it. 5On 10 November 2009, the Andersons filed a Statement of Claim alleging D'Agostino had breached its duty of care to advise them that development consent had lapsed prior to the purchase, causing them loss and damages arising from the relocation and eventual failure of the business and loss of value in the property. The trial judge found against D'Agostino in relation to breach, causation and damage, subject to the Limitation Act 1969 defence referred to below. The primary judge assessed damages on the basis the Andersons would not have entered into the transaction had they been aware of the absence of development consent. The damages awarded were the difference in the purchase price and subsequent sale price of the land, loss of the value of the business and associated costs. Those findings are not challenged on appeal. 6The primary judge also rejected D'Agostino's defence that the cause of action was barred by s 14 of the Limitation Act, which provides inter alia that a cause of action founded in tort is "not maintainable 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". D'Agostino had submitted that the cause of action arose on the date of exchange, being 17 September 2003, more than 6 years before the Statement of Claim was filed on 10 November 2009. Her Honour found that the cause of action in fact arose when the Andersons were made aware that there was no operative consent permitting the use of the premises as a chiropractic clinic in July 2004, and therefore the claim was not statute barred (primary judgment [115]-[116]). She characterised the lapsed development consent at the time of exchange as "a potential or prospective defect in use" of the property as a chiropractic clinic. D'Agostino appeals from that finding. 7For the purpose of the Limitation Act, time runs on an action in tort from the point at which actual loss occurs: Howell v Young (1986) 108 ER 97, 99; Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539 at 583. The cause of action accrues "when measurable damage is first suffered even though further damage continues to accrue (Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514, 531; Commonwealth v Cornwall [2007] HCA 16; 234 ALR 148, 150 [5]-[6] Scarcella v Lettice [2000] NSWCA 289; (2000) 51 NSWLR 302, 306; Cartledge v E Jopling & Sons Ltd [1963] AC 758)": Argyropoulos v Layton [2002] NSWCA 183 at [5]; Christie v Purves [2007] NSWCA 182 at [40]. For the purpose of their negligence claim it is therefore necessary to determine whether the Andersons suffered actual loss on exchange of either contract on 17 September 2003, thereby making the Statement of Claim filed 10 November 2009 outside of the statutory limitation period. 8The primary judge held that the present case was akin to a case where loss is suffered because of the existence of a latent defect or a contingent loss. She held, citing the judgment of Handley JA in Scarcella supra at pars [13]-[22], that in those circumstances loss was only suffered when the defect became manifest or when the contingency had actually occurred. In reaching this conclusion she did not take into account what was said by Handley JA at [23] of his judgment: "Normal conveyancing procedures should have revealed the existence of the defect in title... There is no reason for thinking that the plaintiffs could have ever sold this property and avoided economic loss. The defect in their title would have been discovered, either by their solicitors in preparing the contract of sale, or by the solicitors for the purchaser, and in that event they would have faced claims for compensation or rescission." 9Or, what was said by Giles JA at [42]: "The incomplete right of way was apparent upon search and would become known to any (non-negligent) purchaser, including a purchaser from the plaintiffs. So the $62,000 was the true value of the property in 1982, and the plaintiffs were immediately worse off by $4,000. Their economic loss was suffered in 1982 when they paid too much for the property. It was not prospective, suffered only when they were denied access to the rear of the property. As explained by Handley JA, Christopoulos v Angelos (1996) 41 NSWLR 700 and Registrar-General v Cleaver (1996) 41 NSWLR 713 were quite different in that the title discrepancies were not ordinarily discoverable on search and until their discovery the market values of the properties were and remained their values without the title discrepancies." 10This is not a latent defect case. The lack of development consent was readily discoverable following ordinary conveyancing procedures; indeed, the terms of the development consent were known to D'Agostino but were either ignored or not properly explained to the Andersons (primary judgment [73], [83]). To the extent necessary, the evidence of Mr Moses the expert conveyancing solicitor called by the Andersons confirms this. 11It is also not correct to characterise the lack of development consent as creating merely a prospective or contingent loss that would accrue only if the Council discovered the lapsed consent. On purchase, the Andersons acquired a package of rights that was different to what they understood they were acquiring. That difference, the lack of development consent, was the difference between acquiring a premises and business being lawfully run, and acquiring a premises and business being unlawfully run. 12It was submitted by counsel for the Andersons that the difference between these packages of rights was, at the time of exchange, nominal, because even if the lack of development consent had been discovered immediately after exchange it was open to them to then apply for development consent. Moreover, they submitted that as they were able to continue running the business until December 2005, they had suffered only nominal loss until this time, or, at the very earliest, until July 2004 when they began to take steps to acquire development consent, arguing: "4. In the present case the foreseeable risk of harm arising from the purchase of premises without appropriate consent was the risk that Council would use its powers to prohibit the use made of the premises by the respondents, a contingency which was fulfilled when the Council took the action it did. ... 10. What the respondents lost by the defendant's negligence was the opportunity to operate the business from the premises which had been purchased for that purpose. The loss of that opportunity occurred within the 6 years prior to commencement of proceedings." 13 They relied in this regard on what was said in Wardley supra at [10]: "The likelihood, perhaps the virtual certainty, that there would be a loss, in the light of Rothwell's actual financial position as it stood when the indemnity was executed, did not transform the liability into an actual or present liability at that time." 14It is not correct to categorise a lack of development consent as a "risk that Council would use its powers to prohibit the use made of the premises". Although a s 149 Certificate for the property was not reproduced in the appeal books, the valuation report relied upon by the Andersons below and D'Agostino on appeal stated that the property was zoned 2(a) residential and that the use of the property as a chiropractic clinic at the time of exchange was unauthorised. This was not challenged by the Andersons. The use of the property as a chiropractic clinic was thus prohibited from the time the development consent lapsed in March 2003. Like any other unlawful or prohibited conduct, it did not become unlawful or prohibited only on discovery by the relevant regulatory authority. There was no risk that the council might use its powers to prohibit the use of the property as a chiropractic clinic; it had already done so by zoning the property 2(a) residential. In the absence of development consent, the conduct of the clinic on the property was unlawful. 15Further, the reasoning in Wardley was distinguished by the full bench of the High Court in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640. In that case, the plaintiffs purchased a shopping arcade based on negligent valuation advice from HTW, which did not account for the pending construction of a nearby shopping centre that would affect tenancy rates in the arcade. The plaintiffs successfully operated the arcade for nearly a year before the opening of the shopping centre resulted in a collapse in gross rental income and significant devaluation of the arcade. The Court held (citations omitted): "25 The first criticism is that it was erroneous to say that the plaintiff had suffered no loss at the outset, and erroneous to say that it only suffered a loss when it was reasonably ascertainable what effect the Beach Road Shopping Centre would have. In truth, the plaintiff had suffered a loss when it contracted to buy the Plaza, being the difference between the price agreed to be paid ($485,000) and the value ($400,000) - $85,000. ... 28 If the plaintiff had learned the day after entering the contract to buy the Plaza, or the day after completing that contract, that the defendant's conduct had been misleading in the sense ultimately found by the trial judge, it could have started proceedings then and there. There was unchallenged evidence from Mr Dodds that on either of those dates the plaintiff was in fact worse off as a result of the defendant's breach, since the market value was less than the price. It was not necessary to wait for nearly two years to ascertain that some loss had been suffered. The plaintiff could have found out at once that it had bought something which was worth less than that which it had agreed to pay and did pay. It could have recovered at least the difference between the price paid for, and the market value of, the Plaza. The limitation period would have begun to run. 29 It is incorrect to treat this case as being like Wardley Australia Ltd v Western Australia, on which the trial judge relied. That case held that a risk of loss is not itself a category of loss, and that if a plaintiff enters a contract exposing it only to a contingent loss or liability, the plaintiff "sustains no actual damage until the contingency is fulfilled and the loss becomes actual". The plaintiff was not exposed to a contingent loss; it had suffered an actual loss." 16In Winnote Pty Limited (in liq) v Page [2006] NSWCA 287; (2006) 68 NSWLR 287, the respondent solicitors advised and prepared a real property lease for Winnote as a means of securing the right to exploit a peat deposit on a plot of land, notwithstanding that the proper means of securing this right was to seek a mining lease and exploration licence directly from the Crown. Winnote mined the peat for 5 years, until a third party (Mr Groves) acquired the mining rights from the Crown. Winnote brought a claim against the solicitors more than 6 years after entering into the lease, and sought to argue inter alia that as Winnote had extracted the peat for five years and could have sought a mining lease throughout those five years had it been properly advised, no actual loss occurred until the third party secured the rights. 17Mason P (with whom Tobias JA agreed, Basten JA dissenting) conveniently set out the authorities in this area: "[40] A plaintiff cannot sue for damages in negligence until the cause of action accrues. But once it accrues, time commences to run. Absent a special statutory provision, it does not matter that the plaintiff was ignorant of the true position (Scarcella v Lettice (2000) 51 NSWLR 302 at 306). According to Cartledge v E Jopling & Sons Ltd [1963] AC 758, which established the latter proposition, damage in this context means damage that is 'beyond what can be regarded as negligible' (at 772 per Lord Reid). In Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, Mason CJ, Dawson J, Gaudron J and McHugh J spoke (at 531) of 'measurable' damage. See also Hawkins v Clayton (1988) 164 CLR 539 at 561 587-8 and 599-601. [41] Winnote's claim is for economic loss. 'With economic loss, as with other forms of damage, there has to be some actual damage. Prospective loss is not enough' (Wardley at 527 per Mason CJ, Dawson J and McHugh J). Recently Lord Mance expressed the point in these terms (Law Society v Sephton & Co (a firm) [2006] UKHL 22; [2006] 2 WLR 1091 (Sephton) at [60]): "Any cause of action ... for negligence accrued when the [plaintiff] first suffered any 'actual' damage of a relevant and measurable kind bearing in mind the measure of damage applicable to the wrong in question." [42] In this Court Winnote contends, in effect, that the disadvantage it suffered in 1988 by failing to acquire a proper mining tenement was merely contingent. Actual damage first occurred in 1993 when Mr Groves' intervention prevented the enjoyment of the deposit. Prior to then, so the argument now goes, Winnote was able to enjoy an unimpeded right to remove peat on terms acceptable to itself and Mr Sadler. [43] This argument lies uncomfortably with the submission made many times in a non-limitation context that the negligence caused Winnote to acquire a 'lemon', namely the [Real Property Lease]. [44] In my view, Winnote's argument should be rejected. This is not a contingent loss case of the type discussed in Wardley and Sephton. On the contrary, there was clearly demonstrable 'actual' damage suffered in 1988. Time then commenced to run in tortious negligence and it expired before proceedings were launched in 1995. [45] In Sephton, Lord Mance said (at [67]): 'There is considerable case-law concerning situations where a person's legal position has, through negligence, been altered to his immediate, measurable economic disadvantage, and it has been held that a cause of action accrued although the beneficiary neither knew nor had any reason to know about its existence. In Forster v Outred & Co [1982] 1 WLR 86 a mother, in reliance on negligently given advice, executed a mortgage over her home to secure her son's borrowings, thereby immediately diminishing her home's value. In D W Moore & Co Ltd v Ferrier [1988] 1 WLR 267 due to solicitors' negligent advice, the claimant company took on Mr Ferrier under contractual agreements which failed to prevent him, if he left, from establishing his own competing business. The claimant's 'rights under the two agreements were demonstrably less valuable than they would have been had adequate restrictive covenants been included' (per Neill LJ at p 278G). 'Instead of receiving a potentially valuable chose in action they received one that was valueless' (per Bingham LJ at p 279H). In Baker v Ollard & Bentley (unreported), 12th May 1982 (cited in D W Moore & Co Ltd v Ferrier [1988] 1 WLR 267), the claimant due to solicitors' negligence acquired a less valuable interest in a house held on trust for sale, rather than a separate and saleable interest in its first floor. In Bell v Peter Browne & Co [1990] 2 QB 495, after a marriage breakdown, a solicitor's negligence led to the husband putting the matrimonial home into his wife's name, without any accompanying document being prepared or any caution lodged to protect the one-sixth interest which the wife had agreed that the husband should have on any sale of the house. His resulting equitable interest was 'clearly less valuable' than an interest secured by a charge or protected by a deed of trust (per Beldam LJ at p 510F); further, even though his equitable interest could have been protected at any time until the wife sold the home, that would have involved at least some costs recoverable in damages from the defendant (per Nicholls LJ at p 503G).' [46] In the same case, Lord Walker of Gestingthorpe referred (at [45]) to cases such as Forster v Outred & Co and Bell v Peter Browne & Co as: '... cases where the client had through the negligence of his professional adviser ended up with a package of rights less valuable than he was entitled to expect - damaged or defective goods, to pursue the metaphor, rather than the undamaged and serviceable goods which he should have got.' Lord Walker described these as 'transaction' cases (at [46]). .... [49] Australian cases have approached the 'transaction' cases in similar fashion to the English line." 18Mason P then concluded: "[59] Of course, a defendant wishing to show that the negligently induced 'transaction' caused immediate actual loss of a measurable kind has to establish that proposition. But sometimes this can be 'self-evident' (Wardley at 528 per Mason CJ, Dawson J, Gaudron J, McHugh J) or 'clear beyond argument' (Moore & Co at 279 per Bingham LJ See also per Neill LJ at 277.). [60] The present is such a case, in my opinion. From the outset, Winnote got significantly less than it should have, in consequence of the solicitors' 1988 negligence. The 'goods were damaged' to use Lord Walker's terms. This is demonstrable when one compares the rights secured under the [Real Property Lease] with the rights that ought to have been secured under mining tenements from the outset. The former instrument was legally worthless as later events demonstrated. As Mr Gageler SC put it during argument in this Court, the rights secured by the RPL 'were of a dramatically inferior kind' (CA Tr p 24). [61] Entry into the RPL and onto the land also prejudiced Winnote from the outset. There was measurable damage, albeit that the assessment exercise would have been a difficult one had Winnote got the matter to court in 1989-90 [at the time of the breach]. In October 1988 Winnote paid FS $3,650 for professional costs in drafting the RPL. Further substantial costs were paid in August 1989 for legal services provided by FS and FM in relation to obtaining the lease (J105-6). On 21-22 August 1989 Winnote paid Mr Sadler $7519 on account of royalties and $5305 on account of his costs (Blue 14/3403, 3417. Orange 533), these being obligations imposed by the RPL. The royalties were paid for peat that was not Mr Sadler's to sell. In truth, Winnote had exposed itself to a claim in conversion by the true owner of the peat, ie the Crown in right of Victoria. All of these were items of wasted expenditure that did not produce any proven commensurable value (see Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 81-2 and 107)." (See also Anderson v Edwards [2009] NSWCA 375 at [22]-[23]; Doundoulakis v Antony Sdrinis & Co [1989] VR 781 at 786-787). 19The Andersons did not submit that Winnote was wrongly decided. They conceded that the "package of rights" they acquired on exchange was not exactly what they bargained for. Indeed, their case at first instance was run on the basis that they would not have entered into the transaction had they known of the lapsed consent. Counsel for the Andersons conceded that they had paid "a premium" for the business and property based on the assumption that there was unlimited development consent. However he submitted that the premium for development consent and the premium for the potential to acquire development consent may have been the same. The Andersons submitted on this basis that although they acquired a different package of rights on exchange from what they had bargained for, it was not a "substantially impaired" package of rights as was acquired in Winnote as they still possessed the potential to acquire development consent. They referred to evidence that the Council's eventual indication in February 2005 that it would not grant development consent was based on the expansion of the business after the date of settlement. They submitted that D'Agostino had not demonstrated that as at the date of settlement consent would not have been granted, or that the value of the property with the potential for development consent was significantly less than the value of property with development consent. 20The possibility and process of applying for development consent after exchange, the factors taken into account in the Council's consideration and the ultimate outcome of that application are factors relating to mitigation and calculation of loss; they do not determine whether or not actual loss occurred on exchange. The only question for determination is whether the rights held by the Andersons after exchange, being a property and business without development consent, were worth substantially less than what they understood they were acquiring, being a property and business with development consent for use as a chiropractic clinic. If they were, actual loss was suffered, and time began to run. 21The expert valuation report, which was not contested below or on appeal, valued the property on the day of exchange with development consent as worth approximately $550,000. It valued the property on the day of exchange without development consent as worth approximately $480,000. The Andersons could not have sold the property on 18 September 2003 for at or near $550,000, because a competent solicitor would have drawn attention to the lapsed consent. If they attempted to sell the property immediately after purchasing it, the value would be at or near $480,000. 22The Andersons submitted, however, that a third category of valuation, namely the value of the property with the potential for development consent, was necessary to determine whether actual loss had occurred. I do not agree. It is contrary to the evidence of Mr Jones and it is hardly surprising consistent with that evidence that the risk of not obtaining the Council's consent coupled with the cost of applying for such consent, would lead to a diminution in the value of the property. 23Thus, regardless of the fact the business operated without development consent until December 2005, regardless of what further loss flowed from D'Agostino's negligence once the lapsed consent was discovered by the Council, and regardless of what the Andersons did in seeking to mitigate the loss by applying for development consent, as of 17 September 2003 the Andersons had suffered a loss on exchange of contracts; "the package of rights" was significantly impaired compared to what they agreed they had contracted to buy. 24It is not necessary to consider whether the business was also of less value as a result of the lapsed consent. Actual loss flowing from the negligence occurred on the exchange of contracts for the purchase of the property such that time for commencing proceedings in relation to D'Agostino's negligence began to run. 25I should add it was not contended by either party on appeal that loss in fact occurred on completion of the sale, rather than on the entry into the contract. That approach was correct as there was no provision in either the contract for the sale of land or in the contract for the sale of the business which gave the Andersons a right to terminate if it transpired that there was no development consent to the carrying on of the business. 26The action for negligence commenced by the Andersons on 10 November 2003 was barred by s 14 of the Limitation Act. I therefore propose the following orders: (1)Appeal allowed. (2)Set aside the judgment and orders of Ashford DCJ made 6 October 2011 and 5 December 2011 and in lieu thereof (i) enter judgment for the defendant and (ii) order the plaintiffs to pay the defendant's costs. (3)Order the respondents to pay the appellant's costs of the appeal and have a Certificate under the Suitors Fund Act if eligible. 27McCOLL JA: I agree with Bathurst CJ's reasons and the orders his Honour proposes. 28MACFARLAN JA: I agree with Bathurst CJ.