Estex Clothing Manufacturers Pty Ltd v Ellis and Goldstein Ltd

REASONS FOR JUDGMENT DRAMATIS PERSONAE The first and second applicants were husband and wife. I will call them Mr and Mrs Pola. Mrs Pola died in January this year. Mr Pola is her personal representative. The third and fourth applicants are children of Mr and Mrs Pola. I will call them Nigel and Stefan. The Pola family, which I will call "the Polas", had three farms: one at Tambo in Queensland, another at Longreach also in Queensland, and a third called "Paddington" near Cobar in New South Wales. At all times relevant to this proceeding Stefan was based at Tambo and Nigel at Longreach, while Mr and Mrs Pola were usually at "Paddington". The Polas were able to communicate with each other by telephone from the various farms. There were facsimile machines at the Tambo and Longreach farms, but not at "Paddington". The Polas had dealings with the first respondent ("the Bank"). Their accountant at relevant times was Mr Conomos. In 1993 the Polas engaged the fourth respondents ("Watsons"), who practised as solicitors in Sydney, to advise them. The partner in charge of their matters was Mr Fisher, though most of the work was done by Ms Johnstone, an employee solicitor. When she was on vacation, Ms Rodd filled in for her. Watsons briefed a barrister, Mr Larkin, to advise the Polas. THE PROCEEDINGS In 1993 the Polas sued the Bank and Mr Conomos and a company with which he was in partnership. The Polas claimed that the Bank and Mr Conomos and his company had given them bad advice which had led them to overextend themselves financially. In September 1995 the proceeding was resolved between the Polas and the Bank. At the same time the Polas discontinued against Mr Conomos and the company, and orders for costs were made in favour of those respondents. Shortly thereafter the partners of Watsons were added as respondents. It was alleged that they had given negligent advice to the Polas, and had acted outside their instructions, so as to cause loss to the Polas. In September 1996 Mr Larkin was joined as a respondent. He too was alleged to have given negligent advice which caused loss to the Polas. A further claim was later added against Watsons and Mr Larkin, namely that the institution of the proceedings against the Bank and Mr Conomos and his company was an abuse of process. The Polas subsequently settled with Mr Larkin, so that all that was left when the matter came before me was the case against Watsons. The loss claimed to have been suffered by the Polas is $93,531. It will be necessary later to amplify this broad description of the course of the proceedings, but that is a sufficient account at this stage. WITNESSES - ISSUES OF CREDIT Evidence for the Polas was given by Mr and Mrs Pola and Stefan, and for Watsons by Mr Fisher and Ms Johnstone. Mr Larkin also gave evidence. Although Mrs Pola was not available for cross‑examination, I received her affidavits on the basis explained in Estex Clothing Manufacturers Pty Ltd v Ellis and Goldstein Ltd (1967) 116 CLR 254 at 263 and Curley v Duff (1985) 2 NSWLR 716. Where the evidence of Mr Pola conflicts with that of other witnesses, I prefer their evidence. Mr Pola's evidence under cross‑examination was unsatisfactory. He was at times deliberately obtuse. He was evasive, content to generalise, and frequently failed to answer counsel's questions, even though the questions were repeated and rephrased several times. He appeared to me to be cast down and depressed by the events that had happened. At times he simply didn't seem to care what the question was or what answer he gave. His most familiar refrain when asked whether something had happened or someone had said something was "It's possible". His recollection of events was extremely poor. Stefan's demeanour was better than his father's. But he too, under cross‑examination, was unresponsive to questions. I think this was because he did not understand some of them. I did not gain the impression that he was being evasive or deliberately obtuse. Mr Fisher's recollection of events was not good, probably because he had not had hands‑on experience of the Polas' transactions. However he made no attempt to pretend to a better recollection than he had, and to the best of his limited recollection was obviously telling the truth. He came across as a credible witness suffering from a poor recollection of fairly routine events that had occurred some years in the past. Ms Johnstone had a much greater involvement in the Polas' affairs than Mr Fisher. She seemed to me to be a competent solicitor who had been doing her best in the difficult circumstances that the Polas' situation presented. She gave her evidence clearly and I accept her account of events where it conflicts with that of Mr Pola and Stefan. Mr Larkin was a precise witness, with a good recollection of events. I have no hesitation in accepting his account of conversations and occurrences where they conflict with those of Mr Pola and Stefan. THE FACTS In 1989 the Polas borrowed more than $1.3 million from the Bank, secured by mortgages over the properties. In February 1991 the Commonwealth Government's floor price scheme for wool was removed. At about the same time the Polas' properties, particularly Paddington, were suffering from drought. The abolition of the floor price coupled with the drought severely affected the Polas' ability to service the loans. In February 1993 the Polas retained Watsons for advice as to their position in relation to the Bank. The partner in charge of the matter was Mr Fisher. Ms Johnstone, and for a short time Ms Rodd, did most of the work, but Mr Fisher retained overall supervision. In March 1993 the Watsons briefed Mr Larkin. Mr Larkin had two initial conferences with Mr and Mrs Pola. They told him they thought the Bank had treated them terribly, and had advised them to expand their land holdings by borrowing from the Bank. They had relied on the Bank's advice, had purchased a property at North Yanburra for $950,000 which they had borrowed from the Bank, and they would never be able to repay it. Between March and August 1993 Mr Larkin, in consultation with the Polas and Watsons, prepared statements by Mr Pola, Mrs Pola, Stefan and Nigel. The idea was that when the statements were in proper form the strength of the case against the Bank could be assessed, and the statements converted into affidavits should the need arise. In the course of conferences with Mr and Mrs Pola it became apparent to Mr Larkin that in expanding their holdings and borrowing the money to do so the Polas had relied not only on the Bank's advice but on that of Mr Conomos. Mr Larkin advised that the Polas had a strong enough case against the Bank and Mr Conomos to justify the issue of proceedings. Proceedings were issued against the Bank and Mr Conomos in June 1993. The case against the Bank was that, in breach of its common law duty of care and s 52 of the Trade Practices Act 1974, it had advised the Polas to increase their borrowings and purchase the additional property when it was not prudent or safe for them to have done so. The case against Mr Conomos was that, in breach of the terms of his retainer, his common law duty of care, and the provisions of the Fair Trading Act (NSW), he had wrongly advised the Polas to increase their borrowings and purchase an additional property when it was not prudent or safe for them to have done so. In July the Bank served notices of demand on Mr and Mrs Pola and Nigel for approximately $2 million each and on Stefan for approximately $1.5 million. In December the Bank filed a cross‑claim for possession of Paddington and the North Yanburra and Tambo properties, and for judgment against Mr and Mrs Pola and Nigel for over $2 million and against Stefan for over $1.5 million. In March 1994 a company associated with Mr Conomos was added as a respondent. The amended statement of claim alleged that Mr Conomos and the company were partners and that they, and not Mr Conomos alone, had been retained as the Polas' accountants. In early 1994 Mr Pola received an offer for the purchase of Paddington for $760,000. Paddington had been on the market since August 1991. In May 1994 Mr Fisher and Mr Larkin advised the Polas to proceed with the sale. The basis of this advice was that the prospects of an advantageous settlement with the Bank would be increased if the Bank were aware that the Polas had some ready money which, together with money borrowed on the security of their other properties, could be used to come to an arrangement with the Bank. In August Mr Pola or Stefan informed Ms Johnstone that an offer of $760,000 had been received from Hobbs Bell Pty Ltd ("Hobbs Bell") to be broken up as to $700,000 for the land and $60,000 for the stock. On 1 September Watsons wrote to the Bank indicating that an offer of $1,005,000 could be made following the sale of one of the Polas' properties and the refinancing of other properties. By letter of 14 September Hobbs Bell's solicitors, Kabos Elder, asked Watsons to prepare two contracts ‑ one for the land and the other for the plant, equipment and livestock. On 16 September Ms Johnstone faxed the letter to Stefan who telephoned her on the same day agreeing to two contracts, and stating that the price for the land was to be $700,000. On 20 September Ms Johnstone sent Kabos Elder a draft contract for the sale of the land. Mr Pola was the vendor, as he was the sole owner of the land. The contract showed a purchase price of $700,000. On the same day Stefan rang Ms Johnstone and told her the Polas wanted to speed up the contract because the purchaser was anxious ‑ it had stock dying from the drought and wanted to put the stock on Paddington, which had grass, as soon as possible. On 22 September Hobbs and Bell's solicitor telephoned Ms Johnstone requesting an apportionment of the price as to $660,000 for the land and $100,000 for the plant, equipment and stock. Mrs Pola subsequently told Ms Johnstone that she, Mrs Pola, would have to speak to the Polas' accountant about the apportionment, because Mr Pola owned the plant and equipment, and the Polas as a family owned the livestock. By letter of 23 September the Bank's solicitor (Ms Housden) replied to Watsons' letter of 1 September. She said the Bank would consider a settlement offer only on receipt of full current financial information from the Polas. The letter concluded: My client has instructed me that, in light of the "firm offer involving the sale of one of the properties" my client would be willing to discharge its mortgage over any of the properties to which the legal proceedings related provided that it is able to satisfy itself that the sale price for any such property is a reasonable market price and provided that it receives the net proceeds of sale .... My client would be willing to receive such net sale proceeds on a "without prejudice" basis pending the determination of the legal proceedings. On the same day Kabos Elder faxed a letter to Watsons enclosing a draft agreement for the sale of the plant, equipment and livestock. The letter suggested a number of amendments to the land contract, one of which was the apportionment of the price as to $660,000 for the land and $100,000 for the plant, equipment and stock. Ms Johnstone was on leave from the close of business on 23 September until 10 October. Ms Rodd filled in for her during this period. On 26 September Ms Rodd faxed to Stefan Kabos Elder's letter addressed to Mr and Mrs Pola. She then wrote to the Bank stating that if the Polas were to sell one of their properties, they would be asking the Bank to discharge any mortgage over it, and proposing that the proceeds be held in a joint account pending settlement or determination of the legal proceedings. On 29 September the following events occurred. Stefan telephoned Ms Johnstone's secretary, Karyn, and answered some of the queries in Kabos Elder's letter of the 23rd. He told Karyn that if the Polas were to agree with the apportionment requested by the purchaser, the Bank might say that the land had been sold for an amount less than that for which it should have been sold. However, he said that if the Bank was happy with the apportionment, the Polas would not be fussed. Stefan also telephoned Mr Fisher and told him they had a sale at $760,000. Mr Fisher suggested that the proceeds be held in a joint account. He said he would tell the Bank that $700,000 was for the land and $60,000 for the stock, so that the $60,000 could be released to the Polas. Mr Fisher then wrote to the Bank saying that he anticipated receiving instructions to sell Paddington for $760,000, apportioned as to $700,000 for the land and the balance for the stock. The $700,000 was to be held in a trust account jointly controlled by the Bank and Watsons pending settlement or judgment. The $60,000 was to be paid to the Polas. The following events occurred on 5 October. Ms Housden telephoned Ms Rodd and said the Bank was willing to discharge the mortgage so long as it received the net proceeds of sale. The Bank would need to see the contract when it was signed. Mr and Mrs Pola had a meeting with Ms Rodd in which Kabos Elder's letter of 23 September was discussed. Ms Rodd made various annotations on the letter, by way of recording the Polas' instructions on Kabos Elder's queries and suggestions. Against Kabos Elder's proposed $660,000 for the land she wrote "$700,000". After the meeting Ms Rodd wrote to Kabos Elder in response to their letter of 23 September. She informed them that the $760,000 was to be apportioned between the land and equipment, all of which were owned by Mr Pola ($700,000), and the stock which was owned by the family ($60,000). Ms Rodd then wrote to the Bank informing it that Mr Pola had instructed Watsons to prepare a contract for the sale of Paddington for $700,000. She asked whether the Bank would agree to release the mortgages on the property. She then faxed a letter addressed to Mr and Mrs Pola at Tambo. The letter stated that she had spoken to Ms Housden, and had written to the Bank seeking approval for the sale to proceed. Ms Housden was to put to the Bank the request for release of the mortgages "further to the offer of $700,000". Ms Housden had said that the Bank would want to receive the proceeds of sale. However, said Ms Rodd, this would not prevent the Polas recovering the money if they were successful in the litigation. She proposed to await the Bank's confirmation of approval of the sale before she negotiated about the disposition of the proceeds of sale. In a file note Ms Rodd recorded that the Polas "only want the Bank to know about the $700,000 for the land". They didn't want it to know about the sale of the livestock. On 6 October Kabos Elder responded to Watson's letter of 5 October. Amongst other things Kabos Elder said that there would have to be three contracts: one for the land, one for the plant and equipment and one for the livestock. This was because the stock was apparently owned by the family partnership. Since the vendor wanted $700,000 for the land, the remaining $60,000 would have to be apportioned between the plant and the livestock. In a letter from Kabos Elder dated 11 October Watsons were told that the purchaser was anxious to exchange as soon as possible as it was experiencing daily losses of livestock because of the drought. In a conversation on 14 October Stefan told Ms Johnstone, who was now back at work, that the purchaser was in a "big hurry" to put its stock on Paddington as that property had feed on it. On the same day Ms Johnstone faxed Stefan a message that the Bank had told her it would accept $1.75 million in full settlement of its claims against the Polas. Mr and Mrs Pola had come to Sydney to confer with Mr Larkin on Thursday 20 October. He was unable to see them, and they met with Ms Johnstone who, by her account, was concerned at the conclusion of the meeting that she had been unable to obtain clear instructions as to whether the sale was to proceed. She telephoned Mr Larkin and then, she said, had a letter hand‑delivered to Mr and Mrs Pola at the motel where they were staying in Sydney. The letter recorded that Mr Larkin wanted final instructions as to the sale and disposition of the proceeds. It was his view, shared by Watsons, that if the land were sold, the proceeds should be paid to the Bank on condition that they would be repaid with interest if, as a result of the proceedings, the Polas received Paddington unencumbered. The letter recorded Ms Johnstone's understanding that the Polas had decided to sell Paddington, and that it was therefore necessary to establish the conditions on which the proceeds of sale would be dealt with pending resolution of the proceedings, and to ensure that a discharge of mortgage would be available on settlement. The Polas were asked to confirm that the letter accorded with their instructions. The photocopy letter in evidence is not signed, and it was submitted for the Polas that it had never been sent. It was put that what had been hand‑delivered was a letter dated 20 October recording that the terms of the three contracts had been settled with the purchaser's solicitor, and requesting that Mr and Mrs Pola attend Watsons on the morning of the 21st to discuss with Mr Larkin the terms of any sale of Paddington and to finalise the documents and execute them pending instructions to exchange. The letter also asked Mr and Mrs Pola to bring with them certain original documents Ms Johnstone needed in connection with the sale. Apart from the fact that the letter Ms Johnstone said had been sent was unsigned, reliance was placed on the fact that the two letters had an identical opening sentence ‑ that Mr Larkin was asking for final instructions. Although the two letters overlap to this extent, and the photocopy of the first of them is unsigned, I find that the original of the photocopy letter was hand‑delivered to the motel. Ms Johnstone was adamant that it had been sent. She had had a conversation with Mr Larkin during the afternoon, and had then drafted the letter. Apart from their opening sentences, the letters deal with different topics: the unsigned one with the disposition of the proceeds of sale and the signed one with the form of the contracts and their exchange. I am unable to say whether the original of the photocopy letter was signed or unsigned. I find that the signed letter was also sent to the motel, but whether it was hand‑delivered or sent by ordinary mail I am again unable to say. On the morning of Friday 21 October Mr and Mrs Pola met with Mr Fisher. Ms Johnstone joined them later, and in response to questions asked by Mr Fisher said that the Bank was insisting on the proceeds of sale being paid to it, that that was what the Polas would have to do if they wanted a discharge of mortgage, and that the Bank would not agree to the proceeds being paid into a trust account. Mr Fisher then telephoned Mr Larkin who confirmed that there was no arrangement with the Bank that the money be held in trust. This upset Mr and Mrs Pola, and they left the room. They later returned, and Ms Johnstone took Mr Pola through the three contracts, though he did not sign them. In the afternoon there was a meeting at Mr Larkins' chambers attended by Mr and Mrs Pola and Ms Johnstone. Mr Larkin outlined the options available to the Polas. If they did not exchange, they might lose their purchaser. If they did exchange without first making arrangements with the Bank, they might not be able to complete the sale. It was up to them. The lawyers couldn't tell them what to do. After the conference Mr and Mrs Pola and Ms Johnstone returned to Watsons. Ms Johnstone took Mrs Pola through the livestock contract, and she signed it. Mr Pola signed all three contracts. Ms Johnstone told them she would not exchange until she had their final instructions. After Mr and Mrs Pola left to return to Paddington, Ms Johnstone faxed a letter to Stefan, addressed to Mr and Mrs Pola, confirming that contracts were ready to be exchanged upon receipt of instructions to that effect, and confirming that the Polas wished if possible, before an exchange, to secure the Bank's agreement to the conditions they wished to attach to payment of the proceeds to the Bank. Ms Johnstone noted that the purchaser would become most anxious if the contracts were not exchanged on Monday 24th. Counsel for the Polas described as extraordinary the decision to dispatch this letter when it was known to Ms Johnstone that Mr and Mrs Pola were then travelling to Paddington. I do not think it at all odd. When Mr and Mrs Pola were at Paddington, swift written communication with them was possible only by way of facsimile to Stefan at Tambo. It was his practice on receiving faxes relating to the sale to telephone his parents at Paddington to pass on the contents. On the morning of Monday 24 October Mrs Pola telephoned Ms Johnstone and said that they probably still wanted to exchange, but would get back to her. In the afternoon Ms Johnstone sent a fax to Mr and Mrs Pola via Stefan in the following terms: We advise that we have been pressed for an exchange of contracts by the purchaser and that an appointment has been made to exchange contracts by 4.45 this afternoon. We note that we have not received agreement from the Bank in relation to the terms of any discharge and it may be that the bank will, amongst other things, insist that the amount paid for the land should be $700,000. We confirm that if we exchange without finalising the discharge terms with the bank that the following may occur: 1. You will have to settle the sale on the bank's terms; OR 2. We will have to apply to the Court on a motion to have the terms upon which we pay the money fixed by the Court; OR 3. You will be unable to complete the contract with the risk that the purchasers will sue for breach of contract. We will attend the exchange unless we receive your instructions to the contrary. Ms Johnstone's evidence was that the second and third paragraphs confirmed advice that had been given to Mr and Mrs Pola on the 21st and earlier. Later in the afternoon Stefan rang Ms Johnstone. They discussed the letter, and according to Ms Johnstone, he said that if she did not hear from him within five minutes she was to go ahead and exchange contracts. Ms Johnstone made a file note of the conversation. She did not hear from Stefan within the next ten minutes or so, so she went to Kabos Elder's office and exchanged contracts. Stefan denied having had that conversation with Ms Johnstone. He said he did not see the fax until he came home that night, which was after 4.45 pm Queensland time. It was then too late to ring Ms Johnstone. He probably rang his parents and told them about the letter. He didn't take a lot of notice of it. He did not ring Ms Johnstone and complain that she had exchanged without first speaking to him. I accept Ms Johnstone's account. Her evidence is supported by a contemporaneous note. Ms Johnstone was cross‑examined about another part of the file note, but it was not put to her that the conversation with Stefan had not taken place or that she had concocted the relevant part of the file note. I think Stefan had simply forgotten the conversation. I do not believe he was consciously telling an untruth. On 25 October Mrs Pola telephoned Ms Johnstone inquiring whether contracts had been exchanged, and she was told they had been. She did not complain. On the same day Ms Housden wrote to Ms Johnstone saying the Bank would agree to the sale of Paddington on three conditions: that it receive the net proceeds, which it was prepared to do on a without prejudice basis pending the outcome of the litigation; that it was satisfied that the sale was for market value; and that it was provided with a copy of the contract prior to exchange. The Bank was not prepared to agree to a sale for $660,000, which was the amount appearing in minutes of order which had been prepared by Mr Larkin and handed to the Bank's counsel. On 26 October Ms Johnstone faxed the Polas at Tambo confirming that exchange had taken place. The Polas made no complaint. Completion of the land contract was conditional on the Minister's consent to the transfer of the land. That consent was given on 13 January 1995. Under the contract completion was to occur twenty‑one days after receipt of the consent. On 17 January the Bank wrote to Ms Johnstone refusing to discharge its mortgage because it was not satisfied with the "purported sale price" of $660,000. By letter of 23 January Ms Johnstone, on the Polas instructions, offered to pay the Bank $700,000 less legal costs and commissions on condition that the money, together with interest, be treated as if it were Paddington, so that should the Polas be successful in the litigation, they would be entitled to an order that the Bank pay them the proceeds together with the interest. Two days later the Bank agreed to accept $700,000 less costs and expenses, but declined to agree to conditions as to interest which were apparently contained in the 19 December letter. By letter of 31 January the Bank said it would accept $700,000 on a without prejudice basis, but would make no agreement as to interest. On 2 February Mrs Pola told Watsons to "hold" the $700,000 offer until further instructions. Watson's instructions were withdrawn by fax from Stefan on 3 February. On 21 February Hobbs Bell issued a notice to complete. Settlement did not take place in accordance with the notice, and on 25 May Hobbs Bell sued for specific performance and damages in the Supreme Court of New South Wales. On 4 August the Bank discharged the mortgage over Paddington and settlement with Hobbs Bell took place. The Bank received the net proceeds of all three sales ($734,654). Despite the settlement Hobbs Bell refused to discontinue their proceedings and pressed their claim for damages. On 14 August 1995 Hobbs Bell's action was dismissed. On 26 September consent terms were filed settling the proceeding as between the Polas and the Bank. The proceeding was then discontinued against the accountants, and they were awarded their costs. Thereafter the Polas joined Watsons and Mr Larkin as respondents. The claim against Mr Larkin was later settled. The claim against the solicitors is thus the only live part of the proceeding. CLAIM AGAINST WATSONS The Polas claims against Watsons can be summarised as follows: (a) The institution of the proceedings was an abuse of process. It is pleaded that the proceedings were instituted for the collateral purpose of improving the Polas' bargaining position rather than for the legitimate purpose of asserting their legal rights. The institution of abusive proceedings is said to have been a breach of Mr Fisher's duty to act in accordance with his professional duty to the Polas and to the Court. (b) Watsons were negligent in joining Mr Conomos and his partner company as respondents when there was no or no proper ground for joining them. It is pleaded that Mr Fisher joined them despite the Polas' instructions that they could see no grounds for claiming negligence against the accountants. (c) Watsons' conduct of the conveyancing transaction was negligent in that they gave no or no adequate advice to the Polas that there was a likelihood the Bank would refuse to discharge the mortgage on settlement. (d) Watsons' were in breach of the implied term of their retainer that they would act in accordance with their instructions in that, without instructions, (i) they notified the Bank that the purchase price for the land was to be $700,000, and (ii) they exchanged contracts. Two other complaints were pleaded: that Watsons had advised that selling Paddington would improve the Polas' negotiating position, and that a sale would induce the Bank to enter into a compromise. Neither was pursued at trial. (a) Abuse of process The tort of abuse of process involves the institution of proceedings for a purpose or to effect an object beyond that which the legal process offers: Grainger v Hill (1838) 4 Bing (NC) 212; 132 ER 769. In that case the mortgagee of a vessel procured the issue of a writ to arrest the owner pursuant to an action for recovery of the money lent. The sole purpose of the execution of the writ was to obtain the ship's register, which was outside the scope of the writ. Yielding to the duress, the owner gave up the register and was thereby prevented from making several profitable voyages. He was allowed to recover his loss, without proof that the proceedings had no reasonable and probable cause or had terminated in his favour. In Varawa v Howard Smith Co Ltd (1911) 13 CLR 35 at 91 Isaacs J said: In the sense requisite to sustain an action, the term "abuse of process" connotes that the process is employed for some purpose other than the attainment of the claim in the action. If the proceedings are merely a stalking‑horse to coerce the defendant in some way entirely outside the ambit of the legal claim upon which the Court is asked to adjudicate they are regarded as an abuse of process for this purpose. A person alleging abuse of process must show that the predominant purpose of the party in using the legal process is a collateral purpose. It is not necessary that the improper purpose be the sole purpose: Williams v Spautz (1992) 174 CLR 509 at 529. The Polas assert that Watsons commenced a proceeding in their name for an extraneous purpose. The claim is that in so doing the solicitors have acted in breach of their duty to the Polas and to the Court. I need not explore the suggested link between the alleged abuse and the breach complained of, because the evidence does not support the claim that the proceeding was an abuse of process. Mr Pola's evidence was that in deciding to bid $950,000 for North Yanburra he relied on Mr Pyne's advice that it would be safe for the Polas to do so. Mr Pyne was the Manager of the Bank's Charleville branch. Mr Pola also relied on Mr Conomos' advice that making a major investment would improve the Polas' tax position. Neither Mr Pyne nor Mr Conomos warned him that there were risks associated with the acquisition. Had they done so, he would not have gone ahead with it. Mr Larkin outlined the options open to the Polas. One was to negotiate with the Bank with a view to persuading it to reduce the amount claimed. The Polas rejected this as an option on the ground that the Bank would never agree to it. Mr Larkin then said that based on what the Polas had told him, they had a sufficiently strong case to bring proceedings against the Bank to have the loans and mortgages set aside. Mr Larkin also advised that Mr Conomos and his company be joined. This advice was based on the Polas' statements that they relied not only on the Bank but on what Mr Conomos had told them. They said they relied on him "a lot". In cross‑examination Mr Larkin said he believed there was a justiciable cause of action "in negligent advice and trade practices" against the Bank and the accountants. It was appropriate to join the Conomos company because Mr Conomos was in partnership with it. At all times whilst he was acting for the Polas Mr Larkin held the view that there was a reasonable cause of action against the Bank, Mr Conomos and the company. Reliance was placed by the Polas on a statement alleged to have been made by Mr Larkin in conference on 7 July 1994 that the purpose of instituting the proceedings was to improve the Polas' bargaining position with the Bank. The evidence relied on was that of Ms Johnstone, who recalled Mr Larkin saying: Don't forget that in the beginning my original advice to you was that whilst you had a reasonable case, in the long term you probably had no more than reasonable prospects of success against the Bank and that we commenced these proceedings to put you into a negotiating position. Mr Larkin denied that he said the words about putting the Polas into a negotiating position. The file note on which Ms Johnstone relied to refresh her memory of what was said at the conference does not mention the negotiating position remark. But if the remark was made, it does not stand alone. It is coupled with the statement that Mr Larkin was of the view that the Polas had "a reasonable case" and "reasonable prospects of success". In that context, for him to have added that the proceeding was commenced to put the Polas into a negotiating position does not demonstrate that the proceeding was commenced for the illegitimate purpose of obtaining some advantage for which the proceeding was not designed, or some collateral advantage beyond what the law offered: cf Williams v Spautz at 526‑527. Mr Fisher recalled being advised by Mr Larkin that the Polas had a reasonable case against the Bank, and said that Mr Larkins' reference to a negotiating position was to be understood in the context of other advice he had given that it would be preferable for the Polas to sue the Bank before it sued them. In my view the proceeding was commenced for the purpose of securing relief against the Bank and the accountants, and Mr Larkin and Watsons believed the proceeding had a reasonable prospect of success. On the evidence, the action was not commenced for the predominant purpose of putting the Polas into a negotiating position with the Bank rather than establishing their rights against it. The abuse of process claim fails. (b) Claim against accountants As appears from what I have said under the preceding heading, it was not negligent for Watsons to join Mr Conomos and his company in the proceeding. Mr and Mrs Pola's instructions were clear. They relied not only on the Bank but on Mr Conomos. Mr Larkin pointed out to them that the risk in not joining the accountants was that the Bank would assert as a defence to the claim against it that the Polas had had independent financial advice. The firm took the advice of counsel it regarded as experienced and acted in accordance with the advice. The course that was adopted was that which competent solicitors would have taken in the circumstances. As I have said, it is pleaded that the Polas instructed Watsons that the Polas could see no grounds for claiming negligence against the accountants, but that the firm nevertheless joined them. In the course of cross‑examination Mr Pola confirmed the correctness of statements in one of his affidavits that in deciding to bid $950,000 for North Yanburra he had relied on the advice of the Bank's Mr Pyne that it was safe to do so, and on Mr Conomos' advice that making a major investment would improve the family's tax situation, that neither had warned him that there were risks associated with the acquisition, and that had they done so he would not have purchased the property. He then confirmed that he had told Mr Fisher that he had relied on Mr Conomos' advice, and that he had probably told Mr Larkin that as well. He did not himself suggest that Mr Conomos be sued. He left it to the lawyers to decide who should be sued. A few minutes before one of the luncheon adjournments Mr Pola said he could not recall ever having told Mr Fisher that he did not want to sue Mr Conomos. A few minutes after resuming he said that he had told Mr Fisher that he did not want Mr Conomos sued. Pressed as to the accuracy of his later statement, Mr Pola said "Well, I don't know. You have got me a bit (indistinct) on that". He then agreed that when he went to see Mr Larkin, who explained to him the reason for joining Mr Conomos, he did not say that he could see no grounds for claiming negligence against Mr Conomos. In view of the contradictory nature of Mr Pola's evidence on this point, I am not satisfied that he told Mr Fisher he did not want Mr Conomos to be joined. Even if at some stage he did, I am quite satisfied that after he saw Mr Larkin, and had the position explained to him, he withdrew his objection and, as he said, left it to the lawyers to decide whom to sue. (c) Informing Bank of $700,000 sale without instructions On 29 September 1994 Stefan telephoned Mr Fisher and informed him of the sale for $760,000. Mr Fisher said he would tell the Bank that $60,000 was for the stock and the balance was for the land. Mr Fisher made a file note of the conversation. I accept that at the end of the conversation Mr Fisher believed that Stefan had agreed that Mr Fisher should tell the Bank of the apportionment. I also find that Mr Fisher was justified in so believing. Stefan either expressly agreed with Mr Fisher's proposal to tell the Bank, or by remaining silent agreed by implication. Indeed Stefan himself confirmed the accuracy of Mr Fisher's file note. In the course of cross‑examination, when he was taken to the file note, the following exchange occurred: Part of the discussion [Mr Fisher] says was that he suggested to you that he would ask the bank to apportion $700,000 for the land and $60,000 for the animals so that $60,000 would be released to you, that is you as the family group? --- Right, yes. Do you agree that that happened? --- That that conversation took place? Yes? --- Yes. And you understood that Mr Fisher thereafter would tell the bank that $700,000 had been agreed for the land? --- In due course, yes. So it came as no surprise to you later on to find out that Edwina Rodd had on the firm's letterhead written to the bank telling them just that, that is $700,000 for the land? --- Well, it did because it was something I had forgotten about until I went back through the stuff later. So it is clear that Stefan authorised Watsons to inform the Bank of the sale and the apportionment. But Mr Fisher obtained no direct, express authority from Mr Pola, who was the sole owner of the land, to inform the Bank that the land had been sold for $700,000. Was Stefan his father's agent for the purpose of dealing with Watsons? In general, no formality is necessary for the appointment of an agent to act on behalf of his principal: Field v Shoalhaven Transport Pty Ltd [1970] 3 NSWR 96 at 103. It is only necessary that the principal and agent consent to that relationship: Garnac Grain Co Inc v HMF Faure and Fairclough Ltd [1968] AC 1130 at 1137. The consent need not give rise to a contract between them: Williston on Contracts 3rd ed (1959) at 186. The existence of agency may often be established from the words of the parties and the circumstances of the particular case, and may be implied from prior habits or from a course of dealing between the parties where the agent has repeatedly been permitted to perform similar acts in the past: Busby v Walker (1956) 84 So 2d 304. If the facts fairly disclose that one party is acting for or representing another by the latter's authority, the agency exists: Field at 103. Thus the consent of the principal may be implied where he places another in such a situation that a reasonable man would understand the other to have the principal's authority to act on his behalf, or where the principal's words or conduct, coming to the knowledge of the agent, are such as to lead to the reasonable inference that he is authorising the agent to act for him: Pole v Leask (1863) 33 L J Ch 155 at 161-2. With respect to the agent's consent, if the principal requests another to act for him with respect to a matter, and indicates that the other is to act without further communication and the other consents so to act, the relation of principal and agent exists. If the other does the requested act, it is inferred that he acts as agent unless the circumstances indicate otherwise: Restatement 2d, Agency at 83 and Williston at 186. The creation of agency does not depend upon the principal's conscious intention to confer upon another authority as agent. Rather, if a principal intentionally does certain acts the legal effect of which is the creation of authority of an agent in another, that authority will exist regardless of the motives of the parties: Busby v Walker at 308. Thus in Garnac Grain at 1137, Lord Pearson, with whom the other Law Lords agreed, said that principal and agent "will be held to have consented if they have agreed to what amounts in law to such a relationship, even if they do not recognise it themselves and even if they have professed to disclaim it". In Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 at 587 Lord Wilberforce, with whom Lord Reid agreed, after referring to Lord Pearson's observation in Garnac, said: The significant words for the present purpose, are "if they have agreed to what amounts in law to such a relationship". These I understand as pointing to the fact that, while agency must ultimately derive from consent, the consent need not necessarily be to the relationship of principal and agent itself (indeed the existence of it may be denied) but may be to a state of fact upon which the law imposes the consequences which result from agency. It is consensual, not contractual. Lord Wilberforce and Lord Reid dissented in that case, but that does not affect the authority of this passage, which is but an amplification of what had been said in Garnac Grain. Mr Pola said that he left matters to Stefan and Mrs Pola, and that they and later Stefan alone had handled most of the Polas' business affairs. Indeed he, Mr Pola, had had only an imperfect awareness of what went on in relation to the transaction. Stefan was the main means of communication between Watsons and the Polas. He was located at Tambo in Queensland and had a fax machine there. There was no fax machine at Paddington, where at relevant times Mr Pola was located. When a fax arrived at Tambo from Watsons which contained information Stefan thought should be passed on to his parents, he phoned the information through to them at Paddington and obtained their reactions. Nearly all written communications were made by Stefan. When asked whether he and his mother attended to "most of the business side of the transaction", including "dealing with solicitors and the like", Stefan answered that he did, because he had the fax machine at Tambo. In the present case a reasonable man would in my view conclude from the facts and matters I have mentioned that Mr Pola had requested and authorised Stefan to act for him. Mr Pola's conduct was such that it is reasonable to infer that he had authorised Stefan to act for him. By acceding to his father's request and acting in accordance with that authority, Stefan became his agent. In relation to the specific act of Stefan's at present under consideration, it is to be remembered that after Mr Fisher had told the Bank of the apportionment, Mr and Mrs Pola confirmed that they had no objection to the Bank knowing the sale price of the land, though they did not want it to know of the extra $60,000 for the stock. See Ms Rodd's file note of 5 October 1994, which records part of what was said at her meeting with Mr and Mrs Pola on that day. (d) Exchanging contracts without instructions This claim is not made out. In conference with Mr Larkin on 21 October the options open to the Polas and the risks involved in each were explained to them. The risks were again pointed out in Watsons' letter of 24 October. After receiving that letter Stefan telephoned and told Ms Johnstone to exchange unless she heard from him within the next five minutes. She did not so hear from him and she effected the exchange later in the day. For the reasons I have given, Stefan was his father's agent in relation to dealing with Watsons on the land contract. I have earlier referred to the conflict between Ms Johnstone's and Stefan's evidence as to whether the telephone conversation occurred, and indicated my preference for Ms Johnstone's account based on her contemporaneous file note. The fact that Mrs Pola did not complain of the exchange when she was told of it on 25 October, and that none of the Polas complained of it when they received Ms Johnstone's fax on 26 October, confirms my opinion that Stefan did make the telephone call in question. (e) Exchange without ensuring that Bank would discharge mortgage The Polas were in a very difficult position. They owed the Bank nearly $2 million. They wanted to reach a settlement with the Bank, and to that end decided to sell one of their properties, with the hope of retaining the other two. They wanted ready money from the sale of Paddington in order to help facilitate a deal with the Bank. The purchaser was most anxious to settle, but the Bank would not agree to discharge the mortgage except upon the Bank's terms. The Polas did not want to lose the purchaser. In those circumstances, where what was involved was a commercial choice between risks, Watsons' obligation to use reasonable skill and care did not require them to attempt to prevent the Polas from exchanging contracts. It extended no further than pointing out to them in clear terms the risk they would run whichever course they pursued: keep the purchaser at bay until an agreement was reached with the Bank and risk losing the sale, or exchange contracts and deal with the Bank afterwards. The pleading concedes that this was the level of Watsons' duty of care, because it claims that Mr Fisher gave no or no adequate advice that there was a likelihood that the Bank would refuse to discharge its mortgage in return for a tender of the contract price. There is no doubt in my mind that Watsons themselves, and through Mr Larkin, explained the risks involved in whichever course the Polas took. In conference with Mr and Mrs Pola and Ms Johnstone on 21 October Mr Larkin pointed out that the purchaser might be lost if there were no prompt exchange, and that the Bank might not settle if there were an exchange. He said the choice was "ultimately up to you" and "it is a calculated risk". When Mr and Mrs Pola returned to Ms Johnstone's office, she took Mr Pola through the three contracts, and pointed out that if an exchange took place without the Bank providing a discharge of mortgage, the purchaser could sue for specific performance. The risks were again pointed out in Watsons' letter of 24 October. If the exchange took place without finalising the discharge terms with the Bank, the Polas might have to settle on the Bank's terms, or they might not be able to complete and the purchaser might sue for breach of contract. Late in the piece though this letter was, it was but a repetition of what Mr Larkin had pointed out on the 21st. And I accept Ms Johnstone's evidence that the risk inherent in exchange had been pointed out to the Polas before the 21st. In my view Watsons could have done no more. There was a commercial decision to be made by the Polas. A solicitor is not liable for his client's commercial decisions: Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 257 at 277. DAMAGES (a) The accountants' costs If, contrary to my view, Watsons were negligent in joining the accountants to the proceeding, the loss suffered by the Polas as a result thereof was the amount they will have to pay the accountants pursuant to the costs orders. Mr Conomos' solicitors and the company's solicitors have submitted claims for $18,500 and $15,943.44 respectively. The costs have not been taxed. The parties agreed that if damages were payable to the accountants, the appropriate order would be that the Polas are entitled to an indemnity in respect of the costs orders, and that the amount thereof would be the costs as taxed or as agreed. (b) Specific performance costs If my conclusion that Watsons did not act without instructions or negligently in relation to the conveyancing transaction be wrong, I would have held that the Polas had suffered loss in the sum of $59,088.44 for their costs and expenses of defending Hobbs and Bell's specific performance action. But I would also have held that this loss was not caused by Watsons' conduct but by the Polas' refusal to pay the Bank the $700,000 it demanded as the price of providing a discharge of mortgage. By paying that amount the Polas could have obtained a discharge soon after the end of January 1995. They could then have settled with Hobbs and Bell, and the action for specific performance, which was not commenced until 25 May 1995, would not have been launched. It was their insistence, until August 1995, on retaining the $40,000 difference between the contract price and the price notified to the Bank at the end of September and the beginning of October, that caused the Bank not to provide a discharge and resulted in the purchaser giving a notice to complete and suing for specific performance. CONCLUSION The application must be dismissed with costs. I certify that this and the preceding fourteen (14) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg