Fahd v Kenneally

Court of Appeal (NSW)|2011-11-18|Before: Macfarlan JA, Young JA, MacFarlan JA

Judgment 1MACFARLAN JA: I agree with Tobias AJA. 2YOUNG JA: I agree with Tobias AJA. However, I should add some comments. 3It is clear that until Nassif v Fahd [2007] NSWCA 269, the lawyers had not considered the rule laid down by the High Court in Hoyt's Pty Ltd v Spencer [1919] HCA 64; 27 CLR 133 invalidating inconsistent collateral contracts. 4This is understandable to a degree as the rule is given scant mention in the most popular Australian book on contract law, the authors mention that it has been subject to trenchant criticism and is not the law in England; see eg Mendelssohn v Norman Pty Ltd [1970] 1 QB 177, and A F Mason and SJ Gageler, "The Contract" in Finn, Essays on Contract p 18. However, the High Court has spoken and adhered to its view and the Australian law is clear. 5The respondent based her view that writing was necessary on her concern about the operation of s 54A of the Conveyancing Act 1919. 6That concern has some validity. Section 54A applies to the enforceability of "any contract for the sale or other disposition of land or any interest in land." The section may well have affected the current transaction in either or both the following ways: (a) without the side-deal the contract did not specify all the material terms of a contract for the sale of land including the price; (b) it is possible that the side-deal might be construed as affecting the amount covered by the vendor's lien, an interest in land, and it may be that any contract altering equitable rights in land constitutes a "disposition of land" within the meaning of the section: Adamson v Hayes [1973] HCA 6; 130 CLR 276, 293. 7The possibilities referred to in the preceding paragraph would call for a careful solicitor to lean towards having everything in writing. 8TOBIAS AJA: On 26 June 2008 the appellants (together, "the Fahds") instituted proceedings in the District Court against the respondent, a solicitor trading as Kenneally & Co, alleging that she had breached an implied term of her retainer with, and her duty of care owed to the Fahds by failing to draft certain contracts for the sale of land in terms that ensured the enforceability of a collateral agreement which the Fahds had entered into with one, Sakis Nassif (Mr Nassif). The proceedings were heard by his Honour Judge Rolfe who, on 25 October 2010, rejected the appellants' claims and entered a verdict and judgment for the respondent. The appellants now appeal to this Court from his Honour's decision.

The Background Facts 9The appellants are a family of four. The first appellant, Mr Alex Fahd (Mr Fahd) is the husband of the second appellant and the father of the other two appellants. Unless necessary, I shall refer to Mr Fahd as representing all the appellants as only he was involved in the subject transactions. 10On 25 July 2002 the Fahds entered into two contracts to purchase two adjacent residential properties at 12 and 14 York Street, Oatlands (the properties) from a Mr and Mrs Clarke (the Clarkes) for a total purchase price of $2,010,000. Mr and Mrs Nassif (together, the Nassifs) also wished to acquire those properties to assist their handicapped son. The Fahds agreed with the Nassifs to seek a novation of the contracts with the Clarkes so as to enable the Nassifs to purchase the properties. For this purpose in late July or early August 2002 Mr Fahd consulted the respondent, who had acted for Mr Fahd and his family in relation to the purchase and sale of various properties. 11For various reasons negotiations with the Clarkes with respect to rescission of the two contracts and the entry into new contracts between the Clarkes and the Nassifs failed to eventuate. As a consequence the Fahds settled their purchase of the properties on 7 April 2003. On 11 April 2003 Mr Fahd informed the respondent that the Nassifs would purchase the properties from the Fahds. Both in August 2002 and April 2003 Mr Fahd informed the respondent that he had a side arrangement (the side agreement) with Mr Nassif about which he gave minimum details. However, the respondent was informed that Mr Nassif would pay Mr Fahd the sum of $150,000 as a commission and all his out-of-pocket expenses that he had incurred with respect to the purchase of the properties from the Clarkes. 12On both occasions when he consulted with the respondent with respect to the purchase and later the sale of the properties, Mr Fahd was advised by the respondent that the side agreement should be reduced to writing for it to be enforceable. Mr Fahd rejected this advice in circumstances to which I refer below. The respondent prepared written contracts for the sale of the properties from the Fahds to the Nassifs at the same purchase price as had been paid by the Fahds to the Clarkes, namely, $2,010,000. There was no reference in those contracts to the side agreement. Relevantly, the contracts contained special condition 31 which provided as follows: The Purchaser acknowledge that they buy the property relying on their own inspection, knowledge and enquiries and that they do not rely on any representations, if any, made to them by or on behalf of the Vendor and the parties agree that there have been no warranties and no agreements, conditions and undertakings made between the parties hereto other than those in writing contained in the Contract. 13The contracts for sale between the Fahds and the Nassifs were exchanged on 29 April 2003. Settlement occurred on 10 June 2003. As Mr Nassif did not honour the side agreement with the Fahds, they instituted proceedings against him in the District Court. They succeeded at first instance but the Nassifs succeeded on appeal: Nassif and Another v Fahd and others [2007] NSWCA 269. 14The judgment of the Court of Appeal was delivered on 8 October 2007. On 26 June 2008 the Fahds constituted proceedings in the District Court against the respondent alleging breach of an implied term of her retainer and breach of her duty of care.

The judgment of the Court of Appeal in Nassif v Fahd 15The judgment of the Court of Appeal in Nassif v Fahd [2007] NSWCA 269 resulted in a finding that the side agreement was unenforceable. It was as a result of this finding that the Fahds sued the respondent alleging that it was her fault that this was so. The judgment thus sets the scene for the determination of the issues raised before the primary judge and repeated, in part, on the appeal. 16The leading judgment of the Court of Appeal was that of Bryson AJA, with whom Ipp and McColl JJA agreed. At the commencement of his reasons his Honour noted that the proceedings in question had been heard over seven days and that the trial judge (O'Connor DCJ) had reserved judgment for over eight months. It was observed that the trial judge's reasons published on 30 June 2006 involved an assessment of a "mass of oral evidence" with respect to the terms of the arrangements between the parties which had been made with respect to payment of significant sums of money collateral to the written agreements for sale of the properties. 17At [4] his Honour noted that at the commencement of the hearing of the appeal the Nassifs' senior counsel obtained leave to file an amended notice of appeal containing several new grounds including the following: 8. His Honour ought not to have enforced the collateral agreement found to have been entered into between the parties on the alternative grounds that such a collateral agreement was inconsistent with the terms of the written agreement between them." 18Bryson AJA noted (at [5]) that it was unfortunate and unsatisfactory that the trial judge had not been told of or asked to adjudicate on the issue raised by that ground of appeal and which in his Honour's view was conclusive of the appeal. He noted that the issue on which the Nassifs were to succeed was one of which the trial judge was not told; it did not appear in the notice of appeal as filed and that reliance on this new ground was first indicated by Nassifs' lawyers a week before the appeal came on for hearing before this Court. His Honour then observed: "The District Court throughout the proceedings, and the Court of Appeal throughout preparation until a very late state were led about by the nose as to what the litigation involved; this was extremely unsatisfactory, in litigation where both sides had legal representation and the point was not obscure." 19The issue raised by the amended notice of appeal was founded on the principle stated by Isaacs J in Hoyt's Proprietary Limited v Spencer (1919) 27 CLR 133 at 147 - 148 that prevents effect being given to collateral agreements which are made in consideration of the entering into of the principal contract but which are inconsistent with that contract. At [31] to [34] of his reasons his Honour referred to three decisions of the High Court in 1933, 1953 and 1986 and one decision of this Court in 1984 where the principle articulated by Isaacs J in Hoyt's was referred to. However, it is relevant to note the observation of Bryson AJA to the effect that the legal representatives of the parties (the respondent having ceased to act for the Fahds) had not appreciated the application of the principle in Hoyt's until the Nassifs' senior counsel recognised its application a week before the commencement of the hearing of the appeal. On one view of the matter that factor may be relevant, when taken with the other evidence to which I shall refer, to whether the respondent should have been aware of the principle at the time she was advising Mr Fahd with respect to the side agreement. 20After considering the relevant authorities his Honour (at [35]) observed that when the side agreement and the written contracts were taken together, there were two grounds of inconsistency. First, the inconsistency was immediately apparent in that the written contracts of sale specified prices totalling $2,010,000 but the money to be payable under the side agreement was to include further sums. Secondly, the contracts of sale contain special condition 31 which his Honour considered was in the nature of an " Entire Agreement " clause. 21His Honour's conclusion at [36] was as follows: "It would be inconsistent both with the provisions relating to the price, and also with the Special Condition, to give effect to a collateral agreement under which the sum of money agreed to be paid in the contract is not the only sum of money which the vendor is to pay to the purchaser in relation to the sale, and there is any further amount to pay, whether described as commission, out-of-pocket expenses or in any other way." 22It is thus clear that this Court determined that there was a relevant inconsistency between the side agreement and the contracts for sale in two independent respects neither of which overlapped with the other although resulting in the same legal outcome. The first was the inconsistency between the purchase price of $2,010,000 specified in the contracts of sale and further amounts that were to be paid pursuant to a side agreement in consideration of which the Nassifs were to enter into the contracts of sale. The second was special condition 31.

The Statement of Claim in the present proceedings 23The relevant paragraphs of the statement of claim were as follows: "... 2. On or about 11 April 2003, the Plaintiffs retained the Defendant to advise and act on their behalf as vendors in the sale of two properties (' the Retainer ') to Sarkis Nassif and Bernadette Nassif (' the Nassifs '). ... 3. It was an implied term of the Retainer that the Defendant would provide advice and other legal services to the Plaintiffs with reasonable skill and care (" the Implied Term "). 4. Further, in the circumstances, the Defendant owed the Plaintiffs a duty to act with reasonable skill and care in providing advice and other legal services (" the Duty of Care "). 5. Pursuant to the Retainer, the Plaintiffs instructed the Defendant to draft contracts for sale of the two properties to the Nassifs for prices totalling $2,010,000.00. 6. The Plaintiffs further instructed the Defendant that the sale of the properties to the Nassifs was subject to a collateral agreement between the Plaintiffs and the Nassifs. Particulars The collateral agreement provided that the Nassifs would pay $150,000 and 'out of pocket expenses' to the Plaintiffs 7. The Defendant drafted two contracts for sale of land that were executed by the Plaintiffs and the Nassifs on or about 29 April 2003. ... Breaches of Implied Term 9. In breach of the Implied Term, the Defendant failed to draft the contracts for sale of land in terms that ensured the enforceability of the collateral agreement by the Plaintiffs against the Nassifs. 10. Further, and in the alternative, in breach of the Implied Term, the Defendant failed to advise the Plaintiffs that the contracts for sale of land drafted by the Defendant would render the collateral agreement unenforceable. , Breaches of duty of care 11. Further, and in the alternative, in breach of the Duty of Care, the Defendant failed to draft the contracts for sale of land in terms that ensured the enforceability of the collateral agreement by the Plaintiffs against the Nassifs. 12. Further, and in the alternative, in breach of the Duty of Care, the Defendant failed to advise the Plaintiffs that the contracts for sale of land drafted by the Defendant would render the collateral agreement unenforceable. ..." As will appear, the Fahds' submissions on the appeal centred on pars 9 and 10 of the statement of claim. It was accepted that the allegations in pars 11 and 12 added nothing to those in pars 9 and 10. Accordingly, they need not be considered further.

The evidence in chief of the respondent 24It is appropriate to set out in some detail the relevant evidence in chief of the respondent as first, it was accepted by the primary judge and, secondly, it sets the factual context within which the scope and breach of the respondent's retainer is to be judged. 25The primary judge accepted the evidence of the respondent as to the conversations between her and Mr Fahd on 23 August 2002, 11 April 2003 and 21 April 2003. It is convenient to set out the relevant paragraphs of the respondent's affidavit evidence with respect to those occasions: 26 On 23 August 2002 I had a conference with Alex Fahd and a person he brought with him to the conference, a Mr Sarkis Nassif, at my then offices at 26 Lind Avenue, Oatlands. During the conference on 23 August 2002 we had a conversation in words to the following effect: Alex Fahd: " Belinda this is Sarkis Nassif he wants to buy the properties at York Street from me. I am happy to hand over the properties to him. Can you find out if we could have the Contracts rescinded and he can just take my place ?" Belinda Kenneally: " I can ask the vendors' solicitor but can I ask what you are getting out of this ?" Alex Fahd: " There is an agreement between Sarkis and I that he will pay me $150,000 as a commission and all of my out of pocket expenses that I have incurred for the purchase ." Belinda Kenneally: " Ok I will prepare an agreement to that effect ." Alex Fahd: " No Belinda this is between Sarkis and myself. There is no need to go through the expense of putting it in writing ." Belinda Kenneally " But Alex I have a duty to tell you that this agreement should be in writing in order to protect your interests, as well as being on the record for stamp duty and so forth ." Alex Fahd: " Belinda, it will defeat the purpose if you put it in writing. Sarkis is a man of honour and he comes to me through a very good friend of mine and it would cause me embarrassment if I doubted this man and put it in writing ." Belinda Kenneally: " Alex I appreciate that but as your lawyer I would advise you that this agreement should be in writing not only to protect your interests but also so that everyone understands what their legal obligations are so there can be no dispute about it later. I am also concerned that legal obligations such as stamp duty, as I have said, be met ." Alex Fahd: " I appreciate that Belinda but this is an agreement between Sarkis and myself. We know what our obligations are ." Belinda Kenneally: " Well if that is what you want Alex, I'll leave that entirely in your hands to attend to. I will start negotiating with the other solicitors to see if they are prepared to rescind the contract with you and enter into a new contract with Mr Nassif ." ... 109 On 11 April 2003 I received a telephone call from Alex Fahd. In the Affidavit I swore on 30 July 2004, on the Plaintiffs' behalf in their District Court proceedings number 19 of 2004, against Mr Nassif, part of this conversation was deposed to by me. In paragraph 13 of that Affidavit, the part of the conversation I deposed to was to the following effect: Alex Fahd: " Belinda, Sarkis Nassif still wants to proceed with the purchase of the properties. Can you please arrange the necessary Contracts. It is on the same agreement as before ." 110 The remainder of my discussion with Alex Fahd on 11 April 2003 was not deposed to by me in the affidavit I swore on 30 July 2004. The remainder of my discussion with Alex Fahd on 11 April 2003 was to the following effect: Belinda Kenneally: " If that's what you really still want to do, after all the drama you've just been through with Sarkis and the other side ? Alex Fahd: " Yes, Sarkis says he'll also pay my out of pocket expenses, and that he now has the money to settle ." Belinda Kenneally: " OK, I'll start to look into it. Your bank will have to register the Transfers before I can get new title searches, and I'll see what documents I have to update. I'll talk to you about this shortly ." Alex Fahd: " Good, thanks Belinda .'' ... 118 It was either on or about 21 April 2003, that I had a telephone discussion with Alex Fahd in words to the following effect: Belinda Kenneally: I'm still really surprised you are considering this sale to Sarkis. He mucked you around last time with the fencing and land and environment issues. Last time it took too long and one of the vendors died, and you had to proceed to settle the purchases. You also had the Council threatening fines ." Alex Fahd: " No it is fine. We have had a discussion. I want to do this because his son is ill and to show the community ." Belinda Kenneally: " What about legal costs and $150,000. You've now also incurred the stamp duty, and you don't even want them included in the price ?" Alex Fahd: " No all of that I will deal directly with Sarkis. Just make the Contract the same as last time ." Belinda Kenneally: " You really should have this in writing because you know that he is unreliable, and you will need it in writing to be able to enforce the agreement if he reneges, or mucks you around again, particularly now since you've also incurred the stamp duty costs, penalty interest, and my legal costs. I still think this should be set [this] out in the Contract ." Alex Fahd: " Now look Belinda don't worry about that, Sarkis and I have got that under control, just put the same thing on this contract for money-wise as was on the Clarke's two contracts ." Belinda Kenneally: " Alright if that's what you want, I'll do what you've instructed me to. Is the deposit to be 10% or 5% ?"

The cross-examination of the respondent 26At Black 113 the respondent agreed that Mr Fahd explained to her that he did not wish to impose a written contract with respect to the side agreement on Mr Nassif. However, she accepted that the side agreement was intended not only to be enforceable in honour but also legally binding. Thus she informed Mr Fahd that it was her duty, whatever cultural machinations there may be in the Lebanese community to honour agreements, to inform him that if he wanted to ensure that the side agreement was enforceable, its terms should be clearly expressed in writing. It was put to her that it was an unusual feature of the side agreement that the parties did not wish it to be in writing to which she responded in the affirmative, stating that she had not come across a similar transaction like that in the past. 27At Black 123 the respondent said in response to a question that she wished to make sure that the terms of the side agreement were reduced in writing, that it was even more important in 2003 than in 2002 because this was a specific transaction dealing with a contract for the sale of land and "any clause or any agreement that has to deal with the contract of sale of land should be in writing and in my view in the document in question." The following exchange then occurred: "Q. The agreement that Mr Fahd would be paid $150,000 plus his out of pocket expenses do you say was an agreement for the sale of land? A. I believed it formed part of the consideration of this particular conveyance. In order to be enforceable it should have been included in this contract." 28The respondent was cross-examined on the issue of inconsistency between the side agreement and the contracts of sale in the following exchange at Black 129-130: Q. Yes, and my question to you that did not convey to him that this side agreement would be unenforceable unless it was in writing, did it? A. I think I say if you want to enforce the agreement it should be in writing. That's as far as I went. Q. Because as far as you were concerned enforceability of the oral agreement was the same issue in April 2003 as it was in August 2002, let's put the terms in writing, everyone will know what they've promised and what they're to receive and what they have to do, what their responsibilities are and then we won't have to have the he said I said in Court? A. That's right. Well it had changed now because part of the consideration at least should have been referred to in the purchase price, 150,000 at least. The situation changed a little bit . Q. This is where I come back to the point. When you say that, when you say that this was part of the consideration are you saying that you understood this to be a collateral contract? A. I don't know if l would use those terms. It was a separate contract or agreement that whatever it was that he had entered into with Mr Naseef. I didn't know what it was. Q. Let me put it this way. Are you saying that the price for the Fahds selling to the Naseefs were these promises by the Naseefs about the $150,000 and the out of pockets? A. Well I thought they should have been and that's why I was trying to get instructions from Mr Fahd but he wouldn't give me the instructions about it. Q. It didn't occur to you at all that in that situation there was a direct inconsistency involved in that situation between the oral promise and what would be in writing? A. What I thought was that any inconsistency would have been overcome if it had been put in written contract and that's what I advised him to do. Q. Ms Kenneally, with respect, the question of inconsistency never arose, did it, in any of your discussions with Mr Fahd on your evidence? A. In those terms, no. I just simply was of the view that it should be in writing and in the contract. Q. Are you now telling the Court that you understood that there was an issue of inconsistency in April 2003? A. No. All I'm saying is I didn't know what they had agreed or not agreed to. Q. Let me make it very clear. When I say inconsistency I'm talking about two types and I will be very clear about them. A. Yes. Q. The first is about the inconsistency between the price and Mr Naseef's promises about 150,000 plus out of pockets. Did you understand there was any inconsistency about that at the time? A. Not in those terms, no. Q. In what terms did you understand there was an inconsistency? A. My understanding was what should have happened is that if Mr Fahd had given me complete instructions as to what he understood the arrangement was, what were all the out of pockets, what was 150 to be considered as in the contract. I could have inserted it as such whether it was purchase price, a special condition, whatever. But I just didn't know. Q. You were concerned that there was an issue of inconsistency, correct? A. I was concerned that whatever they agreed to or hadn't agreed to would not be enforceable unless it was in the written contract and I didn't know anything further about the agreement . Q. Please listen to my question. You were aware of and were concerned by an issue of inconsistency concerning the price as compared to the promises of the Naseefs? A. Possibly. That's why I sought further instructions. Q. You never articulated a concern about inconsistency to Mr Fahd, did you? A. Not in those terms, no. Q. And you never pointed out to Mr Fahd, did you, that the oral agreement to the extent that it was inconsistent with the sale agreement would be invalid? A. Not in those terms, no. Q. It would be strictly unenforceable whether it was in writing or not? A. I did advise him that any agreement in writing concerning land would be unenforceable. Q. Any agreement in writing? A. Sorry, any agreement concerning land that was not in writing would be unenforceable, that was my understanding. Q. Unless supported by acts of part-performance and all those exceptions? A. Well I didn't look into at any great detail than that ." [emphasis added] 29The respondent was also cross-examined with respect to special condition 31 in the following terms (at Black 131, 135): "Q. And you never told Mr Fahd, did you, that clause 31 might cut across that oral promise and render it unenforceable? A. No. No. Q. Because at the time you didn't think that clause 31 had any role to play in excluding other agreements? A. Yes. .... Q. You didn't tell Mr Fahd, did you, that unless it was set out in the contract, clause 31 was likely to render the side agreement totally unenforceable, did you? A. I did not have, I did not say that to Mr Fahd, no. Q. No. And you didn't knowingly insert special condition 31 thinking that, or knowing that that was a possibility, did you? A. Special condition 31 was inserted in the contract simply as a standard buyer beware clause. Q. Can you just please answer the question, you didn't knowingly-- A. I don't understand the question. Q. --insert special condition 31 knowing there was a possibility it could cut across the side agreement, did you? A. I didn't think, no, because I thought the side agreement had to be in writing, that's right. Q. If you had considered that special condition 31 had that consequence, you would have drawn that to Mr Fahd's attention before proceeding to exchange, correct? A. Yes, I believe so."

The evidence in chief of Mr Fahd 30In his affidavit evidence Mr Fahd set out the terms of his understanding of the relevant conversations between he and the respondent. It is unnecessary to refer to them as his Honour accepted the respondent's version which I have recorded above. However, it is relevant to refer to par 45 of his affidavit evidence in chief which the primary judge did not accept. It was in the following terms: "If Belinda Kenneally had advised me at any stage when entering into the contract with the Nassifs that the other agreement with the Nassifs would be unenforceable because of the contract price and special conditions I would have instructed Belinda Kenneally to have included the other agreement either as part of the contracts for the sale of the York Street properties or in a separate written agreement so that it was enforceable as I had always intended to enforce the separate agreement with the Nassifs."

The cross-examination of Mr Fahd 31Mr Fahd was cross-examined in some detail as to his rejection of the respondent's advice that the side agreement should not only be in writing but should also be included as part of the contracts of sale. Mr Fahd acknowledged that he had on three occasions rebuffed the respondent's advice to that effect. This was because his friend, Mr Peter Maroon, whom he highly respected, had told him that he should treat Mr Nassif as if it were he, Maroon. He was not to doubt Mr Nassif's honesty and to have the side agreement in writing would defeat the purpose of not doubting his honesty. He agreed that he had said to the respondent on a number of occasions that Mr Nassif was a man of honour. Thus, when asked what he meant when he said to the respondent words to the effect " No Belinda, this is between Sarkis and myself ", he responded that at the time their relationship was based on trust and that was the way he looked at it: it was based on trust and honour. However, he denied that the agreement was only to be enforced on the basis of honour. 32Mr Fahd accepted that after he had rejected the respondent's advice she had said to him effectively " I'll leave it to you ". This was because the matter was one simply between Mr Nassif and himself. The cross-examination continued (at Black 38): "Q. Because you said to her a number of times "this is an agreement between Sarkis and myself", correct? A. Correct. Q. What you meant by that is this is our private business don't worry about it? A. More or less." 33Mr Fahd was then cross-examined as to the terms of the cost agreement entered into between himself and the respondent on 1 August 2002 and which under the heading "The Work" stated that the work that Mr Fahd required the respondent to do was to act in respect of the purchase of properties from the Clarkes. A further cost agreement was entered into on 29 April 2003 effective from 14 April 2003 which described "The Work" as " act in respect of the sale of 12 and 14 York Street, Oatlands ". Mr Fahd accepted that there was no need to amend either cost agreement to deal with the side agreement because he had told the respondent not to do anything about that agreement as it was between himself and Mr Nassif. 34At Black 53 Mr Fahd was asked whether he had spoken to Mr Nassif and had given him as a man of honour his word that the side agreement would not involve documents to which he responded: " Not so much involve documents it was a trust and if it was reduced to writing the trust has gone, it wasn't about evading anything ". 35Mr Fahd was further cross-examined to the following effect (at Black 58 - 59): "Q. You wanted Ms Kenneally to focus her concern on preparing a conveyancing contract? A. Correct. Q. In relation to the purchase price that you had paid the Clarkes, correct? A. Correct. Q. And nothing more? A. From her nothing more, but she always knew of the other agreement. Q. In fact she told you in the discussion you had on the 21st it should be in writing and you told her like you had on the previous occasion "No I don't want it in writing"? A. Correct. Q. You were quite determined about that weren't you? A. Correct. Q. She tried to convince you in August 2002 and you told her "No you're not going to be convinced", correct? A. Correct. Q. And you were just as determined in April 2003? A. Correct. Q. When you spoke to Ms Kenneally in April of 2003 you gave her no details did you of the amount of your out of pocket expenses that you had already incurred? A. Correct." 36Mr Fahd was further cross-examined to the effect that there was no agreement between he and Mr Nassif as to when the monies payable under the side agreement should be paid although his understanding was that they would be paid immediately after settlement of the sale of the properties. He said that he expected Mr Nassif to come with a gift to show his appreciation of, in effect, Mr Fahd's generosity. The following exchange then occurred (at Black 65): "Q. He was so grateful to you that you could not possibly have insulted him-- A. Correct. Q. --by putting it in writing, correct? A. Thank you, that's correct, yeah." 37I have already referred to the fact that the primary judge rejected the evidence of Mr Fahd deposed to at par 45 of his affidavit which I have recorded at [ 30 ] above. Mr Fahd attempted to bolster that evidence in the following exchanges (at Black 32 - 33): Q. And despite having no idea as to whether or not he was a man of honour you were insistent to Miss Kenneally to not put the arrangement in writing, weren't you? A. On account of Peter Maroon's advice to me. Q. There was nothing that Belinda Kenneally could say to you on 23 August 2002, that could persuade you to put it in writing, could she? A. I had I known that there would be no enforcement as a verbal agreement and it would have been welcomed as an opportunity for me, that this amount should go in the contract, in the actual sale price at the time, without embarrassment to me with Sarkis and Peter Maroon . ... Q. And so far as your perspective was concerned, putting anything in writing would have been an embarrassment wouldn't it? A. Not anything, a separate agreement would have been an embarrassment adding it to the contract would have been if advised by my lawyer at the time and had no other choice, that would have been welcomed . Q. But you said to Miss Kenneally, "that would defeat the purpose of the arrangement," didn't you? A. A separate agreement. Q. You never said a separate agreement? A. She said a separate agreement." [emphasis added]

Factual findings 38As I have already noted, the primary judge accepted the evidence in chief of the respondent which he preferred wherever there was a conflict between she and Mr Fahd. It is therefore unnecessary to set out his Honour's summary of that evidence which I have recorded in full at [ 25 ] above. It is sufficient to note his Honour's finding that in the conversation of 21 April 2003 the respondent asked Mr Fahd about the inclusion of legal costs, stamp duty and the $150,000 in the sale price to the Nassifs but Mr Fahd said that he would deal with all of those matters directly with Mr Nassif and the respondent was to make the contracts out at the same price " as the last time ", being a reference to the contracts with the Clarkes. His Honour noted the respondent's concern with respect to this arrangement but that Mr Fahd had told her not to worry about it, that he and Mr Nassif had the matter under control and that he reiterated that she was to insert the same purchase price in the two contracts as had been in the original contracts with the Clarkes. 39Of significance is the following finding of his Honour (Red 32): "The defendant also said in her affidavit in chief that she was at no stage given any detailed instructions as to how the side agreement would operate in terms of payment, that is, by lump sum or by instalments, and when payments would be made. She was simply not made aware of those matters. In my assessment, to put it in the vernacular, she was effectively told to "butt out" ." [emphasis added] 40With respect to the side agreement, the primary judge was satisfied on the balance of probabilities that Mr Fahd entered into an agreement with Mr Nassif on about 10 April 2003 that in consideration of the Fahds selling the properties to the Nassifs for the same purchase price as they had paid for them, Mr Nassif would pay Mr Fahd $150,000 and reimburse him for out of pocket expenses incurred in completing the original purchase transaction from the Clarkes. That formulation of the side agreement between the parties which was not challenged, gave rise to some debate on the appeal as to whether s.54A of the Conveyancing Act 1919 (NSW) applied to that agreement. I shall return to that issue below.

Scope of retainer 41The primary judge then turned to the scope of the respondent's retainer. After referring to the pleadings, he found that at no stage did Mr Fahd want anything reduced or prepared in writing by the respondent with respect to the side agreement. In this respect his Honour was satisfied that Mr Fahd was prepared to take the risk that Mr Nassif would always act honourably. Further, he found that on 23 August 2002 Mr Fahd told the respondent not to prepare a written collateral agreement because he regarded that issue as a matter strictly between himself and Mr Nassif. His Honour was comfortably satisfied that Mr Fahd was not in the least bit interested in receiving any advice about the side agreement from the respondent, " nor did he expect her to do anything more ".

Breach of retainer 42With respect to the conversation between Mr Fahd and the respondent on 21 April 2003, his Honour found that the respondent was concerned about the side agreement and told Mr Fahd in no uncertain terms that it should be in writing and needed to be in writing if it were to be enforced. His Honour was comfortably satisfied that Mr Fahd rejected that advice because, for his own reasons, he did not want to have the respondent involved in the collateral agreement transaction " in any way, shape or form, or further advise him about it ". 43The primary judge then said: "I am comfortably satisfied that [Mr Fahd] knew that [the respondent] had got the message that not only did [Mr Fahd] not want [the respondent] to document the collateral agreement arrangement but he was not interested in receiving [the respondent's] advice about it " [emphasis added]. 44His Honour then interpolated that the advice given by the respondent to Mr Fahd about the unenforceability of the collateral agreement was not provided on the basis of her being conscious of the High Court's decision in Hoyt's . However his Honour did not consider that that mattered. He continued (Red 39 - 40): "What matters is the [respondent's] evidence, which I accept unreservedly, that in her mind the collateral agreement was unenforceable because it was not in writing. Even the fact that this conclusion was incorrect does not matter because it formed the basis of the advice that she gave to [Mr Fahd], which I am satisfied was in terms of the collateral agreement being unenforceable if it were not in writing. The reality was, as I have found, that [Mr Fahd] was not concerned about the matter because, for reasons best known to himself, he made the assumption and took the risk that Nassif would honour the arrangement which the two of them had made, and he was not concerned about the enforceability of the collateral agreement. I should also add that, in my opinion, and I am so satisfied, if the [respondent] had spelt things out to the [Mr Fahd] in terms of explaining to him the application of the principle in Hoyts Limited v Spencer this would have made absolutely no difference to the decision [Mr Fahd] would have made." The primary judge therefore rejected the Fahds' allegation of breach of retainer. He also rejected the claim based on negligence and, as I have noted above at [23] it was not sought to reassert that claim on the appeal. It was accepted that if the claim for breach of retainer failed so also would the claim in negligence.

The appellants' submissions on the appeal and their resolution

Scope of retainer 45In their written submissions the appellants contended that the primary judge was wrong to conclude either that the respondent's retainer expressly exempted her from the obligation or duty to have any regard whatsoever to the impact of the terms of the contracts for sale upon the side agreement when she was drafting the former or, alternatively, that her retainer was to be so narrowly construed as not to include any such obligation or duty. Further, the primary judge's finding as to the existence of the collateral contract required, inherently, a finding that Mr Fahd and Mr Nassif had intended when it was made that it was to be a legally binding and enforceable agreement. 46One of the difficulties with these submissions is that although it is correct that the primary judge found that there was a legally binding collateral or side agreement entered into between Mr Fahd and Mr Nassif, at no time did Mr Fahd convey to the respondent that he regarded the side agreement as legally binding albeit that he was not concerned about its enforceability. Rather, the tenor of the evidence to which I have referred is that Mr Fahd made it patently clear to the respondent that it was indeed an agreement or arrangement in honour only; that it was based upon trust between himself and Mr Nassif. 47In any event, as I have indicated and as the primary judge found, Mr Fahd made it equally clear to the respondent that he was not concerned about its enforceability notwithstanding the concerns with respect to that matter expressed by the respondent and the advice, rejected by Mr Fahd, that the side agreement would be unenforceable unless reduced to writing and preferably, it formed part of the contracts of sale. 48A further difficulty faced by the appellants is that there was no challenge to the primary judge's finding that Mr Fahd was not in the least bit interested in receiving any advice from the respondent with respect to the enforceability of the side agreement and, therefore, did not expect her to do anything more with respect to that matter. There are two critical unchallenged findings in this respect. The first was his Honour's assessment, which he expressed in the vernacular, that the respondent " was effectively told to 'butt out' ". The second was that Mr Fahd did not want the respondent involved in the side agreement transaction " in any way, shape or form, or for her to advise him about it ". These findings not being challenged, it must follow that they set the boundaries of the scope of the respondent's retainer. 49I would therefore reject the appellants' submission that it was part of the respondent's retainer to warn the appellants that entering into the contracts of sale which she had drafted would of itself render the side agreement unenforceable.

Breach of retainer 50At the opening of his oral submissions on the appeal, senior counsel for the appellants, when informed the Court had read his submissions, stated that he would not address those submissions. However, he advanced what he referred to as " the principal point " of the appeal in the following terms. It was accepted that it had not been asserted by the appellants that the respondent understood or had been instructed as to the precise terms of the side agreement. However, that was only critical if she were to reduce the whole of the agreement to writing and it was accepted that she was not instructed to do so. 51It was therefore submitted that what underpinned the respondent's action and her advice was her view that at all times the side agreement of 10 April 2003 was unenforceable because it was not in writing. Accordingly, the premise underpinning everything she did and every advice she gave was that she was not protecting anything that was of value. However, the side agreement was worth $265,000 unless and until it was extinguished by the subsequent contracts for sale. The submission then continued in the following terms: "That could have been easily remedied by [the respondent] without reducing the whole thing to writing, by incorporating in the contracts for sale, for example, a term which referred to the collateral contracts of 10 April stating that nothing in the agreement, for example, or none of the terms of these contracts for sale affected the operational enforcement of the collateral agreement of 10 April but otherwise continue with the whole agreement clause." 52When requested to re-state the particular provision which it was submitted the respondent should have included in the contracts for sale, it was expressed in the following terms: "Nothing in this contract or its terms shall affect the operation or enforcement of the collateral agreement between the parties made on 10 April 2003." It was accepted that the suggested term of the contract was not one which was entertained by the respondent in her evidence. Nor was it suggested in her evidence or put to her in cross-examination. This is certainly so. Further, she was not cross-examined to suggest that the inclusion of such a term would have been an appropriate response to Mr Fahd's instruction and insistence that the side agreement was not to be reduced to writing. Nor was the proposition contended for ever advanced before the primary judge. Nor was it referred to in the evidence of Mr Dennis Bluth, the expert conveyancer called on behalf of the appellants.

Breach of retainer - Mr Bluth's evidence 53It is convenient at this point to refer to the relevant part of Mr Bluth's evidence on the issue of breach of retainer. 54It should be said at the outset that Mr Bluth considered that the advice which the respondent had provided to Mr Fahd to the effect that the side agreement should be reduced into writing and inserted into the contracts for sale was proper in the circumstances. It was common practice, according to Mr Bluth, for a solicitor and the client to discuss the existence of a collateral agreement and for the solicitor to provide advice that it should be documented which the respondent did. Thus in his written statement admitted into evidence Mr Bluth stated that relevant peer practice in New South Wales at the relevant time was to advise, as the respondent did, that it would be preferable to document the collateral agreement. 55However, on being instructed not to document it, then the relevant peer practice was not to ignore the side agreement but to ensure that the documentation such as the contract for sale was consistent with there being such an agreement (albeit not reduced to writing). Nevertheless the advice given by the respondent in par 118 of her affidavit (recorded at [25] above) was consistent with relevant peer practice in that she had identified the difficulties of proving the collateral agreement should that have become necessary and had advised that it would be preferable for the parties to document it. 56Critically, Mr Bluth further stated: "Whilst I believe the discussions or advice provided by [the respondent] accords with accepted professional opinion, after she had been told by the Fahds not to document the collateral agreement I believe though [sic] it is widely accepted peer professional opinion that such collateral agreement cannot then be ignored and the transaction conducted by a solicitor in the position of [the respondent] on the basis that the collateral agreement does not exist. A reasonably competent legal practitioner will conduct the transaction so it was consistent with the existence of the collateral agreement and not in any way as to undermine it." 57However, nowhere in his written statement of evidence in chief did Mr Bluth indicate what a reasonably competent legal practitioner would have precisely done to avoid the inconsistency given that the solicitor had been instructed not to reduce the side agreement into writing. 58There were two aspects of Mr Bluth's cross-examination to which I would refer. The first concerned the instructions which he understood the respondent had received from Mr Fahd. The following exchange occurred (at Black 99): "Q. It's one thing to be told, is it not, in terms of your instructions, look I don't want you to put this in writing, it's another thing, isn't it, for a solicitor to be told don't concern yourself with this issue, just prepare me a conveyancing contract? A. Yes, but I interpret those instructions, if I'm allowed to, to say I've made a side arrangement with Mr Naseef, I don't want you to document it and I don't want you to refer to it in any particular way. Q. So you would, yourself, interpret a client saying to you don't worry about that as being don't document it? A. Yes, don't document it, I'll handle it. Q. Yes, Now if a client says you don't deal with this, I'll handle it and your perception it's a sophisticated client, you follow those instructions, correct? A. Correct." Notwithstanding the foregoing answers Mr Bluth nevertheless considered that the respondent was obliged to make sure that the contracts for sale did not undermine the enforceability of the side agreement. 59The second matter related to a question asked of Mr Bluth with respect to his evidence in chief that a competent solicitor, having been made aware of the side agreement, would effect the contract for sale so as to ensure that there was no inconsistency with that agreement. He responded: "Yes, I think I would say it in this context, a competent solicitor would vet the contract [of sale] in relation to the transaction, so not just necessarily in relation to the side agreement, but look at the special conditions and whether it suits this particular transaction, as opposed to any other transaction." The foregoing was no doubt a reference to special condition 31 which, according to Mr Bluth's evidence, had the effect referred to in the judgment of Bryson AJA to which reference has been made and which, according to Mr Bluth, should have been picked up by a competent solicitor. 60However, having been asked about ways of documenting the particular transactions so as not to fall foul of the inconsistency issue, Mr Bluth was asked in re-examination if he could tell the court of any particular ways that sprang to his mind to avoid any such inconsistency. He responded as follows (at Black 109): "Well, the arrangement would be so that you would ensure that the additional moneys to be paid as reimbursement to the vendor would not be paid at settlement to avoid what I regard to be the inconsistency point about the price under the contract but paid at a point post to settlement. And in fact he would say that the parties would agree to look at items of costs that were incurred by the vendor on some form of formula basis as to what the vendor believes the vendor is entitled to recover. The purchaser may wish to dispute some of those items and you maybe go to arbitration if you like if you can't agree on those particular items. But I would separate the payment of the additional moneys under a collateral agreement, which doesn't have to be documents by the way because Judge O'Connor in the District court found that the collateral agreement existed notwithstanding the fact that it wasn't documented. But I would separate the timing of the payments." 61It is apparent from the foregoing that Mr Bluth's response as to the means of avoiding the inconsistency did not extend to the special condition (referred to at [52] above) which it is now said should have been inserted into the contracts for sale.

The appellants' re-statement of its case should be rejected 62I have already referred to the fact that the manner in which the appellants' case is now advanced was not put to the primary judge and not suggested to the respondent in cross-examination. It is, in reality, a new case. It suffers from a number of defects not the least of which is that it is not supported by the appellants' own expert. True it is that Mr Bluth stated that notwithstanding her instructions the respondent should not have ignored the side agreement and should have been astute to ensure that the contracts for sale did not result in an inconsistency. Nevertheless, it seems to me that Mr Bluth's evidence has two defects. The first is that there seems to be an element of hindsight in his opinion that notwithstanding the instructions she had received which, as the primary judge found, was to " butt out " of the transaction and not to be involved in that transaction " in any way, shape or form or for her to advise him about it ", the respondent nevertheless should have taken steps to ensure that there was no inconsistency between the contracts for sale and the side agreement. Alternatively, there is an element of perfection about Mr Bluth's opinion which extends beyond the respondent's obligation to exercise reasonable care and skill in carrying out her instructions. 63Secondly, there is a real issue as to whether, had the respondent attempted to insert such a term or special condition into the contracts for sale, it would have been accepted by Mr Fahd. The responses of Mr Fahd which I have emphasised at [37] above was not referred to specifically by the primary judge although it falls generally within Mr Fahd's evidence at par 45 of his affidavit recorded at [30] above which the primary judge rejected in the following terms: "In this respect I take a dim view of the evidence given by [Mr Fahd] in paragraph 45 of his principal affidavit ... I consider that not only was this evidence put forward in the blinding light of hindsight, but it was untrue and [Mr Fahd] knew that this was so. In my opinion [Mr Fahd] inserted this evidence in his affidavit in order to ensure his success against [the respondent]." 64Furthermore, had the Fahds' case at trial included the proposition that the respondent should have included in the contract of sale a term along the lines of that now advanced on their behalf, the following exchange (at Black 53): "Q. Because you had spoken with you say Mr Nassif a week before and you had given him as a man of honour your word that this would not involve documents? A. Not so much involve documents it was a trust and if it was reduced to writing the trust has gone, it wasn't about evading anything." may have been immediately followed by the following question: "Q. You didn't want there to be any written mention of this agreement in the contracts for sale did you?" to which the answer may well have been "No". 65The appellants' rejoinder was that Mr Fahd was acting in ignorance when he instructed the respondent not to reduce the side agreement to writing. He was not told that it could be mentioned in the contract for sale so as to preserve it, leaving its detailed terms to be determined as between Mr Fahd and Mr Nassif. The difficulty with this submission is that it runs counter to the primary judge's unchallenged finding that Mr Fahd was not in the least bit interested in receiving any advice about the enforceability of the side agreement; that he did not want to have the respondent involved in the side agreement transaction in any way, shape or form; and that he was not concerned about the enforceability of that agreement. 66Further, as I have already noted, the evidence of the respondent accepted by the primary judge was, in effect, that Mr Fahd informed her that he did not wish there to be any written record of the side agreement and that he was content with Mr Nassif being bound in honour only. It was in the foregoing context that the primary judge rejected the appellants' submission at trial that the respondent's retainer extended to drafting the contracts for sale of the properties so as to ensure that the side agreement was enforceable. No matter what suggestion was made to Mr Fahd by the respondent as to how the agreement might be documented so as to preserve its enforceability, he was not interested and this was the respondent's understanding. 67In my view the suggested term of the contracts for sale advanced on the hearing of the appeal would contradict Mr Fahd's conveyed intent to the respondent that there should be no reference to the side agreement between the parties in these contracts. The conveyance of that intent to the respondent limited the scope of her retainer as the primary judge correctly found.

The appellants' submission based on special condition 31 68It was submitted, based it would appear on Mr Bluth's evidence, that the respondent should not have included special condition 31 in the contracts for sale in the form in which it was drafted given that this Court had found in Nassif v Fahd that its inclusion resulted in inconsistency between the contracts for sale and the side agreement. This finding does not, however, assist the appellants given the alternative finding of this Court that in any event there was inconsistency between the amounts payable under the side agreement and the price payable under the contracts for sale. Accordingly, even if the respondent was in breach of an implied term of her retainer by failing to modify condition 31 by deleting the words " no agreements " therefrom, any such breach did not lead to the sustaining of any damages by the Fahds as the side agreement was unenforceable due to the price inconsistency. 69Furthermore, although the primary judge found that there was a binding agreement between Mr Fahd and Mr Nassif, it does not follow that the respondent was or ought to have been aware that such a legally binding agreement had been entered into. After all, she had very limited knowledge of its terms which Mr Fahd was not prepared to disclose to her. This is not a criticism of Mr Fahd but merely a fact from which it would be difficult for the respondent to determine whether or not the parties had reached a consensus on the terms of the agreement so as to give rise to an agreement binding at law. All she knew was that if there was such an agreement it would not be enforceable unless it was reduced to writing in one form or another and that this was because she advised Mr Fahd that any agreement concerning land that was not in writing would be unenforceable: see her evidence summarised at [26]. This leads me to the following issue.

Section 54A of the Conveyancing Act 70In the course of oral argument on the appeal the question arose as to whether the side agreement was in fact caught by the provisions of s.54A of the Conveyancing Act 1919. The parties were granted to leave to file further written submissions on that issue. Both parties took advantage of that leave and filed short written submissions in response. In those of the appellants it was suggested that s.54A would not apply whereas in the respondent's submissions in reply it was submitted that it did. It was contended that the consideration for the further payment by the Nasiffs of $150,000 plus expenses was in consideration of the transfer of the properties from the Fahds to the Nassifs. 71In my view it is unnecessary to form a concluded view on this issue. It is sufficient to note that there was at least a strong argument that s.54A did apply to the side agreement given the terms of that agreement as found by the primary judge and not challenged on the appeal. The consideration for the side agreement articulated by his Honour was the Fahds selling the properties to the Nassifs: that involved a contract of sale with respect to an interest in land. There could be no doubt, and it was not in dispute, that the respondent was bound to advise Mr Fahd as she did, namely, that the side agreement (if otherwise binding in law) would or at least, may be unenforceable unless reduced to writing and, preferably as part of the contracts for sale. Once Mr Fahd rejected that advice, it seems to me the respondent was entitled to conclude, as his Honour found, that Mr Fahd was not concerned as to whether the side agreement was enforceable or not. In these circumstances I agree with the primary judge that there was nothing further for the respondent to do.

Conclusion 72For the foregoing reasons, I would reject the appellants' principal argument on the appeal. The scope of the respondent's retainer, as found by the primary judge, did not extend to her advising Mr Fahd that the side agreement would be unenforceable unless a term was inserted into the contracts for sale of the nature of that now advanced. Further, even if it did, there was no credible evidence that Mr Fahd would have accepted the respondent's advice that such a term be inserted into the contracts. 73I would therefore propose that the appeal be dismissed with costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 December 2011

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