Fico v O'Leary & Ors [2004] WASC 215

Fico v O'Leary & Ors [2004] WASC 215 | Case summary | Zoe

[179]

30 Any such statements which were prepared and passed on to the purchaser at a time when he was demanding this information to support an application for bank finance can only, in any commercial sense, be regarded as a representation about the likely takings, cash flow and profitability of the business. It is difficult to understand why a vendor, in the position of Mrs Deena Ashoorian, should venture such an estimate when it must have been known to her that to do so would entail at least potential, and probably actual, responsibilities for the accuracy of information which was quite plainly outside her knowledge and experience. I am satisfied that the fourth defendant embarked upon this course because, as she and her husband said, they were told by Mr O'Leary that the figures were needed for a "business plan" in circumstances where their true significance and intended use was not fully disclosed by Mr O'Leary to the Ashoorians. Why did Mr O'Leary press the fourth defendant for such information and suggest the engagement of Mr Kamal Hashemi for the preparation of the figures when he, too, knew that they would constitute representations about the anticipated trading operations of the business? I am satisfied that there is only one acceptable answer to these questions, namely, that Mr O'Leary had assured the plaintiff, as Mr Anthony Fico said he did, that the business would have a turnover of $600,000 in the first year rising to $1,000,000 in the third year, and that in the light of that assurance the plaintiff naturally asked Mr O'Leary before the contract was signed to provide information to support those representations, and that Mr O'Leary agreed to obtain it. From then on, in practical terms, it was essential in order for Sigma to achieve this sale that turnover figures matching, or approximating the representation made at the time when the contract was signed should be supplied to the plaintiff. I accept Mr Anthony Fico's evidence that this is what happened and I reject Mr O'Leary's denials that any such representations were made.

[189]

"On 28 August 1998, our client signed an offer to purchase the pharmacy from Mrs Deena Ashoorian. Mr Brendan O'Leary ('O'Leary') of Sigma (WA) Ltd, Pharmacy Services Division ('Sigma') was acting as the agent representing the vendor and the purchaser in this transaction.

Our client instructs us that he made it very clear to O'Leary that there were several outstanding issues which required resolution prior to the completion of the acquisition of the pharmacy. The main issue revolves around confirmation that a medical practitioner would be in situ as per a special condition of the offer to purchase the business ('the doctor issue'). We are fully aware that Sigma did not obtain any commission or fees for their intermediary role as agent for both vendor and purchaser however did obtain major supply benefits from the pharmacy. In order to effect completion of the settlement, various assurances were made to our client and his brother Mr Tommaso Fico. One of the assurances made by O'Leary was that there would be a doctor in situ as 1 January 1999. This was not the case and in fact it seems in hindsight that there was no firm intent to place a doctor in the complex. This has led to drastic reduction in cash flow seriously effecting our client's business.

Our client commenced operating the pharmacy from 18 October 1998. Settlement which was due to occur on 12 October 1998 but actually occurred on either 18th or 19th October 1998. This was due to several outstanding issues including the doctor issue. The only reason settlement did occur was due to O'Leary's direct assertion to Mr Tommaso Fico that the doctor issue had been resolved due to the fact that O'Leary had forward[ed] a second confirmation letter directly to the lender, that being the Commonwealth Bank of Australia. No such letter in fact existed.

In our opinion your employee O'Leary was clearly an agent for both the purchaser and the vendor. Furthermore, O'Leary clearly made representations which were false and thereby induced our client in completing the settlement in relation to the pharmacy."

[368]

"We turn to the question of negligence. All that we have so far said is relevant to this question. The evidence establishes that Mr Dungan, on behalf of the bank, assumed the position of business adviser to the respondents. He was not merely acting in the interests of the bank; he had another capacity, namely, that of adviser to the respondents as well. He was therefore under a duty to advise them with due care and skill. He failed in this duty because the advice he gave the respondents about the appropriateness of the transaction was wrong. For reasons earlier given, he had no basis, let alone any reasonable basis, for making the statements which he did. No valuation or other material available to him justified him in giving advice about the matter particularly in the categorical way in which he did. It follows that his Honour's conclusions that the cause of action in negligence was made out should not be disturbed.

It remains to deal with fiduciary relationship. It is not a novel proposition that where a bank gives to a customer advice upon financial affairs, then in addition to any contractual rights the customer may have (something which does not arise on this appeal) the relationship between the parties may be such as to found either or both a common law duty of care and a fiduciary duty: see Halsbury's Laws of England 4th edition (1989) vol 3(1), 'Banking', para 251.

In many cases, and the present is one of them, the bank as financier will have a manifest personal interest of its own in the matter. The question then becomes one of ascertaining when, given the apparent commercial self interest of the bank, the bank also may be taken to have assumed a fiduciary responsibility towards the customer in question. It was [upon] the answer to similar questions, but in very different factual settings, that the High Court was divided in Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41; but unanimous in United Dominions Corp Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1.

A bank may be expected to act in its own interests in ensuring the security of its position as lender to its customer but it may have created in the customer the expectation that nevertheless it will advise in the customer's interests as to the wisdom of a proposed investment. This may be the case where the customer may fairly take it that to a significant extent his interest is consistent with that of the bank in financing the customer for a prudent business venture. In such a way the bank may become a fiduciary and occupy the position of what Brennan J has called 'an investment adviser': Daly v Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 371 at 384 - 5."

[405]

171 The defendants, at various stages, did contend that Mr Anthony Fico was so intent upon acquiring the Waratah pharmacy that he was heedless of warnings given to him by his brother Mr Tom Fico and that, in all the circumstances, there should be a finding that he entered upon this transaction entirely of his own volition and was not induced by, nor did he rely upon any of the alleged representations made by the defendants. Unfortunately in some respects, Mr Anthony Fico was relatively young, quite inexperienced and very credulous. He showed much of the optimism of a young man starting out to make his own way in his profession but I am satisfied that he did not decide to enter into the contract to purchase this pharmacy, or then proceed towards the completion of that pharmacy, independently of the representations which were made to him by Mr O'Leary on behalf of Sigma and the third and fourth defendants. It is true that, in a number of respects, his brother, Mr Tom Fico, sounded a warning against reliance on the turnover figures but I am quite satisfied from seeing Mr Anthony Fico give his evidence and respond in cross-examination, that his decision to proceed to offer to purchase this pharmacy and complete the transaction was significantly influenced by the representations made. He may have been more inclined to rely on them than was wise, having regard to the ways of the world, but rely on them he did and it was the confidence which they gave him which, in my view, led him to complete the transaction notwithstanding doubts voiced by his brother. In putting his trust in the representations which were made to him by Mr O'Leary, the plaintiff, if anything, placed greater reliance upon them than a more experienced commercial negotiator might have done but saying that is only to say that he accepted them as being truthful and reliable. Not only am I satisfied that these representations did cause the plaintiff to enter into, and then complete, the transaction but I entirely reject the submissions made by the defendants that the initial representations concerning the value of the premises, their suitability as a site for a pharmacy business and the fact that they were worth $250,000 were not of a kind which could or should be regarded as inducing the contract and amounted to no more than puffery.

[414]

180 That a duty of care to provide reasonably correct advice or to advise with care in relation to the implementation of some transaction for which the advisor has assumed responsibility, even if only gratuitously, arises has been recognised since the decision of the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] UKHL 4; [1964] AC 465. In The Mutual Life & Citizens' Assurance Company Limited v Evatt [1970] UKPC 1; [1971] AC 793; 122 CLR 628 it was held that such a duty of care arising from the assumption of responsibility towards the person receiving advice was due only by those whose business involved the provision of information or advice which entailed special skill and competence or where the advisor held himself out as possessing such expertise. This position has since been overtaken in Australia by the decisions in the High Court of L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) [1981] HCA 59; (1981) 150 CLR 225 and San Sebastain Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (supra) at 356 - see also Warwicker Assessments v Zadow (1989) 1 WAR 307 per Malcolm CJ at 311 - 312. So, if the person providing advice does so in a commercial setting where the information or advice being offered relates to a particular business or professional transaction and in circumstances where it is known, or where it should be known, that the recipient will rely upon the information or advice being given, a duty of care will arise: Esanda Finance Corp Ltd v Peat Marwick Hungerfords (Reg) (supra). The relationship necessary to create the existence of such a duty of care may also arise from the assumption of responsibility by the person giving advice, or by his control - Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424 - but there may often be an associated relationship between the parties which in itself establishes or indicates reliance or the assumption of obligation, such as between a solicitor and client or between a solicitor and a person who will be affected by the actions or advice of the solicitor - Hawkins v Clayton (supra) at 576 and Hill (t/as R F Hill & Associates) v Van Erp (1997) 188 CLR 159.

[429]

195 The case against Mr O'Leary in this respect is that he was directly or indirectly knowingly concerned in or a party to the contravention of s 52. For liability to be established against him the plaintiff must establish that he was aware of the essential facts and details constituting the misleading or deceptive conduct because, without such personal knowledge he could not be knowingly concerned in, or a party to, the breach of the section - Yorke v Lucas [1983] FCA 230; (1983) 80 FLR 143. Here, the plaintiff points to the facts that it was Mr O'Leary who was engaged by the fourth defendant to seek a purchaser for the Waratah pharmacy; that it was he, on behalf of Sigma, who arranged the purchase of the provider number from the Midland pharmacy, and of the MINFOS computer system from the Rokeby pharmacy and who was assisting her in her dealings to secure contractors to complete the fit out. Similarly, the plaintiff relies on the fact that he at all times dealt with Mr O'Leary on behalf of Sigma concerning his enquiries about the availability of a pharmacy for sale, the apparent suitability of the Waratah pharmacy for his requirements; the importance of a doctor being in practice at the adjoining medical centre and of the turnover and profitability estimates for its trading operations. On this basis the plaintiff submits that Mr O'Leary was directly involved in all aspects of the representations that were made and which caused him to enter into and then to complete the agreement for the purchase of the pharmacy. On the plaintiff's case Mr O'Leary's involvement was so direct and central that it could not be said that he was a mere conduit of information furnished by others, of which he had no knowledge or reason to doubt, nor that he was in any position where the information which he conveyed to the plaintiff on behalf of the third or fourth defendants was information which he could believe on reasonable grounds to be true or that it genuinely stated the intention of its author - Lake Koala Pty Ltd v Walker [1991] 2 Qd R 49 at 58.

[430]

196 It is also submitted, on behalf of the fourth defendant, that the estimates about the turnover and profitability of the pharmacy business which were supplied by the fourth defendant through her husband, Mr John Ashoorian, after the Profit Projections had been worked up by Mr Kamal Hashemi, constituted reasonable approximations of the likely turnover and profitability of the premises and they could not therefore constitute misleading or deceptive conduct, simply because they were not exactly accurate. On this submission any such estimate must imply that it is made subject to a reasonable range of error, having regard to its content and context: Hunt Contracting Co Pty Ltd v Roebuck Resources NL [1992] FCA 401; (1992) 110 ALR 183. The difficulty in this regard is that the projections which were offered did not expressly purport to be subject to any particular range of error, although it may be taken that some such range would be implied. But the range of error relied upon by the fourth defendant was a range of error identified by one of the valuers, Mr Todd, about the scope of error implicit in estimating the share of the pharmacy's custom for the local catchment area from which that valuer then went on to estimate the turnover and profitability of the business. There is nothing to suggest that the estimates which were delivered on behalf of the fourth defendant, and prepared by Mr Hashemi, were arrived at on this basis, indeed the contrary, because Mr Hashemi gave evidence that his estimates of turnover were derived from Mr John Ashoorian. Furthermore, as Mr Hashemi testified, his estimate of turnover was based on the assumption that there would be two or perhaps three doctors operating in the nearby medical centre from January 1999 onwards. Accordingly, I do not consider that any express or implied range of error, accepted by Mr Todd for the purposes of his valuation exercise, could be regarded as relevant or applicable to the estimates derived from the combined efforts of Mr John Ashoorian and Mr Hashemi which, as explained, depended so heavily on the assumed level of custom that would be derived by this business from the carrying on of a medical practice so close by.

[474]

234 There are also the claims by the first, second and fourth defendants against each other for indemnity or contribution under the provisions of s 7 of the Law Reform (Contributory Negligence and Joint Tortfeasors' Contribution) Act 1947 which involve distinct issues. The history and the purpose of the legislation of which this Act is largely a stereotype, have been fully explained in James Hardie & Co Pty Ltd v Seltsam Pty Ltd [1998] HCA 78; (1998) 196 CLR 53 per Gaudron and Gummow JJ at 57 - 58; 59 - 61; and 64 - 67 and per Kirby J at 69 - 70 and 75 - 80. As those passages explain, at common law, as distinct from in the courts of Chancery, and later in courts exercising jurisdiction in equity, there was no contribution available between either joint or concurrent tortfeasors - Merryweather v Nixan [1799] EngR 669; (1799) 8 TR 186; 101 ER 1337. Consequently, as explained by Gaudron ACJ and Hayne J in Burke v LFOT Pty Ltd (supra) at 293, there was no occasion for the common law to enquire into or examine the notion of co-ordinate liability. Questions of contribution between joint tortfeasors could be dealt with only in accordance with the statutory powers conferred, in this State, by the 1947 Law Reform Act. Despite the many practical difficulties of interpretation and application which the statute has produced over the years, that fundamental divergence between rights of contribution which arise in equity on the one hand, and the limited rights of contribution that may arise in proceedings for a common law tort only by virtue of the statute, still exists. Therefore, in relation to each of the cross-claims where contribution is sought the question must first be asked whether the liability in respect of which contribution is sought is one arising because of a tort at common law or whether it is a liability in respect of which equity may recognise a right to contribution. If it is the former, then equity will have no role to play and the right to contribution is no more or less than the statute confers. If it is the latter then a question of whether or not there may be contribution will depend upon equitable doctrines as explained in Burke v LFOT Pty Ltd (supra).

[491]

251 The position of the defendants in relation to these accounting expenses is that there is no legal liability on the plaintiff to pay his brother for these fees or, alternatively, at the most there is a contingent liability conditional upon the plaintiff succeeding in this action, and that such a contingent liability is insufficient to render this item part of the damages or the compensation. I consider that professional services were rendered by P J Costello & Associates to the plaintiff that, consequently a legal liability for the payment of these fees was incurred. The inclusion of this amount as part of the set-up or operational expenses for the pharmacy business is therefore correct in law and in accounting in treating this as a business expense and, had the business prospered, I do not consider that any question about the obligation of the plaintiff to make payment would have arisen. There is no evidence that the bill was written off by the creditor or, even if it was, that this amounted to a forgiveness which would discharge the liability. In other words, even if the debt had been written off there is nothing to prevent the creditor seeking to enforce it. I accept that Mr Tom Fico is in a position to exercise a discretion as to whether or not the debt will be enforced in whole or in part and that, given his relationship to the plaintiff and the plaintiff's circumstances there is certainly a prospect that he may exercise that discretion in a manner which is in some degree favourable to his brother should the plaintiff fail in this litigation. Nevertheless, the existence of an absolute legal obligation to make payment of the debt is not essential to the recovery, by the debtor, of that amount as damages in an action in the tort which gave rise to the need of a provision of the services. Blundell v Musgrave [1956] HCA 66; (1956) 96 CLR 73 as now explained in Griffiths v Kerkemeyer [1977] HCA 45; (1977) 139 CLR 161, Van Gervan v Fenton [1992] HCA 54; (1992) 175 CLR 327 and Karrs v Karrs [1996] HCA 37; (1996) 187 CLR 354 now establish that the creation of a legal liability to pay for services is not the criterion of the prima facie right to recover damages in respect of the costs of those services. What is necessary for the recovery of the cost of those services is that the need for them should have arisen because of the wrong caused by the defendant and, if that is the case, then the plaintiff will usually be entitled to recover the costs of those services even if there is a probability that any legal liability to pay them will not be enforced if the action fails. In this case I consider that the accounting services which have been charged for by the firm, P J Costello & Associates were necessarily and properly incurred by the plaintiff in connection with the implementation and completion of Mr Anthony Fico's purchase of this pharmacy, that they are legally enforceable and that despite some prospect that his brother may exercise his discretion to waive payment if the action fails, Mr Anthony Fico is entitled to recover this amount as part of his damages or compensation.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (582 paragraphs)

Fico v O'Leary & Ors [2004] WASC 215 (11 October 2004)

The events after settlement on 17 October 1998

Introduction of the Waratah Pharmacy to the plaintiff

Representations - That there were two other purchasers who would make an offer if Mr Anthony Fico did not submit an offer on 28 August 1998 - Ability to withdraw at discretion

Representation that Waratah Shopping Centre would include a supermarket occupied by Foodland

The role of Mr Hashemi and source of the turnover figure of $600,000 for the first year

The position of Mr O'Leary and Sigma as "facilitators" of the sale

The fourth defendant's counterclaim against the plaintiff

The third defendant's counterclaim against the plaintiff

The second defendant's counterclaim against the plaintiff

The first and second defendants' counterclaim against fourth defendant

The fourth defendant's counterclaim against the first and second defendants

Parties

Legislation Cited (6)

Cases Cited (81)