Hudson Investment Group Limited v Atanaskovic

Court of Appeal (NSW)|2014-04-29|Before: Beazley P, Ward JA, Simpson J

Background Facts 10Prior to June 2001, Hudson was a company listed on the Australian Stock Exchange. Hudson held all the shares in Hardboards. Hudson was also a majority shareholder in Hudson Timber & Hardware Ltd (Timber). Mr McLeod was the Chairman and Managing Director of Hudson. 11Hardboards was the registered proprietor of the Land, comprising 322 hectares in Bundamba, Queensland. The Land consisted of 15 separate lots (or parts of lots), one of which was used for Hardboard's manufacturing activities. Hardboards proposed to develop the Land into an industrial and business park. 12On 27 November 2000, Hudson and Hardboards entered into the "Bundamba Project Heads of Agreement" (Heads of Agreement). The other parties were AH Group Ltd, another wholly owned subsidiary of Hudson, and Wingate Properties Pty Ltd (Wingate). The Heads of Agreement provided for Wingate to undertake a study to consider the options open to develop the Land owned by Hardboards and to maximise its value. "The Land" the subject of the Heads of Agreement was described in Schedule A by reference to 12 separate lots and three parts of lots (the latter being in the process of being subdivided), but excluded the lot used for Hardboard's activities. The parties estimated the value of the Land, excluding the existing operations, to be $10 million. 13At some time prior to 8 May 2001, Hudson agreed to sell its shareholding in Hardboards to Timber. By a letter of that date Mr McLeod instructed Mr Simmons, a partner in the firm of Solicitors, to prepare a "simple Purchase and Sale Agreement". Mr Simmons had regularly performed work for the Hudson group of companies. Two employed solicitors, Mr Kyriak and Mr Restas, worked on these matters under Mr Simmons' supervision and direction. 14Mr McLeod's initial instructions to the Solicitors contemplated that the Share Sale Agreement would provide for the first $10 million of profit from the sale of the Land to be paid to Hudson. Under Mr Simmons' supervision, Mr Kyriak prepared a draft "Share Purchase Agreement" and a draft "Entitlement Deed" (First Draft ED). Mr Kyriak forwarded the draft Entitlement Deed to Mr McLeod on 30 May 2001, pointing out that Mr Simmons had not had a chance to review it. 15The First Draft ED departed from Mr McLeod's initial instructions. It recited that Hardboards had agreed to pay Hudson $10 million out of the proceeds it received from "any Disposal of the Land." The First Draft ED included the following provisions: "3. PAYMENT TERMS (a) Subject to clause 3(b), Hardboards shall make payment of the Consideration Amount to Hudson, in cash by bank cheque and without set off or deduction, within five business days of Hardboards receiving any Benefit from any Disposal of the Land (or any part thereof). (b) To the extent that any Benefit received by Hardboards from any Disposal of the Land is less than the Consideration Amount, Hardboards shall pay the full amount of that Benefit to Hudson and the Consideration Amount shall be reduced accordingly. Hardboards shall remain obliged under clause 3(a) until the full amount of the Consideration Amount has been received by Hudson." (Emphasis in original.) 16The "Consideration Amount" was defined to mean $10 million. "Disposal" was defined to mean: "to part with legal or beneficial title to the Land or possession of the Land (or any part thereof) or any interest in the Land (or any part thereof) ..." The First Draft ED also provided that Hardboards was to grant Hudson a first ranking registered mortgage "of all of the Land in security of Hardboards' obligations under this Deed". 17In the meantime, on 28 May 2001, Mr Simmons transferred responsibility for the matter from Mr Kyriak to Mr Restas. In a conversation with Mr McLeod on 31 May 2001, Mr Restas confirmed that Mr McLeod's instructions were given only on behalf of Hudson and recommended that Timber should obtain independent advice. Mr McLeod declined to take the recommended course on the ground that Timber had an independent director who could review the documentation on its behalf. Thereafter Mr Restas regarded his role in the transaction as acting on behalf of Hudson and not on behalf of either Timber or Hardboards. 18After a series of discussions with Mr McLeod, Mr Restas formed the view that it would be "simpler and neater" to have only one deed, rather than a separate Share Purchase Agreement and Entitlement Deed. Mr Restas proceeded to incorporate in a revised draft Share Purchase Agreement terms requiring Hardboards to pay moneys to Hudson "if the ultimate control over, or ultimate beneficial ownership in, [Hardboards] and/or the Land changes in any way". It appears that this draft was sent to Mr McLeod on 6 June 2001. Some of the language in this draft found its way into the Entitlement Deed subsequently executed by the parties. 19On 7 June 2001, Mr Restas was told by Mr McLeod that he preferred to have two separate documents, rather than a single consolidated document. Mr Restas then prepared a revised draft Entitlement Deed (Second Draft ED) which incorporated a number of provisions from the revised draft Share Purchase Agreement. Mr Restas sent the Second Draft ED to Mr McLeod at 2.07 pm on 7 June 2001 under cover of an email. I shall refer to that email later. 20On the same day, Mr McLeod told Mr Restas that Hardboards had paid the Deposit of $3.5 million. There was a dispute before the primary Judge as to whether the Deposit was ever paid, but there is no dispute that Mr Restas believed what Mr McLeod told him. 21On 7 June 2001, Mr Restas wrote to solicitors in Queensland stating that Hudson had instructed the Solicitors that the contingent liability created by the Entitlement Deed was to be secured by a mortgage over the Land. Mr Restas requested the Queensland solicitors to prepare the mortgage. 22On 8 June 2001 at 2.40 pm Mr Restas forwarded the final versions of the Entitlement Deed and Share Purchase Agreement to Mr McLeod. The email noted that the Entitlement Deed had been amended to provide that the mortgage would be in a form required by Hudson as Mr Restas had only been able to instruct the Queensland solicitors the previous day. 23The Entitlement Deed was executed on 8 June 2001. It contained the following provisions: "RECITALS A ... B ... C Hudson proposes to sell all of the issued shares in the capital [of] Hardboards to [Timber] ... and, in connection with that sale, Hudson wishes to ensure that it retains the ability to participate in, and have the benefit of, some of the potential future benefits associated with the development and Disposal of the Land in accordance with the Heads of Agreement. D ... OPERATIVE PROVISIONS 1. DEFINITIONS 'Deposit' means $3,500,000; 'Disposal' has the meaning as defined in Clause 4; 'Land' has the same meaning as that term is defined in the Heads of Agreement; 'Mortgage' means the mortgage in the form required by Hudson; 'Sunset Date' means fifth anniversary of the date of this deed [8 June 2006]. 2. DEPOSIT (a) On signing this deed, Hardboards must pay the Deposit to Hudson. (b) Hudson must: (i) invest the Deposit until the earlier of the Disposal Date and Sunset Date in an interest bearing account with [the ANZ]; (ii) withdraw the Deposit and accrued interest on the required date and pay it to the party entitled to the Deposit under Clause 2(d). (c) Interest on the Deposit is payable to the party entitled to the Deposit under Clause 2(d). (d) (i) subject to paragraph (ii), Hudson is always entitled to the Deposit. (ii) Hardboards is entitled to the Deposit if: (A) this deed is terminated in accordance with Clause 3(e); and (B) a Disposal does not occur prior to the Sunset Date and Hardboards has complied with its obligations under Clause 6(a). ... 4. PAYMENT The parties agree that if the ultimate control over, or ultimate beneficial ownership in, the Land changes in any way (a 'Disposal') on or before the Sunset Date, Hardboards must, on the date of the Disposal, pay to Hudson the lesser of the following amounts: (a) $10,000,000 less the Deposit; and (b) the value of the aggregate consideration received by Hardboards in relation to the Disposal less the Deposit. 5. DISPOSAL UNDERTAKING Hardboards agrees that it will not undertake a Disposal: (a) which does not involve Hardboards ceasing to have all control over, or all of its beneficial ownership in, the Land; and (b) unless it is on arms length terms and the consideration to be received is cash payable as at the date of the Disposal. 6. BEST ENDEAVOURS (a) Hardboards shall use its best endeavours to develop and Dispose of the Land before the Sunset Date on the best possible commercial terms. (b) Hardboards shall not do anything, suffer, or permit anyone else to do anything which may have the effect of diminishing the value of the Land. 7. NOTICE Hardboards shall give Hudson prompt notice of Hardboards entering into any agreement or arrangement in respect of, or in any way dealing with the Land, which notice shall include a copy of any such agreement or arrangement. 8. SECURITY Hardboards shall grant Hudson the Mortgage as and when required by Hudson." 24Clause 5 of the Entitlement Deed was in substantially the same terms as cl 6.4 of the revised draft Share Purchase Agreement. Clauses 4, 5, 6 and 7 of the Entitlement Deed were identical to cll 3, 4, 5 and 6 (respectively) of the Second Draft ED which was sent by Mr Restas to Mr McLeod on 7 June 2001. The covering email sent by Mr Restas with the Second Draft ED gave the following explanation of the relevant provisions (the numbering refers to the Second Draft ED): "In summary: ● Clause 2 deals with the 'Deposit' - Hardboards will only be entitled to it if it does not sell the 'Land' by the 'Sunset Date' and it has used all endeavours to develop and sell the 'Land'; ● Clause 3 deals with the requirement to pay the balance of the $10 million in the event of a 'Disposal'; ● Clause 4 effectively requires [Hardboards] to obtain HIG's consent in relation to part disposals, disposals that are not on arms length terms and disposals that are not for cash; and ● Clause 5 retains the concept of placing an obligation on Hardboards to develop and dispose of the 'Land' on the best possible commercial terms. Please provide me with your comments (if any) at your earliest convenience." Mr McLeod made no comments on the Second Draft ED. 25It should be noted that cl 8 of the Entitlement Deed was different from earlier versions of the clause. Previously, the drafts required Hardboards to grant the Mortgage "at the date of this Deed". The change was apparently due to the difficulty in arranging the execution of a Mortgage of the Queensland Land in time. 26On the same day as the Entitlement Deed was executed, 8 June 2001, Hudson and Timber executed the Share Purchase Agreement. The Agreement provided that, subject to the satisfaction of certain conditions precedent, Hudson would sell all its shares in Hardboards to Timber. The purchase price was $25 million, payable in cash, shares and options. 27On 19 June 2001, Mr Restas was informed by the Queensland solicitors that $40,000 in stamp duty would be payable on the mortgage. The next day Mr McLeod instructed Mr Restas not to proceed with the mortgage because of the amount of stamp duty that would have to be paid. Mr Restas then wrote to the Queensland solicitors informing them that Hudson no longer required a mortgage to be prepared. 28On 30 June 2001, Mr Choy, then the General Manager (Finance and Operations) of Hudson, was instructed to raise journal entries in Hudson's electronic ledger account. One of the electronic ledgers recorded transactions between Hudson and Hardboards and the changes in the amount (if any) due by each to the other. Mr Choy, in accordance with his instructions, made an entry in Hardboards' loan account in the Hudson ledger which had the effect of reducing Hudson's indebtedness to Hardboards by $3.5 million. The narrative for this entry was "000085 G/J Prepayment AH'S". A corresponding entry was made in Hardboards' accounts. No cash payment was made by Hardboards to Hudson. 29On 31 May 2002, Mr Choy, on the instructions of Mr Knox (a consultant who acted as the Chief Financial Officer of the Hudson Group), reversed the journal entries made on 30 June 2001. On their face, these entries cancelled or reversed the $3.5 million reduction in Hudson's indebtedness to Hardboards. The effect was to increase Hudson's indebtedness to Hardboards by $3.5 million. No consideration was recorded for the entries. 30On 14 January 2003, Hardboards transferred one lot (Lot 4), comprising a portion of the Land, to AH Bremer Park Pty Ltd (AH Bremer), a wholly owned subsidiary of Hardboards. The consideration was expressed to be "[t]o facilitate reorganisation of assets as between group companies". 31Hudson's 2002 Annual Report, which was apparently prepared in early April 2003, recorded that discussions were under way for an industrial company to acquire about 19 hectares of the Land. The statement in the Annual Report makes it clear that Hudson, whether or not it formally consented to what became known as the "Capral Transfer", was aware of it before the event. 32On 2 May 2003, AH Bremer transferred Lot 4 to Bremer Business Park Pty Ltd, a company apparently not associated with Hardboards, Timber or AH Bremer. The consideration stated in the transfer was $2,200,051.50. However, the primary Judge proceeded on the basis of evidence given by Mr Meers (a non-executive director of Hudson appointed in November 2003) that AH Bremer received approximately $2 million, exclusive of GST, from Bremer Business Park Pty Ltd as the consideration for the transfer. This transfer was referred to by the primary Judge as the Capral Transfer. No point has been taken in these proceedings that the Capral Transfer was made by AH Bremer rather than Hardboards itself. 33In May and June 2003, the Hudson group underwent a major restructure. In consequence, Hudson's shareholding in Timber was reduced from a majority interest to a minority interest. Hardboards continued to be wholly owned by Timber. From that point Hudson's interests and those of Hardboards did not necessarily converge. 34On 21 May 2004, Hudson commenced proceedings in the Commercial List of the Equity Division of the Supreme Court. I shall make further reference to these proceedings later. 35Between 13 December 2004 and 14 November 2005 Hudson received separate advices from counsel and senior counsel that there were difficulties in construing the Entitlement Deed, particularly in relation to whether Hudson was entitled to any payment in the event of a partial disposal of the Land by Hardboards. Senior counsel advised that the formula in cl 4 of the Entitlement Deed was "flawed". 36On 4 August 2005, Hardboards entered into a contract to sell approximately 53 hectares of the Land (Lot 2) to Seahampton Pty Ltd. It appears that this transaction (Seahampton Transfer) was completed the same day or shortly thereafter and the purchase price of $7.5 million paid to Hardboards. None of the proceeds of the Seahampton Transfer was paid to Hudson.

Proceedings Between Hudson and Hardboards 37In its Commercial List Summons filed on 21 May 2004, Hudson named as defendants Hardboards, Timber, AH Bremer, Mr McLeod and Mr Holland (another director of Hudson). It sought declarations that two deeds that purported to amend the Entitlement Deed (Amending Deeds) were void on the ground that Mr McLeod did not have authority to enter into them on Hudson's behalf. Hudson also sought orders that the Entitlement Deed be specifically performed and that Hardboards (through AH Bremer) execute and deliver a mortgage in favour of Hudson to secure the sum of $10 million in accordance with the Entitlement Deed. 38The Summons was heard by Einstein J in July 2005. As the primary Judge in the present proceedings noted (at [28]) no issue concerning the construction of cll 4 and 5 of the Entitlement Deed was litigated. His Honour gave judgment on 12 August 2005: Hudson Investment Group Pty Ltd v Australian Hardboards Ltd [2005] NSWSC 716. After a further hearing, his Honour made the declarations sought by Hudson and ordered specific performance of the Entitlement Deed: Hudson Investment Group Ltd v Australian Hardboards Ltd [2005] NSWSC 931. In addition, Einstein J ordered that Hardboards: "forthwith to the extent not yet paid, pay to [Hudson] the $3,500,000 deposit in accordance with the Entitlement Deed". 39Hardboards appealed to the Court of Appeal and Hudson filed a cross-appeal on an issue not relevant to the present appeal. The Court of Appeal in substance dismissed both the appeal and the cross-appeal: Australian Hardboards Ltd v Hudson Investment Group Ltd [2006] NSWCA 146. However, the Court of Appeal varied one of the orders made by Einstein J so as to require Hardboards to execute and deliver a mortgage in such form as the parties might agree or, in default of agreement, as settled by an Associate Justice. An application by Hudson for special leave to appeal to the High Court from the decision of the Court of Appeal was dismissed: Hudson Investment Group Ltd v Australian Hardboards Ltd [2006] HCATrans 617. 40On 15 June 2006, shortly after the Court of Appeal delivered judgment, Hudson's solicitors (not the respondents to the present appeal) wrote a letter of demand to Hardboards' solicitors. The letter alleged that Hardboards had disposed of parts of the Land for an aggregate consideration in excess of $10 million, but had paid nothing pursuant to its obligations under cl 4 of the Entitlement Deed. The letter demanded payment of $10 million or, if Hardboards complied with a separate demand to pay the Deposit, $6.5 million. 41Hardboards' solicitors responded the next day disputing that the reversal of the journal entries of 30 June 2001 had reinstated Hardboards' obligation to pay the Deposit. That obligation had been discharged by the journal entries. The letter also disagreed with Hudson's assertion that the transfers, either together or alone, constituted a "Disposal" within the meaning of cl 4 of the Entitlement Deed. Accordingly, Hardboards denied any liability to Hudson. 42On 19 July 2006, Hudson filed a notice of motion in the proceedings seeking an order that Hardboards pay $10 million or, in the alternative, $3.5 million. This motion was ultimately dismissed on 21 August 2006: Hudson Investment Group v Australian Hardboards Ltd [2006] NSWSC 840. On the same date, a separate summons filed by Hardboards seeking a declaration that it owed no moneys under the Entitlement Deed was stayed. On 1 September 2006, Hudson filed an amended notice of motion in the proceedings. Among the orders sought by Hudson were the following: "2. An order that [Hardboards] pay [Hudson] the sum of $6,500,000. 3. In the alternative to Order 2, an order that [Hardboards] pay [Hudson] the value of the aggregate consideration received by [Hardboards] in relation to the Disposal (as defined in the Entitlement Deed) less the sum of $3,500,000. 4. An order that ... there be an inquiry into and a determination of whether the Deposit (as defined in the Entitlement Deed), or any part of the Deposit, was paid by [Hardboards] to [Hudson] in accordance with the Entitlement Deed." 43Hudson filed Points of Claim in the proceedings on 6 October 2006. Hudson pleaded that:

Hardboards had not paid the Deposit under the Entitlement Deed;
the Capral and Seahampton Transfers were "Disposals" within the meaning of cl 4 of the Entitlement Deed; and
by reason of the Disposals, Hudson became entitled to a payment of $9.5 million less the Deposit from Hardboards pursuant to cl 4(b) of the Entitlement Deed. 44In its Amended Points of Defence, Hardboards pleaded, among other things, that a "Disposal" under the Entitlement Deed meant "disposal of the whole of the Land." The particulars of the defence included that cll 4, 5 and 6 of the Entitlement Deed had to be construed together so as to give effect to the objective intentions of the parties. 45Hardboards also filed a cross-claim seeking return of the Deposit under cl 2(d)(ii)(B) of the Entitlement Deed (relating to the Sunset Date). 46On 8 June 2007, Hudson and Hardboards executed a "Settlement and Release Deed" (Settlement Deed). Clause 2.1 provided as follows: "Hardboards must pay $6.1 million to Hudson pursuant to clause 4 of the Entitlement Deed ... on the execution of this deed ..." The parties consented to the making of orders disposing of the proceedings by dismissing Hudson's claims for relief and Hardboards' cross-claim.

The Current Proceedings 47Hudson commenced proceedings against the Solicitors by filing a statement of claim on 6 June 2007, two days before the Settlement Deed was executed. Hudson's case was ultimately pleaded in the Further Amended Statement of Claim (FASOC) filed on 15 December 2010. 48The key allegations in the FASOC were as follows: "12. [Hudson] instructed [the Solicitors] that the Entitlement Deed should provide that in the event the ultimate control over, or ultimate beneficial ownership in, the Land or any part or parts of it, changed in any way on or before the 5th anniversary of the date of the Entitlement Deed, Hardboards must pay to [Hudson] the first $10 million of the proceeds received by Hardboards in relation to the disposal of the Land or any part or parts of it, less any deposit that had been paid ('the Entitlement Instruction'). ... 15. The Entitlement Deed did not clearly and unambiguously embody the Entitlement Instruction. ... 30. In the circumstances set out in paragraph ... 15 [the Solicitors] acted negligently and breached [their] duty of care. Particulars of Negligence (i) [The Solicitors] did not: (A) use reasonable skill, care and diligence in executing their instructions and drafting the documentation; (B) give careful, accurate and competent advice and representation in relation to the terms and entry of the Entitlement Deed; and (C) ensure that the Entitlement Deed entered into clearly and unambiguously embodied the instructions and intentions of [Hudson]; (ii) [The Solicitors] drafted clauses 4 and 5 of the Entitlement Deed in terms that were ambiguous; ... 32. By reason of the negligence of [the Solicitors], [Hudson] has suffered loss and damage. Particulars (b) [Hudson's] recovery of payment from Hardboards under the Entitlement Deed has been delayed. (c) [Hudson] has lost the benefit of a carefully drafted Entitlement Deed ... and has recovered less than $9.5 million and interest in respect of the Capral Disposal and the Seahampton Disposal."

Primary Judgment 49The primary Judge observed (at [5]) that the claim primarily involved two clauses in the Entitlement Deed which the Solicitors had conceded were contradictory. (On the appeal, Mr Jackson QC, who appeared with Mr Thomas for the Solicitors, did not accept that counsel then appearing had made any such concession). 50Her Honour recorded (at [44]) that Hudson had submitted: "(i) that [the Solicitors] were instructed that the first $10 million of the proceeds of any sale (whether of the whole or of any part) of the land was to be paid by Hardboards to Hudson. (The salient part of this contention is that the instructions contemplated and envisaged, whether explicitly or implicitly, that the land might be sold in stages, or in separate parcels); (ii) that, in including in the Entitlement Deed (in clause 5) an express prohibition on partial sales of the land, [the Solicitors] acted contrary to that instruction; (iii) that, by reason of the inclusion of clause 5 in the Entitlement Deed: 'there is only one certain circumstance in which Hudson is entitled under the deed to enjoy the right to be paid the first $10 million of the proceeds of the land, relevantly, a change in the ultimate beneficial ownership of the whole of the land ...' (bold added); (iv) that, when Hardboards disposed of parts of the land (in contravention of clause 5) uncertainty arose as to: (a) the entitlement of Hudson to be paid under clause 4; (b) the measure of any damages for breach of clause 5; (v) that, as a consequence of what it characterises as negligent drafting of the Entitlement Deed by Mr Restas, Hudson became engaged in protracted and expensive litigation. ... (vi) that the damage suffered by Hudson is to be quantified at $6,867,712.33 (including interest to 9 January 2012)." 51The primary Judge noted (at [45]) that Hudson had not made a separate claim for payment of the Deposit of $3.5 million, but contended that that sum should be a component of any damages awarded. However, her Honour considered it unnecessary to determine whether the Deposit had been paid (at [47]). Hudson had conceded that the failure to pay was not connected with the negligence or breach of contract alleged against the Solicitors. Since damages could be awarded only for losses consequent upon a breach of duty, this part of Hudson's claim had to fail. 52Her Honour was not prepared to find that Hudson had given instructions to the Solicitors in the terms pleaded by it (at [51]). Mr McLeod had not given evidence and the documentation did not establish that the Solicitors were instructed to prepare the deed in terms that recognised the possibility of part disposals of the Land. Nonetheless, her Honour accepted (at [52]) that certainly Hudson and probably Mr Restas envisaged that the Land would be disposed of otherwise than by the sale of the whole 322 hectares. 53The primary Judge said (at [53]-[54]) that, except for one important piece of evidence, it may have been that cl 5 was negligently drafted in contravention of the "implied instruction and common understanding". The important evidence was Mr Restas' email of 7 June 2001 (see at [24] above), which had drawn Mr McLeod's attention to cl 5 of the Entitlement Deed and the reasons for including it. Her Honour inferred that: "Mr McLeod read and understood Mr Restas' email and, even if tacitly, but in accordance with past practice, accepted the advice Mr Restas gave and the resulting clause. In other words, even if an instruction had been given in the terms pleaded ... that instruction was overtaken by later events. Mr McLeod's instruction to proceed with two separate documented agreements, contrary to Mr Restas' advice, clearly establishes that he was actively involved in the process." 54In any event, her Honour considered (at [55]) that the inserting of cl 5 was not causative of any loss or damage to Hudson: "The clause was not an issue in any of the litigation involving the parties. It has nothing to do with the failure of Hardboards to make payments to Hudson in accordance with clause 4 following the Capral and Seahampton transfers, nor the failure (if it be the case) of Hardboards to give notice to Hudson of the proposed transfers. Any adverse consequences to Hudson have arisen out of non-compliance with the terms of the Entitlement Deed." 55The primary Judge found (at [57]) that Hudson was entitled to $6 million ($9.5 million, less the Deposit of $3.5 million), but it had received $6.1 million. It was true that Hudson experienced a delay in receiving its money, but this was not attributable to any aspect of the drafting of the Entitlement Deed: "58. ... It is attributable, it seems, to default on the part of Hardboards in honouring its obligation under the Entitlement Deed. It may be attributable to Hudson's failure to protect its own interests in enforcing the provisions of the Deed. In part at least, that may depend on what notice Hudson had of the transfers. 59. It was contended that any failure on Hudson's part to take steps to enforce its rights under the Entitlement Deed could, in turn, be attributed to the clumsiness of the drafting, and the consequent uncertainty as to the meaning of either clause 4 or clause 5, and that this was the cause of the litigation. However, as can be seen from the account of the litigation ...none of it was directed to the construction of either of those clauses. ... In any event, the suggestion is purely speculative. There is no evidence that Hudson withheld attempting to enforce its rights under the Entitlement Deed to any such uncertainty. 60. I do not accept that Hudson has sustained any loss at all; it has recovered the money to which it was entitled under the Entitlement Deed in respect of the proceeds of sale. True it was, there was some delay in its receiving those funds, but, as I have said, that was not because of the manner in which the Entitlement Deed was drafted. If it is correct that Hudson has not been paid the deposit of $3.5 million, that is entirely attributable to its own failure to ensure that it was paid. It has nothing to do with the drafting of the Entitlement Deed. So much was conceded."

Hudson's Submissions 56Mr Hutley SC, who appeared with Mr Furlan for Hudson, summarised Hudson's case as follows:

a central purpose of the Entitlement Deed, on Hudson's instructions, was to confer on Hudson a right to receive up to $10 million upon the happening of specific events, including partial disposals of the Land;
the Solicitors appreciated that the Land would be disposed of by the sale of parts rather than the whole;
Hudson instructed the Solicitors that the payment obligations should be triggered by partial sales of the Land;
the Solicitors breached their duty by drafting the Entitlement Deed so that there was a very large degree of uncertainty as to whether it actually conferred on Hudson a right to payment on partial sales;
it was reasonably foreseeable that a dispute would arise as to Hudson's entitlement by reason of the uncertainty; and
Hudson reasonably compromised its claim against Hardboards, thus incurring a loss due to the Solicitors' breach of duty.

Ground 1 57Mr Hutley submitted that the primary Judge erred in failing to find that Hudson had given instructions to the Solicitors in the terms pleaded in the FASOC. Mr Hutley contended that Mr Restas' own evidence made it clear that he had in fact received such instructions. He understood that he was to draft the Entitlement Deed so that Hudson would receive the first $10 million from disposal of the Land, including part disposals, with Hudson to be paid the amount received from each part disposal until it received an aggregate sum of $10 million.

Ground 2 58Mr Hutley submitted that the Solicitors breached their contractual and tortious duty of care to Hudson by drafting the Entitlement Deed in language that gave rise to uncertainty as to whether the Deed made provision for the first $10 million of the proceeds of disposal of the Land (whether in whole or in parts) to be payable to Hudson. The uncertainty was created by:

the ambiguous language of cl 4 of the Entitlement Deed, in particular the ambiguity as to whether it applied to a partial disposal of the Land; and
the great difficulty in reconciling the prohibition on partial disposals of the Land in cl 5 with the contention that cl 4 applied to partial disposals of the Land. 59Mr Hutley acknowledged that senior counsel appearing for Hudson at the trial had accepted that the better view of cl 4, if it stood alone, was that it applied to partial disposals and thus would trigger payment obligations. However, senior counsel had made it clear that cl 4 itself was not free from doubt and that when the Entitlement Deed was read as a whole, as it had to be, the meaning was uncertain. This contention was supported by the opinions given by other counsel to Hudson, all of which commented on the infelicitous drafting of the Entitlement Deed and some of which expressed the view that Hudson was not entitled to any portion of the $10 million on a partial disposal of the Land. 60Mr Hutley stated in oral argument that it was not a necessary part of his case that the Entitlement Deed, on its true construction, did not apply to partial disposals of the Land and he did not invite the Court to decide that this was the correct construction. He accepted that not every ambiguity in a document drafted by solicitors will give rise to a claim in negligence by the client. If, however, solicitors draft an agreement that is attended by such doubt as to whether it achieves its intended objective that it is reasonable for the client to settle disputed litigation, a claim can arise. 61The way Mr Hutley put Hudson's submission is consistent with Hudson's pleading. Having alleged the "Entitlement Instruction" Hudson pleaded that: "The Entitlement Deed did not clearly and unambiguously embody the Entitlement Instruction." This failure was alleged to constitute a breach by the Solicitors of their duty to use reasonable skill, care and diligence in its discharge of its retainer by Hudson.

Ground 3 62Hudson challenged the primary Judge's finding (at [54]) that Hudson's instructions concerning partial disposals were effectively overtaken by Mr Restas' email of 7 June 2001 and Mr McLeod's acceptance of the contents of that email. Mr Hutley submitted that the email did not alert Mr McLeod to the uncertainty created by the drafting of the Entitlement Deed. In particular, the email did not explain that cl 5 might preclude Hudson from claiming any of the $10 million in the event of a partial disposal of the Land.

Ground 4 63Hudson challenged the primary Judge's finding (at [55]) that the inclusion of cl 5 in the Entitlement Deed was not causative of any loss or damage to Hudson. Mr Hutley submitted that it was the negligent drafting of the Entitlement Deed (not merely cl 5) that created a foreseeable opportunity for Hardboards to deny Hudson's entitlement to the proceeds (totalling $9.5 million) from the Capral and Seahampton transfers. Hardboards had resisted Hudson's claim to be paid the proceeds on the ground that the Entitlement Deed, properly construed, created no such entitlement. It could readily be inferred that if the Entitlement Deed had not been drafted so as to create uncertainty, Hardboards would have had no credible basis to resist Hudson's claim and could not have done so. 64In this respect, the primary Judge incorrectly found (at [59]-[60]) that any delay in Hudson receiving moneys from Hardboards was not due to the drafting of the Entitlement Deed because none of the litigation was directed to the construction of cll 4 or 5 of the Deed. This finding overlooked Hudson's pleaded case in support of its claim, which expressly relied on cl 4 of the Entitlement Deed, and Hardboard's defence, which squarely raised cl 5 as supportive of its construction of cl 4. 65Mr Hutley also contended that her Honour should have specifically found that the compromise reached by Hudson, whereby it accepted $6.1 million in satisfaction of its claim, was reasonable and that therefore there was no breach in the chain of causation and damage. Hudson had advice that the settlement was reasonable having regard to the uncertainty concerning the construction of the Entitlement Deed.

Grounds 5-8 66Mr Hutley made it clear that Hudson was not contending that the Solicitors were responsible for the non-payment of the Deposit (if indeed it had not been paid), since Mr McLeod had told Mr Restas on 7 June 2001 that Hardboards had paid the Deposit of $3.5 million. Nonetheless, Mr Hutley submitted that the primary Judge erred in failing to find that Hardboards had not paid the Deposit. Had such a finding been made, so he argued, it would have undercut the primary Judge's assumption that Hudson had received a settlement of $6.1 million in respect of a claim which, in substance, was only for $6 million (being $9.5 million said to be due under the Entitlement Deed, less the Deposit of $3.5 million). In truth, Hudson's claim was for $9.5 million, plus interest. By settling for $6.1 million, it had effectively lost $3.4 million plus the value of its claim for interest. 67Mr Hutley submitted that cl 2 of the Entitlement Deed, on its proper construction, required Hardboards to pay the Deposit in cash. So much followed from the requirement in cl 2(b)(i) for Hudson to invest the Deposit. The journal entries made on 30 June 2001 could not satisfy the requirement that Hardboards pay the Deposit in cash. In any event, there was evidence that auditors reviewing Hudson's accounts had advised Hudson that the journal entries of 31 May 2002 appear to have reversed or nullified the earlier entries and thus the Deposit had not been paid by Hardboards. There was expert accounting evidence to similar effect. 68Mr Hutley next submitted that it did not ultimately matter whether the Deposit had been paid. Mr Meers, who negotiated the compromise on Hudson's behalf, received advice from Hudson's auditors that the Deposit had not been paid by reason of the reversal of the journal entries in Hudson's ledger that had taken place on 31 May 2002. Mr Meers had approached the negotiations on the basis that Hudson's claim included the unpaid Deposit of $3.5 million. The issue had not been mentioned by Hardboards in the course of negotiations, but it could readily be inferred that the ultimate settlement sum reflected, among other claims, Hudson's claim that Hardboards remained liable under the Settlement Deed to pay the Deposit. That inference was supported by the fact that Hudson's Points of Claim in the proceedings against Hardboards included a claim for payment of the Deposit.

Ground 9 69Hudson submitted that if its claim against the Solicitors succeeded, the damages award should take account of the fact that the Settlement Deed included a compromise of Hudson's claim against Hardboards for interest on payments due under cl 4 of the Entitlement Deed. The claim for interest was said to amount to $2,020,150.00 at the date the Settlement Deed was entered into, calculated as follows:

interest on the sum of $2 million due in respect of the Capral Transfer from 16 May 2003 to 8 June 2007 ($741,041.10); and
interest on the sum of $7.5 million due in respect of the Seahampton Transfer from 4 August 2005 until 8 June 2007 ($1,279,109.59). 70Hudson recognised that if, contrary to its submissions, Hardboards had paid the Deposit, the interest calculation would be different. Hudson's written submission calculated the interest claim incorporated in the Settlement Deed in those circumstances at $1,023,288.00. 71Hudson submitted that the fact that the claim for interest was incorporated in the Settlement Deed demonstrated that her Honour erred in finding that the negotiated settlement of $6.1 million fully compensated Hudson for its claimed loss ($9.5 million less the Deposit of $3.5 million). Even if the Deposit had been paid, so Hudson argued, it had still suffered a loss.

Damages 72In written submissions provided after the hearing, Hudson quantified its loss at $5,420,150.00 as at 8 June 2007 (the date of the Settlement Deed), plus such interest as would accrue thereafter until judgment. This sum assumed that the Deposit had not been paid and represented $3.4 million (the difference between $9.5 million and the settlement proceeds of $6.1 million), plus interest of $2,020,150.00. Hudson accepted that the maximum amount it could recover against the Solicitors was $4.5 million, because of the limits on liability imposed by the Solicitors Scheme approved under the Professional Standards Act 1994 (NSW). 73If the Court found that the Deposit had been paid, Hudson's primary position was that its damages amount to $923,288, plus interest after 8 June 2007. That figure was calculated as follows: Capral sale $2.0 million Seahampton sale $7.5 million Interest Capral, Seahampton, August 2005 - 8 June 2007 on $6,000,000 (674 days) $1,023,288 $10,523,288 Less Deposit $3.5 million Settlement recovery $6.1 million $9,600,000 Loss at 8 June 2007 $923,288

74Hudson's submissions recognised that, assuming the Deposit to have been paid, there were other ways in which its damages might be calculated. These depended on matters of fact that were not the subject of findings made by the primary Judge, such as the proportion of the settlement sum that should be attributed to Hudson's claim against Hardboards for the Deposit.

Breach of Duty 75The Solicitors emphasised that Hudson has never asserted that the Entitlement Deed, as drafted, did not reflect Hudson's instructions. Hudson had maintained against Hardboards that the Entitlement Deed entitled it to recover up to $10 million in respect of partial disposals of the Land. Hudson did not plead, as against the Solicitors, that the Entitlement Deed, on its proper construction, did not confer such an entitlement. 76Mr Jackson submitted that a solicitor who drafts a clause in an agreement that is ambiguous does not act negligently. Solicitors do not warrant the correctness of their advice; they are obliged only to exercise reasonable care in carrying out their duties. Thus a solicitor who is instructed to draft a document is not negligent merely because a court concludes that, objectively construed, it bears a different construction than the one intended. 77Moreover, so Mr Jackson argued, it is almost inevitable that a contractual clause or agreement will be capable of bearing more than one meaning. A finding that the Solicitors were negligent would require a departure from the correct test, which required Hudson to establish that no qualified lawyer in the position of the Solicitors acting reasonably would have drafted the agreement in the manner complained of. 78The advices given to Hudson demonstrated only that the Entitlement Deed was capable of being construed in different ways. None of the opinions suggested that it was untenable to contend that the Entitlement Deed entitled Hudson to payments in the event of partial disposals of the Land.

Causation 79The Solicitors submitted that the primary Judge was correct to conclude that, even if they had been negligent in drafting the Entitlement Deed, that negligence was not causative of any loss to Hudson. They pointed to a number of matters. 80First, Hudson had settled its dispute with Hardboards for more than it was entitled to receive. The Settlement Deed provided for Hardboards to pay $6.1 million pursuant to cl 4 of the Entitlement Deed. Hudson was entitled under cl 4 to receive only $6 million ($9.5 million in respect of the Capral and Seahampton transfers, less the Deposit of $3.5 million). Thus Hudson had received its full entitlement under cl 4 of the Entitlement Deed. 81Secondly, Hudson claimed for losses said to include the unpaid Deposit of $3.5 million, yet Hudson accepted that any failure by Hardboards to pay the Deposit could not be attributed to the Solicitors in any way. 82Thirdly, bearing in mind that Mr McLeod did not give evidence, there was no evidence that if the Solicitors had drafted the Entitlement Deed differently, both Hudson and Hardboards would have agreed to execute it. 83Fourthly, Hudson engaged in conduct which either severed the chain of causation between the Solicitors' alleged negligent drafting and the loss it claims, or sounded in contributory negligence. In particular, Hudson failed:

to obtain the mortgage to which it was entitled under cl 8 of the Entitlement Deed, thus effectively abandoning a mechanism that would have ensured that it was paid the amounts due under the Entitlement Deed or prevented part disposals of the Land;
to prevent the Capral Transfer notwithstanding that Hudson was aware of it in advance and that the part disposal breached of cl 5 of the Entitlement Deed; and
to take action to prevent the Seahampton Transfer in contravention of cl 5. 84Fifthly, on Hudson's construction of the Settlement Deed, Hardboards paid an undissected sum of $6.1 million to compromise Hudson's claim. Since there is no way of knowing how much of this sum should be allocated to Hudson's claim for payment of the Deposit of $3.5 million, Hudson could not demonstrate that the settlement was reasonable.

Hudson's Interest Claim 85The Solicitors point out that it was not until July 2006 that Hudson sought payment of moneys due to it under cl 4 of the Entitlement Deed. This was five years after the execution of the Entitlement Deed and over three years after the Capral Transfer. The primary Judge was correct to find that none of this delay was due to any negligence by the Solicitors in drafting the Entitlement Deed. In these circumstances, they contend that Hudson cannot claim damages in the form of interest on money due under cl 4 of the Entitlement Deed.

Reasoning: Factual Findings 86It is convenient to deal first with challenges to the findings of fact made (or not made) by the primary Judge.

Instructions to the Solicitors 87Her Honour was not prepared to find that instructions were given to the Solicitors in the terms pleaded by Hudson: that is, that the Entitlement Deed was to provide for Hudson to receive the proceeds of a partial disposal of the Land, up to the maximum of $10 million. In declining to make such a finding, her Honour relied on the absence of evidence of oral instructions from Mr McLeod to the Solicitors, whether to Mr Simmons or Mr Kyriak. It will be recalled that Mr McLeod did not give evidence. 88Her Honour did not refer expressly to Mr Restas' evidence as to his understanding of the instructions given to him by Hudson. Mr Restas in his affidavit stated that he did not understand that his instructions were those pleaded by Hudson as the "Entitlement Instruction". However, in cross-examination he gave very clear evidence as to his understanding. He accepted that he understood that the Entitlement Deed was to be drafted so that Hudson would receive the first $10 million of the proceeds of sale of the Land. The cross-examination continued as follows: "Q. So as and when there were any part disposals and proceeds were produced it was your understanding of your instructions at this point that what was to happen was that Hudson was to have a right in this entitlement deed to get that first $10 million? A. Yes. ... Q. Yes, putting [the Deposit] to one side. So if, for example, a part of the broad acreage was sold off early in the piece rather than incorporated in a larger ongoing development the right that you were going to have pursuant to these instructions to write into the entitlement deed was a right for Hudson to get the proceeds of that sale, correct? A. Yes. Q. And then if a second parcel was sold as you understood your instructions they were to write into the entitlement deed a right to Hudson to get the proceeds of the sale of that next parcel up to the point where we reached an aggregate of $10 million? A. Yes, an aggregate. Q. That was your understanding of your instructions, that Hudson was to get the first 10 million? A. Leaving aside the deposit, yes. ... Q. So I want to get this clear. It was your understanding of your instructions given on this occasion that Hudson's right to receive this first $10 million was to be a right given to it under the entitlement deed? A. Yes Q. Not qualified, limited or negated by any other provision of the deed? A. No. Q. What do you mean no? You are agreeing with me? A. It was not to be the right to, the consideration upon a disposal was not to be negated or not to be effected by any other clause in the entitlement deed." 89Had Mr Restas not made these concessions in his oral evidence, it would have been very difficult for Hudson to establish that it had given the pleaded Entitlement Instruction to the Solicitors, in the absence of Mr McLeod from the witness box. However in view of Mr Restas' oral evidence, I accept Hudson's submission that the primary Judge should have found that Mr Restas was instructed by Hudson to draft the Entitlement Deed so that:

Hudson would receive the first $10 million of the proceeds from disposal of the Land;
the entitlement would apply to part disposals of the Land; and
Hudson would receive the proceeds of any such part disposal until an aggregate sum of $10 million was paid. 90As Mr Jackson pointed out, this finding does not mean that the Solicitors either failed to comply with the Entitlement Instruction or breached their duty to exercise reasonable care in drafting the Entitlement Deed. These are separate questions. But it does mean that the Solicitors cannot rely on the primary Judge's finding that she could not be satisfied that the Entitlement Instruction was given to the Solicitors.

Email of 7 June 2001 91Hudson challenged the primary Judge's finding that, if the Solicitors were negligent in drafting the Entitlement Deed, Mr Restas' email of 7 June 2001 had "overtaken" their negligence. Mr Hutley acknowledged that Hudson could not contend that the inclusion of cl 5 in the Entitlement Deed was contrary to Hudson's instructions to the Solicitors. He accepted that Mr McLeod had instructed Mr Restas to proceed to the execution of the Entitlement Deed in the final form that had been submitted by Mr Restas for Mr McLeod's approval. However, Mr Hutley said that, contrary to the primary Judge's understanding (at [44(ii)]), it had never been Hudson's position in the litigation that the inclusion of cl 5 in the Entitlement Deed was contrary to the Solicitors' instructions. Hudson's challenge was directed to the primary Judge's finding that there had been a break in causation between any negligence by the Solicitors and any loss sustained by Hudson. 92If the Solicitors were indeed negligent, Mr Restas' email of 7 June 2001 could neither supersede Hudson's instructions as to the drafting of the Entitlement Deed, nor constitute a disclosure that the drafting of the Entitlement Deed had created avoidable ambiguities. The email implied that the draft required Hardboards to pay Hudson if there was a part disposal of the Land, but it also asserted that what became cl 5 of the Entitlement Deed effectively required Hardboards to obtain Hudson's consent to a partial disposal of the Land. The email did not alert Mr McLeod to the potential internal inconsistency between cll 4 and 5 of the Entitlement Deed that arose because cl 5 prohibited Hardboards from disposing of part of the Land, while cl 4 apparently entitled Hudson to a payment if Hardboards did dispose of part of the Land. Nor did the email suggest that the drafting of the Entitlement Deed involved a departure in some way from Hudson's instructions or that there would be considerable uncertainty as to the correct construction of the Deed. 93It may well be the case, as the Solicitors submitted, that Mr Restas correctly considered Mr McLeod to be a sophisticated client who often commented on draft documents sent to him by the Solicitors for approval. The evidence indicated that Mr McLeod had held a number of senior positions in the finance industry and had extensive experience in project financing and capital markets. But that does not demonstrate that Mr McLeod appreciated or should have appreciated that the Solicitors had drafted the Entitlement Deed in a manner that made it unclear whether Hudson would be entitled to receive payments if Hardboards disposed of part of the Land. The email could not be said to have supplanted or amended Hudson's instructions as to the objectives to be achieved by the Entitlement Deed. If the Solicitors were negligent and if, apart from the email, their negligence caused Hudson to sustain loss, the chain of causation was not broken by the email.

Payment of the Deposit 94As I have explained, in Hudson's case on appeal, it is not necessarily critical whether the Deposit was or was not in fact paid by Hardboards to Hudson in conformity with cl 2 of the Entitlement Deed. Nevertheless, the factual issue was the subject of submissions and should be resolved. In my opinion, a finding should be made that the deposit was paid by virtue of the journal entries made in Hudson's ledger on 30 June 2001. 95Mr Jackson submitted, correctly in my view, that cl 2(a) of the Entitlement Deed did not require Hardboards to pay the Deposit in cash. Clause 2(a) merely says that on signing the Deed "Hardboards must pay the Deposit to Hudson." It does not state that the Deposit must be paid in cash. This contrasts with cl 5(b) of the Entitlement Deed which prevents Hardboards undertaking a Disposal unless, relevantly, the "consideration to be received is cash payable as at the date of the Disposal" (emphasis added). The contrast in language in the same document is significant. 96The law recognises that payment can be made by means of entries in books of account if both parties to the transaction agree: Manzi v Smith [1975] HCA 35; 132 CLR 671 at 674 (Barwick CJ, with whom Mason and Jacobs JJ agreed); Equuscorp Pty Ltd v Glengallen Investments Pty Ltd [2004] HCA 55; 218 CLR 471 at [45]-[46] (per curiam); Re York Street Mezzanine Pty Ltd (in liq) [2007] FCA 922; 162 FCR 358 at [25]-[26] (Finkelstein J). On 30 June 2001, Hudson and Hardboards were associated corporations. It can readily be inferred that the journal entries were made with the assent of both Hudson and Hardboards. The effect of the entries was to reduce Hudson's indebtedness to Hardboards by $3.5 million. There is nothing in the language of cl 2(a) of the Entitlement Deed that would prevent the journal entries effecting payment of the Deposit by Hardboards to Hudson in accordance with the Entitlement Deed. 97The requirement in cl 2(b)(i) of the Entitlement Deed that Hudson invest the Deposit until specified dates is not inconsistent with this conclusion. Clause 2(b)(i) obliged Hudson to invest the amount of the Deposit ($3.5 million) in an interest bearing account. It did not convert the obligation to pay in cl 2(a) into one requiring cash to change hands between Hardboards and Hudson. Nor does the fact that Hudson did not comply with its obligation to invest the funds change the effect of the journal entries. 98This conclusion is supported by contemporaneous documentation. In an Explanatory Memorandum to Shareholders, accompanying the Notice of General Meeting to be held on 6 August 2001, Hudson stated that the Deposit of $3.5 million payable under the Entitlement Deed had already been paid by Hardboards. The accompanying Independent Expert's Report dated 7 June 2001 repeated the statement. 99The view expressed by the auditors and the accountancy evidence that the later journal entries cancelled or nullified the original entries cannot determine the legal effect of each set of entries. Mr Choy did not explain in his evidence the reason for Mr Knox's instruction to reverse the journal entries. In any event, while the reversal of the entries may have altered the balance of accounts as between Hudson and Hardboards, it could not retrospectively alter the fact that Hardboards had complied (albeit belatedly) with its obligation under the Entitlement Deed to pay the Deposit to Hudson.

Reasoning: Causation 100There are in my view serious difficulties in Hudson's path in establishing that the Solicitors breached their duty of care in drafting the Entitlement Deed. Her Honour made no finding as to whether there was any such breach, although she thought that the Solicitors "may" have been negligent. However, she ultimately rejected Hudson's claim on the ground that the inclusion of cl 5 in the Entitlement Deed (which her Honour considered to be the gravamen of the negligence allegation) had not caused any loss or damage to Hudson. I now address that question. I do so on the assumption that Hudson can establish that the Solicitors breached their duty of care by failing to draft the Entitlement Deed so as to create a clear and unambiguous entitlement in Hudson to receive the proceeds of any disposal of the Land, including a partial disposal.

The Civil Liability Act 101The parties' detailed written submissions on causation did not refer to s 5D of the Civil Liability Act 2002 (NSW) (CL Act). In oral argument both Mr Hutley and Mr Jackson accepted that the CL Act applies to Hudson's claim for damages by reason of the Solicitors' alleged breach of duty: CL Act, s 5A(1) and definition of "harm" in s 5. Thus the question of causation is to be determined in accordance with the principles stated in Div 3 of Part 1A of the CL Act (ss 5D-5E): Adeels Palace Pty Ltd v Moubarak [2009] HCA 48; 239 CLR 420 at [41], [44] (per curiam). 102Sections 5D and 5E of the CL Act provide as follows: "5D General principles (1) A determination that negligence caused particular harm comprises the following elements: (a) that the negligence was a necessary condition of the occurrence of the harm (factual causation), and (b) that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused (scope of liability). (2) In determining in an exceptional case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be accepted as establishing factual causation, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party. (3) If it is relevant to the determination of factual causation to determine what the person who suffered harm would have done if the negligent person had not been negligent: (a) the matter is to be determined subjectively in the light of all relevant circumstances, subject to paragraph (b)... (b) ... (4) For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party. 5E Onus of proof In proceedings relating to liability for negligence, the plaintiff always bears the onus of proving, on the balance of probabilities, any fact relevant to the issue of causation." 103The effect of s 5D(1)(a) is that factual causation is to be determined by the "but for" test: "but for the negligent act or omission, would the harm have occurred?": Adeels Palace at [45]: Strong v Woolworths Ltd [2012] HCA 5; 246 CLR 182 at [18] (per curiam). The test requires the Court to determine whether, if the defendant had not breached its duty of care, the harm complained of would have been prevented. The test is not satisfied merely by showing that taking the steps the plaintiff alleges should have been taken might have made a difference: Adeels Palace at [50]. The plaintiff must show that it is more probable than not that, if the defendant had taken reasonable care, the harm would have been prevented: Adeels Palace at [53]. However, if the defendant's negligent act or omission is necessary to complete a set of conditions jointly sufficient to account for the occurrence of the harm, the test of factual causation will be satisfied: Strong v Woolworths Ltd at [20]. 104In exceptional cases, in determining whether negligence that cannot be established as a necessary condition of the occurrence of the harm (that is, cases in which the "but for" test cannot be satisfied), should be accepted as establishing factual causation, the court is to consider whether or not and why responsibility for the harm should be imposed on the negligent party: CL Act s 5D(2). The potential scope for the operation of 5D(2) was considered in Strong v Woolworths Ltd at [25]-[26]. 105In addition to factual causation, the plaintiff must establish that it is appropriate for the scope of the negligent party's liability to extend to the harm so caused: CL Act, s 5D(1)(b); Wallace v Kam [2013] HCA 19; 87 ALJR 648 at [21] (per curiam); Paul v Cooke [2013] NSWCA 311 at [86] (Leeming JA). While a determination of factual causation is "entirely factual", a determination under s 5D(1)(b) that it is appropriate for the scope of the defendant's liability to extend to the harm so caused is "entirely normative": Wallace v Kam at [14]. In addressing that normative question, the court is to be guided by precedent. But in a novel case, s 5D(4) requires the court to consider and to explain in terms of legal policy whether or not and, if so, why responsibility for the harm should be imposed on the negligent party: Wallace v Kam at [23]. 106In Paul v Cooke, Leeming JA observed (at [105]) that s 5D(1)(b) reflects the approach taken by McHugh J in March v E. & M.H. Stramare Pty Ltd [1991] HCA 12; 171 CLR 506 at 535. There McHugh J adopted the "scope of risk" test stated by Denning LJ in Roe v Minister for Health [1954] 2 QB 66 at 85: "Starting with the proposition that a negligent person should be liable, within reason, for the consequences of his conduct, the extent of his liability is to be found by asking the one question: Is the consequence fairly to be regarded as within the risk created by the negligence? If so, the negligent person is liable for it: but otherwise not." (McHugh J's emphasis.) The language used in cases, particularly those pre-dating the CL Act, should not be used as a substitute for the statutory language, but McHugh J's approach is helpful in applying the open ended language in s 5D(1)(b) and (4) of the CL Act.

Was the Loss Caused by the Solicitors' Alleged Negligence?

The Deposit 107Before addressing the broader questions of causation, it is convenient to deal separately with Hudson's claim to be compensated for non-payment of the Deposit. I have already found that Hardboards paid the Deposit to Hudson. But if I am wrong in that conclusion, any negligence by the Solicitors was not causally related to Hudson's non-receipt of the Deposit. The parties appeared to be somewhat at cross-purposes in their written submissions as to the significance of the payment (or non-payment) of the Deposit. The Solicitors seemed to assume that Hudson was claiming the amount of the Deposit as part of its damages, while Mr Hutley eschewed any such claim. He accepted that even if the Deposit had not been paid, there was no causal relationship between any breach of duty by the Solicitors and Hudson not receiving the Deposit. The Solicitors therefore cannot be held responsible for the non-payment of the Deposit or any delay in payment of the Deposit to Hudson.

What Could Hudson Have Done to Protect Itself? 108As I have noted, the breach of duty by the Solicitors is alleged to be their failure to draft the Entitlement Deed so as to embody "clearly and unambiguously" the Entitlement Instruction. The principal focus of Hudson's submissions was the apparent inconsistency between the prohibition on partial disposals of the Land in cl 5 of the Entitlement Deed, and the entitlement to payments conferred by cl 4 which, on the approach accepted by Hudson at trial, seemed to apply to partial disposals of the Land. Mr Hutley did not confine his criticism of the drafting of the Entitlement Deed to this particular difficulty, pointing also to ambiguities in the drafting of cl 4 itself. 109It is understandable that Hudson focussed on the drafting of cll 4 and 5 of of the Entitlement Deed. But the Deed was not limited to cll 4 and 5. It incorporated a number of provisions plainly designed to protect Hudson's interests. These included the following:

Hardboards was to pay the Deposit of $3.5 million on the signing of the Deed (cl 2(a));
Hardboards was not to dispose of the Land otherwise than by ceasing to have all of its beneficial ownership in the Land (cl 5(a));
Hardboards was to use its best endeavours to dispose of the Land before the Sunset Date on the best commercial terms and was not to do, or permit anything to be done, that would diminish the value of the Land (cl 6);
Hardboards was to give prompt notice to Hudson of any agreement or arrangement in respect of, or in any way dealing with the Land (cl 7); and
Hardboards was to grant Hudson a mortgage over the Land when required to do so by Hudson (cl 8). 110In order to determine whether the Solicitors' (assumed) negligence caused Hudson to sustain a loss by settling the proceedings against Hardboards at less than the face value of the claim, it is necessary to consider what action Hudson could have taken under the Entitlement Deed to protect itself in relation to the Capral and Seahampton Transfers. 111The Capral Transfer took place in early May 2003. The sale price was about $2 million. Assuming cl 4 of the Entitlement Deed applied to partial disposals of the Land, Hardboards was obliged to account to Hudson for the sale price, although no moneys would actually have been payable by Hardboards to Hudson because the sale price was less than the Deposit (cl 4(b)). In effect, the price payable by the purchaser to AH Bremer (Hardboards' wholly owned subsidiary) would have been offset against the Deposit. 112Under the Entitlement Deed, Hudson could have taken steps to prevent Hardboards completing the Capral Transfer, since a disposal of part of the Land would clearly have contravened the prohibition on partial only disposals contained in cl 5(a). Alternatively, Hudson could have expressly waived its right to enforce the prohibition and allowed Hardboards to proceed with the disposal of part of the Land, but only if Hardboards accepted that it was liable to account to Hudson for the sale price of $2 million pursuant to cl 4 of the Entitlement Deed. As Hudson's 2002 Annual Report shows, Hudson had advance notice of the Capral Transfer, although whether Hardboards gave a formal notification pursuant to cl 7 of the Entitlement Deed is not clear. Upon receiving notice of the Capral Transfer, Hudson could have advised Hardboards that it intended to enforce the prohibition on partial disposals unless Hardboards accepted that Hudson was entitled under cl 4 of the Entitlement Deed to the sale proceeds (to be credited in the first instance against the Deposit paid by Hardboards). 113In addition, Hudson was entitled, pursuant to cl 8 of the Entitlement Deed, to require Hardboards to execute a mortgage of the Land to secure Hardboards' obligations under the Deed. Hudson chose not to require Hardboards to execute a mortgage because it did not want the group to incur the Queensland stamp duty that would be payable on the transaction. Had Hudson exercised its right to require Hardboards to execute a mortgage in a timely fashion, it could have effectively prevented Hardboards from proceeding with the proposed Capral Transfer, without having to seek injunctive relief from a court. Hudson could have simply refused to grant its consent, as the mortgagee of the Land, to the registration of any transfer from Hardboards (or from AH Bremer) to the purchaser. This would have effectively placed the onus on Hardboards to initiate proceedings if it wished to dispute Hudson's interpretation of the Entitlement Deed. In short, Hudson could have used its rights as mortgagee of the Land to insist on Hardboards' compliance with the prohibition in cl 5 of the Entitlement Deed and to safeguard Hudson's claim to be paid or credited with the proceeds of the disposal of part of the Land. 114The precise circumstances in which the Capral Transfer took place were not elucidated in the evidence. By the time the Capral Transfer was completed, Hudson and Hardboards had executed the Deeds of Amendment. The First Deed of Amendment of 20 June 2001 purported, among other things, to remove cl 8 of the Entitlement Deed. The Second Deed of Amendment, dated 5 September 2001, purported to reduce the amount payable by Hardboards on a disposal of the Land. No doubt the Deeds of Amendment, both of which were ultimately declared invalid, played a part in Hudson failing to take the obvious steps available to it under the Entitlement Deed to protect its interests at the time of the Capral Transfer. But the fact is that it did fail to protect its own interests. Indeed, so far as the evidence indicates, Hudson did not even attempt to ascertain whether Hardboards disputed that Hudson was entitled to be paid the proceeds on a partial disposal of the Land. 115The important point for present purposes is not whether Hudson's failure to protect its interests in relation to the Capral Transfer was understandable because of events post-dating the execution of the Entitlement Deed. For the purposes of making the normative judgment required by s 5D(1)(b) of the CL Act, the important question is what consequences a reasonable person in the position of the Solicitors might have expected to result if they breached their duty of care by failing to specify with sufficient clarity Hudson's entitlement to the proceeds of a partial disposal of the Land. The answer to this question must take into account the protections accorded to Hudson by the very Entitlement Deed drafted by the Solicitors and Hudson's ability to utilise or take advantage of those mechanisms. 116Had Hudson acted reasonably to protect its own interests, it would have ascertained before the Capral Transfer was completed whether Hardboards accepted that cl 4 of the Entitlement Deed applied to a partial disposal of the Land. If so, there would presumably have been no difficulty in Hudson receiving or being credited with the proceeds of the Capral Transfer. If, however, Hardboards did not accept Hudson's construction of the Entitlement Deed, Hudson had a number of options available to it. One was simply to invoke cl 5 of the Entitlement Deed and to refuse to allow Hardboards to dispose of part of the Land. There is no evidence as to what would then have happened, but Hardboards would still have been obliged to use its best endeavours to sell the Land on the best possible commercial terms. A disposal of the whole of the Land undoubtedly would have entitled Hudson to receive the first $10 million of the proceeds (or the whole of the proceeds if less than $10 million). 117A second option available to Hudson was to prevent Hardboards completing the Capral Transfer unless and until it accepted Hudson's construction of the Entitlement Deed, or until the dispute was resolved in litigation. The ambiguity in the drafting of the Entitlement Deed (assuming that the Solicitors breached their duty of care) may have created some inconvenience, but Hudson would not have faced the problem of negotiating with Hardboards ex post facto concerning Hudson's entitlement to receive the proceeds from two completed partial disposals of the Land. 118By the time the Seahampton Transfer took place in August 2005, Hudson and Hardboards were no longer associated companies. Unlike the Capral Transfer, Hudson received no advance notice of the Seahampton Transfer, presumably because Hardboards breached its notification obligation under cl 7 of the Entitlement Deed. However, had Hudson acted reasonably to protect its interests under the Entitlement Deed at the time of the Capral Transfer, the likelihood is that the Seahampton Transfer could not have taken place as it did. The parties either would have reached agreement as to Hudson's entitlement under the Deed or the issue would have been resolved by litigation. In any event, Hudson could have taken steps to protect its position pending agreement between the parties or resolution of the dispute. 119Independently of the measures Hudson could have taken at the time of the Capral Transfer, it would have had mechanisms available to it at the time of the Seahampton Transfer, had it required Hardboards to execute a mortgage in conformity with cl 8 of the Entitlement Deed. In its capacity as mortgagee of the Land, Hudson would have received notice of any proposed transfer, even if Hardboards failed to comply with its own notification obligations. Hudson might then have insisted on compliance with cl 5 and required Hardboards to dispose of the Land in its entirety. (If Hudson had consented to or acquiesced in an earlier disposal of part of the Land other issues might have arisen. But if Hudson had acted reasonably, its consent or acquiescence would have been on terms that protected its entitlement to the proceeds of a partial disposal of the Land). Alternatively, Hudson might have refused consent to the proposed transfer unless Hardboards agreed to pay the amount due under cl 4 of the Entitlement Deed. Hudson would have been able to protect itself in advance of the Seahampton Transfer taking place, rather than being forced to compromise its claim against Hardboards nearly two years after Hardboards had completed the second of its two partial disposals of the Land.

Factual Causation 120The question of whether Hudson can satisfy the test for factual causation in s 5D(1)(a) of the CL Act has to be approached on the assumption that the Solicitors breached their duty of care to Hudson by drafting cll 4 and 5 with insufficient clarity and certainty. A further assumption underlying Hudson's submissions on causation was that the Solicitors, had they exercised reasonable care, would have drafted the Entitlement Deed to avoid the doubt that the drafting created as to Hudson's entitlement to receive the proceeds of a partial disposal of the Land. 121On these assumptions, I think that Hudson satisfies the test for factual causation. If the Entitlement Deed had been drafted clearly and unambiguously the likelihood, in the events which occurred, is that Hudson would have succeeded in claiming from Hardboards the whole, or substantially the whole, of the proceeds of the Capral Transfer and the Seahampton Transfer. By "the proceeds" I mean the sum of $6 million, being $9.5 million received by Hardboards (or AH Bremer) from the Capral and Seahampton Transfers, less the Depost of $3.5 million (which, as I have found, Hardboards paid to Hudson on 30 June 2001). There is always a possibility that Hardboards would have mounted a plausible defence to Hudson's claim, but the probabilities are that Hudson would not have had to discount its claim to any significant extent.

Scope of Liability 122Section 5D(1)(b) of the CL Act must be applied in accordance with its own terms, having regard to the direction in s 5D(4) that for the purpose of determining the scope of liability, the court is to consider (among other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party. Nonetheless, it is helpful to refer briefly to the High Court's statements of principle regarding causation under the general law. 123In March v Stramare, the High Court endorsed the principle that the cause of a particular occurrence is a question of fact, to be determined by applying common sense to the facts of each particular case (at 515 per Mason CJ, with whom Toohey and Gaudron JJ agreed). That process was said (at 516) to involve "value judgments and the infusion of policy considerations". The decision in March v Stramare recognised that a loss may be the result of two or more events, neither of which is sufficient of itself to bring about that result: Henville v Walker [2001] HCA 52; 206 CLR 459 at 479-480 (Gaudron J). 124In March v Stramare, Mason CJ explained the inadequacy of the "but for" test by reference to cases in which a superseding cause, described as a novus actus interveniens, is said to break the chain of causation which otherwise would result from an earlier wrongful act (at 517-519). His Honour gave as an example M'Kew v Holland & Hannen & Cubitts (Scotland) Ltd [1970] SC (HL) 20. In M'Kew, a worker sustained relatively minor injuries to his left leg through his employer's negligence. On occasions thereafter, the leg became numb. Three weeks after the accident, the worker was descending a steep staircase of ten steps without a handrail, when his left leg went numb. Fearing he might fall, the worker jumped to the bottom of the staircase, severely fracturing his ankle. The worker's claim for damages for these injuries failed. 125Mason CJ said this about the decision in M'Kew (at 517): "[The worker's] action was adjudged to be unreasonable and to sever the chain of causation. The decision may be explained by reference to a value judgment that it would be unjust to hold the defendant legally responsible for an injury which, though it could be traced back to the defendant's wrongful conduct, was the immediate result of unreasonable action on the part of the plaintiff. But in truth the decision proceeded from a conclusion that the plaintiff's injury was the consequence of his independent and unreasonable action." Mason CJ stated (at 518) that the chain of causation would not be broken if the intervening action was "in the ordinary course of things, the very kind of thing [that was] likely to happen as the result of the defendant's negligence". This was so because (at 519) there was "no reason in common sense, logic or policy for refusing" to regard the negligence as a cause of the consequence. But his Honour said it would be different if the harm could be regarded as the consequence of the plaintiff's independent and unreasonable actions (at 518). 126In the present case, Hudson's claimed loss was a consequence of its own independent and unreasonable actions, or lack of action. Hudson did not merely fail to act in its own interests so as to minimise the risk of harm flowing from any negligence by the Solicitors in drafting the Entitlement Deed. Hudson failed to take the very measures for which the Entitlement Deed provided that, as a matter of probability, would have averted the loss that it claims as a consequence of the Solicitors' negligence. Moreover, Hudson failed to take these measures notwithstanding that it had advance notice of the Capral Transfer, the first of the partial disposals of the Land. 127It is difficult to see why the Solicitors should be held responsible for harm said to result from any negligence in drafting the Entitlement Deed when the Deed itself, as drafted by the Solicitors, contained mechanisms which, if availed of, probably would have averted Hudson's claimed loss. Whatever deficiencies there may have been in the drafting of cll 4 and 5 of the Entitlement Deed, the Solicitors did insert provisions into the Deed plainly designed to protect Hudson's interests in the event of a disposal of the Land, whether in part or in whole. If, for example, Hudson had enforced the requirement in cl 8 of the Entitlement Deed that Hardboards execute a mortgage over the Land, Hudson would have received notice of both the Capral Transfer and the Seahampton Transfer, regardless of Hardboards' compliance or non-compliance with the notice requirement in cl 7 of the Entitlement Deed. Hudson would then have been able to take measures to ensure that Hardboards credited it with the proceeds of any partial disposal of the Land and, if Hardboards refused to accept Hudson's construction of the Entitlement Deed, taken measures to ensure that it was not prejudiced by completion of the partial disposals. Similarly, if Hudson had enforced or threatened to enforce the unequivocal prohibition in cl 5 of the Entitlement Deed on partial disposals, it would have avoided the risk of being unable to claim from Hardboards the proceeds of a partial disposal of the Land. In those circumstances, it probably would have been able to procure an agreement from Hardboards to credit it with the proceeds of any partial disposal. 128Towards the end of his submissions, Mr Hutley contended that there was no evidence as to what Hardboards would have done had Hudson invoked the prohibition on partial disposals of the Land. However, as I have pointed out, Hardboards was still obliged, pursuant to cl 6 of the Entitlement Deed, to use its best endeavours to dispose of the Land before the Sunset Date. Hudson always bore the onus of proving, on the balance of probabilities, any fact relevant to the issue of causation: CL Act, s 5E. In the absence of evidence, it cannot be assumed that the Sunset Date would have arrived without the whole of the Land being disposed of for at least $9.5 million. 129To adopt the language of Mason CJ in March v Stramare, there is no reason in common sense, logic or policy for imposing liability on the Solicitors for any negligence in failing to draft the Entitlement Deed so as to create an unambiguous right in Hudson to the proceeds of any partial disposal of the Land. To put the matter in terms of s 5D(1)(b) of the CL Act, it would not be appropriate for the scope of the Solicitors' liability to extend to the loss claimed by Hudson.

Reasoning: Breach of Duty 130Since Hudson's appeal fails on the ground that its claimed loss was not caused by the Solicitors' alleged negligence in drafting the Entitlement Deed, there is no need to decide whether the Solicitors breached the duty of care they owed to Hudson. I shall, however, briefly comment on this aspect of the appeal. 131The Solicitors maintained that a solicitor who drafts provisions in a contract that are unclear or ambiguous does not, by reason of the lack of clarity or ambiguity of itself, breach the duty of care owed to the client. Mr Jackson accepted that a solicitor who drafts a document which fails to give effect to the client's unequivocal instructions may well breach his or her duty of care. But here, as he emphasised, Hudson never alleged that the Entitlement Deed, on its proper construction, failed to give effect to Hudson's instruction that it was to be entitled to receive the proceeds of partial disposals of the Land (up to a maximum of $10 million). 132I prefer not to express an opinion on the Solicitors' submission, which potentially raises issues of considerable importance. Any opinion would not be essential to the decision and would therefore not form part of the ratio decidendi of the case. Obiter dicta on a novel and potentially important issue of principle by an intermediate court of appeal are apt to generate uncertainty. The issue is best left to a case where it is necessary to decide. 133I am prepared to assume, however, but without deciding, that a solicitor may be found to have breached his or her duty of care to the client by drafting a contract that is unnecessarily unclear or ambiguous, even if the client does not allege that the contract, properly construed, fails to give effect to the client's instructions. On this assumption, if it was necessary to decide whether the Solicitors had been negligent in drafting the Entitlement Deed, I would conclude that Hudson had not established that they were negligent. 134A legal practitioner owes a duty to a client to take reasonable care and to exercise due care, skill and diligence, bringing to the task the competence and skill that is usual among practitioners practising their profession: Donnellan v Woodland [2012] NSWCA 433 at [88] (Beazley JA, with whom Barrett and Hoeben JJA, Sackville AJA agreed) and authorities cited there. A solicitor does not normally warrant the correctness of advice and, provided that reasonable care is exercised, is not liable for an error of judgment: Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1 at [147] (Malcolm AJA); Trust Co of Australia v Perpetual Trustees WA Ltd (1987) 42 NSWLR 237 at 247 (McClelland CJ in Eq). 135It is necessary also to take into account the general principles stated in s 5B of the CL Act, which provides as follows: "(1) A person is not negligent in failing to take precautions against a risk of harm unless: (a) the risk was foreseeable (that is, it is a risk of which the person knew or ought to have known), and (b) the risk was not insignificant, and (c) in the circumstances, a reasonable person in the person's position would have taken those precautions. (2) In determining whether a reasonable person would have taken precautions against a risk of harm, the court is to consider the following (amongst other relevant things): (a) the probability that the harm would occur if care were not taken, (b) the likely seriousness of the harm, (c) the burden of taking precautions to avoid the risk of harm, (d) the social utility of the activity that creates the risk of harm." In determining the precautions that a reasonable person would have taken, the matter is assessed prospectively: Donnellan v Woodland at [92], and authorities cited there. 136On the assumptions I have made, the foreseeable risk of harm was that Hudson would suffer loss if the Entitlement Deed did not confer upon it a clear and unambiguous entitlement to the proceeds of a partial disposal of the Land. There is no doubt that Mr Restas drafted the Entitlement Deed in a manner that created avoidable ambiguity in implementing Hudson's Entitlement Instruction. It is not necessary to have recourse to the various opinions of counsel in evidence to recognise that there is tension (but not necessarily an inconsistency) between cll 4 and 5 of the Entitlement Deed. Clause 4, as Hudson accepted before the primary Judge, when read in isolation suggests that Hudson was entitled to the proceeds of a partial disposal of the Land. But cl 5 prohibited Hardboards from disposing of part of the Land. 137The tension between cll 4 and 5 might have been resolved fairly easily. Mr Restas might, for example, have added the words "without Hudson's prior consent in writing" to cl 5. And any lack of clarity in the wording of cl 4 might have been readily overcome if Mr Restas had used more explicit language to confer on Hudson an entitlement to the proceeds of any partial sale of the Land. 138But the Solicitors were not bound to draft the Entitlement Deed in a manner that eliminated all uncertainty and ambiguity. They were obliged only to exercise reasonable care to give effect to Hudson's instructions in drafting the Entitlement Deed. Mr Restas, as he explained in his evidence, incorporated a number of safeguards in the Entitlement Deed designed to ensure that Hudson would be protected in the event that Hardboards sought to dispose of part of the Land. 139In considering whether in drafting the Entitlement Deed the Solicitors departed from the standard of care, skill and diligence reasonably to be expected of them, it is wrong to focus exclusively on the drafting of cll 4 and 5. It is necessary to consider the manner in which the Entitlement Deed as a whole was drafted. When this is done, it is apparent that the Entitlement Deed incorporated safeguards which, if enforced or availed of by Hudson, would have protected it against (among other things) adverse consequences flowing from any ambiguity in the drafting of cll 4 and 5. 140Clause 5 contained the prohibition on partial disposals. Clause 6 required Hardboards to use its best endeavours to dispose of the Land before the Sunset Date. Clause 7 required Hardboards to give prompt notice of any arrangement it entered into with respect to the Land. Clause 8 required Hardboards to grand Hudson a mortgage to secure Hardboards' obligations under the Entitlement Deed. I have already explained how Hudson could have enforced or otherwise taken advantage of these provisions to protect itself against the consequences of a claim by Hardboards that a partial disposal of the Land did not attract an obligation to pay the proceeds to Hudson. 141Not every draftsperson would have adopted the approach taken by Mr Restas. On one view it was somewhat idiosyncratic. But viewing the matter prospectively, cll 5-8 of the Entitlement Deed established mechanisms that afforded protection to Hudson against the risk of loss associated with any ambiguity in the drafting of cl 4 in particular. At the time the Entitlement Deed was drafted, for example, the Solicitors were entitled to assume that Hudson would enforce the requirement that Hardboards execute a mortgage over the Land and thus would gain the protection that a mortgage would provide if Hardboards sought to take advantage of any ambiguity in the drafting of cl 4. 142For these reasons, while it is true that Mr Restas could have quite easily drafted the Entitlement Deed to avoid the ambiguity identified by Hudson, the drafting of the Entitlement Deed as a whole did not depart from the standard of care required of the Solicitors. Thus, on the assumption I have made as to the scope of a solicitor's duty in drafting documents, Hudson has not established that the Solicitors breached their duty of care.

Damages 143Since Hudson's appeal must be dismissed, it is not necessary to quantify Hudson's damages. In any event, an assessment of damages would require further findings of fact to be made. For example, it would be necessary to determine whether Hudson's delay in claiming the proceeds of the Capral and Seahampton Transfers was attributable to the Solicitors' negligence in drafting the Entitlement Deed. Thus I do not consider it appropriate to assess the damages that would have been awarded had Hudson's appeal succeeded. 144Nonetheless, I should note that if damages had to be assessed, the following matters would be taken into account:

as I have found, Hardboards paid the Deposit of $3.5 million on 30 June 2001; and
little or none of the settlement sum of $6.1 million is to be attributed to Hudson's claim to be paid the Deposit (since on an objective assessment its claim was worth very little, if anything). It would follow that Hudson's damages would not exceed the sum of $923,288 (as at 8 June 2007), as calculated in Hudson's written submissions (at [73] above). The figure might turn out to be considerably less, depending on further findings that might be made. 145Hudson's appeal must be dismissed. Hudson must pay the Solicitors' 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: 05 August 2014

Civil Liability Act 2005(NSW)s 5D(1)(a)

Civil Liability Act 2002(NSW)ss 5A, 5B, 5D, 5E

HEADNOTE [This headnote is not to be read as part of the judgment] The appellant instructed the respondent solicitors to prepare a Deed that entitled the appellant to be paid the first $10 million of the proceeds of sale of the whole or any part of a large parcel of land owned by a company related to the appellant (Hardboards). Hardboards, which was a party to the Deed, was entitled to deduct a deposit of $3.5 million payable by it to the appellant on the signing of the Deed. Hardboards subsequently separately disposed of two lots, comprising part of the land, for a total of $9.5 million. Hardboards, by then no longer controlled by the appellant, did not account for any of the proceeds. Hardboards claimed that on the proper construction of the Deed, it was required to account to the appellant only if it disposed of the whole of the land in one transaction. The appellant later brought proceedings against Hardboards to recover the amount said to be due under the Deed. The appellant and Hardboards compromised the proceedings. The appellant then commenced proceedings against the solicitors, alleging that they had been negligent in drafting the Deed because it did not clearly and unambiguously embody the appellant's instructions. The appellant sought damages, being the difference between the sum received by it on settlement of the claim against Hardboards and the amount it would have received had the Deed been drafted clearly and unambiguously. The Court held:

If the Deed had been drafted clearly and unambiguously, it was likely that the appellant would have succeeded in claiming the proceeds of Hardboards' partial disposals of the land. Therefore, on the assumption that the solicitors breached their duty of care, the appellant satisfied the test for factual causation under the Civil Liability Act 2005 (NSW) s 5D(1)(a): [103]-[104], [120]-[121]. Adeels Palace Pty Ltd v Moubarak [2009] HCA 48; 239 CLR 420; Strong v Woolworths Ltd [2012] HCA 5; 246 CLR 182; applied.
The appellant failed to avail itself of a number of protections conferred by the Deed that, on the balance of probabilities, would have enabled it to avert the loss it claims to have suffered. In these circumstances, there was no basis for imposing liability on the solicitors for any negligence in drafting the Deed ambiguously. Thus the appellant had not demonstrated, as required by s 5D(1)(b) of the Civil Liability Act, that it was appropriate that the solicitors' liability should extend to the loss claimed by the appellant: [105]-[106], [122]-[129]. Wallace v Kam [2013] HCA 19; 87 ALJR 648; Paul v Cooke [2013] NSWCA 311; March v E. & M.H. Stramare Pty Ltd [1991] HCA 12; 171 CLR 506; Roe v Minister for Health [1954] 2 QB 66; applied. Henville v Walker [2001] HCA 52; 206 CLR 459; M'Kew v Holland & Hannen & Cubitts (Scotland) Ltd [1970] SC (HL) 20; considered.
Obiter dicta The solicitors were only obliged to exercise reasonable care in giving effect to the appellant's instructions when drafting the Deed. They were not bound to draft the Deed in a manner that eliminated all ambiguity and uncertainty. Moreover, in determining whether the solicitors failed to exercise reasonable care, the protections accorded to the appellant by the Deed as a whole had to be considered. Viewed in that light, the solicitors did not breach the duty of care they owed to the appellant: [131]-[142]. Donnellan v Woodland [2012] NSWCA 433; Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1; Trust Co of Australia v Perpetual Trustees WA Ltd (1987) 42 NSWLR 237; considered. (Sackville AJA and Ward JA agreeing, Beazley P not deciding)

Judgment 1BEAZLEY P: I have had the advantage of reading in draft the reasons of Sackville AJA. I agree with his Honour's reasons and proposed orders, including his preferred position not to express an opinion on the question whether a solicitor will breach the duty of care to a client by reason of drafting provisions in a contract or deed that are ambiguous. As his Honour has observed, at [132], that, potentially, is a question of importance which is unnecessary to determine in this case, given the conclusion that the appellant has failed to establish that it was appropriate for the respondent's liability (assuming breach of duty) to extend to the harm caused by the negligence: see the Civil Liability Act 2002, s 5D(1)(b). For my part, I would prefer not to express an opinion as to whether the respondent had breached its duty of care, apart from commenting that, for the reasons given by Sackville AJA and for the additional reason that it was not alleged that the Entitlement Deed did not accord with the appellant's instructions, the appellant's claim may well have failed on that point. 2WARD JA: I have had the advantage of reading in draft Sackville AJA's comprehensive reasons with which I agree. The appeal should be dismissed with costs. 3SACKVILLE AJA: The appellant (Hudson) appeals against a judgment given by a Judge of the Supreme Court (Simpson J) on 11 February 2013: Hudson Investment Group Ltd v Atanaskovic [2013] NSWSC 64. Hudson claimed damages for breach of contract and professional negligence against the respondents, its former solicitors (Solicitors). Her Honour rejected Hudson's claim and entered a verdict for the Solicitors. 4Hudson's claim for damages arises out of what is said to have been a breach of duty by the Solicitors in drafting an "Entitlement Deed", which was executed on 8 June 2001. The parties to the Entitlement Deed were Hudson and Australian Hardboards Ltd (Hardboards). At the time, Hardboards was a wholly owned subsidiary of Hudson, but the ownership structure subsequently changed. 5Hudson's case is unusual. It says that the Solicitors were instructed to draft a deed between it and Hardboards that provided for Hudson to be paid the first $10 million of the proceeds of sale of the whole or parts of a large parcel of land in Queensland, comprising some 322 hectares, owned by Hardboards (Land). Hudson does not allege that the Entitlement Deed, on its proper construction, necessarily failed to give effect to the instructions communicated to the Solicitors. Rather it contends that the Solicitors drafted the Entitlement Deed in language which created a large degree of uncertainty as to whether the Deed provided for the first $10 million of the proceeds of disposal to be paid to Hudson, should Hardboards dispose of parts of the Land rather than as a single parcel. 6Hudson commenced proceedings against Hardboards in May 2004, by which time Hardboards had ceased to be a wholly owned subsidiary of Hudson. After some contested litigation on other issues, Hudson filed Points of Claim in the proceedings on 6 October 2006 claiming that it was entitled under the Entitlement Deed to payment of $9.5 million, being the total amounts received by Hardboards in respect of disposal of parts of the Land. The Points of Claim accepted that the Entitlement Deed provided for the payment of a Deposit by Hardboards of $3.5 million, which was to be deducted (if paid) from the amounts received by Hardboards. However, the Points of Claim asserted that the Deposit of $3.5 million had not been paid. Hudson sought an order that there be an inquiry as to whether the Deposit had been paid under the Entitlement Deed. Hardboards defended the proceedings on the ground, among others, that the Entitlement Deed, on its proper construction, did not oblige Hardboards to pay any portion of the $9.5 million claimed because the Land had not been disposed of as a single parcel, but had been the subject of separate sales and transfers of particular lots comprising part of the Land. 7Hudson argues that because of the uncertainty created by the Solicitors' negligent drafting of the Entitlement Deed, it was forced to compromise its claim against Hardboards for $6.1 million. Subject to a complication relating to the payment of a deposit, Hudson says that the difference between $9.5 million (plus interest) and the sum of $6.1 million received under the compromise represents the loss it sustained by reason of the Solicitors' breach of duty. 8Hudson contends that the primary Judge erred in a number of respects. Its principal contentions are that her Honour should have found that:

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