Jurisich v Ralston

District Court of NSW|2015-09-16|Before: Mr J

A. Introduction

Cafagon Pty Limited ("Cafagon") was a family company which owned real estate from about 1978, and from about that time Helen Jurisich had owned 22.5% of its share capital. She was not involved in its management. When her father died in January 2011, Mrs Jurisich decided to realise the value of her shares.
Mrs Jurisich had difficulties in dealing with her family. She retained Owen Ratner, a partner in the law firm, Pigott Stinson, to act for her in relation to her shares in Cafagon. Much of Mrs Jurisich's dealings with Mr Ratner were conducted via her husband, Vaughn Jurisich, a personal injury barrister.
Various methods of realising the value of the shares were canvassed during the period from February to October 2011. These included a liquidation of the company, a sale of her shares to family members and a share buyback by Cafagon. Ultimately, the third option was taken. Unbeknown at the time to Mr and Mrs Jurisich and Mr Ratner, taxation law provides that the proceeds of a share buyback are to be treated as income in the hands of the recipient. So when Mrs Jurisich received $1,308,285.65 as a consequence of the share buyback, she also became liable for and paid income tax on this amount. She alleges that no tax would have been payable if she had sold her shares to a family member, or if she had received her share of the assets from a liquidation of Cafagon.
Mr Ratner gave no advice or warning about the tax consequences of a share buyback, nor about the need to obtain taxation advice.
Mrs Jurisich sues Mr Ratner and his law partners at Pigott Stinson for $645,683.25 comprising the $608,172.25 income tax liability arising from the buyback and $37,511 in accounting fees incurred for advice in relation to this taxation liability, plus interest.

C. Credit

There was no issue about the honesty of the various witnesses. As to reliability, this transaction was unique and significant to Mr and Mrs Jurisich, a circumstance which is likely to produce more vivid recollections, whereas to Mr Ratner the matter was one in a career of acting in commercial matters and at the time, it apparently had no particular significance. In respect of one important conversation, Mr Ratner conceded that he had no independent recollection (T128/11-13).
On the other hand, perhaps the interest of Mr and Mrs Jurisich in the proceedings was a little greater than Mr Ratner who was protected by professional insurance. A party's interest may subconsciously affect their memories over time.
I also am of the view that witnesses' recollections of what they said are likely to be more accurate than recollections of what they heard, because the former involves not just hearing but the act of speaking (and usually also mentally forming the thought that is expressed). This may cause me to prefer the recollection of the speaker over the hearer, all other matters being equal.
Overriding all of these matters is the value of contemporaneous records, which should be preferred to disputed recollections (see Watson v Foxman (1995) 49 NSWLR 345, 318-319; Commonwealth Bank of Australia v Shahen Serobian [2009] NSWSC 302 at [362]). Thus, Mr Ratner's notes are significant documents in assessing the conversations that occurred.
The documentary records, including handwritten notes created by Mr Ratner, indicate the following.

D. Facts

On about 15 February 2011 Mr Ratner was engaged to advise Mrs Jurisich and conduct negotiations on her behalf with the solicitors for Cafagon ("Hunt & Hunt") for the purpose of realising her shares at their true value.
In July 2011 Mrs Jurisich was content to receive about 22.5% of the value of Cafagon. Hunt & Hunt proposed that Cafagon be wound up with an independent liquidator appointed and that Mrs Jurisich would receive approximately $1.3 million. Mr Ratner recommended settlement and asked Mr Jurisich whether the Hunt & Hunt proposal was acceptable. Mr Jurisich did not regard an independent liquidator as necessary and wished to view bank statements. So Mr Ratner drafted a letter on instructions requesting the bank statements and taxation returns of Cafagon.
Mr Ratner telephoned Mr Jurisich on 8 August 2011. Mr Ratner's notes record, among other matters, "You say money [received] on [winding up] is taxable - you will check tax". A note of a subsequent meeting or telephone call that same day records a discussion about $83,000 in taxation and a query about possible "taxation problems", presumably in Cafagon.
The next day, 9 August 2011, Mr Ratner wrote to Hunt & Hunt relevantly in these terms (Exhibit B, p 21): "As indicated in our letter of the 20 July 2011 our client is willing to resolve all of her issues with her mother and brother concerning the affairs of Cafagon Pty Limited through the winding up of the company subject to her being satisfied that the value of her shares has not been improperly diminished by actions of the directors of the company. We have previously requested copies of bank statements from 2004 to date and tax returns for 2010 and 2011 and note your advice that your client is only willing to provide these documents on the basis that no further documents will be made available. Our client has instructed us that as a result of the conduct of her mother and brother in relation to Cafagon Pty Limited she has no confidence in any aspect of their management of the company. Despite our advice to our client of the costs and risks involved our client and her husband Vaughn Jurisich have instructed us that should the matter not proceed to a settlement they wish to commence proceedings against your client in relation to the matters already canvassed in previous correspondence. Our client simply needs to be satisfied that she will receive proper value for her shares in Cafagon Pty Limited. We cannot assure her that an inspection of the copies of the bank statements and tax returns that we have previously requested will achieve this result We invite your client to present such evidence as she believes will satisfy our client regarding our client's concerns. Our client is not looking to verify the legitimacy of every single transaction involving the company but she does need to know that in general terms the financial transactions concerning the company will not unfairly disadvantage her on a winding up of the company. We also invite you to send to us a draft of the proposed deed of settlement for our client's consideration."
Hunt & Hunt provided a draft deed of settlement, but declined to provide all the bank statements requested.
On 20 September 2011 Mr Jurisich queried the absence of reference to $1.3 million in the draft deed. Mr Ratner responded (Exhibit B, p 32): "Vaughn, There is no offer of $1.3m. However based on Helen receiving 22.5% of the Total Equity of the company as shown in the Balance Sheet as at 30 June 2011 being $5,786,000 Helen should receive $1,301,850 less her share of the expenses of liquidation. If Helen were to accept the proposal then we would need to add to the deed terms which: 1 guarantees there has been no material change to the assets or liabilities of the company since 30 June 2011; and 2 is conditional on the loan to the Olien Group being repaid in full in cash so that funds are available on winding up to pay Helen her entitlement. …before taking it further with John Kell please let me know if Helen is agreeable in principle to the proposal."
In a telephone conversation with Mr Ratner, Mr Jurisich advised (Exhibit B, p 33): "[Mrs Jurisich] doesn't want to be in brawl with liquidator". Mr Ratner regarded a desire by Mrs Jurisich for $2.5 million, expressed by Mr Jurisich, as fanciful. Mr Jurisich also indicated that Mrs Jurisich wanted about $2 million and "doesn't really want to be engaged with liquidator". The note records "Helen wants $2m to sell her shares - alternatively she will welcome case". Mr Ratner advised that Mrs Jurisich should not reject the offer unless independent counsel advises she has a good case.
On 23 September 2011 Mr Ratner advised against litigation, but indicated that there was no point in pursuing the settlement proposal of a winding up because Mrs Jurisich wanted in excess of $2 million, which was "far beyond what is being offered".
On 29 September 2011 Mr Jurisich responded to Mr Ratner's question about whether he had spoken to Senior Counsel, in the following terms (Exhibit B, p 35): "Owen, Yes I did. We should get a response from Hunts asap. If there is no firm commitment from them re the value of Helens shares then we should consider serving a letter of claim on the company for the value to be paid by a sale of her shares back to the company. This would be the courts order in an oppression case. Please get on to Hunts as soon as possible."
That same day, Mr Ratner spoke to Hunt & Hunt and was told, "[T]here will be security for [Mrs Jurisich] in cash. 22.5% of $5.8m. Intent is [Mrs Jurisich] will get her cash." (Exhibit B, p 36).
Mr Jurisich in discussion with Mr Ratner queried the origin of Hunt & Hunt's instructions, indicated that he did not trust Mrs Jurisich's brother and requested written confirmation that Mrs Jurisich would receive $1.3 million. Mr Ratner queried, "What is [the] point in asking for confirmation of them offering $1.3m if that is $700k less than what we want." Mr Jurisich instructed Mr Ratner to send a letter seeking written confirmation of $1.3 million. Mr Ratner then sent a draft letter to Mr Jurisich for approval in these terms (Exhibit B, p 38): "Vaughn, Draft email for approval. John, Thank you for your advice yesterday. My client has instructed me to require from you written confirmation that if she were inclined to accept your client's offer then the terms of the deed of settlement would ensure that the winding up of Cafagon Pty Ltd would be completed with an agreed time frame and that she would be guaranteed to receive on completion of the winding up a cash payment of 22.5% of $5,814,603 ie $1,308,285.68 subject only to deduction of our client's share of the liquidator's reasonable fees. At this stage nothing should be taken to indicate that your client's offer is acceptable to our client."
Mrs Jurisich did not approve the letter, and the following different wording was sent to Hunt & Hunt (Exhibit B, p 39): "John, Thank you for your advice yesterday. My client has instructed me to require from you written confirmation that your client's instructions are that the terms of the deed of settlement would ensure that: - winding up of Cafagon Pty Ltd would be completed with an agreed time frame; and - she would be guaranteed to receive on completion of the winding up a cash payment of 22.5% of $5,814,603 ie $1,308,285.68 without deduction. At this stage nothing should be taken to indicate that your client's offer is acceptable to our client. In order to assist me in obtaining [instructions] would you please respond to my email today if at all possible."
On 4 October 2011 Hunt & Hunt responded in terms that included the following (Exhibit B, p 39): "My instructions are that subject to the other terms of the deed being accepted by your client, the deed will be amended to record that on completion of the winding up your client will receive $1,308,285.68 without deduction (no less than that amount but also no more than that amount). I look forward to hearing from you."
Mr Ratner forwarded this correspondence to Mr Jurisich and on 6 October 2011 Mr Jurisich, by email, instructed Mr Ratner (Exhibit B, p 41): "The best way forward for Helen is to simply sell her shares back to the company and then not be involved in any liquidation programme involving possible complicates [sic] with delay and maybe ATO problems. Once she has sold her shares they can then do what they like with the company and she will have no further involvement with it. What do you think??"
Mr Ratner responded that same day (Exhibit B, p 40): "We could certainly make that offer. It would be much cleaner from our perspective. If you are right about the taxation issues concerning the company I expect the reason for the liquidation is that they want to bury everything. It occurs to me that once a liquidator is appointed he will need to know that all liabilities including tax are paid. If for any reason he determines there may be liabilities then this would affect how much Helen receives although I could cover this by including a provision in the deed that the directors will make up any amount by which Helen's entitlement based on the balance sheet is reduced by any liabilities of the company in excess of those shown in the balance sheet. [Having] said that if they are adamant that the company is to be liquidated then I can't see it is worth aborting the settlement. The object is for Helen to receive her entitlement. How we are paid is secondary. I would prefer not to go back to John Kell regarding the mechanism for settlement until Helen decides if the quantum is agreed. I believe the amount they are offering is clear enough for a decision to be made as to whether or not we accept their offer in principle."
On 7 October 2011 Mr Jurisich instructed (Exhibit B, p 42): "[N]o way we will enter into winding up - all sorts of things could go wrong - No way will go through liquidation". Mr Jurisich was concerned about "huge tax implications" and sought to have Mrs Jurisich "try to lead to buy back". Mr Ratner provided him a draft letter in these terms (Exhibit B, p 43): "John, I have had further discussions with my client regarding your client's proposal for settlement. There are two aspects to the proposal. The first aspect is the amount that my client is to receive. I can say that at this stage she is still considering whether the amount contemplated in the proposal is acceptable. The second aspect is the mechanism for payment. My instructions on this aspect are that she is firmly against the proposal to wind up the company. My client's view is that it is not in the interests of any of the shareholders to appoint an independent liquidator who may scrutinise the past dealings of the company and take actions over which the shareholders have no control. My client is firmly of the view that her shares should be either redeemed by the company or acquired by the remaining shareholders. After this occurs our client has no interest in what is done with the company. Please let us have your instructions as to whether the mechanism proposed by our client is acceptable to your client. Subject to receipt of your advice our client will then instruct us as to quantum."
Mr Ratner then sent to Hunt & Hunt a letter substantially in the terms of the draft.
Hunt & Hunt responded on 13 October 2011 as follows (Exhibit B, p 44): "Dear Owen Thank you for your email. We were surprised to learn that your client is firmly against the proposal to wind up the company especially as we have been negotiating the terms of a deed that would result in the company being wound up. Be that as it may, my clients see some merit in your proposal that the company buy back your client's shares. That proposal will only be acceptable to my clients on the conditions that the buy back consideration will be $1,308,285.65 (the amount which your client has previously asked my client to guarantee as the amount she would receive on the winding up of Cafagon) and there are mutual releases of our respective clients in similar terms to the releases contained in the draft deed of settlement that was previously provided to you. Please confirm that your client agrees to these conditions. I will then prepare the necessary documentation."
After receiving instructions, on 24 October 2011 Mr Ratner sent a letter to Hunt & Hunt conveying instructions that Mrs Jurisich "does not accept the value attributed to the assets of Cafagon" and suggested a value of her shares based on bank interest rates, of $1,842,030. This proposal was rejected and the offer to buyback Mrs Jurisich's shares for $1,308,285.65 was re-offered.
On 8 November 2011 Mr and Mrs Jurisich received advice from Senior Counsel that the offer ought to be accepted and on the following Monday, 14 November 2011, Mr Jurisich gave instructions for the offer to be accepted and Mr Ratner thereupon did so.

(a) Duty

There was no written retainer, and Mr Ratner was not expressly asked to advise regarding tax matters. At no time did he give taxation advice. Does this mean that advice in relation to the taxation consequences of the transaction was outside the scope of his retainer, and thus not within his duty to the client (see Heydon v NRMA Ltd [2000] NSWCA 374; (2000) 51 NSWLR 1 at [309])?
Mr Ratner was engaged to ensure that Mrs Jurisich received full value for her shares. One of the concerns Mr and Mrs Jurisich had was whether unpaid taxation by Cafagon might impact on the value Mrs Jurisich received for her shares. Mr Ratner was retained so as to avoid this consequence.
Peter Kemp, a solicitor whose practice mainly involved providing general commercial advice with experience in commercial and insolvency litigation, provided an expert report. Mr Kemp thought that the reference to a buyback of shares raised by Mr Jurisich on 6 October 2011 would alert a commercial solicitor to make reference to the potential liability for capital gains tax or income tax. Mr Kemp gave the opinion that: "it would be usual practice by a commercial solicitor to make reference to the application of tax or other revenue law to amounts which Helen Jurisich would receive by way of a Buy-Back or distribution of winding-up, or at least to recommend that Helen Jurisich seek advice on these matters from an expert tax lawyer or accountant or other financial advisor." [Bold in original]. Mr Kemp also opined that a failure to advise Mrs Jurisich about the effect of tax on a share buyback or liquidator's distribution on a winding up "is not accepted practice by a commercial solicitor".
Mr Kemp's evidence in this regard was not challenged. No other expert evidence was given.
Mr Ratner did not know the precise taxation consequences of a share buyback and a liquidator's distribution. I do not regard that as necessarily an unreasonable failure by him. Mr Kemp allows for that possibility, acknowledging a reasonable practice of providing a recommendation to seek expert tax advice on the consequences of the particular transaction envisioned. On this approach, the duty of Mr Ratner extended to take reasonable care either to give the correct taxation advice or give his professional recommendation of the need to obtain expert tax advice. This is the content of the duty to "warn the client of any material risk" referred to by Malcolm AJA in Heydon at [145].
Mr Ratner, in his evidence, appeared to accept this conclusion. He said (T122/10): "As a matter of practice I would tend to satisfy myself that the client was aware they needed to obtain tax advice on the implications of the transaction." Mr Ratner understood he had a client with two options to realise a pre-GST asset (T126/27-29) and accepted it was part of his responsibility to assist Mrs Jurisich to make an informed decision between those two options. He acknowledged that this "required understanding the tax consequences of the receipt in the winding-up as potentially compared to the tax consequences of a sale" (T126/39-40; 127/33-36) and that he "could have said something about referring them to an accountant to discuss the matter, yes" (T127/1-2) which was his "normal practice" (T127/8). Neither Mr Ratner nor Mr Jurisich had proposed an accountant examining the tax implications of a winding up or any other proposed transaction (T130/20-24), nor were any steps taken by Mr Ratner regarding the potentially different tax consequences of a company buyback of shares compared to an ordinary sale or liquidation (T132/46-50).
The existence of a duty in Mr Ratner to consider those matters is also supported by Mr Ratner's repeated (T127/1; T133/2; T134/8) concession that he "overlooked" the need to have regard to the potentially differing tax consequences of the alternative structures.
Mr Kemp's view regarding the reasonable practice of a transactional solicitor finds support in Hurlingham Estates Ltd v Wilde & Partners (1996) 37 ATR 26 where Lightman J decided that the solicitor owed a duty to advise that the structure adopted exposed the client to a tax liability or a risk of liability and to advise how the transaction should be structured.
Mr Ratner submitted that Mr Jurisich "said words to the effect that he was assuming responsibility for looking at tax" (Defendant's submissions at [18]). The evidence to support this submission was the file note of Mr Ratner stating, "You say money [received] on [winding up] is taxable - you will check tax" dated 8 August 2011. In context, the reference "You say" is a reference to something said by Mr Jurisich.
Mr Jurisich denied this discussion or any undertaking by him to investigate taxation consequences. As indicated earlier, this denial has added weight because it concerns words Mr Jurisich said, on a matter of significance to him, whereas Mr Ratner had no independent recollection of the conversation (T128/11-13). But I must give weight, even accord primacy, to the contemporaneous note. The meaning of the words in the note, in context, must be determined to assess whether they constitute evidence of a relevant assumption of responsibility by Mr Jurisich.
In his oral evidence, Mr Ratner did not rely upon the file note or point to that conversation as being a reason why he gave no advice concerning possible tax consequences. He apparently did not refer to the 8 August conversation thereafter, which he might be expected to have done if it operated to narrow his obligations. He had no independent recollection that it had occurred, or of what was said (T128/11-13). He did not assert any agreement absolving him of responsibility for taxation advice, indicating that there was no clear, unambiguous and fully informed agreement absolving him of the duty (see Hurlingham Estates Ltd at 2). He accepted that the absence of advice resulted from his oversight concerning the taxation consequences of the transaction, a matter which also militates against there being a conversation limiting his retainer.
One relevant matter in construing the meaning of the note - or more accurately, identifying from the note the terms of the conversation - is that there was regular concern expressed in discussions between Mr Ratner and Mr Jurisich about the taxation liabilities of Cafagon, and the possibilities that any asset share might be diluted by unpaid taxation obligations. All the other references to tax in the documentary records concern the tax liabilities of Cafagon, and none specifically refer to the obligations of Mrs Jurisich.
In this context, the words "you say the money [received] on a [winding up] is taxable" may as likely refer to money received by the liquidator or Cafagon as to receipt by Mrs Jurisich. Realisation of Cafagon's assets involved the calling in of loans (Exhibit B, p 32). In that context, the statement "you will check tax" (even inferring, as I do, that these words record Mr Ratner's conclusion, not Mr Jurisich's statement) would seem likely to refer to the potential taxation liabilities of Cafagon, not Mrs Jurisich. Mr Jurisich gave evidence in his affidavit to this effect (30 April 2015 at [7]). Mr and Mrs Jurisich were most concerned about this matter, and correspondence indicated that that was the purpose of the repeated references to inspection of the financial and taxation records of Cafagon (see Exhibit B, pp 5, 23, 42, 46, 55, 84 ("taxation problems"), 87, and particularly pp139-140, 144).
Mr Jurisich denied that he had advised Mr Ratner about whether payments on a winding up were taxable (T91/16-28; T92/40-45) but also denied he had any knowledge about that matter. It was not suggested that he did. His ignorance on that subject makes it unlikely that he would purport to advise Mr Ratner about it.
For these reasons, I am not persuaded that Mr Ratner and Mr Jurisich had a conversation about the taxation consequences of money received by Mrs Jurisich on a winding up. Nor am I persuaded that they agreed that Mr Jurisich would be responsible for investigating the taxation consequences of a distribution to Mrs Jurisich on a winding up.
Even if, contrary to my finding, such a conversation did occur it is of limited significance: Mr Jurisich's expressed opinion about taxability would be wrong because not all such dividends (and not these in particular) are taxable. He claimed no expertise in transactional tax law. Yet Mr Ratner did not disabuse him of his error or warn him of the need to get independent advice on this subject. But principally such a conversation is not significant because the critical duty of Mr Ratner concerned advice in relation to a different structure proposed to be adopted months later in November 2011, the share buyback proposal. There could be no suggestion and there was none that the tax consequences of the later proposal were agreed to be investigated by Mr Jurisich.
As indicated above, on 4 October 2011 Mr Kell stated in an email to Mr Ratner (Exhibit B, p 39) that the Deed would be amended to ensure that: "on completion of the winding up your client will receive $1,308,285.68 without deduction (no less than that amount but also no more than that amount)." This statement proposes a guaranteed payment under the Deed of $1,308,285.68 on a winding up. Whilst Mr Ratner forwarded this offer for instructions, he gave no advice about it. It was significant as it removed any risk of the payment to Mrs Jurisich being diluted by other obligations of Cafagon, perhaps the primary matter of concern of Mr and Mrs Jurisich. Mr Ratner accepted in oral evidence that the offer largely removed any risk (to Mrs Jurisich) of Cafagon having hidden taxation issues (T135/17-43) although his email on 6 October 2011 to Mr Jurisich overlooks this important component.
The letter of Mr Jurisich on 6 October 2011 clearly requests advice on whether the buyback was the "best way forward". It calls for proper advice from Mr Ratner on the relative merits of a buyback as against a winding up. The scope of the retainer must then, even if it did not before, have included advice on the financial merits of the buyback proposal, a matter which at least raised the need for advice about taxation risks.
In view of Mr Ratner's retainer to advise in relation to the method for receiving full value for Mrs Jurisich's shares, Mr Kemp's unchallenged evidence, the acceptance of oversight and usual practice by Mr Ratner, the ambiguity and ultimate irrelevance of the file note of 8 August 2011, and the request by Mr Jurisich for advice about a buyback to ensure a fixed sum was received by Mrs Jurisich, in circumstances where Mr Ratner had already been informed that the payment to Mrs Jurisich under a winding up was guaranteed, I conclude that there was a duty to advise on the possible taxation consequences of a buyback arrangement, and at least recommend specialist advice.
The parties gave no attention in submissions to the provisions in Division 2 of the Civil Liability Act 2002. Nevertheless, it is necessary that I deal with them. In finding a duty I take into account the matters in s 5B(2), noting that advice by a solicitor to warn a person of risk of harm is imposing a burden of no great significance, as it is a burden undertaken by a solicitor for reward. The probability and likely seriousness of the harm is sufficient to militate in favour of a duty. Further, the risk of economic loss was foreseeable, not insignificant, and as follows from what I have found in the preceding paragraph, the reasonable solicitor would have provided the advice indicated by Mr Kemp. Therefore, s 5B(1) does not preclude negligence.

(b) Breach

Mr Ratner conceded on the documentary evidence that no advice was given by him to Mr or Mrs Jurisich regarding the taxation consequences of a payment to Mrs Jurisich on a winding up, a sale of her shares, or a buyback of them by Cafagon. That conduct contravened Mr Ratner's own practice (T122/8-11) because of oversight, and contravened the duty of care that I have found was owed to Mrs Jurisich.
Further, when Mr Ratner was asked "What do you think??" about the buyback being the best way forward, in Mr Jurisich's email of 6 October 2011, Mr Ratner's responses at 9.33am that same morning failed to carefully and accurately advise Mr Jurisich. Mr Ratner speculated on the reason for the liquidation being "that they want to bury everything", that the liquidator "will need to know all liabilities including tax are paid" and that "there may be liabilities [which] would affect how much Helen receives". These concerns had, however, been largely or completely removed by the Hunt & Hunt proposal to amend the Deed to guarantee a fixed payment to Mrs Jurisich.
More significantly, the letter contains no reference to the taxation consequences of the alternatives. However, Mr Ratner advised, "How we are paid is secondary". That is not merely a failure to advise, it is clearly (though unintentionally) incorrect or misleading, as the structure of the transaction was not "secondary" but determinative of the tax liability. That advice also constitutes a breach of the duty Mr Ratner owed.

If a liability to pay tax, the economic loss constituting the harm, resulted from the breach of duty by the solicitor, then it is appropriate to conclude that the "scope of liability" of the solicitor, pursuant to s 5D(1)(b) of the Civil Liability Act 2002, extends to that harm. No submission was made to the contrary.
There was, however, a challenge to whether factual causation, the other element of causation under s 5D(1)(a), was established. In other words, was "the negligence…a necessary condition of the occurrence of the harm"?
Factual causation, sometimes known as the "but for" test (Wallace v Kam [2013] HCA 19 at [16]), is established if proper advice would have produced a result that relieved Mrs Jurisich of the taxation liability. That would occur if proper advice would have caused Mrs Jurisich to opt for, and obtain, a different structure for realising her interest in Cafagon, and if that alternative structure had no adverse taxation consequences.
The two possible alternative transactions were a sale of the shares to a family member and a winding up. Although mentioned in some documents (and Mr Ratner conceded (T143/13) that the sale of the shares to a third party would not attract capital gains tax), the sale of shares to a family member was not proposed by Cafagon and assessment of its likelihood of occurring is difficult. Mrs Jurisich's case focussed rather on the payment under a winding up, which was the structure preferred by Cafagon until late in the negotiations when the buyback was raised. There was no doubt that Cafagon was at all times willing to proceed with the winding up proposal.
I cannot find that, had a payment under a winding up eventuated, Mrs Jurisich might still have been liable to pay income tax on the payment. Mrs Jurisich prepared careful submissions on the legal effect of the winding up, and the conclusion that, in the circumstances of Mrs Jurisich, no tax was payable. These submissions were not answered or referred to by Mr Ratner, who, by his counsel, appeared to accept that no taxation issue remained (T143/4-18). In those circumstances, I propose to adopt the conclusion in those submissions, without recounting the argument in any detail that as a matter of law, no tax was payable on a distribution to Mrs Jurisich in a winding up of Cafagon.
The real issue raised by Mr Ratner was whether a liquidation would have been acceptable to Mrs Jurisich, given the various references in the documents of her unwillingness to proceed with a winding up.
However, Mrs Jurisich's attitude to a winding up must be considered in a context of appropriate advice, which she did not receive. Had she received proper advice about the taxation consequences of the buyback, either from Mr Ratner or at his recommendation from a tax expert, she would have understood that a buyback raised a likelihood of a substantial income tax liability, a consequence that would not apply if she opted for an alternative structure.
It cannot be supposed that the prospect of a $600,000 tax liability for a buyback, not applicable to a winding up, would have made no impact on Mrs Jurisich's decision to proceed with the buyback. Her concern all along was to receive full value for her shares, and in any event, the economic consequences of this commercial transaction must be regarded as the paramount consideration operating upon her mind. Mrs Jurisich was content with a winding up as at 9 August 2011, and once the perceived risks of the appointment of a liquidator were largely or wholly removed by the Cafagon proposal to guarantee a fixed sum payment under the Deed, in my view, she could not have failed to prefer a winding up over a buyback had she been properly advised.
The only other possible block to causation was whether Mrs Jurisich would have taken Mr Ratner's advice had he advised that she receive specialist taxation advice on the two alternatives. I have already found that Mr Jurisich had no knowledge in this area, so he was unlikely to rely on his own ignorance. The evidence establishes that he consulted Senior Counsel twice about the transactions generally, on about 29 September 2011 and about 8 November 2011, indicating that he was quite willing to receive specialist advice. So far as is revealed by the evidence, he appears to have followed the specialist advice he received. This indicates that if Mr and Mrs Jurisich were advised to obtain specialist taxation advice about a buyback and a winding up, it is likely that they would have obtained that advice, and followed it.

(d) Contributory negligence

In the course of the negotiations, Mr Jurisich's instructions, including his tactical approach to achieving the best financial outcome for Mrs Jurisich, did not always appear to be the most prudent. Examples include repeatedly "considering" the proposal of an amount of about $1.3 million before belatedly demanding approximately $1.8 million, and his resistance to Mr Ratner's advice to settle, including his resistance to a liquidation even though his knowledge of this area was limited. However, these examples merely illustrate one of the purposes people engage solicitors: to protect them against their own mistakes and ignorance. Mr Ratner carefully persisted notwithstanding Mr Jurisich's resistance to a liquidation, but in the end the failure to achieve the right outcome was a consequence of Mr Ratner failing to give correct advice concerning the alternative structures, even if the damage might also have been avoided had Mr Jurisich not been, during the period mid-September to mid-October 2011, so reluctant to agree to a liquidation.
Section 5R of the Civil Liability Act 2002 provides: "5R Standard of contributory negligence (1) The principles that are applicable in determining whether a person has been negligent also apply in determining whether the person who suffered harm has been contributorily negligent in failing to take precautions against the risk of that harm. (2) For that purpose: (a) the standard of care required of the person who suffered harm is that of a reasonable person in the position of that person, and (b) the matter is to be determined on the basis of what that person knew or ought to have known at the time."
With respect to s 5R(2)(b), it is not suggested that Mr Jurisich knew or ought to have known about the differential taxation treatment applicable on a winding up or a buyback, a matter unknown to Mr Ratner. As to s 5R(2)(a), reasonable persons in the position of Mr and Mrs Jurisich would be expected to give particular heed to the advice of their solicitor, and despite the robust demands of Mr Jurisich in attempting to achieve a better financial outcome, Mr and Mrs Jurisich did retain Mr Ratner and in material matters they followed his advice. They took reasonable precautions to avoid the risk of harm, the risk of not receiving full value for Mrs Jurisich's shares, by retaining an experienced commercial solicitor, so s 5B(1), picked up by s 5R(1), has no application. I can find no contributory negligence in their conduct.

(e) Quantum of damages

It follows that Mrs Jurisich has lost $608,172.25, being the assessed amount of taxation on the $1,308,285.65 she received in the share buyback, an amount she would have received free of tax had she received proper advice and opted for the guaranteed payment under the Deed following the winding up.
She is entitled to interest on this sum from 30 June 2013, the date of payment, being the day before the amount was due. The calculation of the amount of interest to date produces a sum of $111,700.47.
Mrs Jurisich also claims $37,511 being the accounting fees paid to Price Waterhouse Coopers for advice regarding her taxation liability and for: "an application for a private ruling to determine the taxation implications of the share buyback, liaising with the Australian Taxation Office in relation to the private ruling and preparation of various letters which detail the tax treatment of the share buyback".
Mr Jurisich has paid the accounting fees and Mrs Jurisich is liable to repay him once this litigation has concluded. My attention was not drawn to any evidence regarding any obligation on Mrs Jurisich to pay interest to Mr Jurisich, so Mrs Jurisich, not having outlaid any funds, cannot receive any interest on these fees.
Determining the amount of the fees resulting from the breach is not without complications. It may be inferred that some of the fees would have been incurred in any event. Mrs Jurisich's taxation accountants charged her fees of $56,900 excluding GST for her 2012 taxation return. Previous invoices for the 2010 and 2011 tax returns were $5,200 and $5,100 respectively. Whilst the sum of $37,511 might represent a more substantial reduction on the total fees charged than the earlier annual fees might indicate was appropriate, there was no evidence admitted that explained this reduction, or the sum claimed, and no explanation as to why no evidence was provided. The explanation may lie in a comparison of the costs of the evidence to the amount in dispute, but that submission was not made, and in circumstances where the absence of evidence was not explained, I am reluctant to draw inferences in favour of the plaintiff.
In addition, I have no evidence that enables me to determine whether the GST was an input tax credit in some business Mrs Jurisich operated, in which case it resulted in no loss. There is reference in the accounting invoices to Business Activity Statements of Mr Jurisich but not to Mrs Jurisich, but that might not be determinative. She works as a personal assistant to her husband though whether as an employee or in her own business as an independent contractor was again not the subject of evidence. Also, I would infer that the accounting fees for the preparation of a tax return might be deductible against her assessable income in a subsequent year, which might impact on her actual loss, although again I have no information about her deductions or assessable income in subsequent years. None of these matters were the subject of submissions.
In all the circumstances, I propose to accept a conservative amount of $20,000 as the proportion of the accounting fees that should be added to the damages of Mrs Jurisich.
Accordingly, the damages amount to $739,872.73 ($608,172.25 + $111,700.48 + $20,000.00).

F. Costs

Although Mrs Jurisich would ordinarily be entitled to costs, I will reserve this question in case either party wishes to make submissions.

G. Orders

Accordingly, the orders of the Court are: 1. Judgment for the plaintiff, Helen Jurisich, in the amount of $739,872.73. 2. Parties to provide to my associate within seven days an agreed list of convenient dates for argument concerning 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: 18 May 2016

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Judgment (12 paragraphs)

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