Kekatos v Sanson & Ano [2009] NSWCA 171 | Case summary

The appellant (the solicitor) acted for the respondents (the purchasers) on the purchase of an investment unit which they had not inspected. Early in December 2003 the purchasers signed a contract for the purchase of unit 44 shown in a draft plan annexed. By that time an amended strata plan had been registered and unit 44 had been renumbered as unit 46. It was a one-bedroom unit. Unit 44 in the registered plan, formerly unit 42, was a two-bedroom unit. The purchasers left that contract with a sales representative but gave it to the solicitor when they met him on 18 December. The solicitor explained that the unit number had changed and that they would have to sign a new contract. They asked him whether the unit had two bedrooms but the solicitor did not know and advised them to inspect the unit and get back to him if there was a problem. Their attempts to arrange an inspection were fobbed off by the sales representative but they did not advise the solicitor about this and they later signed a contract for the purchase of unit 46 which was exchanged on 30 January 2004. The purchase was completed the same day. The purchasers thought they were buying a two-bedroom unit. The trial judge held that the solicitor had a duty to "ensure" that the purchasers inspected the unit before exchange and awarded them damages. The solicitor appealed. HELD: (1) the solicitor's duty was to exercise reasonable care and he had no duty to "ensure" a particular result; (2) the solicitor had discharged his duty by advising the purchasers to inspect the unit and get back to him if there was any problem. ORDERS

THURSDAY 2 JULY 2009 JIM KEKATOS T/as J KEKATOS LAWYERS v RUTHELISE JAY SANSOM & ANOR Judgment 1 TOBIAS JA: I agree with Handley AJA. 2 MCCOLL JA: I agree with Handley AJA. 3 HANDLEY AJA: This appeal arises from the attempt in late 2003 of a de facto couple to purchase a two-bedroom unit in a new strata building as an investment. In the result they acquired a one-bedroom unit for which they paid an excessive price. They sued the solicitor who acted for them on the purchase alleging professional negligence and were awarded $155,000 damages by Truss DCJ. The solicitor's appeal to this court raised issues of breach of duty, causation, and contributory negligence, but it is only necessary to deal with the question of breach of duty. 4 The trial took six days, the facts were complex, there was also a cross-claim by the plaintiffs against their mortgagee, and the Judge was asked to decide 33 factual issues which the parties identified. She made detailed and careful findings of primary fact none of which were challenged. These reasons are based on Her Honour's findings. 5 The strata building in question was located at 2-10 Susan St Auburn. The problems arose from the re-numbering of the units in the draft strata plan on 26 June 2003, and from what may well have been the fraud of a third party on the plaintiffs. The unit the plaintiffs ultimately acquired, Unit 46 in the plan as registered, had an area of 65 square metres. It began life as Lot 44 with an area of 65 square metres in the draft plan of 9 October 2002. It became Lot 46 in the amended draft strata plan of 26 June 2003 and it was Lot 46 in the strata plan as registered on 20 November 2003. What was unit 42 in the original draft plan, with two bedrooms and an area of 114 square metres, became Unit 44 in the amended draft plan of 26 June 2003 and in the strata plan as registered. 6 In June or July 2003 the plaintiffs became interested in the purchase of a two-bedroom unit in a new development at Blacktown for a price of $310,000. This did not proceed, and their attention was directed to the purchase of a two-bedroom unit in the Auburn development for $330,000. Early in December 2003 they signed a contract for the purchase of Unit 44 in that development without inspecting the unit and left the contract with a sales representative for the marketing company acting for the vendor. 7 That contract had been prepared by Ms Clegg, the conveyancing clerk employed by the solicitor in June 2003 when Unit 44 in the original draft plan was a one-bedroom unit but by December 2003 when the plaintiffs signed that contract Unit 44 in the registered plan was a two-bedroom unit. The Judge found that the strata plan annexed to the contract prepared in June 2003 was the original draft plan of October 2002: para [42]. 8 The plaintiffs met the defendant at his office on 18 December 2003 immediately after they had seen Ms Clegg. This was the only face-to-face meeting between the plaintiffs and the defendant's firm prior to settlement of the purchase. The plaintiffs brought to that meeting the contract of sale which they had signed earlier that month and left with the sales representative. 9 There was a sharp conflict between the evidence of the plaintiffs about this meeting and the evidence of the defendant which the Judge resolved by accepting the evidence of the latter. Contrary to the plaintiffs' evidence she found that the defendant did not tell them that the unit they were buying had two bedrooms. 10 The Judge also found that the defendant advised the plaintiffs of the renumbering of the unit as Unit 46, and accepted the following evidence in his statement: "Either Sansom or McLay then said to me words to the following effect: - Is this lot 46 a two-bedroom unit? I then said words to the following effect: - I cannot tell from the strata plan. The only thing I can say from the size of it depending on the rest of the units in the strata plan is that it may be a one-bedroom unit but I cannot say. What you need to do is go out there yourselves and do a physical inspection and have a look at what you are buying. You need to satisfy yourselves as to whether you are getting a one-bedroom unit or a two-bedroom unit and you need to contact me if there is a problem. They then replied: - We will go and see the unit. … I then went outside and photocopied the new strata plan and I gave them a copy of it." 11 The signed contract which the plaintiffs brought to the meeting was no longer appropriate in view of the renumbering of the unit, and other changes were also necessary. The defendant explained the draft mortgage documents to the plaintiffs, although they too would have to be amended, but an amended contract referring to Unit 46 was not signed at that meeting. 12 Evidence about the contract that was exchanged on 30 January 2004 was given by Ms Clegg. The Judge said that she had no hesitation in accepting her evidence. On the day after the meeting on 18 December 2003 Ms Clegg prepared a new contract on the defendant's instructions which was later collected by a representative of the marketing company. Despite their denials the Judge found that the plaintiffs signed this contract which was returned to Ms Clegg by the marketing company shortly before exchange and settlement on 30 January. 13 The only other direct contact between the plaintiffs and the defendant firm occurred on 27 January when Ms Clegg telephoned Ms Sansom to ascertain the nature of the co-ownership on which the property was to be held. From a previous conversation she had had with Ms Sansom she was aware that the latter had paid the deposit from an inheritance or something similar she had received. As she had contributed more than Mr McLay Ms Clegg wanted to ensure that Ms Sansom understood what was involved and she explained the difference between buying as joint tenants and as tenants in common. Ms Sansom then gave her instructions to purchase as tenants in common in equal shares. 14 All other communications with the plaintiffs after 18 December were through the marketing company. 15 The plaintiffs did not inspect Unit 46 between 19 December 2003 and the date of settlement. Ms Sansom said that when they signed the contract early in December they asked the sales representative whether they could look at the unit but were told that it had not yet been completed. This excuse was probably false because the strata plan had already been registered. She became aware later in December that the building had been completed. 16 Following the meeting on 18 December she and Mr McLay made more than one request of the sales representative for an inspection but were told that there were issues with the tenants. This was also probably false as the property was being sold with vacant possession, and it was not let until after settlement. Unfortunately the plaintiffs allowed themselves to be fobbed off in these ways, and what is more important they did not tell the defendant or Ms Clegg that they had been unable to inspect the unit and satisfy themselves that it had two bedrooms. The defendant did not follow up his advice to the plaintiffs to inspect the unit and proceeded on the basis that they would get back to him if there was a problem. 17 The Judge found that at the date of settlement the plaintiffs believed that there were purchasing a two-bedroom unit and believed that Unit 46 was such a unit. The substance of the plaintiffs' case on breach was that they did not obtain the two-bedroom unit they thought they were buying. 18 The Judge rejected most of the plaintiffs' allegations of breach of duty and negligence and found that the defendant was not bound to make any independent enquiries about the number of bedrooms. She considered nevertheless that his conduct in this regard was somewhat casual and unprofessional. 19 Her finding on breach was as follows: "In my view, in the somewhat unusual circumstances of this case, the reasonable exercise of the requisite care and skill required the defendant to ensure that the plaintiffs had inspected the property before the settlement especially given that there was to be a simultaneous exchange. This would have involved his informing Ms Clegg that he had advised that the plaintiffs to inspect the property and that she ought not to settle until she had ascertained from them that they had done so and that the property was in order. Clearly an inspection would have revealed to them what they were in fact purchasing" (emphasis supplied). 20 The Judge misdirected herself when she held that the defendant's duty was "to ensure" that the plaintiffs had inspected the property. The defendant had no such duty. His only duty was to exercise reasonable care: Roads and Traffic Authority of New South Wales v Dederer [2007] HCA 42, 234 CLR 330, 345, 348, 408, 415. The Judge's finding on breach must therefore be set aside, and this Court, in the light of the findings of primary fact, must determine whether or not the defendant failed in his duty to exercise reasonable care. 21 On 18 December the defendant advised the plaintiffs that they were proposing to buy Unit 46 and that he did not know how many bedrooms were in the unit. He then clearly and firmly told them that they "needed" to do a physical inspection of the unit, that they "needed" to satisfy themselves whether "they are getting" a one-bedroom or a two-bedroom unit, and they "needed" to contact him if there was a problem. He also gave them a photocopy of the strata plan which clearly identified Unit 46 on the fourth floor which would enable them to inspect the correct unit without difficulty. 22 On the Judge's findings the plaintiffs understood what they should do and did not ask for any clarification. They made more than one attempt to inspect the unit, but were fobbed off by the sales representative that Mr McLay in particular trusted completely. They did not get back to the defendant and on 27 January, when Ms Clegg telephoned Ms Sansom, the latter did not tell Ms Clegg that they had been unable to inspect the unit. 23 On 18 December the defendant was not on notice of facts, other than the absence of an inspection, which called for any greater response at that stage and he was not cross-examined to suggest otherwise. A physical inspection of any property by the purchaser is a normal and almost invariable preliminary to its sale, unless this is "off the plan". It is something purchasers normally do for themselves, without the help of a solicitor. A physical inspection would immediately have revealed to the plaintiffs that Unit 46 had only one bedroom. 24 In my judgment reasonable care did not require the defendant to do anything more than he did on 18 December to help the plaintiffs establish that Unit 46 that they were proposing to buy was in fact a two-bedroom unit. The defendant had no reason for thinking at that stage that the plaintiffs would not get back to him if they could not arrange a physical inspection of the unit. Moreover, with respect, I cannot agree that the defendant's conduct in this regard was casual or unprofessional. 25 In their supplementary written submissions filed the day before the hearing counsel for the respondents argued for findings which would support a breach of duty on another basis but these matters were not put to the solicitor in cross examination, and were not supported by expert evidence. 26 The appeal should therefore be allowed and the following orders should be made:

Kekatos v Sanson & Ano

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Judgment (22 paragraphs)

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