McDonald v Grech; Bank of Western Australia Ltd v McDonald [2012] NSWSC 717 | Case summary

Judgment 1HER HONOUR: Before me for hearing in the duty list on 12 June 2012 were two applications (each filed on 23 March 2012) for summary dismissal or strike-out of claims made against Mr Henry Grech in two sets of proceedings. 2The first proceedings (10/204234), to which I will refer as the McDonald Proceedings, were commenced by Mr and Mrs McDonald in 2010 against a number of defendants, the first named defendant (the applicant on the respective Notices of Motion) being Mr Grech, a solicitor trading as Grech Partners, and the sixth named defendant being his wife, Mrs Lois Grech. In those proceedings, an Amended Statement of Claim was filed on 7 May 2012 pursuant to orders made by Pembroke J on 26 April 2012. The allegations made therein against Mr Grech are that he breached a duty of care as well as contractual obligations and fiduciary duties owed to Mr and Mrs McDonald in the context of an alleged partnership entered into between the McDonalds and the Grechs for the development of a property in Blue Bay, New South Wales. Relief is sought by way of orders setting aside various agreements; an indemnity in respect of any claim or liability arising under various transactions entered into for the purposes of the alleged partnership; and damages. (The other defendants are entities associated with Mr Grech or his family as well as other professionals who it is alleged gave advice or were consulted by the McDonalds in relation to the development or the entry into documents in relation to the development.) 3The second proceedings (in which a similar application is made by Mr Grech by Notice of Motion also filed on 23 March 2012) are proceedings 2011/288127 (to which I will refer as the Bankwest Proceedings). These were commenced by Bank of Western Australia Ltd against Mr McDonald (and Mr Vincent Grech, the Grechs' son) in relation to defaults under a loan through which the bank refinanced an earlier facility agreement through which finance had been provided for the purpose of the Blue Bay property development. Mr McDonald has cross-claimed against Mr Grech (he being the first cross-defendant to the Bankwest proceedings). In those proceedings, the Amended First Cross-Claim filed by the McDonalds raises, to all intents and purposes, the same allegations and seeks the same relief against Mr Grech as in the McDonald proceedings. 4In both proceedings, there is pleaded (further or in the alternative to the allegations of negligence against Mr Grech) that Mr Grech was at all material times a director of the second defendant/second cross-defendant (Omneity Pty Ltd), that being an incorporated legal practice, and that he procured the conduct of Omneity that is said to amount to negligence on its part, for which Mr Grech is said to be liable. 5The basis on which Mr Grech seeks the summary dismissal of the claims made against him by the McDonalds in both sets of proceedings is, first, that the claims are statute barred or, second, that they are so weak that they cannot be proven (and that to allow them to proceed would be futile and impose hardship upon Mr Grech which may be avoided without risk of injustice to the McDonalds). In relation to the latter, reliance is placed on Cox v Journeaux [No 2] (1935) 52 CLR 713 per Dixon J at 720 and Batistatos v Roads and Traffic Authority of NSW [2006] 226 CLR 256. Background facts 6Both proceedings arise out of events relating to the purchase and development of the Blue Bay property, which is next door to Mr and Mrs McDonalds' home. The McDonalds contend that in 2003 (at which time it is said that they were existing clients of Grech Partners and acquaintances of Mr Grech), they had discussions with Mr Grech as to the proposed joint purchase and development of the Blue Bay property. The facts in relation to that project, as alleged in the pleadings, may be summarised as follows. (The paragraph numbers below refer to the Amended Statement of Claim but there are similar allegations in the Amended Statement of Cross-Claim.) 7It is alleged that, in about May or June 2003, the McDonalds entered into a partnership agreement with Mr and Mrs Grech to conduct together as partners "a business of acquiring, developing and selling" the Blue Bay land ([10]). The partnership agreement was not in writing. The McDonalds contend that it was a term of the partnership agreement that the parties would share the profits and bear the losses of the partnership business in equal shares and that the assets would belong to the McDonalds and the Grechs in equal shares ([11]). (Senior Counsel for Mr Grech, Mr Curtin SC, notes that there is no complaint made in the pleading or the evidence as to this term of the alleged partnership agreement.) 8It is further contended that the parties to the partnership agreement (by definition including Mr Grech himself) entered into a contract with Mr Grech "to advise and act for them in respect of the proposed purchase and development of" the property ([12]). Particulars of the alleged contract are provided in paragraph [12] of the Amended Statement of Claim (and reproduced in the Amended Cross-Claim). To the extent that the contract was implied, it is said to be implied from the statements and conduct there particularised. Reference is made in the particulars to correspondence and other documents indicating that Grech Partners acted as the solicitors on the purchase of the property. (Mr Curtin notes that the pleaded retainer is not a conveyancing retainer per se.) 9It is alleged (at [13]) that, from about January 2004 to about August 2004, at the direction of Mr Grech, the McDonalds made various payments in respect of the proposed purchase or development of the Blue Bay property (totalling about $360,578), as there particularised. 10It is alleged (at [14]) that on or about 20 May 2004, Mr Grech caused Werrina Corporation Pty Ltd to be incorporated for the purposes of the purchase of the property. (Mr Grech and Mr McDonald were appointed directors of the company). 11A Contract for the Sale of the Blue Bay property was initially executed on 24 May 2004 for a purchase price of $4.4million. The purchasers named in the contract, as then signed, were Werrina, Mrs Grech and Mr Luke McDonald (Mr and Mrs McDonald's son). (The Contract for Sale as completed in September 2004, named Werrina, Mrs Grech and the McDonalds as the purchasers.) 12It is alleged that, on or about 17 August 2004, the McDonalds consulted the fourth defendant (an accountant, Mr Stephen Cassin) ([15]) and the fifth defendant (a lawyer, Mr Warren Richardson) (16]) with respect to the purchase of the property "including the financial arrangements for the purchase" and sought "such advice as [those defendants] considered was appropriate". (Senior Counsel for the McDonalds, Mr Gyles, notes that, on Mr McDonald's evidence, this followed Mr McDonald having then been informed by Mr Grech for the first time that Mr McDonald would be required to mortgage his home for the purposes of the project.) Mr McDonald's evidence is that he had not obtained any such advice prior to the signing of the contract in May 2004. 13From the evidence before me on this application, it appears that advice was given by Mr Cassin as to the tax implications of the nomination of Mr Luke McDonald as one of the purchasers and that, subsequently, steps were taken in effect to substitute the McDonalds as purchasers (jointly with Mrs Grech and Werrina) in place of their son. (I understand that there was also an adjustment to the shareholding of Werrina.) 14Finance was obtained for the project in September 2004, in the form of two facility agreements entered into with Investec Bank (Australia) Ltd. The First Facility Agreement was entered into by the McDonalds and was secured solely by a mortgage over their home ([17]-[18]) (the loan under that facility being in the amount of $2.4 million). The Second Facility Agreement (for a loan facility in the amount of $6.555 million) was entered into by the McDonalds, Mrs Grech and Werrina and was secured by a mortgage over the Blue Bay property (but no other property) ([19]-[20]). (It was also secured by personal guarantees from the McDonalds.) 15Settlement of the purchase took place on 21 September 2004 ([23]). 16The Amended Statement of Claim then alleges the making of various payments by the McDonalds in relation to the legal costs on the purchase (rendered by Mr Grech, trading as Grech Partners) in the sum of ($20,000 - [25]) and interest under the Facility Agreement (totalling $227,493.31 - [26]). 17The McDonalds say that Mr Grech and his son then proceeded to undertake the development project, (including the preparation of an application for development approval), and that the McDonalds had no involvement in the project other than to make loan interest payments from time to time. 18In or about December 2005, the development application was rejected ([27]) and there were discussions as to the McDonalds ceasing their involvement in the partnership. (Mr Gyles says that Mr Grech was considering an appeal from the decision but that the McDonalds were concerned about the scale of the project and had said that they no longer wished to participate in the project.) 19A Deed was entered into in May 2006 providing for the cessation of the McDonalds' involvement in the project ([28]-[30]). (The McDonalds say that they entered into the May 2006 Deed after they were told by Mr Grech that they would get their money back and the security over their house released in about two years.) Under the May 2006 Deed, the McDonalds divested their interest in the project but remained committed to the existing loan securities (and were to be indemnified for any losses by the seventh defendant, Currency Corporation Pty Ltd, a company said to be associated with Mr Vincent Grech). Mr McDonald remained a director of Werrina Corporation. 20Paragraphs [31]-[38] of the pleading relate to the refinancing and variation of the initial loan facilities, as part of which the Second Facility Agreement was refinanced by the Bankwest loan in June 2008. Notices of default under that loan were issued in August 2010. The amount claimed by Bankwest is, as I understand it, in excess of $7 million. 21The First Facility Agreement was refinanced by the National Australia Bank in May 2008. (I am informed by Mr Gyles that in April 2011 the National Australia Bank issued the McDonalds with a notice to vacate their home (which secured the loan under the First Facility Agreement) but that the bank has not yet sought to enforce this notice.) 22The McDonald Proceedings were commenced on 13 September 2010. 23The Bankwest Proceedings were subsequently commenced by Bankwest in September 2011 against Mr McDonald and Mr Vincent Grech, as guarantors of the loan that had been the subject of the Second Facility Agreement. The Cross-Claim against Mr Grech was filed in those proceedings on 24 October 2011. 24I am informed that the development is complete but that the Blue Bay property has not yet been sold. McDonalds' claims against Mr Grech 25Mr Gyles identifies the McDonalds' central claim against Mr Grech as being that he (whether personally or as a partner of Grech Partners), breached duties owed to the McDonalds (contractual or common law duties of care or fiduciary duties) by failing to advise them that the partnership agreement between them should be documented and by failing to advise them that they should obtain independent legal advice in respect of that agreement ([39]-[42]; [42A]-[42B]; [43]-[48]). It is alleged that as a result of the alleged negligence, breach of fiduciary duty and breach of contract, the McDonalds have suffered loss pursuant to the transactions entered into for the purposes of the partnership [66]-[68]. The causal nexus between the alleged breaches of duty and the loss is the allegation that, had the McDonalds been advised of the said matters, they would have received advice inter alia, as to the inequality of the contributions provided by the respective parties and, on receipt of that advice, would not have entered into the relevant transaction documents. Legal Principles 26There was no real argument before me as to the principles applicable on a summary dismissal or strike-out application. It is accepted that there is power under Rules 13.4 and 14.28 of the Uniform Civil Procedure Rules 2005 (NSW) for the Court summarily to dismiss proceedings or to strike out proceedings where no reasonable cause of action is disclosed on the pleading. Those rules provide as follows: 13.4 Frivolous and vexatious proceedings (1) If in any proceedings it appears to the court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings: (a) the proceedings are frivolous or vexatious, or (b) no reasonable cause of action is disclosed, or (c) the proceedings are an abuse of the process of the court, the court may order that the proceedings be dismissed generally or in relation to that claim. (2) The court may receive evidence on the hearing of an application for an order under subrule (1). 14.28 Circumstances in which court may strike out pleadings (1) The court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading: (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or (b) has a tendency to cause prejudice, embarrassment or delay in the proceedings, or (c) is otherwise an abuse of the process of the court. (2) The court may receive evidence on the hearing of an application for an order under subrule (1). 27The test generally applied on such applications is that set out in General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 at 128-9. There, Barwick CJ said: [T]he plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; "so manifestly faulty that it does not admit of argument"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them" (the pleadings) "to stand would involve useless expense". 28Mr Gyles notes that the General Steel test was recently endorsed and applied by the Court of Appeal in Shaw v State of New South Wales [2012] NSWCA 102 at [32], where Barrett JA (with whom Beazley, McColl, Macfarlan JJA and McClellan CJ at CL agreed) stated: The question is...whether the claims in question are so obviously untenable or groundless that there is "a high degree of certainty" that they will fail if allowed to go to trial; and whether this is one of the "clearest of cases" in which the court may accordingly intervene to prevent the claims being litigated. 29It has on numerous occasions been said that the power summarily to dismiss a claim should be exercised with the utmost caution and only in very clear cases (General Steel; see also Webster v Lampard (1993) 170 CLR 598 at 602-3 and Brimson v Rocla Concrete Pipes Limited [1982] 2 NSWLR 937 at 942). In Dey v Victorian Railways Commissioner (1949) 78 CLR 62 at 91 it was said that it must be clear that there is no real question to be tried. 30In Skalkos v Smiles [2006] NSWSC 192, Johnson J summarised the principles and authorities in this regard, noting that the power to make an order for summary dismissal should be sparingly employed (the fundamental principle being that prima facie a plaintiff is entitled to have his or her case come to trial) and that a high degree of certainty is required about the ultimate outcome of the proceeding for a summary dismissal application to succeed. His Honour said (at [62]): The mere fact (if it be the case) that a plaintiff's prospects of success must be characterised as slim would not be enough to strike out a pleading: Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1995-1997) 188 CLR 241 at 271; Preston v Star City Pty Limited [1999] NSWSC 127 at para 31. The question for determination is whether a reasonable cause of action is disclosed, that is a cause of action which has some chance of success, or which could conceivably give the plaintiff a right to relief or which, although weak, is properly debateable, and has some apparent legitimate basis, if the facts upon which it is alleged to be based are made good: Preston v Star City Pty Limited at para 37. 31Similarly, the fact that there may be legitimate complaints in relation to the form in which the claim is pleaded is not sufficient. Johnson J noted that: So far as any deficiency might arise in relation to the particularisation of the matters alleged, that is a matter appropriately left for subsequent amendment rather than a strike out of the pleading, so long as what is alleged sufficiently identifies a reasonable cause of action: Jingellic Minerals NL v Abigroup Limited (1992) 7 WAR 566; Co-Ownership Land Development Pty Limited v Queensland Estates Pty Limited [1973] 47 ALJR 519 at 521; Preston v Star City Pty Limited at para 41. 32More recently, Hammerschlag J, in Paul Ernest Simmons v Protective Commissioner of NSW also known as NSW Trustee and Guardian [2012] NSWSC 455, has noted the difference in formulation between the two parts of Rule 13 and, in obiter, expressed the view that a reasonable cause of action was one giving rise to real issues requiring resolution by the Court (such that proceedings need not be hopeless or bound to fail in order to be struck out as disclosing no reasonable cause of action, adopting the approach in Spencer v Commonwealth of Australia (2010) 241 CLR 118). 33The approach advocated by Hammerschlag J in Simmons is that the judicial mandate pursuant to s 56 of the Civil Procedure Act 2005 (NSW) to give effect to the overriding purpose of the just, quick and cheap resolution of the real issues in dispute expands the 'spectrum of circumstances' in which the Court might on discretionary grounds grant relief by way of dismissal under r 13.4 Uniform Civil Procedure Rules 2005 (NSW). His Honour's reasoning adopts the approach of the High Court in Spencer, where, in interpreting s 31A of the Federal Court of Australia Act 1976 (Cth), Hayne, Crennan, Kiefel and Bell JJ took into account the legislative purpose of the text and in particular, the requirement that there be no "reasonable prospect" of success. Hammerschlag J notes (at [62]) that although: UCPR Pt 13 r 13.4 does not expressly provide (as does s 31A of the Federal Court of Australia Act 1976 (Cth)) that a proceeding need not be hopeless or bound to fail to have no reasonable prospects of success, the combination of the inclusion of the word reasonable and the operation of s 56(2) sufficiently clearly indicates, in my view, that the approach to exercising the power to dismiss under the rule is the same as that elucidated by the High Court in relation to the federal enactment. 34Mr Gyles notes that although, in Simmons, his Honour expressed the view that in order summarily to dismiss a case the Court must not necessarily be satisfied that the proceedings are bound to fail (it arguably being sufficient that the proceedings do not have a reasonable prospect of success fundamentally), it remains a difficult test for an application to meet on any view. 35Mr Gyles further submits that, as far as the current proceedings are concerned, the summary dismissal application will not dispose of this case (since there are multiple defendants); all of the circumstances surrounding the entry into this venture will be part of the case (because the second defendant, Omneity, is not seeking summary dismissal); and that the case will continue not only against Messrs Richardson and Cassin (the other professionals) but also in relation to the May 2006 Deed to which Mr Grech is a party. Hence, insofar as case management principles inform the exercise of discretion on this application, it is said that the time that this case will take will not be substantially different even if the claim against Mr Grech were to be summarily dismissed at this stage. 36Mr Gyles submits that the burden on a defendant seeking to strike out a claim is particularly difficult to discharge where the application is based on a limitation period and the time at which the plaintiffs sustained damage is at issue, noting that in Wardley Australia v WA (1992) 175 CLR 514, Toohey J referred (at 558-9) to "the difficulty and undesirability of trying to determine a limitation point in interlocutory proceedings, unless the position is clear beyond peradventure" and the plurality (Mason CJ, Dawson, Gaudron and McHugh JJ) said (at 533): We should...state in the plainest of terms that we regard it as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question. 37Further, it is submitted that insofar as the summary dismissal application is based on the lack of evidence of the existence of a retainer with Mr Grech (and therefore of a contractual duty said to have been breached by Mr Grech) and hence is based upon alleged evidentiary deficiencies in the McDonalds' case, this attracts the principle that an application by one of several defendants for the summary dismissal of a plaintiff's claim because of evidentiary deficiencies in the plaintiff's case cannot succeed because of the possibility that another defendant may adduce evidence at the trial which would overcome those deficiencies (Wickstead v Brown (1992) 30 NSWLR 1 at 12). Mr Gyles notes, in this regard, that Mr Grech is named as a concurrent wrongdoer by the third, fourth and fifth defendants. 38In Wickstead, Handley JA and Cripps AJA said: At the close of the plaintiff's case there may be evidence against some defendants but not against others. The court will not entertain a motion for judgment by some only of the defendants because any gaps in the plaintiff's case against those defendants may be filled when the other defendants go into evidence. In particular one or more of the defendants going into evidence may seek to exculpate themselves by inculpating defendants against whom the plaintiff had no admissible evidence at the close of his case. If the respondent would not be entitled to succeed on a no evidence point at the trial until all the evidence has been called, including that from other defendants, it is clear that there can be no such entitlement on an application by one of several defendants for summary dismissal. 39Given that Mr Grech is named as a concurrent wrongdoer in certain of the defences, it is submitted by Mr Gyles that there is a basis to assume that other defendants will be adducing evidence in support of a claim against Mr Grech (giving rise to the principle in Wickstead). (Mr Curtin, in response, raises the question as to whether there can be a concurrent wrongdoer who has a limitation defence. He submits that, even assuming a claim of concurrent wrongdoing were to be raised, if the claim against Mr Grech is summarily dismissed, that issue would be a matter as between the remaining defendants and the plaintiffs, in the sense that if there is a concurrent wrongdoer the plaintiffs' damages may be reduced.) As I understand it, however, Mr Gyles raises the concurrent wrongdoer allegations at this stage as pointing to the inability of the Court to know precisely what evidence may later emerge from the other defendants in support of the plaintiffs' claim against Mr Grech (and hence to resist a summary dismissal at this point). 40With those principles in mind, I turn to the two bases on which Mr Grech's summary dismissal application is made. (i) Limitations Defence 41As noted above, the McDonald Proceedings were commenced by Statement of Claim filed on 12 September 2010; the filing of the First Cross-claim in the Bankwest Proceedings was on 24 October 2011. Therefore, insofar as there is a 6 year limitation period for the causes of action alleged, the relevant time to be considered is whether the causes of action had accrued as at 12 September 2004 or 24 October 2005 respectively. The alleged breaches of duty raised in the pleadings give rise to claims in tort, contract and for breach of fiduciary duty. I consider each in turn. Tort 42For a cause of action in negligence time runs from when the plaintiff first suffers measurable damage (s 14 of the Limitation Act 1969 (NSW)) - Mr Curtin has referred to Scarcella v Lettice (2000) 51 NSWLR 302 and the statement by Handley JA (at [24]) that this is the case even if the plaintiff is unaware of the damage or negligence. Reliance is placed on Winnote Pty Ltd v Page (2006) 68 NSWLR 531 at [66] per Mason J and Jobbins v Capel Court Corporation Ltd (1989) 25 FCR 226 at 228-230 (and the s 52 cases cited therein) as authority for the proposition that time commences to run even if not all damage has by then been suffered but continues to grow. 43Mr Curtin notes that the alleged breach of duty giving rise to the claim in negligence ([39]-[40]) is the failure of Mr Grech to advise that the Partnership Agreement should be documented "prior to execution" of the Contract for Sale and entry into the financial arrangements or to advise them to obtain independent legal advice in respect of the Partnership Agreement. (Insofar as the pleaded allegation as to failure to advise that the partnership agreement be so documented beyond a particular time includes the words "or at any time thereafter" there may be a question as to whether those latter words qualify the time at which the advice was not given (ie an allegation that Mr Grech failed prior to the contract being executed to give that advice and also failed so to advise at any time thereafter, which would suggest a continuing obligation) or qualify the time at which the Partnership Agreement should have been advised to be documented. Linguistically, the words seem to me to qualify the time that the McDonalds should have been advised as being the time at or by which the partnership agreement should have been executed, not when the advice itself should have been given. To the extent that either construction is open, this may be relevant to the limitations defence particularly on the breach of contract claim.) 44Mr Curtin notes that, on the pleadings, the Partnership Agreement was entered into (at the latest) in June 2003; that the McDonalds paid out some $361,000 for the purchase and development of the property before August 2004; that the McDonalds entered into the First and Second Facility Agreements on or about 1 September 2004; that the McDonalds mortgaged their family home to secure the Second Facility Agreement on 1 September 2004; and that they executed the Contract for Sale on 7 September 2004 (all those being dates prior to both 12 September 2004 and 24 October 2005). 45Hence, it is said that, before 12 September 2004 (and before 24 October 2005), the McDonalds had become bound to an undocumented Partnership Agreement; had suffered damage by payment out of approximately $361,000; had become bound to liabilities under the First and Second Facility Agreements; had mortgaged their home (said to be sufficient to constitute damage by reference to Permanent Custodians Ltd and Anor v King and Ors [2010] NSWSC 509 per Schmidt J at [39] - [44]); and had became bound to obligations under the Contract for Sale. It is submitted that, as the National Australia Bank and Bankwest loans were replacing the initial facility agreements by way of refinancing, the relevant financial obligations to consider are those in the initial facility agreements. 46It is thus submitted by Mr Curtin that the payment of funds, together with entry into the mortgage and the assumption of the financial obligations under the initial facility agreements, constituted measurable damage and therefore that, by the time of the respective proceedings, the McDonalds' claims in negligence were already statute barred. 47Mr Gyles takes issue with the proposition that the fact that payments were made at a particular time (ie the payments between 9 January 2004 and 6 August 2004) means that loss or damage was suffered at that time, citing the statement by Brennan J in Wardley (at 536-7): A transaction in which there are benefits and burdens results in loss or damage only if an adverse balance is struck. If the balance cannot be struck until certain events occur, no loss is suffered until those events occur. The quantification of the diminution in value of an asset or of a liability incurred or the value of any benefit acquired may not be ascertainable at the time when the burden of the transaction is borne. In that event, the suffering of any loss cannot be said to occur before it is reasonably ascertainable (not before it is ascertained) that the burdens which the plaintiff has borne are greater than the value of the benefits that the plaintiff has acquired or will acquire. In other words, no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is "worse off than if he had not entered into the transaction". (footnote omitted) 48It is submitted that the payments particularised at [13] were part of a transaction that involved both burdens and benefits: the burden being the expenditure of funds; the benefit being an expectation that the payments would permit the acquisition and development of the Blue Bay property so as to yield a return. It is submitted that it was not reasonably ascertainable, at the time the payments were made, that the burdens of the transactions outweighed the benefits (rather, that the loss only became reasonably ascertainable later when it became clear that the burdens of particular transactions outweighed their benefits). 49Mr Gyles submits that the precise time at which the loss became reasonably ascertainable is a matter to be determined on the evidence (and thus it is not appropriate for determination on an interlocutory summary dismissal or strike out basis). (That said, Mr Gyles submits that it is most likely that the relevant time at which it became reasonably ascertainable that the burdens of the transaction would outweigh the benefits was in August 2010 when Bankwest demanded repayment of its loan and it became clear that the financing arrangements for the project were in jeopardy.) 50Reference was made to the statement of the plurality in Wardley (at 527) that: When a plaintiff is induced by a misrepresentation to enter into an agreement which is, or proves to be, to his or her disadvantage, the plaintiff sustains a detriment in a general sense on entry into the agreement. That is because the agreement subjects the plaintiff to obligations and liabilities which exceed the value or worth of the rights and benefits which it confers upon the plaintiff. But, as will appear shortly, detriment in this general sense has not universally been equated with the legal concept of "loss or damage". And that is just as well. In many instances the disadvantageous character or effect of the agreement cannot be ascertained until some future date when its impact upon events as they unfold becomes known or apparent and, by then, the relevant limitation period may have expired. To compel a plaintiff to institute proceedings before the existence of his or her loss is ascertained or ascertainable would be unjust. Moreover, it would increase the possibility that the courts would be forced to estimate damages on the basis of likelihood or probability instead of assessing damages by reference to established events. In such a situation, there would be an ever-present risk of undercompensation or overcompensation, the risk of the former being the greater. In UBAF Ltd v European American Banking Corp [[1984] QB 713, at 725] Ackner LJ said: "The mere fact that the innocent but negligent misrepresentations caused the plaintiffs to enter into a contract which they otherwise would not have entered into, does not inevitably mean that they had suffered damage by merely entering into the contract." That is because it was not self-evident that the value of the chose in action which the plaintiff acquired, the right to repayment of a loan, was worth less than the amount paid to the borrower at the time of entry into the loan agreement. Evidence was required to establish that fact, if it were a fact. 51Mr Gyles submits that the present case is one (adopting the wording in Wardley) where the McDonalds were induced to enter into an agreement "which is, or proves to be, to [their] disadvantage" and where the disadvantageous character or effect of the agreement (including the payments made pursuant to that agreement) cannot be ascertained until a future date when the impact of the disadvantageous agreement "upon events as they unfold becomes known or apparent". On that basis it is submitted that it is arguable that no loss or damage accrued until August 2010 and the claim in negligence is not statute barred. 52Therefore, in relation to the negligence claim (and the analogous breach of fiduciary claim), while Mr Gyles accepts that the cause of action is complete at a time at which damage occurs he submits that proper regard to Wardley requires consideration as to whether the transaction is one that will involve benefits and burdens, such that at the time the transaction is entered into one does not know whether or not the venture is going to make money and that the Court should not deal with the limitation questions in this case on an interlocutory basis because they raise questions of fact. 53Insofar as Mr Curtin seeks to meet this argument by saying that there was a part of the loss or damage by the (mere) fact of entry into the mortgage and that therefore (despite the fact that other loss was being incurred and that other moneys were being spent) the damage became measurable as soon as the mortgage was entered (because there was a clog on the equity of redemption) Mr Gyles refers to Karedis Enterprises v Antoniou (1995) 59 FCR 35 (where the Federal Court considered a case which involved entry into a lease and a limitation defence was raised). Mr Gyles relies on what was said (at 40), where the Court referred to Wardley, noting that the question when loss or damage was sustained in the context of an indemnity induced by misleading and deceptive conduct was one of fact and that the High Court had made it clear in Wardley that in some cases the disadvantageous character or effect of the agreement entered into on the faith of a misrepresentation might not be ascertained until a future date. 54At 42, after reference to the loss being reasonably ascertainable, Burchett and Hill JJ said: The present is a case where the mere entry into the lease produced only a situation where the Antonious had the potential to suffer loss. That loss could only be calculated by reference to receipts or outgoings of the business over time. Certainly it could not be said at the time the lease was entered into that they had actually incurred loss or damage as distinct from potential or likely damage. 55Mr Gyles says that the same conclusion applies in the present case, namely that at the point in time that the McDonalds entered into the mortgage (and the various loan documents) and expended the money on the project there was only the potential for loss and that even after the May 2006 deed was entered into that remained the case (because though they thereby gave away their potential for profit, they had been told and believed that they would still be able to recover their loss when the property was sold). 56Mr Gyles submits that Karedis supports the proposition that, where a transaction can produce varying results, it is not the date of the entry into the transaction that is the relevant date for the purpose of the limitation period. He distinguishes the mortgage cases relied upon by Mr Grech (King v Permanent Custodians and Forster v Outred & Co (a firm) [1982] 2 All ER 753) on the basis that each of those involved a third party mortgage (noting the basis that in Permanent Custodians (at 42) Wardley was distinguished, being that the party giving the mortgage did not stand to gain from the transaction at all). 57Here, it is noted that the mortgage was only part of a broader investment. Thus, Mr Gyles distinguishes the above mortgage cases and submits that the present is a case falling within Wardley. Hence it is said to be arguably not until up until 2010 that the loss became reasonably ascertainable. In any event, it is said to be (and I agree) a factual question and a case for trial. Contract 58As to the breach of contract claim, it is said by Mr Curtin that this occurred, at the latest, by May 2004, more than 6 years prior to the commencement of the McDonald proceedings. 59Mr Gyles accepts that a cause of action in contract is complete when the breach occurs. He also accepts, for present purposes, that where, as here, the breach alleged is a failure to provide certain advice (namely that the partnership agreement should be documented and that the McDonalds should obtain independent legal advice in relation to the partnership agreement) a breach of such an obligation occurs at the time by which the advice ought to have been provided (referring to Larking v Great Western (Nepean) Gravel Ltd (In Liq) (1940) 64 CLR 221 at 236 and Hammond v Minister of Works (1992) 8 WAR 505). 60However, he submits that the time by which the advice should have been provided involves, in the present case, a fact specific inquiry about which there may well be debate. Hence it is submitted that the identification of a precise date is not a matter appropriate for summary dismissal or strike-out. 61In any event, he relies on the fact that the McDonalds have now pleaded, by way of reply, that the relevant limitation period is extended pursuant to s 55 of the Limitation Act. 62In their reply, filed by leave at the commencement of the present applications, the McDonalds deny the matters pleaded in [59] of Mr Grech's Defence (and [27] of Omneity's Defence) and say, further, that, if and to the extent that any cause of action were otherwise statute barred, Mr Grech and/or Omneity fraudulently concealed the cause of action within the meaning of s 55 of the Limitation Act 1969 (NSW). 63The particulars provided in the Reply of the allegation of fraudulent concealment raise the knowledge of the respective defendants (relevantly, here, Mr Grech) that it was a breach of duty to the McDonalds to fail to advise them that the Partnership Agreement should be documented prior to executing the Contract of Sale and the financial arrangements therefor, or at any time thereafter; or to advise then that they should receive independent legal advice in respect of the Partnership Agreement. Also particularised in this context is the failure of Mr Grech at any time to inform the McDonalds of his failure so to advise them of the above matters and Mr Grech's failure to inform them that this was a breach of duty actionable at the suit of the McDonalds. 64It is alleged that Mr Grech (in the circumstances pleaded at [70]-[71] and [75]-[76]) knew that the McDonalds had various causes of action against him but that, despite that knowledge (and despite his obligation to act in their best interests as their solicitor), Mr Grech did not inform the McDonalds of their causes of action or advise them to seek independent advice (for example, at the time of entry into the May 2006 Deed). In concealing the said causes of action in that manner, it is alleged that Mr Grech was conscious that what he was doing was wrong or had closed his eyes to his own lack of proper standards. (Pausing there, unlike the allegation as to breach of fiduciary duty by Mr Grech, which is said not to turn at least wholly, the solicitor/client retainer, the manner in which the allegation of fraudulent concealment seems to turn on there being an obligation by Mr Grech as solicitor to act in the McDonalds' best interests.) 65Reliance is placed by Mr Gyles on the interpretation accorded to s 55 by Mahoney ACJ in Seymour v Seymour (1996) 40 NSWLR 358: In my opinion, there must be in what is involved a consciousness that what is being done is wrong or that to take advantage of the relevant situation involves wrongdoing. At least, this is so in the generality of cases. (There is in this as in many things, the problem of dealing with the person who 'closes his eyes to wrong' or is so lacking in conscience that he is not conscious of his own lack of proper standards.) (my emphasis) 66Mr Gyles noted that this interpretation was approved by the High Court in Commonwealth v Cornwell (2007) 229 CLR 519 at [42] and applied recently in Langford v Reddy [2012] NSWSC 289 at [208] (per Sackar J). 67Mr Gyles submits that the matters alleged in the particulars to the Reply demonstrate an arguable case for extension of the limitation period under s 55 of the Limitation Act and that the ascertainment of the time at which the concealment was discovered or ought with reasonable diligence to have been discovered (from which time would run pursuant to s 55) is, again, a fact-sensitive matter not appropriate for resolution on a summary dismissal or strike-out basis. 68Mr Curtin submits that, in light of the particulars of breach, the proposed reply must fail on the basis that no relief is sought as to the failure to document the Partnership Agreement (and, further, that the McDonalds did in fact consult their family solicitor before execution of the final Contract of Sale, a submission which goes to the question whether any loss can ultimately be shown to have been suffered as a result of the alleged breach of contract). Alternatively, it is submitted that the particulars do not make out fraudulent concealment. 69On that issue, I am not satisfied that the matters particularised, if established, would not arguably make out a case of fraudulent concealment (so as to warrant summary dismissal of the contract claim at this point). Whether or not s 55 applies will depend on questions of fact, having regard to the knowledge of Mr Grech as to the existence of a potential cause of action against him and as to his knowledge or otherwise that a concealment on his part for the relevant period. (I accept that this is a question that should go to trial). Fiduciary Duty 70As to the fiduciary duty claim, it seems to be accepted that the same six year limitation period applies by analogy with the claims for breach of professional duty (whether in contract, tort, or both), by reference to s 23 of the Limitation Act, since the substance of the fiduciary duty claim is the same as the claim for breach of those other duties. Reliance was placed by Mr Curtin on Aussie Ideas Pty Ltd v Tunwind Pty Ltd [2006] NSWCA 286 per Handley JA at [22] - [24]. Mr Gyles referred in this regard to the discussion in Belan v Casey (2003) 57 NSWLR 670, at [146] and [149] per Campbell J, as his Honour then was. Therefore, the question whether the claim for breach of fiduciary duty in this case is time barred falls to be determined by reference to the same matters set out above in relation to the claim in negligence. Conclusion re issue (i) 71I am not satisfied that it is appropriate, in circumstances where the various limitation defences raise issues of fact, summarily to dismiss the claims against Mr Grech (or any of them) on the basis of the limitations defences. I accept, for example, that entry into the mortgage might be said to constitute sufficient measurable damage for the causes of action in negligence or for breach of fiduciary duty to have accrued at that stage. However, that is not beyond argument and a determination of that issue should be left to trial. (ii) Futility of proceedings 72The second basis on which the summary dismissal/strike-out applications are brought is the perceived weakness of the McDonalds' claims against Mr Grech. In this regard, Mr Curtin accepts that the test applicable on such an application requires there to be a high degree of certainty about the ultimate outcome of the proceedings. 73It is submitted by Mr Curtin that this test is satisfied on the basis that the allegations as to the existence of a contract of retainer with Mr Grech (as well as the allegations of breach of duty and causation) are either untenable on their face or, when considered against the evidence served to support them, must fail. 74As to the alternative claim for procuring a breach of duty by Omneity, reliance is placed by Mr Curtin on Law Society records that show that Omneity was not an incorporated legal practice at the relevant time (in effect for the proposition that this alternative claim has no foundation). (Omneity itself makes no strike out or summary dismissal application). Mr Gyles contends, to the contrary, that the claim in relation to Omneity is maintainable. He points to Law Society records that indicate that an incorporated legal practice Grech Partners Solicitors Pty Ltd (now Omneity Pty Ltd) engaged in legal practice from 20 October 2001 until 18 March 2003 and notes that throughout 2003 and 2004, the letterhead of the firm known as "Grech Partners, Solicitors and Barristers" described Mr Grech variously as Practice Chairman or Principal. The Law Society records are said also to indicate that from March 2003 to June 2008 Mr Grech practised as a sole practitioner with Grech Partners Solicitors (then becoming a solicitor/director of Grech Partners Pty Ltd). On that issue, bearing in mind it may involve an exploration of the circumstances in which Mr Grech carried on legal practice over a number of years, I cannot presently conclude that no cause of action is tenable on this claim. 75Insofar as the McDonalds seek declaratory and other relief in relation to the May 2006 Deed (relating to the cessation of their involvement in the alleged partnership), such Deed being alleged to have been entered into by the Grechs having taken an unfair advantage of the position of special disadvantage of the McDonalds and as a result of unconscionable conduct or undue influence by the Grechs over the McDonalds, Mr Curtin submits that (as no party seeks to enforce the Deed) the pleading is otiose. (He also contends that there is no evidence of special disadvantage, unconscionable conduct and undue influence vis-a-vis the Deed and the Partnership Agreement.) I address this briefly in due course but presently note simply that I am not satisfied that the lack of a likely profit on the Deed renders an application to set it aside for undue influence otiose. 76For the purposes of this application, it is accepted by Mr Curtin that the proper approach is to proceed on the basis that the pleadings and evidence of the McDonalds would be accepted. (a) Retainer 77The allegation at [12] is that there was a partly express and partly implied contract or retainer under which Mr Grech was to advise and act for the McDonalds (and/or the parties to the Partnership Agreement) "in respect of the proposed purchase and development" of the Blue Bay property 78Mr Curtin notes that the retainer so pleaded is not a retainer for advice in relation to the drafting of a partnership agreement (or in relation to the partnership as such) and submits that there is no evidence of any such retainer. He further notes that no breach of duty is alleged regarding the conveyancing retainer (ie, the retainer on the sale of the Blue Bay property, evident from the fact that Mr Grech's firm was named on the Contract for Sale as the solicitors acting for the purchaser) nor of any retainer concerning the 'development' of the property. Mr Curtin places weight on the fact that no complaint is made concerning the 'undocumented' terms of the partnership and no damage is alleged to have arisen from the fact that the Partnership Agreement was not in writing. 79Pausing there, to the extent that this submission focusses on the description of the retainer as being "in respect of the proposed purchase and development" of the property, I am by no means persuaded that such a retainer would not encompass the giving of advice as to how to document arrangements pursuant to which the purchase and development were to be undertaken (including, as necessary or appropriate, the structure through which that might be achieved - say through a joint venture or partnership or some other vehicle). Moreover, even if the retainer had been limited, say, simply to advising as a solicitor in relation to the conveyance itself and/or the legal aspects of the subsequent development of the property (such as the lodgement of a development application, for example), that would not necessarily preclude an argument that there was a duty on the part of the solicitor to advise the purchaser/developer as to risks associated with the purchase/development (even if that simply be that the purchaser/developer should obtain independent legal or other advice in relation to particular aspects of the matter). 80Mr Gyles submits that whether a retainer exists for the provision of legal or other professional services is to be judged objectively from the state of affairs between the parties, referring to the statement by Giles JA in Hendriks v McGeoch [2008] NSWCA 53 at [11] to the effect that the status of the parties, the relationship between them and the nature of the putative contract will bear upon whether a contract should be inferred to have been made. It is noted that factors which have been recognised as indicative of the existence of a retainer include the following:

acceptance by the solicitor of responsibility to prepare documents or do professional work without any indication that he cannot fully discharge his professional duties to the client (Pegrum v Fatharly (1996) 14 WAR 92 at 102, where it was said that in such a case there is a strong bias towards finding that the solicitor tacitly agrees to act and to undertake the usual professional responsibilities);
consultation by the alleged client with the solicitor or evidence of reliance by the alleged client on the solicitor (Pegrum at 102);
the fact that the solicitor has acted for the alleged clients on previous occasions (Hendriks at [12]);
the giving by the solicitor of the impression of acting in the alleged clients' interests (Hendriks at [12]);
payment of legal fees by the alleged clients (Pegrum at 6);
the undertaking by the solicitor of work which appears to be in the alleged clients' interests (IGA Distribution Pty Ltd v King & Taylor Pty Ltd and Anor [2002] VSC 440 at [234]), and/or which appears to be legal in nature and goes "beyond the provision of casual assistance" (Fleeton v Fitzgerald unreported, NSW Court of Appeal, 18 December 1998 per Beazley JA at 11);
the fact that the solicitor does not make clear that he or she is not acting for the alleged clients (Hendriks at [12]);
knowledge of the solicitor that the alleged clients are not represented by another solicitor (IGA at [234]);
knowledge of the solicitor that the alleged clients would be at risk of loss if their interests were not looked after (IGA at [234]);
the unlikelihood, given the alleged clients' inexperience or inability, that they "would undertake and complete the proposed transaction without the benefit of legal assistance" (Jeandin v Tzovaras [2011] NSWSC 1254 at [62]-[65]). 81In that regard, it is noted by Mr Gyles that the pleading particularises allegations as to the agreement of the McDonalds to pay half of the costs of the development including legal costs ((ii)(D)) and that Mr Grech invoiced the McDonalds for legal work in respect of the Blue Bay property and as to payment of the costs as invoiced ((ii)(F)). 82Mr Gyles submits (and I agree) that, to the extent that there is doubt as to the existence, or specific terms, of the alleged retainer, that issue should go to trial (noting the lack of any evidence on the present application by Mr Grech to make clear with whom there was the retainer or as to the relevant fee disclosure/agreement). 83In any event, Mr Gyles submits that, on an application such as this, Mr Grech should not benefit from a vague retainer and that, if there is doubt about either the identity of the relevant entity or as to the extent of the retainer, then that is a more persuasive reason for the case to go to trial or for that question to be reviewed in light of all of the facts as they then are. 84It is further submitted that an implied retainer can be inferred from the pleaded facts and that this is supported by the evidence filed for the McDonalds, Mr Gyles pointing to the particularisation of the facts giving rise to the retainer (and evidence filed in support thereof) as including the billing of the McDonalds by Mr Grech for his work in respect of the purchase of the property (and payment thereof); conversations in which Mr Grech held himself out to the McDonalds as having the necessary legal expertise and experience to undertake the development project; the negotiation by Mr Grech of the contract for sale of the property with the vendor; and correspondence in which Mr Grech advised the McDonalds about the progress of the purchase and advised them to take various steps for that purpose. 85In any event, Mr Gyles notes that a duty of care in relevantly similar terms can arise irrespective of the existence or otherwise of a contract (referring to Hendriks at [69]). 86Reliance is placed on the duty of a solicitor to act with skill and care in the discharge of the retainer, noting that this may include (in circumstances where the solicitor during the execution of his or her retainer is aware that the client's interests are endangered or are at risk unless further steps beyond the limits of the retainer are carried out) an obligation to speak in order to bring to the attention of the client the aspect of concern and to advise of the need for further advice either from the solicitor or from a third party (David v David [2009] NSWCA 8 at [76]). It is noted that such an obligation arises in particular in circumstances where a solicitor is personally involved in a transaction in respect of which he is acting for a client. Reference is made to O'Reilly v Law Society of New South Wales (1988) 24 NSWLR 204 at 219, where Clarke JA said: While there may be occasions on which the solicitor could act for customers of the commercial operation, the circumstances in which he could properly do so would require the exercise of a great deal of care on his or her part and would almost certainly involve that the solicitor make full disclosure of all relevant known facts and require that the client take independent advice. I should not be taken to be saying that there is an absolute prohibition but I wish to emphasise that it should be recognised that whenever a solicitor, either personally or through his company, seeks to deal with his own client then the potential for conflict is so great that it will only be in rare cases that such a dealing could be acceptable. 87Mr Gyles submits that in the present case (where Mr Grech and members of his family were personally involved in the development project), it is at least reasonably arguable that Mr Grech was under a duty to advise the McDonalds that the partnership agreement between them should be documented and that they should obtain independent legal advice. I agree. 88In this regard, I do not consider that the scope of the pleaded retainer necessarily precludes a duty of care arising of the kind alleged to have arisen in the present case. 89As to the failure to advise the McDonalds to seek independent legal advice, Mr Curtin relies on the fact that the McDonalds plead that they consulted both a solicitor (Mr Richardson, the fifth defendant) and an accountant (the third and fourth defendants) prior to the execution of the First and Second Facility Agreements and the mortgages, as demonstrating that there can be no damage suffered as a result of this alleged breach. 90Mr Curtin points out that Mr Richardson admits (both in his defence and in an affidavit already served in the proceedings) that he undertook some legal work on behalf of the McDonalds between 17 August 2004 and 7 September 2004. He notes that the Facility Agreements show that Mr Richardson witnessed the McDonalds' signatures. Thus, it is said that the McDonalds did attend upon an independent solicitor and the common law causation case (a "no transaction" case) must fail. 91Mr McDonald, in his affidavit of 18 May ([23]) says that the first time that he realised he was required to mortgage his own property in relation to the development was only by about mid August 2004 (by which time he had spent about $360,000) and he says that he believed he had no choice having already agreed to purchase the property and having already made substantial payments towards the purchase and development. Mr Gyles submits that Mr McDonald should have been advised before he had paid $360,000; before he had become a director and shareholder of Werrina Corporation; and before that company had entered into a contract to purchase the land, that he needed independent advice in relation to the transaction. 92Mr Gyles concedes that there is some evidence from Mr Richardson to the effect that he raised the inequality of contributions with the McDonalds but submits that at the summary disposal stage it cannot be assumed that that evidence will ultimately be accepted. (Mr Gyles also pointed to evidence that suggested that Mr Richardson first became involved on 17 August 2004 (from the fact that, on 18 August 2004, Mr Grech's son sent him an email with the front page of the contract and the company search referring to a conversation the day before) and submits that this is consistent with Mr Richardson not previously having been consulted prior to the purchase of the property. 93Mr Gyles noted that there is evidence consistent with a belief by the Grechs that the McDonalds would speak to Mr Richardson but that the McDonalds had not done so. (Mr McDonald's evidence is that he did not see Mr Richardson at the time and that he was not advised to do so.) Mr Gyles submits that the evidence shows that the dealings with Mr Richardson took place on the basis that the purchase was something to which the McDonalds were already committed to and that what Mr Richardson was concerned about was the mechanism for effecting the transactions, there being issue about the purchaser which had been identified on the contract (which ultimately changed because of concerns from a tax point of view as to the capacity to obtain a capital gains tax exemption) not an issue as to how the arrangements between the respective parties were to proceed. 94Therefore, although the revised contract was signed by the McDonalds on 1 September 2004 and Mr Richardson had witnessed the execution of the documents, Mr Gyles submits that the fact that the McDonalds consulted Mr Richardson in August 2004 (or the fact that Mr Richardson provided advice in relation to the contract of sale at that time) does not detract from the proposition that Mr Grech also owed the pleaded duties (including duties owed prior to Mr Richardson's involvement in August 2004, before substantial funds had been invested) and does not relieve Mr Grech of any breach of duty or the loss flowing therefrom. 95As noted above, when dealing with the alleged breaches of contract, tort and fiduciary obligations, what Mr Curtin emphasises is that the retainer pleaded in [12] was a retainer to act for the McDonalds "in respect of the proposed purchase and development" (not in respect of the partnership agreement as such) and that the only two breaches alleged are the failure to advise that the partnership agreement should be documented or that they should obtain independent legal advice. He emphasises that there is no retainer pleaded concerning legal advice as to the entry into or terms of the partnership agreement; no complaint about the terms of the partnership agreement; and no complaint that they were not advised that it was not an equal partnership. Rather, the complaint is said to be simply that it was not in writing. Mr Curtin submits that nowhere in the pleading or in the evidence is there any complaint or allegation that an oral partnership agreement caused any loss. Weight is placed on the fact that there is no allegation that it was part of Mr Grech's retainer or duty to give explanations as to the matters referred to in [42]. 96In any event, what is said is that the McDonalds in fact did go to their family solicitor (Mr Richardson) and to their accountant. Mr Curtin's submission is that where the McDonalds allege that there was a breach of duty in the failure to tell them to get independent advice but the evidence is that they did in fact go to a person who was able to give them independent advice no loss can be shown to have been suffered as a result of the alleged breach. In other words, there is nothing to show that the McDonalds would have done something other than what they in fact did, had they been advised to seek independent legal advice. 97Ultimately, it seems to me that there may well be a question as to whether the McDonalds can establish that, had they been advised by Mr Grech to obtain advice, they would have done anything other than go to Mr Richardson and/or whether he would have given any different advice at an earlier time had they done so. However, while it seems to me that there may be difficulties in this regard, I am not satisfied that it can be said that such a claim is hopeless or bound to fail (nor that there is no reasonable basis on which to argue such a claim). 98On this issue, I am not satisfied on the material before me that the allegation of retainer (or causes of action based on its existence) are so untenable as to render the claim futile. (b) Breach of duty/loss 99As noted above, Mr Curtin submits that where there is no complaint as to the terms of the oral partnership agreement, no loss can be shown to have been suffered from a failure to advise that it should have been documented. As to the allegation of failure to advise them to seek the advice of an independent solicitor, Mr Curtin notes that the fact is that they did. 100The breaches of duty alleged are twofold: namely that Mr Grech did not at any time advise the McDonalds that the partnership agreement between them should be documented and did not advise them that they should seek independent legal advice in respect of the partnership agreement. (It was submitted by Mr Gyles that there was also a breach in failing to inform them that a first mortgage over the family home and a personal guarantee would be required (thereby putting all of their assets at risk), though this does not appear to be separately pleaded as a breach.) 101The causal nexus between the alleged breach and the alleged loss is that it is said that had the partnership agreement between the McDonalds and the Grechs been documented, or had the McDonalds received prudent independent legal advice about the partnership agreement, this would have given rise at an early stage to: a proper explanation of the contributions to be made by the parties, the proposed security arrangements (including that the McDonalds would be required to mortgage their home and the Grechs would not); a proper explanation of the nature of the Second Facility Agreement, including the obligation to provide a personal guarantee thereunder; and a consideration and investigation of the financial strengths of the various guarantors and the value of the various securities which were to be provided. 102In this regard, Mr Gyles points to the apparent disparity in the cash contributions of the parties (on the assumption that the client equity contributions to the project were recorded in the Second Facility Agreement as being $2.95m) as calling for a need for advice. He notes that the McDonalds contributed $2.4 million by way of the First Facility Agreement secured by way of mortgage of their home, on which loan they paid interest, and cash contributions of about $360,000 (part of which was repaid to them following settlement). Mr Gyles also points to an apparent disparity in the securities offered by the parties, in that the Grechs did not provide any real property mortgage by way of security. 103It is said that the McDonalds were not made aware that they would be required to mortgage their home or to provide personal guarantees until August 2004 (after they had already committed substantial funds to the project, an option of some form had been exercised, and the initial contract of sale had been executed in May 2004). 104Mr Gyles submits that the evidence suggests that no explanation was given to the McDonalds nor any investigation undertaken as to the nature or adequacy of the securities provided by Mr Grech or members of his family or associated companies and that the nature of the Second Facility Agreement (and the security arrangements thereunder) were not properly explained to the McDonalds (including there being no explanation that Mr McDonald might be liable to the lender as guarantor for the full amount of the loan, including without the lender first selling the development property). Mr Gyles points to the evidence that Mr Grech gave assurances that the principal and interest on the Second Facility Agreement would not become repayable until the development property was completed. 105It is submitted that had those matters been exposed (or exposed at an earlier stage), it is reasonable to conclude the McDonalds would not have entered into the relevant transactions (or at least not in the form that those transactions were entered), reference being made to Crittenden v Freehill Hollingdale and Page (Unreported, Supreme Court of Victoria, Eames J, 19 August 1994). 106As to loss, the evidence of loss arising out of the project is said to include the amounts contributed by the McDonalds by way of contributions to the deposit and other outgoings, interest payments, and their liabilities under the securities for the respective facilities (including Mr McDonald's liability as guarantor of the Bankwest loan the subject of the Bankwest Proceedings). 107Mr Gyles submits that the first thing that Mr McDonald should have been advised to do was to have the partnership agreement documented and that this was a very important matter. In essence, what is said is that had such advice been given then light would have been shed on the substantial imbalance in terms of the contributions being made to this venture (since Mr McDonald was the only one putting his property at risk in relation to the transaction). It is also submitted that had the partnership agreement been properly formulated in a written way, and had he been given independent advice about the transactions, Mr McDonald would have appreciated that he was providing a personal guarantee. 108The McDonalds' case thus turns on whether, as a matter of fact, if Mr Grech had given such advice (ie to document the partnership agreement in writing or to obtain independent legal advice) the alleged loss would not have arisen. Mr McDonald says that had he been made aware of matters such as the inequality of contributions between the McDonalds and the Grechs, he would not have gone ahead. Mr Gyles submits that this is a question of fact which needs to go to trial; it is not a question which can or should be disposed of summarily. 109I consider that there is a sufficiently arguable case on the pleadings and evidence before me for this to go to trial (c) Breach of fiduciary duty 110Mr Curtin submits that insofar as the same breaches are pleaded on the fiduciary duty claim as for the common law breach claim, it follows that the fiduciary duty case would also fail. (He notes that there is, in terms, a further breach pleaded that Mr Grech put himself into a position to profit and exposed the McDonalds to expense, but maintains that that is not a proper pleading of breach of fiduciary duty.) 111In this regard, I note that the allegation in para [46] is that "by reason of the matters alleged in [43]-[45] inclusive", Mr Grech owed the McDonalds a fiduciary obligation to advise them in and about the partnership and the property development as if he were their solicitor and retained as such. As I read this pleading (and this was confirmed by Mr Gyles), the existence of the fiduciary obligation is predicated upon the matters in those three preceding paragraphs. 112Relevantly, those paragraphs allege, first, the knowledge of Mr Grech as to the McDonalds' inexperience and lack of sophistication in matters of business and property development and that they did not have a solicitor acting for them at the time ([43]); second, that the McDonalds knew Mr Grech to be a solicitor and that he had informed them he was experienced in property development ([44]); and, third, that (to the knowledge of Mr Grech) the McDonalds reposed trust and confidence in him and relied upon him to protect their interests in the partnership and property development. 113Thus, as I read the pleading, although what is alleged is that fiduciary obligations akin to those owed by a solicitor under a contract of retainer were owed to the McDonalds, the basis on which it is alleged that such obligations were owed is not a solicitor/client retainer as such but, rather, the reposing of trust and confidence in Mr Grech in the circumstances pleaded in [43] -[45]. (Therefore, the fact that (as made clear in Beach Petroleum v Kennedy NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1; (1999) NSWCA 408 to which Mr Curtin referred) not everything a solicitor does is of a fiduciary character does not address the question whether, in the circumstances of this case, there was a fiduciary obligation owed by Mr Grech irrespective of whether there was a contract of retainer with him in relation to the project.) 114Mr Gyles confirmed that as to the cause of action whereby relief is sought in respect of the breach of fiduciary duty, the fiduciary duty is partly (but not solely) based on Mr Grech's role (and his previous role) as solicitor acting for the plaintiffs (that being one of the relevant facts which support the alleged fiduciary duty). Mr Gyles points also to the evidence of Mr McDonald as to the conversations with Mr Grech (who it is said wore a number of "hats" in the course of the project) talking about them together in a joint venture engaging in a profit-making venture in respect of the development; about his firm incurring legal costs in relation to that development; and giving advice about the prospects of the success of the development (as an experienced property investor). Mr Gyles submits that this supports an allegation that a fiduciary obligation exists. 115In other words this is an allegation not that there was a fiduciary duty simply because there was a retainer between solicitor and client and therefore the fiduciary obligation arises in the solicitor/client retainer context but this is a retainer that arises because of the relationship, because of the repose of trust and confidence in Mr Grech, part of that being confidence in him because he was a solicitor but not arising because of the fact that he was a solicitor and there was a retainer. 116Mason, Brennan and Deane JJ in United Dominions Corporation Limited v Brian Pty Limited (1985) 157 CLR 1 (at 11-12) said: A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them... Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation. 117The reference to paras [43]-[45], in the allegation in [46] seem to me to amount to an allegation that there was a relationship of trust and confidence or "confidential relationship" in the sense referred to in Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41. The critical feature of a fiduciary relationship as recognised in Hospital Products was the undertaking or agreement to act on behalf of or in the best interests of another person in the exercise of a power or discretion which would affect in a legal or practical sense the interests of the other person. 118Lord Browne-Wilkinson in Henderson v Merrett Syndicates Limited [1995] 2 AC 145 at 206 that: The existence of a contract does not exclude the co-existence of concurrent fiduciary duties (indeed, the contract may well be their source) ... 119In Michael Wilson & Partners Limited v Robert Colin Nicholls [2009] NSWSC 721, Einstein J referred to the kind of fiduciary relationship that "owes its existence to the relationship of trust and confidence that exists between the parties so as to attract a reasonable expectation of loyalty" (citing Gibson Motorsport Merchandise Pty Limited v Forbes (2006) 149 FCR 569 at 574-575, per Finn J; Rawley Pty Limited v Bell (No 2) (2007) 61 ACSR 648 at 710-711 [261]). 120Whether such a fiduciary obligation has arisen is a question of fact and may be affected by the contractual relationship (if any) between the parties (see Breen v Williams (1996) 186 CLR 71 at 94-5 per Dawson and Toohey JJ). An obligation to act in the best interests of another was seen to be the essence of a fiduciary relationship in Norbeg v Wynrib [1992] 2 SCR 226 at 272 approved in Pilmer v Duke Group Limited (in Liq) (2001) 207 CLR 165 at 197. Whether such an obligation would be said to have arisen in a venture where both parties were presumably acting in their respective interests is another question that may give rise to difficulty on the claim in [46], but it cannot, in my view, be said to be unarguable that it did so arise. 121The pleading goes on to alleged that in breach of the fiduciary obligation pleaded in [46] "and preferring the interests of himself and [Mrs Grech] to those of the plaintiffs", Mr Grech failed to advise them as to the documentation of the partnership agreement and that they should receive independent legal advice in respect of the partnership agreement; and in [48] that he put himself in a position to profit by the purchase, development and sale of the property and exposed the plaintiffs to expense arising from the contract documents. 122Mr Curtin submitted that the allegation in [48] was not, in substance, an allegation of breach but, rather, an allegation that there was a fiduciary obligation (not to profit from the project at the expense of the plaintiffs). I consider that if there was a fiduciary obligation to avoid a conflict of interest, then [48] pleads conduct that would amount to a breach of that obligation. 123It is submitted that there was a classic conflict of interest in Mr Grech's position because he was an investor in the business and that what Mr Grech at a minimum should have done is he should have said to the McDonalds (whether or not it was part of his retainer) words to the effect "Look, you need to get some independent advice about this, I am involved in this transaction and I am not advising you about it and you should get advice". The fact that he did not do so is said in essence to be the kernel of the case against him (irrespective of whether the retainer was a retainer to advise on the partnership agreement as such). 124I am satisfied that the pleading discloses an arguable case in this regard.

McDonald v Grech; Bank of Western Australia Ltd v McDonald

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Cases Cited (45)

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