21.3 Exercise of Vendor's Option to Purchase
(a) The Vendor can exercise its option to purchase the Sale Business by giving notice to the Purchaser within 14 days after the date of service of the Notice of Sale.
(b) If the Vendor exercises its option to purchase the Sale Business then the Purchaser must sell the Sale Business to the Vendor or its nominee and the Vendor must purchase the Sale Business or procure that its nominee purchases the Sale Business on the terms set out in the Notice of Sale.
21.4 Sale Business not Purchased by Vendor
(a) Subject to this clause 21.4, if the Sale Business is not purchased by the Vendor or its nominee within 14 days after the date of service of the Notice of Sale, the Purchaser can sell the Sale Business to a third party.
(b) The Purchaser must not sell the Sale Business:
(i) for a purchase price lower than the price specified in the Notice of Sale by 10% or more; or
(ii) on terms substantially more beneficial to the buyer than those set out in the Notice of Sale.
(c) The Purchaser must give a copy of any agreement with a third party for the sale of the Sale Business to the Vendor within 3 days after execution of the agreement.
(d) If the Purchaser does not sell the Sale Business to a third party within 90 days of the date of service of the Notice of Sale it cannot sell the Sale Business without complying again with this clause.
21.5 Permitted Disposal
The Purchaser can grant a security interest to its financier with the prior written consent of the Vendor such consent not to be unreasonably withheld."
6 The second agreement was a supply agreement which required the Hourigans to purchase the bulk of their supplies from Metcash for three years from 27 October 1999 and then until one party gave the other at least three months' notice in writing that the agreement would terminate on a particular date. By deed of indemnity the directors guaranteed the company's obligation.
7 At all material times prior to 2002, the freeholder of the shopping centre was KLVC Pty Ltd. It granted a ten year lease to a Metcash subsidiary which terminated on 1 May 2006 though there was a ten year option. The lease was transferred to the first defendant by registered dealing 6307602H in October 1999.
8 The last relevant document to which I need refer is a deed of assignment of lease, the parties to which were KLVC, the Metcash subsidiary, the first defendant and the second to fourth defendants as guarantors.
9 The deed of assignment contained the following unusual clause 7:
"The Lessor [ie KLVC] covenants with the Assignor [ie Metcash] that it will, during the remainder of the term of the Lease, any options and periods of holding over:
(a) obtain the Assignor's consent, which consent cannot be unreasonably withheld, before the Lessor consents to any future assignment, sublease or variation of the Lease …".
10 During the hearing there were a number of attempts by the cross claimants to expand the case by alleging a default in the solicitor in not bringing to attention the provisions of the deed of assignment which required the lessor to consent to any further assignment of the lease.
11 These were successfully resisted by the cross defendant. However, in the end Mr Dubler said that the amendments really went no further than the original document at which time I said that there was accordingly no need to amend. Mr Dubler's riposte to that was that he did not mind that provided that was the way in which I read the cross claim. I said I would read the cross claim according to its natural meaning. In the end, the only reference to the deed of assignment was part of the Fair Trading case referred to in 30A(c) of the cross claim.
12 I do not consider that the reference to the deed of assignment takes the case any further than the reference to the pre-emption clause in the deed of asset sale. Although I do not consider that a fair reading of the cross claim would bring in reference to the deed of assignment, even if it did, the claims in contractual and tortious negligence would fail for the same reason as they failed with the deed of asset sale.
13 Turning to the amended second cross claim, the Hourigans say that on or about 4 June 1999, Mr Farquhar was retained to act for the first, second, third and fourth defendants in respect of the proposed purchase of the supermarket and to advise the Hourigans in respect thereto. This is called "the first retainer" in the amended second cross claim. It is alleged that at no time after exchange of the purchase agreement did Mr Farquhar ever provide a copy of that agreement to any of the Hourigans or give any advice to them regarding the manner in which they should or might ensure that the existence of the pre-emptive right was not overlooked on any future sale of the business. It is also alleged that Mr Farquhar should have kept an adequate record to ensure that if he was instructed to act on any future sale, he did not overlook the existence of the pre-emptive right.
14 The cross claim then alleges that on about 18 June 2002, Mr Farquhar was again retained to act for the Hourigans as their solicitor in respect of the proposed sale of the business. This is called "the second retainer". It is then alleged that Mr Farquhar "caused, permitted or suffered Hourigan to enter into illegally binding written heads of agreement by Bi-Lo and others … without any notice having first been given by Hourigan IGA to Metcash pursuant to the pre-emptive right." A similar allegation is made with respect to the formal sale agreement made on 29 November 2002. It is alleged that Mr Farquhar was negligent and/or in breach of his obligations under the Fair Trading Act in failing to give any adequate advice about the steps that ought to be taken to ensure that the pre-emptive right was complied with and in failing to consult his records and give any necessary advice.
15 There was no written retainer of the solicitor and there was no costs agreement ever signed on either occasion.
16 Mr Farquhar says that on about 4 June 1999 he held a conference with John and Mark Hourigan. He made notes of that conference which are in evidence. Shortly afterwards he received from Metcash the draft documents to effect the sale of the supermarket. He said on 21 June 1999 he spent two and a half hours in conference with John and Mark Hourigan and that copies of the documents supplied were provided to John and Mark Hourigan at that meeting. There was a debate as to clause 21 and the Hourigans said it should be deleted because it was not part of the deal as they understood it. There was a further conference with John and Mark Hourigan of one and a half hours on 22 July.
17 At a meeting at Metcash Ultimo on 2 August 1999 at which Mr Farquhar was in attendance with both Mark and John Hourigan and a solicitor for Metcash, Metcash made it quite clear that it would not delete clause 21.
18 There was another meeting at Mr Farquhar's office on 20 August 1999 to discuss the revised documents. Mr Farquhar says that copies of the documents were provided by him to the Hourigans for the purpose of that meeting. He recollects that this was the only meeting that was also attended by Peter Hourigan. Peter Hourigan was an accountant practising in Darwin who visited Sydney rarely.
19 The finance from the National Australia Bank was approved in September 1999 and the documents were exchanged in October.
20 I will pass over minor correspondence and telephone calls. The next significant matter that Mr Farquhar recalls is that he had no further contact with the Hourigans between 5 November 1999 and 27 January 2000 when there was a problem with respect to an enterprise agreement. He says that on 28 January 2000 he forwarded a copy of page 16 of the agreement for the sale of business to Peter Hourigan and requested a copy of the enterprise agreement, but received no response.
21 Mr Farquhar was next contacted by John Hourigan on about 11 January 2002, when John Hourigan told him that "We are looking at a possible purchase of the Umina Shopping Village". There was discussion as to purchase of the freehold of the whole Centre for some months. Mr Farquhar says on 19 April he was telephoned by Mark Hourigan who said that Coles was interested in buying Umina. Mr Hourigan says this was the first time he was made aware of the Coles' interest.
22 By e-mail bearing date 29 May 2002, Peter Hourigan advised Mr Farquhar that "Coles have in principle agreed to purchase the Umina business and assuming we can close the deal to acquire the Centre lease back from us". Mr Farquhar says that at this stage, whilst he was aware that the Hourigans were pursuing discussions, at no stage was he retained to assist them in that process or to submit legal documents.
23 On 13 June 2002, John and Mark Hourigan attended Mr Farquhar's office and provided him with a copy of a draft indicative offer from Bi-Lo. This was discussed, John Hourigan however said, "We have not agreed on price and we are not happy about the rental offered. Peter is following this up".
24 Somewhere in June/July 2002, Mr Farquhar remembers receiving a telephone call from either John or Mark Hourigan who said, "Take it slowly Tony, nothing is final yet". He then remembers receiving an e-mail of 11 July 2002 from Freehills Melbourne attaching a draft asset sale agreement, agreement for lease, and lease which he forwarded to both John and Peter Hourigan.
25 On 21 August 2002, there was a meeting with John, Betty, Peter and Mark Hourigan at Baulkham Hills, which lasted three and a half hours. During the meeting Mark Hourigan said, "We need to give Metcash notice under the supply agreement". Mr Farquhar said, "Yes, that's right you must give three months' notice". He recalls having at the meeting copies of the existing supply agreement, one for himself and one for the Hourigans. He did not have a copy of a sale of business agreement. The only copy of that which Mr Farquhar possessed was in the acquisition file which had been closed and was archived in his office.
26 There is no necessity to deal with the rest of the meetings between Mr Farquhar and the Hourigans as detailed in Mr Farquhar's affidavit. The bottom line is that documents were signed selling the business to a Coles subsidiary and that no-one directed their minds to the pre-emptive rights of Metcash in clause 21 of the 1999 sale of assets agreement.
27 The affidavits filed by the Messrs Hourigan take issue with some parts of Mr Farquhar's affidavit. However, the only significant parts are who was the client and whether the Hourigans ever had any copy documents.
28 As to the first issue, on the pleadings it was alleged, in respect of the first retainer, that Mr Farquhar was retained to act for Hourigan which was defined as "collectively the first, second, third and fourth defendants …". The defence was that this was admitted, though the defendant denied that the paragraph fully or accurately described the retainer. Likewise, paragraph 21 alleged that on or about 18 June 2002 Mr Farquhar was retained to act for Hourigan as defined and the defence was that this is admitted "save that he says his retainer to advise in relation to the proposed sale was restricted to those matters where his specific advice was sought".
29 The evidence disclosed that each of the Hourigans thought that Mr Farquhar was retained to act for each of them. In cross examination Mr Farquhar said, "I think my client was the company entity." He said at 78, "Formally I think my client was Hourigan's IGA Umina". Mr Dubler for the Hourigans then put:
"Q. Now do you agree with the proposition that you were advising Peter Hourigan, Mark Hourigan and Jack Hourigan as directors in respect of the purchase of the Umina supermarket?
A. Yes.
Q. And do you agree that that advice was in respect of any obligations those three people may have arising from the purchase of the Umina supermarket?
A. Broadly, yes.
Q. Do you agree that you regarded yourself as under an obligation to provide them legal advice about those matters?
A. Yes."
30 The Hourigans sue, (a) in contract; (b) in tort; and (c) under the Fair Trading Act.
31 So far as the count in contract is concerned, it is not at all clear what the retainer was, and indeed, with whom the contract was made. For the reasons which were given in Macindoe v Parbery (1994) 6 BPR 13,483, 13,484-5, Kirby P said that he rejected the argument that a solicitor's:
"obligation extended no further than to prepare the documents for the sale of the business and to explain to the clients the legal effect of the various clauses of the documents. In modern circumstances, a solicitor's duty of care to a client such as the appellant is not so confined. One of the reasons for the expansion of the solicitor's duty of care is the acceptance, in Australia at least, that a solicitor is liable to a client not only in contract (as was long the case … ) but also in the tort of negligence . …
"However, this extension of the solicitor's duty of care to the client - beyond the strict confines of the contract of retainer narrowly construed - still has its boundaries. The solicitor is not (at least ordinarily), by reason of a retainer, converted into a general investment adviser for the client. Nor is the solicitor deemed by the law to be imbued with perfect foresight. He or she is not required to foresee every conceivable business risk and to alert the client against them. Certainly, the solicitor's duty goes beyond the obligation to explain the usual perils. It will embrace, as well, the duty to explain unusual risks which are reasonably foreseeable and which the client should weigh."
32 Macindoe v Parbery was a case where the solicitor was acting for the purchaser of a boat and sailboard hire business which was dependent upon the continuation of a licence granted by the local council. The Court of Appeal, consisting of Kirby P, Priestley JA and myself, held that a solicitor was not liable in negligence for failing to make enquiries as to whether it was likely or not that the local council would renew the annual licence, the existence of which was fundamental to the value of the business being purchased by the client. However, in that case I reviewed a number of previous decisions as to the scope of a solicitor's obligation to the client in the absence of clear words in the contract of retainer.
33 Most of the cases digested were cases of solicitors acting for purchasers who were alerted to there being an unusual aspect to do with the vendor's title. I said at 13,493:
"There is no lack of authority for the proposition that the retainer of a solicitor for the purchaser on the purchase of a business ordinarily extends beyond mere documentation and includes the duty to warn the purchaser of anything that is unusual and anything that may affect the purchaser obtaining the benefit of the contract which he or she discloses to the solicitor is sought to be obtained."