Contract for sale of land - Construction - Whether defendants ready willing and able to settle or in breach - Whether agreement to substitute purchaser - Whether vendors estopped from denying promise - Whether valid termination of contract - Turns on own facts

Solicitor and client - Scope and terms of contractual, tortious and fiduciary duties - Whether breach of duty to exercise reasonable care and skill - Whether principles of causation and remoteness apply to breach of equitable duty - Whether conflict of interest - Turns on own facts

Legal Practitioners Act 1893 (WA), s 58W

Supreme Court Act 1935 (WA)

Transfer of Land Act 1893 (WA), s 68

1 The plaintiffs' claim from the defendants damages for breaches of agreements relating to the sale and purchase of land. The defendants were the registered proprietors of land at 254 Hamilton Road, Spearwood ("Lochel land"). The first-named plaintiff, Olympic Holdings Pty Ltd ("Olympic") and Frisquet Pty Ltd were the registered proprietors of Lot 2, Caravel Way, Mandurah ("Mandurah land").

2 By written contracts dated 26 April 1996 the defendants sold the Lochel land to Olympic for a purchase price of $640,000 ("Olympic Contract") and Olympic and Frisquet sold the Mandurah land to the defendants for a purchase price of $390,000 ("Mandurah Contract"). Both contracts were on a standard form offer and acceptance incorporating the 1994 Joint Form of General Conditions of the Sale of Land ("General Conditions").

3 At the time of entry into the Olympic Contract the defendants were parties to a development agreement with a property developer, Coburg Nominees Pty Ltd trading as Urban Focus ("Urban Focus") and a number of owners of adjacent land ("Owners Deed"). It was a term of the Owners Deed that any offer by the defendants to sell the Lochel land be subject to a condition that the purchaser enter into a deed of covenant with Urban Focus ("Deed of Covenant") agreeing to be bound by, inter alia, the Owners Deed. Initially Olympic refused to enter into a Deed of Covenant. After entering into the Olympic Contract the defendants provided to Urban Focus an executed transfer of the Lochel land. In June and July 1996 Urban Focus registered absolute caveats against the title to the Lochel land.

4 The plaintiffs claim the defendants promised, alternatively represented, that provided the second-named plaintiff Bondgate Pty Ltd ("Bondgate") was able to settle or had the finance to settle, the Olympic Contract and the Mandurah Contract would be cancelled and the defendants would execute a contract whereby they would sell the Lochel land to Bondgate for a purchase price of $600,000 (a reduction of $40,000) but otherwise on the same terms and conditions as the Olympic Contract ("Bondgate Contract") and enter into a new contract for the sale to the defendants of the Mandurah land on the same terms and conditions as the Mandurah Contract, save for the purchase price which was also reduced by $40,000 to $350,000 ("amended Mandurah Contract"). Bondgate and Olympic were associated companies represented by their common director, Mr Peter Bacich.

5 Thereafter Bondgate negotiated with Urban Focus for the removal of the caveats. It reached an agreement with Urban Focus as to the basis on which the Urban Focus caveats would be removed to enable Bondgate to settle the purchase of the Lochel land. However, Bondgate's financiers were unhappy about the situation and withdrew finance approval for Bondgate's purchase of the Lochel land. Bondgate then sought and eventually obtained alternative finance approval which it received by late October 1996. In the meantime, on 13 September 1996 the defendants issued a default notice stating that settlement of the Olympic Contract was due on 12 July 1996, that in breach of the Olympic Contract Olympic had failed to settle and gave notice that unless Olympic effected settlement within 15 days of the service of the notice, the defendants may exercise their rights and remedies under the Olympic Contract including termination thereof ("September default notice"). The notice period expired at the end of September 1996.

6 After the expiry of the notice period but before termination of the Olympic Contract the defendants entered into a contract to sell the Lochel land to Smart Investments Pty Ltd ("Smart Investments Contract"). By letter dated 4 November 1996 the defendants, by their solicitor the third party, terminated the Olympic Contract.

7 All parties identified the central issue in the action as being whether the defendants validly terminated the Olympic Contract. A number of other issues, legal and factual, have to be determined in order to answer that question. Those issues include whether:

(a) the Olympic Contract was conditional on Olympic entering into the Owners Deed;

(b) there was an agreement with the defendants or conduct preventing the defendants from denying an agreement to substitute the Olympic Contract and the Mandurah Contract with the Bondgate Contract and the amended Mandurah Contract and if so, with whom and on what terms;

(c) the defendants were in default or alternatively not ready, willing and able to settle at the date of issue of the September Default Notice or the due date for performance or on the date of termination and if so, the consequences thereof;

(d) the plaintiffs complied with the September default notice and, if not, whether they were prevented from doing so by the defendants;

(e) the defendants repudiated the Olympic Contract by agreeing to sell the Lochel land to Smart Investments.

8 The defendants' counterclaim against Olympic for damages for breach of the Olympic Contract. The outcome in the action determines the outcome in the counterclaim.

9 The defendants also claim against the third party, Mr Thorpe, for an indemnity and damages for breach of contract, breach of fiduciary duty and negligence. The usual third party order was made giving Mr Thorpe liberty to appear and take part in the trial of the action and to be bound by the result.

10 The action and counterclaim are to be decided primarily on the contemporaneous documents about which there is no dispute. It is to the facts established by the documents that I go to first which will facilitate a better understanding of the issues and pleadings. It will be necessary in due course to go to the pleadings because there is some dispute as to their scope.

11 The Olympic Contract is dated 26 April 1996. It was not stamped until 6 August 1997. Although the purchaser is noted as Olympic "and/or Nominee", there is no suggestion that Bondgate was entitled to be substituted as Olympic's nominee.

12 The Olympic Contract was not conditional on finance. However, it contained a number of special conditions, three of which are relevant to this case. Firstly, the Olympic Contract was subject to the satisfactory sale and settlement of the Mandurah land under the Mandurah Contract. Secondly, it was subject to Olympic and its solicitors completing a due diligence "on the subject property and advising the Vendors of their complete satisfaction of the study within 14 days of acceptance of this offer". Thirdly, special condition 7 provided:

"The Purchasers acknowledge receipt of the signed copy of the Owners' Deed for stage 8 dated 20/6/94 attached hereto and marked with the letter 'A'."

It is accepted that the Purchaser received a copy of the Owners Deed. This condition was drafted by the defendants' real estate agent, Mr Domhoff who worked for Peter James Realty.

13 Under the Olympic Contract, settlement was to coincide with settlement of the sale of the Mandurah land or be 30 days from completion of the due diligence, whichever was later. By letter dated 14 May 1996 from Olympic to the defendants' settlement agent, Peter James Settlements, Olympic advised that the due diligence condition of the Olympic Contract had been satisfied.

14 The Mandurah land was in effect a trade property. Under the Mandurah Contract the settlement date was stated to be 14 days from the relevant strata plan being in order for dealing but it was subject to special condition 4 which made the Mandurah Contract conditional upon the satisfactory sale and settlement of the Lochel land under the Olympic Contract. The strata plan was in order for dealing as at 28 June 1996.

15 The Owners Deed is dated 20 June 1994. The owners of the land the subject of the proposed development ("land owners") were parties to the Deed. The land owners included the defendants, G N & D T Grljusich, C Gumina and D C and P G Brenzi. Urban Focus was also a party to, and Manager under, the Owners Deed. The recitals note that the land owners wished to rezone their land from rural to residential so as to subdivide either the whole or portion of their land excluding (where appropriate) the area occupied by an existing residence referred to as the "house lot" which was to be retained by the land owners. That was the case for the defendants in relation to the Lochel land. They would retain a house lot and the balance of their land would be sold as part of a new subdivision for which they were entitled to a specified proportion of the proceeds of sale of that land.

16 The land owners also had to execute a Deed of Trust authorising Urban Focus to undertake the development on their behalf including the rezoning, amalgamation and subdivision of lots and to sell or mortgage the land.

" ... the land owners agree to offer and make available and transfer to the Manager pursuant to the terms and provisions of the attached and duly executed Deed of Trust the total nett area of their respective land areas to facilitate its consolidation for subsequent subdivision and for mortgage security purposes."

18 Pursuant to cl 41 of the Owners Deed the defendants agreed not to sell their land without first offering it to the Steering Committee. The land owners for stage 8 of the development and the Manager constitute the Steering Committee. Clause 41 materially provides:

" ... the landowners ... covenant and agree with the Manager not to sell their property or any portion thereof without first offering the land to the Steering Committee through the Manager. In the event that the landowner is unable to reach agreement with the Steering Committee as to the purchase price of the subject land, the land owner shall then have the right to offer the land for sale on the open market on such terms and conditions as he thinks fit, but subject to the express condition that the person or company to whom the subject land is sold, transferred ... or otherwise disposed of ... shall first be required to enter into a Deed of Covenant or agreement to be prepared by the Manager or his nominee ... whereby the purchaser covenants with the Manager to observe perform and be bound by the provisions of this DEED and attached DEED OF TRUST as if it were the owner herein described."

19 Clause 43 deals with caveats. It materially provides:

"The Manager will be at liberty at any time during the term of the Project, to register against each Owner's land ... an absolute caveat to protect and preserve its interest in agreements and covenants entered into with the landowners pursuant to the terms of this Deed."

20 The difference between what was required by cl 41 of the Owners Deed and what was contained in cl 7 of the Olympic Contract is apparent. In May 1996 Urban Focus obtained from the defendants a signed and registrable transfer of the Lochel land to Urban Focus. The transfer is dated 16 May 1996. At this stage it was unaware the defendants had sold the Lochel land to Olympic.

21 Sometime in May 1996 Mr Bacich requested Mr Domhoff to prepare the proposed Bondgate Contract and Amended Mandurah Contract. Mr James, the principal of Peter James Settlements, did so and provided them to Olympic under cover of a letter dated 17 June 1996 which materially provides:

"Enclosed please find new Contracts, which have been retyped as instructed, for sealing where indicated by your Company and returned to our office.

Once we have received the Transfer from your solicitors relating to the sale of [the Lochel land] we will present the Offer and the Transfer document to the Lochels for execution."

22 The only changes to the Olympic Contract are that Bondgate is the purchaser and the purchase price is reduced from $640,000 to $600,000. The only change to the Mandurah Contract is the reduction of the purchase price from $390,000 to $350,000. Notwithstanding the change to the purchase prices, the net amount to be paid to the defendants at settlement remained unchanged.

23 By late May 1996 Bondgate had secured finance in the sum of $350,000 (later increased to $450,000) for the purchase of the Lochel land. The mortgage was negotiated through finance brokers Terrace Councillors acting on behalf of the lenders. Preparations for settlement were proceeding. However, on 14 June 1996 Urban Focus' first caveat ("June Caveat") was lodged against the title to the Lochel land. Urban Focus claimed an interest in that land under cls 41 and 43 of the Owners Deed referring specifically to the defendants' obligation not to sell the land without requiring the purchaser to enter into a Deed of Covenant. It was an absolute caveat.

24 On or about 9 July 1996 the defendants, by their duly authorised agent Mr James of Peter James Settlements, instructed Mr Thorpe to act on behalf of the defendants in relation to the Olympic Contract and the Mandurah Contract. The settlement date under both contracts was 12 July 1996. Settlement had not taken place. On instructions, Mr Thorpe issued a default notice dated 16 July 1996. No reliance is placed on this default notice in these proceedings.

25 After Urban Focus became aware of the Olympic Contract it dealt directly with Mr Bacich in an attempt to obtain an executed Deed of Covenant from the purchaser. Initially Urban Focus was unsuccessful. However, by letter dated 11 July 1996 to Urban Focus, Bondgate advised that it was prepared to enter into a Deed of Covenant as required by Urban Focus in return for the withdrawal of the June caveat. However, Urban Focus had a change of position as outlined in a letter dated 18 July 1996 to Bondgate. Urban Focus referred to the transfer obtained from the defendants and continued:

" ... Hence in pursuing the matter with our solicitor, it would appear that due to the stage the proposed subdivisional process has reached, that it will not be possible for you to actually register your acquisition ... on the Certificate of Title. Accordingly in that regard, it would appear as though the Offer and Acceptance Contract you previously entered into with the Lochels may not constitute the most appropriate form of contract in the circumstances.

To register your proposed interest ... it would appear more appropriate that Bondgate ... enter into a Deed of Sale of Interest with the Lochels or alternatively, a Deed of Assignment ... whereby for a stated consideration, they agree to sign over their interest in the subdivisional proceeds that are derived from the land in whatever proportions have been agreed."

26 Urban Focus' position constituted a significant setback. However, negotiations between Bondgate and Urban Focus continued.

27 Undercover of a letter dated 26 July 1996 the solicitors for Olympic and Bondgate, Mony de Kerloy, forwarded to Mr Thorpe the signed original Bondgate Contract, amended Mandurah Contract and associated transfers of land. Mark de Kerloy and Kirsty Bennett of the firm acted for the plaintiffs. The letter of 26 July is in the following terms:

"Dear Sirs,

254 HAMILTON ROAD

1670 CARAVELY [SIC] WAY

We refer to your telephone conversation with Kirsty Bennett of this office on 26 July 1996.

We enclose original Contract and Transfer of Land in relation to 254 Hamilton Road Speerwood [sic], and 1670 Caravel Way Halls Head.

We are instructed by our client that finance has been arranged and that he will be in a position to settle both properties on Tuesday, 30 August 1996.

We confirm that you will be forwarding to us the Deed of Covenant from Urban Focus which will be signed by our client in exchange for a withdrawal of caveat.

The only other outstanding issue appears to be the matter of some unfinished work in respect of Lot 1670 Caravely [sic] Way. We are instructed that quotes for the carpet and fence have been obtained and out client will be provide [sic] these amounts to your clients at settlement. Your clients will then be responsible for carrying out the relevant work. Our client is currently in the process of attending to the window treatments and this will be completed either before settlement or shortly after.

Please let us know whether your clients will agree to the new contract on the basis that it more adequately reflects the true value of the properties.

We look forward to your reply."

It is to be noted that the Mony de Kerloy letter does not state the name of their client (or clients) or the intending purchaser of the Lochel land although that was clear from the enclosed signed offer and transfer. The solicitors requested Mr Thorpe to advise whether the defendants would agree to the new contracts. Mr Thorpe responded in a letter dated 30 July 1996. After stating that Olympic had committed a repudiatory breach of the Olympic Contract and foreshadowing its termination, the last paragraph states:

"In respect of the re-drawn contracts we are instructed that our client will tender the executed new contracts and memoranda of transfer if your client will resolve its differences with Urban Focus and Coburg Nominees Pty Ltd. If they cannot be resolved then our clients will rely upon the existing contracts."

28 In subsequent correspondence between and from the parties, they continued to state their views as to the parties' obligations under the Olympic Contract. On 31 July 1996 Urban Focus lodged a second caveat on the title to the Lochel land claiming an interest by virtue of cl 27 of the Owners Deed and cl 2 of the Deed of Trust ("July Caveat"). It was also an absolute caveat.

29 Negotiations with Urban Focus continued. By about 21 August Bondgate and Urban Focus had reached a mutually acceptable accommodation, the terms of which were recorded in a letter dated 23 August 1996 from Bondgate to Urban Focus in the following terms:

"Bondgate Pty Ltd is prepared to enter into a Deed of Covenant assuming the obligations of the Lochels under the Owners' Deed made 20 June 1994 in relation to, inter alia, [the Lochel land]. On the basis that the Owners' Deed is valid and subsisting and that all parties have complied with their obligations thereunder as represented by you, Bondgate Pty Ltd undertakes to produce to you the Certificate of Title in relation to the property 30 days after receiving a request from you to do so to enable lodgement of an application for a new certificate of title the subject of Diagram 90414 and further the company acknowledges that any mortgage over the said land is capable of being discharged and replaced over Bondgate's dwelling lot on the said land or alternatively that some other appropriate arrangement can be put in place in this regard.

On and after settlement, the company shall have its solicitors clarify with you the validity of the Owners' Deed."

30 A Deed of Covenant between Bondgate and Urban Focus was prepared but not executed. The parties' obligations under that deed are directed at settlement, that is, Urban Focus withdrawing the caveats to allow Bondgate to become the registered proprietor of the Lochel land. Settlement arrangements were being made. It then emerged that the lenders who had approved finance to Bondgate to purchase the Lochel land had concerns in connection with the Owners Deed. Bondgate was advised in late August 1996 or early September that the lenders were unwilling to proceed. Mr Thorpe was informed.

31 The defendants then issued their September default notice. It was served on 13 September 1996. Bondgate had not obtained alternative finance. Olympic did not seek finance at any time after 30 July 1996. On 26 September 1996 Olympic lodged a caveat on the title to the Lochel land claiming an interest under the Olympic Contract.

32 In a letter dated 3 October 1996 to Mr Thorpe Mony de Kerloy stated, inter alia:

"Your client's were aware or should have been aware before entering into the contract of sale that the Owners' Deed was at an end as a result of two parties being released from the Deed. It is now your client's responsibility to obtain that release and provide clear title before settlement can proceed.

Clear title includes a release of your clients by Urban Focus from the Owners' Deed.

...

Unless your client can deliver clear title to the property our client will have no alternative but to seek an order from the Supreme Court for specific performance of the contract."

33 This demand for clear title was said to flow from the termination of the Owners Deed, not from its mere existence. In a letter dated 10 October 1996 to Mr Thorpe, Mony de Kerloy advised that their client was considering the option of purchasing the defendants' mortgage of the Lochel land. On 4 October 1996 the defendants entered into the Smart Investments Contract to sell the Lochel land to Smart Investments. The purchase price of the Lochel land under that contract was $600,000. That deal also involved trade properties. At the same time, the Lochels entered into two contracts to purchase from Smart Investments Lot 429 Daydream Plaza Seascapes ("Seascapes property") for $180,000 and Lot 147 Owston Street, Banjup ("Banjup property") for $200,000, leaving the defendants with a net figure of $220,000.

34 Clause 8 of the Smart Investments' Contract referred to the Olympic Contract. Once again, the clause was drafted by Mr Domhoff. It provided:

"If there is a delay in Settlement by the previous Purchaser refusing to remove his caveat the vendor will not be liable for any cost or penalty caused by the delay."

35 The Smart Investments Contract was not made conditional on the termination of the earlier contract(s) and was entered into before any purported termination thereof.

36 By around 17 October 1996 Bondgate had received alternative finance approval to purchase the Lochel land. By letter dated 21 October 1996 finance broker Gamel Ward instructed its solicitors, Clairs Keeley, to prepare the relevant mortgage. Clairs Keeley provided mortgage documents to Gamel Ward undercover of letter of 29 October 1996. On 22 October 1996 Kirsty Bennett of Mony de Kerloy had a telephone conversation with Mr Thorpe concerning proceeding to settlement. By letter dated 1 November 1996 to Mr Thorpe forwarded by facsimile transmission, Mony de Kerloy wrote:

"Dear Sir

PURCHASE OF 254 HAMILTON ROAD SPEARWOOD

We note that there has been another caveat lodged over the property pursuant to an alleged contract for the sale [of the Lochel land] between the Lochels as vendors and Smart Investments Pty Ltd as purchasers.

We confirm that you have advised us that there are certain conditions on this contract which take into account Olympic's position.

Our client continues to be ready willing and able to settle on the above contract.

Please put your clients on notice that if they are not ready, willing and able to settle within 24 hours or provide us with a specific date for settlement within the next (7) seven days then our client will be seeking specific performance of the contract and penalty interest.

Please let us know whether your client is in a position to settle on the above contract."

37 The Smart Investments caveat referred to in the letter was lodged at the Titles Office sometime in October 1996. In response to that letter, Mr Thorpe sent the termination notice. It states:

"We refer to your facsimile transmission of November 1 1996.

The content therein misrepresents your client's position as it had been stated to us over recent weeks. In particular, we refer to your letter of October 10 1996 confirming the conversation wherein your Ms Bennett advised that your client was still unable to obtain finance and was considering purchasing our client's mortgage with a view to bringing about a partial settlement by reducing our client's on-going liabilities.

To the extent that it may be necessary, our client hereby terminates the contract as a consequence of your client's failure to comply within time with either of the default notices served upon it."

The Action - Whether Olympic Contract Conditional on Owners Deed

38 As the answer to this question has some indirect bearing on the other issues for determination in this case, I will deal with it first. The defendants plead that it was a term of the Olympic Contract and the Bondgate Contract that the plaintiffs, or either of them, would purchase the Lochel land "subject to and on the basis that the purchaser would assume the defendants' rights and obligations under the Owners' Deed". In the absence of a plea of an implied term it must be the case that the defendants rely on an express or inferred term (as the latter was explained by Deane J in Hawkins v Clayton (1988) 164 CLR 539 at 570).

39 Messrs Bacich and Domhoff gave evidence (without objection) of pre contractual discussions and of their intentions and motives so far as the Owners Deed was concerned. Much of the evidence is irrelevant to the construction of the Olympic Contract and, in the absence of any other relevant plea (such as a representation based cause of action), was inadmissible. In the event of an ambiguity in a written contract, extrinsic evidence of objective background facts is admissible but not of subjective intention. The classic statement of the law is that of Mason J in Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 332 at 337:

"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. ... When the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except insofar as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting."

40 Clause 7 of the Olympic and Bondgate Contracts does not in terms or effect make the contracts "conditional" as pleaded or at all. There is no relevant ambiguity on that point. The clause goes no further than the purchaser acknowledging receipt of the Owners Deed from which it can be inferred that it was aware of the defendants' rights and obligations thereunder. However, an inference of knowledge falls a long way short of supporting an inference that firstly, cl 7 imposed a condition precedent or subsequent and secondly, that the purchaser agreed to assume the defendants' rights and obligations under the Owners Deed. It is a very large and unjustified leap from the language to construe cl 7 as making the contract conditional on the purchaser assuming the defendants' rights and obligations under the Owners Deed.

41 Further, even on the construction contended for by the defendants, a direct contractual relationship between the purchaser and Urban Focus would not result. Thus, even if the defendants' construction of cl 7 was upheld, the defendants would still not have satisfied their obligations under the Owners Deed which requires the offer to be subject to the purchaser first entering into a Deed of Covenant with the Manager so as to enable the Manager to enforce the purchaser's compliance with the Owners Deed.

42 In summary, I conclude that the Olympic (and Bondgate) Contract did not impose an obligation on the purchaser to assume the defendants' rights and obligations under the Owners Deed or require the purchaser to enter into a Deed of Covenant with Urban Focus. That has contractual consequences. The General Conditions apply so far as they are not varied by or inconsistent with the express terms, including cl 7. Under cl 2 of the General Conditions, subject to exceptions not relevant here, the relevant property is sold free from encumbrances. Encumbrance is defined to include a "right or interest of any third party affecting the property or any part thereof". However, under cl 2 of the General Conditions a purchaser has only a limited right to rescind in the event of a breach. It must be exercised not later than five business days prior to the settlement date although the purchaser retains other rights or remedies.

43 However, the plaintiffs did not contend at trial (or before) that Urban Focus' interest in the Lochel land pursuant to a valid Owners Deed would be a breach of cl 2 or a ground for refusing to settle. I infer that was because by mid July 1996 Bondgate had agreed to enter into a Deed of Covenant if Urban Focus removed the covenants. Perhaps if settlement had occurred before Urban Focus became aware of the sale and lodged its caveats, the plaintiffs may have sought to take advantage of the indefeasibility principle in s 68 of the Transfer of Land Act 1893 (WA). However, prior to registration of a transfer to the plaintiff or Urban Focus competing equitable interests were involved and the priority rules favoured Urban Focus.

44 The Bondgate plea in the statement of claim is in the following terms:

"3. On or before 30 July 1996 the Lochels made the following promises and/or representations to Olympic and Bondgate.

(1) That subject to and at the time the condition set out at 3.2 was satisfied, the 'Olympic Contract' and the Mandurah Contract would be cancelled and the Bondgate Contract and the amended Mandurah Contract would be entered into by the Lochels and tendered to Bondgate or to its solicitors to enable stamping thereof and settlement thereupon to take place;

(2) The promise was conditional upon Bondgate being able to settle or alternatively having finance to settle."

45 The pleaded particulars to support the claim are as follows:

(a) in May 1996 Mr James agreed to prepare the Bondgate Contract and the amended Mandurah Contract and transfers and provided the amended Mandurah contract and transfer to Mr Bacich;

(b) the new contracts and associated transfers were executed by the plaintiffs and sent to Mr Thorpe;

(c) the final paragraph of Mr Thorpe's letter of 30 July 1996;

(d) the defendants signed the contracts and transfers at some unspecified time;

(e) in telephone conversations between Kirsty Bennett and Mr Thorpe in August and October 1996 Mr Thorpe promised that, provided Bondgate could settle, the Lochels would tender the Bondgate Contract, the amended Mandurah Contract and the accompanying transfer to enable stamping and settlement to take place;

(f) in a telephone conversation between Mr Mark Mony de Kerloy and Mr Thorpe in August 1996 Mr Thorpe agreed to settle on the Bondgate Contract and the amended Mandurah Contract provided Bondgate had the finance to settle.

46 The defendants deny the allegations of subsequent conduct in pars (e) and (f), otherwise do not admit the plea and say that if the promises and representations were made, they were made only to Olympic and only in Mr Thorpe's letter of 30 July 1996 and were by implication conditional on the "defendants" (which in context can only be intended to mean the plaintiffs):

(a) resolving their differences with Urban Focus and Coburg Nominees; and

(b) being ready, willing and able to complete the purchase of the Lochel land

within a reasonable time. It can be inferred from the balance of their pleading that the defendants contend that the plaintiffs were not ready, willing and able to complete the purchase within a reasonable time.

47 I observed at the commencement of the trial that the pleadings in general did not identify in a clear and concise manner all of the matters in issue. In those circumstances, it is often more difficult to persuade a court that an issue does not arise on the pleadings. The parties had been ordered to file and serve a statement of issues before trial. However, the statements filed were of little assistance because of their high level of generality. As a result, the parties raised pleading issues in their closing submissions (which, because of time constraints, had to be made in writing).

48 In their closing submissions the plaintiffs relied on the Bondgate plea as a material fact in a claim for breach of a collateral three way agreement ("Bondgate promise") and an estoppel. The third party contended in closing that a three way or collateral contract was not pleaded or ventilated at trial. The plaintiffs' use of the term "collateral" to describe the subsequent Bondgate promise may not be strictly correct (see Hoyts v Spencer [1919] HCA 64; (1919) 27 CLR 133) but nothing turns on the use of this label. As I understand the objection, it is to reliance on a contract claim at all. Ambiguity arises because of the overlap with the estoppel plea. However, the parties were content to proceed on the basis of the pleadings as they stood and must meet the claims reasonably arising therefrom. I am satisfied that the plaintiffs have (inelegantly) pleaded all of the material facts of a contractual cause of action in relation to the Bondgate plea. Paragraph 3 pleads a promise and consideration. The breach (pleaded in par 8) is to the effect that the defendants refused to honour the promise and settle with Bondgate and contractual (expectancy) damages are claimed.

49 It is also contended that the plaintiffs failed to plead all of the material facts of a Waltons v Maher estoppel (based on Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387). The material elements of such an estoppel are (1) the plaintiff assumed or expected that a particular legal relationship exists or will exist; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on that assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise: Waltons v Maher (supra) at 428 - 429 per Brennan J. The plaintiffs have pleaded a promise or representation by the defendants relating to future legal relationships (par 3), reliance on the promise/representation and detriment (par 6). The pleaded reliance and detriment is that Bondgate put itself into a position to settle in accordance with the promise and representations and that Olympic did not seek to stamp or tender consideration in accordance with the Olympic Contract. The attack on the pleading is that the plaintiffs do not expressly plead that to resile from the promises and representations is unconscionable or claim equitable relief. Those omissions do not render the plea defective. A party is only required to plead the material facts. The unconscionability arises from proof of the material elements set out earlier, including the plea of reliance and detriment.

50 Although the plaintiffs do not expressly plead that the defendants are estopped from denying the Bondgate promise it is sufficiently clear that the plaintiffs rely on the estoppel for the effective enforcement of the Bondgate promise and seek contractual damages. Even if the estoppel plea is defective, I am persuaded the parties were not taken by surprise or prejudiced and I would grant leave to amend.

51 The contemporaneous documents support the findings (which I make) that:

(a) at Mr Bacich's request, Mr James prepared the new contracts (Bondgate Contract and amended Mandurah Contract) and forwarded them to Olympic under cover of letter dated 17 June 1996;

(b) the purchasers under the Bondgate Contract and the amended Mandurah Contract executed them as well as the relevant transfers which were then forwarded by Money de Kerloy to Mr Thorpe under cover of a letter dated 26 July 1996;

(c) at some unspecified date but before termination, the defendants executed the new contracts.

52 Particulars (e) and (f) relate to conduct after 30 July 1996. There is a divergence of authority as to whether evidence of subsequent conduct of the parties is inadmissible on the question of the meaning of words used in a contract. In particular, there is conflicting dicta in High Court judgments on this question (see Codelfa Construction Pty Ltd v State Rail Authority of NSW (supra) at 348; Sinclair Scott & Co v Naughton [1929] HCA 34; (1929) 43 CLR 310 at 327). The evidence would be inadmissible if it added to or otherwise varied what was earlier agreed, there being no plea of a contractual variation. However the evidence is admissible on the estoppel plea.

53 Kirsty Bennett gave evidence that on 5 September 1996 she spoke to Mr Thorpe who advised her that the Bondgate Contract and the amended Mandurah Contract (together referred to as "Bondgate Contracts") would not come into existence until all problems had been sorted out - this being said in the context of being told that Bondgate's financiers were likely to withdraw. This evidence was borne out by a contemporaneous file note made by Ms Bennett and is generally supported by Mr Thorpe's evidence in cross-examination of what he said was "implicit" in the final paragraph of his letter. According to Ms Bennett Mr Thorpe also said that he could make the contracts available within 24 hours. Mr Thorpe agrees he said this. I accept Ms Bennett's evidence on these matters. There is no evidence to support particular (f).

54 I turn now to whether the plaintiffs have established a contractual promise and, if so, between whom. The central plank of the plaintiffs' claim is essentially the last paragraph of Mr Thorpe's letter of 30 July 1996. Having regard to the commercial setting in which Mr Thorpe's statement is made, the terms of the statement and the consideration apparent therefrom, a reasonable person would conclude that Mr Thorpe's statement in the final paragraph of his letter of 30 July 1996 was a contractual promise (the "Bondgate promise").

55 The construction of that promise is a more difficult matter. It is in short form which gives rise to ambiguities all of which need to be resolved against the objective background circumstances. By 30 July 1996 the contractual time for settlement under the Olympic Contract had passed. The defendants were unable to settle because Urban Focus had lodged an absolute caveat on the title based on the assertion that the defendants had sold the Lochel land in breach of cl 41 of the Owners Deed (which clause requires that the land first be offered to the Steering Committee and if to be sold to a third party, the offer to sell be subject to the purchaser first entering into a Deed of Covenant). Further, the defendants had, without reference to anyone, signed a transfer of the Lochel land to Urban Focus in May 1996. As at 18 June 1996 Urban Focus' position was that it was inappropriate to transfer the Lochel land to Olympic under the Olympic Contract because the Lochels had in effect sold a lesser interest. Urban Focus subsequently retreated from that position. Mr Thorpe became involved in discussions with Urban Focus and their solicitors and Mr Thorpe advised Mony de Kerloy that Urban Focus would be content with a Deed of Covenant and a signed transfer of land from the purchaser. Mony de Kerloy advised Mr Thorpe that his clients would not sign a transfer.

56 By 26 July 1996 Urban Focus' position had changed again. In a letter of that date from Urban Focus' solicitors to Mr Thorpe it was asserted that the defendants had breached cl 41 of the Owners' Deed because they had not first offered the Lochel land for sale to the Steering Committee. The solicitors then identified the conditions on which the Urban Focus June caveat would be withdrawn which were that the purchaser was required to sign a Deed of Covenant and a transfer and deliver up the certificate of title. Further, Urban Focus required the defendants to consent to the temporary exclusion from the development of the land belonging to the Grljusich, Gumina and Brenzi families. In a subsequent letter Urban Focus made it clear that the exclusion of the land of these three families was not to be temporary.

57 Mr Thorpe under cover of his letter of 30 July 1996 provided Mony de Kerloy with a copy of the Urban Focus letter of 26 July 1996. Mr Thorpe asserted that there was no merit in the allegation that his clients had breached cl 41 in the way suggested and that the purchaser was required to execute a Deed of Covenant and a transfer. He continued:

"If your client wishes to negotiate a different arrangement with Urban Focus and Coburg Nominees Pty Ltd then it should do that direct. As the matter currently stands your client's conduct in refusing to execute a transfer amounts to a repudiation of its obligations under the contract which repudiation our client does not at this stage accept. However, unless the matter can be satisfactorily resolved by midday on Friday with settlement to be effected that afternoon we are instructed that our clients will at that time accept your client's repudiation and terminate the contract.

In respect of the re-drawn contracts we are instructed that our client will tender the executed new contracts and memoranda of transfer if your client will resolve its differences with Urban Focus and Coburg Nominees Pty Ltd. If they cannot be resolved then our clients will rely upon the existing contracts."

58 Having regard to the stance taken by Urban Focus in its letter of 26 July 1996 there was no reasonable basis for Mr Thorpe's assertion that there had been a repudiation of the Olympic Contract.

59 The known facts were clear. The defendants had signed a transfer of the Lochel land to Urban Focus. Unless and until the Urban Focus caveat was removed, settlement could not take place. Urban Focus were demanding consent to the exclusion of three parcels of land from the development the subject of the Owners Deed. On any view, the impediments to settling were not wholly (and based on my findings, not even partly) a result of any breach by Olympic of its express or implied obligations under the Olympic Contract. Indeed, it was Mr Thorpe's evidence, which I accept, that he had formed the view that Olympic was not in breach and the defendants were unable to terminate the Olympic Contract at the expiration of the notice period in the July default notice. However, the defendants' stated position was that Olympic was legally at fault, the defendants would tender the new contracts if the differences with Urban Focus were resolved, otherwise the defendants would rely on the Olympic Contract as it stood.

60 It is in that factual context that Mony de Kerloy made the request for substitution of the contracts and Mr Thorpe, on instructions, provided a response. The Bondgate promise is to be construed against that background, and it is to that task I now turn.

61 Firstly, it is implicit in the request and the response that the Olympic Contract and Mandurah Contract ("original contracts") would be cancelled by the parties if and when the defendants accepted the new contracts. Secondly, Mr Thorpe's statement that "our client [which should obviously be a reference to his clients] will tender the executed new contracts" is to be interpreted as the tender constituting contractual acceptance of the new contracts which would effect automatic cancellation of the original contracts. It is not suggested the defendants had communicated to the plaintiffs or their solicitors that the offer and acceptance documents had been signed by them which would have constituted acceptance under the standard form documents used.

62 Thirdly, on my reading of the final paragraph of Mr Thorpe's letter the defendants are obliged to tender (accept) the new contracts and provide the signed transfers if certain conditions are satisfied. In particular, the obligation to tender (accept) the new contracts is conditional upon "your client" resolving its differences with Urban Focus and Coburg Nominees. In context, that must mean that it had to resolve with Urban Focus the impediments standing in the way of settlement, which, in substance required that Urban Focus agree to remove its caveat(s) at settlement. The impediments were the same whether under the old or new contracts, they being in relevantly the same terms. However, it is necessary to determine on whom the obligation is imposed and the related question of the parties to the Bondgate promise. The evidence establishes and I find that up to 30 July 1996:

(a) Mony de Kerloy acted for both Olympic and Bondgate;

(b) the defendants by their agents Messrs Dumhoff, James and Thorpe were aware by late May and early July 1996 (respectively) of the proposal to replace the old contracts with the new contracts;

(c) the defendants had no objection in principle to the substitution;

(d) Urban Focus was negotiating with Bondgate for the removal of the June caveat;

(e) Mr Thorpe was aware of (d) from the Urban Focus letter to Bondgate of 18 July 1996 which was copied to him and the letter dated 26 July 1996 from Urban Focus' solicitors to Mr Thorpe;

(f) in context, the reference to finance being arranged and being ready to settle in the letter dated 26 July 1996 from Mony de Kerloy to Mr Thorpe enclosing the new contracts is a reference to Bondgate having finance and being in a position to settle.

From these facts I infer that the Bondgate promise was made to Olympic and Bondgate and that the conditions were to be satisfied by, or for the benefit of, Bondgate to allow it to settle.

63 It was suggested in closing that the defendants' obligation to tender (accept) the new contracts only arose at settlement and that unless and until settlement occurred, the Olympic Contract was the only relevant contract in existence and to be performed. In my view, that construction is commercially unreasonable and untenable. It was clearly contemplated that, on satisfaction of the relevant conditions, Bondgate not Olympic would purchase the Lochel land. Settlement could not occur until the new contracts had been signed, accepted and stamped. Under the General Conditions the purchaser is responsible for presenting a signed stamped transfer to the vendor and to pay the stamp duty on the contract (cl 4(1) and 4(2)). Further, it cannot have reasonably been expected that both Olympic and Bondgate would concurrently make themselves ready, willing and able to settle when it was clearly contemplated that the purchaser (if any) was to be Bondgate. Although Mr Thorpe's understanding is not relevant to the construction issue, I note for completeness that I am not persuaded Mr Thorpe understood that the new contracts were to be substituted for the Olympic Contract at settlement.

64 Unfettered by the parties' formulation and conduct of their cases, it could be argued that the defendants' obligations arose once the Urban Focus impediments to settlement had been resolved in which case the following analysis might apply. Upon tender of the new contracts the Olympic Contract and Mandurah Contract would be cancelled. As the contractual time for settlement under the new contracts had passed, the new contracts should be settled within a reasonable time and when that period had elapsed, a notice of default could be issued with failure to settle within the notice period giving rise to a right to terminate. However, that construction was not argued for by any party and not addressed in submissions.

65 The plaintiffs contend that the promise was conditional upon Bondgate being able to settle or alternatively having the finance to settle. In essence, the claim is that upon that eventuality (at any event before termination of the Olympic Contract) the defendants' obligation to tender the new contracts and settle with Bondgate was activated. Once again the plaintiffs' pleading (par 8) is not as clear as it might be. It simply says the defendants refused to honour the Bondgate promise and settle with Bondgate. Although the intermediate step of tender/acceptance is omitted that is implicit in the pleading of the Bondgate promise.

66 The defendants' alternative formulation of the condition is that Bondgate must be ready, willing and able to complete the purchase of the Lochel land before the defendants' obligations arise. In the commercial context and circumstances in which the parties found themselves at the end of July 1996 I am persuaded that the defendants' formulation is apt subject to one qualification. This condition had to be satisfied before the new contracts would come into effect. In that circumstance it is appropriate to ignore matters which can only reasonably be attended to after the new contracts become binding. Into this category falls the stamping of the new contracts and associated transfers, fixing a settlement date and related administrative matters.

67 The final question is whether the relevant conditions activating the defendants' obligations namely resolving the Urban Focus impediments and Bondgate being relevantly ready, willing and able to settle (hereafter referred to as the "Bondgate conditions") had to occur within a reasonable time. The plaintiffs in their pleading put no time limit for the fulfilment of the Bondgate conditions. On one view that may be intended to mean they could be fulfilled at any time. That cannot be so. It is clear that, on a proper construction, the Bondgate conditions had to be satisfied at some stage before the Olympic Contract was validly terminated for breach or otherwise. The defendants intended to retain their rights under the Olympic Contract, including their right, if any, to terminate it for breach, unless and until the Bondgate conditions were satisfied. It follows that a valid termination of the Olympic Contract would also terminate the Bondgate promise. In such circumstances there is no basis to infer that it was a term (or condition precedent) of the Bondgate promise that the Bondgate conditions be satisfied within a reasonable time. If the Bondgate conditions were satisfied before the Olympic Contract and thus the Bondgate promise were terminated, the defendants' obligation to accept and then perform its obligations under the new contracts would arise for performance.

68 I have reached these conclusions as to the proper construction of the Bondgate promise without reference to the proven subsequent conduct relied on. However, the result would be the same if I had had regard to that material.

69 The plaintiffs plead (in par 7) that as and from 29 October 1996 Bondgate was in a position to effect settlement on the Bondgate Contract and "to the extent that it was necessary to, if any, rectified the default complained of in the [September default notice] and thereafter required the [defendants'] to honour the promise and representations made". The defendants deny the plea.

70 I deal firstly with the assertion that the plaintiffs had rectified the default complained of. The September default notice was issued under cl 18 of the General Conditions. That clause materially provides:

"(1) Except as otherwise specifically provided in these Conditions:-

(a) ...

(b) neither the Vendor nor the Purchaser is entitled to terminate the contract on the ground of the other's default in performing or observing any obligation imposed on that other party under the contract; unless

(i) the party not in default has first given to the party in default notice in writing specifying the default complained of, which notice must require that the default be remedied within the period stipulated in the notice; and

(ii) the party in default fails to remedy the default within the period stipulated in that notice."

71 The notice period must not be less than 14 days. However, cl 18 does not apply where either party repudiates the contract. Clause 19 of the General Conditions materially provides:

"(1) If the Purchaser is in default in performing or observing any obligation imposed on the Purchaser under the contract or if the Purchase repudiates the contract, then the Vendor in addition to any other rights or remedies under the contract or otherwise, may:-

(a) ...

(b) ...

(c) ...

(d) subject to condition 18 and if the notice given pursuant to condition 18 states that unless the relevant default is remedied within the time specified in the notice, the contract will or may be terminated, terminate the contract ... "

72 The purported breach specified in the September notice was Olympic's failure to settle on the contractual date (mid July) or any other date. The September default notice required that Olympic effect settlement within 15 days. The evidence is clear. Olympic did not effect settlement under the Olympic Contract within the notice period or at all.

73 However, it would not be obliged to do so if the Bondgate conditions had been satisfied and the Bondgate promise performed prior to termination. Once the Bondgate conditions had been satisfied the defendants were obliged to tender (and thereby accept) the new contracts, at which time the old contracts would be automatically cancelled. Thus, provided the Bondgate conditions were satisfied before termination the new contracts would be in operation and the old contracts cancelled.

74 It is common cause that the new contracts were not tendered (or accepted) and did not come into effect. However, it is a fundamental presumption of Australian law that a party to a contract cannot take advantage of his own wrong: Commissioner for Main Roads v Reed-Stewart Pty Ltd [1974] HCA 53; (1974) 131 CLR 378; Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 441. Accordingly, if the Bondgate conditions were satisfied and the defendants were under an obligation to tender the new contracts (thereby effecting a termination of the old contracts) before the Olympic Contract was terminated on 4 November 1996 the defendants could not take advantage of their wrongful conduct and validly terminate the Olympic Contract for breach. An alternative analysis producing the same outcome is that the plaintiffs' expectancy (or indeed reliance) loss is assessed on the basis that the Olympic Contract would have been cancelled before validly terminated.

75 The next issue is whether the Bondgate conditions were satisfied before 4 November 1996. It was not in dispute that Bondgate and Urban Finance had resolved all impediments to settlement. That is, Urban Focus had agreed to provide withdrawals of caveat at settlement on the terms set out in Bondgate's August letter. Ms Bennett gave uncontradicted evidence that Urban Focus' solicitors had prepared withdrawals of caveat and that Bondgate's August letter and an executed Deed of Covenant were to be exchanged at settlement. I am satisfied that the differences with Urban Focus had been resolved by agreement by 21 August 1996 and that the relevant Bondgate condition was satisfied.

76 I am also satisfied that Bondgate had finance in place to pay the moneys payable to the defendants at settlement of the Bondgate Contract. Although there was no evidence the mortgages were signed, they had been prepared by the broker's solicitors and returned to the broker. I infer from the evidence of Mr Bacich and Mr Ward, the lender's broker, that execution of the mortgage was a mere formality. Ms Bennett gave evidence of what else remained to be done by Bondgate for settlement to occur. Her evidence was not materially contradicted by Mr Thorpe. I find the only other outstanding matters were stamping the documents after they had been received from Mr Thorpe, arranging the settlement date, preparing updated settlement statements and arranging for representatives of Urban Focus and the Bondgate mortgagees to attend at settlement. In these circumstances I find that Bondgate was relevantly ready willing and able to settle.

77 The defendants and third party placed great reliance upon Mony de Kerloy's letter dated 3 October 1996 which it was said was not withdrawn and which indicated an unwillingness to settle and may constitute a repudiatory breach. The repudiation claim forms no part of the pleadings and I say nothing about it. The letter demands that the defendants provide clear title at settlement. Based on the advice in the letter that "our client has lodged a caveat", I infer that the Mony de Kerloy client referred to is Olympic. Indeed having regard to the Bondgate condition that the Urban Focus differences be resolved it would not have been written on behalf of Bondgate. In my view, the clear title demand by Olympic does not affect or reflect on Bondgate's willingness to perform the Bondgate promise or to settle under the Bondgate Contract. The same applies to earlier correspondence from Mony de Kerloy in a similar vein. Unless and until the Bondgate conditions were satisfied Olympic was seeking to protect its position under the Olympic Contract. Further, having regard to the construction of the Bondgate promise, the fact that Olympic was at no material time ready, willing or able to settle before the termination of the Olympic Contract is of no consequence.

78 Mony de Kerloy's 3 October letter may be described as strategic positioning to protect Olympic's position. The September default notice had issued. The notice period had expired and neither Olympic nor Bondgate could settle. Bondgate's original financiers had pulled out because of dissatisfaction with the Urban Focus situation. Bondgate was not relevantly ready, willing and able to settle because the financiers had withdrawn and new financiers had not been found. Bondgate could not satisfy the Bondgate conditions, in which case there was a risk the Olympic Contract would be terminated for breach and with it the Bondgate promise.

79 However, Bondgate obtained alternative finance approval on 17 October 1996. Ms Bennett and Mr Thorpe had a telephone conversation on 22 October 1996. Ms Bennett's evidence, supported by a contemporaneous file note and not materially contradicted by Mr Thorpe, was that she informed Mr Thorpe that Bondgate had new financiers and would be in a position to settle presently. She asked him whether there were any outstanding issues to be resolved in relation to the Mandurah property and he responded that all issues were resolved the last time settlement was proposed. She asked him whether he would like to have a meeting to resolve any outstanding issues before settlement was set down and he stated his view that if a meeting was necessary he would be happy to attend but he could not see any outstanding issues and did not know of any issues that needed to be resolved. Mr Thorpe told Ms Bennett that it was just a matter of handing over the Bondgate Contracts and transfers and effecting settlement and asked her to write confirming that her client was ready to settle and list any outstanding issues.

80 It was Mr Thorpe's evidence-in-chief that his impression of the letter of 3 October 1996 was that the claim for clear title was being raised as a red herring to justify Olympic's continuing delay. It was also his evidence that at no stage did Ms Bennett or Mony de Kerloy resile from the proposition contained in the letter. However, I am satisfied that a reasonable person in Mr Thorpe's position would understand that the clear title demand was made by Olympic and did not impair or otherwise affect Bondgate's willingness to perform the Bondgate promise and Bondgate Contract.

81 In light of my finding that Olympic's clear title demand does not affect Bondgate's position, it is unnecessary to determine whether the demand was lawful. In any event, the evidence (as distinct from allegation and counter allegation by solicitors) on that question is incomplete. For example, it is unclear when the parties were released, who consented to the release, whether any breach had been waived or an election not to terminate made and when Mr Bacich became aware of relevant matters. This was a side issue to which the parties gave scant attention.

82 Finally, Mr Thorpe's evidence was that he construed the Mony de Kerloy letter of 1 December 1996 as containing factually untenable statements, namely that Olympic was ready, willing and able to settle when it had not stamped the Olympic Contract and indicated that Olympic had no intention of settling. It is the case that the letter is largely silent on the identity of the client on whose behalf they are writing or which client is ready, willing and able to settle. I accept that Olympic was not ready, willing and able to settle. However, the issue is whether Bondgate was relevantly ready, willing and able to settle. Although the plaintiffs (by their solicitors) did not at any stage before the Bondgate plea was included in the statement of claim clearly articulate the legal framework in which to place, or the consequences of, the assertions in their letter of 1 December 1996, I do not regard that as legally significant on the pleadings as they stand.

83 For the reasons given, I am satisfied that Bondgate was relevantly ready, willing and able to proceed to settlement by 29 October 1996 and that both Bondgate conditions were satisfied by that date.

84 The plaintiffs plead (par 8) that notwithstanding the Bondgate conditions had been satisfied the defendants refused to "honour the promise and representations made and to settle with Bondgate". I find that to be the case. The defendants failed to perform the Bondgate promise and on 4 November 1996 the defendants purported to terminate the Olympic Contract. The plaintiffs also plead (par 10) that the purported termination and the failure to perform the Bondgate promise amounted to a repudiation of the Olympic Contract and the Bondgate promise respectively. I find that to be so.

85 They claim that as a consequence of the defendants' failure to comply with the Bondgate promise and by virtue of the repudiation of the Olympic Contract and the Bondgate promise, the plaintiffs have suffered loss and damage as particularised. I will deal with the question of damages later.

86 The scope of the promise, whether in contract or estoppel, is the same. I have already addressed that issue. The defendants, by their duly authorised agent, made the Bondgate promise and, I infer from the surrounding circumstances, intended the plaintiffs to act on that promise. The remaining issues are whether reliance and detriment are proven. Mr Bacich and Ms Bennett of Mony de Kerloy gave evidence for the plaintiffs. Neither expressly addressed the issues of reliance and detriment by Bondgate or Olympic. However, direct evidence of reliance is not necessary as it can be proven by inference: Hanave Pty Ltd v LFOT Pty Ltd [1999] FCR 357; Dominelli Ford (Hurtsville) Pty Ltd v Karnot Auto Spares Pty Ltd [1992] FCA 550; (1992) 38 FCR 471. Dealing first with Bondgate. The contemporaneous documentary evidence clearly establishes, and I find, that it was Bondgate who took the necessary steps to resolve the Urban Focus impediments to settlement and otherwise prepared for settlement. That included applying for and obtaining finance from third parties and incurring expenses in that regard. The inference is open that Bondgate acted in these ways in reliance on the Bondgate promise. The corollary of Bondgate's role is, and the evidence establishes, that Olympic did not take steps to prepare for settlement such as to obtain finance or to stamp the Olympic Contract even when the September default notice was issued. It took no steps while Bondgate was attempting to satisfy the conditions which would bring about the cancellation of the old contracts and the coming into operation of the Bondgate Contracts. It is open to infer that Olympic acted, or more correctly refrained from acting, in reliance on the Bondgate promise and in doing so it lost the opportunity to seek to comply with the September default notice.

87 On the basis of the contemporaneous documentary evidence and in the absence of any evidence in rebuttal, I draw the inferences and find that both Olympic and Bondgate assumed or expected that the defendants would act on the Bondgate promise and as a result relied on the Bondgate promise to their detriment. I also find that by virtue of such reliance and detriment, it was and remains unconscionable for the defendants to resile from or deny the Bondgate promise.

Whether Defendants Ready, Willing and Able to Settle or in Default

88 The plaintiffs also claim (in par 4A) that the September notice of default was issued in circumstances where the defendants were themselves not ready, willing and able to settle or were in default of their contractual obligations under the Olympic Contract and the Bondgate Contract. In support of that claim the plaintiffs rely on the following pleaded particulars:

(a) The defendants failed to obtain the consent of the Steering Committee under clause 41 of the Owners' Deed, alternatively Urban Focus alleged that the defendants failed to obtain consent;

(b) the defendants signed a transfer of the Lochel land to Urban Focus;

(c) Urban Focus lodged two caveats which had not been removed;

(d) the defendants' actions and caveats made it impossible for them to deliver title to the Lochel land and amounted to a repudiation by the defendants.

89 The plaintiffs then claim (par 4B) that as a direct consequence of the matters in pars (a) to (c) "Bondgate was unable to carry out its obligations under the Bondgate Contract until 29 October 1997". Again the plaintiffs' pleading is unhappily drafted. However, in context it can only mean that Bondgate could not satisfy the second of the Bondgate conditions (ie, that Bondgate be relevantly ready, willing and able to settle the Bondgate Contract) until the specified date. In support of that plea, the plaintiffs rely on Urban Focus' various changes of position prior to the agreement reached between Bondgate and Urban Focus in August 1996. However, the central plank of the plea is that the investors who had initially agreed to advance money to Bondgate to enable it to settle were unwilling to proceed in light of developments since the initial approval.

90 By the end of trial it was accepted (and I find) that the defendants had obtained the consent of the Steering Committee although Urban Focus had claimed to the contrary in their letter of 26 July 1996. The facts in (b) and (c) are also established by the evidence. In substance, the defendants' defence to the claim was that:

(a) the Olympic Contract and Bondgate Contract were subject to the purchaser assuming the defendants' rights and obligations under the Owners Deed, a proposition I have already rejected;

(b) the Urban Focus caveats were not lodged for any reason attributable to the defendants' breach but by reason of the plaintiffs' conduct (a claim centrally linked with (a));

(c) the defendants' obligation to deliver title was subject to the defendants' ability to do so by reason of their compliance with the terms of the Owners Deed and that if they were obliged to deliver title they were prevented from doing so by reason of the matters in (b);

(d) by 15 August 1996 the plaintiffs and Urban Focus had resolved all of the matters that would otherwise have prevented the defendants from being ready, willing and able to settle.

91 For the reasons already given, there is no substance to the defences in pars (a) - (c). Two issues remain. Firstly, a question of principle. Can a defaulting party or a party who is not ready, willing and able to settle give a valid default notice and then terminate. Secondly, whether the fact that Bondgate had resolved the Urban Focus impediments to settlement affected Olympic's position.

92 The first question involves the construction of cl 18(1)(b) of the General Conditions. That requires the "party not in default" to give the "party in default" notice in writing specifying the default. On one view, that language may simply identify and differentiate the person giving and the person receiving the notice rather than requiring that the party giving the notice not be in default itself at the time. It is appropriate to consider the construction of that clause against the backdrop of the common law. At common law a party who is unwilling or unable to perform a contract is not entitled to terminate the contract for breach by the other party: The King v Poggioli [1923] HCA 11; (1923) 32 CLR 222; Foran v Wight [1989] HCA 51; (1989) 168 CLR 385.

93 However, a party in breach may have the right to terminate provided the breach is not repudiatory or of an essential term: Roadshow Entertainment Pty Ltd v CEL Home Video Pty Ltd [1997] NSWSC 473; (1997) 42 NSWLR 462 at 479 - 480.

94 Where a contract provides for the concurrent performance of obligations (such as to settle the purchase of land), tender or performance by the party proposing to terminate is generally a prerequisite of termination. Even where tender of performance is not required the terminating party must however be ready willing and able to perform at the time of termination or, if a notice is a prerequisite to termination, then at the time for performance specified in the notice but not as at the date of issue of the notice: Foran v Wight (supra); McNally v Waitzer (1981) 1 NSWLR 294.

95 In my view, these common law principles continue to apply to the Olympic Contract and those principles are unaffected by cl 18(1)(b) of the General Conditions which goes no further than identifying the giver and recipient of a notice.

96 Thus, insofar as the pleading suggests the defendants had to be ready, willing and able to settle as at the date of issue of the September default notice, that is an incorrect statement of principle. The defendants must be ready, willing and able to settle at the due date for performance: McNally v Waitzer (supra). Having regard to the terms of the September default notice, that means prior to the expiration of the notice period, being at the end of September 1996.

97 For the reasons previously given, the plaintiffs were not legally responsible for all of the matters that caused Urban Focus to lodge and maintain the June and July caveats. The defendants had to provide title to the Lochel property to Olympic at settlement and unless Urban Focus was willing to remove the caveats to allow settlement to proceed, the defendants could not perform their contractual obligations. I infer from the documentary evidence that Urban Focus would not voluntarily remove the caveats unless and until it had reached a satisfactory accommodation with the new purchaser.

98 It is the case that by August 1996 Bondgate and Urban Focus had resolved the impediments to settlement of the Bondgate Contract. The defendants rely on that to establish that they would have been in a position to settle the Olympic Contract. The resolution of the disputes with Urban Focus was a condition which had to be satisfied to activate the defendants' obligation to tender (and accept) the Bondgate Contracts. It was in that context that negotiations were carried out and a resolution reached between Bondgate and Urban Focus. There is no evidence that Olympic had reached agreement with Urban Focus. Having regard to the association between Bondgate and Olympic it may have been a simple matter for Olympic to reach a similar agreement with Urban Focus. But it seems it did not. In any event, the condition relating to Urban Focus was not an independent obligation the performance of which the defendants could take advantage of in another context. Further, it did not effect a variation to the Olympic Contract redistributing responsibility to Olympic to ensure the defendants could deliver title at settlement. Based on those findings I am satisfied that the defendants were not ready, willing and able to transfer title to the Lochel land to Olympic on or before the expiration of the notice period under the September default notice or before termination.

99 The plea in par 4B is that the defendants by their wrongful conduct prevented Bondgate from being able to carry out its obligations under the Bondgate Contract until 29 October 1997. As stated earlier the pleader must have intended a claim to the effect that the defendants' conduct prevented Bondgate from being able to satisfy the Bondgate conditions until late October 1997. I proceed on that basis.

100 To prove this part of its case the plaintiffs must establish a causal nexus between the defendants' conduct complained of and the delay in Bondgate being in a position to settle, in particular, the delay between Bondgate's August 1996 agreement with Urban Focus and late October 1996. Accepting without deciding that the withdrawal of finance approval could theoretically be a relevant causative factor notwithstanding that both the Olympic Contract and Bondgate Contract were cash offers, the reasons for the investors withdrawing loan approval are unclear. On one view of the evidence, theirs was a belated awakening to the implications and ramifications of the Owners Deed and Bondgate's intention to purchase the Lochel land subject to Urban Focus' interest. Responsibility for those matters cannot be attributed to the defendants' pleaded conduct. Although the pleaded matters relied on necessitated the Urban Focus agreement and the financiers withdrew after Bondgate had resolved matters with Urban Focus, I am not persuaded that the terms of that arrangement was the source of the financiers concern. In summary, I am not persuaded that the matters relied on by the plaintiffs caused the initial investors to get cold feet and withdraw finance approval.

101 The plaintiffs also claim that the defendants repudiated the Olympic Contract and the Bondgate promise by selling the Lochel land to Smart Investments. As stated earlier, the Smart Investments Contract was not conditional on the valid termination of the Olympic Contract (or the Bondgate promise). Mr Domhoff gave evidence concerning this matter. By 4 October 1996 he believed that the Olympic Contract had been terminated. The Offer and Acceptance which became the Smart Investments Contract was prepared by Mr James on 4 October 1996. Mr Domhoff was aware that Olympic had caveated the Lochel land and there could be delays in effecting settlement and for that reason he inserted the handwritten Special Condition 8.

102 Mr Steven Zielinski, a director of Smart Investments, also gave evidence. His recollection of events was different. He said Mr Domhoff told him that the Lochel land was subject to an existing offer from Olympic, that settlement was long overdue and it was doubtful that it would be able to settle and it would only be possible for Smart to buy the land if the existing contract with Olympic was terminated. He (wrongly) understood Special Condition 8 to mean that the defendants were not obliged to sell the land to Smart Investments whilst the Olympic Contract remained on foot. He also said it was understood between himself and Mr Domhoff that Smart Investments would not proceed with its contract if the Lochels were able to complete the original sale to Olympic. However, Mr Zielinski was not asked and did not say that Smart Investments would have removed its caveat and permitted settlement to proceed at any time before the defendants purported to terminate the Olympic Contract on 4 November 1996. Indeed, by letter of 1 November 1996 to Smart Investments' lawyers Kott Gunning, Mony de Kerloy advised that the Olympic Contract was still on foot, that his client had lodged a caveat and requested Smart Investments to remove its caveat. On Mr Zielinski's instructions, Kott Gunning responded by letter of 11 November 1996 refusing to move the caveat and suggesting the appropriate course to resolve the dispute as to whether or not there was a contract between Olympic and the defendants was by determination in the Supreme Court and that Smart Investments would await the outcome. Kott Gunning advised Mr Thorpe of the same matters by letter of the same date.

103 There is a conflict in the evidence of Mr Domhoff and Mr Zielinski as to the purpose and affect of cl 8. Mr Zielinski's evidence is not supported by the terms of the Smart Investments' Contract or the letters sent by Kott Gunning on his instructions. I accept that in the event it was determined by this Court that the Olympic Contract had not been validly terminated, Smart Investments would withdraw from its contract and make no claim on the defendants. However, I am also satisfied and I find that Smart Investments were not requested by or on behalf of the defendants before or after 4 November to withdraw the Smart Investments' caveat or to withdraw from the Smart Investments Contract to enable settlement with Olympic or Bondgate to proceed and, on the balance of probabilities having regard to the stand taken in the Kott Gunning letters concerning the need for Supreme Court proceedings, would not have done so by 4 November 1996 even if a request had been made.

104 Accordingly, I am satisfied that by entering into the Smart Investments Contract on 4 October 1996 the defendants committed a repudiatory breach of the Olympic Contract (and the Bondgate promise) which breach prevented them from terminating the Olympic Contract on 4 November 1996.

105 In summary, the plaintiffs succeed in their claims that the defendants: (a) breached the Bondgate promise; (b) are estopped from denying or resiling from the Bondgate promise; (c) were not ready, willing and able to settle on or before the expiration of the notice period in the September default notice or before termination; and (d) committed a repudiatory breach of the Olympic Contract before its purported termination. Accordingly the defendants' termination of the Olympic Contract on 4 November 1996 was invalid and without force or effect. I turn now to the question of damages.

Loss of interest on purchase price of Mandurah land

107 The plaintiffs seek to be put into the position they would have been in had the defendants performed their obligations. That is, they seek expectation damages. If the defendants had performed the Bondgate promise, the Bondgate Contracts would have been accepted, settled and the Lochel land would have been developed. The plaintiffs claim the loss of profits which would have arisen from the development. There is no objection in principle to the loss of profits claim, in particular, no suggestion that such damages were too remote, applying the rule in Hadley v Baxendale (1854) 156 ER 145 which requires that loss be foreseeable either because of imputed knowledge of the usual course of things or because of actual knowledge. I am not satisfied that Olympic has a loss of profits claim in relation to the Lochel land. At no relevant time was Olympic ready willing and able to settle under the Olympic Contract, the expectation being that Bondgate would purchase the Lochel land.

108 A further consequence of the breach is that the Mandurah Contract (and the amended Mandurah Contract) were never performed, their fate being inextricably linked with the fate of the Olympic Contract and Bondgate Contract as the former were conditional upon settlement of the latter.

109 Turning firstly to the loss of profits claim. There is a dispute as to whether the loss of profits should be based on the profits made under the Urban Focus development or, alternatively, on the basis of a go-it-alone strategy by Bondgate. The evidence establishes that Bondgate would have been bound to proceed with the Urban Focus development unless it could establish the invalidity of the Owners Deed whether by order of this Court or, more unlikely, by settlement agreement with Urban Focus. Mr Bacich did not give direct evidence that if the Bondgate Contract had settled, Bondgate would have challenged the Owners Deed or give any indication of the likelihood that it would do so in order to free Bondgate to pursue its own development strategy.

110 Mr Lieberfreund, an accountant, gave expert evidence on behalf of the plaintiffs as to the profit to be expected on a go-it-alone basis. He arrived at a loss of profit figure of $295,143. In reaching that figure he determined that the total cost of the Lochel land to Olympic was $569,878. That comprises the cash component ($250,000) and the cost of construction of the development of the Mandurah land. There are two points to note in regard to Mr Lieberfreund's calculation. Firstly, he failed to have regard to the fact that Frisquet owned 50 per cent of the Mandurah land, and I infer Frisquet was liable for 50 per cent of the costs associated with the development. Further, the development costs were incurred by Olympic not Bondgate. There is no evidence as to how and why Bondgate should receive the benefit of that figure in the calculation of the total cost to Bondgate of the Lochel land. On that basis the cost of the Lochel land to Bondgate would be $600,000 plus stamp duty of $24,000 ($624,000) instead of $569,878 a difference of $54,122. The loss of profit would reduce to $241,021.

111 The next component of Mr Lieberfreund's calculation is the costs of the development of the Lochel land (excluding finance costs). Those costs were supplied by Mr Bacich. They do not include management time or costs. It was Mr Bacich's evidence which I accept that Urban Focus' management fee for its development was reasonable.

112 Mr Lieberfreund calculated the finance costs at $70,748 based on the assumption that Bondgate under an independent venture would have developed the land more quickly than Urban Focus. There is no evidence to support that assumption. All the evidence (referred to below) points to the contrary because regard needs to be had to the time taken to challenge the validity of the Owners Deed, to prepare a development plan, have it approved by all of the relevant authorities and then negotiate with adjoining land owners.

113 The next component of Mr Lieberfreund's calculation is the sale proceeds of the developed land. Those sale proceeds are based upon the actual net receipts or anticipated receipts by Urban Focus from the lots developed pursuant to Urban Focus' development proposal.

114 The costs were based on a report from consulting engineers Van Der Meere in a letter dated 13 October 1998 attached to Mr Lieberfreund's report. The author of the Van Der Meere report was Mr Enzo Biagioni-Froudist, an engineer. He was called by the plaintiffs to give evidence as to the costs of, and assumptions involved in, the go-it-alone option. The opposing parties did not call any expert evidence or challenge the credibility or reliability of the evidence of the plaintiffs' experts. Mr Biagioni-Froudist, whose evidence I accept, explained the difference between the Urban Focus scheme and the go-it-alone option. The Urban Focus scheme involved a pooled development whereby the land of the participating owners would be amalgamated into one parcel and then subdivided in an orderly fashion. The go-it-alone option involved the Lochel land being developed independently by Bondgate to achieve the same (or a similar) outcome as that achieved for the Lochel land in the Urban Focus development. However, in order to achieve that outcome access to the proposed lots (other than the house lot) created from the Lochel land had to be on roads constructed partially on adjacent land owned by third parties. Thus, Bondgate would require the approval or co-operation of adjoining land owners to the creation of the access roads. Alternatively, Bondgate would have to wait until the owners of the relevant adjacent land developed it which would in general terms follow a structure plan approved by the local council for the development of the area. Another theoretical alternative would be to construct access roads entirely within the Lochel land but that would have the effect of reducing the size (or number) of blocks in the subdivision and thus affect revenue.

115 Mr Biagioni-Froudist's determination of the costs of the go-it-alone option was based on the Urban Focus subdivision plan which in turn reflected the approved structure plan. He did the costing on the basis that the adjoining land owners would co-operate in the provision of access roads. However, he did not ascertain from them whether they would agree to the construction of access roads to service the lots in the Lochel land. In addition, Bondgate had not prepared its own subdivision plan which would in due course require approval from a number of authorities described in the evidence as "the local council, town planning people and bureaucracies that intrude into environmental protection". Mr Biagioni-Froudist conceded that these approvals had not been obtained in a formal way.

116 There was evidence that if Bondgate was bound by the Owners Deed it would have made a loss. Mr Colin Evans, a director of Urban Focus, was called by the defendants. On the assumption that Olympic/Bondgate was bound by the Owners Deed, Mr Evans calculated that the purchaser would have made a loss of either $109,593 (based on total holding costs of $683,133 at 11 per cent per annum compounded monthly) or $69,184 (based on interest at 8 per cent per annum compounded monthly). The total holding costs of $683,133 comprised the following:

- cost of acquisition of Lochel land $640,000

- stamp duty $26,133

- loan establishment cost $17,000

$683,133

117 Mr Evans also assumed that the house lot would be sold within three to four months for a net return of $250,000. The total cash value of the distribution received from the Urban Focus development of the Lochel land was $454,704 which was paid by instalments in the period between 5 May 1998 and 19 March 1999.

118 In their closing submissions the plaintiffs challenge the correctness of the total holding costs and the amount borrowed. They say as follows: The true acquisition cost of the land would be $630,000 comprising an acquisition cost of $600,000 (in accordance with the Bondgate Contract), stamp duty of $24,000, settlement fees of $1,000 and loan establishment costs which the evidence establishes would be $5,000; the plaintiffs would not borrow the full amount of the total holding costs; Bondgate applied for a loan of $480,000 for the purpose of carrying out the development as well as the acquisition of the Lochel land; the Mandurah land was a trade property for a purchase price of $350,000; the amount that had to be funded by Bondgate for the purchase of the Lochel land would be $280,000 ($630,000 minus $350,000); based on a net return of $250,000 within three months from settlement of the house lot and the first distribution being received on 5 May 1998 the interest costs (at the plaintiffs' borrowing rate of 12 per cent) were calculated at $12,000, bringing the total expenses to $642,000.

119 On this scenario there would be a profit of $62,704 calculated as follows:

- development distribution $454,704

- home lot sale $250,000

$704,704

less expenses $642,000

$62,704

There is no direct evidence of any arrangement between Bondgate and Olympic and Frisquet as to the availability or terms on which the net purchase price of the Mandurah land would be made available to Bondgate. However, the evidence establishes that Bondgate is the corporate vehicle for the interests of Mr Bacich (who is also associated with Olympic) and Mr A Douglas-Brown (who is associated with Frisquet). Further, having regard to all of the finance applications and approvals, I am not persuaded that one of the purposes of the Bondgate loan of $480,000 was to fund the development of the Lochel land. In these circumstances I am prepared to infer that at least part of the funds from settlement of the Mandurah land would be used to set-off the amount paid by Bondgate to the defendants and that any inter company loan would not be at usual commercial rates. I am unable to conclude what if any rate of interest would be charged however, I am not persuaded that Bondgate would necessarily have made a loss if it was bound by the Owners Deed.

120 If the breach of contract had not occurred and Bondgate had become the registered proprietor of the Lochel land, there would be a number of potential outcomes. Firstly, if the Owners Deed was valid, Bondgate would be bound by it pursuant to the August agreement and Deed of Covenant. Secondly, Bondgate may decide to participate in the Urban Focus development regardless of the validity or otherwise of the Owners Deed. Thirdly, if the Owners Deed was invalid it may develop the Lochel land on a go-it-alone basis. The third alternative is accepted by the parties to be a damages claim for loss of an opportunity or chance and that claim is made in this action.

121 A plaintiff is entitled to damages for loss of any foreseeable chance or opportunity of benefit that can be causally linked to the breach. Recovery extends to the loss of a chance which was not promised (as in this case) but which would nevertheless have been created by performance of the contract: Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 91 - 92, 102, 118 - 120; Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 at 349.

122 Damages for loss of a chance are recoverable if the loss is foreseeable as a probable result of the breach and are assessed by reference to the prospects of success. In this case the plaintiffs claim for the loss of a chance of earning a profit. A loss of a chance is compensable even if its realisation is unlikely, on the balance of probabilities. As stated by the High Court, unless the chance is so low as to be regarded as speculative - say less than one per cent - or so high as to be practically certain - say over 99 per cent - the court will take that chance into account in assessing the damages: Malec v J C Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638.

123 However, before reaching that stage it is necessary for the plaintiff to establish, on the balance of probabilities, the existence of the chance. There is authority to the effect that where realisation of the chance depends on a plaintiff's own decision to take it up, the plaintiffs must also establish on the balance of probabilities that it would have been taken up: G W Sinclair & Co Pty Ltd v Cocks [2001] VSCA 47.

124 That raises the question whether Bondgate had to prove on the balance of probabilities that if the Bondgate promise and Bondgate Contract had been performed according to their terms, it would have taken the necessary steps to enable it to pursue the go-it-alone option which would require a legal challenge to the validity of the Owners Deed or a settlement with Urban Focus that had that effect. The plaintiffs' closing submissions imply that this factor is relevant to the quantification of the chance rather than a matter to be proved on the balance of probabilities and the opposing parties do not contend to the contrary.

125 In making the decision whether to challenge the Owners Deed it would be reasonable to have regard to factors affecting the value of the chance (if availed of) including:

(a) the prospects of succeeding on a challenge to the validity of the Deed;

(b) the likelihood of Bondgate obtaining the necessary approvals from relevant government agencies and adjacent land owners;

(c) the time it would take having regard to the matters in (a) and (b) for any income stream to come on line.

126 As already noted, Mr Bacich did not give evidence that, following settlement, Bondgate would take the first step towards facilitating an independent venture, being a determination by order or agreement that the Owners Deed was invalid or the likelihood of that occurring. However, it is the case that Bondgate went to considerable lengths in its negotiations with Urban Focus to secure the right to challenge the Owners Deed post settlement. Further, the plaintiffs challenged the validity of the Owners Deed as against Urban Focus, formerly the second defendant, in this action. That claim was settled. Having regard to these matters I am satisfied on the balance of probabilities that Bondgate would have challenged the validity of the Owners Deed and thus it lost the chance to independently develop the Lochel land. However, that finding is not a reflection on the objective value of the proven chance but on Mr Bacich's subjective position.

127 I am also satisfied, having regard to the financial standing of the individuals behind the plaintiffs and the relative ease with which Bondgate obtained finance approval, that it had the capability of securing the necessary funding to develop the land on a go it alone basis. I infer the original financiers withdrew because of concerns about the security.

128 The value of the proven loss of chance is determined by reference to the degree of probabilities or possibilities to which the civil standard of proof (balance of probabilities) has no application. As to the prospects of success of the challenge to the Owners Deed, I infer from the fact that the plaintiffs and Urban Focus settled their disputes formerly raised in this action that the plaintiffs had reasonable prospects of success. The likelihood of Bondgate obtaining the necessary approvals from relevant authorities and adjacent landowners is likely to be affected by whether or not the Urban Focus development could or would proceed on an amended basis without the Lochel land. The evidence establishes that Urban Focus, or an associated company, purchased the Lochel land from Smart Investments to allow its development to proceed on a viable basis. I infer that if Bondgate's challenge to the Owners Deed was successful, its prospects of pursuing the go it alone option would be enhanced. The time it would take before any income stream came on line is a very important factor about which there is very considerable uncertainty. However, on any view it would take significantly longer than the Urban Focus development took. That of itself justifies a further reduction from Mr Lieberfreund's net profit calculation. However, I have had regard to that in valuing the proven loss of chance. The parties' valuation submissions are of such generality as to be of little assistance.

129 Having regard to the limited evidence available on the relevant variables I can only approach the matter on a global basis. I would value the loss of the chance at $60,052 being 25 per cent of the maximum net profit of $241,021.

130 Another consequence of the breach is that the Amended Mandurah Contract did not settle. The purchase price of the Mandurah land was $350,000. It was sold on 21 March 1998 for $282,000, a capital loss of $68,000, of which Olympic's share was $34,000. In January 1997 Olympic dropped its claim for specific performance and claimed damages. Accordingly, Olympics' damages are to be assessed as at January 1997. The defendants had committed a repudiatory breach of the Olympic Contract which was accepted by Olympic when specific performance was no longer a possibility. Olympic is entitled to common law damages. Having regard to the price for which the Mandurah land sold in March 1998 and the absence of any evidence from, or challenge by, the defendants to suggest the 1998 sale price was, or may be, below the January 1997 market value, I am satisfied that the market value of the Mandurah land at January 1997 was not less than $282,000.

131 I am satisfied that Olympic is entitled to its claimed capital loss of $34,000 but not to loss of interest on the purchase price in the period when it retained the income producing investment asset.

132 Having regard to my finding that the defendants' conduct did not cause the original financiers to withdraw finance approval, there is no legal basis for Bondgate's claim against the defendants for wasted costs on the first loan. Further, the claim for interest paid on the second loan is inconsistent with its loss of profits claim.

133 In summary, I would order that the defendants are liable to Bondgate in the sum of $60,052 and to Olympic in the sum of $34,000. I would also order that Bondgate is entitled to interest at the rate payable from time to time under the Supreme Court Act 1935 (WA) from 1 March 1999 (as claimed) until judgment. I would also order that Olympic is entitled to interest on the same basis from 1 March 1999 until 17 November 1999 which was when it received a settlement sum of $50,000 from other defendants to these proceedings in respect of the damage also claimed from the defendants. That settlement sum must also be set off against Olympics' damages award which results in the extinguishment of Olympics' entitlement against the defendants.

134 It follows from my factual findings on the plaintiffs' claim that the defendants must fail on their counterclaim.

135 The defendants claim an indemnity and damages from Mr Thorpe for breach of contract, negligence and breach of fiduciary duty. There are three categories of claim. The defendants seek firstly, a contribution or indemnity from Mr Thorpe to the extent of their liability to the plaintiffs; secondly, the damages (if any) they would have obtained from the plaintiffs had the counterclaim been successful (and costs associated with the value at trial on the counterclaim); and thirdly, claims that are independent of the claim or counterclaim.

136 There is an overlap in the identification of the terms of the contract of retainer ("retainer"), the common law duty of care and the fiduciary duties. It is pleaded that the terms of the retainer are that Mr Thorpe would:

(1) advise the defendants in relation to their rights under the contract (which I infer is a reference to the Olympic Contract);

(2) represent the defendants in relation to enforcing those rights and, in particular, for the purpose of terminating the Olympic Contract in the event of default by Olympic;

(3) exercise reasonable skill, care and diligence in giving advice to and acting for the defendants;

(4) keep the defendants timeously informed as to the status of their matter and his actions on their behalf;

(5) obtain instructions from the defendants in relation to the subject matter of his retainer as and when required and act promptly and in accordance with the defendants reasonable and lawful instructions from time to time;

(6) act in such a way so as not to cause the defendants harm or unnecessary distress;

(7) inform the defendants of any matters arising in the course of his retainer that placed him in a position of conflict of interest or would give rise to any possible claim by the defendants against him by reason of his conduct of their affairs; and

(8) charge the defendants only such sums as were reasonably incurred in the discharge of his retainer and were consistent with the scales of fees promulgated from time to time or alternatively such sums as were reasonable for work performed by him pursuant to the terms of the retainer.

137 The retainer is pleaded as an oral agreement made in or about early July 1996 between the defendants and Mr Thorpe whereby Mr Thorpe agreed to act as their solicitor. It is said that terms (3) to (8) are implied "as a matter of custom and in order to give business efficacy to the retainer".

138 The defendants plead that Mr Thorpe owed to the defendants a common law duty of care and fiduciary duties in the terms set out in items (3) to (8) above. They also rely on further fiduciary duties:

(10) to avoid a conflict of interest between the defendants' interests and his own; and

(11) not to charge the defendants for work done whilst acting in conflict.

139 In response to the defendants identification of the duties, Mr Thorpe makes very narrow admissions. He admits that on 9 July 1996 the defendants instructed him to proceed to settlement on the Olympic Contract and Mandurah Contract and that he owed the defendants a tortious and fiduciary duty to exercise reasonable care in the performance of that retainer. Specific aspects of his instructions affecting the scope of his retainer are pleaded elsewhere in the defence. I will deal with the issues affecting the nature and extent of the retainer and duties in the context of the pleaded breaches. First it is necessary to provide the factual background to the third party claim.

140 I find the following facts established by the evidence unless expressly stated to be in issue or contradicted. Peter James Settlements was the defendants' settlement agent on the Olympic Contract and the Mandurah Contract. By letter dated 9 July 1996 Mr James, on behalf of the defendants, wrote to Mr Thorpe requesting him to attend to finalisation of the sale and purchase of the properties. Mr James advised Mr Thorpe that Mr Bacich was sometimes extremely difficult to get on with and was in the habit of delaying settlements. He said the best course of action would be for the Olympic Contract and the Mandurah Contracts to be cancelled and the Lochel land resold, they having a second purchaser willing to take over the sale.

141 In a letter dated 10 July 1996 to the defendants Mr Thorpe confirmed their instructions to act on the defendants' behalf in relation to the sale of the Lochel land and the Mandurah land, confirmed their wish to settle at the earliest possible date or at least to bring matters to a head expeditiously and of his intention to issue a notice of default. The letter continued:

"Once the settlement date [identified as 12 July 1996] is passed it is our intention to issue a notice of default thereby giving you the right to terminate the contract at the expiration of 15 days. Whether you wish to terminate or to issue proceedings to enforce the contract is a matter upon which we shall ultimately require your instructions."

That is the sole occasion on which Mr Thorpe communicated with the defendants in writing in relation to the land sales. Mr Thorpe issued a default notice dated 16 July 1996 (the "July default notice"). The July default notice identified the contractual date of settlement as 12 July 1996 and gave Olympic 15 days to effect settlement.

142 The defendants and Mr James attended a meeting with Mr Thorpe at his office on 1 August 1996. Mr Thorpe advised the defendants that they could not terminate the Olympic Contract because of the conduct of Urban Focus who had lodged caveats on the title. Mr Thorpe described the threat of termination in his letter of 30 July 1996 as a card that he was playing in the negotiations but that he did not believe, and so advised the defendants, that they were entitled to terminate the Olympic Contract at that stage because they were not ready, willing and able to settle.

143 By this stage the defendants were unable to meet the payments due under two mortgages registered on the Lochel land. No payments had been made since July 1996.

144 In the three weeks after the 1 August meeting Urban Focus and Bondgate were in the process of negotiating a resolution that would result in Urban Focus agreeing to lift its caveats to enable settlement to proceed. Ms Bennett orally advised Mr Thorpe in mid August that settlement could proceed in the following week and Mrs Lochel wrote to Mr Thorpe on 20 August 1996 listing the outstanding items that the vendors needed to complete before settlement on the Mandurah land. On 22 August 1996 Mr Thorpe received settlement statements for the Lochel land and the Mandurah land. However, on 23 August 1996 Mr Thorpe was orally advised by Ms Bennett that the financiers had a problem with the Owners Deed and her client could not proceed to settlement. It is common cause that Mr Thorpe orally advised Mrs Lochel of the substance of Ms Bennett's advice. Mrs Lochel's evidence concerning the September default notice is as follows:

"At about that time [20 August 1996] I discussed the matter with Thorpe ... Thorpe told me that Olympic's finance had not been approved. He said that it would be wise to issue a further default notice before terminating the contract.

I said that we did not want anything further to do with Bacich and that I wanted to terminate the contract. Thorpe told me that he would issue a further default notice immediately.

I told Thorpe that Domhoff had other purchasers.

On or about 13 September 1996 Thorpe told me that he issued a further default notice on that date. I did not receive a copy of the default notice. I understood that we would be free to sell the land if Olympic failed to complete settlement within 14 days after receiving the notice."

145 Aspects of Mrs Lochel's evidence were contradicted by Mr Thorpe whose evidence was as follows:

"In early September 1996, I telephoned Mrs Lochel. I said to her words to the effect:

• in order to get things moving with a view to either forcing settlement or putting the Lochels in a stronger position to terminate the contract, Mrs Lochel should instruct me to issue a further default notice.

Mrs Lochel instructed me to issue a further default notice.

Mrs Lochel did not say words to the effect that the Lochels wanted nothing further to do with Bacich and wanted to terminate the contract.

I issued a further default notice on 13 September 1996."

146 Mr Thorpe was cross-examined as follows about what advice he gave the defendants in relation to the September default notice:

"Did you say to Mrs Lochel before you issued this default notice that there may be a difficulty terminating the contract, having regard to the problems with interpretation or any other problems --- I wouldn't - I did not give that specific advice, but in respect of a default notice my advice always is nothing is absolutely certain. You have to assess the position once the period ... expires.

Well, when you discussed issuing that default notice with Mrs Lochel, you did not suggest to her there could be any - you did not suggest to her that the problems that you had previously discussed were still alive --- correct - sorry, the problems I'd previously discussed being issues about?

Urban Focus and the transfer - all that? ... Correct, correct. I understood that all those matters had been resolved and I had conveyed that to Mrs Lochel, and the purpose of the issue of this default notice was because Olympic was clearly in default for a matter that, on its face, had nothing to do with any conduct of the Lochels or the quality of the title they would be able to give at settlement.

Would it be fair to say that this is the advice you conveyed in one way or another to the Lochels before issuing this default notice --- Yes."

147 It is not in dispute that Mr Thorpe and Mrs Lochel spoke by telephone on 25 September 1996. Mr Bacich had asked to meet with the defendants without Mr Thorpe and Mrs Lochel spoke to Mr Thorpe about the request. Mrs Lochel said she also told Mr Thorpe that Mr Domhoff had introduced Mr Zielinski as a potential purchaser. Mr Thorpe's evidence was that he told her in effect that she should sign no offer without Mr Thorpe first seeing it, that it had to be drawn in a way that made acceptance subject to the Olympic Contract not proceeding and that Mrs Lochel replied with words to the effect that she would show him any offer before signing it. Mrs Lochel denied that Mr Thorpe had so advised her.

148 Mr James drafted the Smart Investment offers. It was his evidence that on or before 4 October 1996, but in any event before presenting the Smart Investment offers to the defendants, he telephoned Mr Thorpe and asked him to confirm that the Olympic Contract was at an end. Mr Thorpe said that the Olympic Contract was at an end, confirmed that he was aware of the Olympic caveat and asked Mr James to send any new offers to him. Mr Thorpe said that any contract with Smart should take into account possible delays in settlement that might be caused by the caveat.

149 According to Mr James, he relayed the gist of Mr Thorpe's comments to Mr Domhoff and instructed him to add an appropriate special condition to the offers that he had prepared before they were signed by the parties. Mr Thorpe denies advising Mr James that the Olympic Contract had come to an end.

150 Mr Domhoff's evidence was that before 4 October 1996 Mr Thorpe telephoned him about the Lochel property and told him that the contract with Olympic had been terminated or was at an end and that he (Mr Thorpe) had a mate who was interested in buying that property. Mr Thorpe also denied this evidence.

151 Mrs Lochel gave evidence that on 7 October 1996 she telephoned Mr Thorpe and advised him that the defendants had sold the Lochel land to Smart Investments. She said Mr Thorpe did not at this time advise her that the Olympic Contract had not been terminated nor did he say words to the effect "Mrs Lochel, that contract isn't terminated. What have you done?".

152 Mr Thorpe had a different recollection. His evidence was that in the course of a telephone conversation with Mrs Lochel on or about 7 October 1996 he repeated the advice that she should not accept any offer without him first seeing it and Mrs Lochel told him that Mr Domhoff had already presented an offer and she and her husband had accepted it. He said he immediately telephoned Mr Domhoff to confirm the position. Mr Domhoff told him that he had presented an offer to the Lochels and they had accepted it. Mr Thorpe's evidence continued:

"I said to Mr Domhoff words to the effect it was surprising he had gone ahead and signed the Lochels up to a new contract when I had requested any offer be first shown to me. He responded to the effect he had put a clause in the offer protecting the Lochels. I responded with words to the effect that he better show me the contract 'quick smart'.

I then telephoned Mrs Lochel and said to her words to the effect that Domhoff had confirmed she and her husband had accepted an offer. I asked Mrs Lochel why she had done that without referring the document to me as I had advised. She responded with words to the effect 'Manfred' had said it would be alright. I responded with words to the effect that I hope what 'Manfred' had written into the contract was enough protection."

153 Under cover of a letter of 9 October 1996 Mr James provided Mr Thorpe with copies of the Smart Investments' Contract and the contracts for the trade properties. Mr Thorpe's evidence was that after receiving those contracts he telephoned Mrs Lochel and said to her that cl 8 may not provide the protection required and that she should not terminate the Olympic Contract until the Smart Investments Contract was definitely going to proceed. He continued:

"I said words to the effect if settlement could be effected with Olympic, that would be the preferable path because it would result in a settlement of the sale of their land and at the same time rid them of potential problems with Olympic."

Mrs Lochel denied that Mr Thorpe had given such advice and said that if he had, she would have been made aware that the Olympic Contract was not terminated when her understanding was that it had been.

154 Mr Thorpe said in cross-examination that Mrs Lochel had given him general instructions to negotiate with Olympic as far as possible, his assessment was that the possibilities ended on receipt of the letter of 1 November 1996 from Mony de Kerloy and on the basis of Mrs Lochel's general instructions and his assessment of the 1 November letter he sent the termination notice on 4 November 1996.

155 By 22 October 1996 Mr Thorpe was aware from Ms Bennett that Bondgate had obtained finance approval and Bondgate was looking at what was required for the settlement to proceed. In that conversation Mr Thorpe requested Ms Bennett to write to him confirming her advice.

156 In the period 1 October 1996 to 4 November 1996, Mr Thorpe received the clear title demand in the Mony de Kerloy letter of 3 October 1996; a discussion took place between Ms Bennett and Mr Thorpe on 10 October 1996 about the option of her client purchasing the Lochels' mortgage; there was the telephone conversation between Ms Bennett and Mr Thorpe on 22 October concerning finance approval; a further telephone conversation between Ms Bennett and Mr Thorpe on 25 October 1996 in which Mr Thorpe again requested Ms Bennett to write to him concerning settlement proceeding; a telephone conversation on 30 October 1996 in which Ms Bennett spoke with Mr Thorpe about the Smart Investments caveat; the letter of 1 November 1996 from Mony de Kerloy advising their client was ready, willing and able to settle; and Mr Thorpe's letter of termination.

157 It was Mrs Lochel's evidence that between 1 October 1996 and 4 November 1996 Mr Thorpe did not inform the defendants of any suggestion that the Olympic Contract was still on foot or advise them that Olympic or Bondgate appeared to have finance or inform them of the possibility of settlement or seek or obtain instructions from the defendants in relation to any of the matters occurring in that period, including Mr Thorpe's decision to issue the termination notice. He did not provide copies of any correspondence sent or received by him.

158 Further, in that same period Mr James wrote a number of letters to Mr Thorpe purporting to confirm Mr Thorpe's advice that the Olympic Contract and the Bondgate Contract were terminated or at an end. Mr James' letter of 9 October 1996 states, inter alia:

"We refer to our recent telephone conversation in which you advised that both the Offer between Mr and Mrs Lochel and Olympic Holdings Pty Ltd and a subsequent Offer between the Lochels and a company nominated by Olympic Holdings Pty Ltd ... were at an end, the relevant Notices having lapsed."

159 In a letter of 14 October 1996 to Mr Thorpe Mr James states:

"We refer to our recent telephone conversation in which we advised that a Notice had been forwarded to Olympic Holdings Pty Ltd and their associated companies in relation to completion of settlement of the above property that their contract had lapsed and the property was able to be re-offered for sale."

160 Having regard to the other letters from Mr James to Mr Thorpe in October on this subject, I am satisfied that the word "we", in line 1 is intended to be "you". In a further letter of the same date Mr James informed Mr Thorpe that the Lochels' financiers required advice from him as to why the contract between the Lochels and Olympic was at an end and invalid. In a letter dated 15 October 1996 Mr James stated, inter alia:

"As per our recent telephone conversation, you advised that the contract between the Lochels and Olympic Holdings was at an end and they could, therefore, enter into a new agreement relating to the sale of their home."

161 Finally, in a letter dated 21 October 1996 to Mr Thorpe, Mr James sought advice as to how the Olympic caveat could be expeditiously removed to allow the resale to proceed.

162 Mr Thorpe did not respond in writing to any of the correspondence from Mr James until 4 November 1996. Mr James said that he did not receive any response, oral or in writing, from Mr Thorpe to any of his October 1996 letters until he received a letter dated 4 November 1996 from Mr Thorpe. Mr Thorpe's evidence was that he did have discussions with Mr James in October about the removal of the Olympic caveat. He said he had a number of telephone conversations with Mr James after 10 October 2002 concerning the inadequacy of cl 8 and told him at some stage after receiving the letter of 9 October that the Olympic Contract was still on foot. Mr Thorpe's letter of 4 November is in the following terms:

"We write to express the concern that we had previously intimated to your Mr Domhoff at the time the Smart Investments offer was accepted.

We confirm that our Mr Thorpe spoke with your Mr James and confirmed previous discussions that any offer that was presented to our mutual client would first be vetted by our Mr Thorpe and a condition inserted which would take into account the current dealings with Olympic Holdings Pty Ltd. When Mrs Lochel advised that she had signed the contract our Mr Thorpe spoke with Mr Domhoff who confirmed that he had since presented the offer to the purchaser and that it had now been accepted. Our Mr Thorpe expressed his disquiet at that conduct at that time.

The reason for that disquiet became apparent when some week or so later we were provided with a copy of the contract which revealed that there was no provision for the contract to come to an end if Olympic Holdings contract was upheld, merely a provision absolving the vendors of the obligation to pay penalty interest. The difficulty that will arise if Olympic's caveat holds the transfer up for any substantial length of time is that the purchaser may claim breach of contract because, of course, time is of the essence.

We are hopeful that there will be no negative consequence arising from this matter."

163 As noted earlier, it was Mr Thorpe's position that the Mony de Kerloy letter of 1 November 1996 contained completely untenable statements and made it clear that Olympic had no intention of settling on the contract. Mr Thorpe's view was that Olympic was not at that time ready, willing and able to settle because there were a number of matters that had not been attended to, including the stamping of the Olympic Contract. However, he saw a further problem as being that, even if the purchaser was not ready, willing and able to settle, the defendants could not terminate because it was arguable that acceptance of the Smart Investment offer was a repudiatory breach. Mr Thorpe admitted that he did not at any stage test with Mr Zielinski or Smart Investments' solicitors Kott Gunning what the attitude of Smart Investments would be in the event that the defendants wished to settle with the plaintiffs.

164 There is very little testimonial evidence on the issue of the scope of the retainer. However, the contemporaneous documents provide a reliable basis for determining that matter. The first meeting between Mr Thorpe, the defendants and their settlement agent Mr James on 10 July 1996 was in the context of the information in Mr James' letter of 9 July 1996 which raised for consideration the purchaser's obligation under the Owners Deed, the proposed substitution of the new contracts, the delay in settlement, the adverse impact it had on the defendants and the possibility of terminating the Olympic Contract and suing Olympic for damages. Mr Thorpe in his letter of 10 July 1996 thanked the defendants for their instructions to act on their behalf in the "dealing received from Peter James Settlements".

165 I am satisfied on the basis of the documentary evidence that Mr Thorpe had a general retainer to advise and act for the defendants in relation to the Olympic Contract and the Mandurah Contract including, inter alia, to advise the defendants in relation to the rights and obligations under the Olympic Contract and related matters including their position under the Owners Deed, the substitution of the new contracts and to represent the defendants in relation to enforcing their rights including, if appropriate, terminating the Olympic Contract in the event of default. There is no foundation in the evidence for the third party claim that the scope of the retainer was confined to Mr Thorpe being required to proceed to settlement on the Olympic Contracts and Mandurah Contracts. However, it is not in dispute that the defendants retained Mr Thorpe to represent them in this action, at least until late 2000.

166 The next matter is the terms of the retainer. Unless otherwise agreed, a duty to take reasonable care and skill analogous to the tortious duty of care is implied by law in contracts for the provision of legal services and an action may be brought in both contract and tort: Astley v Austrust (1999) 197 CLR 1; Hawkins v Clayton (1988) 164 CLR 539 at 580. There being no argument to the contrary in this case, I find that it was an implied term of the retainer that Mr Thorpe would exercise reasonable skill and care in the exercise of his contractual obligations.

167 A solicitor exercising reasonable care and skill in the context of the retainer in this case would:

(a) advise his clients on all matters relevant to his retainer, so far as may be reasonably necessary;

(b) carry out his instructions by all proper means;

(c) consult with his clients on all questions which do not fall within the express or implied discretion left to him;

(d) keep his clients informed to such an extent as may be reasonably necessary;

(e) carry out the defendants' instructions by all proper means within a reasonable time.

See Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp (A Firm) [1979] Ch 384 at 434 - 435; Tiffin Holding Ltd v Millican 49 DLR (2d) 216; Short v Delaney [1999] NSWSC 1293 at [5].

168 The duty in (b) is subject to the duty in (a) to advise. As stated by Anderson J in Dalleagles Pty Ltd v Australian Securities Commission (1991) 4 WAR 325 at 332, whenever a lay client gives instructions to a legal practitioner to perform specialist legal services involving the exercise of professional skill, there is imposed on the solicitor a duty to give any advice reasonably necessary to protect the client's interests in the transaction whether expressly requested or not.

169 The specific duties I have identified are within the scope of the defendants' pleading and I find that they are implied terms of the contract of retainer. The debate as to whether the tortious duty of care has any role to play outside the express and implied terms of the retainer (see Astley v Austrust (supra); Hawkins v Clayton (supra) at 579 per Deane J and Heydon v NRMA Ltd [2000] NSWCA 374; [2000] 51 NSWLR 1) does not arise in this case. There is a contractual and tortious duty to exercise due care and skill and that general duty encompasses the specific duties to which I have referred.

170 The next issue is whether it was an implied term of the retainer that Mr Thorpe act so as not to cause the defendants physical or mental harm or unnecessary distress. This question is to be distinguished from the broader question of whether damages for disappointment, inconvenience and distress are recoverable in contract. The latter question may arise in the absence of an express term of the type sought by the defendants: See Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344. The parties did not in their submissions address the court on the implied term issue. The court was not referred to any authority on that question. It is necessary to answer the question by reference to the principles that apply to the implication of terms. Insofar as the defendants rely on custom (as to which see Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226 at 236) there is no evidence of such a custom. Further, it cannot be said that the proposed term is a generic term implied by law in a contract of retainer for professional legal services relating to the conduct of litigation or the settlement of a property transaction. Finally, the proposed term does not satisfy all of the criteria for the implication of such a term as a matter of fact identified in Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (supra) at 346. In particular, it cannot be said that the proposed term is necessary to give business efficacy to the contract or that it is so obvious that it goes without saying. I find that it was not an implied term of the retainer that Mr Thorpe act in such a way as not to cause the defendants harm or unnecessary distress.

171 Applying the same analysis and reasoning I have also concluded that it was not an implied contractual term that Mr Thorpe advise the defendants of a conflict of interest or a possible claim of conflict.

172 Finally, there is the pleaded term relating to costs. In the absence of an express costs agreement, the nature and incidents of the retainer determines the items of work that are recoverable under that retainer. In this regard, within the confines of the retainer, there is implied authority to do all such things incidental to the object of the representation and to recover costs in relation thereto: Polkinghorne v Holland [1934] HCA 28; (1934) 51 CLR 143 at 156; Forest View Nominees Pty Ltd v Perron Investments Pty Ltd [1999] FCA 405; (1999) 162 ALR 482 at 503. In the absence of an enforceable costs agreement, the quantum of costs recoverable is determined by any applicable scale under s 58W of the Legal Practitioners Act 1893 or otherwise on a quantum meruit basis. That is consistent with the defendants' formulation of the implied term which I accept formed part of the retainer.

173 For the reasons given above, I also find that Mr Thorpe owed to the defendants a tortious duty to exercise reasonable care and skill as elaborated in (a) to (e) above. I see no basis in principle (and was not referred to any authority) to conclude that the other pleaded duties numbered (6) to (11) (inclusive) were part of a tortious duty of care.

174 I turn now to the claimed fiduciary duties. It is not in dispute that the relationship between solicitor and client is a fiduciary relationship: Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449. However, the existence of a fiduciary relationship does not mean that every duty owed by a fiduciary to the client is a fiduciary duty. In particular, a solicitor's equitable duty to exercise reasonable care and skill is not a fiduciary obligation: Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; Breen v Williams (1996) 186 CLR 71 at 82 per Brennan CJ. It follows that the contractual and tortious duties relating to the exercise of reasonable care and skill are not also fiduciary duties.

175 That leaves the duties numbered (7), (9), (10) and (11) dealing primarily with the subject of conflict of interest. A fiduciary may not enter into or continue with a retainer which gives rise to, or which might give rise to, a conflict between the fiduciary's personal interest and his duty to his clients: Maguire v Makaronis (supra). It is not necessary to show that the fiduciary has put personal interest ahead of duty; the breach occurs when the fiduciary places himself in a position in which there is the possibility of a conflict. That possibility of conflict between interest and duty must be real and prospective and not merely hypothetical. The traditional formulation of the principle was in terms of an obligation on a solicitor to disclose his interest and obtain his client's informed consent: Clark Boyce v Mouat [1994] 1 AC 428 at 437. However, the High Court in Maguire v Makaronis (supra) has taken a different approach. That case concerned a firm of solicitors arranging bridging finance for clients for the purpose of acquiring a farm. The clients executed a mortgage in favour of the solicitors who did not draw the client's attention to the fact that they were to be the mortgagees. The clients defaulted on the loan and the solicitors claimed possession of the mortgaged property. The High Court held that the solicitor's fiduciary duty was breached by them entering into the mortgage in the absence of the informed consent of the clients to the solicitor's interest. The obligation of disclosure is not a prescriptive fiduciary duty but a basis for the solicitors to show by way of defence that they had obtained the informed consent of their clients. Thus, the obligation on a solicitor who has a conflict of interest is not to act or continue to act without the client's informed consent.

176 The defendants also rely on an alleged fiduciary duty to act in good faith. It is accepted that a duty of good faith will be an implied term of a contract entered into between fiduciaries although it is unclear whether it constitutes an independent fiduciary duty. However, it is not necessary to resolve that question as nothing turns on it in this case.

177 Finally, the defendants rely on an alleged fiduciary duty not to charge for work done whilst acting in a conflict of interest. No authority was cited in support of such a duty. Indeed, the parties submissions do not address the point. In my view it is misconceived. Whether or not a solicitor in breach is entitled to charge for work done is to be determined by reference to the remedies available including whether or not the charges are part of a clients compensable loss and damage for breach of the fiduciary duty: Maguire v Makaronis (supra).

178 The defendants plead a number of breaches, some of which are in the alternative. The first breach complained of is based on the assumption that the plaintiffs are successful in their par 4A claim relating to the September default notice namely that the defendants were not ready, willing and able to settle the Olympic Contract or the Bondgate Contract or were in default. It is said that in those circumstances, Mr Thorpe:

(a) advised the defendants that they were entitled to issue the September default notice and thereafter terminate the Olympic Contract when in fact they were already not so entitled;

(b) failed to advise the defendants that they were in breach of the Olympic Contract or the Bondgate Contract (which should be a reference to the Bondgate promise); and

(c) failed to advise the defendants of the steps they should take to remedy such breaches in order to be able to terminate the Olympic Contract.

179 I have concluded that whether or not the defendants were ready willing and able to settle at the time of issue of the default notice does not affect the validity of the termination. Rather it is the position that prevails at the end of the notice period and the purported termination date that is relevant. I have also found that the defendants were not ready willing and able to settle the Olympic Contract at any time from the date of issue of the September default notice until termination as they could not deliver title to Olympic.

180 I turn now to the facts relating to this aspect of the defendants' claim against Mr Thorpe. There is a conflict of evidence as to the substance of the communication between Mrs Lochel and Mr Thorpe about the issue of the September default notice. The central conflict concerns whether or not Mrs Lochel instructed Mr Thorpe that the defendants wanted to terminate the Olympic Contract. What is clear is that the communication was oral. Mr Thorpe did not give or confirm his advice in writing. Further, save for a file note dated 25 September 1996 which records "Steve Zilenski potential purchaser" there is no evidence of Mr Thorpe having prepared a file note of the substance of any of his communications with Mrs Lochel.

181 Mrs Lochel's evidence concerning her communication with Mr Thorpe about the September 1996 default notice is consistent with, and to be expected having regard to, the events leading up to the issue of that notice. Mrs Lochel's evidence, which was not materially contradicted and which I accept, was that she had been led by Mr Domhoff to expect that settlement of the contracts would occur by the end of June 1996; the defendants intended to return to Germany to be with their children and grandchildren; based on their understanding as to when settlement would occur, the defendants in June 1996 sold their car, Mr Lochel ceased work and they shipped most of their furniture and belongings to Germany; Mrs Lochel discussed with Mr James and Mr Domhoff the reasons for the delay in settlement and by July 1996 she had lost confidence in Mr Bacich and his companies, doubting their sincerity and intention to complete the contracts, and was angry at Mr Bacich because she believed he had delayed settlement; and she told Mr Thorpe at the first meeting on 10 July 1996 that the defendants wanted to resolve the matter as quickly as possible and that they wanted to sell the land to someone else if Olympic was not going to settle.

182 Following the issue of the July default notice, Mr Thorpe told Mrs Lochel that the defendants could not terminate because of the Urban Focus problems. Mrs Lochel was then made aware in the second half of August 1996 that matters appeared to have been resolved with Urban Focus and steps were being taken towards settlement. Shortly after that she was advised by Mr Thorpe that there was a problem with the plaintiffs' finance. It was in this factual context that the discussion about the September default notice occurred. With that background it is understandable that Mrs Lochel would inform Mr Thorpe that the defendants did not want anything further to do with Mr Bacich and wanted to terminate the Olympic Contract. By September 1996 after so many false starts and delays, all of which Mrs Lochel attributed to Mr Bacich (rightly or wrongly), it is to be expected that she would inform him that she wanted to terminate the contracts and instruct him to issue the September default notice. Further, her evidence that Mr Thorpe said it would be wise to issue a further default notice before terminating the contract and saying he would issue one immediately is consistent with his earlier advice that the Urban Focus matters rendered it unsafe for the defendants to terminate on the basis of the July notice.

183 Having regard to Mrs Lochel's deep frustration and anger with Mr Bacich, which I am satisfied she conveyed to Mr Thorpe, it is unlikely that Mr Thorpe would suggest issuing the September default notice "in order to get things moving with a view to either forcing settlement or putting the defendants in a stronger position to terminate".

184 Mr Thorpe's uncontradicted evidence, which I accept, was that his view in September 1996 was that all matters associated with Urban Focus had been resolved, that Olympic was clearly in breach of the Olympic Contract, that the defendants were not in breach and would be able to comply with their obligations at settlement and that he conveyed this information to Mrs Lochel before the issue of the September default notice. Nothing was said to her thereafter by Mr Thorpe to alter that assessment.

185 Mr Thorpe denied advising Mrs Lochel that the defendants could terminate after the expiry of the notice period. He may not have done so expressly. However, it was implicit in his advice to Mrs Lochel that Olympic was in breach, the defendants were not in breach and could settle, that if the situation remained unchanged, the defendants could validly terminate the Olympic Contract at the end of the notice period.

186 Mr Thorpe said he told Mrs Lochel in a telephone conversation on 25 September that she should not sign any offer without Mr Thorpe first seeing it and that it had to be drawn in a way that made acceptance subject to the Olympic Contract not proceeding. Mrs Lochel denied this. In any event, as Mr Thorpe was of the opinion that there was no known impediment to the valid termination of the Olympic Contract after the expiration of the notice period on or about 28 September 1996, the only reason for the new contract to be made conditional in the way suggested is if the Olympic Contract was still on foot - which it was at the time of the discussion. Even if Mr Thorpe's evidence on this subject is accepted, it does not advance his defence to the claims.

187 My impression of Mrs Lochel in the witness box was that she is and was an emotional and assertive person who would have no difficulty in expressing to Mr Thorpe her opinions, her views and her instructions. I am also satisfied that Mrs Lochel gave her evidence honestly and in accordance with her recollection of events. There were occasions in cross-examination when her answers were inconsistent with the prepared statement which became her evidence-in-chief. In my assessment, her answers in cross-examination were to her best recollection at the time, and I accept those answers.

188 My very strong impression of the evidence of Mr Thorpe was that he was reconstructing what had occurred by reference to the contemporaneous documents and what he expected he would have thought, said and done in 1996. That puts him at a very considerable disadvantage in a situation where he failed to confirm or record his communications in writing. More so, where the evidence discloses that he was at times difficult to contact because of other commitments. Common experience attests to the unreliability of unaided recollection (whether independent or reconstructed) of oral communications made in the course of a busy practice many years before giving evidence. Mrs Lochel at the time had the benefit of lengthier and more intense focus on her situation than did Mr Thorpe.

189 For these reasons I prefer the evidence of Mrs Lochel concerning her September discussions with Mr Thorpe and where there is any conflict between her evidence and that of Mr Thorpe. As to Ms Bennett, she adopted the usual professional practice of making file notes of oral communications. I am satisfied that her evidence was honest and reliable. Unless Mr Thorpe's evidence is corroborated by oral or contemporaneous documentary evidence, I prefer the evidence of Ms Bennett in the event of any conflict.

190 I turn now to my findings on the alleged breaches. I find that:

(a) just prior to the issue of the September default notice Mr Thorpe advised the defendants that Olympic was in breach of the Olympic Contract; the defendants were not in breach and were in a position to settle; the defendants were entitled to issue the September default notice; and (impliedly) if the situation remained unchanged the defendants could validly terminate the Olympic Contract at the end of the notice period;

(b) Mrs Lochel instructed Mr Thorpe during the telephone discussion concerning the issue of the September default notice that the defendants wanted to terminate the Olympic Contract;

(c) Mr Thorpe did not at any material time advise the defendants that they were (or may be) in breach of the Olympic Contract or the Bondgate promise;

(d) Mr Thorpe did not advise the defendants of steps to take to remedy such breaches.

191 Unless the law is clear, a breach of a solicitor's duty to exercise reasonable care and skill (negligence) is not established merely because legal advice is wrong. Breach will be established if the opinion or advice is not to the standard expected of a reasonably competent solicitor. I am satisfied that Mr Thorpe failed to exercise reasonable care and skill in advising in September 1996 that Olympic was in breach, that the defendants were ready willing and able to settle and that the defendants could (if the existing situation remained unchanged) validly terminate the Olympic Contract. He could not reach a reasonably held opinion on these matters without considering and reaching a reasoned view on the following matters: the proper construction of cl 7 of the Olympic Contract relating to the Owners Deed; whether the situation was altered by subsequent conduct and if so how; the construction of the Bondgate promise; whether Bondgate's accommodation with Urban Focus affected the Olympic Contract and the defendants' ability to perform their obligations thereunder. I am not satisfied that he gave any of those issues the attention and consideration they required in the period up to the purported termination. If a reasonably competent solicitor had done so, the advice would have been to the contrary or at least highly qualified.

192 The corollary to this finding is that a reasonably competent solicitor exercising due care and skill should have advised to the contrary or at least that it was strongly arguable that Olympic was not in breach, that the defendants were not ready willing and able to settle and could and should not terminate the Olympic Contract.

193 However, there was no existing breach by the defendants of the Olympic Contract or the Bondgate promise before 4 October 1996. After the defendants entered into the Smart Investments Contract on that date, the defendants' options were severely circumscribed (as discussed later). Having said that, it remains the case that Mr Thorpe breached his duty in failing to advise the defendants that by entering into the Smart Investments Contract they had committed a serious breach of the Olympic Contract and the Bondgate promise. To remedy that breach would prima facie require the valid termination of the Smart Investments Contract. I address that matter later in these reasons.

194 The second alleged breach complained of by the defendants is that Mr Thorpe failed to terminate the Olympic Contract in accordance with the defendants' instructions within a reasonable time and did not do so until 4 November 1996. This is an alternative plea and depends upon there being a window of opportunity in which the defendants could have validly terminated the Olympic Contract (and Bondgate promise). For the reasons already given, in my view there was not. However, I will make relevant findings on this plea on the assumption there was such an opportunity.

195 It is the case that Mr Thorpe did not purport to terminate the Olympic Contract until 4 November 1996. It is the defendants' pleaded claim that from about mid July 1996 they instructed Mr Thorpe to terminate the Olympic Contract and, apart from Mr James' letter of 9 July 1996, relied on oral instructions from Mrs Lochel to Mr Thorpe in the course of telephone conversations on dates which they were unable to particularise. Anything said before the meeting on 1 August 1996 at which Mrs Lochel accepted Mr Thorpe's advice that it was inappropriate to terminate on the basis of the July default notice is of no assistance. However, I have found that in the discussion with Mr Thorpe resulting in the issue of the September default notice, Mrs Lochel made it clear to Mr Thorpe that the defendants wanted to terminate the Olympic Contract. That can properly be construed as an instruction. If the defendants were and remained entitled to terminate at the end of the notice period, Mr Thorpe should have immediately sought confirmation that there had been no material change in circumstances and if not, confirmed the instructions and terminated the Olympic Contract. He did none of these things.

196 The question whether the defendants were entitled to terminate needs to be considered at the end of September (the expiration of the notice period), 4 October (entry into the Smart Investments Contract), 29 October/1 November (Bondgate finance approved) and 4 November (the purported termination).

197 For the reasons already given, the date of issue of the default notice is not determinative. At the expiration of the notice period the defendants could terminate the Olympic Contract provided they were not in material breach and were ready, willing and able to settle. However, by 4 October 1996 the defendants had committed a repudiatory breach of the Olympic Contract and the Bondgate promise which breach disentitled them from thereafter terminating either contract.

198 If, contrary to my finding, the defendants could take advantage of Bondgate's agreement with Urban Focus and thus were ready willing and able to settle up to the time of entering into the Smart Investments Contract, Mr Thorpe would be in breach of his duty to exercise reasonable care and skill in failing to confirm both that there was no material change of circumstances and the defendants' earlier instructions and thereafter terminate the Olympic Contract before 4 October 1996.

199 The third alleged breach is that Thorpe made the Bondgate promise without the defendants' authority. Mr Thorpe's evidence was that he obtained Mrs Lochel's instructions on the matters contained in his letter of 30 July 1996. Mrs Lochel did not contradict that evidence and was unable to confirm or deny her discussions with Mr Thorpe on that matter at the meeting on 1 August 1996. I am satisfied that Mr Thorpe acted on instructions in writing the last paragraph of his letter of 30 July 1996.

200 The fourth alleged breach is that Mr Thorpe failed to keep the defendants timeously informed as to the status of their matter and his actions on their behalf. The allegation is particularised as the third party's alleged failure to inform the defendants prior to about 15 November 1996 that he had not terminated the Olympic Contract, his failure after July 1996 to inform the defendants of the existence or substance of continuing discussions as to possible settlement and his failure to provide the defendants with copies of any correspondence received by him.

201 The defendants' plea of the duty and breach is rolled up to encompass Mr Thorpe's failure to inform the defendants of the particularised matters and to do so within a reasonable time. The only factual matter in dispute is whether Mr Thorpe told the defendants (or their agents) before mid November 1996 that he had not terminated the Olympic Contract. Mr Thorpe's evidence was that in October 1966 he told Mrs Lochel and Mr James in effect that the Olympic Contract had not been terminated. Mr Thorpe's recollection of events is not supported by the contemporaneous documents. If he had read Mr James' October correspondence and the Smart Investments Contract it is to be expected that any response, even if only oral, would be the subject of a file note in view of the fact that responsibility for the situation was being laid at his door. Ms Bennett's evidence (confirmed in a file note), which I accept was that on 30 October 1996 Mr Thorpe advised her that the Smart Investments Contract took into account Olympic's position. If he had read the contract he would have known that was not the case. I reject Mr Thorpe's evidence that he told Mrs Lochel in October 1996 that he had not terminated the Olympic Contract and that she had given him general instructions to try and settle with Olympic. Further, I do not accept that he had oral discussions with Mr James about the matters raised in his (Mr James') correspondence. I prefer Mr James' evidence on that matter. I infer from Mr Thorpe's conduct that on receipt of the Mony de Kerloy letter of 1 November 1996 he finally came to grips with the events that had occurred during a period of inattention to the defendants affairs and, without reference to or further instructions (general or specific) from his clients, terminated the Olympic Contract. Mr Thorpe's conduct is suggestive of panic. I find that Mr Thorpe:

(a) did not at any time prior to about 15 November 1996 inform the defendants or their agents that he had not terminated the Olympic Contract;

(b) after the issue of the September default notice failed to inform the defendants of the existence or substance of continuing discussions as to possible settlement on the Bondgate Contract; and

(c) failed to provide the defendants with copies of correspondence received by Mr Thorpe from the third parties relating to the transactions.

In the circumstances of this case, in particular the long delay in settlement, the impact of the delay on the defendants, Mrs Lochel's instructions to terminate and an alternative buyer on hand, a reasonably competent solicitor exercising reasonable skill and care should, immediately on the expiration of the notice period and certainly before 4 October 1996, have advised the defendants of the factual (and legal) position in relation to notice of termination and sought instructions. If he had done so, the defendants would not have signed the Smart Investments Contract before any purported termination of the Olympic Contract.

202 I am also satisfied that Mr Thorpe was in breach of his duty in failing to keep the defendants informed of the substance of his communications with Mony de Kerloy in the period after the issue of the September default notice concerning, inter alia, possible settlement of the Olympic/Bondgate Contract. Those matters were essential to the defendants making informed decisions as to their options. Provided the substance of relevant communications are provided in permanent form and in a timely manner, I am not persuaded that it is a breach of duty to fail to provide copies of correspondence, although it is a highly desirable course.

203 The fifth alleged breach is that on or about 4 October 1996 Mr Thorpe advised Mr James that the Olympic Contract had been terminated when, as Mr Thorpe well knew or should have known, this was not the case. I accept Mr James honestly believed prior to preparing the Smart Investments' Contracts that Mr Thorpe had in effect advised him that the Olympic Contract had been terminated. To conclude otherwise would be to regard his October 1996 correspondence to Mr Thorpe as a calculated and dishonest scheme to transfer responsibility and liability from himself to Mr Thorpe. I am not prepared on the evidence to make such a finding. Mr James' evidence is corroborated by Mr Domhoff's evidence of what he was told by Mr Thorpe.

204 On the other hand I am satisfied that Mr Thorpe was aware the defendants had to take the additional step of electing to terminate the Olympic Contract after the expiration of the September default notice period. That is clear from his first (and only) letter to the defendants in 1996. I cannot fathom why Mr Thorpe would advise Messrs James and Domhoff that the contract was at an end unless he mistakenly thought he had issued a notice of termination. Alternatively, there is the possibility of a misunderstanding. Mr Thorpe said he informed Mr James that "the notice has expired". Mr James' correspondence refers to the notice and the contract "lapsing". I am not persuaded that the real estate agents clearly understood the need for a further positive step by the defendants after the expiration of the notice period in order to terminate the contract and I am not satisfied that Mr Thorpe advised Mr James and Mr Domhoff that the Olympic Contract had been terminated.

205 The sixth alleged breach is to the effect that Mr Thorpe led the defendants to assume that the Olympic Contract had been terminated on or before 4 October 1996 when they entered into the Smart Investments' Contracts. Based on my finding that Mrs Lochel instructed Mr Thorpe to terminate the Olympic Contract when discussing the issue of the September default notice and Mr Thorpe's failure to contact her or give her any indication that he did not propose to act on her instructions, I am satisfied that Mrs Lochel was induced by those circumstances to assume that the Olympic Contract had been terminated in accordance with her instructions.

206 The seventh alleged breach is that between around 1 October and 15 November 1996 Mr Thorpe engaged in communications with the plaintiffs without the defendants' instructions. I have already rejected Mr Thorpe's evidence of his alleged discussions with Mrs Lochel after he had received the Smart Investments Contract and that he had general instructions to negotiate with Olympic after 1 October 1996. I find the breach proven although nothing appears to turn on the failure.

207 The defendants' case is that if they wrongfully repudiated the Olympic Contract or terminated it in such a way as to give rise to any liability to Olympic or to disentitle them from recovering damages from Olympic the subject of the counterclaim, they did so by reason of the alleged breaches and suffered loss and damage.

208 I have concluded in the action that the defendants breached the Bondgate promise and that the purported termination of the Olympic Contract on 4 November 1996 was invalid. Further, I have found against the defendants on the counterclaim.

209 In the third party action I have found that Mr Thorpe breached his duty to exercise reasonable skill and care by:

(a) advising in September 1996 that Olympic was in breach of the Olympic Contract, that the defendants were ready, willing and able to settle the Olympic Contract and that the defendants could validly terminate it if the situation remained unchanged;

(i) immediately on or before the expiration of the notice period the subject of the September default notice (but in any event before 4 October 1996) advise the defendants as to whether they could lawfully terminate the Olympic Contract and obtain and act in accordance with their instructions on termination. A solicitor exercising reasonable skill and care would have advised the defendants not to terminate the Olympic Contract;

(ii) immediately on becoming aware of the terms of the Smart Investments Contract (which should have been on or about the date of receipt of it from Mr James), advise the defendants that they were in breach of the Olympic Contract and the Bondgate promise and of the consequences thereof and any strategies to extricate the defendants;

(iii) keep the defendants informed of the substance of his communications with Mony de Kerloy in October/November 1996 and the legal consequences thereof;

(c) causing Mrs Lochel to understand that the Olympic Contract had been validly terminated by the time the defendants executed the Smart Investments Contract.

210 I turn now to issues of causation. As to the law, see Henville v Walker [2001] HCA 52; (2001) 206 CLR 459; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109. I am satisfied that the breaches referred to in pars (a), b(i) and (c) above, caused the defendants to enter into the Smart Investments Contract. That is, if Mr Thorpe had exercised due care and skill in these respects, the defendants would not have entered into the Smart Investments Contract.

211 Further, I am also satisfied that but for the breaches in pars (a), b(i) b(iii) and (c), the defendants would have instructed Mr Thorpe that they wished to perform the Bondgate promise and Bondgate Contract. If Mr Thorpe had acted with reasonable care and skill, the defendants would not have entered into the Smart Investments Contract and would have performed the Bondgate promise and settled the Bondgate Contract and Amended Mandurah Contract by 15 November 1996 with the further consequence that these proceedings (action, counterclaim and third party action) would have been avoided.

212 I am not persuaded that the breach in par (b)(ii) caused any loss.

213 The defendants also claim that by reason of Mr Thorpe's conduct between 4 November 1996 and 15 January 1997 he breached the retainer, was negligent or in breach of his fiduciary duties.

214 The factual background to this claim is as follows. Mr Thorpe met with Mrs Lochel and Mr James on 15 November 1996. They discussed an offer from Smart Investments to purchase the Lochel land from the mortgagees, the defendants at that time being in default of their obligations under the relevant mortgage. According to Mrs Lochel, Mr Thorpe said that Olympic was disputing the fact that the Olympic Contract had been validly terminated although it had no basis to do so, and that if the mortgagees sold the Lochel land, neither Olympic nor Urban Focus could maintain their caveats and the land would be easier to sell. Mrs Lochel told Mr Thorpe that she was fed up with Mr Bacich and that she wanted to complete the Smart Agreements. Mr Thorpe suggested that he write to the mortgagee's lawyers asking them to sell the land to Smart Investments on the basis of the Smart Investment Contract. I infer from a letter dated 28 November 1996 from Mr Thorpe to the solicitors for the first registered mortgagees, Kim Valenti & Associates, that Mr Thorpe spoke to Mr Valenti during the conference on 15 November 1996 with a proposal that the defendants present an offer to purchase the Lochel land from Smart Investments for his clients' acceptance as mortgagees.

215 By letter dated 15 November 1996 to Peter James Realty and letters of 18 November to Urban Focus, Mr Thorpe and Mony de Kerloy, Mr Valenti advised that the defendants were in default under the mortgage and that his clients intended to exercise their power of sale and to appoint an independent real estate agent to sell the Lochel land by private treaty.

216 Mr Thorpe wrote to Kim Valenti on 18 November and on a subsequent date advising that the defendants would have no objection to the mortgagees accepting an offer from Smart Investments on the same terms as the Smart Investments' Contract.

217 Olympic commenced these proceedings in late November 1996 claiming specific performance of the Olympic Contract. Mrs Lochel's evidence was that in late November or early December 1996 Mr Thorpe told her that Olympic had commenced proceedings against the defendants but did not provide a copy of the court documents.

218 Under cover of a letter dated 18 December 1996 to Mr Thorpe, Kim Valenti provided copies of the Smart Investments offer to the mortgagees and the defendants' offers to purchase the Seascapes and Banjup properties. The letter states:

"The mortgagees are concerned that they do not have before them your confirmation that your clients have been advised by you and understand the nature, effect and propriety of the enclosed offer. Further, the mortgagees are concerned that they do not have anything before them that confirms that your clients have been independently advised by a valuer as to the value of the Seascapes and Banjup properties prior to submitting the offers to the respective proprietors."

219 The mortgagee's solicitors requested Mr Thorpe to provide a certificate from him certifying that, in his opinion, the defendants understood the nature, effect and propriety of the transaction and a certificate of an independent valuer certifying that the offers to purchase the Seascapes and Banjup properties were fair and reasonable in all the circumstances. Mr Valenti also enclosed copies of offers received from Bondgate (in the terms of the new contracts alternatively a stand alone offer of $500,000 for the Lochel land) and enquired whether the defendants were prepared to purchase the Mandurah land for $350,000. Finally, Mr Valenti asked "could you please advise which of the enclosed offers your clients would prefer the Mortgagees accept".

220 Mr Thorpe's evidence was that when he received Mr Valenti's letter of 18 December he telephoned Mrs Lochel and said to her words to the effect that Smart Investments had agreed to buy the Lochel land from the mortgagees but the mortgagees had also received an offer from Mr Bacich. Mr Thorpe said that Mr Bacich had made two offers, one for $500,000 cash and the second identical to the offer previously made by Bondgate. Mrs Lochel became angry and said to Mr Thorpe words to the effect that Mr Bacich was trying to steal the property and that she did not want to deal with Mr Bacich. Mr Thorpe's evidence was that he then said to Mrs Lochel words to the effect that Mr Valenti had concerns regarding the values of the swapped properties under the Smart offer and wanted her to get an independent valuation and Mrs Lochel responded with words to the effect that she was happy with the prices of the swapped properties.

221 Following that conversation, Mr Thorpe wrote a letter dated 19 December 1996 to Mr Valenti advising him that the defendants had previously accepted an offer to purchase the Lochel land by Smart Investments in identical terms to that currently submitted to the mortgagees; had earlier agreed to purchase the Seascapes and Banjup properties in terms identical to the offers copied by Mr Valenti to Mr Thorpe; that the defendants had made their own enquiries about values and wished all of the dealings to proceed on the terms set out; the defendants did not wish to purchase the Mandurah land for the price referred to or at all; and wanted the mortgagees to accept the Smart Investments offer.

222 Mrs Lochel's evidence-in-chief was that Mr Thorpe did not show her the Kim Valenti letter of 18 December 1996 and did not discuss the contents of that letter with her. She said Mr Thorpe did not advise the defendants that they:

(i) should obtain advice as to the values of the two offers or even that Kim Valenti wanted them to do so;

(ii) may have an obligation to minimise their claim against Olympic by accepting one of the Bondgate offers;

(iii) could make independent enquiries of Bondgate's financiers to test its credibility.

223 However, Mrs Lochel said in cross-examination that at some stage in December 1996 she became aware that Bondgate had made two offers to purchase the land, one for $500,000 cash and the other in terms similar to the earlier offer of $600,000 subject to the purchase by them of the Mandurah land for $350,000, but she had no reason to believe that Bondgate was in any better position to complete those contracts than Olympic had been.

224 It was Mrs Lochel's evidence that although she had previously told Mr Thorpe that the defendants wanted nothing more to do with Mr Bacich, they would have accepted the Bondgate offer had Mr Thorpe advised them to do so or advised them that:

- by accepting the Bondgate offer the defendants could resolve the litigation with Olympic cheaply and by rejecting it they faced the prospect of Olympic continuing to sue them;

- the defendants risked being unable to recover damages from Olympic if they failed to minimise their losses;

- it was arguable that the defendants should accept the Bondgate offer for these reasons; and

225 The mortgagees accepted the Smart Investments' offer on 20 December 1996.

226 The defendants conceded the unsustainability of their pleaded claims that Mr Thorpe dealt with the mortgagees of the Lochel land without the defendants' authority, had failed to inform the defendants of the Bondgate and Smart Investment offers presented to the mortgagees and acted without the defendants' authority in advising the mortgagees that the defendants wished to accept the offer of Smart Investments.

227 The balance of the defendants' post 4 November claim involved two claims. First, that Mr Thorpe failed to render advice to the defendants as to the effect of the respective offers and the consequences of the mortgagees accepting one or the other, thereby denying the defendants the benefit of making an informed decision as to which offer to request the mortgagees to accept.

228 Insofar as that relates to issues of mitigation of their damage, it is unnecessary to answer the question in view of the failure of the counterclaim. However, it is claimed, and the evidence establishes, that Mr Thorpe did not advise the defendants of the possible risks and consequences of litigation generally or that by accepting the Bondgate offer this litigation would have been avoided. On the latter matter I find that the wishes and approval of the defendants was the determining factor in the mortgagees' decision as to which offer to accept.

229 A solicitor exercising reasonable care and skill would at this time have considered and advised the defendants as to whether or not the defendants had a legal or practical commercial choice as to the party to whom the mortgagee should sell the Lochel land (either Bondgate or Smart Investments). That in turn depends upon the following matters:

(a) the merits of the Olympic/Bondgate claims and the risks and consequences of litigation in terms of time and cost;

(b) the defendants' liability to Smart Investments under the Smart Investments Contract and the consequences if the mortgagees sold to Smart Investments on the same terms and conditions;

(c) the advantages and disadvantages of the alternative courses and options available to the defendants with advice as to the most appropriate option.

230 Save for his oral advice that the termination of the Olympic Contract was valid, Mr Thorpe did not advise the defendant of these matters. If he had done so he would have become aware of Mrs Lochel's understanding that Smart Investments would be prepared to walk away from its deal and not sue the Lochels.

231 Mrs Lochel's evidence is that the defendants would have informed the mortgagees to accept the Bondgate offer if she had been told by Mr Thorpe that by accepting the Bondgate offer the defendants could resolve the litigation with Olympic cheaply; by rejecting it the defendants faced the prospect of Olympic continuing to sue them; they risked being unable to recover damages from Olympic if they failed to minimise their losses; and that Bondgate had finance and could settle.

232 However, that evidence is predicated on the assumption that Smart Investments would not sue the defendants for damages in the event the mortgagees sold to Bondgate. She said that if Mr Thorpe had told her in early November 1996 that Bondgate could immediately settle the contract she would have told Mr Thorpe to settle with them "if we could get out of the Smart Investments Contract" and she understood Special Condition 8 protected them in that regard. Special Condition 8 did not.

233 Mr Zielinski's evidence was to the effect that he understood the Smart Investments Contract would only proceed if the defendants' contract with Olympic was validly terminated. By 11 November 1996 he understood that the Olympic Contract had been terminated and that there was a dispute with Olympic as to the validity of the termination which is why his solicitors suggested the matter needed to be resolved expeditiously by court proceedings. Although, Mr Zielinski said in evidence that he had no intention of trying to enforce any contractual rights against the defendants if the Olympic Contract was in fact still on foot, he did not give evidence that, absent a formal determination on the question of validity, he would take no action against the defendants under the Smart Investments' Contract. Further, he was not asked and did not say that he would be prepared to facilitate a settlement of the defendants' disputes with Olympic and Bondgate by the mortgagees selling the Lochel land to Bondgate. I am not persuaded that Smart Investments would have agreed to terminate its contract in the circumstances that occurred from the purported termination on 4 November 1996.

234 Having regard to the prima facie binding contract with Smart Investments I am not persuaded, on the balance of probabilities, that even if Mr Thorpe had exercised reasonable care and skill at this stage in the proceedings, the defendants would have advised the mortgagees to accept the Bondgate offer.

235 The second alleged breach is that Mr Thorpe failed to ascertain what, if any, advice the defendants had received as to the value of the trade properties under the Smart Investments arrangement.

236 Mrs Lochel's evidence-in-chief was that had the defendants been advised to seek advice as to the value of the trade properties they would have done so. However, in cross-examination she said the defendants had been provided with a valuation of the trade properties and they were happy with it. It is also the case, and I find, that the defendants' decision in October 1996 to enter into the Smart Investments Contract was a decision entered into on the advice of Mr James and Mr Domhoff and without any input from Mr Thorpe as to the commerciality of the deal. In any event, the terms of the Smart Investments Contracts were in all material respects replicated in the mortgagees' sales. The use of the mortgagees' power of sale was a way to avoid difficulties with the existing caveats on the title to the Lochel land. I am satisfied that Mr Thorpe was not in breach in failing to ascertain what advice had been received as to the values of the trade properties and even if there was a breach, it did not cause damage.

237 The first claim is that Mr Thorpe, in the course of representing the defendants in this action, conducted them in such a way as to cause undue delay, stress, hardship and unnecessary expense. The conduct is particularised and is largely uncontentious. In particular, it is the case and I find that Mr Thorpe:

(1) failed to file an appearance on behalf of the defendants within the time specified in the Rules of the Supreme Court (WA);

(2) failed to file a defence on behalf of the defendants in accordance with orders made by the Court resulting in the plaintiff entering default judgment against the defendants and making it necessary for Mr Thorpe to apply for and obtain orders setting the judgment aside;

(3) without instructions, commenced an appeal against orders made in respect of costs;

(4) without instructions, consented to orders discontinuing the appeal and fixing the costs payable by the defendants in the sum of $600;

(5) failed to attend status conferences on the defendants' behalf on three dates in 1997;

(6) failed to advise the defendants until about 13 October 2000 that because he would be required to give evidence at trial he was unable to act as counsel;

(7) failed to advise the defendants that he was unable to continue to act as their solicitor until 22 November 2000 when he referred the defendants to their current solicitors.

238 Mr Thorpe's conduct detailed in items (1) to (5) falls well below the standard expected of a competent solicitor. Items (6) and (7) claim in effect that Mr Thorpe had a conflict of interest in representing the defendants in the action and failed to advise the defendants of that fact. The relief sought relates to liability to pay solicitor-client costs related to this action.

239 It is pleaded that Mr Thorpe rendered accounts to the defendants totalling $44,577.03 of which they have paid $28,057.50. Complaint is made that Mr Thorpe has failed to itemise two of his accounts (dated 27 January 1999 and 28 June 2001). It was Mr Thorpe's evidence that he did not claim from the defendants any costs where he acted without the defendants' instructions and he undertook to file itemised accounts for taxation to enable those matters to be tested. He gave an undertaking in relation to the timing of filing such itemised accounts.

240 However, the broader question is whether from about 4 October 1996 Mr Thorpe had a conflict of interest which disentitled him from acting and if so whether, that disentitles him to any remuneration for the services provided since that date. There is an alternative basis for the claim. It is that if the defendant had not breached his contractual, tortious and (non-conflict) fiduciary duties, this litigation would not have proceeded and the costs would not have been incurred. Thus, the alternative claim is for consequential loss.

241 There are two aspects to the conflict of interest claim. The first relates to Mr Thorpe's continuing to represent the defendants notwithstanding he would be required to give evidence at trial. This is the more contentious of the two claims. Ipp J (as he then was), in an article "Lawyers' Duties to the Court" 114 LQR 63 at 92 wrote:

It is undesirable for a lawyer to appear as a witness in the same case as he is instructing solicitor (and, a fortiori, counsel). Similarly, it is undesirable that, when an affidavit has been filed by a lawyer in support of an application by a client, the lawyer appear as solicitor or counsel. The reason for this is that the lawyer would be in a position of apparent conflict between the duty to advance the interests of the client and the duty to the court to give impartial evidence.

In Australia it has been held that such a conflict would not be sufficient to justify an injunction restraining the lawyer from continuing to act for the client."

242 This Court has at least at first instance restrained solicitors and counsel from continuing to act in such circumstances: Pittorino v Meynert (as Executrix of the Wills of Guiseppe Pittorino (Deceased) and Guiseppina Pittorino (Deceased)) & Ors [2001] WASC 245; Clay v Karlson (1996) 17 WAR 493.

243 It is not clear to me that there is a conflict of duties in such circumstances. However, it is unnecessary for me to decide whether such conduct constitutes a breach of a fiduciary duty giving rise to an entitlement to equitable damages or other relevant relief. That is because I am satisfied that in acting for the defendants in the action Mr Thorpe was in a position of conflict of interest because his acts and omissions are at the heart of the questions in issue in the plaintiffs' claim against the defendants. He and his firm were in a real sense defending his actions and advice, what little there was of it. In such circumstances I respectfully adopt the statement of Thomas J in Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 at 589 - 590 that:

"There is, in such circumstances, a danger that the client will not be represented with the objectivity and independence which the client is entitled to and which the court demands. There is no sound reason to presume or accept that the solicitors must first have the opportunity to clarify whether their client is liable as a result of their actions or of acting on their advice before confronting the conflict."

244 This case was cited with approval by the Full Court in Afkos Industries Pty Ltd v Pullinger Stewart (A Firm) [2001] WASCA 372 at [29]. It is not suggested that Mr Thorpe continued to act with the informed consent of the defendants. He did not. I am satisfied that Mr Thorpe was in a position of conflict of interest from the date the statement of claim was filed in the action. From that date he ought to have ceased to act and the defendants are entitled to the loss and damage flowing from the breach.

245 The common law principles governing causation and remoteness do not apply to a claim for equitable damages for breach of fiduciary duty: Unioil International Pty Ltd & Ors v Deloitte Touche Tohmatsu & Ors, unreported; SCt of WA (Ipp J); Library No 970352; 18 July 1997; Permanent Building Society (in liq) v Wheeler (supra) at 243 - 245. Based on those authorities, the enquiry is simply whether the loss would have happened had there been no breach. It is the case that if Mr Thorpe had not continued to act, the accounts in question would not have been rendered. However, another firm of solicitors would have been retained and legal costs incurred. I am satisfied that in relation to the claim based on breach of fiduciary duty the defendants are entitled to the costs thrown away or wasted as a result of having to retain a second firm of solicitors who would have to familiarise themselves with all of the relevant background material. However, this finding is of no consequence because of the previous finding that Mr Thorpe's breach caused the defendants to become embroiled in this litigation.

246 The final issue is whether the common law principles affecting damages apply to a breach of equitable duty. The law in this State is that the common law principles of causation and remoteness do apply to a breach by a fiduciary of the equitable obligation to exercise reasonable care and skill: Permanent Building Society (in liq) v Wheeler (supra) at 247 - 248. This position is criticized in Meagher Gummow and Lehane's "Equity Doctrine and Remedies" 4th ed 23-015 to 23-020. The situation would be different if there was a link between the conflict of interest and the breaches of equitable duty to exercise reasonable care and skill. That claim is not pleaded against Mr Thorpe.

247 The defendants claim the damages, interest and costs ordered to be paid by the defendants to the plaintiffs or either of them in the action, the damages particularized in MFI A and the defendants' costs of defending this action and prosecuting the counterclaim on an indemnity basis. Save for the MFI A claims, which I address in detail below, the defendants are entitled to the relief claimed because, for the reasons already given, I am satisfied that the defendants' liability to the plaintiffs in this action is caused or materially contributed to by Mr Thorpe's breaches of his duty to exercise reasonable care and skill.

248 It follows from my finding that but for Mr Thorpe's breaches these proceedings would have been avoided and, in the absence of any claim that the defendants have acted unreasonably in their conduct in these proceedings, the defendants are also entitled to their claim for the costs of defending the action and prosecuting the counterclaim on an indemnity basis.

249 The defendants also claim "such damages as would have been awarded to the defendants had their counterclaim been successful". The claim is based on the assumption that if Mr Thorpe had exercised reasonable care and skill the defendants could have validly terminated the Olympic Contract. There is no finding made on any pleaded breach which would have had that result. This aspect of their claim fails.

250 I now turn to the MFI A claims. MFI A served the dual function of particularising the loss and damage claimed against Olympic on the counterclaim and from Mr Thorpe in the third party action. It is prepared on the assumption that Olympic was in default of the Olympic Contract by mid July 1996 and the Olympic Contract was validly terminated. I have found that it was not validly terminated and but for Mr Thorpe's breaches, the Bondgate Contract would have settled by 15 November 1996. I approach the defendants' damages claim in light of those findings.

251 The defendants claim the interest paid by them to the mortgagees of the Lochel land from 12 July 1996 (said to be the settlement date under the Olympic Contract) and 15 January 1997, being the date of settlement of the sale of the Lochel land by the mortgagees to Smart Investments. As noted above, I have found that Olympic was not relevantly in breach of the Olympic Contract, that but for Mr Thorpe's breaches of his duty to exercise reasonable care and skill in the ways pleaded the defendants would not have entered into the Smart Investments Contract, would have performed the Bondgate promise and the Bondgate Contract and amended Mandurah Contract would have settled on 15 November 1996. On that date the defendants would have received a net cash payment of $250,000 as well as title to the Mandurah land. It is apparent from exhibit 20 that the cash payment would cover interest and principal on the mortgages with a remaining balance of some $15,000 - $20,000 (a figure to be calculated by the parties). I am satisfied that the defendants are entitled to interest paid under the mortgages between 15 November 1996 and 15 January 1997.

252 The defendants were paying a penalty rate of interest as a result of being in default under the mortgages. I am satisfied that the claim for penalty interest is recoverable because it is foreseeable and not too remote under the rule in Hadley v Baxendale (supra). Mr Thorpe was aware from his letter of instructions of 9 July 1996 that the defendants had booked a trip to Germany three times in anticipation of settlement, were living in their home with very little furniture, it having been shipped to Germany and, as advised by Mrs Lochel at their first consultation, the defendants had no income, Mr Lochel having relinquished his employment because of their intention to go to Germany. The title searches enclosed with Mr James' letter of 9 July 1996 would disclose the registered mortgage on the title.

253 The defendants claim interest on the balance of the purchase price of the Lochel land after the discharge of the mortgages as at 12 July 1996 ($640,000 less $220,000). This claim fails to have regard to the fact that the defendants would have received the Mandurah land and, after discharge of the mortgages, cash of approximately $30,000. I am not persuaded on the evidence that the defendants intended the Mandurah land to be an income-producing investment property and there is no evidence of the income it would produce, even if that was their intention. However, the defendants are entitled to interest from 15 November 1996 to 15 January 1997 on the net cash they would have received at settlement, that figure to be determined by reference to the amount payable to the mortgagees of the Lochel land and other expenses usually deducted from the purchase price.

254 The defendants claim expenses incurred in connection with the mortgagees sale of the Lochel land. I am satisfied that the amounts claimed were actually paid to the mortgagees' solicitors and brokers and I infer the defendants were obliged to make the payments under their mortgages. I am satisfied that the loss was caused by Mr Thorpe's breaches identified above. Further, I am satisfied the damage was foreseeable and not too remote having regard to Mr Thorpe's knowledge of the mortgages and the defendants' lack of income.

255 The defendants claim storage for the defendants' furniture and effects from 27 August 1996 to 15 January 1997. The defendants are entitled to storage costs for the period 15 November 1996 (when, but for Mr Thorpe's negligence, the Bondgate Contract would have settled) and 15 January 1997 on the ground that the loss was caused by Mr Thorpe's breaches, was foreseeable and is not too remote.

256 The defendants claim $40,000 for the alleged capital loss on the resale of the Lochel land being the difference between the purchase price under the Olympic Contract ($640,000) and the purchase price under the mortgagee contract with Smart Investment ($600,000). I have found that but for Mr Thorpe's breaches, the Bondgate Contract and amended Mandurah Contract would have settled. The purchase price under the Bondgate Contract is the same as that under the mortgagee contract. I would dismiss this claim.

257 In item 7 the defendants claim the expenses associated with the mortgage of the Banjup property to secure $120,000. The background to this claim is as follows. In order to pay out the defendants' mortgagees and to pay related expenses, the defendants borrowed $120,000 against the Banjup property. The conditions of that loan were that the defendants had to immediately put that property up for sale, pay six months interest in advance and place a further six months interest on deposit in the event the property did not sell. The property was listed with a real estate agent on 19 January 1997 and on 20 June 1997 the defendants accepted an offer of $170,000 for the Banjup property ($30,000 less than the purchase price paid to Smart Investments). The defendants had received no other offers for the property.

258 There are a number of impediments to this claim. Firstly, the net difference in cash receipts payable to the defendants under Bondgate Contracts and Smart Investments Contracts as at July 1996 was $30,000 not $120,000. The net figure in mid November 1996 would be less. Secondly, it is wrong to focus on individual aspects of expenses incurred with one aspect of a series of transactions involving the sale of the Lochel land and the purchase of trade properties. Thirdly, I am not satisfied that the value of the Lochel land/Mandurah land swap was greater than the value of the Lochel land/Seascapes and Banjup properties. The defendants invited me to infer that the Banjup property was purchased by the defendants at $30,000 above market value. If that sale was a stand-alone one or was part of a 2 property trade deal I may be prepared to do so but I am not persuaded to draw such an inference in a three trade property deal. Finally, I am not satisfied that Mr Thorpe's conduct caused the loss or that it was foreseeable. The defendants were advised on the commerciality of the Smart Investments Contracts by Messrs James and Domhoff without any input of any nature from Mr Thorpe. Further, I accepted Mrs Lochel's evidence that the defendants had received valuations of the Seascapes and Banjup properties and were happy with them. I would dismiss this claim.

259 In item 9 the defendants claim the loss on resale of the Banjup property. The claim includes interest, settlement costs, agent's commission, mortgage discharge costs, land tax, a capital loss of $30,000 and interest on the defendants' equity in the property between 15 January 1997 and 1 August 1997. For the reasons canvassed in relation to item 7, I would dismiss this claim as unproven and too remote.

260 This is a claim for interest under the Supreme Court Act on the damages awarded. I would in the exercise of my discretion award interest on the award of damages at the rate prevailing from time to time under the Supreme Court Act.

261 Item 13 is a claim for $100,000 for "mental anguish, anxiety, pain, physical discomfort and inconvenience". These claims for non-pecuniary loss are secondary to or associated with an economic loss claim. It is necessary to deal separately with the claim for physical inconvenience and discomfort from the other components of the claim which I will conveniently refer to as the mental distress claim.

262 The position in contract is governed by the High Court decision in Baltic Shipping Co v Dillon (supra). The general rule is that damages for anxiety, disappointment and distress are not recoverable in actions for breach of contract. The general rule is subject to exceptions which relevantly include where physical inconvenience has been caused to the other party or where there is a breach of an express or implied promise to provide pleasure, relaxation or freedom from distress. I have already concluded that there was no relevant implied term. Further, the Baltic Shipping general rule being grounded in policy rather than logic, I do not understand the principles in negligence (as distinct from intentional torts) or equity to be wider than those in contract.

263 The uncontradicted evidence is that the defendants suffered physical inconvenience and discomfort as a result of the delay in settlement. They had sent their furniture to Germany and were living in spartan conditions. I am satisfied that the defendants also suffered consequential mental distress although Mr Thorpe is only responsible for the delay between mid November 1996 and 15 January 1997.

264 Mrs Lochel's evidence, which I accept, is that Mr Thorpe did not seek the defendants' instructions on significant aspects of the court proceedings, that while they were in Germany they were constantly worried about the lack of progress in the action in Australia, that they had little or no feedback from Mr Thorpe and as a result, on 26 July 1998 the defendants returned to Australia primarily to deal with the litigation.

265 Mrs Lochel also gave evidence of her husband's condition. It was her evidence that in 1996 he was a friendly, patient, outgoing person who was fit and healthy although he was showing signs of anxiety and distress in 1996 before the commencement of the proceedings. After his return to Australia in 1998 he started becoming withdrawn and moody. Following the adjournment of the trial in November 2000 he became more and more withdrawn, had panic attacks, started becoming aggressive and in about 2001 was prescribed anti-depressant drugs. Mr Lochel did not give evidence but his general practitioner did. The general practitioner, Dr Connolly, gave his opinion that Mr Lochel's anxiety, depression and panic attacks were caused or materially contributed to by the litigation. However, it is apparent that Dr Connolly did not regard himself as an expert on the subject and that his opinion was based on the hearsay evidence of a psychiatrist who had seen Mr Lochel and what he had been told by Mr and Mrs Lochel. I am not satisfied on the basis of this evidence that Mr Lochel's psychiatric condition is causally connected with this litigation.

266 However, I am satisfied that the defendants suffered physical inconvenience and discomfort as a result of these proceedings. I accept that Mr Thorpe's conduct (or more appropriately misconduct) of the proceedings resulted in unacceptable delays in the action, that he failed to communicate with his clients and that these were material factors in the defendants' decision to return to Perth. I also accept Mrs Lochel's evidence that they sold their Seascapes property and moved into rented accommodation in order to fund this litigation. In those circumstances I would award the defendants damages for physical discomfort and inconvenience as well as the consequential mental distress associated therewith. From all accounts, Mr Lochel has had little or nothing to do with the proceedings. However, I am satisfied that the physical inconvenience would have caused mental distress to both defendants. There is little to guide the quantification of this head of claim. I would award $30,000.

267 The defendants claim out-of-pocket expenses including estimates of the cost of telephone calls to Mr Thorpe, the loss on resale of the Seascapes property (which includes selling costs and what is described as a capital loss of $90,000), rent from 26 June 2001 to the date of trial, car rental from 2 July 1996 to 27 August 1996, travel costs to Germany and travel costs from Germany (for themselves, their dog and their furniture and goods).

268 What is described as a capital loss on the sale of the Seascapes property is in effect a loss of profit claim. It was based on Mrs Lochel's opinion which in turn was based on what she was told the defendants would likely get if they sold the property in October 2003. Objection was correctly taken to Mrs Lochel's opinion evidence on the basis that it was hearsay and she lacked relevant expertise on the subject. I give it no weight. In any event, I am not satisfied that the claim for loss of profit is available as a matter of principle. If the breach had not occurred, the defendants would not have owned the Seascapes property. Further, I am not satisfied that an undiscounted claim for rent is an accurate reflection of the loss occasioned by having to sell their (I assume) unencumbered home or that the sale of the asset was foreseeable. I would dismiss these claims.

269 The defendants are not entitled to car rental or their travel costs to Germany as they are unrelated to any relevant breach. As to the cost of telephone calls to Mr Thorpe, I am not satisfied that all of the calls are relevantly connected with the breaches or caused loss. I would allow $500.

270 I have accepted Mrs Lochel's evidence that the defendants returned to Perth in July 1998 primarily to deal with the litigation. I infer that was necessary because of Mr Thorpe's conduct of the litigation and his failure to communicate with his clients. On that basis, I am satisfied that the defendants are entitled to their claimed travel costs from Germany.

271 Item 8 is for Mr Thorpe's costs in acting for the defendants from November 1996 to January 1997 less a credit of $1,500 for fees said to have been reasonably incurred. The claim relates to costs incurred by Mr Thorpe in connection with achieving the settlement of the sale of the Lochel land by the mortgagees to Smart Investments and related transactions in January 1997. I am satisfied that they are damages flowing from the breach and are in principle recoverable. I accept that the credit for fees reasonably incurred may be somewhat arbitrary but, having regard to the magnitude of the claim and the lack of any detailed challenge to it or alternative advanced by Mr Thorpe, I would order damages in the amount sought by the defendants.

272 Items 11 and 12 relate to the costs paid or incurred by the defendants to their solicitors in the conduct of this action as well as interest on costs paid.

273 Having regard to my findings that but for Mr Thorpe's breaches of duty the defendants would have settled with Bondgate in mid November 1996 and these proceedings would not have been instituted, I am satisfied that the defendants are entitled to the costs, including interest, paid to or owed by the defendants to their solicitors for the conduct of the action, counterclaim and third party action.

274 In summary, I uphold in whole or in part the defendants' claims the subject of Items 1, 2, 3, 4, 5, 8, 10, 11, 12 and 13. The defendants' advisors will have to prepare calculations of the amounts owing in conformity with these reasons.

275 For the reasons given I would enter judgment for Bondgate in the action in the sum of $60,052 and interest thereon at the rate payable from time to time under the Supreme Court Act from 1 March 1999, dismiss the counterclaim and in the third party action make orders that Mr Thorpe:

(a) indemnify the defendants for the damages, interest and costs payable by the defendants to the plaintiffs in the action and the counterclaim;

(b) indemnify the defendants for the costs incurred by them in relation to the action, counterclaim and third party action;

(c) pay damages to the defendants to be calculated in accordance with these reasons;

(d) pay to the defendants damages of $30,000 for physical inconvenience, discomfort and associated mental distress;

(e) pay interest on the damages at the rate payable from time to time under the Supreme Court Act from the various dates on which the damage was incurred (a matter on which I will hear the parties) until judgment.

276 In the circumstances I propose to stand this matter over to a date to be fixed for the purpose of making orders giving effect to these reasons. If the parties are unable to agree on the terms of the orders they are to file a minute of the proposed orders for which they will contend.