Robert Bax & Associates v Cavenham Pty Ltd [2011] QCA 53

Court of Appeal (Qld)|2011-03-25|Before: Margaret McMurdo P, Fraser and White JJA, Separate, reasons for judgment of each member of the Court, each concurring as to the, orders made

[1] MARGARET McMURDO P: I agree with White JA's reasons for allowing this appeal and with the orders proposed.

[3] WHITE JA: The respondent, Cavenham Pty Ltd, has commenced proceedings against the appellant firm of solicitors ("the firm") for damages for breach of the contract of retainer, alternatively, for negligence arising out of an alleged failure to advise Cavenham that a mortgage obtained to secure the repayment of a loan should have been registered the better to secure the loan. There are other allegations of breach, but that is the principal complaint.

[4] The parties brought applications in the Trial Division for the resolution of several interlocutory disputes which were heard on 9 July 2010. The firm sought further and better particulars of the amended statement of claim. The learned primary judge ordered that they be provided. In its application, Cavenham sought an order for further and better disclosure and an order that the firm file and serve an affidavit pursuant to r 223(2) of the Uniform Civil Procedure Rules. Orders were made. Cavenham also sought an order pursuant to r 171 that paras 6, 7(a) and 15 of the defence be struck out and the defence be amended. Initially her Honour had ordered that those paragraphs be struck out but after further submissions on the form of orders and costs she ordered only paras 7(a) and 15 be struck out.

[5] Paragraph 15 was struck out on the ground that it contradicted para 6 and, in that fashion, was embarrassing. Of all the orders made against it the firm appeals only the order that para 15 be struck out and the costs order on Cavenham's application.

[6] The amended statement of claim dated 17 March 2010 alleges that between March 2001 and September 2005 Cavenham lent to companies which operated Melba's nightclub at Surfers Paradise the sum of $2,210,000 across four loans. Paul Allen (and Geoffrey Sullivan) were the proprietors of Melba's through companies controlled by them. Michael and Susan O'Connor are the directors of Cavenham and Peter Lamb was Cavenham's bank manager and agent. By para 6 of the amended statement of claim, Cavenham alleges that between 5 October 2003 and 5 June 2008 it retained the firm to act for it in relation to the loans. The retainer(s) was an express oral retainer and its terms were pleaded in para 6 of the amended statement of claim as follows:

"6. On or around 5 October 2003 and at all relevant times in between up until 5 June 2008, the plaintiff retained the defendant to:

Act for it in respect to the loan transactions and the extension of the First Loan referred to in paragraphs 18 to 22 below.
Review, prepare, and amend documents as appropriate in evidence of the loans so as to protect the plaintiff.

Meet with the plaintiff's directors and provide advice as to the position of the plaintiff and what the plaintiff needed to do to protect the integrity of the loans advanced.

Take steps to secure the loans against Melba's assets and/or assets owned by Melba's directors in order to ensure the loans were fully secured against the risk of non-payment.
Advise the plaintiff of any the risks associated with the loan transactions, such as non-payment of the loans in the event of either Melba's defaulting under the transactions or the security for the loans being insufficient.
Advise the Plaintiff of measures to be undertaken by the plaintiff to avoid those risks and undertake those measures.
Secure the plaintiff's position such that should Melba's collapse, the plaintiff's loans would be returned to the plaintiff without loss.
Act in a manner customary to that of an ordinary and competent solicitor in the circumstances."

"On or about 5 October 2003 the defendant was retained to advise with respect to ... the First Loan, Second Loan, and Third Loan and in respect to the First Loan, in light of the fact that the National Australia Bank had registered a first mortgage on 23 December 2002, the defendant was retained to:

(a) Take adequate and appropriate steps to secure the plaintiff's position in respect to the First Loan, then unsecured, in a manner customary to that of an ordinary and competent solicitor in the circumstances."

"15. The defendant did not provide any advice to the plaintiff on that [around September or October 2004][1], or any other occasion, of the risks of not registering the second mortgage, or explain that not registering the mortgage would mean that the plaintiff's loan was unsecured and that there was a high risk the plaintiff could lose its money."

The consequences are pleaded in para 16 that the first loan remained unsecured and in para 17 that Cavenham would not have made the subsequent loans had it been advised of the high risk of losing its money.

[8] On 22 March 2010 the firm sought further and better particulars of, inter alia, para 6 which were provided on 24 May 2010. Those particulars allege that there were three distinct express oral retainers on 5 October 2003, 22 September 2005 and "sometime" in November 2005, all with the same terms. The firm filed its defence denying liability on 2 June 2010. On 7 June Cavenham requested further and better particulars of the defence and, relevantly, of para 6. Those particulars were provided on 23 June 2010.

[9] Paragraph 6 of the defence was responsive to para 6 of the amended statement of claim. It alleged:

"(a) between about 24 September 2003 and about November 2004 he [Robert Bax] acted for the plaintiff:

(i) to prepare a loan agreement to record a loan in the sum of $350,000.00 which the plaintiff instructed it had already made more than two years earlier to On The Park Management Pty Ltd ("OTPM") on or about 5 March 2001 and to prepare, stamp and register a second mortgage over lot 4 on BUP 103758 ("lot 4") to secure that loan;

(ii) to prepare a loan agreement between the plaintiff and Dell International Pty Ltd ("Dell") in respect of a loan in the sum of $725,000.00 on the security of a mortgage over lot 1 on BUP 103758 ("lot 1") and to prepare, stamp and register that mortgage;

(iii) to prepare a loan agreement between the plaintiff and Dell in respect of a loan in the sum of $385,000.00 on the security of a mortgage over lot 3 on BUP 103758 ("lot 3") and to prepare, stamp and register that mortgage;

(i) he was not retained in relation to the Fourth Loan or the extension of the First Loan;

(ii) the scope of his retainer was as set out in subparagraph (a) above and did not extend to the matters alleged in subparagraphs b - g [of para 6 of the amended statement of claim];

"(ii) At that meeting O'Connor on behalf of the plaintiff instructed Bax:

(A) to the effect that he had negotiated the terms of the First Loan, that such agreement had been reduced to writing and provided Bax with a copy of that agreement dated 2001 ("the First Loan Agreement");

(B) to the effect that he had agreed with Paul Allen to extend the term of the First Loan for three years;

(C) to have the First Loan Agreement retyped and re-dated to record his agreement to extend the term of the First Loan and to prepare and provide to him for execution a second mortgage to be registered over Lot 4 to secure the First Loan;

(D) that he had agreed with Paul Allen to make the further loans referred to in subparagraphs 6(a)(ii) and (iii) of the defence on the same terms as the First Loan Agreement;

(E) to have loan agreements typed on the same terms as the First Loan Agreement and to prepare and provide to him for execution mortgages over lots 1 and 3 to secure those loans."

[10] In response to para 10 of the amended statement of claim, set out above, which refers to a retainer to advise on 5 October 2003, para 10 of the defence refers to the limited retainer set out in para 6.

[11] Paragraph 15 of the defence refers to para 14 (of the defence) and both should be set out.

"14. As to paragraph 14 of the statement of claim[2], the defendant says that:

(a) on or about 30 September 2004, the second mortgage over lot 4 was lodged at the Office of State Revenue for stamping;

(b) in response to a requisition received from the Office of State Revenue, the defendant requested and received from O'Connor the trust deed in respect of The MD O'Connor Family Trust;

(c) on or about 3 November 2004, the defendant paid the stamp duty assessed on the second mortgage over lot 4 which was then ready to be lodged for registration;

(d) shortly after 3 November 2004, in the presence of Lamb, O'Connor gave oral instructions to Bax to the effect that:

(i) Paul Allen ("Allen") had requested that he not register the mortgage;

(ii) he trusted Allen completely, that Allen and O'Connor had known each other for a long period of time and that he was a mate who had never let him down;

(iii) the second mortgage over lot 4 was not to be registered.

The defendant denies paragraph 15 of the statement of claim because:

(a) in the course of the conversation between O'Connor, Lamb and Bax referred to in paragraph 14 hereof, both Lamb and Bax advised O'Connor as to the dangers of not registering the second mortgage over lot 4, in that they said words to the effect that, being an unsecured creditor, O'Connor would "run a distant second" to any secured creditor and that O'Connor would be "in the melting pot with everyone else" but that if the mortgage was registered, then O'Connor would be the next to be paid after the existing first mortgagee;

(i) Allen's reason for not wanting the mortgage registered was so that the first mortgagee (the National Australia Bank) would not know about the loan and Allen would appear to have greater equity in the property; and

(ii) if he was on the title, they have to deal with you but if not, then you come last."

[12] For completeness, Cavenham filed a reply to the defence on 21 October 2010 after the learned primary judge had made orders striking out para 15 in which Cavenham joined issue on para 6 and admitted the allegations in para 14(a), (b) and (c) of the defence but denied the allegations in para 14(d) on the grounds that they were untrue. Similarly Cavenham joined issue with the denial in para 15 which had been struck out, on the ground that the allegations were untrue. Those responses in the reply were referred to by Mr R Jackson for the firm for the limited purpose of submitting that Cavenham was not embarrassed in the sense that it could not plead to para 15.

[13] In respect of the application to strike out paras 6 and 15 of the defence the learned primary judge said:[3]

"It would seem clear that paragraph 15 contradicts para 6 of the defence. Para 6 pleads a retainer limited to the preparation and registration of documents however para 15 goes on to indicate that advice was given by Bax as to the dangers of not registering the second mortgage over lot 4. Accordingly, paras 6 and 15 are embarrassing and should be struck out. Leave is given to the defendant to replead."

[14] By para 6 of its defence the firm admitted an express oral retainer but of narrower scope and over a shorter period than that alleged, namely, to prepare loan documents and arrange for the stamping and registration of mortgages. It did not include an agreement to advise about the transaction. Paragraph 15 of the defence denied para 15 of the amended statement of claim. Rule 166 requires that a party's denial be accompanied by a direct explanation:

"(1) An allegation of fact made by a party in a pleading is taken to be admitted by an opposite party required to plead to the pleading unless -

(a) the allegation is denied ... by the opposite party in a pleading; ...

(4) A party's denial ... of an allegation of fact must be accompanied by a direct explanation for the party's belief that the allegation is untrue ...

(5) If a party's denial ... of an allegation does not comply with subrule (4), the party is taken to have admitted the allegation."

Cavenham contended below that paras 6 and 15 of the defence were contradictory of each other because, on the one hand, the firm alleged it was retained only to prepare documents and stamp and register mortgages (para 6) and on the other, did give advice (para 15).

[15] Mr K Wilson SC for Cavenham submitted that the advice described in para 15 is "pleaded in a vacuum"[4] in as much as it has no consequences in the balance of the pleadings. If that be the case that was not the complaint in the application below and if the defence requires amendment that is something for further consideration by counsel, but it is not for this appeal.

[16] Rule 171 closely resembles the language of former O 22 r 32 Rules of the Supreme Court 1991 (Qld) which enabled a judge to strike out or amend any matter in the pleading which tended "to prejudice, embarrass, or delay, the fair trial of the action". The word "embarrass" has not been retained. Nonetheless any pleading which is difficult to follow or objectively ambiguous or creates difficulty for the opposite party insofar as the pleading contains inconsistencies, is liable to strike out because it can be said to have a tendency to prejudice or delay the fair trial of the proceeding rather than "embarrass" the opposite party.

[17] There is nothing inherently contradictory in pleading that the express terms of a retainer did not include a term to advise, and, in response to an allegation that no advice was given on a particular matter, denying that allegation because advice had been given (notwithstanding the terms of the retainer).

[18] Pleadings identify the matters in issue, that is, define the parameters of the controversy so that the trial may be limited only to those matters and costs contained. A party will not, in the usual case, be permitted to lead evidence which does not relate to the matters remaining in controversy after the close of pleadings. That is because such evidence would be irrelevant and therefore inadmissible. In this case the consequences for the firm are even more dire. Not only would it not be permitted to lead evidence about the advice given in November 2004, it is taken to have admitted that no advice was given by virtue of r 166(5).

[19] It follows that the learned primary judge erred in striking out para 15 and the appeal should be allowed with costs.

[20] Mr Wilson submitted that even if the appeal were to be successful the costs orders in its favour made by the learned primary judge in respect to Cavenham's application ought not be disturbed. It was successful on disclosure, the filing of an affidavit under r 223 and striking out para 7(a) of the defence. A perusal of the transcript below suggests that this aspect of Cavenham's application did not greatly extend the hearing, indeed the argument about para 7(a) seemed to involve more oral argument. The r 444 and r 445 letters dealt with all matters. I am inclined to leave the costs orders as made by her Honour.

2. Vary order 5 made in the Trial Division on 3 September 2010 by deleting "and 15".

[1] Para 13 of the Amended Statement of Claim.

[2] "The plaintiff ... instructed the defendant not to register the second mortgage believing that the plaintiff was covered for the First Loan by the mortgages for the other loans it had provided."

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