Scarcella v Lettice

Peter J Scarcella PARTIES : v Frederick Michael Lettice and Evelyne Marie Lettice JUDGMENT OF : Handley JA at 1; Powell JA at 36; Giles JA at 40

LOWER COURT JURISDICTION : Supreme Court - Common Law Division LOWER COURT 20667/94 FILE NUMBER(S) : LOWER COURT Ireland J JUDICIAL OFFICER :

COUNSEL : S D Rares SC/M Dempsey (Appellant) P H Greenwood SC/T J Boyd (Respondent) SOLICITORS : Mallesons Stephen Jaques (Appellant) Caldwell Martin & Cox (Respondent) CATCHWORDS : NEGLIGENCE - professional negligence - solicitor failed to discover defect in title - respondents relied on negligent advice in purchasing property - LIMITATION OF ACTIONS - whether cause of action in tort complete when damage suffered at time of purchase or upon discovery of defect in title - defect in title would have been revealed by normal conveyancing procedures - time ran from completion of purchase - not from discovery of loss - Limitation Act 1969 (NSW) LEGISLATION CITED : Limitation Act 1969 (NSW) Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Cartledge v E Jopling & Sons Ltd [1963] AC 758 Hawkins v Clayton (1988) 164 CLR 539 Sutherland Shire Council v Heyman (1985) 157 CLR 424 Murphy v Brentwood District Council [1991] 1 AC 398 Bryan v Maloney (1995) 182 CLR 609 Invercargill City Council v Hamlin [1996] AC 624 Christopoulos v Angelos (1996) 41 NSWLR 700 CASES CITED: Registrar-General v Cleaver (1996) 41 NSWLR 713 Gibbs v Guild (1882) 9 QBD 59 Lynn v Bamber [1930] 2 KB 72 Short v M'Carthy (1820) 3 B & Ald 626 [106 ER 789] Gibbs v Guild (1881) 8 QBD 296 Howell v Young (1826) 5 B & C 259 [108 ER 97] Grainger v George (1826) 5 B & C 149 [108 ER 56] Thomson v Lord Clanmorris [1900] 1 Ch 718 CA Sampson v Zucker (C/A 11/12/96 unrep) DECISION : Appeal allowed with costs - orders made

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40685/98 CLD 20667/94 HANDLEY JA POWELL JA GILES JA

PETER J SCARCELLA v FREDERICK MICHAEL LETTICE & ANOR

NEGLIGENCE - professional negligence - solicitor failed to discover defect in title - respondents relied on negligent advice in purchasing property

LIMITATION OF ACTIONS - whether cause of action in tort complete when damage suffered at time of purchase or upon discovery of defect in title - defect in title would have been revealed by normal conveyancing procedures - time ran from completion of purchase - not from discovery of loss - Limitation Act 1969 (NSW)

The appellant solicitor acted for the respondents on a property purchase in 1982. The rear of the subject property, which was used for depasturing livestock, was accessible by foot but vehicle access was only possible via a roadway described by the real estate agent as a "right-of-way" passing through two adjacent lots. The respondents discovered in 1994 that they did not have a right-of-way over one of the adjacent lots. In September 1994 the respondents sued the appellant for professional negligence. The appellant pleaded the Limitation Act 1969. The trial Judge found that the appellant's employed solicitor had been negligent in failing to obtain all the searches required to establish whether the plaintiffs would obtain legal access to the rear of the property from a public road. His Honour also rejected the appellant's limitation defence on the basis that the respondents first suffered actual damage in 1994 when they discovered they did not have a right-of-way. The appellant appealed. HELD (allowing the appeal): The trial Judge erred in finding that the respondents' cause of action was not statute-barred. (1) Time commences to run under the Limitation Act when damage accrues even if the plaintiff is not aware of it. Cartledge v E Jopling & Sons Ltd [1963] AC 758, Hawkins v Clayton (1988) 164 CLR 539, Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 followed. (2) In cases involving latent defects in title the damage accrues at the time of discovery because until then the owner can honestly resell the property for its full market value and avoid any economic loss: Christopoulos v Angelos (1996) 41 NSWLR 700, Registrar-General v Cleaver (1996) 41 NSWLR 713 referred to. (3) The respondents' cause of action accrued upon purchasing the property in 1982 in reliance on the appellant's negligent advice when they paid too much for the property. (4) The defect in their title was not a latent defect of the kind considered in Christopoulos v Angelos or Registrar-General v Cleaver because normal conveyancing procedures should have revealed its existence. Accordingly the respondents' proceedings commenced in 1994 were statute-barred. ORDERS

(2) Judgment for plaintiffs set aside and in lieu thereof judgment should be entered for the defendant in the action with costs;

(3) The respondents to have a certificate under the Suitors Fund Act. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40685/98 CLD 20667/94 HANDLEY JA POWELL JA GILES JA

PETER J SCARCELLA v FREDERICK MICHAEL LETTICE & ANOR

1 HANDLEY JA: This is an appeal by a solicitor from the judgment for $195,837 entered by Ireland J in favour of former clients in an action for professional negligence. The solicitor had acted for the clients on their purchase of lot 27, Theresa View Road, Theresa Park via Camden in 1982. In April that year the plaintiffs saw an advertisement in the local newspaper for the subject property which was described as consisting of 25 acres with two road frontages.

2 The plaintiffs, who were interested in establishing a hobby farm, inspected the property with a real estate agent. The land which fronted Theresa View Road was relatively level and the rear of the property comprised 13 acres of gently sloping open pasture land upon which two dams had been built. However in between there was a steep, heavily timbered escarpment down which a rough, zig zag track had been bulldozed to provide access by foot.

3 Vehicle access to the rear of the property was gained via what the real estate agent described as a "right-of-way" which, according to the plaintiffs was, at that time, a well maintained roadway easily negotiable by motor car which passed through lots 61 and 55.

4 The plaintiffs instructed the appellant to act on the purchase of the property and an employed solicitor handled the transaction. The plaintiffs told the employed solicitor that they would arrange for a surveyor to prepare a report and would have this forwarded to him. It was agreed that contracts would not be exchanged until the employed solicitor had seen the surveyor's report and a title search. The survey and report are in evidence (1/44-5), but the survey covered only part of the property, and did not extend to the whole of the right-of-way. Contracts were exchanged on 21 May 1982 after the solicitor received the survey and report.

5 The plaintiffs built a brick home on the level area fronting Theresa View Road and ran livestock on the rear section. In 1993 they applied to the Wollondilly Council to subdivide by creating a separate lot in the rear section relying on the "right-of-way" for access. Adjoining owners objected and in early 1994 the Council wrote to the plaintiffs informing them that title searches had revealed that they had no right-of-way over lot 61 and subdivision approval could not be given.

6 Shortly afterwards the owners of lot 61 padlocked the gate between their property and lot 55 blocking access for the plaintiffs to and from the public road. The plaintiffs attempted to obtain a legal right-of-way by negotiating with adjoining owners, but were unsuccessful. As a result the plaintiffs have been unable to run stock on the rear of their property and have been unable to subdivide it.

7 The second schedule of the contract of sale disclosed a right of carriageway appurtenant to the land and referred to transfer R938480 and its attached plan. There was such a right-of-way giving access over lot 55 but this was useless without a legal right-of-way over lot 61 as well.

8 The statement of claim alleged that the appellant's employed solicitor advised the plaintiffs that there was a right-of-way providing access to the rear of the property and that they had relied upon this advice in purchasing the property. The trial Judge found that such advice had been given and this finding has not been challenged. The plaintiffs had a right of rescission for the innocent misrepresentations about the right-of-way which lapsed on completion.

9 The trial Judge held that the employed solicitor had been negligent in failing to obtain all the searches required to establish whether the plaintiffs would obtain legal access to a public road from the rear of their property. This finding, based on his acceptance of the expert evidence of Mr Boyce, has not been challenged.

10 The plaintiffs' statement of claim, which was framed in tort, was filed on 8 September 1994. There was no claim for breach of contract because time runs from breach, which is the cause of action, and all claims in contract were statute-barred. The rule in the tort of negligence is otherwise because time only runs from when the plaintiff suffers actual damage for only then is the plaintiff 's cause of action complete.

11 The appellant pleaded that the claim in tort was statute-barred under the Limitation Act 1969. This required the Court to determine when the plaintiffs first suffered actual damage. Their cause of action would then be complete even if further damage continued to accrue. The Judge found that this occurred early in 1994 when the plaintiffs discovered that they did not have a legal right-of-way over lot 61 and on this basis the limitation defence failed.

12 Damages were awarded for the difference between the value of the property in 1994 with a right-of-way and subdivisional potential, and its then value without a right-of-way. The Judge assessed the difference at $117,000. His award of $195,837 comprised this amount, damages for vexation, distress and inconvenience, and pre-judgment interest.

13 A cause of action in negligence is not complete until the plaintiff first suffers actual loss or damage. Damage which is prospective or contingent does not qualify as actual damage for this purpose. See Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 (Wardley) at 530, 531 per Mason CJ, Dawson, Gaudron and McHugh JJ. 14 In order for the plaintiffs' cause of action to be complete, the plaintiffs' actual damage must be "measurable" (Wardley at 531), or, in the words of Lord Reid in a personal injuries case (Cartledge v E Jopling & Sons Ltd [1963] AC 758 at 772) the damage must be "beyond what can be regarded as negligible". 15 This was an action to recover damages for the plaintiffs' economic loss and the courts have developed special rules for distinguishing between actual and prospective damage in this area. Time commences to run under the Limitation Act when damage accrues, even if the plaintiff is not aware of it: see Cartledge v E Jopling & Sons Ltd [1963] AC 758 at 782-3; Hawkins v Clayton (1988) 164 CLR 539 at 543, 560-561, 587-8, and 598-602 and Wardley (1992) 175 CLR 514 at 540, 554-5. 16 Where an owner suffers loss because of the existence of latent defects in a building, it is now established that such loss accrues when the defects become manifest or are otherwise discovered, and not before. What has become orthodox doctrine in much of the common law world concerning the nature of the damage in such a case can be traced to the judgment of Deane J in Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 503-5 where he said: "… the respondent's claim … is for the loss or damage represented by the actual inadequacy of the foundations, that is to say it is for the cost of remedying a structural defect in their property which already existed at the time when they acquired it … It is arguable that any such loss … should be seen as being sustained at the time of acquisition when, because of ignorance of the inadequacy of the foundations, a higher price is paid … than is warranted by the intrinsic worth of the freehold or leasehold estate that is being acquired. Militating against that approach is the consideration that, for so long as the inadequacy of the foundations are neither known nor manifest, no identifiable loss has come home: if the purchaser or tenant sells the freehold or leasehold estate within that time, he or she will sustain no loss by reason of the inadequacy of the foundations. The alternative, and in my view preferable, approach is that any loss … involved in the actual inadequacy of the foundations is sustained only at the time when the inadequacy is first known or manifest. It is only then that the actual diminution in the market value of the premises occurs". 17 This analysis has been followed in Hawkins v Clayton (above) at 543, 587-8, 601-2; Murphy v Brentwood District Council [1991] 1 AC 398 at 466-8, 475, 480-1, 484; Bryan v Maloney (1995) 182 CLR 609 at 617, 623, 625-6, 645-7, 657-8; and Invercargill City Council v Hamlin [1996] AC 624 at 647-9. 18 In Christopoulos v Angelos (1996) 41 NSWLR 700 and Registrar-General v Cleaver (1996) 41 NSWLR 713, this Court extended this principle to cases involving latent defects of title. In Christopoulos v Angelos the plaintiffs purchased a residential property which was subject to an easement that was not recorded on their certificate of title but was recorded on the certificate of title of the dominant tenement. The plaintiffs purchased their property without actual or imputed notice of the easement. Although its existence could have been discovered by a search of the title to the dominant tenement, conveyancing practice did not require searches to be made for unregistered easements. However s 42(1)(b) of the Real Property Act provides that the title of a registered proprietor is subject to an unregistered easement "created in or existing upon" the land. The Registrar-General recorded the easement on the plaintiffs' certificate of title some four years after they became registered. 19 The majority of this Court held that the purchasers had not suffered economic loss until the Registrar-General recorded the easement on their title and they became aware of the defect. Until then they could have honestly resold the property for its full market value and successfully avoided any economic loss. Accordingly their action for negligent misrepresentation, commenced within 6 years of becoming aware of the defect but more than 6 years after their purchase, was not statute-barred. On 6 June 1997 the High Court refused leave to appeal (S 196 of 1996). 20 The same principle was applied in Registrar-General v Cleaver (1996) 41 NSWLR 713. The benefit of a restrictive covenant was recorded on the plaintiffs' certificate of title, but the burden had not been recorded on the certificate of title of the land burdened by the covenant. The error occurred in 1967 but both lots changed hands without incident until 1988. The plaintiffs acquired the property with the benefit of the restrictive covenant in 1978 but did not discover the defect in their title until 1988 when the other proprietor threatened to breach the covenant. 21 The plaintiffs were unable to enforce the restrictive covenant and they sued the Registrar-General under s 127 of the Real Property Act for damages caused by the omission in the register. The Registrar-General contended that the action was statute-barred. This Court held that the plaintiffs' cause of action was not complete until the omission in the register was discovered because that was when they first suffered economic loss. Until then they could have honestly resold the property for its full market value and successfully avoided any economic loss. Although a search of the title to the adjoining property would have disclosed the defect in title, conveyancing practice did not require such a search to be made. 22 In both cases the defects in title were discoverable but would not be discovered by normal conveyancing procedures. Thus in Registrar-General v Cleaver the previous owners of the plaintiffs' land between 1967 and 1978 suffered no economic loss because they sold the property for its market value with the benefit of the covenant. Latent defects in buildings are also discoverable if the work is opened up, or partially demolished, but owners and purchasers of property do not normally search for latent defects in buildings. 23 The situation in the present case is quite different. The contract of sale disclosed the existence of a registered easement which benefited the property. The plaintiffs specifically asked their solicitor to confirm the existence of legal access to the lower section of their property but, even without specific instructions, normal conveyancing procedures should have revealed the existence of the defect in title. This was not a latent defect of the kind considered in Christopoulos v Angelos and Registrar-General v Cleaver. There is no reason for thinking that the plaintiffs could have ever sold this property and avoided economic loss. The defect in their title would have been discovered, either by their solicitors in preparing the contract of sale, or by the solicitors for the purchaser, and in that event they would have faced claims for compensation or rescission. 24 The general principle is that time runs from when the cause of action is complete, whether or not this is discovered or discoverable. The exceptions for latent defects in buildings, latent defects in title, and prospective and contingent losses are only apparent exceptions to this general rule. They depend in each case on a finding that the particular form of economic loss had not been suffered when the plaintiff became committed to the risk, but only later when the risk actually accrued. 25 The general principle has been applied in representation cases in deceit and in negligence. Before the Judicature Act, the Courts of Common Law, after some division of opinion, decided not to allow any exception in limitation cases for fraud but this exception was allowed in the Court of Chancery. As Holker LJ said in Gibbs v Guild (1882) 9 QBD 59 at 73: "the cause of action … was the fraud and not the discovery of it". After the Judicature Act the rule in equity came to prevail. See Gibbs v Guild (above) and Lynn v Bamber [1930] 2 KB 72. 26 The equitable exception in cases of fraud or fraudulent concealment has been incorporated in modern limitation legislation including the Limitation Act 1969 (s 55), and has been extended to cases where there is a cause of action "for relief from the consequences of a mistake" (s 56). Neither exception was or could have been relied on in this case. The cause of action in this case was the negligence, and not the discovery of it. The decisions supporting this view go back to the early years of the 19th century. In Short v M'Carthy (1820) 3 B & Ald 626 [106 ER 789] an attorney who was responsible for a negligent search at the Bank of England to ascertain whether certain stock was standing in the names of trustees represented to the plaintiff that such was the case. The error was not discovered for more than six years but the defendant's plea of the Statute of Limitations succeeded. It is not clear that the plaintiff had sued in tort. In Gibbs v Guild (1881) 8 QBD 296 at 302 Field J said that this was so, but the Court in Howell v Young (1826) 5 B & C 259 [108 ER 97] at 265-7 [99-100] thought otherwise. 27 In Grainger v George (1826) 5 B & C 149 [108 ER 56] the plea of the statute was held to answer the action although the plaintiff did not discover the conversion until more than 6 years afterwards ("there not being evidence of any fraud practised by the defendant in order to prevent the plaintiff from obtaining knowledge of that which had been done" per Abbott CJ at 152 [56-7]). 28 In Howell v Young (1826) 5 B & C 259 [108 ER 97] the plaintiff retained the defendant as his attorney to advise on the sufficiency of the security for a loan. The plaintiff did not discover that the security was insufficient until 6 years later, the borrower having paid interest in the meantime. The plaintiff sued in tort alleging that the defendant had failed to exercise due care and had "represented to the plaintiff " that the security would be sufficient. The defendant's plea of the Statute of Limitations succeeded. See also Thomson v Lord Clanmorris [1900] 1 Ch 718 CA (action for compensation under Directors' Liability Act for untrue statements in prospectus). 29 The general rule in misrepresentation cases was acknowledged in Wardley (1992) 175 CLR 514 where at 530 the majority said: "In the case of a fraudulent or negligent misrepresentation which induces the plaintiff to enter into a contract to purchase property, the plaintiff 's loss, apart from any question of consequential damage, is measured by the difference between the price paid or payable under the contract and the value of the property at the date of the contract".

30 At p 535 Brennan J said: "In the usual case of deceit, the damages are measured by the difference between the real value of an asset purchased and what the plaintiff paid for it but, as Gibbs CJ said in Gould v Vaggelas that rule is 'only a special application of the general principle'. Where a fraudulent misrepresentation induces the purchasing of an asset and payment of a price greater than the value of the asset purchased, the difference between the price and the value of the asset represents 'how much worse off is the plaintiff than if he had not entered into the transaction'." 31 Later at 537-8 Brennan J said: "… when a misrepresentation induces a plaintiff to enter into a transaction in which the plaintiff suffers a loss, the loss is suffered once the plaintiff becomes bound to the transaction. The die is then cast and what follows can be viewed as evidence proving the extent of the loss suffered when the first binding step was taken. That may be the correct analysis when the first binding step is such that, whatever extrinsic circumstances may transpire, a loss must be suffered. For example when an asset is purchased for a price and, by reason of an inherent defect, it is worth less than the price paid, a loss may be said to be suffered when the plaintiff pays the price or becomes bound to pay the price". 32 Prima facie these plaintiffs suffered loss when they completed their purchase, if not before. Their only prospect of honestly avoiding that loss lay in a resale with the benefit of the right-of-way if the solicitor for their purchaser was negligent and failed to discover the defect in title. Wardley established that contingent and future losses did not constitute immediate damage for limitation purposes. In my view the chance of avoiding loss which is dependent upon a speculative and improbable breach of duty by the solicitor for a future purchaser should not prevent the recognition of economic loss when an asset with a defective title such as this is purchased for more than its true value (Limitation Act s 14(1)). The appeal must therefore be allowed and the action dismissed.

33 Although it is not strictly necessary to deal with the issue of damages I should record my conclusions on this issue as well. My reasons on the limitation issue lead inevitably to the conclusion that the assessment of damages by the trial Judge cannot stand. In my respectful opinion the Judge awarded damages on the contract measure that would have been appropriate if the appellant had warranted the title to the property with the right-of-way. However the appellant did not promise the plaintiffs that they would receive a valid right-of-way but, through his employed solicitor, he incorrectly represented that they had such a right-of-way. The negligence did not cause the plaintiffs to lose the right-of-way. They never had such a right and could never have acquired it by their purchase. 34 The measure of damages in such a case is the tort measure in misrepresentation cases being the difference between the true value of the asset and the price paid and any consequential losses. The unchallenged valuation evidence (3/663) was that in 1982 the land without the benefit of the right-of-way was worth $4,000 less than the price the plaintiffs paid for it. That was the plaintiffs' true measure of damages and, in the absence of any limitation defence, judgment should have been entered for that amount together with pre-judgment interest. 35 The following orders should be made: (1) Appeal allowed with costs;

(2) Judgment for plaintiffs set aside and in lieu thereof judgment should be entered for the defendant in the action with costs;

(3) The respondents to have a certificate under the Suitors Fund Act. 36 POWELL JA: I have read, in draft, the several Judgments which have been prepared by Handley JA and Giles JA in this matter. 37 Since, in my view, the Respondents sustained damage either at the time of their entry into the contract of sale or at the time of their completing the contract, any claim for damages for negligence on the part of the Appellant had become barred long before the commencement of the proceedings. 38 For these reasons I agree with the orders which Handley JA has proposed. 39 I am, however, unable to agree with the views which Handley JA and Giles JA have expressed as to the basis underlying such cases as Christopoulos v. Angelos (1996) 41 NSWLR 700 and Registrar-General v. Cleaver (1996) 41 NSWLR 713, which cases - for reasons upon which it is unnecessary, in the present case, to enter (but see note Butt: Defects in the title and the statute of limitations (1997) 71 ALJ 252) - I consider to have been wrongly decided. 40 GILES JA: The reasons of Handley JA, which I have had the advantage of reading in draft, enable me to state succinctly why I agree with the orders his Honour proposes. 41 The plaintiffs' cause of action was complete when they suffered actual damage, whether or not they were aware of the damage. As a result of the solicitor's negligence, in 1982 they bought the property when they would not have bought it had they known that they were not entitled to access to the rear of the property. They paid out $66,000, and received in return a property worth not $66,000 but $62,000, the market value of the property without access to the rear of the property. That constituted actual damage. 42 The incomplete right of way was apparent upon search and would become known to any (non-negligent) purchaser, including a purchaser from the plaintiffs. So the $62,000 was the true value of the property in 1982, and the plaintiffs were immediately worse off by $4,000. Their economic loss was suffered in 1982 when they paid too much for the property. It was not prospective, suffered only when they were denied access to the rear of the property. As explained by Handley JA, Christopoulos v Angelos (1996) 41 NSWLR 700 and Registrar-General v Cleaver (1996) 41 NSWLR 713 were quite different in that the title discrepancies were not ordinarily discoverable on search and until their discovery the market values of the properties were and remained their values without the title discrepancies. 43 The plaintiffs submitted, in reliance upon the construction given to s 14(1) of the Limitation Act 1969 by Deane J in Hawkins v Clayton (1988) 164 CLR 539 at 588-91, that time did not run until discovery of the incomplete right of way because the solicitor's wrongful act itself effectively precluded the institution of proceedings. Deane J's construction was not adopted and applied by the other members of the Court. In any event, it is not applicable in the present case. In Sampson v Zucker (Court of Appeal, 11 December 1996, unreported), it was pointed out that in Hawkins v Clayton the very tortious act upon which the defendants were being sued made it impossible to sue them within the limitation period, and that Deane J's construction did not avail the plaintiff in that case because he was not precluded from taking other advice and seeing his solicitor. So also in the present case, nothing the solicitor did precluded the plaintiffs from independently discovering the incomplete right of way and suing the solicitor.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.