Victorian Civil and Administrative Tribunal|2008-11-06

Shaw v Gadens Lawyers (Legal Practice) [2008] VCAT 2643 (6 November 2008)

Legal Profession Act 2004 s.4.3.15; dispute between client and lawyer; lawyer gave advice which led to client bringing proceedings in Supreme Court; allegation that lawyer should have advised client that he could bring proceedings at VCAT at less cost; advice given by lawyer would have been given by substantial majority of lawyers, so no negligence on part of lawyer; alternatively, case destined to end up in Supreme Court even if commenced at VCAT.

OUTLINE OF CLAIM MADE BY MR. SHAW IN THIS APPLICATION:

On 12 April 2000, Mr. Shaw purchased "off the plan" a unit in a proposed tower at Docklands. The purchase price was $665,000, and Mr. Shaw paid a deposit. The vendor was the developer of the tower, and the contract of sale anticipated that the developer would enter into a building contract with a builder for the construction of the tower. As will become apparent in due course, the fact that Mr. Shaw entered into a contract with the developer, and not with the builder, is at the heart of the present application.
The developer entered into a building contract with a builder, and the tower was constructed. The developer then called upon Mr. Shaw to pay the balance of purchase money. Mr. Shaw did not pay, as he maintained that the unit had not been completed in accordance his contract with the developer. The developer served a notice of intention to rescind upon Mr. Shaw, but that led to disputes between Mr. Shaw and the developer as to whether the unit had been completed in accordance with the contract and as to whether the developer was entitled to rescind the contract.
Mr. Shaw did not consult Gadens Lawyers until the developer served a second notice of intention to rescind. Gadens Lawyers advised Mr. Shaw to pay the balance of purchase money, and then to take action against the developer seeking to recover the cost of completion or rectification (which I will describe as "rectification") of the windows. Mr. Shaw rejected that advice, as he was entitled to do.
Gadens Lawyers then recommended that Mr. Shaw follow a course of action that led to him taking unsuccessful proceedings in the Supreme Court, and ultimately led to him pursuing an unsuccessful appeal to the Court of Appeal. Mr. Shaw gave evidence that he suffered a loss of about $576,000 as a result of the unsuccessful proceedings.
Mr. Shaw contends in the present application that Gadens Lawyers should have explained to him that another course of action was available. That course would have required him to lodge an application immediately to the Victorian Civil & Administrative Tribunal. It is common ground that Gadens Lawyers did not inform Mr. Shaw of the possible course of action involving an application to VCAT.
Mr. Shaw maintains that the failure to provide advice about the VCAT course of action amounted to negligence on the part of Gadens Lawyers, and that it deprived him of the opportunity to make an informed decision as to which course to follow. Mr. Shaw does not say that he definitely would have taken the VCAT course. He simply says that he probably would have taken the VCAT course as, compared to the course of action involving the Supreme Court, it would have been quicker, cheaper, more likely to be successful, and not exposed him to costs orders in favour of the developer.
Mr. Shaw seeks from Gadens Lawyers, first, compensation for his losses; secondly, repayment of all legal costs paid by him to Gadens Lawyers; and thirdly, the provision of further legal services without charge to enable him to finalise one aspect of the Supreme Court proceedings.
I propose to deal with this application in the following way:

(a) to ascertain what Mr. Shaw sought to achieve when he engaged Gadens Lawyers;

(b) to set out what happened after Mr. Shaw engaged Gadens Lawyers;

(c) to set out Mr. Shaw's contention as to the likely outcome of his dispute with the developer if Gadens Lawyers had advised him, at the outset, that he could make an application to VCAT to resolve the dispute;

(d) to consider the legal issue that caused Mr. Shaw to be unsuccessful in the Supreme Court and the Court of Appeal;

(e) to determine whether there was negligence on the part of Gadens Lawyers which caused loss to Mr. Shaw; and

(f) to deal with some peripheral matters raised by Mr. Shaw.

WHAT DID MR. SHAW SEEK TO ACHIEVE WHEN HE ENGAGED GADENS LAWYERS?

Mr. Shaw gave evidence that he is an engineer with considerable experience in ventilation. He said that, when purchasing the unit, he negotiated terms that excluded the provision of air conditioning. He said that he intended to install an internal heating and cooling system.
Mr. Shaw stated that, where air conditioning is not provided, the Australian Building Code stipulates that bedroom windows must be capable of being opened to a specified degree.
According to Mr. Shaw, when the developer first sought payment of the balance of purchase money, the bedroom windows could not be opened. He refused to complete his purchase mainly for that reason. He said that there were a few other defects but, unlike the windows, they were "negotiable".
As I have mentioned, the developer served a notice of intention to rescind, which led to disputes as to whether the unit had been completed in accordance with the contract and as to whether the developer was entitled to rescind the contract. Negotiations took place between Mr. Shaw and the developer with a view to resolving these disputes, but to no avail. The developer altered the bedroom windows to allow them to open, but that did not satisfy Mr. Shaw because the windows did not open to the degree specified in the Building Code.
On 29 September 2003, the developer served a second notice of intention to rescind upon Mr. Shaw, requiring him to pay the balance of purchase money within 14 days or the contract would be rescinded. Mr. Shaw first consulted Gadens Lawyers on 2 October 2003. His matter was handled by a partner, Mr. Appelboom.
I accept the evidence of Mr. Shaw that he gave instructions to Gadens Lawyers that he wanted to complete his purchase, but not before the bedroom windows were made to accord with the Building Code. I also accept his evidence that he informed Gadens Lawyers, in substance, that because he was a ventilation engineer he wanted to create a precedent as to the requirements of the Building Code for the provision of windows in a unit without air conditioning. However, I find that the creation of a precedent was a secondary consideration, and that it was not to qualify his basic instruction that he wanted to complete his purchase as soon as the windows were rectified.
Gadens Lawyers wrote a detailed letter of advice to Mr. Shaw on 8 October 2003. Stated briefly, so far as is relevant for present purposes, the letter gave the following advice:

(a) that, if the notice of intention to rescind was not complied with by 14 October 2003, the developer would purport to rescind the purchase contract, regard the deposit as forfeited, re-sell the unit, and seek to recover from Mr. Shaw all expenses and losses incurred in re-selling the unit;

(b) by way of "preliminary" advice, that, if the bedroom windows did not accord with the Building Code, the developer would not be entitled to rescind the contract. However, if the developer purported to rescind the contract, Mr. Shaw could either treat the contract as terminated and claim damages for breach of contract or seek specific performance of the contract and claim damages for breach of contract;

(c) that "the safest legal option" would be to pay the balance of purchase money but reserve any rights to compensation in respect of the windows;

(d) that, because Mr. Shaw did not want to pay the balance of purchase money until the windows complied with the Building Code, proceedings should be issued in the Supreme Court without delay seeking specific performance of the contract by the developer;

(e) that the obtaining of an injunction would not prevent time running under the notice of intention to rescind;

(f) that, "to prevent the Vendor from re-selling the apartment in the meantime", a caveat would be lodged at the Office of Titles "to protect your interest in the property". Gadens Lawyers than gave the following advice in relation to the caveat which advice plays a significant part in the present proceedings:

'This should be sufficient to protect your interest without incurring the added cost of obtaining an injunction to prevent the Vendor from re-selling the property in the meantime. The caveat should be sufficient to dissuade the Vendor from attempting to re-sell the apartment pending resolution of the dispute, or a purchaser from buying the property whilst the caveat remains on title. In the normal course, a Vendor would seek a Court order to remove a disputed purchaser's caveat before re-selling.'

In answer to the question "What did Mr. Shaw seek to achieve when he engaged Gadens Lawyers?, I find that he sought to gain extra time in which to engage in further negotiations with the developer, the aim being to have further alterations made to the bedroom windows so that they complied with the Building Code. I also find that Mr. Shaw endeavoured to achieve that aim by lodging a caveat over the title to the unit. In making those findings I have taken the following factors into account.
First, the developer did not treat the contract as having been rescinded after Mr. Shaw chose not to comply with the demands made in the first notice of intention to rescind. Instead, the developer entered into further negotiations with Mr. Shaw which led to partial rectification of the windows.
Secondly, Mr. Shaw intended not to comply with the demands made in the second notice of intention to rescind unless, of course, the windows were rectified to comply with the Building Code. I am satisfied that it was the intention of Mr. Shaw, no doubt encouraged by the outcome of the first notice of intention to rescind, to pursue further negotiations with the developer after the time for compliance with the demands in the second notice had expired, in the hope that the developer would rectify the windows in order to finalise the sale.
Thirdly, the "preliminary" advice given by Gadens Lawyers, to the effect that the developer was not entitled to rescind until the works had been completed in accordance with the contract, appeared at that time to be supported by s.42 of the Domestic Building Contracts Act 1995 which provided that "A builder must not demand final payment under a major domestic building contract until ... the work carried out under the contract has been completed in accordance with the plans and specifications set out in the contract".
Neither the contract of sale nor the plans and specification are in evidence, but I am prepared to assume that the contract required the unit to be constructed in accordance with the Australian Building Code. If s.42 applied to the contract of sale, and if the windows still did not comply with the Building Code, Mr. Shaw had little to fear from a purported rescission of the contract.
Fourthly, clear advice had been given by Gadens Lawyers in the letter of 8 October 2003, in a passage set out above, that the developer would be unlikely to re-sell the unit prior to any caveat being removed.
Fifthly, I accept the evidence of Mr. Appelboom that he advised Mr. Shaw that a caveat, rather than an injunction, was the cheapest and quickest method of gaining time to negotiate, which advice was confirmed in part in the letter of 8 October 2008.
Sixthly, it is common ground that Mr. Shaw accepted the advice of Gadens Lawyers to lodge a caveat.

WHAT HAPPENED AFTER MR. SHAW ENGAGED GADENS LAWYERS?

Gadens Lawyers lodged a caveat over the title to the unit on 10 October 2003. The effect of the caveat was to prevent registration of a transfer, or other dealing, relating to the unit: s.89 Transfer of Land Act 1958.
The time for compliance with the demands made in the notice of intention to rescind expired on 14 October 2003. The most significant demand, of course, was that the balance of purchase money be paid. Mr. Shaw did not comply with the demands, so, if the developer was entitled to rescind the contract, the contract was rescinded on 14 October 2003.
On 28 October 2003 Mr. Shaw was served by the Registrar of Titles, following an application to the Registrar by the developer, with a notice pursuant to s.89A of the Transfer of Land Act. The notice required Mr. Shaw, within 35 days of service of the notice, to commence proceedings in a court of competent jurisdiction to substantiate the claim made by him in the caveat that he had an estate or interest in the unit. A caveat lapses if proceedings are not commenced within 35 days: s.89A(5).
It is significant in the present case that the Victorian Civil & Administrative Tribunal is not a "court" of competent jurisdiction for the purposes of the Act: see the definition of "Court" in s.4(1).
Mr. Shaw issued proceedings in the Supreme Court on 1 December 2003. In substance, Mr. Shaw sought a declaration that the contract of sale gave him the estate or interest claimed in the caveat, and a declaration that the developer was not entitled to rescind the contract because construction of the unit had not been completed.
As Mr. Shaw anticipated, the issue of proceedings was followed by negotiations with the developer. Several offers were made, including an offer by the developer to refund the deposit, but the developer did not offer to rectify the windows to make them acceptable to Mr. Shaw. The negotiations did not lead to settlement.
On 3 June 2004, in the Supreme Court proceedings, the developer issued what was treated by Hollingworth J as an application for summary judgment. The application was heard on 24 June 2004 and 4 November 2004, but it was not until 5 April 2005 that Her Honour gave a ruling dismissing the application.
The application for summary judgment was dismissed with costs, and I will deal in due course with a claim made by Mr. Shaw in the present proceedings that Gadens Lawyers should complete the application by taxing the costs awarded to Mr. Shaw.
The trial of the Supreme Court proceedings took place before Bell J in February 2006. Judgment was delivered on 23 February 2006: see Shaw v Yarranova Pty Ltd [2006] VSC 45. Stated briefly, His Honour found that the contract of sale was not a major domestic building contract as defined by the Domestic Building Contracts Act, so Mr. Shaw was not entitled to rely upon s.42 of the Act to withhold the balance of purchase money until the windows accorded with the Building Code. The developer was entitled to rescind the contract, and had done so, with the result that Mr. Shaw no longer had an estate or interest in the unit to support his caveat. Consequently, Mr. Shaw lost the case, lost his deposit, and was ordered to pay the developer's costs.
Mr. Shaw appealed to the Court of Appeal. The Court of Appeal affirmed the decision of Bell J, dismissed the appeal, and ordered Mr. Shaw to pay the developer's costs of the appeal: see Shaw v Yarranova Pty Ltd [2006] VSCA 291; (2006) 15 VR 289.

MR. SHAW'S CONTENTION AS TO THE LIKELY OUTCOME OF HIS DISPUTE WITH THE DEVELOPER IF GADENS LAWYERS HAD ADVISED HIM, AT THE OUTSET, THAT HE COULD MAKE AN APPLICATION TO VCAT TO RESOLVE THE DISPUTE.

The main contention made by Mr. Shaw in the present proceedings is based upon the proposition that, when he engaged Gadens Lawyers, his dispute with the developer was a domestic building dispute. That proposition was rejected by Bell J and the Court of Appeal but, as we shall see, the proposition had considerable support prior to the decision of the Court of Appeal.
VCAT has jurisdiction to hear and determine a domestic building dispute: s.53 Domestic Building Contracts Act. VCAT also has power to grant an injunction: s.123(1) Victorian Civil & Administrative Tribunal Act 1998.
The contention made by Mr. Shaw is that he should have been advised by Gadens Lawyers, at the outset, that he could have his dispute determined by VCAT, and that he could obtain an injunction from VCAT restraining the developer from re-selling the unit prior to the dispute being determined.
As I have mentioned, Mr. Shaw does not say that he definitely would have taken the VCAT course, but that he probably would have taken that course because it was quicker, cheaper, more likely to be successful and not left him exposed him to a costs order in favour of the developer.
Mr. Shaw maintained that, if he had taken the VCAT course, his dispute with the developer would have been determined by VCAT without Bell J and the Court of Appeal being given an opportunity to find that his contract of sale with the developer was not a domestic building contract, which had the indirect consequence that his dispute with the developer was not a domestic building dispute. Put another way, VCAT would have determined the dispute before the decision of the Court of Appeal deprived VCAT of what VCAT previously had regarded as its jurisdiction to determine the dispute.
Mr. Shaw also maintained that VCAT would have determined the dispute in less than one day, that the cost to him would have much less than the costs incurred by him in the Supreme Court and the Court of Appeal, and that VCAT would not have ordered him to pay the developer's costs even if he lost, because the basic rule at VCAT is that each party must bear its own costs: see s.109(1) of the VCAT Act.
It is alleged by Mr. Shaw in the present proceedings that Gadens Lawyers was negligent in not advising him at the outset that his dispute could be resolved at VCAT. Mr. Shaw seeks two orders. First, that all costs paid by him to Gadens Lawyers be re-imbursed, together with interest upon those monies. Secondly, this being an application made by Mr. Shaw under the Legal Profession Act 2004, that Gadens Lawyers pay to him compensation of $25,000.00 being the maximum amount of compensation that could be awarded under s.4.3.17(1) of that Act. Compensation is sought for the difference between the costs incurred by Mr. Shaw in the Supreme Court proceedings, including costs that he was ordered to pay the developer, and the costs likely to have been incurred by him if the dispute had been determined by VCAT. Compensation also is sought for loss of use of the money expended by Mr. Shaw in the Supreme Court proceedings, over and above the money likely to have been expended at VCAT.

THE LEGAL ISSUE THAT CAUSE MR. SHAW TO BE UNSUCCESSFUL IN THE SUPREME COURT AND THE COURT OF APPEAL.

The main issue in the Supreme Court proceedings was whether the contract of sale with the developer was a domestic building contract as defined by the Domestic Building Contracts Act. If it was, Mr. Shaw was entitled to rely upon s.42 of the Act and refuse to pay the balance of purchase money until the windows complied with the Building Code. If it was not, the developer had rescinded the contract and Mr. Shaw had lost his deposit, and been left without any claim to the unit.
A closely related issue plays a part in the present proceedings, namely whether the dispute with the developer was a domestic building dispute as defined by the Domestic Building Contracts Act, thus giving VCAT jurisdiction to hear and determine the dispute.
The key to these issues was whether there was a domestic building contract, as defined by the Act, between Mr. Shaw and the developer, the developer not being a builder but being obliged by the contract to enter into a domestic building contract with a builder for the construction of the unit.
As I have mentioned, Mr. Shaw entered into the contract on 12 April 2000 but it was not until 2 October 2003 that he consulted Gadens Lawyers.
To put those dates into context, and to put Mr. Shaw's claim in the present proceedings into context, I will consider five decisions that dealt directly or indirectly with the legal issues that I have just mentioned.
The first decision is Bessant v Metro Pacific Pty Ltd [1999] VCAT 56, a decision made by VCAT Deputy President Aird on 25 October 1999. In that case, a developer sold a unit to a purchaser "off the plan". The developer was not a registered builder. The contract of sale required the developer to ensure that a unit was constructed in accordance with a building contract entered into between the developer and a builder. The building contract was annexed to the contract of sale.
The purchaser lodged an application to VCAT to determine a domestic building dispute with the developer. The developer challenged the jurisdiction of VCAT, on the basis that the developer was not a registered builder so there was no domestic building dispute. VCAT found the developer to be a builder as defined by s.3 of the Domestic Building Contracts Act 1995, because it "manages or arranges the carrying out of domestic building work". Consequently, there was a domestic building dispute between the purchaser and the developer that VCAT had jurisdiction to determine.
The second decision is Philp v Mirvac (Docklands) Pty Ltd [2004] VCAT 367, a decision made by VCAT Deputy President Cremean on 10 March 2004. A developer sold a unit to a purchaser "off the plan". The developer was not a registered builder, but the contract of sale required the developer to ensure that the unit be constructed in accordance with a building contract between the developer and a registered builder.
The purchaser sought to avoid the contract. The purchaser had paid a deposit, and lodged an application to VCAT seeking an injunction to restrain the developer from applying the deposit to its own use. The developer challenged the jurisdiction of VCAT on the basis that the developer was not a registered builder so the application did not arise out of domestic building contract. Again, VCAT found the developer to be a builder as defined by s.3 of the Domestic Building Contracts Act, because the developer "manages or arranges the carrying out of domestic building work". It also found the contract of sale to be a domestic building contract as defined by the same section because it was a contract "to arrange or manage the carrying out of domestic building work". Consequently, there was a domestic building dispute between the purchaser and the developer and VCAT had jurisdiction to grant an injunction.
The third decision, Mirvac (Docklands) Pty Ltd v Philp [2004] VSC 301, is in the same case. The developer sought a declaration that VCAT had exceeded its jurisdiction in granting the injunction. Byrne J came to the same conclusions as Deputy President Cremean on the legal issues and dismissed the application.
The fourth decision is Shaw v Yarranova Pty Ltd [2006] VSC 45, the decision given by Bell J on 23 February 2006 in Mr. Shaw's case. As I have mentioned, Mr. Shaw purchased a unit off the plan from a developer who was not a registered builder. The contract of sale required the developer to enter into a building contract with a registered builder for the construction of the unit in accordance with plans and specifications.
After the unit was constructed, the developer called upon Mr. Shaw to pay the balance of purchase money. Mr. Shaw refused to pay, on the basis that the bedroom windows had not been constructed in accordance with the Building Code and therefore had not been constructed in accordance with the plans and specifications. Mr. Shaw contended that he was entitled to rely upon s.42 of the Domestic Building Contracts Act, which provided that "A builder must not demand final payment under a major domestic building contract until the work carried out under the contract has been completed in accordance with the plans and specifications set out in the contract".
Mr. Shaw's contention raised the same issues raised in the previous cases, namely whether the developer was a builder for the purposes of the Domestic Building Contracts Act, and whether the contract of sale was a domestic building contract for the purposes of the Act.
Bell J declined to follow the decision of Byrne J. After considering the interaction between the Building Act 1993 and the Domestic Building Contracts Act, Bell J decided that a developer, who was not a registered builder, was not a builder for the purposes of the Domestic Building Contracts Act. He also decided that the contract of sale was not a domestic building contract, with the result that Mr. Shaw could not rely upon s. 42 of the Act.
The fifth decision is Shaw v Yarranova Pty Ltd [2006] VSCA 291; (2006) 15 VR 289, the decision given by the Court of Appeal on 15 December 2006 in response to the appeal by Mr. Shaw. The Court of Appeal, by a majority, preferred the reasoning in the decision of Bell J to the decision of Byrne J in Mirvac (Docklands) Pty Ltd v Philp, and dismissed the appeal.
Only the first decision, Bessant v Metro Pacific Pty Ltd, was made before Mr. Shaw consulted Gadens Lawyers on 2 October 2003.
The second and third decisions, both given in the Mirvac Case, were made after 2 October 2003 but Mr. Shaw contended in the present proceedings that Gadens Lawyers should have transferred his case to VCAT for determination after those decisions were given.

WAS THERE NEGLIGENCE ON THE PART OF GADENS LAWYERS WHICH CAUSED LOSS TO MR. SHAW?

Gadens Lawyers was obliged to act in accordance with the standards of a reasonably competent and skilful legal practitioner, but not required to exercise extraordinary skills or to achieve the highest possible attainments: Voli v Inglewood Shire Council [1963] HCA 15; (1963) 110 CLR 74 @ 84.
I find that Gadens Lawyers gave the best possible advice to Mr. Shaw at the outset, and on many subsequent occasions. The advice was that Mr. Shaw should pay the balance of purchase money, to avoid the risk of the contract of sale being found to have been properly rescinded, and then to resolve in isolation the dispute as to whether the windows complied with the Building Code. As I have mentioned, Mr. Shaw rejected that advice, as he was entitled to do.
I have already made a finding as to what Mr. Shaw sought to achieve when he engaged Gadens Lawyers, namely to gain extra time in which to engage in further negotiations with the developer, the aim being to have further alterations made to the bedroom windows so that they complied with the Building Code.
There was a risk, obvious to any competent legal practitioner, that the developer would treat the contract of sale as rescinded and proceed to sell the unit to another purchaser. Every competent legal practitioner would have recommended that a caveat immediately be lodged against the title to the unit, to give notice to Land Victoria and to any prospective purchaser that Mr. Shaw claimed an interest in the unit. Furthermore, any further dealing with the unit could be registered only with the consent of Mr. Shaw, or following removal of the caveat.
It is common ground, as I have mentioned, that Gadens Lawyers advised Mr. Shaw to lodge a caveat. A caveat could be lodged both quickly and cheaply. All that was required on the part of Gadens Lawyers was to peruse the contract of sale that created Mr. Shaw's estate or interest in the unit, to verify title particulars for the unit, to prepare a caveat (a very short and routine document), and to lodge the caveat with Land Victoria. Mr. Shaw accepted the advice of Gadens Lawyers to lodge a caveat, and it was lodged on 10 October 2003. The lodging of the caveat was consistent with what Mr. Shaw sought to achieve, namely to gain time for negotiations.
I accept that Mr. Shaw needed to commence proceedings in the Supreme Court because, when the developer challenged Mr. Shaw's claim to an estate or interest in the unit, Mr. Shaw could seek to substantiate his claim to a caveatable interest in land only in the Supreme Court: see s.89A Transfer of Land Act. However, Gadens Lawyers had advised Mr. Shaw that court proceedings might be required to resolve any dispute about the caveat. The relevant passage, taken from the letter of advice from Gadens Lawyers dated 8 October 2003, is set out above.
The main claim made by Mr. Shaw in the present proceedings is that Gadens Lawyers should have advised him that he could have a domestic building dispute determined by VCAT. Even if that advice had been given, almost all competent legal practitioners would have advised Mr. Shaw to lodge a caveat pending a determination by VCAT, again bringing with it the risk of court proceedings.
There was no negligence on the part of Gadens Lawyers in relation to the caveat.
I turn now to the fact, admitted by Gadens Lawyers, that it did not advise Mr. Shaw at the outset that he could lodge an application to VCAT seeking resolution of a domestic building dispute. At that time, in October 2003, such a course had the support of the decision of VCAT in Bessant v Metro Pacific Pty Ltd, outlined above.
Some competent legal practitioners, I believe a minority of competent legal practitioners, bearing in mind what Mr. Shaw sought to achieve, would have advised Mr. Shaw to apply to have his dispute determined by VCAT under the Domestic Building Contracts Act. Most of that minority would have recommended that Mr. Shaw lodge a caveat pending a determination by VCAT; some of that minority would have recommended that Mr. Shaw seek an injunction from VCAT restraining the developer from re-selling the unit before the dispute was determined; and a few exceedingly careful practitioners might have recommended both a caveat and an injunction.
Most competent legal practitioners, I believe a substantial majority of competent legal practitioners, bearing in mind what Mr. Shaw sought to achieve, would have recommended that a caveat be lodged and that negotiations be commenced immediately, with a view to resolving the dispute. That recommendation would have been backed up, somewhat routinely, by advice as to what would happen if the caveat was challenged by the developer. Gadens Lawyers made that recommendation and gave that advice. Gadens Lawyers also recommended, as would some competent legal practitioners, that Mr. Shaw could expedite resolution by bringing proceedings in the Supreme Court against the developer seeking an order for specific performance of the contract.
I conclude that Gadens Lawyers, having acted as a substantial majority of competent legal practitioners would have acted in order to achieve Mr. Shaw's main aim of gaining time for negotiations, was not negligent in not informing Mr. Shaw that he could seek to have his dispute determined by VCAT.

Of course, some competent legal practitioners would have explained both the VCAT option of an application to determine a domestic building dispute and the Supreme Court option of proceedings for specific performance, which is what Mr. Shaw says Gadens Lawyers should have done.
Consequently, in case I am wrong in my finding that there was no negligence on the part of Gadens Lawyers, I have considered whether Mr. Shaw suffered financial loss as a result of not being informed that he could lodge an application to VCAT for the determination of his dispute.
It is not difficult to make findings as to what would have happened in the short term. I find that Mr. Shaw almost certainly would have lodged a caveat, as he did on 10 October 2003, because it could be lodged immediately at little cost.
I find that Mr. Shaw almost certainly would have entered into negotiations with the developer, as he did immediately after 10 October 2003, seeking rectification of the windows.
I find that, so long as worthwhile negotiations continued, Mr. Shaw almost certainly would not have lodged an application to have the dispute determined by VCAT. Worthwhile negotiations took place, but not for long, because on 28 October 2003 the Registrar of Titles served the notice upon Mr. Shaw, at the instigation of the developer, calling upon Mr. Shaw to commence proceedings in the Supreme Court, or his caveat would lapse. I find that Mr. Shaw almost certainly would not have lodged an application to VCAT prior to 28 October 2003 because he was participating in negotiations with the developer.
That is not the end of the matter. After 28 October 2003, Mr. Shaw might have allowed the caveat to lapse, rather than commence proceedings in the Supreme Court to substantiate the claim made in the caveat, and then lodged an application to VCAT seeking to have the dispute determined by VCAT.
The findings that follow cannot be made with the same degree of certainty as the findings just made, and must be assessed on the basis that Mr. Shaw, not having been informed about VCAT, lost an opportunity to have his dispute determined by VCAT.
In assessing loss in respect of events that did not occur, "the court assesses the degree of probability that an event would have occurred ... and adjusts its award of damages to reflect the degree of probability": Malec v JC Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638 @ 643.
I find that there was an 80% chance, or degree of probability, that Mr. Shaw would have lodged an application to VCAT after 28 October 2003, because he would have seen VCAT proceedings (as he continues to see them) as quicker, cheaper, more likely to be successful, and not exposing him to a costs order in favour of the developer.
Mr. Shaw would have needed to establish that VCAT had jurisdiction. A reading of the Domestic Building Contracts Act at that time, backed up by the decision of Deputy President Aird in Bessant v Metro Pacific Pty Ltd, leads me to find that there was an 80% chance of Mr. Shaw persuading VCAT that it had jurisdiction to hear and determine the dispute.
Mr. Shaw also would have needed to prove that the bedroom windows did not comply with the Building Code. The only evidence given in the present proceedings about the Building Code was the evidence of Mr. Shaw that the windows did not comply with the Code. Mr. Shaw did not qualify himself as an expert, although he may have been able to do so. In view of the conclusion that I have reached, I am prepared to accept for the purposes of these proceedings that the windows did not comply with the Building Code.
That leads me to find that Mr. Shaw had an 80% chance of succeeding at VCAT. The only evidence given in the present proceedings as to the cost of rectification of the windows was the evidence of Mr. Shaw that the cost was "not more than $100,000", by which I understood him to mean a figure slightly less than $100,000. Again, Mr. Shaw did not qualify himself as an expert, although he may have been able to do so. In view of the conclusion that I have reached, I am prepared to accept for the purpose of the present proceedings that the cost of rectification was an amount slightly less than $100,000.
The next step is to consider whether there would have been an appeal to the Supreme Court from the decision of VCAT.
If Mr. Shaw had lost, and I have assessed his chances of losing at 20% based on the issue of jurisdiction, I find that there was a 99% chance that Mr. Shaw would have sought to have the issue of jurisdiction resolved by the Supreme Court. I make that finding for four reasons. First, the issue of jurisdiction was whether the Domestic Building Contracts Act applied to a dispute arising under a sale by a developer to a purchaser "off the plan". If VCAT did have jurisdiction, it could determine whether Mr. Shaw was entitled to withhold the balance of purchase money by relying upon s.42 of the Act. Mr. Shaw would lose the unit and his deposit, a significant loss, if he was not entitled to rely upon that section. Secondly, Mr. Shaw was determined to prove that he was correct in his view that the windows did not comply with the Building Code. Thirdly, when Bell J found that the Domestic Building Contracts Act did not apply to a contract between a developer and a purchaser, Mr. Shaw appealed to the Court of Appeal. He also would have appealed from VCAT to the Supreme Court. Fourthly, Mr. Shaw was determined to succeed, as evidenced by his rejection of an offer by the developer to cancel the contract and refund the deposit, and by his evidence that he lost $576,000 attempting to obtain a determination in his favour. A chance that is "practically certain", such as a 99% chance, must be treated as a 100% chance: Malec's Case @ 643.
If the developer had lost at VCAT, it is impossible for me to determine with precision, in the absence of the developer, whether the developer would have pursued the issue in the Supreme Court. However, the developer was highly likely to have proceeded to the Supreme Court, and I assess the chances of it doing so as being in the range 75% to 100%. I make that assessment for three reasons. First, the cost of rectification of the windows was a relatively large amount, bearing in mind the sale price of the unit. Secondly, the developer had sold many units in the tower, and the applicability of the Domestic Building Contracts Act might have had ramifications extending beyond the unit purchased by Mr. Shaw, and extending to work other than windows. Thirdly, the issue affected many construction projects, not just this project.
Taking the other view, in case I am wrong in my finding that there was no negligence on the part of Gadens Lawyers, I conclude that this dispute was destined to end up being determined by the Supreme Court, requiring all the time and expense of which Mr. Shaw complains. Put another way, Mr. Shaw has not suffered any greater financial loss for being unaware that VCAT might have determined his dispute prior to finding itself without jurisdiction.
I acknowledge that Mr. Shaw submitted that Gadens Lawyers should have advised him to transfer his case from the Supreme Court to VCAT after the decisions in the Mirvac Case. However, unless the developer consented to a transfer to VCAT, it is highly unlikely that the case would have been transferred. The decisions in the Mirvac Case were given by VCAT on 10 March 2004 and by Byrne J on 30 August 2004, well after Mr. Shaw had commenced his proceedings in the Supreme Court on 1 December 2003.

Mr. Shaw gave evidence that he wanted to save money by doing as much work as he could in the Supreme Court proceedings, without the assistance of Gadens Lawyers, and that he entered into an arrangement with Gadens Lawyers to that effect.
Gadens Lawyers denied such an arrangement. However, at one stage in the Supreme Court proceedings, Gadens Lawyers removed its name from the record so that Mr. Shaw could act on his own behalf, and subsequently resumed its place on the record. Furthermore, I am satisfied that Gadens Lawyers was well aware that Mr. Shaw was negotiating directly with the solicitors for the developer in an attempt to resolve the dispute.
Towards the end of 2004, Mr. Shaw wanted to appear on his own behalf at a court appointed mediation. Gadens Lawyers objected to that course, stating that it was not prepared to remove its name from the record a second time. In fact, Mr. Shaw appeared at the mediation on his own behalf while Gadens Lawyers remained on the record.
There is in evidence a series of emails between Mr. Shaw and Gadens Lawyers in December 2004 and January 2005 which resulted in Gadens Lawyers withdrawing from the Supreme Court proceedings on 4 January 2005. Part of the reason for withdrawal was non-payment of costs charged by Gadens Lawyers. Negotiations then took place for several months between Mr. Shaw and Gadens Lawyers in an attempt to find a mutually acceptable basis upon which Gadens Lawyers would be prepared to resume acting for Mr. Shaw. No agreement was reached.
Mr. Shaw contended that Gadens Lawyers was not entitled to withdraw from the proceedings, and that he suffered loss because of the need to make another firm of solicitors familiar with the proceedings.
I reject the contention. The evidence given at this hearing indicated that the relationship of trust and confidence that formerly existed between Mr. Shaw and Gadens Lawyers had broken down by the time of the mediation, and that costs remained owing to Gadens Lawyers, with the result that Gadens Lawyers was entitled to withdraw from the proceedings.
Mr. Shaw also contended that Gadens Lawyers should tax the costs awarded to him by Hollingworth J on 5 April 2005, after Gadens Lawyers had ceased to act for him, and attend to the collection of those costs. In circumstances where Gadens Lawyers withdrew from the proceedings, as it was entitled to do, and where Gadens Lawyers does not want to carry out the work, I am not prepared to make an order requiring the work to be done.

Mr. Shaw has not succeeded in any part of his application, so the application is dismissed.

Shaw v Gadens Lawyers

At a glance

Court

Decision date

Source

Judgment (32 paragraphs)

Shaw v Gadens Lawyers (Legal Practice) [2008] VCAT 2643 (6 November 2008)

Parties

Cases Cited (3)