Sullavan & Anor v Teare

SUPREME COURT OF QUEENSLAND

CITATION: Sullavan & Anor v Teare [2010] QCA 70

PARTIES: DARIAN FREDERICK SULLAVAN & ALEXIS HAWEA SULLAVAN (plaintiffs/appellants) v MARK GEORGE TEARE (defendant/respondent)

FILE NO/S: Appeal No 9536 of 2009 DC No 4147 of 2005

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeal

ORIGINATING COURT: District Court at Brisbane

DELIVERED ON: 26 March 2010

DELIVERED AT: Brisbane

HEARING DATE: 5 March 2010

JUDGES: Muir and Chesterman JJA and P Lyons J Separate reasons for judgment of each member of the Court, each concurring as to the order made

ORDER: Appeal dismissed with costs

CATCHWORDS: LIMITATION OF ACTIONS – LIMITATION OF PARTICULAR ACTIONS – SIMPLE CONTRACTS, QUASI-CONTRACTS AND TORTS – ACCRUAL OF CAUSE OF ACTION AND WHEN TIME BEGINS TO RUN – TORTS – ACTIONS AGAINST SOLICITORS – where appellants purchased real property based on the negligent advice of the respondent solicitor – where settlement occurred on or about 9 October 1998 – where appellants knew from on or about 15 June 2000 that the property had been overvalued, that the rental payment obligation of the lessee company was not supported by personal guarantees of the directors of the lessee company, that the lessee company had no assets and that there was a risk there would not be an assured income for ten years – where appellants suffered loss and damage as a result of acquiring the property – where appellants commenced proceedings on 10 November 2005 – whether appellants’ action is time-barred / Limitation of Actions Act 1974 (Qld), s 10(1)(a) / Cartledge and Others v E Jopling & Sons Ltd [1963] AC 758, applied Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd (2008) 19 VR 358; [2008] VSCA 26, distinguished HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54, followed Law Society v Sephton & Co [2006] 2 AC 543; [2006] UKHL 22, applied Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388; [2004] HCA 3, distinguished Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1; [1983] 2 WLR 6, applied Spencer v The Commonwealth (1907) 5 CLR 418; [1907] HCA 82, cited The Commonwealth v Cornwell (2007) 229 CLR 519; [2007] HCA 16, applied Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; [1992] HCA 55, distinguished

COUNSEL: A Bell SC, with A Collins, for the appellants D S J Jackson QC, with T J Bradley, for the respondent

SOLICITORS: Slater & Gordon for the appellants Brian Bartley & Associates for the respondent

1. MUIR JA: I agree with the reasons of Chesterman JA and with the order he proposes.

2. CHESTERMAN JA: On 10 November 2005 the appellants as plaintiffs commenced proceedings in the District Court in Brisbane claiming damages for breach of contract and negligence against the respondent. He was a solicitor who had acted for the appellants with respect to their purchase of real property, and did so negligently. The respondent’s defence took the point that the appellants had sued beyond the time allowed by s 10(1)(a) of the Limitation of Actions Act 1974 (Qld). That issue was tried separately before Chief Judge Wolfe who, on 4 August 2009, dismissed the appellants’ action and gave judgment for the respondent, with costs.

3. Her Honour concluded (at [55]):

“… The plaintiffs suffered a capital loss and the loss of their acquisition costs caused by their solicitor’s negligence when, at the latest they acquired title to the unit on the conditions contained in the contract of sale. As the cause of action … arose more than six years before the claim was filed, judgment should be entered for the defendant.”

4. The procedure was conducted efficiently and economically upon an agreed set of facts. They were:

“2.By a contract entered into on or about 7 September 1998 (“the contract”), the (appellants) agreed to purchase from The Coolum Beach Club Properties Pty Ltd ACN 078 743 549 (“the vendor”) a unit described as lot 53 on SP 106179 Community Title Scheme 16924 (‘the unit”) (sic) in a resort development called "The Coolum Beach Club" ("the resort") for a purchase price of $115,000.00.

3.It was a condition of the contract that the (appellants) would enter into a written lease (“the lease”) of the unit to The Coolum Beach Club Pty Ltd ACN 078 743 478 (“the lessee company”) which lease included the following terms (inter alia):

(a) A lease period of ten years with two options to renew the lease each for a period of ten years;

(b) A rental payable by the lessee company calculated as a percentage of the purchase price together with certain outgoings specified in the lease (“the rental payment obligations”).

4.The lessee company was a different corporate entity to the vendor.

5.The lessee company had a paid up capital of $3.00.

6.The lease did not provide for the directors of the lessee company to guarantee, or for any security to be given by the directors or any other party for, the lessee company’s rental payment obligations.

7.The settlement of the purchase occurred on or about 9 October 1998.

8.That the (respondent), in his capacity as a solicitor, owed a duty to the (appellants) to advise them, on or before 9 October 1998, that:

(a)The rental payment obligation pursuant to the lease was not supported by personal guarantees of the directors of the lessee company or any other security for the performance of the lessee’s obligations;

(b) The lessee company had a paid-up capital of $3.00.

(“the advice").

9.The (respondent) did not give the advice to the (appellants). The (respondent) was in breach of the duty owed to the (appellants), because any reasonably competent solicitor would have given that advice.

If the (appellants) had been given the advice by the (respondent), the (appellants) would not have entered into, or completed, the contract to purchase the unit.

As a result of the (appellants) acquiring the unit, the (appellants) suffered loss and damage.

12.A representation by a third party was made to the (appellants) prior to their entry into the contract to purchase the unit that an investment in the resort would provide a guaranteed return of 8.5% per annum (“the representation”).

13. The (appellants) purchased the unit in reliance on, and induced by, the representation.

The representation was untrue.

If the representation had been true, the price which would have been paid for the unit, on 9 October 1998, by a willing buyer purchasing it from a willing seller in an arm’s length transaction, after proper marketing, where the parties had each acted knowledgeably, prudently and without compulsion, was equal to or exceeded the purchase price paid for the unit together with acquisition costs.

On and from 9 October 1998, the price which would have been paid for the unit by a willing buyer purchasing it from a willing seller in an arm’s length transaction, after proper marketing, where the parties had each acted knowledgeably, prudently and without compulsion, was not more than $69,000.00.

From the date of settlement (on or about 9 October 1998) until March 2000 the lessee company met the rental payment obligations.

In or about April 2000, the lessee company defaulted in the payment of rental pursuant to the lease.

The lessee company has not met since April 2000 (and will not at any time in the future meet) the rental payment obligations.

…

(During the period from 9 October 1998 to June 2000 the appellants incurred expenses as a result of their ownership of the unit and received rental income from the unit.)

…

23.The (appellants) knew, from on or about 15 June 2000, that:

(a) The representation was untrue;

(b) The rental payment obligation pursuant to the lease was not supported by personal guarantees of the directors of the lessee company;

(c)The lessee company had a paid-up capital of $3.00;

(d) There was a risk that there would not be an assured income for ten years;

(e) The value of the unit could be less than $115,000.00.

24.Until on or about 15 June 2000, the (appellants) had no reason to believe:

(a) The matters set out in subparagraphs 8(a) and 8(b);

(b) That the representation was untrue;

(c) That there was a risk that there would not be an assured income for ten years;

(d) That the value of the unit was less than $115,000.00.

25.If the (respondent) had given the advice, the (appellants) would have known the matters set out in subparagraphs 8(a) and 8(b) and would have known or had reason to suspect, that:

(a)The representation was untrue;

(b)There was a risk that there would not be an assured income for ten years;

(c)The value of the unit could be less than $115,000.00.”

5. Section 10 prohibits the bringing of an action founded on a simple contract or tort after the expiration of six years “from the date on which the cause of action arose”. The High Court recently summarised the law in Commonwealth of Australia v Cornwell (2007) 229 CLR 519 at 523:

“However, to show the existence of a completely constituted cause of action in negligence, a plaintiff must be able to show duty, breach, and damage caused by the breach; accordingly, in the ordinary case, it is at the time when that damage is sustained that the cause of action ‘first accrues’ for the purposes of a provision such as s 11 of the Limitation Act [1985 (ACT)].

In Hawkins v Clayton … this Court … rejected the proposition that, at least in the case of claims in negligence for economic loss, time does not run until the plaintiff discovers, or could on reasonable inquiry have discovered, that damage has been sustained”. (footnotes omitted)

6. The focus of the arguments in the District Court and on appeal was upon the date when the appellants first suffered damage as a result of the respondent’s negligent advice. The Chief Judge found that it was when they bought the unit, or more precisely, when the purchase of the unit settled, on 9 October 1998.

7. Critically, in this regard, it was an agreed fact that:

“On and from 9 October 1998, the price which would have been paid for the unit by a willing buyer purchasing it from a willing seller in an arm’s length transaction, after proper marketing, where the parties had each acted knowledgeably, prudently and without compulsion, was not more than $69,000.00”.

The appellants paid $115,000 for the property.

8. The agreed fact makes the appellants’ case unarguable.

9. The time at which damage is sustained, and therefore a cause of action is complete, in cases such as the present, was authoritatively determined by the High Court in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640. The case concerned the sale of a small shopping arcade to a purchaser who sought advice from a valuer as to the likely effect on the arcade of a new shopping centre under construction nearby. The valuer advised, negligently, that the arcade would not be affected, but in fact its trade collapsed when the new, bigger, centre opened. The court said (654-5):

“… If the plaintiff had learned the day after entering the contract to buy the Plaza, or the day after completing that contract, that the defendant’s conduct had been misleading in the sense ultimately found by the trial judge, it could have started proceedings then and there. There was unchallenged evidence … that on either of those dates the plaintiff was in fact worse off as a result of the defendant’s breach, since the market value was less than the price. It was not necessary to wait for nearly two years to ascertain that some loss had been suffered. The plaintiff could have found out at once that it had bought something which was worth less than that which it had agreed to pay and did pay. It could have recovered at least the difference between the price paid for, and the market value of, the Plaza. The limitation period would have begun to run”. (footnote omitted)

10. The appellants sought to distinguish their case from Astonland by advancing an argument that that case was “not a matter where there was a future income stream and the inherent value of the property was not dependent upon any contingency”.

11. The submission cannot be accepted. In both Astonland and this case the property purchased was income producing. Such properties may have a value apart from their capacity to earn income but where the highest and best use of the property is the production of income the value of the property is determined by the present value of the future income: what the purchaser described in Spencer v Commonwealth of Australia (1907) 5 CLR 418 would pay for the property in order to receive the income. In both cases the price paid for the property was greater than the value of the income: in the one case because that income would fall when shoppers went to the new centre and in the appellants’ case because the promise to pay the future income (rent) was unsecured, being furnished by a straw company. In both cases the purchasers suffered loss at the moment they parted with the purchase price in return for a property worth less than the amount of money paid for it.

12. This observation disposes of the next basis on which the appellants criticise the primary judgment. They argue that their loss was contingent upon the lessee company failing to pay the agreed rent. Had it continued to pay, the appellants argue, they would have suffered no loss. The contingency that the lessee might dishonour its promise to pay the rent did not eventuate until April 2000, less than six years before they commenced their action.

13. The submission cannot be accepted. It is misconceived. It followed a confusion in the appellants’ submissions which, at times, identified the appellants’ loss as the loss of rental income on and from June 2000. But the appellants’ case as appears from the agreed facts was of a loss suffered on completion of the purchase when the price exceeded the value of the unit. The loss complained of was not the rent that went unpaid but the diminished capital value of the asset purchased.

14. A Spencer purchaser of the unit from the appellants would pay less than $115,000 for it, even if at the time of purchase the rent was being paid, because of the risk that the lessee might discontinue paying the agreed rent, and any arrears would be irrecoverable.

15. The conclusions of fact I have just expressed do not expressly appear in the agreed facts but they follow as inevitable inferences from those facts. What I have described are no more than the obvious features of a case of this type. The agreed facts that:

(i) the unit was worth less than the appellants paid for it;

(ii) the lessee had no assets and its directors did not guarantee its obligation to pay rent;

(iii) the appellants would not have made the purchase if the respondent had advised them to that effect,

are causally linked.

The value of the unit was less than its price because it was bought as an income producing asset and the receipt of future income was problematic because the lessee’s promise to pay could not be enforced. The agreed difference between value and price, $46,000, was the financial measure of the risk that the income might not be produced in the future. It is for that reason that, had they known of the risk, the appellants would not have gone ahead with the purchase.

16. This explanation is self evident. I have essayed it only to answer the appellants’ submission that it did not suffer loss until the rent went unpaid.

17. At a more basic level any attempt to categorise the appellants’ loss as being contingent upon the lessee’s failure to pay the agreed rent cannot stand with the admitted fact of an immediate loss made upon the completion of the contract of purchase. The admission accords with reality as evidenced by the agreed facts taken as a whole.

18. The appellants’ reliance upon Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514 is also misplaced. That case was concerned with a guarantee which the state gave, induced by a misrepresentation as to the financial state of the company whose liabilities it guaranteed. Upon execution of the guarantee the state became contingently liable to pay if the creditor should suffer loss and make demand pursuant to the guarantee. Unless and until that happened the guarantor had suffered no loss. The High Court (Mason CJ, Dawson, Gaudron and McHugh JJ) explained (at 524):

“… The indemnity was not one of a kind which generates an immediate non-contingent liability to pay upon execution of the instrument. It was neither a promise to meet a liability of the promisee to make a payment nor a promise to pay a debt owing by a third party to the promisee. … the indemnity, on its true construction, was one which created a liability on the part of the respondent … to make payment if and when the … relevant ‘net loss’ was ascertained and quantified, subject to the making of a demand … . The liability was, therefore, … contingent and executory”. (footnotes omitted)

19. Their Honours said (at 532) of “a contract which exposes (a person) to a contingent loss or liability” that:

“… the plaintiff sustains no actual damage until the contingency is fulfilled and the loss becomes actual; until that happens the loss is prospective and may never be incurred”.

20. In Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 the High Court described its decision in Wardley in these terms (at 408):

“Wardley illustrates that it is necessary to identify the detriment which is said to be the loss or damage which has occurred … . In that case, the mere entry into obligations which might, but need not, have had detrimental consequences in the future was held not to have occasioned loss or damage to the party making the contract”,

and in HTW Valuers the court explained (at 655):

“It is incorrect to treat this case as being like Wardley … on which the trial judge relied. That case held that a risk of loss is not itself a category of loss, and that if a plaintiff enters a contract exposing it only to a contingent loss or liability, the plaintiff ‘sustains no actual damage until the contingency is fulfilled and the loss becomes actual’. The plaintiff was not exposed to a contingent loss; it had suffered an actual loss”. (footnote omitted)

21. In this case there was, as I have now said several times, an actual loss sustained when the contract of purchase was completed. There was nothing contingent about that loss. Moreover the contingent loss which the appellants identify was a loss of income. But that loss was not one for which the respondent was responsible. The appellants do not claim as damages the profits they would have made if the rent had been paid in full. Had the respondent performed his retainer without negligence the appellants would not have bought the unit. They would not, in that event, have lost money but nor would they have earned income by way of rent. The loss of income is not a measure of, or part of, any damages which the appellants could have sought against the respondent. Indeed paragraph 26 of the statement of claim which identifies the appellants’ losses does not, properly, contain a claim for loss of rent.

22. The point is that the income was not lost on a contingency, without which the appellants would not have suffered damage. The lost income was not only not a contingent loss, it was not, for the purpose of the action, a loss at all. The lost income was the manifestation of the risk which was present at settlement, and which caused damage.

23. The appellants seek to assimilate their case to that of Murphy. There is no similarity. As the High Court noted in HTW Valuers, that case involved the acquisition of a property for a price equal to its value. The loss occurred later as a result of the defendant’s decision to increase outgoings in the property to which Mr and Mrs Murphy had to contribute. That loss was contingent: it only occurred because of the defendant’s decision to increase charges. The court said (at 409-410):

“In the present case, the finding that the appellants had been induced to enter the lease by a statement of estimated outgoings that was misleading … meant that the appellants undertook an obligation which may, but need not, have proved to be larger or more costly than they had been led to believe. There may be cases in which a person misled in this way suffers loss upon entering the agreement. That may be so if it could be shown that the sum paid exceeded the market value. But that was not this case.

… Here … the appellants suffered no loss as a result of undertaking the obligations they did unless and until the contingency … was first realised. That was a contingency in the sense that the adverse risk might never have eventuated. … It was only from the time when it in fact decided [to increase the charges] that the adverse risk eventuated. When it did, but only then, the appellants suffered loss and damage”.

24. The effect of the decision was examined in HTW Valuers. The court said (at 655):

“Nor is the present case one like Murphy… . There the applicants had been induced to enter into a lease and incur an obligation to pay charges for outgoings. Whether the charges would rise above the level stated before the applicants entered the lease was contingent in the sense that it was not inevitable: the contingency could never eventuate unless the respondent exercised its discretion to increase the charges. There was thus a contingency hidden by the respondent’s conduct which might or might not come to pass. But in this case the risk of the catastrophic effect on rent levels of the Plaza … to which the defendant had not alerted the plaintiff, had already had an impact on the value of the Plaza … ”. (footnotes omitted)

25. Similarly the appellants’ reliance upon Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd (2008) 19 VR 358 is misplaced. The plaintiff bought machinery for the purpose of reducing odour which was a by-product of its manufacturing process. The value of the machinery was no less than its price, but it could not be made to perform the function for which it had been bought. The purchaser was put to wasted expense in installing the machinery and in trying to make it effective. The court held inter alia that the purchaser did not suffer loss until it applied the machinery to its factory and discovered its unsuitability. The claim, which would have been out of time if the limitation period ran from purchase, was within time computed from the incurring of loss so described. Nettle JA said (at 392):

“… where a plaintiff is induced by misleading and deceptive conduct to purchase an asset for a particular purpose for which it is unsuitable, and there is no evidence that the asset is worth less than the price agreed to be paid for it, no loss is incurred until and unless the asset is applied to the particular purpose … and is as a result found not to be as the plaintiff was induced to believe that it would be”.

26. The appellants rely upon a preceding passage in the judgment of Nettle JA in which his Honour attempted a classification of the cases and “the different points at which the limitation period … begins to run” in each case. The first category, taken from HTW Valuers, was “where misleading and deceptive conduct results in the purchase of an asset at an over value”, in which case “time runs from the date of purchase …”. His Honour, however, noted a potential qualification. His Honour thought the rule might be “… subject, perhaps, to the plaintiff being able to ascertain the true or real value” at the time of purchase. The basis for the reservation was a passage from the judgment of the High Court in HTW Valuers (at 655), which I have already set out:

“The plaintiff could have found out at once that it had bought something which was worth less than that which it had agreed to pay and did pay”.

27. In my respectful opinion that passage does not justify the reservation expressed by Nettle JA. It is not, as I read the passage, a statement that time began to run when the purchase was made at the overvalue if the plaintiff could have discovered that fact “at once”. I read the passage as a statement of fact: the plaintiff could have found out that he had paid too much for the shops, for example by retaining a competent valuer. The case says nothing about when time runs in circumstances where the fact of loss is then unascertainable. In this case the loss was discernable at the time of purchase.

28. The notion that a limitation period does not begin to run unless a plaintiff knows of the facts which constitute his cause of action and make it complete is contrary to the highest authority, including Cornwell; Cartledge and Others v E Jopling & Sons Ltd [1963] AC 758; Pirelli General Cable Works Ltd v Oscar Faber & Partners (a firm) [1983] 2 AC 1; Law Society v Sephton & Co (a firm) and others [2006] 2 AC 543 at 561.

29. In accordance with their admission the appellants suffered loss and damage on 9 October 1998, more than six years before they commenced proceedings on 10 November 2005. Their action was rightly dismissed on this ground. The appeal cannot succeed and must also be dismissed with costs.

30. PETER LYONS J: I have had the advantage of reading the reasons for judgment of Chesterman JA. I agree with his Honour’s reasons, and with the order which he proposes.