The primary judgment
23The primary judge identified (at [2]) the issues to be determined as:
"(a) Whether the solicitor was negligent in 2005-6 when acting for the plaintiff, Ms Elizabeth Takla, on the purchase of a townhouse at Oatlands;
(b) If so, whether the negligence led to any loss;
(c) If so, what that loss was;
(d) If the plaintiff suffered loss, whether she was guilty of any and if so what contributory negligence;
(e) If the plaintiff suffered loss, whether any and if so which part of her loss was brought about by her failure to mitigate her loss;
(f) If the plaintiff suffered loss, whether I should hold the vendor of the townhouse responsible for any and if so what proportion of that loss."
24His Honour observed (at [5]) that a significant issue before him was the "extent of the [appellant's] knowledge of MTK's financial problems at the time she agreed to buy the townhouse and whether the [respondent] could have done more, such as by giving her strong warnings, to protect her". As to causation, the fundamental issue "was whether the [appellant] would have bought the townhouse anyway, regardless of what advice the defendant gave her."
25The appellant had given several versions of the circumstances in which she had retained the respondent. The primary judge considered those accounts (at [10] ff). This consideration clearly informed his Honour's views about the causation issue. The versions relevantly included the following:
(1)A letter of instructions the appellant sent to a firm of solicitors in 2006 (Exhibit D2) that included statements about what occurred when Mr Rizk first spoke to her about her buying the townhouse (primary judgment (at [11] - [12])):
"I moved in 12 July, 2005 [sic, as in original]. There was still work being done in most of the townhouses, mine included. A week or two after I had moved in Louis Rizk (Ed Younis's brother in law) ask me [sic, as in original] if I was interested in buying the townhouse for $500,000. Several people had bought off the plan but the building construction had taken longer tha[n] planned, the #9 purchaser wanted to bail out and was threatening Ed's life if he didn't get his money back. I was suspicious but Ed and Louis explained that there was not enough cash flow to pay this person back because their money was tied up with several buildings that were being constructed; namely Terrigal, Salamander Bay and Cronulla.
I [k]new some of the men that work with Ed as acquaintances, either from school, church or the Lebanese community. Ed had also contracted another guy to do repairs on the properties and he confirmed that Ed did have a number of buildings. This guy was working on Cronulla, Terrigal and Oatlands repairs.
...
Ed had personally spoken to me, he swore on the lives of his children and wife to ensure me [sic, as in original] that my money and my house were secure, and that he would not let Antony or I endure any more hardship than what we had been through in the marriage." (Emphasis added)
(2)The appellant's affidavit sworn on 21 September 2010, four years after she had sent Exhibit D2 included the following (primary judgment (at [13])):
"5. A few months after I moved in I was contacted by Louis Rizk who was working for the owner/developer. Mr Rizk said to me 'Would you be interested in buying this townhouse for $500,000?' A short time later Mr Risk introduced me to Ed Younis whom he described as the developer/owner. Both Mr Rizk and Mr Younis explained to me that the building work was taking longer than expected and that this caused cash flow problems which made it difficult to meet obligations.
6. I was interested in buying the townhouse as the price was affordable to me and the location suited my then needs as it was close to my son's school which meant that he would not have to change schools at that time. I intended to keep the townhouse for about three years until my son was to enter Year 5 or Year 6 at which time I intended to move to the inner western suburbs as I was interested in sending my son to a school in that area. I was counting on the value of the townhouse increasing significantly as I believed I was paying below market value." (Emphasis added)
(3)The primary judge's summary (at [14]) of a portion of the appellant's cross-examination:
"In cross-examination the plaintiff told me that she regarded the $500,000 as a special price: she had spoken to two owners in the complex with similar units to hers and one had paid $580,000, another $625,000. It was part of the arrangement with the vendor that she be permitted to live rent-free and licence free in the unit, until settlement. At that stage settlement was up to 12 months away. So the arrangement saved her $1600 per month."
(4)The appellant telephoning Ms Johnson in April 2006 after she learned that a receiver had been appointed to MTK and saying (primary judgment (at [32])):
"Our worst fears have happened. Ed is in financial difficulties."
26The primary judge found (at [20]) that the appellant's version in her affidavit of her first conference with Ms Johnson was "to a degree a reconstruction rather than a recollection of what exactly occurred." He observed that Ms Johnson had taken notes which were in evidence, and it was not suggested by Mr Morahan, the appellant's counsel at trial, that the notes had been fabricated or had not been made at the time of the conference or immediately after.
27The primary judge recounted the following aspects of Ms Johnson's evidence:
(1)First, that "it was extremely unusual ... for a contract of sale to require payment of a deposit of more than ten per cent and for it to be released to the vendor, and that she had discussed this issue in some detail with the [appellant]", including having the following exchange (primary judgment (at [21])):
"[Ms Johnson] 'It is not in your best interests to agree to release a deposit of 80% of the purchase price as this would, in effect, be an interest-free loan to the vendor and if something goes wrong with the sale and you are entitled to recover the deposit, it may be difficult for you to get it back, particularly if the vendor has spent it or becomes insolvent.'
The plaintiff: 'That was what I agreed with Ed and that is why the property is so cheap. I trust him and he has offered to personally guarantee the sale'." (Emphasis added)
The primary judge accepted (at [26]) Ms Johnson's evidence that she had this conversation at the first conference with the appellant.
(2)Secondly, Ms Johnson said (primary judgment (at [22])):
"... [D]espite her advice that special condition 30 (setting out the unusual terms) should be deleted from the contract, the plaintiff was quite insistent on proceeding. She said she recalled in the course of dealing with the matter that the plaintiff told her on a number of occasions she had had direct discussions with Mr Younis concerning it, and she had the impression the plaintiff knew Mr Younis. But she did not know the nature of the relationship." (Emphasis added)
28The primary judge concluded (at [25]) that he preferred and accepted Ms Johnson's evidence where it conflicted with that of the appellant.
29There was no evidence, and no positive assertion from Ms Johnson, that she had sent a letter to the appellant confirming the content of her advice at the first conference. In particular, her handwritten notes of the conference did not include a reference to MTK's possible insolvency. However the primary judge accepted (at [26]) that Ms Johnson had warned the appellant about this risk, saying:
"I accept she mentioned insolvency in that context. It is consistent with the instructions the plaintiff gave the defendant as to what she knew of the vendor's financial problems at the time, as well as the tenor of the advice the note shows she was given, and with a letter the defendant wrote to the vendor's solicitors before exchange (see below) concerning the giving of guarantees, and in which the possibility 'the vendor should become insolvent', was referred to."
The letter to which the primary judge referred (at [26]) is set out above (at [16]).
30The primary judge observed (at [39]) that the contents of Exhibit D2 (see ):
"... suggest strongly to me that the plaintiff was aware before exchange how bad MTK's financial position was. For example, she said she had been suspicious. She told me that in saying she had been suspicious concerning the deal, she had meant she had been suspicious concerning the cash flow problem and the circumstances in which a purchaser had been wanting to 'bail out'. She said her suspicions had caused her to question Mr Rizk and Mr Younis concerning the purchase of unit nine. But she considered, having discussed matters with them, that they were being frank with her. She agreed that some of her suspicions had been allayed by the time she had gone to see Ms Johnson. She agreed she had also spoken to three people who had worked for MTK. She said her purpose in speaking with them had been to be reassured MTK was genuine, and that the other developments were in fact proceeding."
31The primary judge said (at [54]) he treated the appellant's evidence with some reserve. He took into account (at ) that "she had had a very unhappy experience with the [respondent] and lost $400,000 and in these proceedings blames [him] for what happened to her". He also assessed (at ) her as:
"... an intelligent, shrewd, and worldly wise woman, who, of course, engaged in wide ranging investigations about MTK, and conducted the initial negotiations to buy the town house from MTK;"
32His Honour regarded Ms Johnson as "honest, and reasonably accurate" and accepted her evidence that she told the appellant that entering into this transaction was not in her best interests: primary judgment (at [55]). In particular he said:
"... I take into account that Ms Johnson did say to me that she did not know if she had told the plaintiff she should not enter the contract. But I have no doubt she told her it was not in her best interests to do so. I find the plaintiff understood full well by, at the latest, the time she left the defendant's office on 22 July 2005, that by entering the contract she was at risk of losing her deposit if MTK became insolvent. I find further that she also knew at that time that MTK was in significant financial difficulties." (Emphasis added)
33The appellant called evidence from Mr Bluth, a conveyancing solicitor. He accepted that the "one risk" in the transaction was that the appellant would not get back her deposit: primary judgment (at 52]). He said it was "common practice for solicitors advising a purchaser in the [appellant's] position who faces a significant commercial risk of losing such a significant sum, for the advice to be confirmed in writing", such advice to include explicit warning of each aspect of the risk, and to take an acknowledgment that the client was proceeding with full knowledge of the risks: primary judgment (at [45] - [46]). He also proffered an opinion the primary judge regarded (at [48]) as "somewhat unusual", that "if a client refuses to accept a solicitor's advice not to enter a transaction as risky as this one, he/she should cease to act for the client."
34After referring (at [57]) to authorities supporting the proposition that a solicitor does not owe a client a duty to warn about whether or not a transaction is prudent, the primary judge said:
"I do not consider, on the facts as I have found them to be, that the defendant's retainer extended to giving business advice, or of advising on the business sense of buying the townhouse on the terms the plaintiff herself had negotiated with MTK. Further, a defendant owes no duty to warn of obvious risks in a transaction: s 5H(1) Civil Liability Act, 2002 (NSW) (CLA). The very thing which occurred, namely MTK's insolvency, preventing her from getting her money back was a risk of which I am satisfied she was warned, by Ms Johnson.
58 Before me the plaintiff accepted the transaction had contained a risk. It was put to her the risk had been acceptable to her because of the benefits the contract brought her: free rent for a year, return of her bond and past rent paid. She said: 'I don't know if they outweighed the risk of losing $400,000.' Mr Sirtes submitted that the risk from releasing an eighty per cent deposit was or ought to have been obvious to her. I consider the risk was obvious to her."
35The primary judge dealt with the individual allegations of negligence as follows.
36First, his Honour rejected the claim that the respondent failed to warn or advise the appellant of the risk in paying a deposit of 80 per cent of the purchase price. He observed (at [59]), that the appellant's case as ultimately put by Mr Morahan was not that the appellant had not been warned she might lose her money, but, particularly based on Mr Bluth's evidence, that the respondent should have confirmed the advice about that risk in writing, and then have declined to act for her if she insisted on proceeding.
37The primary judge did not accept (at [60]) that failing to confirm in writing advice given orally in conference necessarily indicated a breach of a solicitor's duty to take reasonable care. Rather, he observed that the particular circumstances of the transaction, particularly the personality of the client, are matters to be taken into account. He repeated his assessment of the appellant as "an intelligent and shrewd woman, of worldly wisdom" and was "satisfied she thought this a very good deal at the time, and receiving a written advice warning she might lose her money on MTK's insolvency would not ... have changed her mind."
38The primary judge also did not accept (at [61]) Mr Bluth's evidence that a solicitor should refuse to act for a client who declines to take advice. He considered this was a point of law concerning legal practice where a court was "sufficiently equipped to form an opinion unaided by or different from expert opinion", referring to Lucantonio v Kleinert [2009] NSWSC 853 at [8], (6) (per Brereton J). There is no challenge to this conclusion.
39Next, his Honour held (at [62]) that the allegation regarding the failure to warn or advise the plaintiff of the risk in agreeing to the deposit of 80% of the purchase price being paid to the vendor or the property on exchange of contracts did not add anything to the first allegation and repeated his reasons for rejecting that aspect of the appellant's case.
40The primary judge observed (at [63]) that ultimately he did not understand Mr Morahan relied on the particular of negligence that the respondent failed to warn or advise the appellant of the risk in agreeing not to lodge a caveat on the title to the property after contracts were exchanged. In any event, his Honour held that the failure to advise the appellant of the risk in failing to lodge a caveat after contracts were exchanged and before the strata plan was registered made no difference. His Honour relied on Mr Bluth's evidence that such a caveat would not have afforded the appellant any additional protection against the registered mortgages. There is no challenge to this finding.
41The primary judge observed that the complaint about the failure to take any action or to warn or advise the plaintiff of the effect of being served with a notice to caveator of proposed lapsing of caveat was not strongly pressed and, in any event, his Honour held (at [64]) that such failure could not have caused any loss. There is no challenge to this finding.
42As to the complaint that the respondent had taken no proper steps to ensure there were guarantees in place, or to enquire into the financial situation of those who offered guarantees, the primary judge observed (at [65]) that there was no doubt Ms Johnson had not taken any of those steps. His Honour held (at [66]) that even if such steps had been taken, that would not have affected the outcome. In this respect, his Honour said:
"66 Having in mind the appointment of a receiver to MTK some months after exchange and the problems MTK was to the plaintiff's knowledge having with cash flow at the time of exchange, I am not persuaded that conducting investigations of the type Mr Bluth said should have been done, or having the guarantors sign the contract, would have affected the outcome. It is clear that MTK was in severe financial difficulties at the time of exchange. It is clear the position of the directors was also parlous. I conclude the latter from MTK's insolvency, the fact that one of them is now bankrupt, and the threats to Mr Younis when MTK was apparently unable to repay a deposit. In the absence of any evidence on this issue I infer the mortgagees would not if asked have permitted registration of a partial discharge of mortgage. It is possible that ensuring MTK's directors executed the guarantee of MTK's performance at the time of exchange might have assisted the plaintiff. Given the directors agreed to the unusual form of guarantee being in the agreement, I infer they would if asked have executed it in their personal capacities. But Mr Morahan did not in the end submit that the plaintiff had lost anything as a result of the failure to have the guarantee signed. There was no evidence the directors ever had the ability to honour the guarantee, and that, I conclude, was the reason for Mr Morahan's position on that issue. Mr Morahan submitted the defendant should have warned the plaintiff that Mr Younis' swearing on the lives of his wife and children was worthless. However, even if that were so, I am not persuaded saying that to her, either orally or in writing, would have dissuaded her from proceeding." (Emphasis added)
43Accordingly, his Honour held (at [67]) that "there was no breach of duty, but even if there was, it had no impact on the outcome for the [appellant]."
44Notwithstanding his finding on breach of duty his Honour considered the causation issue. His Honour held (at [71]) that even if the respondent had confirmed in writing the oral warning of the danger the appellant might lose the deposit and that the directors might have no assets to back the guarantee, she would still have entered into the contract. The matters his Honour relied on to reach this conclusion included that:
(1)the appellant had reached agreement on all significant matters before seeing the respondent for advice;
(2)the townhouse was the type of place she wanted to live in and was close to her son's school from which she did not wish to move him;
(3)the appellant believed that she was paying below market value for the townhouse and hoped to make a capital gain;
(4)the appellant knew there was a risk that she would lose her deposit if MTK became insolvent, but took the risk and made a number of inquiries on her own behalf;
(5)from when she first agreed on the deal with MTK, a period of about three months went by before exchange: she had that time to reflect on the advice she had been given by Ms Johnson and whether or not to accept it; and
(6)she was aware of the unusual nature of the terms of the contract concerning the deposit.
45His Honour accepted (at [73]) that the appellant "had limited business experience, and that most of her career has been in the fashion industry." However he concluded that she nevertheless "regarded the deal as a very good one, and knowingly took the risk of losing her deposit." In his Honour's view (at [74]) from his assessment of the appellant, on the assumption she bought the property at $100,000 below market value, and received a year's free rent, she was prepared to risk losing $400,000 to save $117,500, being the combined total of the savings on the purchase price and on rent.
46While his Honour accepted that Mr Bluth's advice was not contradicted by expert testimony, his Honour held (at [75]), that it was a matter for him to decide, based on the evidence, assisted by his expert evidence, as to what, on the probabilities, would have occurred had the defendant exercised its obligations properly as the appellant's solicitor. While he also accepted that Mr Bluth's evidence was "significant on the content of the duty of care owed to [the appellant] by the [respondent], and, to some extent on the causation issue", he held that it was not decisive on any issue. There is no challenge to this proposition.
47Finally, the primary judge emphasised (at [76]) that he was "quite satisfied" that no failure on the part of the respondent to give the appellant written advice "don't do this" or "advice of that nature or any other nature concerning guarantees made any difference or would have made any difference to her decision."
48In case it was found he was in error on liability, his Honour assessed the damages he would have awarded had the claim succeeded at $540,000 (the principal sum of $400,000 plus $140,000 for the capital gain). The respondent criticises one aspect of this notional finding.