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[2010] NSWDC 135
District Court of NSW
2010-04-08
Original judgment source is linked above.
HEARING DATE(S): 8 April 2010 and subsequent supplementary written submissions to 14 May 2010
CATCHWORDS: PROFESSIONAL NEGLIGENCE - claim in contract and tort against a solicitor by a client in respect of a failure to properly advise in connection with a contract for the purchase of an apartment - breach of duty admitted but any actual loss was disputed where the value of the property exceeded the amount paid by way of purchase - alternatively, causation was disputed where plaintiff did not prove she would not have purchased the property if she had been properly advised
LEGISLATION CITED: Civil Liability Act 2002: s 5D(3)
Braid v W L Highway & Sons (1964) 198 E. G. 1091Commonwealth v Amman Aviation Pty Ltd [1991] HCA 54Ford v White [1964] 2 All ER 755Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) CLR 414 Lahoud v Lahoud [2009] NSWSC 623 CASES CITED: Malec v JC Hutton Pty Ltd [1990] HCA 20 McCrohon v Harith [2010] NSWCA 67 Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514
PARTIES: Yonggui Wang (Plaintiff) Denise Zheng trading as Denise Zheng Lawyers (Defendant)
COUNSEL: Mr F D Curran (Plaintiff) Ms K Stern (Defendant)
SOLICITORS: Elliotts Lawyers (Plaintiff) Colin Biggers & Paisley (Defendant)
· Did the plaintiff suffer any loss? · If so, was that loss caused by the defendant's negligence or breach of contract?
The plaintiff relied upon her written statement, a statement made by Mr Simon Yang, and various documents tendered as part of Exhibit A. Neither witness was cross-examined on their statements, which therefore went unchallenged apart from certain inadmissible sentences that were struck out.
In particular, the first two sentences of paragraph 8 of the plaintiff's statement were struck out: s 5D(3) of the Civil Liability Act 2002.
The plaintiff is a Chinese woman whose ability to read or write English or to understand English is limited. She and her husband established a business in China in the clothing industry and in August 2008 commenced importing Australian wool products. This involved business trips to Australia and she decided to buy premises in Sydney for use during her visits.
With the assistance of Mr Simon Yang, an accounts clerk based in Sydney, with whom she had become acquainted, the plaintiff started to search for a suitable property. He acted as her adviser and interpreter. Between August 2008 and February 2009 they looked at a number of residential properties.
The plaintiff first became aware of the property the subject of these proceedings, at 3/62 Drumalbyn Road, Bellevue Hill, in August 2008, and undertook two inspections. The vendors' price at that time was $3.8 million. The plaintiff liked the property but decided not to make an offer at that time because the property was listed for auction in September 2008. She attended the auction, which was held at the Stamford Hotel in Double Bay. There was only one offer and the property was passed in. The real estate agent indicated to Mr Yang and the plaintiff that the vendors might accept an offer of $3.5 million. This invitation to treat was declined.
The plaintiff continued to look at other properties, but did not find anything suitable. In December 2008 she arranged for her husband and son to come out from China to look at the property at 3/62 Drumalbyn Road. The plaintiff returned to China. Then in February 2009, during a trip to Australia, she undertook a further inspection of the property. After conferring with her husband she made an offer for the property of $3.0 million. This offer was rejected by the vendors who wanted $3.3 million. The plaintiff then made a counter-offer of $3.2 million, which the vendors subsequently accepted.
Contracts of sale were prepared. The plaintiff retained the defendant to act for her on the purchase. The defendant solicitor was recommended to the plaintiff on the basis that she spoke Chinese. The plaintiff and Mr Yang met with the defendant on 12 March 2009, when she advised on the contract and the plaintiff signed it. The defendant failed to draw to the plaintiff's attention Clause 51 of the contract for sale, which provided:
(a) the purchase price is exclusive of GST (as that term is defined in the A New Tax System (Goods and Services Tax) Bill 1998 ("GST Act");
(b) if GST becomes chargeable with respect to any supply made under or in connection with this contract the purchaser must as an essential term of this contract pay to the vendor in cash on completion, in addition to the balance of the purchase price and any other monies payable on completion a sum which represents the applicable GST payable in respect of the supply under this contract."
The consequence of this clause was that the plaintiff would be required to pay, on completion, an amount for GST in addition to the agreed purchase price of $3.2 million. The plaintiff, being unaware of this additional liability, entered into the contract for sale believing she was buying the property for $3.2 million. Contracts were exchanged on 13 March 2009. A deposit of $320,000 was paid. The defendant advised the plaintiff that the stamp duty payable on the contract would be $164,510.00 and asked for a cheque payable to the Office of State Revenue. This was delivered by Mr Yang on 1 May 2009.
Settlement was scheduled for 19 May 2009. The defendant solicitor prepared a Settlement Adjustment Sheet that omitted any reference to the GST liability. By letter dated 14 May 2009 the vendors' solicitors advised the defendant solicitor as follows:
"We note that your settlement figures do not include GST. In accordance with the Contract the Vendors have applied the margin scheme and the amount of GST applicable to this sale is the sum of $269,043.48 which is to be included in the figures."
The following day, 15 May 2009 there was a telephone conversation between the defendant solicitor and Mr Wang when she told Mr Wang about the additional $269,043 the plaintiff was required to pay on settlement. He expressed shock and the defendant solicitor explained the GST issue. Later that day the defendant wrote to the plaintiff care of Mr Wang. Included in that letter was the following:
"We advise again the following;
Mr Yang phoned the plaintiff in China and told her. She was understandably shocked and surprised. They had further discussions in the days following, the content of which is not in evidence. The plaintiff says in her statement that she was later informed the contract was binding on her and she risked forfeiture of the deposit of $320,000 and exposure to possible further damages if she did not proceed with the purchase. In fact, the plaintiff sought independent advice from another firm of solicitors, AKN Solicitors. On 18 May 2009 that firm wrote to the defendant saying:
"We act for Yong Gui Wang who has instructed you in relation to her purchase of the property known as 3/62 Drumalbyn Road Bellevue Hill.
We are instructed that our client was only recently advised that she was liable to pay an amount of GST pursuant to a clause in the contract for sale. We are further instructed that you failed to advise our lient of this matter at any time until last week.
Our client holds you responsible for any loss and damage she may suffer as a result of your failure to advise her. She reserves all her rights in that regard.
To mitigate her loss, our client proposes to settle this matter and to continue to instruct you for that purpose.
We are instructed that settlement is scheduled for tomorrow. If there is any reason that settlement will not take place tomorrow kindly advise us as a matter of urgency so that our client may consider her position. Such advice would need to be received by us at least one hour before settlement."
Settlement was in fact postponed till 22 May 2009, but on that day settlement took place and the plaintiff paid the purchase price of $3.2 million, with adjustments for rates etc, plus $269,043.48 for the GST payable under the margin scheme. She had to make some urgent arrangements to fund the unexpected additional amount, part of that being borrowed from Mr Wang.
It is not disputed that the plaintiff paid $3,206.00 to the defendant solicitor for the transaction costs and fees.
The plaintiff was not permitted to lead evidence of what she now says she would have done if she had been properly advised: s 5D(3) of the Civil Liability Act 2002. There was no evidence of her having said, prior to settlement, what she would have done had she been properly advised. Nor was there any evidence from anyone else on that issue. Apart from the letter from AKN Solicitors of 18 May 2009 there is no evidence as to what actions or options the plaintiff considered or of any other steps taken by or on her behalf concerning the predicament in which she found herself.
There was no admissible valuation evidence led by the plaintiff.
The defendant tendered a Valuation Report dated 23 December 2009 prepared by Abbotts Valuers. The valuer was Mr Peter I Phippen, a certified practising valuer. He was not required for cross-examination and his report was uncontradicted. He assessed the fair market value of the property purchased by the plaintiff, exclusive of GST, at $3.5 million as at 22 May 2009. That value had increased, in his opinion, to $3.6 million by 18 November 2009.
The plaintiff's case is that she suffered a loss equivalent to the extra amount she was required to pay in respect of the margin scheme: $269,043.48. She contends that loss was caused by the defendant's negligence and breach of contract, and that if she had known the true position she would not have entered into the contract at all.
The plaintiff submitted firstly that she is not required to prove she would not have entered into the contract if she knew the true facts, and is entitled to 'reliance damages' for the expenditure of the additional purchase costs required to obtain the benefit of the contract she would have entered into but for the defendant's breach of duty or breach of contract: Commonwealth v Amman Aviation Pty Ltd (1992) 174 CLR 64. It was contended that the extra amount to cover the vendors' GST liability was "wasted expenditure" in the sense set out in the judgments in that decision.
The plaintiff submitted secondly that causation is established by reason of the immediate diminution in the bargain because of the Plaintiff having to pay more than she thought she was agreeing to pay, as a result of the Defendants' negligence: Braid v W L Highway & Sons (1964) 198 E. G. 1091.
"There are numerous other cases instanced in McGregor on Damages, 18th Edition, Chapter 29 "Contracts for Professional and Other Services" 1. "Solicitors" (b) "Negligence in the acquisition of property by purchase" 29- 009 - 29-022 and instanced in "Solicitors Negligence and Liability" by Davies, Oxford Press, 2008 Chapter 17. These cases simply illustrate the application of the principles of damage where "reliance damages" are awarded for breach of duty or contract. As Deane J. said in Amman, "It should be apparent from what has been said above that an award of reliance damages does not represent the direct recovery of the wasted net expenditure. The basis of an award of reliance damages is the ordinary one in an action for repudiation or breach, namely that the plaintiff is, so far as moneycan do it, to be placed in the same situation with respect to damages as if the repudiation or breach had not occurred."
The plaintiff submitted thirdly that even if the plaintiff is required to prove she would not have entered the contract had she known the true facts, she is only required to show a degree of probability, not so low as to be speculative, that she would not have exchanged contracts, such that her damages are adjusted accordingly, so as to reflect the degree of the probability, which might be less than 51%: McCrohon v Harith [2010] NSWCA 67 at [97]ff and Malec v JC Hutton Pty Ltd [1990] HCA 20. "In the instant case on the objective facts there would be a very very high probability that the Plaintiff would not have entered into the contract if she knew the true facts by reference to the file of the estate agent and the rejection of the higher offer of $3.5 million".
The plaintiff submitted fourthly that the only way to restore her to the position she would have seen in, but for the defendant's negligence and breach of contract, is to have her receive the sum of $269,043.48. Any rise in value on the property does not serve to reduce the damage the plaintiff has suffered. The loss of the bargain suffered by the plaintiff in having to secure ownership of the property for an additional $269,043.48 is a loss that cannot be compensated by any rise in value. The plaintiff had to pay an additional $269,043.48 over and above what she thought, based on the conduct of the defendant, she would be paying. The use of that money for other purposes has been lost to her and cannot be made good by rises in the value of the property.
In relation to the valuation evidence, it was submitted for the plaintiff that the defendant's valuation evidence should be rejected: the transaction here was not a sham; there is no suggestion that it was entered into in a false market. The property had been on the market for an extended period. There had been a failed auction. There was the usual negotiation process over a significant period. The vendor and plaintiff were at arms length. A bargain was struck with the plaintiff, in reliance on the defendants' advice, expecting to secure the property for $3.2m. It cost the plaintiff an additional $269,043.48. The defendants' valuation makes no reference to this transaction at all. It ignores it, a bona fide transaction concerning the very property at the time in question. The value of the property had to be assessed having regard to the GST liability and that value could be calculated by deducting $269,043.48 from $3.5m leaving a true value of $3,230,956.52: Ford v White [1964] 2 All ER 755.
The defendant's case is that the plaintiff suffered no loss. Simply put, the value of the property at the relevant date was greater than the total amount the plaintiff paid for it, including the GST. The uncontroverted valuation as at 22 May 2009 was $3.5 million, subsequently increasing to $3.6 million. The plaintiff paid $3,469,043.48 hence she in fact acquired an asset that was more valuable than what she paid. An award of damages representing the GST would be to put the plaintiff in a better position. The plaintiff should not be allowed to keep a valuable asset worth more than what she paid and recover compensation in excess of that: McCrohon v Harith [2010] NSWCA 67 at [53]. The submission is expanded as follows:
"The way that the plaintiff puts her case is not supported by logic or authority. There is no available hypothesis which enables her to purchase the property but avoid paying the GST component of the purchase price. She cannot keep that component and the property - that would be to give her much more than she would have had had the contract been performed and/or there been no negligence."
Alternatively, the defendant contended that it was not proved that the plaintiff would not have entered the contract had the defendant taken reasonable steps to explain to the plaintiff her liability to pay GST in addition to the agreed purchase price of $3.2 million. It was submitted that the evidence provided a basis for no more than speculation that she would not have entered into the contract for sale had she known about the GST liability. It was not proved that the plaintiff lacked the financial means to meet the additional cost. Rather, the evidence indicated the contrary situation.
It was not for the defendant to prove the plaintiff would have purchased the property in any event. The defendant's position that there was simply no evidence one way or the other. The plaintiff did not advance her case as one for damages for lost commercial opportunity, namely the opportunity to decide not to purchase the property. Counsel pointed out a series of matters that were described as factors undermining the proposition that the plaintiff would not have proceeded with the purchase if she had been made aware of the additional GST liability. I paraphrase some of these factors by way of summary as follows:
· The plaintiff liked the property. She looked at it several times. She even had her husband and son come out from China to inspect it.
· There was no evidence of a limit set by the plaintiff for the purchase, or that she had made some assessment as to the value of the property.
· She was looking at properties in the range of $2.5 to $3.5 million. Indeed, she had inspected properties up to $4.5 million in value.
· She came back to this property when she could not find anything more suitable after a protracted search. She clearly wanted to buy this property.
· She was a woman of considerable means who wanted an Australian residence.
· She made no attempt to sell the property after purchase, or to value the likely return on a sale. Rather, she immediately set about furnishing it.
· The valuation evidence is indicative of a rising property market, consistent with the proposition that the inference is equally available that she "took her chances".
The defendant disputes the plaintiff's contention that she is entitled to damages in the nature of 'reliance damages' for any additional cost of obtaining the benefit of the contract she thought she was entering into. The defendant argues that the GST component was always a part of the price for purchasing the property, and that the cost of obtaining a benefit cannot be a loss where the benefit is in fact obtained. There was, and never could have been any other bargain. The plaintiff never had, nor on the evidence would have had, any entitlement to purchase the property for $3.2 million. There was no diminution of bargain because the cost of the purchase was only ever $3.2 million plus the GST, hence she did not pay more than she contracted for. She was required to pay the contract amount, part of which she now seeks to reclaim from the defendant. That component of the price does not constitute a loss. There was no wasted expenditure. The additional amount was expended in obtaining a valuable asset, an asset with a value in excess of the total expenditure, $3,469,043.48. The benefit of the contract was obtained. There never was a benefit to be obtained by way of acquiring the property without paying the GST, as it was not available at that price. Hence there could be no diminution in bargain, nor was there any additional cost. The submissions summarise the proposition as follows:
"This is a case in which the plaintiff has not at any point suffered any loss. She acquired something which was more valuable than what she paid. Whilst she may have been under the understanding that she would acquire something at a lesser price, there was no warranty that the price would be $3.2 million in total. Thus, her understanding was false. She cannot be compensated as if the defendant had warranted that the price was $3.2 million in total. That would be the effect of an award of damages representing the GST component of the price which she paid."
That is a summary of the defendant's key submissions. There are other detailed submissions that it is not necessary for me to review in full. I do, however, set some of them out below:
"Another way of looking at this case is by reference to the principles of mitigation. Even if the court determined that she had suffered a loss, the court would then have to determine the extent to which she has mitigated her loss. The uncontradicted evidence is that the property at the time of settlement was worth $3.5 million excluding the GST component, any stamp duty and any legal costs. The Plaintiff could thus have sold the property, if she so chose, at a price of $3.5 million in May 2009 when the contract completed. She has chosen not to do so. The property has, according to the uncontradicted evidence of Mr Phippen, increased in value. She has thus mitigated any loss she could possibly have suffered."
"There is no evidence in this case from which it could be inferred that conferring upon the Plaintiff benefits (i.e. value of property) equivalent to or greater than the purchase price of the property would not restore her to the position in which she would have been in had it not been for the breach of duty or breach of contract. There is no evidence that the Plaintiff could not, at any point after 22 May 2009, have sold the property at its true value (as assessed by Mr Phippen) and thereby have received in excess of the money she paid to the vendor of the property. There is no loss and, in any event, such loss as might be proved has now been mitigated by the Plaintiff retaining this increasingly valuable asset."
"There is no evidence in this case from which it could be inferred that the retention by the Plaintiff of the property with a value in excess of the purchase price is not effective to restore the Plaintiff to her actual position but for the negligence or the breach of contract. This is not a case, for example, where the Plaintiff has lead evidence that she was financially disadvantaged by being required to purchase a property at a sum in excess of what she had at first believed to be the price. Nor is it a case where she has been unable, for some personal reason, to sell the property and realise the value of her asset."
"She did not sell the property as she could have upon completion in May 2009. She has chosen to retain it. It has risen in value as set out in Mr Phippen's report dated 23 December 2009. She has mitigated any loss she might be found to have suffered."
Damages for negligence are awarded to compensate for any loss suffered by comparing the actual position of the plaintiff with the position she would have been in had there not been any negligence. The plaintiff has the onus of proving any loss, by reference to her own particular circumstances: Lahoud v Lahoud [2009] NSWSC 623 at [103] and [113].
Damages for breach of contract are awarded to put the plaintiff in the position in which she would have been had the contract been performed with all reasonable care: Commonwealth v Amman Aviation Pty Ltd [1991] HCA 54.
The defendant points out that there is no direct evidence of the value of the property as at 13 March 2009, the date of exchange. It seems to me, however, that the appropriate time for assessing whether there was any loss was in fact 22 May 2009, the date of settlement, or later: Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514 at 532, as explained in Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) CLR 414 by Gaudron J at 425.
I can see no basis for rejecting the valuation evidence tendered for the defendant. It was uncontradicted. It is misconceived to suggest that the true value was the amount of the bargain struck. There was no evidence as to what factors were at play in the striking of the $3.2 million price. The inference might equally be drawn that the vendors dropped their price to take account of the GST liability.
I am satisfied, therefore, that the market value of the property purchased by the plaintiff, exclusive of GST, was $3.5 million as at 22 May 2009, and that value had increased to $3.6 million by 18 November 2009.
That being the case, the plaintiff suffered no loss, having expended less than those valuations by way of purchase of the property. It follows that I prefer the defendant's analysis of the applicable legal principles to that of the plaintiff. This is not a case where the plaintiff is entitled to 'reliance damages' based on any supposed diminution in bargain. Payment to the plaintiff of $269,043.48 would not restore the plaintiff to the position she would have been in, because such a 'bargain' was in reality never available to her; she only thought it was. To 'refund' the GST would be to put the plaintiff in a better position than she would have been but for the negligence and breach of contract.
It also follows that the plaintiff did not lose the benefit of the transaction costs paid to the defendant, and that expenditure was not wasted. There was no claim for any other losses, such as legal costs paid to AKN Solicitors for the independent legal advice, or additional bank loan fees or the like.
For these reasons the plaintiff's claim fails and there should be a verdict in favour of the defendant.
Even if the plaintiff had proved any loss, I am not satisfied such loss was caused by the defendant's breach of duty or contract. She simply did not establish she would not have proceeded with the purchase if she had been advised of the additional GST liability. There was no direct evidence, nor in my view does the evidence that was led permit of any inference in her favour. Thus, the probability of her not exchanging contracts is so low as to be speculative.
In my view each of the factors articulated by the defendant as indicators to the contrary has weight, in particular the absence of any attempt to re-sell the property or obtain any valuation. Taken together the combination of factors is a powerful indicator that the plaintiff would have proceeded nevertheless.
Orders for costs are to be made in accordance with r 42.1 and r 42.2 of the UCPR, unless some other order or orders are appropriate. There is nothing before me, at this point, to indicate that some other order is appropriate but I will reserve leave to either party to apply in that regard.
There will, therefore, be a verdict for the defendant.
I direct the entry of judgment for the defendant.
I order the plaintiff to pay the defendant's costs, on the ordinary basis.
I give leave to the parties to apply for some other costs order or orders provided any such application is notified to the other party and the court within 14 days, in writing, specifying the order sought.
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.
Wang
Zheng