MILLER v BECK SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MEAGHER, POWELL JJA and FITZGERALD AJA 7 September 1998, 23 September 1998 [1998] NSWCA 142 Negligence — Solicitor and client — Incorrect or inadequate advice — Purchase of residential property — Solicitor acting for purchasers — Solicitors alleged to have given inadequate advice — Property alleged to incorporate unauthorised building works — Purchasers seeking to recover damages — Proper measure of damages. Meagher JA I agree with Powell JA. Powell JA By Summons filed 16 June 1998 the Claimants seek leave to appeal from a Judgment delivered and verdict entered by Patten DCJ on 13 March 1998 and from a further Judgment delivered and Orders made as to costs by his Honour on 19 May 1998 in proceedings in which the Claimants had sought to recover from the Opponent - who had acted as their solicitor in relation to a conveyancing transaction - damages in relation to what was alleged to be the Opponent's negligent failure to advise them properly in relation to that conveyancing transaction. The Claimants' case was that, in about May 1990, they had retained the Opponent to act on their behalf in relation to the purchase of a residential property which was to become their home and, in connection with that purchase, the grant to a Building Society of a mortgage to secure the repayment by the Claimants of a loan which was to be made available to them in order to enable them to complete the purchase. The Claimants' case further was that, after they had retained the Opponent, and after the Building Society had approved the making of the loan to which I have just referred, but before the Complainants had entered into the contract to purchase the property, the Opponent, who was also retained by the Building Society to act for it in relation to the proposed mortgage, received from the Building Society a copy of a valuation summary which valuation summary contained the following (inter alia): "The cottage was originally a small 2-3 bedroom home but has undergone major extentions (sic) to the rear. It is uncertain whether these were Council approved and this should be confirmed by a 317Ae (sic) Certificate. The 4" & 5" bedrooms are very small and the home offers fairly basic and modest bathroom facilities. Large functional home in quiet location. Cottage presents well." and which valued the property in the sum of $132,000.00, that sum being represented by a land value of $69,000.00, a sum of $53,500.00 attributed to the dwelling, a sum of $8,000.00 attributed to detached buildings and a sum of $1,500.00 attributed to "fencing/paths". The Claimants' case further was that, notwithstanding his having received that valuation summary, the Opponent did not advise them that it was desirable before entering into the contract to purchase that they obtain a satisfactory s317AE Certificate, nor did he, prior to the settlement of the contract taking place, obtain any, let alone a satisfactory, s317AE Certificate, in consequence of which they entered into, and settled, the contract to purchase the property notwithstanding 2 UNREPORTED JUDGMENTS that - as in the proceedings they alleged - at some time prior to May 1990 there had been made what they alleged were unauthorised and illegal extensions to the property, which extensions and alterations, so they alleged, could be made the subject of a demolition order issued by the local council. In the Statement of Claim which was filed on their behalf in June 1994, the Claimants sought to recover damages in the order of $100,000.00 said to represent the cost of removal and replacement of the unauthorised extensions, together with damages for distress and damages for loss of use of the premises. So far as is relevant to the questions which were argued on the application for leave to appeal, the evidence which was tendered on the hearing before Patten DCJ revealed significant differences between the expert witnesses called on behalf of, on the one hand, the Claimants, and, on the other, the Opponent as to: 1. what part, or parts, of the extensions which had been carried out had in fact not been authorised by the local council; 2. the cost of rectifying such part, or parts, of those extensions as had not been authorised by the local council; and, as well, invited differing approaches to the question of determining what was the proper measure of damages to be awarded to the Claimants if - as Patten DCJ was later to hold - the Opponent had, in fact, failed to exercise the requisite duty of care to the Claimants. In this regard, it is to be noted that the expert who had been called to give evidence on behalf of the Complainants - a Mr Dessaix - was a building consultant whose views as to the works which he claimed to have been unauthorised were far more extensive than those of the expert - a Mr Tyrell - who was both a licensed building and a licensed valuer, and who gave evidence as to what he considered to be the cost of rectification of those works which he claimed to have been unauthorised. Mr Tyrell's evidence was, first, that, even accepting that some of the extensions may have been unauthorised, the fair market value of the property as at the date of entry into the contract was no less than $120,000.00 - the contract price being $130,000.00 - and, second, that the cost of rectification of any unauthorised or defective work was in the order of $20,000.00 to $30,000.00 as opposed to the costs of approximately $90,000.00 which had been estimated by Mr Dessaix. Finally, it should be noted that, notwithstanding that, in March 1994, the local council had written to the Claimants identifying a number of respects in which the property was said to incorporate unauthorised or unsatisfactory work, no demolition order, or order requiring rectification, had been served upon the Claimants by the local council prior to the hearing before Patten DCJ in February 1998. In the first of the Judgments which he delivered, Patten DCJ, having determined that the Opponent was liable to compensate the Claimants on the basis that they purchased the property when they would not have done so if they had been properly advised, proceeded to deal with the proper approach to be taken to assessing the amount of that compensation. In this respect, his Honour noted: "This hypothesis neatly raises the question whether the measure of the Plaintiffs' damages is, on the one hand, the difference between the purchase price which the Plaintiffs paid (assumed to be the value of the property unaffected by the matters set forth in the letter)" from the Council "and the value of the property affected by the matters set forth in the letter or, on the other hand, the cost of rectifying the items of unauthorised building work specified in the letter. URJ MILLER v BECK (Powell JA) 3 Although prima facie, it would seem to me, on the authorities, that the measure of the Plaintiffs' damages should be calculated by the former method, Mr Williams, Counsel for the Plaintiffs urges that in the circumstances of this case the measure is to be calculated by reference to the latter method. The two methods are susceptible of producing very different results." His Honour then referred to the decision of this Court in Rentokil Pty Ltd v Channon! and, in particular, to the Judgment of Samuels JA (as his Excellency then was) in the course of which Samuels JA said: "Tn my opinion it is clear in principle by reason of the general rule which application of principle had generated and on the authorities that the measure of damages in a situation as this is the difference between the price paid and the real value of the property purchased." Having done so, Patten DCJ then referred to the Judgment of Bingham LJ (as his Lordship then was) in County Personnel Ltd v L & R Pulver & Co? in the course of which his Lordship said (inter alia): "(2) On the authorities as they stand the diminution in value rule appears almost always, if not always, to be appropriate where property is acquired following negligent advice by surveyors. Such cases as Phillips v Ward [1956] 1 WLR 885; Pilkington v Wood [1953] Ch 770; Ford v White [1964] 1 WLR 885 and Perry v Sidney Phillips & Son [1982] 1 WLR 1297, lay down that rule and illustrate its application in cases involving both surveyors and solicitors. (3) That is not, however, an invariable approach at least in claims against solicitors, and should not be mechanistically applied in circumstances where it may appear inappropriate. In Simple Simon Catering Ltd v Binstock Miller & Co (19 73) 228 EG 527 the Court of Appeal favoured a more general assessment taking account of the general expectation of loss. In other cases the measure of damage may properly include the cost of making good the error of a negligent adviser; examples are found in Braid v W L Highway & Sons (1964) 191 EG 433 and G & K Ladenbau (UK) Ltd v Crawley de Reya [1978] 1 WLR 266". Having done so, Patten DCJ then continued: "Accepting for the purposes of the argument that the above passage correctly states the law in New South Wales, however, I am not despite the forceful arguments Mr Williams persuaded that in the circumstances of this particular case it is appropriate to discard the diminution in value approach for the 'cost of cure rule'. Each of the cases referred to by Bingham LJ and by Mr Williams seems to me to have particular aspects which render the diminution in value rule inappropriate for the task of quantifying the sum of money which will restore the Plaintiffs to the position they would have been in had they not relied upon the negligent advice. There is, in my opinion, no reason in this case to apprehend that calculation of damages by reference to what I regard as the more usual method will cause injustice by failing to provide adequate compensation. Moreover there are positive reasons why the method suggested by Mr Williams is inappropriate including the difficulty, if not the impossibility, of isolating and costing the work which would be required in order to secure the issue of a Building Certificate and the fact that according to the evidence the condition of the house was generally of an inferior standard. Additionally there seems to me to be an element of disproportion in the Plaintiffs' claim for a sum of the order of $100, 000.00 for 1. (1990) 19 NSWLR 417 2. [1987] 1 WLR 916 4 UNREPORTED JUDGMENTS rectification bearing in mind the valuation of the house in 1990 at $53,000.00. Inflation would not in my opinion wholly explain the discrepancy." In the event, Patten DCJ held that, the only evidence as to diminution in value being that of Mr Tyrell, the Claimants were entitled to damages in that respect in the sum of $10,000.00 together with interest from June 1990 until Judgment in the sum of $9,722.00 and - in this respect, relying upon the decision of this Court in Rentokil Pty Ltd v Channon3 damages for consequential loss, in which respect his Honour allowed sums totalling $13,860.00 representing costs of demolition, costs of removal and storage and the cost of renting alternative premises during the carrying out of any rectification work. His Honour accordingly found a verdict for the Claimants in the sum of $33,582.00. Although I have reservations as to his Honour allowing, in this case, damages for consequential loss, this is a matter of no moment, as the Opponent has not sought to raise any question in relation to it. The second Judgment delivered by Patten DCJ dealt with the question of the costs of the proceedings, that Judgment being made necessary by the fact that, in June 1997, the Opponent's solicitors had served upon the Claimants' solicitors an offer of compromise in the sum of $50,000.00 plus costs in the sum of $15,000.00, that offer of compromise having been served well after the Opponent's solicitors had served upon the Claimants' solicitors a copy of Mr Radcliffe's report. In the circumstances, Patten DCJ ordered that the Opponent pay the Claimants' costs up to and including 19 June 1997 - the date of service of that offer of compromise - and ordered the Claimants to pay the Opponent's costs of the proceedings thereafter. Reduced to its most simple form, the argument advanced on behalf of the Claimants in support of their application for leave to appeal to be granted was that even if the measure of damages normally to be applied in a case such as this was said to be was the diminution in value approach, that approach was inappropriate in the present case since it would lead to injustice. Even if, as, for the purposes of this application, I am prepared to accept, the position in law is as Mr M L Williams, who appeared for the Claimants submitted was the case, it seems to me that this is not a case in which leave to appeal is called for. As is apparent, in order that the Claimants might make their argument good they would need to demonstrate that, in adopting what might be called the conventional measure, Patten DCJ subjected the Claimants to injustice. This, however, they are, in my view, unable to demonstrate. As will be apparent from that passage in his Honour's Judgment to which I have earlier (see p6 (above)) referred, the state in which the evidence was left led to there being significant disputes of fact - which needed to be resolved if the Claimants' submission were to be made good - which his Honour found difficult, if not impossible, to resolve and, in addition, there were other matters of fact which would need to have been, but which were not, determined by his Honour if the Claimants' argument were to be made good. In my view this is not a case in which leave should be granted, it following that the Summons should be dismissed with costs. Fitzgerald AJA The circumstances giving rise to this appeal are set out in the reasons for judgment of Powell JA, with which I am in general agreement. 3. supra URJ MILLER v BECK (Fitzgerald AJA) 5 It is no part of the Claimant's case that they would not have purchased the property but for the Opponent's negligence and breach of his contract of retainer. That was not pleaded and, on the contrary, the Claimants' submissions to this Court made it plain that they continue to wish to retain the property which they purchased. The difference between what they paid for the property and its then value is a logical measure of their loss, although in some cases a larger sum related to the cost of rectification of defects or of satisfying legal obligations in respect of a property purchased in such circumstances might appropriately be awarded. If leave was granted to permit the Claimant to seek to establish that this is such a case, the appeal could only succeed if this Court were to conclude, after a rehearing of all the evidence on the papers, that findings of fact by the trial judge were incorrect or insufficient. In my opinion, leave to appeal should not be granted for that purpose. I agree with Powell JA that the summons should be dismissed with costs. Appeal dismissed. Counsel for the claimant: M L Williams and J Sleight Solicitors for the claimants: Gulley Helene Scerri Counsel for the opponent: I Faulkner Solicitors for the opponent: Minter Ellison