Reported Decision : [2001] ANZ ConvR 389 [2001] NSWSC 185 New South Wales Supreme Court CITATION : La Fontaine v Tzu [2001] NSWSC 185 CURRENT JURISDICTION: Common Law Division FILE NUMBER(S) : SC 11443/99 HEARING DATE(S) : 10/03/2000 JUDGMENT DATE : 22 March 2001 PARTIES : Peter Allan La Fontaine (appellant) Lim Peng Tzu aka Vincent Lim (respondent /cross-appellant) JUDGMENT OF : Hidden J at 1 LOWER COURT Local Court JURISDICTION : LOWER COURT FILE NUMBER(S) : LOWER COURT L R McDermid LCM JUDICIAL OFFICER : COUNSEL : Gregory Curtin (appellant) David Geoffrey Staehli (respondent/cross-appellant) SOLICITORS : La Fontaine (appellant) Matthews Dooley & Gibson (respondent /cross-appellant) CATCHWORDS : LOCAL COURT - civil claim - appeal - contract for sale of land - subject to finance clause - duty of care of purchaser's solicitor - whether evidence to support magistrate's finding LEGISLATION CITED : Local Courts (Civil Claims) Act 1970 Allen v Kerr (Court of Appeal, unreported 7 August 1995) CASES CITED : Nicolaou v Smith (Court of Appeal, unreported 7 March 1989) Heydon v NRMA Ltd [2000] NSWCA 374 Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 DECISION : Appeal allowed. Cross-appeal dismissed. THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION HIDDEN J Thursday 22 March 2001 No 11443 of 1999 Peter Allan La Fontaine v Lim Peng Tzu (aka Vincent Lim) Reasons for judgment 1 HIS HONOUR: In 1996 Milad and Michael Raad were the owners of a townhouse development at Auburn. They entered into a joint venture agreement with Homecorp Australia Pty Limited for the marketing of the townhouses. On 10 July 1996 Lim Peng Tzu (known as Vincent Lim) entered into a contract with the Raads to purchase one of the townhouses. For that purpose, Mr Lim engaged Mr Peter La Fontaine as his solicitor. 2 The contract provided for payment of a deposit of $25,000. However, it was subject to Mr Lim's arranging finance for the purchase. Initially, he was required to pay only $100 by way of deposit. By special condition 11, he was entitled to rescind the contract if he was not able to obtain finance provided he did so within 28 days of exchange of contracts, that is, by 7 August 1996. By the time that period had expired Mr Lim had neither obtained the necessary finance nor given notice of his intention to rescind. 3 The Raads subsequently terminated the contract and sued Mr Lim in the Local Court for recovery of the balance of the deposit of $25,000. Mr Lim defended the matter and, in addition, joined Mr La Fontaine as a third party. He sought contribution or indemnity on the basis that Mr La Fontaine had failed to obtain his instructions to rescind the contract within the limited time or, alternatively, had failed adequately to advise him of the requirements of special condition 11. The learned magistrate gave judgment for the Raads against Mr Lim. In the third party proceedings he found that Mr La Fontaine was negligent and gave judgment against him for eighty per cent of the amount awarded against Mr Lim. 4 In this Court, Mr La Fontaine has appealed against the magistrate's judgment in the third party proceedings. Mr Lim has cross-appealed, claiming that he was entitled to a full indemnity. 5 In the Local Court, Mr Lim claimed that Homecorp Australia Pty Limited was acting as the agent for the Raads in the sale of the property, that an officer of that company had orally granted an extension of time for him to obtain finance and that he had given written notice of rescission of the contract within that extended time. It does appear that notice of rescission was given on 15 August 1996, some eight days after the expiry of the time limited by the contract. However, the learned magistrate found that the company was not acting as the agent for the Raads and rejected Mr Lim's evidence that an officer of the company had agreed to an extension of time. These findings are not challenged in this appeal; nor is his Worship's conclusion that the Raads were entitled to recover the balance of the deposit. 6 There was considerable conflict between the evidence of Mr Lim and Mr La Fontaine as to what passed between them. In Mr La Fontaine's favour, his Worship found that he explained the terms of the contract, including those relevant to the present proceedings, to Mr Lim during a conference a few days prior to exchange. Further, on 25 July 1996 he sent Mr Lim a copy of the front page of the contract and a copy of the terms relating to the obtaining of finance and the right to rescind. His Worship found that a person reading those terms would not require legal experience to understand them. Between 25 July and 7 August 1996, the last day for rescission under the contract, there was no contact between Mr La Fontaine and Mr Lim. 7 Mr Lim was attempting to arrange the finance himself. It appears that Homecorp Australia Pty Limited was involved in that process, and there were in evidence faxes from that company to Mr La Fontaine late in July 1996 suggesting that Mr Lim was having difficulty raising the money. Mr La Fontaine acknowledged in cross-examination that "it might have been a good idea" to have advised Mr Lim on or about 25 July that he should consider rescinding the contract. 8 Mr David Bannerman, a solicitor of many years standing with considerable experience in conveyancing, was called as an expert witness in Mr Lim's case. In examination in chief he said that "a prudent solicitor" would need to explain the relevant terms of the contract "very hard", so as to "put all the onus" on to the client . Otherwise, the solicitor should make a diary note to check a few days before the expiry of the stipulated time whether the client had obtained finance and, if not, to remind him of his right to rescind. He added, "…then if it went wrong you could blame him but unless you've put all the onus on him I think the onus is still on you if it goes wrong". In cross-examination, however, when asked to focus upon a solicitor's protection of the interests of his client rather than his own, he agreed that the solicitor would have discharged his duty to the client by communicating advice about the effect of the relevant terms. The steps taken by Mr La Fontaine he considered to be "just adequate". 9 The basis of his Worship's finding against Mr La Fontaine was expressed in his judgment as follows: One would expect a prudent Solicitor would contact his client between 31 July and 7 August, 1996, to advise and seek instructions, especially in view of the facsimiles he received from Home Corp in regard to finance. In those circumstances I am satisfied there is established a failure by the Solicitor to exercise a duty of care owed to his client, which materially contributed to the verdict found against his client. 10 In this appeal, Mr La Fontaine contends that the learned magistrate imposed upon him a high standard of care which was unsupported by the evidence: cf Nicolaou v Smith (Court of Appeal, unreported 7 March 1989). By s69(2) of the Local Courts (Civil Claims) Act 1970 this appeal is limited to a question of law. However, to make a finding of fact in the absence of any evidence to support it is an error of law: Allen v Kerr (Court of Appeal, unreported 7 August 1995) per Clarke JA at p2 and Powell JA at pp13-14. 11 The only evidence upon which his Worship's conclusion could have been based is Mr La Fontaine's acknowledgment in cross-examination and Mr Bannerman's assertion in evidence in chief, referred to above. However, what Mr La Fontaine said was expressed to be "in retrospect" and appears to be no more than a rueful observation that, if he had contacted Mr Lim at the end of July to remind him of his right to rescind, he might not have been a party to proceedings in the Local Court. Certainly, I do not interpret that part of his evidence as any concession about the scope of his duty of care. Nor do I see the scope of that duty defined by what Mr Bannerman had to say in chief. The witness was there speaking of an extra step which the solicitor might take to ensure that the client had no recourse against him if anything went wrong. 12 Mr La Fontaine's duty was to ensure that Mr Lim, who was himself arranging the finance, understood the terms of the contract bearing upon that question. That was the extent of the duty recognised by Mr Bannerman in cross-examination and considered by him to have been discharged, albeit just adequately, on the account of the dealings between Mr La Fontaine and Mr Lim which his Worship accepted. It is consistent with the observations of the Court of Appeal about the duty of care of a solicitor to be found in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 and, more recently, in Heydon v NRMA Ltd [2000] NSWCA 374. Accordingly, I am satisfied that there is no evidence to support his Worship's finding against Mr La Fontaine. 13 This is sufficient to dispose of the appeal and the cross-appeal, and it is unnecessary to consider other matters which were argued. The appeal is allowed and the cross-appeal is dismissed. The magistrate's judgment in the third party proceedings is set aside and there will be judgment for Mr La Fontaine, as third party. The parties should have an opportunity to be heard on costs. ********** Last Modified: 03/27/2001 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.