New South Wales Court of Appeal CITATION : Denis William Dolan v Bruce Vernon Dennis [2001] NSWCA 70 FILE NUMBER(S) : CA 40882/99 HEARING DATE(S) : 14/03/01 JUDGMENT DATE : 3 April 2001 Denis William Dolan & Roma Haley Dolan PARTIES : v Bruce Vernon Dennis t/as Dennis & Company JUDGMENT OF : Mason P at 1; Meagher JA at 2; Powell JA at 22 LOWER COURT JURISDICTION : District Court LOWER COURT 4367/97 FILE NUMBER(S) : LOWER COURT Naughton DCJ JUDICIAL OFFICER : COUNSEL : Appellant: B Gross QC / T J Boyd Respondent: D Davies SOLICITORS : Appellant: Matthews Williams Solicitors Respondent: Watkins Tapsell Solicitors CATCHWORDS : Professional liability - negligence in sale of tavern - breach of retainer - allegation of bias - appeal dismissed. DECISION : Appeal dismissed with costs. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40882/99 MASON P MEAGHER JA POWELL JA Tuesday, 3 April 2001 DENIS WILLIAM DOLAN AND ANOR v BRUCE VERNON DENNIS FACTS The respondent acted for the appellants on the sale of a licensed tavern. The appellants alleged negligence against the respondent and sued in tort and contract. HELD per Meagher JA (Mason P & Powell JA agreeing) (i) There were no breaches of the retainer between the appellants and the respondent. (ii) The omissions of the respondent about which the appellants complained did not contribute to the appellants' financial loss. (iii) There was no substance in the appellants' submission that the trial judge was guilty of misconduct and/or perceived bias. ORDERS Appeal dismissed with costs. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40882/99 MASON P MEAGHER JA POWELL JA Tuesday, 3 April 2001 DENIS WILLIAM DOLAN AND ANOR v BRUCE VERNON DENNIS JUDGMENT 1 MASON P: I agree with Meagher JA. 2 MEAGHER JA: This is an appeal from a verdict for the defendant given by Naughton DCJ in a case where Mr and Mrs Dolan sued their solicitor Mr. Dennis for negligence whilst selling a licensed tavern on their behalf. The plaintiffs sued in both contract and tort. The person at their solicitor's office who managed the matter for them was a Mr Hocking. In short, his Honour found Mr Dolan an unsatisfactory witness and Mr Hocking a witness of truth. That being said, a verdict against the Dolans became nearly inevitable. However, even absent such a finding, I cannot see how there could be any other result. 3 The owner of the freehold on which the tavern was situated was a company called Vadejil Pty. Limited. On 23rd April 1993 it leased the land to another company called Coverbay Pty. Limited for 12 years from 23/4/93 to 22/4/05. By clause 8.4 of the lease the lessee covenated not to mortgage its interest without the lessor's consent. 4 Coverbay's conduct of the tavern business did not last long, because a few months later (on 27/7/93) Coverbay sold the business to Mr and Mrs Dolan and a certain Mrs Barton (who was Mrs Dolan's mother). The purchase price was $215,000 (apportioned as to $135,000 for goodwill and $80,000 for landlords fixtures and fittings etc). The legal documentation for this transaction consisted of (a) the contract of sale, (b) an assignment of lease, (c) a Deed of Consent by the landlord to the assignment, and (d) a mortgage back over the lease. Under the mortgage, the instalments were payable by the Dolans to Coverbay. $50,000 on 16/8/94, $25,000 on 16/2/95 and $20,000 on 16/8/95. There was no Bill of Sale over the fixtures and fittings. 5 Things, apparently, did not go too well for the Dolans, for, by August 1994, only a year after they had purchased the tavern, they retained the respondent Dennis as their solicitor to resell it. At this time they had defaulted on the payment of the first instalment of $50,000 (paying $10,000 instead), and they could find neither a bank nor a private lender to finance them. Nor could they have had an income stream from the tavern, otherwise this situation could not have arisen. They looked for purchasers. A Mr Lawton emerged, to offer them $340,000, but then disappeared as quickly as he had arrived. Meanwhile, to aggravate this financial problem, a personal problem emerged: some man commenced to stalk their daughter, to the extent that Mr Dolan thought it was imperative to leave the vicinity for that reason alone. 6 Then Miss Sally Rebecca Farrar (later Mrs Cunningham) arrived on the scene as a possible purchaser. She was a barmaid at the Toronto Hotel at Lake Macquarie. She had no income to speak of, and little capital. In addition, she had no experience of running hotels. Yet to such straits were the Dolans reduced, they accepted her offer to buy the tavern, at a price (after negotiation) of $270,000. $93,000 was to be paid on completion, and an instalment of $150,000 was due on 6/2/96. The only capital sum she could lay her hands on were: $120,000 from the sale of her house and $50,000 borrowed from her mother. So the matter proceeded to settlement. 7 At settlement, the only monies left for the Dolans was the sum of $6,642, after payment of mortgage moneys to Coverbay Pty Limited and rent to Vadejil Pty Limited. 8 The documents which came into existence to reflect this sale were: (a) a contract of sale, (b) an assignment of lease, and (c) a mortgage. This time, there was no deed of consent from the landowner. Like the previous settlement, there was no Bill of Sale. 9 The business of the tavern ran no more smoothly for Miss Farrar than it had for the Dolans, or for Coverbay Pty Limited before them. Within a couple of months she owed over $9000 to the Dolans by way of interest on her mortgage. She borrowed $50,000 from a friend of hers, a Mr Andrews (through his company Faveril Pty. Limited), on the security of a Bill of Sale over the fixtures, fittings and stock-in-trade. She then abandoned the lease and the mortgage, walked out of the premises, left no forwarding address. 10 In these circumstances, various events took place between Vadejil as lessor, Mr. Dolan as mortgagee of the leasehold and Mr. Andrews as mortgagee of the fixtures and fittings. It is not really relevant to recite them, but the result was that Miss Farrar got nothing from the wreckage, nor did the Dolans. In this litigation, the Dolans in effect blamed their solicitor for the whole fiasco. But one thing is crystal clear: if the Dolans remained in possession their life would have been nasty, brutish and short. They had no capital assets, they had nobody who could lend to them, they were unable to generate enough income to pay their debts, and they would have had to capitulate to either their landlord or their mortgagee. Hence their decision, on the face of it absurd, to sell to Miss Farrar. And this consideration had a consequence: if they sold to Miss Farrar they had to sell on her terms, because there was nobody else to sell to. 11 I shall now set out what retainer was given to the defendant solicitor. On Mr Dolan's part, it was alleged that he said to Mr Hocking something like this: "I've sold the hotel to a lady called Sally Farrar, the purchase price being $270,000, goodwill being $150,000 and the fixtures and fittings $80,000. We will be leaving in $150,000 for a loan for twelve months, interest rate 11 per cent and this will be covered by a mortgage over the lease and fixtures fittings. Will you prepare all the documents please?" 12 Mr Hocking said that shortly before he was retained, Mr Dolan said to him he was "desperate to leave" and that he would "agree to any agreement" with a purchaser. He said Mr Dolan told him that the sale price was to be $270,000, with $150,000 lent on a mortgage back. The mortgage was to be over the lease; there was no mention of fixtures and fittings. The purchase was to be "on the same terms" as his purchase from Coverbay Pty Limited. His Honour found for Mr Hocking and against Mr Dolan on this question. On this finding, then, the defendant's retainer is unambiguous enough. But Mr Dolan in these proceedings also relied on the duty his solicitor owed him to advise on matters outside his strict retainer. 13 I think it was conceded (and, if not, it should have been) that there were no breaches of the retainer, that there was no question of Mr Dennis being in breach of his contract. He did what he was told to do. 14 Mr and Mrs Dolan complained that Mr Dennis had not obtained a Deed of Consent to the assignment from the landlord. But, as his Honour found, that was devoid of legal consequence because the landlord, both orally and by his conduct, did consent to the assignment. 15 They also complained that Mr Dennis should have obtained a Bill of Sale over the fixtures and fittings and stock-in trade. There are a number of answers to this complaint; but one will suffice. Miss Farrar gave evidence, which his Honour believed, that she never would have granted a Bill of Sale to the Dolans. And, as I have pointed out, she had the whip hand in determining what the Dolans could have. 16 There was another complaint to the effect that Mr Dennis should have procured a power of attorney from Miss Farrar. But, apart from any practical difficulties in wheedling such a document out of Miss Farrar, if such a power existed it would be subordinated to the landlord's power of attorney which arose on non-payment of rent (a situation which existed at all material times). 17 It should be observed that, if Mr Hocking had done all the things which Mr and Mrs Dolan now allege he should have done, what would their position be? The answer must be the same as it was. They did not have enough money to rectify all the breaches of the lease which existed at the time of Miss Farrar's departure. If they had entered and taken possession, and sold the fixtures, fittings and stock-in-trade, the proceeds of sale would not have been sufficient to pay their debts. This must mean that their eventual financial ruin did not result from any behaviour on Mr Hocking's behalf, but rather from their own initial impecuniosity. 18 Finally, there is a submission - nowadays made quite commonly, and usually mistakenly - that His Honour was guilty of "misconduct and/or perceived bias". The circumstances were these: in the trial, which lasted many days (28, 29 and 30 September; 1, 5 and 6 October), some expert reports were tendered both by the plaintiffs and by the defendant and admitted by his Honour. They were, in effect, critical of the defendant's case. When they were admitted on 1 October his Honour remarked that it seemed to him tentatively that liability seemed to be admitted. On his Honour making this remark, a Mr Tapsell, the defendant's solicitor volunteered that breach of duty of care was indeed admitted, and that the only issues left to be tried were causation and damages. Then, on the same day, Mr Hocking in cross-examination denied with some vigour that he had been negligent. Strictly speaking Mr Hocking was a mere witness, but after all he was an (employed) solicitor accused of negligence for which the defendant would have been liable. Thereafter, during the long weekend, his Honour contemplated what course he should take in the face of a solicitor making a statement on liability contrary to the wishes (and, one assumes, the intentions) of his principal, for whom he is a mere agent. 19 His Honour raised the matter when the case recommenced on 5 October. What happened then is best summarised by his Honour on the following day, when an application was made that he should discharge himself for apparent bias: "When the hearing resumed yesterday morning, I suggested at the outset to Mr Tapsell that in view of Mr Hocking's statement in his still continuing cross-examination that he did not personally consider himself to have been negligent, he, Mr Tapsell, might consider withdrawing his concession that the defendant had breached his duty of care. I said that the close consideration of the evidence in the case so far which I had given to the matter over the long weekend suggested to me that the defendant seemed to have an arguable case that he had not been negligent. I expressed that in tentative terms making it clear, I believed (and still believe) that my view was tentative and that I remained open to persuasion on the matter as is the fact. Mr Tapsell indicated that liability was still in issue." 20 I do not really see how his Honour's action in permitting the concession to be withdrawn, particularly when the circumstances of its being made raise an inference that it was made without instruction, was in any way improper. Nor did it impede the plaintiff's rights to cross-examine - or to apply to lead further evidence in chief, for that matter. Far from being supportive of bias, in my view an impartial observer would merely remark that his Honour had achieved a solution, which did nobody harm, to a rather tricky problem. 21 In my view, the appeal should be dismissed with costs. 22 POWELL JA: I agree with Meagher JA. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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