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Olympic Holdings Pty Ltd & Anor v Lochel & Anor [2004]WASC 61 (5 April 2004)Last Updated: 6 April 2004

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION : OLYMPIC HOLDINGS PTY LTD & ANOR -v- LOCHEL & ANOR [2004] WASC 61

CORAM : MCLURE J

HEARD : 9-10, 13-17, 31 OCTOBER 2003

DELIVERED : 5 APRIL 2004

FILE NO/S : CIV 2312 of 1996

BETWEEN : OLYMPIC HOLDINGS PTY LTD

BONDGATE PTY LTD

Plaintiffs

AND

KLAUS DIETER LOCHEL

PETRA BRIGITTE LOCHEL

First Defendants

ANDREW CECIL THORPE

Third Party

Catchwords:Contract for sale of land - Construction - Whether defendants ready willing and able to settle or inbreach - Whether agreement to substitute purchaser - Whether vendors estopped from denying promise- Whether valid termination of contract - Turns on own facts

Solicitor and client - Scope and terms of contractual, tortious and fiduciary duties - Whether breach ofduty to exercise reasonable care and skill - Whether principles of causation and remoteness apply tobreach of equitable duty - Whether conflict of interest - Turns on own facts

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Legislation:Legal Practitioners Act 1893 (WA), s 58WSupreme Court Act 1935 (WA)Transfer of Land Act 1893 (WA), s 68

Result:Judgment for plaintiffs in the actionCounterclaim dismissedJudgment for defendants in third party action

Category: B

Representation:

Counsel:

Plaintiffs : Mr M M Mony de Kerloy

First Defendants : Mr J R Birman

Third Party : Mr K J Martin QC & Mr S F Popperwell

Solicitors:

Plaintiffs : Mony de Kerloy

First Defendants : Birman & Ride

Third Party : Pynt & Partners

Case(s) referred to in judgment(s):

Case(s) also cited:

Nil

Table of Contents

MCLURE J :

Introduction

1 The plaintiffs' claim from the defendants damages for breaches of agreements relating to the saleand purchase of land. The defendants were the registered proprietors of land at 254 Hamilton Road,Spearwood ("Lochel land"). The first-named plaintiff, Olympic Holdings Pty Ltd ("Olympic") andFrisquet Pty Ltd were the registered proprietors of Lot 2, Caravel Way, Mandurah ("Mandurah land").

2 By written contracts dated 26 April 1996 the defendants sold the Lochel land to Olympic for apurchase price of $640,000 ("Olympic Contract") and Olympic and Frisquet sold the Mandurah land tothe defendants for a purchase price of $390,000 ("Mandurah Contract"). Both contracts were on astandard form offer and acceptance incorporating the 1994 Joint Form of General Conditions of theSale of Land ("General Conditions").

3 At the time of entry into the Olympic Contract the defendants were parties to a developmentagreement with a property developer, Coburg Nominees Pty Ltd trading as Urban Focus ("UrbanFocus") and a number of owners of adjacent land ("Owners Deed"). It was a term of the Owners Deedthat any offer by the defendants to sell the Lochel land be subject to a condition that the purchaser enterinto a deed of covenant with Urban Focus ("Deed of Covenant") agreeing to be bound by, inter alia, the

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Owners Deed. Initially Olympic refused to enter into a Deed of Covenant. After entering into theOlympic Contract the defendants provided to Urban Focus an executed transfer of the Lochel land. InJune and July 1996 Urban Focus registered absolute caveats against the title to the Lochel land.

4 The plaintiffs claim the defendants promised, alternatively represented, that provided the second-named plaintiff Bondgate Pty Ltd ("Bondgate") was able to settle or had the finance to settle, theOlympic Contract and the Mandurah Contract would be cancelled and the defendants would execute acontract whereby they would sell the Lochel land to Bondgate for a purchase price of $600,000 (areduction of $40,000) but otherwise on the same terms and conditions as the Olympic Contract("Bondgate Contract") and enter into a new contract for the sale to the defendants of the Mandurah landon the same terms and conditions as the Mandurah Contract, save for the purchase price which was alsoreduced by $40,000 to $350,000 ("amended Mandurah Contract"). Bondgate and Olympic wereassociated companies represented by their common director, Mr Peter Bacich.

5 Thereafter Bondgate negotiated with Urban Focus for the removal of the caveats. It reached anagreement with Urban Focus as to the basis on which the Urban Focus caveats would be removed toenable Bondgate to settle the purchase of the Lochel land. However, Bondgate's financiers wereunhappy about the situation and withdrew finance approval for Bondgate's purchase of the Lochel land.Bondgate then sought and eventually obtained alternative finance approval which it received by lateOctober 1996. In the meantime, on 13 September 1996 the defendants issued a default notice statingthat settlement of the Olympic Contract was due on 12 July 1996, that in breach of the OlympicContract Olympic had failed to settle and gave notice that unless Olympic effected settlement within 15days of the service of the notice, the defendants may exercise their rights and remedies under theOlympic Contract including termination thereof ("September default notice"). The notice period expiredat the end of September 1996.

6 After the expiry of the notice period but before termination of the Olympic Contract the defendantsentered into a contract to sell the Lochel land to Smart Investments Pty Ltd ("Smart InvestmentsContract"). By letter dated 4 November 1996 the defendants, by their solicitor the third party,terminated the Olympic Contract.

7 All parties identified the central issue in the action as being whether the defendants validlyterminated the Olympic Contract. A number of other issues, legal and factual, have to be determined inorder to answer that question. Those issues include whether:

(a) the Olympic Contract was conditional on Olympic entering into the Owners Deed;

(b) there was an agreement with the defendants or conduct preventing the defendants from denying anagreement to substitute the Olympic Contract and the Mandurah Contract with the Bondgate Contractand the amended Mandurah Contract and if so, with whom and on what terms;

(c) the defendants were in default or alternatively not ready, willing and able to settle at the date ofissue of the September Default Notice or the due date for performance or on the date of termination andif so, the consequences thereof;

(d) the plaintiffs complied with the September default notice and, if not, whether they were preventedfrom doing so by the defendants;

(e) the defendants repudiated the Olympic Contract by agreeing to sell the Lochel land to SmartInvestments.

8 The defendants' counterclaim against Olympic for damages for breach of the Olympic Contract. Theoutcome in the action determines the outcome in the counterclaim.

9 The defendants also claim against the third party, Mr Thorpe, for an indemnity and damages forbreach of contract, breach of fiduciary duty and negligence. The usual third party order was madegiving Mr Thorpe liberty to appear and take part in the trial of the action and to be bound by the result.



10 The action and counterclaim are to be decided primarily on the contemporaneous documents aboutwhich there is no dispute. It is to the facts established by the documents that I go to first which willfacilitate a better understanding of the issues and pleadings. It will be necessary in due course to go tothe pleadings because there is some dispute as to their scope.

The Action – Uncontradicted Facts

11 The Olympic Contract is dated 26 April 1996. It was not stamped until 6 August 1997. Althoughthe purchaser is noted as Olympic "and/or Nominee", there is no suggestion that Bondgate was entitledto be substituted as Olympic's nominee.

12 The Olympic Contract was not conditional on finance. However, it contained a number of specialconditions, three of which are relevant to this case. Firstly, the Olympic Contract was subject to thesatisfactory sale and settlement of the Mandurah land under the Mandurah Contract. Secondly, it wassubject to Olympic and its solicitors completing a due diligence "on the subject property and advisingthe Vendors of their complete satisfaction of the study within 14 days of acceptance of this offer".Thirdly, special condition 7 provided:

"The Purchasers acknowledge receipt of the signed copy of the Owners' Deed for stage 8dated 20/6/94 attached hereto and marked with the letter 'A'."

It is accepted that the Purchaser received a copy of the Owners Deed. This condition was drafted by thedefendants' real estate agent, Mr Domhoff who worked for Peter James Realty.

13 Under the Olympic Contract, settlement was to coincide with settlement of the sale of theMandurah land or be 30 days from completion of the due diligence, whichever was later. By letter dated14 May 1996 from Olympic to the defendants' settlement agent, Peter James Settlements, Olympicadvised that the due diligence condition of the Olympic Contract had been satisfied.

14 The Mandurah land was in effect a trade property. Under the Mandurah Contract the settlementdate was stated to be 14 days from the relevant strata plan being in order for dealing but it was subjectto special condition 4 which made the Mandurah Contract conditional upon the satisfactory sale andsettlement of the Lochel land under the Olympic Contract. The strata plan was in order for dealing as at28 June 1996.

15 The Owners Deed is dated 20 June 1994. The owners of the land the subject of the proposeddevelopment ("land owners") were parties to the Deed. The land owners included the defendants, G N& D T Grljusich, C Gumina and D C and P G Brenzi. Urban Focus was also a party to, and Managerunder, the Owners Deed. The recitals note that the land owners wished to rezone their land from ruralto residential so as to subdivide either the whole or portion of their land excluding (where appropriate)the area occupied by an existing residence referred to as the "house lot" which was to be retained by theland owners. That was the case for the defendants in relation to the Lochel land. They would retain ahouse lot and the balance of their land would be sold as part of a new subdivision for which they wereentitled to a specified proportion of the proceeds of sale of that land.

16 The land owners also had to execute a Deed of Trust authorising Urban Focus to undertake thedevelopment on their behalf including the rezoning, amalgamation and subdivision of lots and to sell ormortgage the land.

17 Clause 27 of the Owners Deed provides:

" ... the land owners agree to offer and make available and transfer to the Manager pursuantto the terms and provisions of the attached and duly executed Deed of Trust the total nettarea of their respective land areas to facilitate its consolidation for subsequent subdivisionand for mortgage security purposes."

18 Pursuant to cl 41 of the Owners Deed the defendants agreed not to sell their land without firstoffering it to the Steering Committee. The land owners for stage 8 of the development and the Manager



constitute the Steering Committee. Clause 41 materially provides:

" ... the landowners ... covenant and agree with the Manager not to sell their property orany portion thereof without first offering the land to the Steering Committee through theManager. In the event that the landowner is unable to reach agreement with the SteeringCommittee as to the purchase price of the subject land, the land owner shall then have theright to offer the land for sale on the open market on such terms and conditions as hethinks fit, but subject to the express condition that the person or company to whom thesubject land is sold, transferred ... or otherwise disposed of ... shall first be required to enterinto a Deed of Covenant or agreement to be prepared by the Manager or his nominee ...whereby the purchaser covenants with the Manager to observe perform and be bound bythe provisions of this DEED and attached DEED OF TRUST as if it were the owner hereindescribed."

19 Clause 43 deals with caveats. It materially provides:

"The Manager will be at liberty at any time during the term of the Project, to registeragainst each Owner's land ... an absolute caveat to protect and preserve its interest inagreements and covenants entered into with the landowners pursuant to the terms of thisDeed."

20 The difference between what was required by cl 41 of the Owners Deed and what was contained incl 7 of the Olympic Contract is apparent. In May 1996 Urban Focus obtained from the defendants asigned and registrable transfer of the Lochel land to Urban Focus. The transfer is dated 16 May 1996.At this stage it was unaware the defendants had sold the Lochel land to Olympic.

21 Sometime in May 1996 Mr Bacich requested Mr Domhoff to prepare the proposed BondgateContract and Amended Mandurah Contract. Mr James, the principal of Peter James Settlements, did soand provided them to Olympic under cover of a letter dated 17 June 1996 which materially provides:

"Enclosed please find new Contracts, which have been retyped as instructed, for sealingwhere indicated by your Company and returned to our office.

Once we have received the Transfer from your solicitors relating to the sale of [the Lochelland] we will present the Offer and the Transfer document to the Lochels for execution."

22 The only changes to the Olympic Contract are that Bondgate is the purchaser and the purchaseprice is reduced from $640,000 to $600,000. The only change to the Mandurah Contract is the reductionof the purchase price from $390,000 to $350,000. Notwithstanding the change to the purchase prices,the net amount to be paid to the defendants at settlement remained unchanged.

23 By late May 1996 Bondgate had secured finance in the sum of $350,000 (later increased to$450,000) for the purchase of the Lochel land. The mortgage was negotiated through finance brokersTerrace Councillors acting on behalf of the lenders. Preparations for settlement were proceeding.However, on 14 June 1996 Urban Focus' first caveat ("June Caveat") was lodged against the title to theLochel land. Urban Focus claimed an interest in that land under cls 41 and 43 of the Owners Deedreferring specifically to the defendants' obligation not to sell the land without requiring the purchaser toenter into a Deed of Covenant. It was an absolute caveat.

24 On or about 9 July 1996 the defendants, by their duly authorised agent Mr James of Peter JamesSettlements, instructed Mr Thorpe to act on behalf of the defendants in relation to the Olympic Contractand the Mandurah Contract. The settlement date under both contracts was 12 July 1996. Settlement hadnot taken place. On instructions, Mr Thorpe issued a default notice dated 16 July 1996. No reliance isplaced on this default notice in these proceedings.

25 After Urban Focus became aware of the Olympic Contract it dealt directly with Mr Bacich in anattempt to obtain an executed Deed of Covenant from the purchaser. Initially Urban Focus wasunsuccessful. However, by letter dated 11 July 1996 to Urban Focus, Bondgate advised that it was



prepared to enter into a Deed of Covenant as required by Urban Focus in return for the withdrawal ofthe June caveat. However, Urban Focus had a change of position as outlined in a letter dated 18 July1996 to Bondgate. Urban Focus referred to the transfer obtained from the defendants and continued:

" ... Hence in pursuing the matter with our solicitor, it would appear that due to the stagethe proposed subdivisional process has reached, that it will not be possible for you toactually register your acquisition ... on the Certificate of Title. Accordingly in that regard, itwould appear as though the Offer and Acceptance Contract you previously entered intowith the Lochels may not constitute the most appropriate form of contract in thecircumstances.

To register your proposed interest ... it would appear more appropriate that Bondgate ...enter into a Deed of Sale of Interest with the Lochels or alternatively, a Deed ofAssignment ... whereby for a stated consideration, they agree to sign over their interest inthe subdivisional proceeds that are derived from the land in whatever proportions have beenagreed."

26 Urban Focus' position constituted a significant setback. However, negotiations between Bondgateand Urban Focus continued.

27 Undercover of a letter dated 26 July 1996 the solicitors for Olympic and Bondgate, Mony deKerloy, forwarded to Mr Thorpe the signed original Bondgate Contract, amended Mandurah Contractand associated transfers of land. Mark de Kerloy and Kirsty Bennett of the firm acted for the plaintiffs.The letter of 26 July is in the following terms:

"Dear Sirs,

254 HAMILTON ROAD

1670 CARAVELY [SIC] WAY

We refer to your telephone conversation with Kirsty Bennett of this office on 26 July 1996.

We enclose original Contract and Transfer of Land in relation to 254 Hamilton RoadSpeerwood [sic], and 1670 Caravel Way Halls Head.

We are instructed by our client that finance has been arranged and that he will be in aposition to settle both properties on Tuesday, 30 August 1996.

We confirm that you will be forwarding to us the Deed of Covenant from Urban Focuswhich will be signed by our client in exchange for a withdrawal of caveat.

The only other outstanding issue appears to be the matter of some unfinished work inrespect of Lot 1670 Caravely [sic] Way. We are instructed that quotes for the carpet andfence have been obtained and out client will be provide [sic] these amounts to your clientsat settlement. Your clients will then be responsible for carrying out the relevant work. Ourclient is currently in the process of attending to the window treatments and this will becompleted either before settlement or shortly after.

Please let us know whether your clients will agree to the new contract on the basis that itmore adequately reflects the true value of the properties.

We look forward to your reply."

It is to be noted that the Mony de Kerloy letter does not state the name of their client (or clients) or theintending purchaser of the Lochel land although that was clear from the enclosed signed offer andtransfer. The solicitors requested Mr Thorpe to advise whether the defendants would agree to the newcontracts. Mr Thorpe responded in a letter dated 30 July 1996. After stating that Olympic had



committed a repudiatory breach of the Olympic Contract and foreshadowing its termination, the lastparagraph states:

"In respect of the re-drawn contracts we are instructed that our client will tender theexecuted new contracts and memoranda of transfer if your client will resolve its differenceswith Urban Focus and Coburg Nominees Pty Ltd. If they cannot be resolved then ourclients will rely upon the existing contracts."

28 In subsequent correspondence between and from the parties, they continued to state their views asto the parties' obligations under the Olympic Contract. On 31 July 1996 Urban Focus lodged a secondcaveat on the title to the Lochel land claiming an interest by virtue of cl 27 of the Owners Deed and cl 2of the Deed of Trust ("July Caveat"). It was also an absolute caveat.

29 Negotiations with Urban Focus continued. By about 21 August Bondgate and Urban Focus hadreached a mutually acceptable accommodation, the terms of which were recorded in a letter dated 23August 1996 from Bondgate to Urban Focus in the following terms:

"Bondgate Pty Ltd is prepared to enter into a Deed of Covenant assuming the obligations ofthe Lochels under the Owners' Deed made 20 June 1994 in relation to, inter alia, [theLochel land]. On the basis that the Owners' Deed is valid and subsisting and that all partieshave complied with their obligations thereunder as represented by you, Bondgate Pty Ltdundertakes to produce to you the Certificate of Title in relation to the property 30 days afterreceiving a request from you to do so to enable lodgement of an application for a newcertificate of title the subject of Diagram 90414 and further the company acknowledges thatany mortgage over the said land is capable of being discharged and replaced overBondgate's dwelling lot on the said land or alternatively that some other appropriatearrangement can be put in place in this regard.

On and after settlement, the company shall have its solicitors clarify with you the validityof the Owners' Deed."

30 A Deed of Covenant between Bondgate and Urban Focus was prepared but not executed. Theparties' obligations under that deed are directed at settlement, that is, Urban Focus withdrawing thecaveats to allow Bondgate to become the registered proprietor of the Lochel land. Settlementarrangements were being made. It then emerged that the lenders who had approved finance to Bondgateto purchase the Lochel land had concerns in connection with the Owners Deed. Bondgate was advisedin late August 1996 or early September that the lenders were unwilling to proceed. Mr Thorpe wasinformed.

31 The defendants then issued their September default notice. It was served on 13 September 1996.Bondgate had not obtained alternative finance. Olympic did not seek finance at any time after 30 July1996. On 26 September 1996 Olympic lodged a caveat on the title to the Lochel land claiming aninterest under the Olympic Contract.

32 In a letter dated 3 October 1996 to Mr Thorpe Mony de Kerloy stated, inter alia:

"Your client's were aware or should have been aware before entering into the contract ofsale that the Owners' Deed was at an end as a result of two parties being released from theDeed. It is now your client's responsibility to obtain that release and provide clear titlebefore settlement can proceed.

Clear title includes a release of your clients by Urban Focus from the Owners' Deed.

...

Unless your client can deliver clear title to the property our client will have no alternativebut to seek an order from the Supreme Court for specific performance of the contract."



33 This demand for clear title was said to flow from the termination of the Owners Deed, not from itsmere existence. In a letter dated 10 October 1996 to Mr Thorpe, Mony de Kerloy advised that theirclient was considering the option of purchasing the defendants' mortgage of the Lochel land. On 4October 1996 the defendants entered into the Smart Investments Contract to sell the Lochel land toSmart Investments. The purchase price of the Lochel land under that contract was $600,000. That dealalso involved trade properties. At the same time, the Lochels entered into two contracts to purchasefrom Smart Investments Lot 429 Daydream Plaza Seascapes ("Seascapes property") for $180,000 andLot 147 Owston Street, Banjup ("Banjup property") for $200,000, leaving the defendants with a netfigure of $220,000.

34 Clause 8 of the Smart Investments' Contract referred to the Olympic Contract. Once again, theclause was drafted by Mr Domhoff. It provided:

"If there is a delay in Settlement by the previous Purchaser refusing to remove his caveatthe vendor will not be liable for any cost or penalty caused by the delay."

35 The Smart Investments Contract was not made conditional on the termination of the earliercontract(s) and was entered into before any purported termination thereof.

36 By around 17 October 1996 Bondgate had received alternative finance approval to purchase theLochel land. By letter dated 21 October 1996 finance broker Gamel Ward instructed its solicitors, ClairsKeeley, to prepare the relevant mortgage. Clairs Keeley provided mortgage documents to Gamel Wardundercover of letter of 29 October 1996. On 22 October 1996 Kirsty Bennett of Mony de Kerloy had atelephone conversation with Mr Thorpe concerning proceeding to settlement. By letter dated 1November 1996 to Mr Thorpe forwarded by facsimile transmission, Mony de Kerloy wrote:

"Dear Sir

PURCHASE OF 254 HAMILTON ROAD SPEARWOOD

We note that there has been another caveat lodged over the property pursuant to an allegedcontract for the sale [of the Lochel land] between the Lochels as vendors and SmartInvestments Pty Ltd as purchasers.

We confirm that you have advised us that there are certain conditions on this contractwhich take into account Olympic's position.

Our client continues to be ready willing and able to settle on the above contract.

Please put your clients on notice that if they are not ready, willing and able to settle within24 hours or provide us with a specific date for settlement within the next (7) seven daysthen our client will be seeking specific performance of the contract and penalty interest.

Please let us know whether your client is in a position to settle on the above contract."

37 The Smart Investments caveat referred to in the letter was lodged at the Titles Office sometime inOctober 1996. In response to that letter, Mr Thorpe sent the termination notice. It states:

"We refer to your facsimile transmission of November 1 1996.

The content therein misrepresents your client's position as it had been stated to us overrecent weeks. In particular, we refer to your letter of October 10 1996 confirming theconversation wherein your Ms Bennett advised that your client was still unable to obtainfinance and was considering purchasing our client's mortgage with a view to bringingabout a partial settlement by reducing our client's on-going liabilities.

To the extent that it may be necessary, our client hereby terminates the contract as aconsequence of your client's failure to comply within time with either of the default notices



served upon it."

The Action – Whether Olympic Contract Conditional on Owners Deed

38 As the answer to this question has some indirect bearing on the other issues for determination inthis case, I will deal with it first. The defendants plead that it was a term of the Olympic Contract andthe Bondgate Contract that the plaintiffs, or either of them, would purchase the Lochel land "subject toand on the basis that the purchaser would assume the defendants' rights and obligations under theOwners' Deed". In the absence of a plea of an implied term it must be the case that the defendants relyon an express or inferred term (as the latter was explained by Deane J in Hawkins v Clayton (1988) 164CLR 539 at 570).

39 Messrs Bacich and Domhoff gave evidence (without objection) of pre contractual discussions andof their intentions and motives so far as the Owners Deed was concerned. Much of the evidence isirrelevant to the construction of the Olympic Contract and, in the absence of any other relevant plea(such as a representation based cause of action), was inadmissible. In the event of an ambiguity in awritten contract, extrinsic evidence of objective background facts is admissible but not of subjectiveintention. The classic statement of the law is that of Mason J in Codelfa Constructions Pty Ltd v StateRail Authority of New South Wales (1982) 149 CLR 332 at 337:

"The true rule is that evidence of surrounding circumstances is admissible to assist in theinterpretation of the contract if the language is ambiguous or susceptible of more than onemeaning. ... When the issue is which of two or more possible meanings is to be given to acontractual provision we look, not to the actual intentions, aspirations or expectations ofthe parties before or at the time of the contract, except insofar as they are expressed in thecontract, but to the objective framework of facts within which the contract came intoexistence, and to the parties' presumed intention in this setting."

40 Clause 7 of the Olympic and Bondgate Contracts does not in terms or effect make the contracts"conditional" as pleaded or at all. There is no relevant ambiguity on that point. The clause goes nofurther than the purchaser acknowledging receipt of the Owners Deed from which it can be inferred thatit was aware of the defendants' rights and obligations thereunder. However, an inference of knowledgefalls a long way short of supporting an inference that firstly, cl 7 imposed a condition precedent orsubsequent and secondly, that the purchaser agreed to assume the defendants' rights and obligationsunder the Owners Deed. It is a very large and unjustified leap from the language to construe cl 7 asmaking the contract conditional on the purchaser assuming the defendants' rights and obligations underthe Owners Deed.

41 Further, even on the construction contended for by the defendants, a direct contractual relationshipbetween the purchaser and Urban Focus would not result. Thus, even if the defendants' construction ofcl 7 was upheld, the defendants would still not have satisfied their obligations under the Owners Deedwhich requires the offer to be subject to the purchaser first entering into a Deed of Covenant with theManager so as to enable the Manager to enforce the purchaser's compliance with the Owners Deed.

42 In summary, I conclude that the Olympic (and Bondgate) Contract did not impose an obligation onthe purchaser to assume the defendants' rights and obligations under the Owners Deed or require thepurchaser to enter into a Deed of Covenant with Urban Focus. That has contractual consequences. TheGeneral Conditions apply so far as they are not varied by or inconsistent with the express terms,including cl 7. Under cl 2 of the General Conditions, subject to exceptions not relevant here, therelevant property is sold free from encumbrances. Encumbrance is defined to include a "right or interestof any third party affecting the property or any part thereof". However, under cl 2 of the GeneralConditions a purchaser has only a limited right to rescind in the event of a breach. It must be exercisednot later than five business days prior to the settlement date although the purchaser retains other rightsor remedies.

43 However, the plaintiffs did not contend at trial (or before) that Urban Focus' interest in the Lochelland pursuant to a valid Owners Deed would be a breach of cl 2 or a ground for refusing to settle. Iinfer that was because by mid July 1996 Bondgate had agreed to enter into a Deed of Covenant if Urban

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Focus removed the covenants. Perhaps if settlement had occurred before Urban Focus became aware ofthe sale and lodged its caveats, the plaintiffs may have sought to take advantage of the indefeasibilityprinciple in s 68 of the Transfer of Land Act 1893 (WA). However, prior to registration of a transfer tothe plaintiff or Urban Focus competing equitable interests were involved and the priority rules favouredUrban Focus.

The Bondgate Claims

44 The Bondgate plea in the statement of claim is in the following terms:

"3. On or before 30 July 1996 the Lochels made the following promises and/orrepresentations to Olympic and Bondgate.

(1) That subject to and at the time the condition set out at 3.2 was satisfied, the'Olympic Contract' and the Mandurah Contract would be cancelled and theBondgate Contract and the amended Mandurah Contract would be entered intoby the Lochels and tendered to Bondgate or to its solicitors to enable stampingthereof and settlement thereupon to take place;

(2) The promise was conditional upon Bondgate being able to settle oralternatively having finance to settle."

45 The pleaded particulars to support the claim are as follows:

(a) in May 1996 Mr James agreed to prepare the Bondgate Contract and the amended MandurahContract and transfers and provided the amended Mandurah contract and transfer to Mr Bacich;

(b) the new contracts and associated transfers were executed by the plaintiffs and sent to Mr Thorpe;

(c) the final paragraph of Mr Thorpe's letter of 30 July 1996;

(d) the defendants signed the contracts and transfers at some unspecified time;

(e) in telephone conversations between Kirsty Bennett and Mr Thorpe in August and October 1996 MrThorpe promised that, provided Bondgate could settle, the Lochels would tender the Bondgate Contract,the amended Mandurah Contract and the accompanying transfer to enable stamping and settlement totake place;

(f) in a telephone conversation between Mr Mark Mony de Kerloy and Mr Thorpe in August 1996 MrThorpe agreed to settle on the Bondgate Contract and the amended Mandurah Contract providedBondgate had the finance to settle.

46 The defendants deny the allegations of subsequent conduct in pars (e) and (f), otherwise do notadmit the plea and say that if the promises and representations were made, they were made only toOlympic and only in Mr Thorpe's letter of 30 July 1996 and were by implication conditional on the"defendants" (which in context can only be intended to mean the plaintiffs):

(a) resolving their differences with Urban Focus and Coburg Nominees; and

(b) being ready, willing and able to complete the purchase of the Lochel land

within a reasonable time. It can be inferred from the balance of their pleading that the defendantscontend that the plaintiffs were not ready, willing and able to complete the purchase within a reasonabletime.

47 I observed at the commencement of the trial that the pleadings in general did not identify in a clearand concise manner all of the matters in issue. In those circumstances, it is often more difficult topersuade a court that an issue does not arise on the pleadings. The parties had been ordered to file andserve a statement of issues before trial. However, the statements filed were of little assistance because

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of their high level of generality. As a result, the parties raised pleading issues in their closingsubmissions (which, because of time constraints, had to be made in writing).

48 In their closing submissions the plaintiffs relied on the Bondgate plea as a material fact in a claimfor breach of a collateral three way agreement ("Bondgate promise") and an estoppel. The third partycontended in closing that a three way or collateral contract was not pleaded or ventilated at trial. Theplaintiffs' use of the term "collateral" to describe the subsequent Bondgate promise may not be strictlycorrect (see Hoyts v Spencer [1919] HCA 64; (1919) 27 CLR 133) but nothing turns on the use of thislabel. As I understand the objection, it is to reliance on a contract claim at all. Ambiguity arises becauseof the overlap with the estoppel plea. However, the parties were content to proceed on the basis of thepleadings as they stood and must meet the claims reasonably arising therefrom. I am satisfied that theplaintiffs have (inelegantly) pleaded all of the material facts of a contractual cause of action in relationto the Bondgate plea. Paragraph 3 pleads a promise and consideration. The breach (pleaded in par 8) isto the effect that the defendants refused to honour the promise and settle with Bondgate and contractual(expectancy) damages are claimed.

49 It is also contended that the plaintiffs failed to plead all of the material facts of a Waltons v Maherestoppel (based on Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387). Thematerial elements of such an estoppel are (1) the plaintiff assumed or expected that a particular legalrelationship exists or will exist; (2) the defendant has induced the plaintiff to adopt that assumption orexpectation; (3) the plaintiff acts or abstains from acting in reliance on that assumption or expectation;(4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasiondetriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act toavoid that detriment whether by fulfilling the assumption or expectation or otherwise: Waltons v Maher(supra) at 428 - 429 per Brennan J. The plaintiffs have pleaded a promise or representation by thedefendants relating to future legal relationships (par 3), reliance on the promise/representation anddetriment (par 6). The pleaded reliance and detriment is that Bondgate put itself into a position to settlein accordance with the promise and representations and that Olympic did not seek to stamp or tenderconsideration in accordance with the Olympic Contract. The attack on the pleading is that the plaintiffsdo not expressly plead that to resile from the promises and representations is unconscionable or claimequitable relief. Those omissions do not render the plea defective. A party is only required to plead thematerial facts. The unconscionability arises from proof of the material elements set out earlier,including the plea of reliance and detriment.

50 Although the plaintiffs do not expressly plead that the defendants are estopped from denying theBondgate promise it is sufficiently clear that the plaintiffs rely on the estoppel for the effectiveenforcement of the Bondgate promise and seek contractual damages. Even if the estoppel plea isdefective, I am persuaded the parties were not taken by surprise or prejudiced and I would grant leaveto amend.

Bondgate Promise Claim

51 The contemporaneous documents support the findings (which I make) that:

(a) at Mr Bacich's request, Mr James prepared the new contracts (Bondgate Contract and amendedMandurah Contract) and forwarded them to Olympic under cover of letter dated 17 June 1996;

(b) the purchasers under the Bondgate Contract and the amended Mandurah Contract executed them aswell as the relevant transfers which were then forwarded by Money de Kerloy to Mr Thorpe undercover of a letter dated 26 July 1996;

(c) at some unspecified date but before termination, the defendants executed the new contracts.

52 Particulars (e) and (f) relate to conduct after 30 July 1996. There is a divergence of authority as towhether evidence of subsequent conduct of the parties is inadmissible on the question of the meaning ofwords used in a contract. In particular, there is conflicting dicta in High Court judgments on thisquestion (see Codelfa Construction Pty Ltd v State Rail Authority of NSW (supra) at 348; SinclairScott & Co v Naughton [1929] HCA 34; (1929) 43 CLR 310 at 327). The evidence would be

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inadmissible if it added to or otherwise varied what was earlier agreed, there being no plea of acontractual variation. However the evidence is admissible on the estoppel plea.

53 Kirsty Bennett gave evidence that on 5 September 1996 she spoke to Mr Thorpe who advised herthat the Bondgate Contract and the amended Mandurah Contract (together referred to as "BondgateContracts") would not come into existence until all problems had been sorted out – this being said inthe context of being told that Bondgate's financiers were likely to withdraw. This evidence was borneout by a contemporaneous file note made by Ms Bennett and is generally supported by Mr Thorpe'sevidence in cross-examination of what he said was "implicit" in the final paragraph of his letter.According to Ms Bennett Mr Thorpe also said that he could make the contracts available within 24hours. Mr Thorpe agrees he said this. I accept Ms Bennett's evidence on these matters. There is noevidence to support particular (f).

54 I turn now to whether the plaintiffs have established a contractual promise and, if so, betweenwhom. The central plank of the plaintiffs' claim is essentially the last paragraph of Mr Thorpe's letter of30 July 1996. Having regard to the commercial setting in which Mr Thorpe's statement is made, theterms of the statement and the consideration apparent therefrom, a reasonable person would concludethat Mr Thorpe's statement in the final paragraph of his letter of 30 July 1996 was a contractual promise(the "Bondgate promise").

55 The construction of that promise is a more difficult matter. It is in short form which gives rise toambiguities all of which need to be resolved against the objective background circumstances. By 30July 1996 the contractual time for settlement under the Olympic Contract had passed. The defendantswere unable to settle because Urban Focus had lodged an absolute caveat on the title based on theassertion that the defendants had sold the Lochel land in breach of cl 41 of the Owners Deed (whichclause requires that the land first be offered to the Steering Committee and if to be sold to a third party,the offer to sell be subject to the purchaser first entering into a Deed of Covenant). Further, thedefendants had, without reference to anyone, signed a transfer of the Lochel land to Urban Focus inMay 1996. As at 18 June 1996 Urban Focus' position was that it was inappropriate to transfer theLochel land to Olympic under the Olympic Contract because the Lochels had in effect sold a lesserinterest. Urban Focus subsequently retreated from that position. Mr Thorpe became involved indiscussions with Urban Focus and their solicitors and Mr Thorpe advised Mony de Kerloy that UrbanFocus would be content with a Deed of Covenant and a signed transfer of land from the purchaser.Mony de Kerloy advised Mr Thorpe that his clients would not sign a transfer.

56 By 26 July 1996 Urban Focus' position had changed again. In a letter of that date from UrbanFocus' solicitors to Mr Thorpe it was asserted that the defendants had breached cl 41 of the Owners'Deed because they had not first offered the Lochel land for sale to the Steering Committee. Thesolicitors then identified the conditions on which the Urban Focus June caveat would be withdrawnwhich were that the purchaser was required to sign a Deed of Covenant and a transfer and deliver upthe certificate of title. Further, Urban Focus required the defendants to consent to the temporaryexclusion from the development of the land belonging to the Grljusich, Gumina and Brenzi families. Ina subsequent letter Urban Focus made it clear that the exclusion of the land of these three families wasnot to be temporary.

57 Mr Thorpe under cover of his letter of 30 July 1996 provided Mony de Kerloy with a copy of theUrban Focus letter of 26 July 1996. Mr Thorpe asserted that there was no merit in the allegation that hisclients had breached cl 41 in the way suggested and that the purchaser was required to execute a Deedof Covenant and a transfer. He continued:

"If your client wishes to negotiate a different arrangement with Urban Focus and CoburgNominees Pty Ltd then it should do that direct. As the matter currently stands your client'sconduct in refusing to execute a transfer amounts to a repudiation of its obligations underthe contract which repudiation our client does not at this stage accept. However, unless thematter can be satisfactorily resolved by midday on Friday with settlement to be effectedthat afternoon we are instructed that our clients will at that time accept your client'srepudiation and terminate the contract.



In respect of the re-drawn contracts we are instructed that our client will tender theexecuted new contracts and memoranda of transfer if your client will resolve its differenceswith Urban Focus and Coburg Nominees Pty Ltd. If they cannot be resolved then ourclients will rely upon the existing contracts."

58 Having regard to the stance taken by Urban Focus in its letter of 26 July 1996 there was noreasonable basis for Mr Thorpe's assertion that there had been a repudiation of the Olympic Contract.

59 The known facts were clear. The defendants had signed a transfer of the Lochel land to UrbanFocus. Unless and until the Urban Focus caveat was removed, settlement could not take place. UrbanFocus were demanding consent to the exclusion of three parcels of land from the development thesubject of the Owners Deed. On any view, the impediments to settling were not wholly (and based onmy findings, not even partly) a result of any breach by Olympic of its express or implied obligationsunder the Olympic Contract. Indeed, it was Mr Thorpe's evidence, which I accept, that he had formedthe view that Olympic was not in breach and the defendants were unable to terminate the OlympicContract at the expiration of the notice period in the July default notice. However, the defendants' statedposition was that Olympic was legally at fault, the defendants would tender the new contracts if thedifferences with Urban Focus were resolved, otherwise the defendants would rely on the OlympicContract as it stood.

60 It is in that factual context that Mony de Kerloy made the request for substitution of the contractsand Mr Thorpe, on instructions, provided a response. The Bondgate promise is to be construed againstthat background, and it is to that task I now turn.

61 Firstly, it is implicit in the request and the response that the Olympic Contract and MandurahContract ("original contracts") would be cancelled by the parties if and when the defendants acceptedthe new contracts. Secondly, Mr Thorpe's statement that "our client [which should obviously be areference to his clients] will tender the executed new contracts" is to be interpreted as the tenderconstituting contractual acceptance of the new contracts which would effect automatic cancellation ofthe original contracts. It is not suggested the defendants had communicated to the plaintiffs or theirsolicitors that the offer and acceptance documents had been signed by them which would haveconstituted acceptance under the standard form documents used.

62 Thirdly, on my reading of the final paragraph of Mr Thorpe's letter the defendants are obliged totender (accept) the new contracts and provide the signed transfers if certain conditions are satisfied. Inparticular, the obligation to tender (accept) the new contracts is conditional upon "your client" resolvingits differences with Urban Focus and Coburg Nominees. In context, that must mean that it had toresolve with Urban Focus the impediments standing in the way of settlement, which, in substancerequired that Urban Focus agree to remove its caveat(s) at settlement. The impediments were the samewhether under the old or new contracts, they being in relevantly the same terms. However, it isnecessary to determine on whom the obligation is imposed and the related question of the parties to theBondgate promise. The evidence establishes and I find that up to 30 July 1996:

(a) Mony de Kerloy acted for both Olympic and Bondgate;

(b) the defendants by their agents Messrs Dumhoff, James and Thorpe were aware by late May andearly July 1996 (respectively) of the proposal to replace the old contracts with the new contracts;

(c) the defendants had no objection in principle to the substitution;

(d) Urban Focus was negotiating with Bondgate for the removal of the June caveat;

(e) Mr Thorpe was aware of (d) from the Urban Focus letter to Bondgate of 18 July 1996 which wascopied to him and the letter dated 26 July 1996 from Urban Focus' solicitors to Mr Thorpe;

(f) in context, the reference to finance being arranged and being ready to settle in the letter dated 26July 1996 from Mony de Kerloy to Mr Thorpe enclosing the new contracts is a reference to Bondgatehaving finance and being in a position to settle.



From these facts I infer that the Bondgate promise was made to Olympic and Bondgate and that theconditions were to be satisfied by, or for the benefit of, Bondgate to allow it to settle.

63 It was suggested in closing that the defendants' obligation to tender (accept) the new contracts onlyarose at settlement and that unless and until settlement occurred, the Olympic Contract was the onlyrelevant contract in existence and to be performed. In my view, that construction is commerciallyunreasonable and untenable. It was clearly contemplated that, on satisfaction of the relevant conditions,Bondgate not Olympic would purchase the Lochel land. Settlement could not occur until the newcontracts had been signed, accepted and stamped. Under the General Conditions the purchaser isresponsible for presenting a signed stamped transfer to the vendor and to pay the stamp duty on thecontract (cl 4(1) and 4(2)). Further, it cannot have reasonably been expected that both Olympic andBondgate would concurrently make themselves ready, willing and able to settle when it was clearlycontemplated that the purchaser (if any) was to be Bondgate. Although Mr Thorpe's understanding isnot relevant to the construction issue, I note for completeness that I am not persuaded Mr Thorpeunderstood that the new contracts were to be substituted for the Olympic Contract at settlement.

64 Unfettered by the parties' formulation and conduct of their cases, it could be argued that thedefendants' obligations arose once the Urban Focus impediments to settlement had been resolved inwhich case the following analysis might apply. Upon tender of the new contracts the Olympic Contractand Mandurah Contract would be cancelled. As the contractual time for settlement under the newcontracts had passed, the new contracts should be settled within a reasonable time and when that periodhad elapsed, a notice of default could be issued with failure to settle within the notice period giving riseto a right to terminate. However, that construction was not argued for by any party and not addressed insubmissions.

65 The plaintiffs contend that the promise was conditional upon Bondgate being able to settle oralternatively having the finance to settle. In essence, the claim is that upon that eventuality (at any eventbefore termination of the Olympic Contract) the defendants' obligation to tender the new contracts andsettle with Bondgate was activated. Once again the plaintiffs' pleading (par 8) is not as clear as it mightbe. It simply says the defendants refused to honour the Bondgate promise and settle with Bondgate.Although the intermediate step of tender/acceptance is omitted that is implicit in the pleading of theBondgate promise.

66 The defendants' alternative formulation of the condition is that Bondgate must be ready, willingand able to complete the purchase of the Lochel land before the defendants' obligations arise. In thecommercial context and circumstances in which the parties found themselves at the end of July 1996 Iam persuaded that the defendants' formulation is apt subject to one qualification. This condition had tobe satisfied before the new contracts would come into effect. In that circumstance it is appropriate toignore matters which can only reasonably be attended to after the new contracts become binding. Intothis category falls the stamping of the new contracts and associated transfers, fixing a settlement dateand related administrative matters.

67 The final question is whether the relevant conditions activating the defendants' obligations namelyresolving the Urban Focus impediments and Bondgate being relevantly ready, willing and able to settle(hereafter referred to as the "Bondgate conditions") had to occur within a reasonable time. The plaintiffsin their pleading put no time limit for the fulfilment of the Bondgate conditions. On one view that maybe intended to mean they could be fulfilled at any time. That cannot be so. It is clear that, on a properconstruction, the Bondgate conditions had to be satisfied at some stage before the Olympic Contractwas validly terminated for breach or otherwise. The defendants intended to retain their rights under theOlympic Contract, including their right, if any, to terminate it for breach, unless and until the Bondgateconditions were satisfied. It follows that a valid termination of the Olympic Contract would alsoterminate the Bondgate promise. In such circumstances there is no basis to infer that it was a term (orcondition precedent) of the Bondgate promise that the Bondgate conditions be satisfied within areasonable time. If the Bondgate conditions were satisfied before the Olympic Contract and thus theBondgate promise were terminated, the defendants' obligation to accept and then perform its obligationsunder the new contracts would arise for performance.



68 I have reached these conclusions as to the proper construction of the Bondgate promise withoutreference to the proven subsequent conduct relied on. However, the result would be the same if I hadhad regard to that material.

Whether Bondgate Conditions Satisfied

69 The plaintiffs plead (in par 7) that as and from 29 October 1996 Bondgate was in a position toeffect settlement on the Bondgate Contract and "to the extent that it was necessary to, if any, rectifiedthe default complained of in the [September default notice] and thereafter required the [defendants'] tohonour the promise and representations made". The defendants deny the plea.

70 I deal firstly with the assertion that the plaintiffs had rectified the default complained of. TheSeptember default notice was issued under cl 18 of the General Conditions. That clause materiallyprovides:

"(1) Except as otherwise specifically provided in these Conditions:-

(a) ...

(b) neither the Vendor nor the Purchaser is entitled to terminate the contract onthe ground of the other's default in performing or observing any obligationimposed on that other party under the contract; unless

(i) the party not in default has first given to the party in defaultnotice in writing specifying the default complained of, whichnotice must require that the default be remedied within the periodstipulated in the notice; and

(ii) the party in default fails to remedy the default within the periodstipulated in that notice."

71 The notice period must not be less than 14 days. However, cl 18 does not apply where either partyrepudiates the contract. Clause 19 of the General Conditions materially provides:

"(1) If the Purchaser is in default in performing or observing any obligation imposed on thePurchaser under the contract or if the Purchase repudiates the contract, then the Vendor inaddition to any other rights or remedies under the contract or otherwise, may:-

(a) ...

(b) ...

(c) ...

(d) subject to condition 18 and if the notice given pursuant to condition 18states that unless the relevant default is remedied within the time specified inthe notice, the contract will or may be terminated, terminate the contract ... "

72 The purported breach specified in the September notice was Olympic's failure to settle on thecontractual date (mid July) or any other date. The September default notice required that Olympic effectsettlement within 15 days. The evidence is clear. Olympic did not effect settlement under the OlympicContract within the notice period or at all.

73 However, it would not be obliged to do so if the Bondgate conditions had been satisfied and theBondgate promise performed prior to termination. Once the Bondgate conditions had been satisfied thedefendants were obliged to tender (and thereby accept) the new contracts, at which time the oldcontracts would be automatically cancelled. Thus, provided the Bondgate conditions were satisfiedbefore termination the new contracts would be in operation and the old contracts cancelled.



74 It is common cause that the new contracts were not tendered (or accepted) and did not come intoeffect. However, it is a fundamental presumption of Australian law that a party to a contract cannot takeadvantage of his own wrong: Commissioner for Main Roads v Reed-Stewart Pty Ltd [1974] HCA 53;(1974) 131 CLR 378; Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 441.Accordingly, if the Bondgate conditions were satisfied and the defendants were under an obligation totender the new contracts (thereby effecting a termination of the old contracts) before the OlympicContract was terminated on 4 November 1996 the defendants could not take advantage of theirwrongful conduct and validly terminate the Olympic Contract for breach. An alternative analysisproducing the same outcome is that the plaintiffs' expectancy (or indeed reliance) loss is assessed on thebasis that the Olympic Contract would have been cancelled before validly terminated.

75 The next issue is whether the Bondgate conditions were satisfied before 4 November 1996. It wasnot in dispute that Bondgate and Urban Finance had resolved all impediments to settlement. That is,Urban Focus had agreed to provide withdrawals of caveat at settlement on the terms set out inBondgate's August letter. Ms Bennett gave uncontradicted evidence that Urban Focus' solicitors hadprepared withdrawals of caveat and that Bondgate's August letter and an executed Deed of Covenantwere to be exchanged at settlement. I am satisfied that the differences with Urban Focus had beenresolved by agreement by 21 August 1996 and that the relevant Bondgate condition was satisfied.

76 I am also satisfied that Bondgate had finance in place to pay the moneys payable to the defendantsat settlement of the Bondgate Contract. Although there was no evidence the mortgages were signed,they had been prepared by the broker's solicitors and returned to the broker. I infer from the evidence ofMr Bacich and Mr Ward, the lender's broker, that execution of the mortgage was a mere formality. MsBennett gave evidence of what else remained to be done by Bondgate for settlement to occur. Herevidence was not materially contradicted by Mr Thorpe. I find the only other outstanding matters werestamping the documents after they had been received from Mr Thorpe, arranging the settlement date,preparing updated settlement statements and arranging for representatives of Urban Focus and theBondgate mortgagees to attend at settlement. In these circumstances I find that Bondgate was relevantlyready willing and able to settle.

77 The defendants and third party placed great reliance upon Mony de Kerloy's letter dated 3 October1996 which it was said was not withdrawn and which indicated an unwillingness to settle and mayconstitute a repudiatory breach. The repudiation claim forms no part of the pleadings and I say nothingabout it. The letter demands that the defendants provide clear title at settlement. Based on the advice inthe letter that "our client has lodged a caveat", I infer that the Mony de Kerloy client referred to isOlympic. Indeed having regard to the Bondgate condition that the Urban Focus differences be resolvedit would not have been written on behalf of Bondgate. In my view, the clear title demand by Olympicdoes not affect or reflect on Bondgate's willingness to perform the Bondgate promise or to settle underthe Bondgate Contract. The same applies to earlier correspondence from Mony de Kerloy in a similarvein. Unless and until the Bondgate conditions were satisfied Olympic was seeking to protect itsposition under the Olympic Contract. Further, having regard to the construction of the Bondgatepromise, the fact that Olympic was at no material time ready, willing or able to settle before thetermination of the Olympic Contract is of no consequence.

78 Mony de Kerloy's 3 October letter may be described as strategic positioning to protect Olympic'sposition. The September default notice had issued. The notice period had expired and neither Olympicnor Bondgate could settle. Bondgate's original financiers had pulled out because of dissatisfaction withthe Urban Focus situation. Bondgate was not relevantly ready, willing and able to settle because thefinanciers had withdrawn and new financiers had not been found. Bondgate could not satisfy theBondgate conditions, in which case there was a risk the Olympic Contract would be terminated forbreach and with it the Bondgate promise.

79 However, Bondgate obtained alternative finance approval on 17 October 1996. Ms Bennett and MrThorpe had a telephone conversation on 22 October 1996. Ms Bennett's evidence, supported by acontemporaneous file note and not materially contradicted by Mr Thorpe, was that she informed MrThorpe that Bondgate had new financiers and would be in a position to settle presently. She asked himwhether there were any outstanding issues to be resolved in relation to the Mandurah property and he







responded that all issues were resolved the last time settlement was proposed. She asked him whetherhe would like to have a meeting to resolve any outstanding issues before settlement was set down andhe stated his view that if a meeting was necessary he would be happy to attend but he could not see anyoutstanding issues and did not know of any issues that needed to be resolved. Mr Thorpe told MsBennett that it was just a matter of handing over the Bondgate Contracts and transfers and effectingsettlement and asked her to write confirming that her client was ready to settle and list any outstandingissues.

80 It was Mr Thorpe's evidence-in-chief that his impression of the letter of 3 October 1996 was thatthe claim for clear title was being raised as a red herring to justify Olympic's continuing delay. It wasalso his evidence that at no stage did Ms Bennett or Mony de Kerloy resile from the propositioncontained in the letter. However, I am satisfied that a reasonable person in Mr Thorpe's position wouldunderstand that the clear title demand was made by Olympic and did not impair or otherwise affectBondgate's willingness to perform the Bondgate promise and Bondgate Contract.

81 In light of my finding that Olympic's clear title demand does not affect Bondgate's position, it isunnecessary to determine whether the demand was lawful. In any event, the evidence (as distinct fromallegation and counter allegation by solicitors) on that question is incomplete. For example, it is unclearwhen the parties were released, who consented to the release, whether any breach had been waived oran election not to terminate made and when Mr Bacich became aware of relevant matters. This was aside issue to which the parties gave scant attention.

82 Finally, Mr Thorpe's evidence was that he construed the Mony de Kerloy letter of 1 December1996 as containing factually untenable statements, namely that Olympic was ready, willing and able tosettle when it had not stamped the Olympic Contract and indicated that Olympic had no intention ofsettling. It is the case that the letter is largely silent on the identity of the client on whose behalf they arewriting or which client is ready, willing and able to settle. I accept that Olympic was not ready, willingand able to settle. However, the issue is whether Bondgate was relevantly ready, willing and able tosettle. Although the plaintiffs (by their solicitors) did not at any stage before the Bondgate plea wasincluded in the statement of claim clearly articulate the legal framework in which to place, or theconsequences of, the assertions in their letter of 1 December 1996, I do not regard that as legallysignificant on the pleadings as they stand.

83 For the reasons given, I am satisfied that Bondgate was relevantly ready, willing and able toproceed to settlement by 29 October 1996 and that both Bondgate conditions were satisfied by that date.

Whether Bondgate Promise Breached

84 The plaintiffs plead (par 8) that notwithstanding the Bondgate conditions had been satisfied thedefendants refused to "honour the promise and representations made and to settle with Bondgate". I findthat to be the case. The defendants failed to perform the Bondgate promise and on 4 November 1996the defendants purported to terminate the Olympic Contract. The plaintiffs also plead (par 10) that thepurported termination and the failure to perform the Bondgate promise amounted to a repudiation of theOlympic Contract and the Bondgate promise respectively. I find that to be so.

85 They claim that as a consequence of the defendants' failure to comply with the Bondgate promiseand by virtue of the repudiation of the Olympic Contract and the Bondgate promise, the plaintiffs havesuffered loss and damage as particularised. I will deal with the question of damages later.

Estoppel Claim

86 The scope of the promise, whether in contract or estoppel, is the same. I have already addressedthat issue. The defendants, by their duly authorised agent, made the Bondgate promise and, I infer fromthe surrounding circumstances, intended the plaintiffs to act on that promise. The remaining issues arewhether reliance and detriment are proven. Mr Bacich and Ms Bennett of Mony de Kerloy gaveevidence for the plaintiffs. Neither expressly addressed the issues of reliance and detriment by Bondgateor Olympic. However, direct evidence of reliance is not necessary as it can be proven by inference:Hanave Pty Ltd v LFOT Pty Ltd [1999] FCR 357; Dominelli Ford (Hurtsville) Pty Ltd v Karnot Auto

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Spares Pty Ltd [1992] FCA 550; (1992) 38 FCR 471. Dealing first with Bondgate. Thecontemporaneous documentary evidence clearly establishes, and I find, that it was Bondgate who tookthe necessary steps to resolve the Urban Focus impediments to settlement and otherwise prepared forsettlement. That included applying for and obtaining finance from third parties and incurring expensesin that regard. The inference is open that Bondgate acted in these ways in reliance on the Bondgatepromise. The corollary of Bondgate's role is, and the evidence establishes, that Olympic did not takesteps to prepare for settlement such as to obtain finance or to stamp the Olympic Contract even whenthe September default notice was issued. It took no steps while Bondgate was attempting to satisfy theconditions which would bring about the cancellation of the old contracts and the coming into operationof the Bondgate Contracts. It is open to infer that Olympic acted, or more correctly refrained fromacting, in reliance on the Bondgate promise and in doing so it lost the opportunity to seek to complywith the September default notice.

87 On the basis of the contemporaneous documentary evidence and in the absence of any evidence inrebuttal, I draw the inferences and find that both Olympic and Bondgate assumed or expected that thedefendants would act on the Bondgate promise and as a result relied on the Bondgate promise to theirdetriment. I also find that by virtue of such reliance and detriment, it was and remains unconscionablefor the defendants to resile from or deny the Bondgate promise.

Whether Defendants Ready, Willing and Able to Settle or in Default

88 The plaintiffs also claim (in par 4A) that the September notice of default was issued incircumstances where the defendants were themselves not ready, willing and able to settle or were indefault of their contractual obligations under the Olympic Contract and the Bondgate Contract. Insupport of that claim the plaintiffs rely on the following pleaded particulars:

(a) The defendants failed to obtain the consent of the Steering Committee under clause 41of the Owners' Deed, alternatively Urban Focus alleged that the defendants failed to obtainconsent;

(b) the defendants signed a transfer of the Lochel land to Urban Focus;

(c) Urban Focus lodged two caveats which had not been removed;

(d) the defendants' actions and caveats made it impossible for them to deliver title to theLochel land and amounted to a repudiation by the defendants.

89 The plaintiffs then claim (par 4B) that as a direct consequence of the matters in pars (a) to (c)"Bondgate was unable to carry out its obligations under the Bondgate Contract until 29 October 1997".Again the plaintiffs' pleading is unhappily drafted. However, in context it can only mean that Bondgatecould not satisfy the second of the Bondgate conditions (ie, that Bondgate be relevantly ready, willingand able to settle the Bondgate Contract) until the specified date. In support of that plea, the plaintiffsrely on Urban Focus' various changes of position prior to the agreement reached between Bondgate andUrban Focus in August 1996. However, the central plank of the plea is that the investors who hadinitially agreed to advance money to Bondgate to enable it to settle were unwilling to proceed in lightof developments since the initial approval.

90 By the end of trial it was accepted (and I find) that the defendants had obtained the consent of theSteering Committee although Urban Focus had claimed to the contrary in their letter of 26 July 1996.The facts in (b) and (c) are also established by the evidence. In substance, the defendants' defence to theclaim was that:

(a) the Olympic Contract and Bondgate Contract were subject to the purchaser assuming thedefendants' rights and obligations under the Owners Deed, a proposition I have already rejected;

(b) the Urban Focus caveats were not lodged for any reason attributable to the defendants' breach but byreason of the plaintiffs' conduct (a claim centrally linked with (a));

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(c) the defendants' obligation to deliver title was subject to the defendants' ability to do so by reason oftheir compliance with the terms of the Owners Deed and that if they were obliged to deliver title theywere prevented from doing so by reason of the matters in (b);

(d) by 15 August 1996 the plaintiffs and Urban Focus had resolved all of the matters that wouldotherwise have prevented the defendants from being ready, willing and able to settle.

91 For the reasons already given, there is no substance to the defences in pars (a) – (c). Two issuesremain. Firstly, a question of principle. Can a defaulting party or a party who is not ready, willing andable to settle give a valid default notice and then terminate. Secondly, whether the fact that Bondgatehad resolved the Urban Focus impediments to settlement affected Olympic's position.

92 The first question involves the construction of cl 18(1)(b) of the General Conditions. That requiresthe "party not in default" to give the "party in default" notice in writing specifying the default. On oneview, that language may simply identify and differentiate the person giving and the person receiving thenotice rather than requiring that the party giving the notice not be in default itself at the time. It isappropriate to consider the construction of that clause against the backdrop of the common law. Atcommon law a party who is unwilling or unable to perform a contract is not entitled to terminate thecontract for breach by the other party: The King v Poggioli [1923] HCA 11; (1923) 32 CLR 222;Foran v Wight [1989] HCA 51; (1989) 168 CLR 385.

93 However, a party in breach may have the right to terminate provided the breach is not repudiatoryor of an essential term: Roadshow Entertainment Pty Ltd v CEL Home Video Pty Ltd [1997] NSWSC473; (1997) 42 NSWLR 462 at 479 – 480.

94 Where a contract provides for the concurrent performance of obligations (such as to settle thepurchase of land), tender or performance by the party proposing to terminate is generally a prerequisiteof termination. Even where tender of performance is not required the terminating party must howeverbe ready willing and able to perform at the time of termination or, if a notice is a prerequisite totermination, then at the time for performance specified in the notice but not as at the date of issue of thenotice: Foran v Wight (supra); McNally v Waitzer (1981) 1 NSWLR 294.

95 In my view, these common law principles continue to apply to the Olympic Contract and thoseprinciples are unaffected by cl 18(1)(b) of the General Conditions which goes no further thanidentifying the giver and recipient of a notice.

96 Thus, insofar as the pleading suggests the defendants had to be ready, willing and able to settle asat the date of issue of the September default notice, that is an incorrect statement of principle. Thedefendants must be ready, willing and able to settle at the due date for performance: McNally v Waitzer(supra). Having regard to the terms of the September default notice, that means prior to the expirationof the notice period, being at the end of September 1996.

97 For the reasons previously given, the plaintiffs were not legally responsible for all of the mattersthat caused Urban Focus to lodge and maintain the June and July caveats. The defendants had toprovide title to the Lochel property to Olympic at settlement and unless Urban Focus was willing toremove the caveats to allow settlement to proceed, the defendants could not perform their contractualobligations. I infer from the documentary evidence that Urban Focus would not voluntarily remove thecaveats unless and until it had reached a satisfactory accommodation with the new purchaser.

98 It is the case that by August 1996 Bondgate and Urban Focus had resolved the impediments tosettlement of the Bondgate Contract. The defendants rely on that to establish that they would have beenin a position to settle the Olympic Contract. The resolution of the disputes with Urban Focus was acondition which had to be satisfied to activate the defendants' obligation to tender (and accept) theBondgate Contracts. It was in that context that negotiations were carried out and a resolution reachedbetween Bondgate and Urban Focus. There is no evidence that Olympic had reached agreement withUrban Focus. Having regard to the association between Bondgate and Olympic it may have been asimple matter for Olympic to reach a similar agreement with Urban Focus. But it seems it did not. Inany event, the condition relating to Urban Focus was not an independent obligation the performance of





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which the defendants could take advantage of in another context. Further, it did not effect a variation tothe Olympic Contract redistributing responsibility to Olympic to ensure the defendants could delivertitle at settlement. Based on those findings I am satisfied that the defendants were not ready, willing andable to transfer title to the Lochel land to Olympic on or before the expiration of the notice period underthe September default notice or before termination.

99 The plea in par 4B is that the defendants by their wrongful conduct prevented Bondgate frombeing able to carry out its obligations under the Bondgate Contract until 29 October 1997. As statedearlier the pleader must have intended a claim to the effect that the defendants' conduct preventedBondgate from being able to satisfy the Bondgate conditions until late October 1997. I proceed on thatbasis.

100 To prove this part of its case the plaintiffs must establish a causal nexus between the defendants'conduct complained of and the delay in Bondgate being in a position to settle, in particular, the delaybetween Bondgate's August 1996 agreement with Urban Focus and late October 1996. Acceptingwithout deciding that the withdrawal of finance approval could theoretically be a relevant causativefactor notwithstanding that both the Olympic Contract and Bondgate Contract were cash offers, thereasons for the investors withdrawing loan approval are unclear. On one view of the evidence, theirswas a belated awakening to the implications and ramifications of the Owners Deed and Bondgate'sintention to purchase the Lochel land subject to Urban Focus' interest. Responsibility for those matterscannot be attributed to the defendants' pleaded conduct. Although the pleaded matters relied onnecessitated the Urban Focus agreement and the financiers withdrew after Bondgate had resolvedmatters with Urban Focus, I am not persuaded that the terms of that arrangement was the source of thefinanciers concern. In summary, I am not persuaded that the matters relied on by the plaintiffs causedthe initial investors to get cold feet and withdraw finance approval.

Sale to Smart Investments

101 The plaintiffs also claim that the defendants repudiated the Olympic Contract and the Bondgatepromise by selling the Lochel land to Smart Investments. As stated earlier, the Smart InvestmentsContract was not conditional on the valid termination of the Olympic Contract (or the Bondgatepromise). Mr Domhoff gave evidence concerning this matter. By 4 October 1996 he believed that theOlympic Contract had been terminated. The Offer and Acceptance which became the SmartInvestments Contract was prepared by Mr James on 4 October 1996. Mr Domhoff was aware thatOlympic had caveated the Lochel land and there could be delays in effecting settlement and for thatreason he inserted the handwritten Special Condition 8.

102 Mr Steven Zielinski, a director of Smart Investments, also gave evidence. His recollection ofevents was different. He said Mr Domhoff told him that the Lochel land was subject to an existing offerfrom Olympic, that settlement was long overdue and it was doubtful that it would be able to settle and itwould only be possible for Smart to buy the land if the existing contract with Olympic was terminated.He (wrongly) understood Special Condition 8 to mean that the defendants were not obliged to sell theland to Smart Investments whilst the Olympic Contract remained on foot. He also said it wasunderstood between himself and Mr Domhoff that Smart Investments would not proceed with itscontract if the Lochels were able to complete the original sale to Olympic. However, Mr Zielinski wasnot asked and did not say that Smart Investments would have removed its caveat and permittedsettlement to proceed at any time before the defendants purported to terminate the Olympic Contract on4 November 1996. Indeed, by letter of 1 November 1996 to Smart Investments' lawyers Kott Gunning,Mony de Kerloy advised that the Olympic Contract was still on foot, that his client had lodged a caveatand requested Smart Investments to remove its caveat. On Mr Zielinski's instructions, Kott Gunningresponded by letter of 11 November 1996 refusing to move the caveat and suggesting the appropriatecourse to resolve the dispute as to whether or not there was a contract between Olympic and thedefendants was by determination in the Supreme Court and that Smart Investments would await theoutcome. Kott Gunning advised Mr Thorpe of the same matters by letter of the same date.

103 There is a conflict in the evidence of Mr Domhoff and Mr Zielinski as to the purpose and affectof cl 8. Mr Zielinski's evidence is not supported by the terms of the Smart Investments' Contract or theletters sent by Kott Gunning on his instructions. I accept that in the event it was determined by this



Court that the Olympic Contract had not been validly terminated, Smart Investments would withdrawfrom its contract and make no claim on the defendants. However, I am also satisfied and I find thatSmart Investments were not requested by or on behalf of the defendants before or after 4 November towithdraw the Smart Investments' caveat or to withdraw from the Smart Investments Contract to enablesettlement with Olympic or Bondgate to proceed and, on the balance of probabilities having regard tothe stand taken in the Kott Gunning letters concerning the need for Supreme Court proceedings, wouldnot have done so by 4 November 1996 even if a request had been made.

104 Accordingly, I am satisfied that by entering into the Smart Investments Contract on 4 October1996 the defendants committed a repudiatory breach of the Olympic Contract (and the Bondgatepromise) which breach prevented them from terminating the Olympic Contract on 4 November 1996.

Summary of Findings on Liability

105 In summary, the plaintiffs succeed in their claims that the defendants: (a) breached the Bondgatepromise; (b) are estopped from denying or resiling from the Bondgate promise; (c) were not ready,willing and able to settle on or before the expiration of the notice period in the September default noticeor before termination; and (d) committed a repudiatory breach of the Olympic Contract before itspurported termination. Accordingly the defendants' termination of the Olympic Contract on 4 November1996 was invalid and without force or effect. I turn now to the question of damages.

Damages

106 The plaintiffs claim damages as follows:

107 The plaintiffs seek to be put into the position they would have been in had the defendantsperformed their obligations. That is, they seek expectation damages. If the defendants had performedthe Bondgate promise, the Bondgate Contracts would have been accepted, settled and the Lochel landwould have been developed. The plaintiffs claim the loss of profits which would have arisen from thedevelopment. There is no objection in principle to the loss of profits claim, in particular, no suggestionthat such damages were too remote, applying the rule in Hadley v Baxendale [1854] EWHC J70;(1854) 156 ER 145 which requires that loss be foreseeable either because of imputed knowledge of theusual course of things or because of actual knowledge. I am not satisfied that Olympic has a loss ofprofits claim in relation to the Lochel land. At no relevant time was Olympic ready willing and able tosettle under the Olympic Contract, the expectation being that Bondgate would purchase the Lochel land.

108 A further consequence of the breach is that the Mandurah Contract (and the amended MandurahContract) were never performed, their fate being inextricably linked with the fate of the OlympicContract and Bondgate Contract as the former were conditional upon settlement of the latter.

109 Turning firstly to the loss of profits claim. There is a dispute as to whether the loss of profitsshould be based on the profits made under the Urban Focus development or, alternatively, on the basisof a go-it-alone strategy by Bondgate. The evidence establishes that Bondgate would have been boundto proceed with the Urban Focus development unless it could establish the invalidity of the OwnersDeed whether by order of this Court or, more unlikely, by settlement agreement with Urban Focus. MrBacich did not give direct evidence that if the Bondgate Contract had settled, Bondgate would havechallenged the Owners Deed or give any indication of the likelihood that it would do so in order to freeBondgate to pursue its own development strategy.

(a) Loss of profits from failure to settle Lochel land $295,000(b) Loss on resale of Mandurah land $ 34,000(c) Loss of interest on purchase price of Mandurah land $ 42,000(d) Wasted fees on Bondgate's first loan $ 2,900(e) Interest paid on second loan $ 4,113(f) Interest on total damages at 8 per cent from

1 March 1999.

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110 Mr Lieberfreund, an accountant, gave expert evidence on behalf of the plaintiffs as to the profit tobe expected on a go-it-alone basis. He arrived at a loss of profit figure of $295,143. In reaching thatfigure he determined that the total cost of the Lochel land to Olympic was $569,878. That comprises thecash component ($250,000) and the cost of construction of the development of the Mandurah land.There are two points to note in regard to Mr Lieberfreund's calculation. Firstly, he failed to have regardto the fact that Frisquet owned 50 per cent of the Mandurah land, and I infer Frisquet was liable for 50per cent of the costs associated with the development. Further, the development costs were incurred byOlympic not Bondgate. There is no evidence as to how and why Bondgate should receive the benefit ofthat figure in the calculation of the total cost to Bondgate of the Lochel land. On that basis the cost ofthe Lochel land to Bondgate would be $600,000 plus stamp duty of $24,000 ($624,000) instead of$569,878 a difference of $54,122. The loss of profit would reduce to $241,021.

111 The next component of Mr Lieberfreund's calculation is the costs of the development of theLochel land (excluding finance costs). Those costs were supplied by Mr Bacich. They do not includemanagement time or costs. It was Mr Bacich's evidence which I accept that Urban Focus' managementfee for its development was reasonable.

112 Mr Lieberfreund calculated the finance costs at $70,748 based on the assumption that Bondgateunder an independent venture would have developed the land more quickly than Urban Focus. There isno evidence to support that assumption. All the evidence (referred to below) points to the contrarybecause regard needs to be had to the time taken to challenge the validity of the Owners Deed, toprepare a development plan, have it approved by all of the relevant authorities and then negotiate withadjoining land owners.

113 The next component of Mr Lieberfreund's calculation is the sale proceeds of the developed land.Those sale proceeds are based upon the actual net receipts or anticipated receipts by Urban Focus fromthe lots developed pursuant to Urban Focus' development proposal.

114 The costs were based on a report from consulting engineers Van Der Meere in a letter dated 13October 1998 attached to Mr Lieberfreund's report. The author of the Van Der Meere report was MrEnzo Biagioni-Froudist, an engineer. He was called by the plaintiffs to give evidence as to the costs of,and assumptions involved in, the go-it-alone option. The opposing parties did not call any expertevidence or challenge the credibility or reliability of the evidence of the plaintiffs' experts. Mr Biagioni-Froudist, whose evidence I accept, explained the difference between the Urban Focus scheme and thego-it-alone option. The Urban Focus scheme involved a pooled development whereby the land of theparticipating owners would be amalgamated into one parcel and then subdivided in an orderly fashion.The go-it-alone option involved the Lochel land being developed independently by Bondgate to achievethe same (or a similar) outcome as that achieved for the Lochel land in the Urban Focus development.However, in order to achieve that outcome access to the proposed lots (other than the house lot) createdfrom the Lochel land had to be on roads constructed partially on adjacent land owned by third parties.Thus, Bondgate would require the approval or co-operation of adjoining land owners to the creation ofthe access roads. Alternatively, Bondgate would have to wait until the owners of the relevant adjacentland developed it which would in general terms follow a structure plan approved by the local councilfor the development of the area. Another theoretical alternative would be to construct access roadsentirely within the Lochel land but that would have the effect of reducing the size (or number) of blocksin the subdivision and thus affect revenue.

115 Mr Biagioni-Froudist's determination of the costs of the go-it-alone option was based on theUrban Focus subdivision plan which in turn reflected the approved structure plan. He did the costing onthe basis that the adjoining land owners would co-operate in the provision of access roads. However, hedid not ascertain from them whether they would agree to the construction of access roads to service thelots in the Lochel land. In addition, Bondgate had not prepared its own subdivision plan which would indue course require approval from a number of authorities described in the evidence as "the localcouncil, town planning people and bureaucracies that intrude into environmental protection". MrBiagioni-Froudist conceded that these approvals had not been obtained in a formal way.

116 There was evidence that if Bondgate was bound by the Owners Deed it would have made a loss.Mr Colin Evans, a director of Urban Focus, was called by the defendants. On the assumption that



Olympic/Bondgate was bound by the Owners Deed, Mr Evans calculated that the purchaser would havemade a loss of either $109,593 (based on total holding costs of $683,133 at 11 per cent per annumcompounded monthly) or $69,184 (based on interest at 8 per cent per annum compounded monthly).The total holding costs of $683,133 comprised the following:

- cost of acquisition of Lochel land $640,000

- stamp duty $26,133

- loan establishment cost $17,000

$683,133

117 Mr Evans also assumed that the house lot would be sold within three to four months for a netreturn of $250,000. The total cash value of the distribution received from the Urban Focus developmentof the Lochel land was $454,704 which was paid by instalments in the period between 5 May 1998 and19 March 1999.

118 In their closing submissions the plaintiffs challenge the correctness of the total holding costs andthe amount borrowed. They say as follows: The true acquisition cost of the land would be $630,000comprising an acquisition cost of $600,000 (in accordance with the Bondgate Contract), stamp duty of$24,000, settlement fees of $1,000 and loan establishment costs which the evidence establishes wouldbe $5,000; the plaintiffs would not borrow the full amount of the total holding costs; Bondgate appliedfor a loan of $480,000 for the purpose of carrying out the development as well as the acquisition of theLochel land; the Mandurah land was a trade property for a purchase price of $350,000; the amount thathad to be funded by Bondgate for the purchase of the Lochel land would be $280,000 ($630,000 minus$350,000); based on a net return of $250,000 within three months from settlement of the house lot andthe first distribution being received on 5 May 1998 the interest costs (at the plaintiffs' borrowing rate of12 per cent) were calculated at $12,000, bringing the total expenses to $642,000.

119 On this scenario there would be a profit of $62,704 calculated as follows:

- development distribution $454,704

- home lot sale $250,000

$704,704

less expenses $642,000

$62,704

There is no direct evidence of any arrangement between Bondgate and Olympic and Frisquet as to theavailability or terms on which the net purchase price of the Mandurah land would be made available toBondgate. However, the evidence establishes that Bondgate is the corporate vehicle for the interests ofMr Bacich (who is also associated with Olympic) and Mr A Douglas-Brown (who is associated withFrisquet). Further, having regard to all of the finance applications and approvals, I am not persuadedthat one of the purposes of the Bondgate loan of $480,000 was to fund the development of the Lochelland. In these circumstances I am prepared to infer that at least part of the funds from settlement of theMandurah land would be used to set-off the amount paid by Bondgate to the defendants and that anyinter company loan would not be at usual commercial rates. I am unable to conclude what if any rate ofinterest would be charged however, I am not persuaded that Bondgate would necessarily have made aloss if it was bound by the Owners Deed.

120 If the breach of contract had not occurred and Bondgate had become the registered proprietor ofthe Lochel land, there would be a number of potential outcomes. Firstly, if the Owners Deed was valid,Bondgate would be bound by it pursuant to the August agreement and Deed of Covenant. Secondly,Bondgate may decide to participate in the Urban Focus development regardless of the validity or



otherwise of the Owners Deed. Thirdly, if the Owners Deed was invalid it may develop the Lochel landon a go-it-alone basis. The third alternative is accepted by the parties to be a damages claim for loss ofan opportunity or chance and that claim is made in this action.

121 A plaintiff is entitled to damages for loss of any foreseeable chance or opportunity of benefit thatcan be causally linked to the breach. Recovery extends to the loss of a chance which was not promised(as in this case) but which would nevertheless have been created by performance of the contract:Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 91 –92, 102, 118 – 120; Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 at 349.

122 Damages for loss of a chance are recoverable if the loss is foreseeable as a probable result of thebreach and are assessed by reference to the prospects of success. In this case the plaintiffs claim for theloss of a chance of earning a profit. A loss of a chance is compensable even if its realisation is unlikely,on the balance of probabilities. As stated by the High Court, unless the chance is so low as to beregarded as speculative – say less than one per cent – or so high as to be practically certain – say over99 per cent – the court will take that chance into account in assessing the damages: Malec v J C HuttonPty Ltd [1990] HCA 20; (1990) 169 CLR 638.

123 However, before reaching that stage it is necessary for the plaintiff to establish, on the balance ofprobabilities, the existence of the chance. There is authority to the effect that where realisation of thechance depends on a plaintiff's own decision to take it up, the plaintiffs must also establish on thebalance of probabilities that it would have been taken up: G W Sinclair & Co Pty Ltd v Cocks [2001]VSCA 47.

124 That raises the question whether Bondgate had to prove on the balance of probabilities that if theBondgate promise and Bondgate Contract had been performed according to their terms, it would havetaken the necessary steps to enable it to pursue the go-it-alone option which would require a legalchallenge to the validity of the Owners Deed or a settlement with Urban Focus that had that effect. Theplaintiffs' closing submissions imply that this factor is relevant to the quantification of the chance ratherthan a matter to be proved on the balance of probabilities and the opposing parties do not contend to thecontrary.

125 In making the decision whether to challenge the Owners Deed it would be reasonable to haveregard to factors affecting the value of the chance (if availed of) including:

(a) the prospects of succeeding on a challenge to the validity of the Deed;

(b) the likelihood of Bondgate obtaining the necessary approvals from relevant government agenciesand adjacent land owners;

(c) the time it would take having regard to the matters in (a) and (b) for any income stream to come online.

126 As already noted, Mr Bacich did not give evidence that, following settlement, Bondgate wouldtake the first step towards facilitating an independent venture, being a determination by order oragreement that the Owners Deed was invalid or the likelihood of that occurring. However, it is the casethat Bondgate went to considerable lengths in its negotiations with Urban Focus to secure the right tochallenge the Owners Deed post settlement. Further, the plaintiffs challenged the validity of the OwnersDeed as against Urban Focus, formerly the second defendant, in this action. That claim was settled.Having regard to these matters I am satisfied on the balance of probabilities that Bondgate would havechallenged the validity of the Owners Deed and thus it lost the chance to independently develop theLochel land. However, that finding is not a reflection on the objective value of the proven chance buton Mr Bacich's subjective position.

127 I am also satisfied, having regard to the financial standing of the individuals behind the plaintiffsand the relative ease with which Bondgate obtained finance approval, that it had the capability ofsecuring the necessary funding to develop the land on a go it alone basis. I infer the original financierswithdrew because of concerns about the security.







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128 The value of the proven loss of chance is determined by reference to the degree of probabilities orpossibilities to which the civil standard of proof (balance of probabilities) has no application. As to theprospects of success of the challenge to the Owners Deed, I infer from the fact that the plaintiffs andUrban Focus settled their disputes formerly raised in this action that the plaintiffs had reasonableprospects of success. The likelihood of Bondgate obtaining the necessary approvals from relevantauthorities and adjacent landowners is likely to be affected by whether or not the Urban Focusdevelopment could or would proceed on an amended basis without the Lochel land. The evidenceestablishes that Urban Focus, or an associated company, purchased the Lochel land from SmartInvestments to allow its development to proceed on a viable basis. I infer that if Bondgate's challenge tothe Owners Deed was successful, its prospects of pursuing the go it alone option would be enhanced.The time it would take before any income stream came on line is a very important factor about whichthere is very considerable uncertainty. However, on any view it would take significantly longer than theUrban Focus development took. That of itself justifies a further reduction from Mr Lieberfreund's netprofit calculation. However, I have had regard to that in valuing the proven loss of chance. The parties'valuation submissions are of such generality as to be of little assistance.

129 Having regard to the limited evidence available on the relevant variables I can only approach thematter on a global basis. I would value the loss of the chance at $60,052 being 25 per cent of themaximum net profit of $241,021.

130 Another consequence of the breach is that the Amended Mandurah Contract did not settle. Thepurchase price of the Mandurah land was $350,000. It was sold on 21 March 1998 for $282,000, acapital loss of $68,000, of which Olympic's share was $34,000. In January 1997 Olympic dropped itsclaim for specific performance and claimed damages. Accordingly, Olympics' damages are to beassessed as at January 1997. The defendants had committed a repudiatory breach of the OlympicContract which was accepted by Olympic when specific performance was no longer a possibility.Olympic is entitled to common law damages. Having regard to the price for which the Mandurah landsold in March 1998 and the absence of any evidence from, or challenge by, the defendants to suggestthe 1998 sale price was, or may be, below the January 1997 market value, I am satisfied that the marketvalue of the Mandurah land at January 1997 was not less than $282,000.

131 I am satisfied that Olympic is entitled to its claimed capital loss of $34,000 but not to loss ofinterest on the purchase price in the period when it retained the income producing investment asset.

132 Having regard to my finding that the defendants' conduct did not cause the original financiers towithdraw finance approval, there is no legal basis for Bondgate's claim against the defendants forwasted costs on the first loan. Further, the claim for interest paid on the second loan is inconsistent withits loss of profits claim.

133 In summary, I would order that the defendants are liable to Bondgate in the sum of $60,052 andto Olympic in the sum of $34,000. I would also order that Bondgate is entitled to interest at the ratepayable from time to time under the Supreme Court Act 1935 (WA) from 1 March 1999 (as claimed)until judgment. I would also order that Olympic is entitled to interest on the same basis from 1 March1999 until 17 November 1999 which was when it received a settlement sum of $50,000 from otherdefendants to these proceedings in respect of the damage also claimed from the defendants. Thatsettlement sum must also be set off against Olympics' damages award which results in theextinguishment of Olympics' entitlement against the defendants.

Counterclaim

134 It follows from my factual findings on the plaintiffs' claim that the defendants must fail on theircounterclaim.

Third Party Action

135 The defendants claim an indemnity and damages from Mr Thorpe for breach of contract,negligence and breach of fiduciary duty. There are three categories of claim. The defendants seekfirstly, a contribution or indemnity from Mr Thorpe to the extent of their liability to the plaintiffs;

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secondly, the damages (if any) they would have obtained from the plaintiffs had the counterclaim beensuccessful (and costs associated with the value at trial on the counterclaim); and thirdly, claims that areindependent of the claim or counterclaim.

136 There is an overlap in the identification of the terms of the contract of retainer ("retainer"), thecommon law duty of care and the fiduciary duties. It is pleaded that the terms of the retainer are that MrThorpe would:

(1) advise the defendants in relation to their rights under the contract (which I infer is a reference to theOlympic Contract);

(2) represent the defendants in relation to enforcing those rights and, in particular, for the purpose ofterminating the Olympic Contract in the event of default by Olympic;

(3) exercise reasonable skill, care and diligence in giving advice to and acting for the defendants;

(4) keep the defendants timeously informed as to the status of their matter and his actions on theirbehalf;

(5) obtain instructions from the defendants in relation to the subject matter of his retainer as and whenrequired and act promptly and in accordance with the defendants reasonable and lawful instructionsfrom time to time;

(6) act in such a way so as not to cause the defendants harm or unnecessary distress;

(7) inform the defendants of any matters arising in the course of his retainer that placed him in aposition of conflict of interest or would give rise to any possible claim by the defendants against him byreason of his conduct of their affairs; and

(8) charge the defendants only such sums as were reasonably incurred in the discharge of his retainerand were consistent with the scales of fees promulgated from time to time or alternatively such sums aswere reasonable for work performed by him pursuant to the terms of the retainer.

137 The retainer is pleaded as an oral agreement made in or about early July 1996 between thedefendants and Mr Thorpe whereby Mr Thorpe agreed to act as their solicitor. It is said that terms (3) to(8) are implied "as a matter of custom and in order to give business efficacy to the retainer".

138 The defendants plead that Mr Thorpe owed to the defendants a common law duty of care andfiduciary duties in the terms set out in items (3) to (8) above. They also rely on further fiduciary duties:

(9) to act in good faith towards the defendants;

(10) to avoid a conflict of interest between the defendants' interests and his own; and

(11) not to charge the defendants for work done whilst acting in conflict.

139 In response to the defendants identification of the duties, Mr Thorpe makes very narrowadmissions. He admits that on 9 July 1996 the defendants instructed him to proceed to settlement on theOlympic Contract and Mandurah Contract and that he owed the defendants a tortious and fiduciary dutyto exercise reasonable care in the performance of that retainer. Specific aspects of his instructionsaffecting the scope of his retainer are pleaded elsewhere in the defence. I will deal with the issuesaffecting the nature and extent of the retainer and duties in the context of the pleaded breaches. First itis necessary to provide the factual background to the third party claim.

Facts

140 I find the following facts established by the evidence unless expressly stated to be in issue orcontradicted. Peter James Settlements was the defendants' settlement agent on the Olympic Contract andthe Mandurah Contract. By letter dated 9 July 1996 Mr James, on behalf of the defendants, wrote to Mr



Thorpe requesting him to attend to finalisation of the sale and purchase of the properties. Mr Jamesadvised Mr Thorpe that Mr Bacich was sometimes extremely difficult to get on with and was in thehabit of delaying settlements. He said the best course of action would be for the Olympic Contract andthe Mandurah Contracts to be cancelled and the Lochel land resold, they having a second purchaserwilling to take over the sale.

141 In a letter dated 10 July 1996 to the defendants Mr Thorpe confirmed their instructions to act onthe defendants' behalf in relation to the sale of the Lochel land and the Mandurah land, confirmed theirwish to settle at the earliest possible date or at least to bring matters to a head expeditiously and of hisintention to issue a notice of default. The letter continued:

"Once the settlement date [identified as 12 July 1996] is passed it is our intention to issue anotice of default thereby giving you the right to terminate the contract at the expiration of15 days. Whether you wish to terminate or to issue proceedings to enforce the contract is amatter upon which we shall ultimately require your instructions."

That is the sole occasion on which Mr Thorpe communicated with the defendants in writing in relationto the land sales. Mr Thorpe issued a default notice dated 16 July 1996 (the "July default notice"). TheJuly default notice identified the contractual date of settlement as 12 July 1996 and gave Olympic 15days to effect settlement.

142 The defendants and Mr James attended a meeting with Mr Thorpe at his office on 1 August 1996.Mr Thorpe advised the defendants that they could not terminate the Olympic Contract because of theconduct of Urban Focus who had lodged caveats on the title. Mr Thorpe described the threat oftermination in his letter of 30 July 1996 as a card that he was playing in the negotiations but that he didnot believe, and so advised the defendants, that they were entitled to terminate the Olympic Contract atthat stage because they were not ready, willing and able to settle.

143 By this stage the defendants were unable to meet the payments due under two mortgagesregistered on the Lochel land. No payments had been made since July 1996.

144 In the three weeks after the 1 August meeting Urban Focus and Bondgate were in the process ofnegotiating a resolution that would result in Urban Focus agreeing to lift its caveats to enable settlementto proceed. Ms Bennett orally advised Mr Thorpe in mid August that settlement could proceed in thefollowing week and Mrs Lochel wrote to Mr Thorpe on 20 August 1996 listing the outstanding itemsthat the vendors needed to complete before settlement on the Mandurah land. On 22 August 1996 MrThorpe received settlement statements for the Lochel land and the Mandurah land. However, on 23August 1996 Mr Thorpe was orally advised by Ms Bennett that the financiers had a problem with theOwners Deed and her client could not proceed to settlement. It is common cause that Mr Thorpe orallyadvised Mrs Lochel of the substance of Ms Bennett's advice. Mrs Lochel's evidence concerning theSeptember default notice is as follows:

"At about that time [20 August 1996] I discussed the matter with Thorpe ... Thorpe told methat Olympic's finance had not been approved. He said that it would be wise to issue afurther default notice before terminating the contract.

I said that we did not want anything further to do with Bacich and that I wanted toterminate the contract. Thorpe told me that he would issue a further default noticeimmediately.

I told Thorpe that Domhoff had other purchasers.

On or about 13 September 1996 Thorpe told me that he issued a further default notice onthat date. I did not receive a copy of the default notice. I understood that we would be freeto sell the land if Olympic failed to complete settlement within 14 days after receiving thenotice."

145 Aspects of Mrs Lochel's evidence were contradicted by Mr Thorpe whose evidence was as



follows:

"In early September 1996, I telephoned Mrs Lochel. I said to her words to the effect:

• nothing was happening on the settlement front;

• in order to get things moving with a view to either forcing settlement or putting the Lochels in astronger position to terminate the contract, Mrs Lochel should instruct me to issue a further defaultnotice.

Mrs Lochel instructed me to issue a further default notice.

Mrs Lochel did not say words to the effect that the Lochels wanted nothing further to dowith Bacich and wanted to terminate the contract.

I issued a further default notice on 13 September 1996."

146 Mr Thorpe was cross-examined as follows about what advice he gave the defendants in relationto the September default notice:

"Did you say to Mrs Lochel before you issued this default notice that there may be adifficulty terminating the contract, having regard to the problems with interpretation or anyother problems --- I wouldn't – I did not give that specific advice, but in respect of adefault notice my advice always is nothing is absolutely certain. You have to assess theposition once the period ... expires.

Well, when you discussed issuing that default notice with Mrs Lochel, you did not suggestto her there could be any – you did not suggest to her that the problems that you hadpreviously discussed were still alive --- correct – sorry, the problems I'd previouslydiscussed being issues about?

Urban Focus and the transfer – all that? ... Correct, correct. I understood that all thosematters had been resolved and I had conveyed that to Mrs Lochel, and the purpose of theissue of this default notice was because Olympic was clearly in default for a matter that, onits face, had nothing to do with any conduct of the Lochels or the quality of the title theywould be able to give at settlement.

Would it be fair to say that this is the advice you conveyed in one way or another to theLochels before issuing this default notice --- Yes."

147 It is not in dispute that Mr Thorpe and Mrs Lochel spoke by telephone on 25 September 1996. MrBacich had asked to meet with the defendants without Mr Thorpe and Mrs Lochel spoke to Mr Thorpeabout the request. Mrs Lochel said she also told Mr Thorpe that Mr Domhoff had introduced MrZielinski as a potential purchaser. Mr Thorpe's evidence was that he told her in effect that she shouldsign no offer without Mr Thorpe first seeing it, that it had to be drawn in a way that made acceptancesubject to the Olympic Contract not proceeding and that Mrs Lochel replied with words to the effectthat she would show him any offer before signing it. Mrs Lochel denied that Mr Thorpe had so advisedher.

148 Mr James drafted the Smart Investment offers. It was his evidence that on or before 4 October1996, but in any event before presenting the Smart Investment offers to the defendants, he telephonedMr Thorpe and asked him to confirm that the Olympic Contract was at an end. Mr Thorpe said that theOlympic Contract was at an end, confirmed that he was aware of the Olympic caveat and asked MrJames to send any new offers to him. Mr Thorpe said that any contract with Smart should take intoaccount possible delays in settlement that might be caused by the caveat.

149 According to Mr James, he relayed the gist of Mr Thorpe's comments to Mr Domhoff andinstructed him to add an appropriate special condition to the offers that he had prepared before they



were signed by the parties. Mr Thorpe denies advising Mr James that the Olympic Contract had cometo an end.

150 Mr Domhoff's evidence was that before 4 October 1996 Mr Thorpe telephoned him about theLochel property and told him that the contract with Olympic had been terminated or was at an end andthat he (Mr Thorpe) had a mate who was interested in buying that property. Mr Thorpe also denied thisevidence.

151 Mrs Lochel gave evidence that on 7 October 1996 she telephoned Mr Thorpe and advised himthat the defendants had sold the Lochel land to Smart Investments. She said Mr Thorpe did not at thistime advise her that the Olympic Contract had not been terminated nor did he say words to the effect"Mrs Lochel, that contract isn't terminated. What have you done?".

152 Mr Thorpe had a different recollection. His evidence was that in the course of a telephoneconversation with Mrs Lochel on or about 7 October 1996 he repeated the advice that she should notaccept any offer without him first seeing it and Mrs Lochel told him that Mr Domhoff had alreadypresented an offer and she and her husband had accepted it. He said he immediately telephoned MrDomhoff to confirm the position. Mr Domhoff told him that he had presented an offer to the Lochelsand they had accepted it. Mr Thorpe's evidence continued:

"I said to Mr Domhoff words to the effect it was surprising he had gone ahead and signedthe Lochels up to a new contract when I had requested any offer be first shown to me. Heresponded to the effect he had put a clause in the offer protecting the Lochels. I respondedwith words to the effect that he better show me the contract 'quick smart'.

I then telephoned Mrs Lochel and said to her words to the effect that Domhoff hadconfirmed she and her husband had accepted an offer. I asked Mrs Lochel why she haddone that without referring the document to me as I had advised. She responded with wordsto the effect 'Manfred' had said it would be alright. I responded with words to the effect thatI hope what 'Manfred' had written into the contract was enough protection."

153 Under cover of a letter of 9 October 1996 Mr James provided Mr Thorpe with copies of theSmart Investments' Contract and the contracts for the trade properties. Mr Thorpe's evidence was thatafter receiving those contracts he telephoned Mrs Lochel and said to her that cl 8 may not provide theprotection required and that she should not terminate the Olympic Contract until the Smart InvestmentsContract was definitely going to proceed. He continued:

"I said words to the effect if settlement could be effected with Olympic, that would be thepreferable path because it would result in a settlement of the sale of their land and at thesame time rid them of potential problems with Olympic."

Mrs Lochel denied that Mr Thorpe had given such advice and said that if he had, she would have beenmade aware that the Olympic Contract was not terminated when her understanding was that it had been.

154 Mr Thorpe said in cross-examination that Mrs Lochel had given him general instructions tonegotiate with Olympic as far as possible, his assessment was that the possibilities ended on receipt ofthe letter of 1 November 1996 from Mony de Kerloy and on the basis of Mrs Lochel's generalinstructions and his assessment of the 1 November letter he sent the termination notice on 4 November1996.

155 By 22 October 1996 Mr Thorpe was aware from Ms Bennett that Bondgate had obtained financeapproval and Bondgate was looking at what was required for the settlement to proceed. In thatconversation Mr Thorpe requested Ms Bennett to write to him confirming her advice.

156 In the period 1 October 1996 to 4 November 1996, Mr Thorpe received the clear title demand inthe Mony de Kerloy letter of 3 October 1996; a discussion took place between Ms Bennett and MrThorpe on 10 October 1996 about the option of her client purchasing the Lochels' mortgage; there wasthe telephone conversation between Ms Bennett and Mr Thorpe on 22 October concerning finance



approval; a further telephone conversation between Ms Bennett and Mr Thorpe on 25 October 1996 inwhich Mr Thorpe again requested Ms Bennett to write to him concerning settlement proceeding; atelephone conversation on 30 October 1996 in which Ms Bennett spoke with Mr Thorpe about theSmart Investments caveat; the letter of 1 November 1996 from Mony de Kerloy advising their clientwas ready, willing and able to settle; and Mr Thorpe's letter of termination.

157 It was Mrs Lochel's evidence that between 1 October 1996 and 4 November 1996 Mr Thorpe didnot inform the defendants of any suggestion that the Olympic Contract was still on foot or advise themthat Olympic or Bondgate appeared to have finance or inform them of the possibility of settlement orseek or obtain instructions from the defendants in relation to any of the matters occurring in that period,including Mr Thorpe's decision to issue the termination notice. He did not provide copies of anycorrespondence sent or received by him.

158 Further, in that same period Mr James wrote a number of letters to Mr Thorpe purporting toconfirm Mr Thorpe's advice that the Olympic Contract and the Bondgate Contract were terminated or atan end. Mr James' letter of 9 October 1996 states, inter alia:

"We refer to our recent telephone conversation in which you advised that both the Offerbetween Mr and Mrs Lochel and Olympic Holdings Pty Ltd and a subsequent Offerbetween the Lochels and a company nominated by Olympic Holdings Pty Ltd ... were at anend, the relevant Notices having lapsed."

159 In a letter of 14 October 1996 to Mr Thorpe Mr James states:

"We refer to our recent telephone conversation in which we advised that a Notice had beenforwarded to Olympic Holdings Pty Ltd and their associated companies in relation tocompletion of settlement of the above property that their contract had lapsed and theproperty was able to be re-offered for sale."

160 Having regard to the other letters from Mr James to Mr Thorpe in October on this subject, I amsatisfied that the word "we", in line 1 is intended to be "you". In a further letter of the same date MrJames informed Mr Thorpe that the Lochels' financiers required advice from him as to why the contractbetween the Lochels and Olympic was at an end and invalid. In a letter dated 15 October 1996 MrJames stated, inter alia:

"As per our recent telephone conversation, you advised that the contract between theLochels and Olympic Holdings was at an end and they could, therefore, enter into a newagreement relating to the sale of their home."

161 Finally, in a letter dated 21 October 1996 to Mr Thorpe, Mr James sought advice as to how theOlympic caveat could be expeditiously removed to allow the resale to proceed.

162 Mr Thorpe did not respond in writing to any of the correspondence from Mr James until 4November 1996. Mr James said that he did not receive any response, oral or in writing, from MrThorpe to any of his October 1996 letters until he received a letter dated 4 November 1996 from MrThorpe. Mr Thorpe's evidence was that he did have discussions with Mr James in October about theremoval of the Olympic caveat. He said he had a number of telephone conversations with Mr Jamesafter 10 October 2002 concerning the inadequacy of cl 8 and told him at some stage after receiving theletter of 9 October that the Olympic Contract was still on foot. Mr Thorpe's letter of 4 November is inthe following terms:

"We write to express the concern that we had previously intimated to your Mr Domhoff atthe time the Smart Investments offer was accepted.

We confirm that our Mr Thorpe spoke with your Mr James and confirmed previousdiscussions that any offer that was presented to our mutual client would first be vetted byour Mr Thorpe and a condition inserted which would take into account the current dealingswith Olympic Holdings Pty Ltd. When Mrs Lochel advised that she had signed the contract



our Mr Thorpe spoke with Mr Domhoff who confirmed that he had since presented theoffer to the purchaser and that it had now been accepted. Our Mr Thorpe expressed hisdisquiet at that conduct at that time.

The reason for that disquiet became apparent when some week or so later we were providedwith a copy of the contract which revealed that there was no provision for the contract tocome to an end if Olympic Holdings contract was upheld, merely a provision absolving thevendors of the obligation to pay penalty interest. The difficulty that will arise if Olympic'scaveat holds the transfer up for any substantial length of time is that the purchaser mayclaim breach of contract because, of course, time is of the essence.

We are hopeful that there will be no negative consequence arising from this matter."

163 As noted earlier, it was Mr Thorpe's position that the Mony de Kerloy letter of 1 November 1996contained completely untenable statements and made it clear that Olympic had no intention of settlingon the contract. Mr Thorpe's view was that Olympic was not at that time ready, willing and able tosettle because there were a number of matters that had not been attended to, including the stamping ofthe Olympic Contract. However, he saw a further problem as being that, even if the purchaser was notready, willing and able to settle, the defendants could not terminate because it was arguable thatacceptance of the Smart Investment offer was a repudiatory breach. Mr Thorpe admitted that he did notat any stage test with Mr Zielinski or Smart Investments' solicitors Kott Gunning what the attitude ofSmart Investments would be in the event that the defendants wished to settle with the plaintiffs.

Scope and Terms of the Retainer

164 There is very little testimonial evidence on the issue of the scope of the retainer. However, thecontemporaneous documents provide a reliable basis for determining that matter. The first meetingbetween Mr Thorpe, the defendants and their settlement agent Mr James on 10 July 1996 was in thecontext of the information in Mr James' letter of 9 July 1996 which raised for consideration thepurchaser's obligation under the Owners Deed, the proposed substitution of the new contracts, the delayin settlement, the adverse impact it had on the defendants and the possibility of terminating the OlympicContract and suing Olympic for damages. Mr Thorpe in his letter of 10 July 1996 thanked thedefendants for their instructions to act on their behalf in the "dealing received from Peter JamesSettlements".

165 I am satisfied on the basis of the documentary evidence that Mr Thorpe had a general retainer toadvise and act for the defendants in relation to the Olympic Contract and the Mandurah Contractincluding, inter alia, to advise the defendants in relation to the rights and obligations under the OlympicContract and related matters including their position under the Owners Deed, the substitution of thenew contracts and to represent the defendants in relation to enforcing their rights including, ifappropriate, terminating the Olympic Contract in the event of default. There is no foundation in theevidence for the third party claim that the scope of the retainer was confined to Mr Thorpe beingrequired to proceed to settlement on the Olympic Contracts and Mandurah Contracts. However, it is notin dispute that the defendants retained Mr Thorpe to represent them in this action, at least until late2000.

166 The next matter is the terms of the retainer. Unless otherwise agreed, a duty to take reasonablecare and skill analogous to the tortious duty of care is implied by law in contracts for the provision oflegal services and an action may be brought in both contract and tort: Astley v Austrust (1999) 197CLR 1; Hawkins v Clayton (1988) 164 CLR 539 at 580. There being no argument to the contrary inthis case, I find that it was an implied term of the retainer that Mr Thorpe would exercise reasonableskill and care in the exercise of his contractual obligations.

167 A solicitor exercising reasonable care and skill in the context of the retainer in this case would:

(a) advise his clients on all matters relevant to his retainer, so far as may be reasonably necessary;

(b) carry out his instructions by all proper means;



(c) consult with his clients on all questions which do not fall within the express or implied discretionleft to him;

(d) keep his clients informed to such an extent as may be reasonably necessary;

(e) carry out the defendants' instructions by all proper means within a reasonable time.

See Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp (A Firm) [1979] Ch 384 at 434 – 435;Tiffin Holding Ltd v Millican 49 DLR (2d) 216; Short v Delaney [1999] NSWSC 1293 at [5].

168 The duty in (b) is subject to the duty in (a) to advise. As stated by Anderson J in Dalleagles PtyLtd v Australian Securities Commission (1991) 4 WAR 325 at 332, whenever a lay client givesinstructions to a legal practitioner to perform specialist legal services involving the exercise ofprofessional skill, there is imposed on the solicitor a duty to give any advice reasonably necessary toprotect the client's interests in the transaction whether expressly requested or not.

169 The specific duties I have identified are within the scope of the defendants' pleading and I findthat they are implied terms of the contract of retainer. The debate as to whether the tortious duty of carehas any role to play outside the express and implied terms of the retainer (see Astley v Austrust (supra);Hawkins v Clayton (supra) at 579 per Deane J and Heydon v NRMA Ltd [2000] NSWCA 374; [2000]51 NSWLR 1) does not arise in this case. There is a contractual and tortious duty to exercise due careand skill and that general duty encompasses the specific duties to which I have referred.

170 The next issue is whether it was an implied term of the retainer that Mr Thorpe act so as not tocause the defendants physical or mental harm or unnecessary distress. This question is to bedistinguished from the broader question of whether damages for disappointment, inconvenience anddistress are recoverable in contract. The latter question may arise in the absence of an express term ofthe type sought by the defendants: See Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR344. The parties did not in their submissions address the court on the implied term issue. The court wasnot referred to any authority on that question. It is necessary to answer the question by reference to theprinciples that apply to the implication of terms. Insofar as the defendants rely on custom (as to whichsee Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986]HCA 14; (1986) 160 CLR 226 at 236) there is no evidence of such a custom. Further, it cannot be saidthat the proposed term is a generic term implied by law in a contract of retainer for professional legalservices relating to the conduct of litigation or the settlement of a property transaction. Finally, theproposed term does not satisfy all of the criteria for the implication of such a term as a matter of factidentified in Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (supra) at 346.In particular, it cannot be said that the proposed term is necessary to give business efficacy to thecontract or that it is so obvious that it goes without saying. I find that it was not an implied term of theretainer that Mr Thorpe act in such a way as not to cause the defendants harm or unnecessary distress.

171 Applying the same analysis and reasoning I have also concluded that it was not an impliedcontractual term that Mr Thorpe advise the defendants of a conflict of interest or a possible claim ofconflict.

172 Finally, there is the pleaded term relating to costs. In the absence of an express costs agreement,the nature and incidents of the retainer determines the items of work that are recoverable under thatretainer. In this regard, within the confines of the retainer, there is implied authority to do all suchthings incidental to the object of the representation and to recover costs in relation thereto:Polkinghorne v Holland [1934] HCA 28; (1934) 51 CLR 143 at 156; Forest View Nominees Pty Ltd vPerron Investments Pty Ltd [1999] FCA 405; (1999) 162 ALR 482 at 503. In the absence of anenforceable costs agreement, the quantum of costs recoverable is determined by any applicable scaleunder s 58W of the Legal Practitioners Act 1893 or otherwise on a quantum meruit basis. That isconsistent with the defendants' formulation of the implied term which I accept formed part of theretainer.

Tortious and Fiduciary duties

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173 For the reasons given above, I also find that Mr Thorpe owed to the defendants a tortious duty toexercise reasonable care and skill as elaborated in (a) to (e) above. I see no basis in principle (and wasnot referred to any authority) to conclude that the other pleaded duties numbered (6) to (11) (inclusive)were part of a tortious duty of care.

174 I turn now to the claimed fiduciary duties. It is not in dispute that the relationship betweensolicitor and client is a fiduciary relationship: Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR449. However, the existence of a fiduciary relationship does not mean that every duty owed by afiduciary to the client is a fiduciary duty. In particular, a solicitor's equitable duty to exercise reasonablecare and skill is not a fiduciary obligation: Permanent Building Society (in liq) v Wheeler (1994) 11WAR 187; Breen v Williams (1996) 186 CLR 71 at 82 per Brennan CJ. It follows that the contractualand tortious duties relating to the exercise of reasonable care and skill are not also fiduciary duties.

175 That leaves the duties numbered (7), (9), (10) and (11) dealing primarily with the subject ofconflict of interest. A fiduciary may not enter into or continue with a retainer which gives rise to, orwhich might give rise to, a conflict between the fiduciary's personal interest and his duty to his clients:Maguire v Makaronis (supra). It is not necessary to show that the fiduciary has put personal interestahead of duty; the breach occurs when the fiduciary places himself in a position in which there is thepossibility of a conflict. That possibility of conflict between interest and duty must be real andprospective and not merely hypothetical. The traditional formulation of the principle was in terms of anobligation on a solicitor to disclose his interest and obtain his client's informed consent: Clark Boyce vMouat [1994] 1 AC 428 at 437. However, the High Court in Maguire v Makaronis (supra) has taken adifferent approach. That case concerned a firm of solicitors arranging bridging finance for clients forthe purpose of acquiring a farm. The clients executed a mortgage in favour of the solicitors who did notdraw the client's attention to the fact that they were to be the mortgagees. The clients defaulted on theloan and the solicitors claimed possession of the mortgaged property. The High Court held that thesolicitor's fiduciary duty was breached by them entering into the mortgage in the absence of theinformed consent of the clients to the solicitor's interest. The obligation of disclosure is not aprescriptive fiduciary duty but a basis for the solicitors to show by way of defence that they hadobtained the informed consent of their clients. Thus, the obligation on a solicitor who has a conflict ofinterest is not to act or continue to act without the client's informed consent.

176 The defendants also rely on an alleged fiduciary duty to act in good faith. It is accepted that aduty of good faith will be an implied term of a contract entered into between fiduciaries although it isunclear whether it constitutes an independent fiduciary duty. However, it is not necessary to resolve thatquestion as nothing turns on it in this case.

177 Finally, the defendants rely on an alleged fiduciary duty not to charge for work done whilstacting in a conflict of interest. No authority was cited in support of such a duty. Indeed, the partiessubmissions do not address the point. In my view it is misconceived. Whether or not a solicitor inbreach is entitled to charge for work done is to be determined by reference to the remedies availableincluding whether or not the charges are part of a clients compensable loss and damage for breach ofthe fiduciary duty: Maguire v Makaronis (supra).

Breaches of Duty

178 The defendants plead a number of breaches, some of which are in the alternative. The first breachcomplained of is based on the assumption that the plaintiffs are successful in their par 4A claim relatingto the September default notice namely that the defendants were not ready, willing and able to settle theOlympic Contract or the Bondgate Contract or were in default. It is said that in those circumstances, MrThorpe:

(a) advised the defendants that they were entitled to issue the September default notice and thereafterterminate the Olympic Contract when in fact they were already not so entitled;

(b) failed to advise the defendants that they were in breach of the Olympic Contract or the BondgateContract (which should be a reference to the Bondgate promise); and




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(c) failed to advise the defendants of the steps they should take to remedy such breaches in order to beable to terminate the Olympic Contract.

179 I have concluded that whether or not the defendants were ready willing and able to settle at thetime of issue of the default notice does not affect the validity of the termination. Rather it is the positionthat prevails at the end of the notice period and the purported termination date that is relevant. I havealso found that the defendants were not ready willing and able to settle the Olympic Contract at anytime from the date of issue of the September default notice until termination as they could not delivertitle to Olympic.

180 I turn now to the facts relating to this aspect of the defendants' claim against Mr Thorpe. There isa conflict of evidence as to the substance of the communication between Mrs Lochel and Mr Thorpeabout the issue of the September default notice. The central conflict concerns whether or not MrsLochel instructed Mr Thorpe that the defendants wanted to terminate the Olympic Contract. What isclear is that the communication was oral. Mr Thorpe did not give or confirm his advice in writing.Further, save for a file note dated 25 September 1996 which records "Steve Zilenski potentialpurchaser" there is no evidence of Mr Thorpe having prepared a file note of the substance of any of hiscommunications with Mrs Lochel.

181 Mrs Lochel's evidence concerning her communication with Mr Thorpe about the September 1996default notice is consistent with, and to be expected having regard to, the events leading up to the issueof that notice. Mrs Lochel's evidence, which was not materially contradicted and which I accept, wasthat she had been led by Mr Domhoff to expect that settlement of the contracts would occur by the endof June 1996; the defendants intended to return to Germany to be with their children and grandchildren;based on their understanding as to when settlement would occur, the defendants in June 1996 sold theircar, Mr Lochel ceased work and they shipped most of their furniture and belongings to Germany; MrsLochel discussed with Mr James and Mr Domhoff the reasons for the delay in settlement and by July1996 she had lost confidence in Mr Bacich and his companies, doubting their sincerity and intention tocomplete the contracts, and was angry at Mr Bacich because she believed he had delayed settlement;and she told Mr Thorpe at the first meeting on 10 July 1996 that the defendants wanted to resolve thematter as quickly as possible and that they wanted to sell the land to someone else if Olympic was notgoing to settle.

182 Following the issue of the July default notice, Mr Thorpe told Mrs Lochel that the defendantscould not terminate because of the Urban Focus problems. Mrs Lochel was then made aware in thesecond half of August 1996 that matters appeared to have been resolved with Urban Focus and stepswere being taken towards settlement. Shortly after that she was advised by Mr Thorpe that there was aproblem with the plaintiffs' finance. It was in this factual context that the discussion about theSeptember default notice occurred. With that background it is understandable that Mrs Lochel wouldinform Mr Thorpe that the defendants did not want anything further to do with Mr Bacich and wantedto terminate the Olympic Contract. By September 1996 after so many false starts and delays, all ofwhich Mrs Lochel attributed to Mr Bacich (rightly or wrongly), it is to be expected that she wouldinform him that she wanted to terminate the contracts and instruct him to issue the September defaultnotice. Further, her evidence that Mr Thorpe said it would be wise to issue a further default noticebefore terminating the contract and saying he would issue one immediately is consistent with his earlieradvice that the Urban Focus matters rendered it unsafe for the defendants to terminate on the basis ofthe July notice.

183 Having regard to Mrs Lochel's deep frustration and anger with Mr Bacich, which I am satisfiedshe conveyed to Mr Thorpe, it is unlikely that Mr Thorpe would suggest issuing the September defaultnotice "in order to get things moving with a view to either forcing settlement or putting the defendantsin a stronger position to terminate".

184 Mr Thorpe's uncontradicted evidence, which I accept, was that his view in September 1996 wasthat all matters associated with Urban Focus had been resolved, that Olympic was clearly in breach ofthe Olympic Contract, that the defendants were not in breach and would be able to comply with theirobligations at settlement and that he conveyed this information to Mrs Lochel before the issue of theSeptember default notice. Nothing was said to her thereafter by Mr Thorpe to alter that assessment.



185 Mr Thorpe denied advising Mrs Lochel that the defendants could terminate after the expiry of thenotice period. He may not have done so expressly. However, it was implicit in his advice to Mrs Lochelthat Olympic was in breach, the defendants were not in breach and could settle, that if the situationremained unchanged, the defendants could validly terminate the Olympic Contract at the end of thenotice period.

186 Mr Thorpe said he told Mrs Lochel in a telephone conversation on 25 September that she shouldnot sign any offer without Mr Thorpe first seeing it and that it had to be drawn in a way that madeacceptance subject to the Olympic Contract not proceeding. Mrs Lochel denied this. In any event, asMr Thorpe was of the opinion that there was no known impediment to the valid termination of theOlympic Contract after the expiration of the notice period on or about 28 September 1996, the onlyreason for the new contract to be made conditional in the way suggested is if the Olympic Contract wasstill on foot - which it was at the time of the discussion. Even if Mr Thorpe's evidence on this subject isaccepted, it does not advance his defence to the claims.

187 My impression of Mrs Lochel in the witness box was that she is and was an emotional andassertive person who would have no difficulty in expressing to Mr Thorpe her opinions, her views andher instructions. I am also satisfied that Mrs Lochel gave her evidence honestly and in accordance withher recollection of events. There were occasions in cross-examination when her answers wereinconsistent with the prepared statement which became her evidence-in-chief. In my assessment, heranswers in cross-examination were to her best recollection at the time, and I accept those answers.

188 My very strong impression of the evidence of Mr Thorpe was that he was reconstructing whathad occurred by reference to the contemporaneous documents and what he expected he would havethought, said and done in 1996. That puts him at a very considerable disadvantage in a situation wherehe failed to confirm or record his communications in writing. More so, where the evidence disclosesthat he was at times difficult to contact because of other commitments. Common experience attests tothe unreliability of unaided recollection (whether independent or reconstructed) of oral communicationsmade in the course of a busy practice many years before giving evidence. Mrs Lochel at the time hadthe benefit of lengthier and more intense focus on her situation than did Mr Thorpe.

189 For these reasons I prefer the evidence of Mrs Lochel concerning her September discussions withMr Thorpe and where there is any conflict between her evidence and that of Mr Thorpe. As to MsBennett, she adopted the usual professional practice of making file notes of oral communications. I amsatisfied that her evidence was honest and reliable. Unless Mr Thorpe's evidence is corroborated by oralor contemporaneous documentary evidence, I prefer the evidence of Ms Bennett in the event of anyconflict.

190 I turn now to my findings on the alleged breaches. I find that:

(a) just prior to the issue of the September default notice Mr Thorpe advised the defendants thatOlympic was in breach of the Olympic Contract; the defendants were not in breach and were in aposition to settle; the defendants were entitled to issue the September default notice; and (impliedly) ifthe situation remained unchanged the defendants could validly terminate the Olympic Contract at theend of the notice period;

(b) Mrs Lochel instructed Mr Thorpe during the telephone discussion concerning the issue of theSeptember default notice that the defendants wanted to terminate the Olympic Contract;

(c) Mr Thorpe did not at any material time advise the defendants that they were (or may be) in breachof the Olympic Contract or the Bondgate promise;

(d) Mr Thorpe did not advise the defendants of steps to take to remedy such breaches.

191 Unless the law is clear, a breach of a solicitor's duty to exercise reasonable care and skill(negligence) is not established merely because legal advice is wrong. Breach will be established if theopinion or advice is not to the standard expected of a reasonably competent solicitor. I am satisfied that



Mr Thorpe failed to exercise reasonable care and skill in advising in September 1996 that Olympic wasin breach, that the defendants were ready willing and able to settle and that the defendants could (if theexisting situation remained unchanged) validly terminate the Olympic Contract. He could not reach areasonably held opinion on these matters without considering and reaching a reasoned view on thefollowing matters: the proper construction of cl 7 of the Olympic Contract relating to the Owners Deed;whether the situation was altered by subsequent conduct and if so how; the construction of theBondgate promise; whether Bondgate's accommodation with Urban Focus affected the OlympicContract and the defendants' ability to perform their obligations thereunder. I am not satisfied that hegave any of those issues the attention and consideration they required in the period up to the purportedtermination. If a reasonably competent solicitor had done so, the advice would have been to thecontrary or at least highly qualified.

192 The corollary to this finding is that a reasonably competent solicitor exercising due care and skillshould have advised to the contrary or at least that it was strongly arguable that Olympic was not inbreach, that the defendants were not ready willing and able to settle and could and should not terminatethe Olympic Contract.

193 However, there was no existing breach by the defendants of the Olympic Contract or theBondgate promise before 4 October 1996. After the defendants entered into the Smart InvestmentsContract on that date, the defendants' options were severely circumscribed (as discussed later). Havingsaid that, it remains the case that Mr Thorpe breached his duty in failing to advise the defendants that byentering into the Smart Investments Contract they had committed a serious breach of the OlympicContract and the Bondgate promise. To remedy that breach would prima facie require the validtermination of the Smart Investments Contract. I address that matter later in these reasons.

194 The second alleged breach complained of by the defendants is that Mr Thorpe failed to terminatethe Olympic Contract in accordance with the defendants' instructions within a reasonable time and didnot do so until 4 November 1996. This is an alternative plea and depends upon there being a window ofopportunity in which the defendants could have validly terminated the Olympic Contract (and Bondgatepromise). For the reasons already given, in my view there was not. However, I will make relevantfindings on this plea on the assumption there was such an opportunity.

195 It is the case that Mr Thorpe did not purport to terminate the Olympic Contract until 4 November1996. It is the defendants' pleaded claim that from about mid July 1996 they instructed Mr Thorpe toterminate the Olympic Contract and, apart from Mr James' letter of 9 July 1996, relied on oralinstructions from Mrs Lochel to Mr Thorpe in the course of telephone conversations on dates whichthey were unable to particularise. Anything said before the meeting on 1 August 1996 at which MrsLochel accepted Mr Thorpe's advice that it was inappropriate to terminate on the basis of the Julydefault notice is of no assistance. However, I have found that in the discussion with Mr Thorperesulting in the issue of the September default notice, Mrs Lochel made it clear to Mr Thorpe that thedefendants wanted to terminate the Olympic Contract. That can properly be construed as an instruction.If the defendants were and remained entitled to terminate at the end of the notice period, Mr Thorpeshould have immediately sought confirmation that there had been no material change in circumstancesand if not, confirmed the instructions and terminated the Olympic Contract. He did none of thesethings.

196 The question whether the defendants were entitled to terminate needs to be considered at the endof September (the expiration of the notice period), 4 October (entry into the Smart InvestmentsContract), 29 October/1 November (Bondgate finance approved) and 4 November (the purportedtermination).

197 For the reasons already given, the date of issue of the default notice is not determinative. At theexpiration of the notice period the defendants could terminate the Olympic Contract provided they werenot in material breach and were ready, willing and able to settle. However, by 4 October 1996 thedefendants had committed a repudiatory breach of the Olympic Contract and the Bondgate promisewhich breach disentitled them from thereafter terminating either contract.

198 If, contrary to my finding, the defendants could take advantage of Bondgate's agreement with



Urban Focus and thus were ready willing and able to settle up to the time of entering into the SmartInvestments Contract, Mr Thorpe would be in breach of his duty to exercise reasonable care and skill infailing to confirm both that there was no material change of circumstances and the defendants' earlierinstructions and thereafter terminate the Olympic Contract before 4 October 1996.

199 The third alleged breach is that Thorpe made the Bondgate promise without the defendants'authority. Mr Thorpe's evidence was that he obtained Mrs Lochel's instructions on the matters containedin his letter of 30 July 1996. Mrs Lochel did not contradict that evidence and was unable to confirm ordeny her discussions with Mr Thorpe on that matter at the meeting on 1 August 1996. I am satisfied thatMr Thorpe acted on instructions in writing the last paragraph of his letter of 30 July 1996.

200 The fourth alleged breach is that Mr Thorpe failed to keep the defendants timeously informed asto the status of their matter and his actions on their behalf. The allegation is particularised as the thirdparty's alleged failure to inform the defendants prior to about 15 November 1996 that he had notterminated the Olympic Contract, his failure after July 1996 to inform the defendants of the existence orsubstance of continuing discussions as to possible settlement and his failure to provide the defendantswith copies of any correspondence received by him.

201 The defendants' plea of the duty and breach is rolled up to encompass Mr Thorpe's failure toinform the defendants of the particularised matters and to do so within a reasonable time. The onlyfactual matter in dispute is whether Mr Thorpe told the defendants (or their agents) before midNovember 1996 that he had not terminated the Olympic Contract. Mr Thorpe's evidence was that inOctober 1966 he told Mrs Lochel and Mr James in effect that the Olympic Contract had not beenterminated. Mr Thorpe's recollection of events is not supported by the contemporaneous documents. Ifhe had read Mr James' October correspondence and the Smart Investments Contract it is to be expectedthat any response, even if only oral, would be the subject of a file note in view of the fact thatresponsibility for the situation was being laid at his door. Ms Bennett's evidence (confirmed in a filenote), which I accept was that on 30 October 1996 Mr Thorpe advised her that the Smart InvestmentsContract took into account Olympic's position. If he had read the contract he would have known thatwas not the case. I reject Mr Thorpe's evidence that he told Mrs Lochel in October 1996 that he had notterminated the Olympic Contract and that she had given him general instructions to try and settle withOlympic. Further, I do not accept that he had oral discussions with Mr James about the matters raised inhis (Mr James') correspondence. I prefer Mr James' evidence on that matter. I infer from Mr Thorpe'sconduct that on receipt of the Mony de Kerloy letter of 1 November 1996 he finally came to grips withthe events that had occurred during a period of inattention to the defendants affairs and, withoutreference to or further instructions (general or specific) from his clients, terminated the OlympicContract. Mr Thorpe's conduct is suggestive of panic. I find that Mr Thorpe:

(a) did not at any time prior to about 15 November 1996 inform the defendants or their agents that hehad not terminated the Olympic Contract;

(b) after the issue of the September default notice failed to inform the defendants of the existence orsubstance of continuing discussions as to possible settlement on the Bondgate Contract; and

(c) failed to provide the defendants with copies of correspondence received by Mr Thorpe from thethird parties relating to the transactions.

In the circumstances of this case, in particular the long delay in settlement, the impact of the delay onthe defendants, Mrs Lochel's instructions to terminate and an alternative buyer on hand, a reasonablycompetent solicitor exercising reasonable skill and care should, immediately on the expiration of thenotice period and certainly before 4 October 1996, have advised the defendants of the factual (andlegal) position in relation to notice of termination and sought instructions. If he had done so, thedefendants would not have signed the Smart Investments Contract before any purported termination ofthe Olympic Contract.

202 I am also satisfied that Mr Thorpe was in breach of his duty in failing to keep the defendantsinformed of the substance of his communications with Mony de Kerloy in the period after the issue ofthe September default notice concerning, inter alia, possible settlement of the Olympic/Bondgate



Contract. Those matters were essential to the defendants making informed decisions as to their options.Provided the substance of relevant communications are provided in permanent form and in a timelymanner, I am not persuaded that it is a breach of duty to fail to provide copies of correspondence,although it is a highly desirable course.

203 The fifth alleged breach is that on or about 4 October 1996 Mr Thorpe advised Mr James that theOlympic Contract had been terminated when, as Mr Thorpe well knew or should have known, this wasnot the case. I accept Mr James honestly believed prior to preparing the Smart Investments' Contractsthat Mr Thorpe had in effect advised him that the Olympic Contract had been terminated. To concludeotherwise would be to regard his October 1996 correspondence to Mr Thorpe as a calculated anddishonest scheme to transfer responsibility and liability from himself to Mr Thorpe. I am not preparedon the evidence to make such a finding. Mr James' evidence is corroborated by Mr Domhoff's evidenceof what he was told by Mr Thorpe.

204 On the other hand I am satisfied that Mr Thorpe was aware the defendants had to take theadditional step of electing to terminate the Olympic Contract after the expiration of the Septemberdefault notice period. That is clear from his first (and only) letter to the defendants in 1996. I cannotfathom why Mr Thorpe would advise Messrs James and Domhoff that the contract was at an end unlesshe mistakenly thought he had issued a notice of termination. Alternatively, there is the possibility of amisunderstanding. Mr Thorpe said he informed Mr James that "the notice has expired". Mr James'correspondence refers to the notice and the contract "lapsing". I am not persuaded that the real estateagents clearly understood the need for a further positive step by the defendants after the expiration ofthe notice period in order to terminate the contract and I am not satisfied that Mr Thorpe advised MrJames and Mr Domhoff that the Olympic Contract had been terminated.

205 The sixth alleged breach is to the effect that Mr Thorpe led the defendants to assume that theOlympic Contract had been terminated on or before 4 October 1996 when they entered into the SmartInvestments' Contracts. Based on my finding that Mrs Lochel instructed Mr Thorpe to terminate theOlympic Contract when discussing the issue of the September default notice and Mr Thorpe's failure tocontact her or give her any indication that he did not propose to act on her instructions, I am satisfiedthat Mrs Lochel was induced by those circumstances to assume that the Olympic Contract had beenterminated in accordance with her instructions.

206 The seventh alleged breach is that between around 1 October and 15 November 1996 Mr Thorpeengaged in communications with the plaintiffs without the defendants' instructions. I have alreadyrejected Mr Thorpe's evidence of his alleged discussions with Mrs Lochel after he had received theSmart Investments Contract and that he had general instructions to negotiate with Olympic after 1October 1996. I find the breach proven although nothing appears to turn on the failure.

207 The defendants' case is that if they wrongfully repudiated the Olympic Contract or terminated itin such a way as to give rise to any liability to Olympic or to disentitle them from recovering damagesfrom Olympic the subject of the counterclaim, they did so by reason of the alleged breaches andsuffered loss and damage.

Summary of Breaches and Causation

208 I have concluded in the action that the defendants breached the Bondgate promise and that thepurported termination of the Olympic Contract on 4 November 1996 was invalid. Further, I have foundagainst the defendants on the counterclaim.

209 In the third party action I have found that Mr Thorpe breached his duty to exercise reasonableskill and care by:

(a) advising in September 1996 that Olympic was in breach of the Olympic Contract, that thedefendants were ready, willing and able to settle the Olympic Contract and that the defendants couldvalidly terminate it if the situation remained unchanged;

(b) failing to



(i) immediately on or before the expiration of the notice period the subject of the September defaultnotice (but in any event before 4 October 1996) advise the defendants as to whether they could lawfullyterminate the Olympic Contract and obtain and act in accordance with their instructions on termination.A solicitor exercising reasonable skill and care would have advised the defendants not to terminate theOlympic Contract;

(ii) immediately on becoming aware of the terms of the Smart Investments Contract (which should havebeen on or about the date of receipt of it from Mr James), advise the defendants that they were inbreach of the Olympic Contract and the Bondgate promise and of the consequences thereof and anystrategies to extricate the defendants;

(iii) keep the defendants informed of the substance of his communications with Mony de Kerloy inOctober/November 1996 and the legal consequences thereof;

(c) causing Mrs Lochel to understand that the Olympic Contract had been validly terminated by thetime the defendants executed the Smart Investments Contract.

210 I turn now to issues of causation. As to the law, see Henville v Walker [2001] HCA 52; (2001)206 CLR 459; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002)210 CLR 109. I am satisfied that the breaches referred to in pars (a), b(i) and (c) above, caused thedefendants to enter into the Smart Investments Contract. That is, if Mr Thorpe had exercised due careand skill in these respects, the defendants would not have entered into the Smart Investments Contract.

211 Further, I am also satisfied that but for the breaches in pars (a), b(i) b(iii) and (c), the defendantswould have instructed Mr Thorpe that they wished to perform the Bondgate promise and BondgateContract. If Mr Thorpe had acted with reasonable care and skill, the defendants would not have enteredinto the Smart Investments Contract and would have performed the Bondgate promise and settled theBondgate Contract and Amended Mandurah Contract by 15 November 1996 with the furtherconsequence that these proceedings (action, counterclaim and third party action) would have beenavoided.

212 I am not persuaded that the breach in par (b)(ii) caused any loss.

Post 4 November Claims - Background

213 The defendants also claim that by reason of Mr Thorpe's conduct between 4 November 1996 and15 January 1997 he breached the retainer, was negligent or in breach of his fiduciary duties.

214 The factual background to this claim is as follows. Mr Thorpe met with Mrs Lochel and MrJames on 15 November 1996. They discussed an offer from Smart Investments to purchase the Lochelland from the mortgagees, the defendants at that time being in default of their obligations under therelevant mortgage. According to Mrs Lochel, Mr Thorpe said that Olympic was disputing the fact thatthe Olympic Contract had been validly terminated although it had no basis to do so, and that if themortgagees sold the Lochel land, neither Olympic nor Urban Focus could maintain their caveats and theland would be easier to sell. Mrs Lochel told Mr Thorpe that she was fed up with Mr Bacich and thatshe wanted to complete the Smart Agreements. Mr Thorpe suggested that he write to the mortgagee'slawyers asking them to sell the land to Smart Investments on the basis of the Smart InvestmentContract. I infer from a letter dated 28 November 1996 from Mr Thorpe to the solicitors for the firstregistered mortgagees, Kim Valenti & Associates, that Mr Thorpe spoke to Mr Valenti during theconference on 15 November 1996 with a proposal that the defendants present an offer to purchase theLochel land from Smart Investments for his clients' acceptance as mortgagees.

215 By letter dated 15 November 1996 to Peter James Realty and letters of 18 November to UrbanFocus, Mr Thorpe and Mony de Kerloy, Mr Valenti advised that the defendants were in default underthe mortgage and that his clients intended to exercise their power of sale and to appoint an independentreal estate agent to sell the Lochel land by private treaty.

216 Mr Thorpe wrote to Kim Valenti on 18 November and on a subsequent date advising that the







defendants would have no objection to the mortgagees accepting an offer from Smart Investments onthe same terms as the Smart Investments' Contract.

217 Olympic commenced these proceedings in late November 1996 claiming specific performance ofthe Olympic Contract. Mrs Lochel's evidence was that in late November or early December 1996 MrThorpe told her that Olympic had commenced proceedings against the defendants but did not provide acopy of the court documents.

218 Under cover of a letter dated 18 December 1996 to Mr Thorpe, Kim Valenti provided copies ofthe Smart Investments offer to the mortgagees and the defendants' offers to purchase the Seascapes andBanjup properties. The letter states:

"The mortgagees are concerned that they do not have before them your confirmation thatyour clients have been advised by you and understand the nature, effect and propriety ofthe enclosed offer. Further, the mortgagees are concerned that they do not have anythingbefore them that confirms that your clients have been independently advised by a valuer asto the value of the Seascapes and Banjup properties prior to submitting the offers to therespective proprietors."

219 The mortgagee's solicitors requested Mr Thorpe to provide a certificate from him certifying that,in his opinion, the defendants understood the nature, effect and propriety of the transaction and acertificate of an independent valuer certifying that the offers to purchase the Seascapes and Banjupproperties were fair and reasonable in all the circumstances. Mr Valenti also enclosed copies of offersreceived from Bondgate (in the terms of the new contracts alternatively a stand alone offer of $500,000for the Lochel land) and enquired whether the defendants were prepared to purchase the Mandurah landfor $350,000. Finally, Mr Valenti asked "could you please advise which of the enclosed offers yourclients would prefer the Mortgagees accept".

220 Mr Thorpe's evidence was that when he received Mr Valenti's letter of 18 December hetelephoned Mrs Lochel and said to her words to the effect that Smart Investments had agreed to buy theLochel land from the mortgagees but the mortgagees had also received an offer from Mr Bacich. MrThorpe said that Mr Bacich had made two offers, one for $500,000 cash and the second identical to theoffer previously made by Bondgate. Mrs Lochel became angry and said to Mr Thorpe words to theeffect that Mr Bacich was trying to steal the property and that she did not want to deal with Mr Bacich.Mr Thorpe's evidence was that he then said to Mrs Lochel words to the effect that Mr Valenti hadconcerns regarding the values of the swapped properties under the Smart offer and wanted her to get anindependent valuation and Mrs Lochel responded with words to the effect that she was happy with theprices of the swapped properties.

221 Following that conversation, Mr Thorpe wrote a letter dated 19 December 1996 to Mr Valentiadvising him that the defendants had previously accepted an offer to purchase the Lochel land by SmartInvestments in identical terms to that currently submitted to the mortgagees; had earlier agreed topurchase the Seascapes and Banjup properties in terms identical to the offers copied by Mr Valenti toMr Thorpe; that the defendants had made their own enquiries about values and wished all of thedealings to proceed on the terms set out; the defendants did not wish to purchase the Mandurah land forthe price referred to or at all; and wanted the mortgagees to accept the Smart Investments offer.

222 Mrs Lochel's evidence-in-chief was that Mr Thorpe did not show her the Kim Valenti letter of 18December 1996 and did not discuss the contents of that letter with her. She said Mr Thorpe did notadvise the defendants that they:

(i) should obtain advice as to the values of the two offers or even that Kim Valenti wanted them to doso;

(ii) may have an obligation to minimise their claim against Olympic by accepting one of the Bondgateoffers;

(iii) could make independent enquiries of Bondgate's financiers to test its credibility.



223 However, Mrs Lochel said in cross-examination that at some stage in December 1996 she becameaware that Bondgate had made two offers to purchase the land, one for $500,000 cash and the other interms similar to the earlier offer of $600,000 subject to the purchase by them of the Mandurah land for$350,000, but she had no reason to believe that Bondgate was in any better position to complete thosecontracts than Olympic had been.

224 It was Mrs Lochel's evidence that although she had previously told Mr Thorpe that the defendantswanted nothing more to do with Mr Bacich, they would have accepted the Bondgate offer had MrThorpe advised them to do so or advised them that:

- by accepting the Bondgate offer the defendants could resolve the litigation with Olympic cheaply andby rejecting it they faced the prospect of Olympic continuing to sue them;

- the defendants risked being unable to recover damages from Olympic if they failed to minimise theirlosses;

- it was arguable that the defendants should accept the Bondgate offer for these reasons; and

- Bondgate had finance and could settle.

225 The mortgagees accepted the Smart Investments' offer on 20 December 1996.

Post 4 November Breaches

226 The defendants conceded the unsustainability of their pleaded claims that Mr Thorpe dealt withthe mortgagees of the Lochel land without the defendants' authority, had failed to inform the defendantsof the Bondgate and Smart Investment offers presented to the mortgagees and acted without thedefendants' authority in advising the mortgagees that the defendants wished to accept the offer of SmartInvestments.

227 The balance of the defendants' post 4 November claim involved two claims. First, that Mr Thorpefailed to render advice to the defendants as to the effect of the respective offers and the consequences ofthe mortgagees accepting one or the other, thereby denying the defendants the benefit of making aninformed decision as to which offer to request the mortgagees to accept.

228 Insofar as that relates to issues of mitigation of their damage, it is unnecessary to answer thequestion in view of the failure of the counterclaim. However, it is claimed, and the evidence establishes,that Mr Thorpe did not advise the defendants of the possible risks and consequences of litigationgenerally or that by accepting the Bondgate offer this litigation would have been avoided. On the lattermatter I find that the wishes and approval of the defendants was the determining factor in themortgagees' decision as to which offer to accept.

229 A solicitor exercising reasonable care and skill would at this time have considered and advisedthe defendants as to whether or not the defendants had a legal or practical commercial choice as to theparty to whom the mortgagee should sell the Lochel land (either Bondgate or Smart Investments). Thatin turn depends upon the following matters:

(a) the merits of the Olympic/Bondgate claims and the risks and consequences of litigation in terms oftime and cost;

(b) the defendants' liability to Smart Investments under the Smart Investments Contract and theconsequences if the mortgagees sold to Smart Investments on the same terms and conditions;

(c) the advantages and disadvantages of the alternative courses and options available to the defendantswith advice as to the most appropriate option.

230 Save for his oral advice that the termination of the Olympic Contract was valid, Mr Thorpe didnot advise the defendant of these matters. If he had done so he would have become aware of Mrs



Lochel's understanding that Smart Investments would be prepared to walk away from its deal and notsue the Lochels.

231 Mrs Lochel's evidence is that the defendants would have informed the mortgagees to accept theBondgate offer if she had been told by Mr Thorpe that by accepting the Bondgate offer the defendantscould resolve the litigation with Olympic cheaply; by rejecting it the defendants faced the prospect ofOlympic continuing to sue them; they risked being unable to recover damages from Olympic if theyfailed to minimise their losses; and that Bondgate had finance and could settle.

232 However, that evidence is predicated on the assumption that Smart Investments would not sue thedefendants for damages in the event the mortgagees sold to Bondgate. She said that if Mr Thorpe hadtold her in early November 1996 that Bondgate could immediately settle the contract she would havetold Mr Thorpe to settle with them "if we could get out of the Smart Investments Contract" and sheunderstood Special Condition 8 protected them in that regard. Special Condition 8 did not.

233 Mr Zielinski's evidence was to the effect that he understood the Smart Investments Contractwould only proceed if the defendants' contract with Olympic was validly terminated. By 11 November1996 he understood that the Olympic Contract had been terminated and that there was a dispute withOlympic as to the validity of the termination which is why his solicitors suggested the matter needed tobe resolved expeditiously by court proceedings. Although, Mr Zielinski said in evidence that he had nointention of trying to enforce any contractual rights against the defendants if the Olympic Contract wasin fact still on foot, he did not give evidence that, absent a formal determination on the question ofvalidity, he would take no action against the defendants under the Smart Investments' Contract. Further,he was not asked and did not say that he would be prepared to facilitate a settlement of the defendants'disputes with Olympic and Bondgate by the mortgagees selling the Lochel land to Bondgate. I am notpersuaded that Smart Investments would have agreed to terminate its contract in the circumstances thatoccurred from the purported termination on 4 November 1996.

234 Having regard to the prima facie binding contract with Smart Investments I am not persuaded, onthe balance of probabilities, that even if Mr Thorpe had exercised reasonable care and skill at this stagein the proceedings, the defendants would have advised the mortgagees to accept the Bondgate offer.

235 The second alleged breach is that Mr Thorpe failed to ascertain what, if any, advice thedefendants had received as to the value of the trade properties under the Smart Investmentsarrangement.

236 Mrs Lochel's evidence-in-chief was that had the defendants been advised to seek advice as to thevalue of the trade properties they would have done so. However, in cross-examination she said thedefendants had been provided with a valuation of the trade properties and they were happy with it. It isalso the case, and I find, that the defendants' decision in October 1996 to enter into the SmartInvestments Contract was a decision entered into on the advice of Mr James and Mr Domhoff andwithout any input from Mr Thorpe as to the commerciality of the deal. In any event, the terms of theSmart Investments Contracts were in all material respects replicated in the mortgagees' sales. The useof the mortgagees' power of sale was a way to avoid difficulties with the existing caveats on the title tothe Lochel land. I am satisfied that Mr Thorpe was not in breach in failing to ascertain what advice hadbeen received as to the values of the trade properties and even if there was a breach, it did not causedamage.

Breaches - Third Party Action

237 The first claim is that Mr Thorpe, in the course of representing the defendants in this action,conducted them in such a way as to cause undue delay, stress, hardship and unnecessary expense. Theconduct is particularised and is largely uncontentious. In particular, it is the case and I find that MrThorpe:

(1) failed to file an appearance on behalf of the defendants within the time specified in the Rules of theSupreme Court (WA);



(2) failed to file a defence on behalf of the defendants in accordance with orders made by the Courtresulting in the plaintiff entering default judgment against the defendants and making it necessary forMr Thorpe to apply for and obtain orders setting the judgment aside;

(3) without instructions, commenced an appeal against orders made in respect of costs;

(4) without instructions, consented to orders discontinuing the appeal and fixing the costs payable by thedefendants in the sum of $600;

(5) failed to attend status conferences on the defendants' behalf on three dates in 1997;

(6) failed to advise the defendants until about 13 October 2000 that because he would be required togive evidence at trial he was unable to act as counsel;

(7) failed to advise the defendants that he was unable to continue to act as their solicitor until 22November 2000 when he referred the defendants to their current solicitors.

238 Mr Thorpe's conduct detailed in items (1) to (5) falls well below the standard expected of acompetent solicitor. Items (6) and (7) claim in effect that Mr Thorpe had a conflict of interest inrepresenting the defendants in the action and failed to advise the defendants of that fact. The reliefsought relates to liability to pay solicitor-client costs related to this action.

239 It is pleaded that Mr Thorpe rendered accounts to the defendants totalling $44,577.03 of whichthey have paid $28,057.50. Complaint is made that Mr Thorpe has failed to itemise two of his accounts(dated 27 January 1999 and 28 June 2001). It was Mr Thorpe's evidence that he did not claim from thedefendants any costs where he acted without the defendants' instructions and he undertook to fileitemised accounts for taxation to enable those matters to be tested. He gave an undertaking in relationto the timing of filing such itemised accounts.

240 However, the broader question is whether from about 4 October 1996 Mr Thorpe had a conflictof interest which disentitled him from acting and if so whether, that disentitles him to any remunerationfor the services provided since that date. There is an alternative basis for the claim. It is that if thedefendant had not breached his contractual, tortious and (non-conflict) fiduciary duties, this litigationwould not have proceeded and the costs would not have been incurred. Thus, the alternative claim is forconsequential loss.

241 There are two aspects to the conflict of interest claim. The first relates to Mr Thorpe's continuingto represent the defendants notwithstanding he would be required to give evidence at trial. This is themore contentious of the two claims. Ipp J (as he then was), in an article "Lawyers' Duties to the Court"114 LQR 63 at 92 wrote:

"(d) The lawyer as a witness

It is undesirable for a lawyer to appear as a witness in the same case as he is instructing solicitor (and, afortiori, counsel). Similarly, it is undesirable that, when an affidavit has been filed by a lawyer insupport of an application by a client, the lawyer appear as solicitor or counsel. The reason for this isthat the lawyer would be in a position of apparent conflict between the duty to advance the interests ofthe client and the duty to the court to give impartial evidence.

In Australia it has been held that such a conflict would not be sufficient to justify an injunctionrestraining the lawyer from continuing to act for the client."

242 This Court has at least at first instance restrained solicitors and counsel from continuing to act insuch circumstances: Pittorino v Meynert (as Executrix of the Wills of Guiseppe Pittorino (Deceased)and Guiseppina Pittorino (Deceased)) & Ors [2001] WASC 245; Clay v Karlson (1996) 17 WAR 493.

243 It is not clear to me that there is a conflict of duties in such circumstances. However, it isunnecessary for me to decide whether such conduct constitutes a breach of a fiduciary duty giving riseto an entitlement to equitable damages or other relevant relief. That is because I am satisfied that in

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acting for the defendants in the action Mr Thorpe was in a position of conflict of interest because hisacts and omissions are at the heart of the questions in issue in the plaintiffs' claim against thedefendants. He and his firm were in a real sense defending his actions and advice, what little there wasof it. In such circumstances I respectfully adopt the statement of Thomas J in Kooky Garments Ltd vCharlton [1994] 1 NZLR 587 at 589 – 590 that:

"There is, in such circumstances, a danger that the client will not be represented with theobjectivity and independence which the client is entitled to and which the court demands.There is no sound reason to presume or accept that the solicitors must first have theopportunity to clarify whether their client is liable as a result of their actions or of acting ontheir advice before confronting the conflict."

244 This case was cited with approval by the Full Court in Afkos Industries Pty Ltd v PullingerStewart (A Firm) [2001] WASCA 372 at [29]. It is not suggested that Mr Thorpe continued to act withthe informed consent of the defendants. He did not. I am satisfied that Mr Thorpe was in a position ofconflict of interest from the date the statement of claim was filed in the action. From that date he oughtto have ceased to act and the defendants are entitled to the loss and damage flowing from the breach.

245 The common law principles governing causation and remoteness do not apply to a claim forequitable damages for breach of fiduciary duty: Unioil International Pty Ltd & Ors v Deloitte ToucheTohmatsu & Ors, unreported; SCt of WA (Ipp J); Library No 970352; 18 July 1997; PermanentBuilding Society (in liq) v Wheeler (supra) at 243 – 245. Based on those authorities, the enquiry issimply whether the loss would have happened had there been no breach. It is the case that if Mr Thorpehad not continued to act, the accounts in question would not have been rendered. However, another firmof solicitors would have been retained and legal costs incurred. I am satisfied that in relation to theclaim based on breach of fiduciary duty the defendants are entitled to the costs thrown away or wastedas a result of having to retain a second firm of solicitors who would have to familiarise themselves withall of the relevant background material. However, this finding is of no consequence because of theprevious finding that Mr Thorpe's breach caused the defendants to become embroiled in this litigation.

246 The final issue is whether the common law principles affecting damages apply to a breach ofequitable duty. The law in this State is that the common law principles of causation and remoteness doapply to a breach by a fiduciary of the equitable obligation to exercise reasonable care and skill:Permanent Building Society (in liq) v Wheeler (supra) at 247 – 248. This position is criticized inMeagher Gummow and Lehane's "Equity Doctrine and Remedies" 4th ed 23-015 to 23-020. Thesituation would be different if there was a link between the conflict of interest and the breaches ofequitable duty to exercise reasonable care and skill. That claim is not pleaded against Mr Thorpe.

Defendants' Loss and Damage

247 The defendants claim the damages, interest and costs ordered to be paid by the defendants to theplaintiffs or either of them in the action, the damages particularized in MFI A and the defendants' costsof defending this action and prosecuting the counterclaim on an indemnity basis. Save for the MFI Aclaims, which I address in detail below, the defendants are entitled to the relief claimed because, for thereasons already given, I am satisfied that the defendants' liability to the plaintiffs in this action is causedor materially contributed to by Mr Thorpe's breaches of his duty to exercise reasonable care and skill.

248 It follows from my finding that but for Mr Thorpe's breaches these proceedings would have beenavoided and, in the absence of any claim that the defendants have acted unreasonably in their conductin these proceedings, the defendants are also entitled to their claim for the costs of defending the actionand prosecuting the counterclaim on an indemnity basis.

249 The defendants also claim "such damages as would have been awarded to the defendants hadtheir counterclaim been successful". The claim is based on the assumption that if Mr Thorpe hadexercised reasonable care and skill the defendants could have validly terminated the Olympic Contract.There is no finding made on any pleaded breach which would have had that result. This aspect of theirclaim fails.

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250 I now turn to the MFI A claims. MFI A served the dual function of particularising the loss anddamage claimed against Olympic on the counterclaim and from Mr Thorpe in the third party action. Itis prepared on the assumption that Olympic was in default of the Olympic Contract by mid July 1996and the Olympic Contract was validly terminated. I have found that it was not validly terminated andbut for Mr Thorpe's breaches, the Bondgate Contract would have settled by 15 November 1996. Iapproach the defendants' damages claim in light of those findings.

(i) Items 1 and 2251 The defendants claim the interest paid by them to the mortgagees of the Lochel land from 12 July1996 (said to be the settlement date under the Olympic Contract) and 15 January 1997, being the date ofsettlement of the sale of the Lochel land by the mortgagees to Smart Investments. As noted above, Ihave found that Olympic was not relevantly in breach of the Olympic Contract, that but for Mr Thorpe'sbreaches of his duty to exercise reasonable care and skill in the ways pleaded the defendants would nothave entered into the Smart Investments Contract, would have performed the Bondgate promise and theBondgate Contract and amended Mandurah Contract would have settled on 15 November 1996. On thatdate the defendants would have received a net cash payment of $250,000 as well as title to theMandurah land. It is apparent from exhibit 20 that the cash payment would cover interest and principalon the mortgages with a remaining balance of some $15,000 - $20,000 (a figure to be calculated by theparties). I am satisfied that the defendants are entitled to interest paid under the mortgages between 15November 1996 and 15 January 1997.

252 The defendants were paying a penalty rate of interest as a result of being in default under themortgages. I am satisfied that the claim for penalty interest is recoverable because it is foreseeable andnot too remote under the rule in Hadley v Baxendale (supra). Mr Thorpe was aware from his letter ofinstructions of 9 July 1996 that the defendants had booked a trip to Germany three times in anticipationof settlement, were living in their home with very little furniture, it having been shipped to Germanyand, as advised by Mrs Lochel at their first consultation, the defendants had no income, Mr Lochelhaving relinquished his employment because of their intention to go to Germany. The title searchesenclosed with Mr James' letter of 9 July 1996 would disclose the registered mortgage on the title.

(ii) Item 3253 The defendants claim interest on the balance of the purchase price of the Lochel land after thedischarge of the mortgages as at 12 July 1996 ($640,000 less $220,000). This claim fails to have regardto the fact that the defendants would have received the Mandurah land and, after discharge of themortgages, cash of approximately $30,000. I am not persuaded on the evidence that the defendantsintended the Mandurah land to be an income-producing investment property and there is no evidence ofthe income it would produce, even if that was their intention. However, the defendants are entitled tointerest from 15 November 1996 to 15 January 1997 on the net cash they would have received atsettlement, that figure to be determined by reference to the amount payable to the mortgagees of theLochel land and other expenses usually deducted from the purchase price.

(iii) Item 4254 The defendants claim expenses incurred in connection with the mortgagees sale of the Lochelland. I am satisfied that the amounts claimed were actually paid to the mortgagees' solicitors andbrokers and I infer the defendants were obliged to make the payments under their mortgages. I amsatisfied that the loss was caused by Mr Thorpe's breaches identified above. Further, I am satisfied thedamage was foreseeable and not too remote having regard to Mr Thorpe's knowledge of the mortgagesand the defendants' lack of income.

(iv) Item 5



255 The defendants claim storage for the defendants' furniture and effects from 27 August 1996 to 15January 1997. The defendants are entitled to storage costs for the period 15 November 1996 (when, butfor Mr Thorpe's negligence, the Bondgate Contract would have settled) and 15 January 1997 on theground that the loss was caused by Mr Thorpe's breaches, was foreseeable and is not too remote.

(v) Item 6256 The defendants claim $40,000 for the alleged capital loss on the resale of the Lochel land beingthe difference between the purchase price under the Olympic Contract ($640,000) and the purchaseprice under the mortgagee contract with Smart Investment ($600,000). I have found that but for MrThorpe's breaches, the Bondgate Contract and amended Mandurah Contract would have settled. Thepurchase price under the Bondgate Contract is the same as that under the mortgagee contract. I woulddismiss this claim.

(vi) Items 7 and 9257 In item 7 the defendants claim the expenses associated with the mortgage of the Banjup propertyto secure $120,000. The background to this claim is as follows. In order to pay out the defendants'mortgagees and to pay related expenses, the defendants borrowed $120,000 against the Banjupproperty. The conditions of that loan were that the defendants had to immediately put that property upfor sale, pay six months interest in advance and place a further six months interest on deposit in theevent the property did not sell. The property was listed with a real estate agent on 19 January 1997 andon 20 June 1997 the defendants accepted an offer of $170,000 for the Banjup property ($30,000 lessthan the purchase price paid to Smart Investments). The defendants had received no other offers for theproperty.

258 There are a number of impediments to this claim. Firstly, the net difference in cash receiptspayable to the defendants under Bondgate Contracts and Smart Investments Contracts as at July 1996was $30,000 not $120,000. The net figure in mid November 1996 would be less. Secondly, it is wrongto focus on individual aspects of expenses incurred with one aspect of a series of transactions involvingthe sale of the Lochel land and the purchase of trade properties. Thirdly, I am not satisfied that the valueof the Lochel land/Mandurah land swap was greater than the value of the Lochel land/Seascapes andBanjup properties. The defendants invited me to infer that the Banjup property was purchased by thedefendants at $30,000 above market value. If that sale was a stand-alone one or was part of a 2 propertytrade deal I may be prepared to do so but I am not persuaded to draw such an inference in a three tradeproperty deal. Finally, I am not satisfied that Mr Thorpe's conduct caused the loss or that it wasforeseeable. The defendants were advised on the commerciality of the Smart Investments Contracts byMessrs James and Domhoff without any input of any nature from Mr Thorpe. Further, I accepted MrsLochel's evidence that the defendants had received valuations of the Seascapes and Banjup propertiesand were happy with them. I would dismiss this claim.

259 In item 9 the defendants claim the loss on resale of the Banjup property. The claim includesinterest, settlement costs, agent's commission, mortgage discharge costs, land tax, a capital loss of$30,000 and interest on the defendants' equity in the property between 15 January 1997 and 1 August1997. For the reasons canvassed in relation to item 7, I would dismiss this claim as unproven and tooremote.

(vii) Item 10260 This is a claim for interest under the Supreme Court Act on the damages awarded. I would in theexercise of my discretion award interest on the award of damages at the rate prevailing from time totime under the Supreme Court Act.

(viii) Item 13

http://www.austlii.edu.au/au/legis/sa/consol_act/sca1935183/





261 Item 13 is a claim for $100,000 for "mental anguish, anxiety, pain, physical discomfort andinconvenience". These claims for non-pecuniary loss are secondary to or associated with an economicloss claim. It is necessary to deal separately with the claim for physical inconvenience and discomfortfrom the other components of the claim which I will conveniently refer to as the mental distress claim.

262 The position in contract is governed by the High Court decision in Baltic Shipping Co v Dillon(supra). The general rule is that damages for anxiety, disappointment and distress are not recoverable inactions for breach of contract. The general rule is subject to exceptions which relevantly include wherephysical inconvenience has been caused to the other party or where there is a breach of an express orimplied promise to provide pleasure, relaxation or freedom from distress. I have already concluded thatthere was no relevant implied term. Further, the Baltic Shipping general rule being grounded in policyrather than logic, I do not understand the principles in negligence (as distinct from intentional torts) orequity to be wider than those in contract.

263 The uncontradicted evidence is that the defendants suffered physical inconvenience anddiscomfort as a result of the delay in settlement. They had sent their furniture to Germany and wereliving in spartan conditions. I am satisfied that the defendants also suffered consequential mentaldistress although Mr Thorpe is only responsible for the delay between mid November 1996 and 15January 1997.

264 Mrs Lochel's evidence, which I accept, is that Mr Thorpe did not seek the defendants' instructionson significant aspects of the court proceedings, that while they were in Germany they were constantlyworried about the lack of progress in the action in Australia, that they had little or no feedback from MrThorpe and as a result, on 26 July 1998 the defendants returned to Australia primarily to deal with thelitigation.

265 Mrs Lochel also gave evidence of her husband's condition. It was her evidence that in 1996 hewas a friendly, patient, outgoing person who was fit and healthy although he was showing signs ofanxiety and distress in 1996 before the commencement of the proceedings. After his return to Australiain 1998 he started becoming withdrawn and moody. Following the adjournment of the trial inNovember 2000 he became more and more withdrawn, had panic attacks, started becoming aggressiveand in about 2001 was prescribed anti-depressant drugs. Mr Lochel did not give evidence but hisgeneral practitioner did. The general practitioner, Dr Connolly, gave his opinion that Mr Lochel'sanxiety, depression and panic attacks were caused or materially contributed to by the litigation.However, it is apparent that Dr Connolly did not regard himself as an expert on the subject and that hisopinion was based on the hearsay evidence of a psychiatrist who had seen Mr Lochel and what he hadbeen told by Mr and Mrs Lochel. I am not satisfied on the basis of this evidence that Mr Lochel'spsychiatric condition is causally connected with this litigation.

266 However, I am satisfied that the defendants suffered physical inconvenience and discomfort as aresult of these proceedings. I accept that Mr Thorpe's conduct (or more appropriately misconduct) of theproceedings resulted in unacceptable delays in the action, that he failed to communicate with his clientsand that these were material factors in the defendants' decision to return to Perth. I also accept MrsLochel's evidence that they sold their Seascapes property and moved into rented accommodation inorder to fund this litigation. In those circumstances I would award the defendants damages for physicaldiscomfort and inconvenience as well as the consequential mental distress associated therewith. Fromall accounts, Mr Lochel has had little or nothing to do with the proceedings. However, I am satisfiedthat the physical inconvenience would have caused mental distress to both defendants. There is little toguide the quantification of this head of claim. I would award $30,000.

(ix) Item 14267 The defendants claim out-of-pocket expenses including estimates of the cost of telephone calls toMr Thorpe, the loss on resale of the Seascapes property (which includes selling costs and what isdescribed as a capital loss of $90,000), rent from 26 June 2001 to the date of trial, car rental from 2 July1996 to 27 August 1996, travel costs to Germany and travel costs from Germany (for themselves, theirdog and their furniture and goods).



268 What is described as a capital loss on the sale of the Seascapes property is in effect a loss ofprofit claim. It was based on Mrs Lochel's opinion which in turn was based on what she was told thedefendants would likely get if they sold the property in October 2003. Objection was correctly taken toMrs Lochel's opinion evidence on the basis that it was hearsay and she lacked relevant expertise on thesubject. I give it no weight. In any event, I am not satisfied that the claim for loss of profit is availableas a matter of principle. If the breach had not occurred, the defendants would not have owned theSeascapes property. Further, I am not satisfied that an undiscounted claim for rent is an accuratereflection of the loss occasioned by having to sell their (I assume) unencumbered home or that the saleof the asset was foreseeable. I would dismiss these claims.

269 The defendants are not entitled to car rental or their travel costs to Germany as they are unrelatedto any relevant breach. As to the cost of telephone calls to Mr Thorpe, I am not satisfied that all of thecalls are relevantly connected with the breaches or caused loss. I would allow $500.

270 I have accepted Mrs Lochel's evidence that the defendants returned to Perth in July 1998primarily to deal with the litigation. I infer that was necessary because of Mr Thorpe's conduct of thelitigation and his failure to communicate with his clients. On that basis, I am satisfied that thedefendants are entitled to their claimed travel costs from Germany.

(x) Items 8, 11 and 12271 Item 8 is for Mr Thorpe's costs in acting for the defendants from November 1996 to January 1997less a credit of $1,500 for fees said to have been reasonably incurred. The claim relates to costs incurredby Mr Thorpe in connection with achieving the settlement of the sale of the Lochel land by themortgagees to Smart Investments and related transactions in January 1997. I am satisfied that they aredamages flowing from the breach and are in principle recoverable. I accept that the credit for feesreasonably incurred may be somewhat arbitrary but, having regard to the magnitude of the claim andthe lack of any detailed challenge to it or alternative advanced by Mr Thorpe, I would order damages inthe amount sought by the defendants.

272 Items 11 and 12 relate to the costs paid or incurred by the defendants to their solicitors in theconduct of this action as well as interest on costs paid.

273 Having regard to my findings that but for Mr Thorpe's breaches of duty the defendants wouldhave settled with Bondgate in mid November 1996 and these proceedings would not have beeninstituted, I am satisfied that the defendants are entitled to the costs, including interest, paid to or owedby the defendants to their solicitors for the conduct of the action, counterclaim and third party action.

274 In summary, I uphold in whole or in part the defendants' claims the subject of Items 1, 2, 3, 4, 5,8, 10, 11, 12 and 13. The defendants' advisors will have to prepare calculations of the amounts owing inconformity with these reasons.

Conclusion

275 For the reasons given I would enter judgment for Bondgate in the action in the sum of $60,052and interest thereon at the rate payable from time to time under the Supreme Court Act from 1 March1999, dismiss the counterclaim and in the third party action make orders that Mr Thorpe:

(a) indemnify the defendants for the damages, interest and costs payable by the defendants to theplaintiffs in the action and the counterclaim;

(b) indemnify the defendants for the costs incurred by them in relation to the action, counterclaim andthird party action;

(c) pay damages to the defendants to be calculated in accordance with these reasons;

(d) pay to the defendants damages of $30,000 for physical inconvenience, discomfort and associated




mental distress;

(e) pay interest on the damages at the rate payable from time to time under the Supreme Court Act fromthe various dates on which the damage was incurred (a matter on which I will hear the parties) untiljudgment.

276 In the circumstances I propose to stand this matter over to a date to be fixed for the purpose ofmaking orders giving effect to these reasons. If the parties are unable to agree on the terms of the ordersthey are to file a minute of the proposed orders for which they will contend.

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Preview of “Olympic Holdings Pty Ltd & Anor v Lochel & Anor [2004] WASC 61 (5 April 2004)”