DISTRICT COURT OF QUEENSLAND
CITATION:
Metro Waterloo Pty Ltd v HWL Ebsworth Lawyers [2021] QDC 295
PARTIES:
METRO WATERLOO PTY LTD
ACN 168 276 828
(Plaintiff)v HWL EBSWORTH LAWYERS
(Defendant)
FILE NO/S:
BD1235/20
DIVISION:
Civil
DELIVERED ON:
26 November 2021
DELIVERED AT:
Brisbane
HEARING DATE:
8, 9, 10 September 2021
(Final written submissions 22 October 2021)JUDGE:
Barlow QC DCJ
ORDERS:
The plaintiff’s claim be dismissed.
CATCHWORDS:
TORTS – NEGLIGENCE – PURE ECONOMIC LOSS: NEGLIGENT ACTS, OMISSIONS OR REPRESENTATIONS – DAMAGE AND CAUSATION – CAUSATION – plaintiff retained defendant to negotiate and draw contract for sale of lots in an apartment complex – plaintiff intended to include clause requiring the appointment of a particular letting agent - clause not included in final contract due to defendant’s negligence – plaintiff aware that clause was not in final contract of sale – whether failure to include clause caused valuable loss to plaintiff – whether decision of plaintiff to proceed with contract broke chain of causation.
DAMAGES – ASSESSMENT OF DAMAGES IN TORT – PROPERTY LOSS – HEADS OF LOSS – POTENTIAL EVENTS AND LOSS OF CHANCE OR OPPORTUNITY – GENERALLY – plaintiff retained defendant to negotiate and draw contract for sale of lots in an apartment complex – plaintiff intended to include clause requiring the appointment of a particular letting agent - clause not included in final contract due to defendant’s negligence – whether clause constituted a valuable commercial opportunity and what that value would be.
Evidence Act 1977, s 101(1)(b)
Property Occupations Act 2014Adamson v Williams [2001] QCA 38, cited
Badenach v Calvert (2016) 257 CLR 440, applied
Chand v Commonwealth Bank of Australia [2014] NSWSC 708, considered
Dew v Richardson [1999] QSC 192, cited
Griffiths v Evans [1953] 1 WLR 1424, considered
Jones v Dunkel (1959) 101 CLR 298, applied
Howarth v Miotti [2009] QSC 96, cited
Malec v JC Hutton Pty Ltd (1990) 169 CLR 638, cited
Markel Syndicate Management Ltd v Taylor [2021] FCAFC 198, cited
Medlin v State Government Insurance Commission (1992) 182 CLR 1, cited
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, cited
Principal Properties Pty Ltd v Brisbane Broncos Leagues Club Ltd [2018] 2 Qd R 583, citedCOUNSEL:
D P O’Brien QC and B W Wacker for the plaintiff
R L Perry QC and S M Derrington for the defendant
SOLICITORS:
McInnes Wilson Lawyers for the plaintiff
Gilchrist Connell for the defendant
Contents
Introduction
Events up to the Final EOI
Dealings between Metro and Forum
The arrangements between Metro and Tessa
The sale of Tessa’s business
Events after Final EOI, 30 April to 7 June 2019
The contested telephone call
Forum appoints McGrath as its letting and sales agent
Post-sale correspondence concerning Tessa
Preliminary evidentiary issue – Jones v Dunkel
Was the defendant negligent or in breach of its retainer?
Did the plaintiff know that there was no enforceable Tessa provision?
Was the defendant aware of the plaintiff’s mistake (if any)?
Who decided not to include a Tessa provision?
Did Metro suffer any loss?
What must the plaintiff prove to demonstrate a loss?
What prospect was there of Forum agreeing to a Tessa provision?
What form would any contractual Tessa provision have?
Did Metro lose any valuable commercial opportunity?
Assessment of loss
What prospect was there of Forum appointing Tessa under a Tessa provision?
What prospect is there that Tessa would have agreed to manage any units?
The Apax contract
Other lenders to Tessa?
Conclusions
Amount of loss
Did HWLE’s negligence cause any loss suffered by Metro?
Conclusions
Introduction
The plaintiff (Metro) is the developer of a residential apartment building in Newstead known as “Capri”. Its directors are Luke Hartman, David Devine and Kenneth Woodley. The defendant (HWLE) is a firm of solicitors.
Metro is a subsidiary of Metro Property Development Pty Ltd (MPD), which is the parent of a group of companies, each of which was incorporated as a special purpose vehicle to be the developer of a particular apartment building. MPD’s usual practice is to select a development site and incorporate a special purpose vehicle (SPV) for the development of that site. The SPV will then, either alone or with a joint venture partner, obtain finance, enter into contracts for the construction of the building and market the units “off the plan” to investment buyers and owner occupiers. It will also locate and negotiate a contract with a building manager and letting agent. Where, at completion of the building, some units have not been pre-sold, the SPV may seek to sell a number of the units “in one line”: that is, all to one purchaser under one contract.
Since 2014, MPD SPVs have engaged, as manager and letting agent for the relevant apartment building, a company associated with a former employee of MPD, Brendan Tutt. Those companies were referred to by MPD as “Tessa”. On each occasion, the SPV and a special purpose company incorporated by Mr Tutt entered into a management rights and business procurement agreement under which the MPD SPV agreed to arrange for the body corporate to appoint the Tessa SPV as the building manager and letting agent for the building and (in essence) to recommend (or to require in the contracts of sale of units) that investor owners appoint the Tessa SPV as their letting agent. The Tessa SPV would agree to use its best endeavours and cooperate with the MPD SPV to procure the maximum number of appointments as letting agent for units in the relevant development. It would agree that, whenever it was appointed letting agent for a unit (whether on the MPD SPV’s recommendation or otherwise) within a certain period, it would pay the MPD SPV a specified sum referred to as an “appointment amount” for each unit.
HWLE had been retained by MPD SPVs to act for the SPVs in the development and sale of apartment buildings over a number of years. HWLE would assist by drawing and negotiating development contracts, sale contracts and a management rights and business procurement agreement on behalf of the relevant SPV. The principal individuals of HWLE responsible for each retainer were Jason Warat and Melinda Leacy, each a partner of the firm. The SPV would usually grant a power of attorney to Mr Warat to enable him to sign sale contracts on behalf of the SPV.
In January 2018, Metro and a Tessa company known as “Tessa at Capri” (to which I shall refer as “Tessa”) entered into a management rights and business procurement agreement (MRBPA) concerning Capri and a planned tower adjacent to it, in similar terms to the previous agreements between MPD SPVs and Tessa SPVs.[1] I shall refer to relevant terms of that agreement later.
[1]The MRBPA is in exhibit 1 (the trial bundle of agreed documents), TB153-270.
Construction of Capri was concluded in April 2018. Metro had sold most of the units in Capri by October 2018, but 62 remained unsold. Metro looked to sell most of those remaining units in one line.
Metro engaged HWLE to act for it in respect of the Capri project and appointed Mr Warat as its attorney to sign sale contracts on its behalf. Ms Leacy undertook most of the work under that retainer but, at the time most relevant to this proceeding, she was away and Mr Warat stepped in to advise and to act for Metro.
Metro found a buyer of 54 units, Forum Australia Residential Partnership Pty Ltd (Forum). The terms of sale were negotiated over a period of some months. Metro instructed HWLE to draw a contract of sale reflecting the terms of a written expression of interest (the Final EOI) from Forum. That EOI included a provision (referred to by the parties as a Tessa provision) that, if an appropriately drawn term were included in the final contract of sale, may have obliged Forum, if it chose to rent any of the units it bought, to engage (or to offer to engage) Tessa as its letting manager of those units.[2]
[2]Whether such a clause would or may have been included in the contract of sale of the units to Forum and what it would have provided are contentious issues.
HWLE drew the contract of sale of the units to Forum, but did not include a Tessa provision. Forum appointed a different company to be the letting manager of the units that it made available for rent.
Metro contends that, in failing to include a Tessa provision in the contract, HWLE was negligent and in breach of its retainer and that negligence and breach have lost Metro the opportunity to have such a provision in the contract with Forum and consequently to receive an appointment fee from Tessa for each of Forum’s units that was made available to let. If Tessa had been retained by Forum for all of those units, those fees would have amounted to $848,588.40 (including GST). Metro accepts that Tessa may not have been appointed to all the units, but says that the value of Metro’s lost opportunity is between 50% and 75% of that sum, for which it claims damages.
HWLE appears to accept, at least in general terms, that it should have included a Tessa provision in the contract sent to Forum for execution and that it wrongly advised Metro, when asked why such a clause was not in the contract, to the effect that that was because Forum had a complete discretion as to the appointment of a letting agent under the Tessa provision in the Final EOI. However, it asserts that those errors did not cause Metro any loss because Metro decided to instruct Mr Warat to execute the contract of sale knowing that the Final EOI did include such a provision (although it was non-binding) and that the contract did not and deciding for itself that it would proceed without any such clause. Furthermore, HWLE contends, Metro has not proved what the terms of a contractual Tessa provision may have been, nor that Forum would have agreed to any such provision, nor that, if it had, Tessa would have accepted appointment as Forum’s letting agent and paid any appointment amounts to Metro. Therefore, Metro has not demonstrated that it has suffered any loss. Alternatively, it has not demonstrated the value of any loss. Consequently, Metro has not proved its loss, nor that any loss was caused by HWLE.
Events up to the Final EOI
The events from October 2018 to April 2019 are relevant to the issues that arise. Most of the facts concerning those events are not contentious. I have described some of them briefly in the introduction, but it is necessary to add some details in order to understand and to determine the issues.
Dealings between Metro and Forum
Negotiations between Metro and Forum for the sale of the balance of the unsold units in Capri appear to have started in January 2019.[3] On 12 February 2019, in the course of those negotiations, Mr Hartman informed Mr Faulk, the managing director of Forum, that:[4]
- any sale would need the stock to sign Form 6[5] – rental with on site manager.
- Note metro have no vacancy in … Capri.
- These on site managers are the best people to manage rental of property.
[3]TB295-297.
[4]TB294. In this and other quoted emails and other documents, I have included the typographical and grammatical errors in the originals.
[5]“Form 6” is a prescribed form for the appointment of a resident letting agent under the Property Occupations Act 2014.
Later the same day, Mr Hartman sent to Mr Faulk and others at Forum a list of the “latest available stock”. In his email attaching the list,[6] Mr Hartman said:
- please provide offer based on available stock
- also confirm that this stock will be managed by on site manager …
- Tess (capri)
For min 12 months.
[6]TB302-304.
On 14 February 2019, Metro and Forum executed a document headed “Expression of Interest” (the Joint EOI).[7] The document recorded the proposed conditions of a sale by Metro to Forum of 58 residential units within Capri (subject to adjustment for sales to other persons prior to exchange of the contract) and 11 residential units within another development.
[7]TB305-307.
The Joint EOI commenced with the following words (the non-binding statement):[8]
The terms set out in this offer document are for reference only and do not in any way constitute a legally binding offer, agreement or a commitment to enter into any transaction. … The actual terms and conditions upon which Forum … might undertake the transaction are subject, in the sole discretion of Forum, … to satisfactory completion of due diligence, credit approval and satisfactory review of documentation.
[8]The words were all in upper case in the document. I have not included all the opening words, but only those directly relevant to the issues in this proceeding.
The following provision, to which the parties referred as the Tessa provision, was included in the document under the heading “Property Management (‘Leasing’)”:
The Purchaser will have full discretion as to whether Forum Units will be offered for rent. If Forum Units are rented (“Rented Forum Units”), management is to be conducted by the current on-site manager being Tess at Capri …, for the period of [12] months following exchange of contracts. Management fees will be capped at 5.0% p.a. of gross rental receipts.
The Purchaser will retain full discretion as to whether Rented Forum Units will be offered for sale by a sales agent appointed by the Purchaser at any time following settlement.
It is clear that Forum drew this clause in response to Metro’s request that it appoint the on site manager to manage any units that it decided to let out, for a minimum of 12 months.
Under the heading “Conditions Precedent to Purchase”, the Joint EOI set out a list of 10 items. It also included the following words (the legals statement):
Legals. Metro will provide legal documents by the 25th Feb. They must be agreed & executed subject to DD within four weeks of initial receipt of contracts.
Mr Hartman forwarded a copy of the Joint EOI to Ms Leacy, saying that HWLE would act for Metro.[9] Thereafter, Mr Hartman provided further instructions to Ms Leacy as required from time to time.
[9]TB309-313.
A few days later, Metro asked Forum to separate the Joint EOI into two EOIs: one for Capri and one for the other development. On 18 February 2019 Forum provided and the parties signed an EOI relating solely to Capri (the Capri EOI).[10] Notably, that EOI included the non‑binding statement and the same conditions precedent, but it did not include the Tessa provision or the legals statement.
[10]TB321E-321G.
Metro provided the Capri EOI to HWLE and requested Ms Leacy to prepare contractual documents.[11] Ms Leacy prepared some documents and provided them to Metro on 19 February 2019.[12] The parties agree that, consistently with the Capri EOI, the documents did not include any clause comprising an attempt to provide for a form of Tessa provision.
[11]TB316.
[12]This is admitted on the pleadings, although there is no evidence to that effect and the documents are not in evidence. The defendant refers to the draft documents as the Transaction Documents, a term that I shall adopt.
On 1 April 2019 or thereabouts, Forum informed Metro that it would no longer proceed with the purchase. However, in the evening of 18 April 2019 Forum provided another expression of interest to Metro, stating in the covering email, “we are in a position to offer unconditional terms on Capri.”[13] That document (the Revised EOI) included a non-binding statement and a Tessa provision. It did not provide for any conditions precedent to completion. In the covering email, Forum proposed to exchange the contract on 29 April and to settle on 30 May 2019.
[13]TB361-364, referred to by the plaintiff in its statement of claim as the “Revised EOI”.
Mr Hartman forwarded a copy of that document to Ms Leacy and Mr Warat (among others) later that evening, but did not instruct them to do anything at that stage.[14] There is no direct evidence of any negotiations taking place between the parties, but emails exchanged between Metro officers and agents show that the Revised EOI led to further negotiations.[15]
[14]TB365.
[15]TB365-368.
On 24 April 2019, Mr Warat sent an email to Mr Hartman, in response to Mr Hartman’s email of 18 April. Mr Warat asked, “Any update on this? Do I need to start preparing a Sale Contract?” Mr Hartman replied, relevantly saying, “This deal is moving again. Can you refresh file on Forum as Melinda away. We had an agreed legal contract with them. Is now 49 units involved.”[16]
[16]TB369.
On 29 April 2019 Forum provided another expression of interest to Metro’s agent, Colliers, describing it (in a covering email) as “the revised final offer/EOI”. That document (the Final EOI)[17] was to purchase 49 units (subject to adjustment for sales before exchange). It included the non-binding statement and a Tessa provision. It had only one condition precedent, which is irrelevant for present purposes. It seems to have been the result of negotiations as, in an email from Samuel Biggins of Colliers to Mr Hartman forwarding the email attaching the Final EOI, Mr Biggins said, “We have pushed them hard and they are unable to go any further.”[18]
[17]TB377-379. The covering email is at TB376.
[18]TB376.
The Final EOI appears to have been signed by a director of Metro on 30 April 2019. Presumably (although there is no direct evidence of the fact) a signed copy was returned to Forum.
The arrangements between Metro and Tessa
Metro and Tessa entered into the MRBPA on 23 January 2018. Under the agreement, Metro agreed to procure, and Tessa agreed to accept, the engagement of Tessa by the body corporate as the manager and letting agent for Capri, under a Management Engagement and Letting Authorisation Agreement (MELA Agreement). The body corporate for Capri later appointed Tessa as the manager and letting agent for the building. The executed agreement for that appointment is not in evidence, but a draft MELA Agreement was annexed to the MRBPA and I infer, in the absence of evidence to the contrary, that the final document was in those terms.
Under the MRBPA, Tessa agreed to pay Metro $14,286 plus GST (referred to as the “Appointment Amount”) for each appointment it received from a unit owner to act as the owner’s letting agent in relation to a lot.[19] The terms of a letting appointment, including the letting fee to be charged by Tessa, were not specified in the MRBPA except that, by clause 9.10, Tessa was prohibited from seeking appointments that charged owners a combined commission and management fee of more than 8% plus GST of the rental payable (or certain other charges). Otherwise, it seems that the terms of a letting appointment were within Tessa’s discretion. Tessa was obliged to use its best endeavours and to cooperate with Metro to procure the maximum number of appointments. On each “Review Date” it would pay Metro the Appointment Amount for all new appointments[20] it had received since the last Review Date. Review Dates were, relevantly, every three months after the settlement date of the agreement (which, after some amendments, was 13 July 2018[21]) for two years.
[19]This amount was payable “per Appointment” and “Appointment” was defined as a PO Form 6 appointing Tessa as the owner’s letting agent “in relation to a Lot.” There is no dispute in this proceeding that, if one appointment were made by an owner in respect of more than one unit, Tessa would be obliged to pay an Appointment Amount for each unit to which the appointment related.
[20]That is, an appointment by an owner who had not previously appointed it as the owner’s letting agent: presumably, for the particular unit.
[21]TB279-280.
It appears that Tessa’s normal rental management fee was 8% of the gross rent received.[22] On three occasions, where it was appointed, by one owner at a time, as letting agent for eight units, five units and five units respectively, it agreed to reduce that rate to 5%.[23]
[22]Mr Hartman referred to that as Tessa’s standard 8% management fee in an email of 28 September 2018 to the proposed purchaser of 8 units: TB284.
[23]In September 2018, 8 units to Solido Investment Nominees Pty Ltd – TB791-910; in December 2018, 5 units to Blue Gum Investments (Australia) Pty Ltd – TB911-978; in January 2019, 5 units to Dr Simmons Family Pty Ltd – TB979-1063.
These facts and the exchanges between Metro and Tessa are important because one of HWLE’s defences is that any negligence on their part did not lead to the alleged loss of the appointment amounts from Tessa because Tessa would not have accepted, or could not have paid Appointment Amounts for, a large number of appointments from Forum at a commission rate of 5%. It is therefore necessary to consider Tessa’s and Forum’s positions in this respect in some detail.
On 17 October 2018, Mr Hartman sent an email to the owner of Tessa, Brendan Tutt.[24] He asked Mr Tutt to review the proposed rents on the balance of 62 units then available (for sale) in Capri. Among other things, he said:
If we can look @ short and long term rent as well. Also your management fee for short term and management fee for long term – assuming bulk buyer @ 5%.
[24]TB286.
Mr Tutt responded a few minutes later, saying:
Not a problem. Will call later today to discuss short term.
Mr Hartman gave evidence that,[25]
At this time, I do not recall Tutt raising an issue with [Tessa] accepting appointments at a rate of 5% commission.
[25]Affidavit of Mr Hartman affirmed on 8 June 2021 (first Hartman affidavit, commencing at TB76), [38].
The next written communication between Metro and Tessa relevant to the proposed Forum sale appears to have occurred on 4 March 2019. Early that afternoon, Mr Hartman sent an email to Mr Tutt and Mr Woodley, the marketing director of Metro, copied to Mr Hogan and Mr Biggins of Colliers and to Caroline Lamshed, the Chief Financial Officer of Metro. The email was headed “Tessa – Brendan Tutt CC.”[26] In the email, Mr Hartman said:
Brendan is available to meet tomorrow @ capri and talk about rental quality of this product and speed in which he can lease up the 58 available units.
…
Brendan is briefed on deal and is on side. he will assist with this transaction by managing these units for 5% for 12 months.
[26]TB327. “CC” in the heading clearly means “Como & Capri”: that is, both proposed towers.
Mr Hartman deposed that his reference to Brendan being “briefed on deal and on side” was a reference to his email exchange with Mr Tutt on 17 October 2018. He said,[27]
I do not recall discussing the issue with Tutt in the intervening period and do not recall Tutt indicating he was no longer agreeable to that arrangement.
[27]First Hartman affidavit, [57].
On 14 March 2019, Mr Tutt emailed Mr Hartman in these terms:[28]
Just called mate.
Call me on this, CBA cannot fund purchase of management rights to one buyer and need rate to be a minimum of 7% plus GST. Attributing zero value.
I mentioned this to them in relation to your potential buyer, they are also saying that we advised them that there were circa 180 lots sold to individuals at the time we funded it.
[28]TB342.
Mr Hartman and Mr Tutt then apparently had a discussion (although Mr Hartman did not mention it in his evidence), because Mr Tutt sent another email to Mr Hartman about 35 minutes after his first email. In that email he said:[29]
Thanks mate. The key issue we have is CBA and the fact they won’t fund multiple lots of this volume to one owner. What the value is now verse what the value was when we agreed to buy these lots is very different. I appreciate your position and the further position you have said David and Ken will take.
As per below we are not able to take agreements below 8%, I believe I can get them to agree to 7 plus GST% but we will need to submit. For smaller deals eg 3 or 4 lots we can do special deals like we have done before. If they buy in smaller entities or spread out vehicles of ownership this could be a solution.
The other option would be if we can potentially get the buyers to appoint us for a long term on a commercial agreement. Would need some advice as this may be contracting outside the act.
Let’s resolve smartly and move forward.
[29]TB341-342.
It does not appear that Mr Hartman responded to that email. On 19 March 2019, Mr Tutt emailed him, attaching his 14 March emails and asking if they could make a time “to discuss this and get a position on this.” Mr Hartman responded to that email in the following terms:[30]
No problems.
In summary.
At this stage – we don’t have bulk deal finalised.we are close on two.
You are unable to pay for balance appointments if a bulk sale
You also can’t offer 5% management fees.
at this stage we are continuing to sell as per normal and this has no impact on your ability to pay Metro.
I don’t want to do to a wider group till understand issue and Tessa proposed solution.
[30]These emails are at TB340-341. The times showing on the emails at first glance do not follow chronologically, but they appear to be a mix of Brisbane and Sydney times.
Mr Tutt responded by asking to meet the next day at 2.00pm, to which Mr Hartman responded:[31]
No problems mate.
Really keen for you to tell me the best solution your end to pay for balance managements.
Can then work out how best to structure.[31]TB339.
Shortly after that exchange, Mr Hartman wrote an email to his fellow directors and Ms Lamshed, copied to Ms Leacy, in which he said:[32]
[32]TB323.
Brendan has been down on site meeting some of potential bulk buyers to assist with management/rental. he has rung and advised that CBA his bank won’t fund him to pay for appointments of a bulk buyer in one line for balance stock.
No problems if individual buyers.
- I have advised him agreement is clear that if appointments are as per contract that he has to pay Metro.
- He disagrees and saying is a substantial risk as one buyer would walk out door and he loses 55 managements.
Wanted to let you know asap
Melinda can review management rights contract.
We need to understand legal position as step 1 so as can discuss.
Brendan is meeting me @ 2pm in Sydney tomorrow.
Lack of funding/finance is no doubt causing this issue.
Later that day, Ms Leacy relevantly responded:[33]
The Management Rights Procurement Agreement does not make a distinction between different types of owners/buyers, provided they are not related to Metro.
Provided an owner of Lot signs a PO Form 6 appointing Tessa as their letting agent in relation to a Lot, Tessa must pay for that appointment.
[33]TB322-323. As will become clear, I consider that her advice to the effect that Tessa must accept and pay for all appointments (however many units with one owner are the subject of an appointment) was wrong, which is relevant on the issue of damages.
On 20 March 2019, Mr Tutt sent Mr Hartman this email:[34]
Mate
See you at 2pm.
There is zero value to any management sold to a bulk buyer. I think you would struggle at anything over 10 to one owner to create value.
We have always tried to assist in any way and performed for Metro and vice versa.
We just need to acknowledge Metro is changing strategy for sale of balance stock and fall overs which diminishes value of management rights.
[34]TB344-345.
Mr Hartman forwarded that email to Mr Devine, Mr Woodley, Ms Lamshed and Ms Leacy, saying:[35]
See below from Brendan T.
Melinda has given clear advice on legal position on these managements.
Keen to discuss thoughts on next steps on handling this issue.Pushing Forum to close out bulk deal.
[35]TB344.
In his evidence, Mr Hartman referred to and commented on this series of emails. He said:[36]
I do not recall that Tutt ever proposed a structure. …
However, I did not consider this an impediment to [Tessa] taking appointments from Forum at 5% because Tutt had previously agreed to do so and I had received advice from Leacy on 19 March … which I understood to mean that [Tessa] were bound by the terms of the MRBPA. Therefore, I considered that the issue Tutt outlined with CBA was a matter for him to sort out. …
… I do not recall any discussion with the Directors following this [ie, 20 March] email about this issue outlined in the email.
[36]First Hartman affidavit, [59]-[61].
Mr Hartman was not cross-examined about these emails and his evidence set out at [35] and [44] above. However, I do not find it credible, and I do not accept, that in March 2019 Mr Hartman believed that, by his email of 17 October 2018, Mr Tutt had in some way committed Tessa to accept appointments as letting manager of over 50 units held by one owner at a 5% commission. Mr Tutt had been asked simply to “look at” rental rates and Tessa’s management fee and to discuss them. There was no commitment, nor even any preliminary indication, that Tessa would accept a 5% commission to manage a large number of units “in one line”. If indeed Mr Hartman believed the exchange of emails in October 2018 was some form of commitment or clear indication by Mr Tutt, it was an unrealistic and entirely uncommercial belief. It is not a belief that a man of Mr Hartman’s commercial experience could have honestly and reasonably held.
It is clear, from the facts that he could not recall any relevant discussions with Mr Tutt between October 2018 and March 2019, he did not mention (presumably because he did not recall) any discussion between them on 14 March or on 19 March 2019 and he could not recall any discussions with his fellow directors about this issue, that Mr Hartman had no recollection of any discussions and, in preparing his affidavit and in his oral evidence, he relied solely on the emails to which his attention was drawn. I consider that his statements that, in March 2019, he was referring to (and thereby impliedly was relying on) an email received nearly five months earlier, with no intervening discussions having occurred, by which he believed that Mr Tutt had irrevocably agreed to Tessa taking appointments from Forum at 5% commission, were reconstruction by him, rather than facts. They are beyond belief.
I do accept, however, that, as a result of Ms Leacy’s advice, Mr Hartman believed that Tessa was obliged to accept appointments from Forum, even at a commission rate of 5%. The correctness or otherwise of that advice is not directly a subject of this proceeding, although it will be necessary for me to consider it when assessing what, if any, loss Metro has suffered as a consequence of Forum not being obliged to appoint Tessa, in the absence of a Tessa provision in the contract of sale to Forum.[37]
[37]See [178]ff below.
On 24 April 2019, Mr Woodley sent an email to Mr Hartman, Mr Devine and Ms Lamshed headed “Capri Sales Strategy”.[38] Relevantly, Mr Woodley said the following:
[38]TB366-367.
Kenny and I have perused the benefits of a bulk sale at Capri against an individual sales basis. The attached feaso prepared by Caroline shows a deficit to Metro of $582,484 … The feaso produced by Caroline on the 2nd of April last re: the individual sales shows a profit of 131,172. The combined difference between the two strategies shows that Metro would be $713,616 worse off going down the Bulk Deal route. This difference could be enlarged if we had a problem with Tessa of them settling the Management Rights.
Tessa has spoken to Luke about the problem he could have with his bank arranging finance on the balance of the units because of the bulk buyer being involved in the purchase. I am aware that Luke has spoken to Brendan Tutt regarding this and was adamant that Tessa must settle. However, a question mark hovers over this issue whether Tessa can’t settle or alternatively Forum might elect to place the Management rights elsewhere.
The balance due on the Management Rights is $735,000. … The loss to Metro would blow out to $949,934 if we did not receive our share of the Management Rights payment due.
Management Rights:
Attached please find a copy of the Management Rights business procurement agreement which show that we have until 24 months after settlement in July 2018 to provide the documentation to Tessa to secure payment to us of the Management Rights.
[Mr Woodley then discussed benefits of a bulk offer, the amount of the Forum offer recently received and the potential to sell the remaining units individually.]
We need to discuss the Forum offer asap … My preference subject to an increased offer from Forum is to accept the deal. The possibility remains that the market could get worse before it gets better with the Bulk Deal we have a quick definite outcome.
Later that day, Mr Hartman sent an email to the other directors and Ms Lamshed,[39] referring to then current “stock” numbers, saying that “Forum will resubmit offer based on this amount of product.” He went on to say, “Tessa is another issue to resolve. We maybe able to sell management rights for circa 50 apartments to someone else if they won’t pay.”
[39]TB368.
There is no evidence of any other contact between Metro and Tessa, before the agreement between Metro and Forum, about the possibility of Forum appointing Tessa as its letting agent for a large number of apartments.
The sale of Tessa’s business
On 20 May 2019, Tessa made an agreement with Apax Realty Pty Ltd,[40] under which Tessa sold to Apax its business under the MELA Agreement for Capri. The agreement (the Apax contract) was subject to the body corporate’s consent to the sale.
[40]TB625-664.
The Apax contract relevantly provided:
12.3The Buyer acknowledges that the Seller procured the grant of the management rights to the scheme from the developer, Metro Waterloo Pty Ltd ACN 168 276 828 (Developer) by way of procurement agreement dated 13 April 2018 (Procurement Agreement).
12.4The obligations of the Seller, as manager under the Procurement Agreement, continue to apply, which includes a requirement of the Seller to pay to the Developer an amount for each additional letting appointments that the Developer secures from purchasers of lots, at various times, with the last review occurring on 13 July 2020 (Review Dates).
12.6 Adjustments following completion:
(a)At each review date, the Seller and Buyer must agree on the number of additional appointments to which the Seller is required to pay the Developer in accordance with the Procurement Agreement.
(b)If the Buyer holds a Current Appointments for a lot for which the Seller has not previously paid the Developer, the Buyer is required to pay to the Seller or as the Seller directs an amount calculated as follows:
Appointment Amount x the number of new appointments for lots not previously paid which are held at the relevant Review Date compared to the number of appointments held at the previous Review Date.
(c)In calculating the number of new appointments held at the relevant Review Date under this special condition 12.6, where an owner has entered into appointments for:
(i)4 or less lots in the Complex, the Buyer is required to pay the relevant amount calculated under clause 12.6(b) for each of those appointments; or
(ii)5 or more lots in the Complex, the Buyer and Seller must work together in good faith to come to an agreement as to the amount the Buyer is required to pay for those appointments to the Seller or as the Seller directs.
If an agreement cannot be reached by the Buyer and Seller within 1 month of the relevant Review Date, unless that date is extended by agreement, the parties agree as follows:
(A) The Seller will be entitled to continue to be the letting agent to manage those lots;
(B) Those lots are specifically excluded from any restraint of trade warranty previously given by the Seller; and
(C) The Buyer must not actively campaign for the owners of those lots to appoint the Buyer as the letting agent and the restraint in standard condition 13 applies…
It is not clear how the sale of Tessa’s business was intended to fit with Tessa’s obligations to Metro under the MRBPA. It will be recalled that the MRBPA required Tessa to use its best endeavours to secure appointments of itself as letting agent for units in Capri. On the face of the agreement, Tessa was not entitled to secure appointments of a different company as letting agent.
Notwithstanding that arrangement in the MRBPA, the Apax agreement (particularly clause 12.6) appears to be intended to operate by acknowledging that Tessa continued to be obliged to pay Metro an Appointment Amount for any new appointments, even though they were not appointments of Tessa. In those cases, Apax would pay Tessa a higher Appointment Amount than Tessa had to pay Metro. However, that applied only if one owner appointed Apax as agent for up to four units. If one owner sought to appoint Apax for more than four units, then Apax and Tessa would negotiate an amount that Apax would pay Tessa. If they could not agree, then Tessa could be appointed as letting agent for those units and Apax must not seek to be appointed to those units.
The clause is puzzling, as it purports to apply only if Apax has been appointed, in which case Tessa could not “continue to be” the letting agent. Taking a practical approach, it seems to mean that, if an owner offers to appoint Apax to more than four units, if Apax and Tessa cannot agree on a fee payable by Apax for those appointments, then Tessa may seek to be appointed instead of Apax, notwithstanding that otherwise Tessa was not entitled to seek its own appointment for units in Capri for a period of three years.[41]
[41]Standard clause 13.1.
As will become clear in my discussion of damages, Metro asserts that this agreement and the amounts payable by Apax to Tessa under it are relevant to the calculation of damages and, in particular, to Tessa’s ability to pay Metro for appointments by Forum and therefore the commercial value to Metro of a Tessa provision in the Forum sale contract.
Events after Final EOI, 30 April to 7 June 2019
In the afternoon of Tuesday 30 April 2020, Mr Hartman sent an email to Mr Warat and Ms Leacy (among others), attaching a copy of the executed Final EOI.[42] In the email, he said, “Please see attached – Jason Warrat will provide contract ASAP for execution on terms as agreed.”
[42]TB380.
Late that evening, Mr Hartman sent a text message to Mr Warat in the following terms:[43]
Contract for bulk deal – Did u get a chance to review status and update required. Signed term sheet provided. Keen to get signed Thursday at latest. Deposit due Friday. I fly to USA Friday morning …
There is no evidence of any response from Mr Warat.
[43]TB381-382.
Mr Hartman travelled to the United States of America on 3 May 2019, returning on 10 May.[44]
[44]First Hartman affidavit, [75], TB91.
No contract was ready by 3 May 2019, as there were negotiations between the solicitors about a number of issues, including whether the contract would be a straight sale of the units, a call option to Forum or a put and call option and the terms of special conditions to the ultimate sale contract. Mr Warat emailed some of the emails and draft documents to Mr Hartman, although Mr Hartman said that he did not review any of the drafts as he was undertaking a course in the USA.[45] There is no evidence of any mention of a Tessa provision (or the terms of such a provision) in the course of those negotiations. Eventually the contracts agreed were a call option entitling Forum to require Metro to enter into a sale contract on terms annexed to the call option agreement.
[45]TB391-530; first Hartman affidavit, [78], TB92.
There is a dispute between the parties about the effect of Mr Hartman’s instructions to Mr Warat to draft contracts “on terms as agreed”. I do not consider it necessary to detail that dispute, which is really a red herring. It suffices to conclude that it is clear that Mr Warat started with the draft documents that Ms Leacy had prepared and negotiated with Forum’s solicitors in February and March 2019, based on the Capri EOI.[46] This conclusion derives principally from the facts that Ms Leacy had negotiated contracts based on the Capri EOI, Mr Hartman had instructed Mr Warat to “refresh” the file on Forum at a time when the only draft documents (to which Mr Hartman referred as “an agreed legal contract”) were those based on the Capri EOI and Forum’s solicitor referred Mr Warat to the exchange of emails that had occurred during the March negotiations with Ms Leacy as a starting point for the final contracts.[47]
[46]That is the “Transaction Documents” referred to by HWLE in its defence.
[47]TB392.
None of the draft contractual documents, nor the final documents, appears to have included any form of Tessa provision. Relevantly, the final sale contract, as executed, contained this provision:[48]
The Buyer acknowledges that, as at the Contract Date, … there is no obligation on a buyer of an apartment to make their apartment available to the Seller or Letting Agent for letting to prospective tenants.
[48]Special condition 47.2(d): TB613 (in draft), TB701 (executed).
It is not clear from the evidence whether this clause was already in the draft sale contract that Ms Leacy had negotiated, based on the Capri EOI,[49] or Mr Warat inserted it into the sale contract that he drew. In any event, Metro submitted that this provision was to the opposite effect of a Tessa provision.[50] It is unnecessary to determine if that is the case.
[49]Those drafts are not in evidence.
[50]That may or may not be the case. Given the distinction between “the Buyer” and “a buyer”, it may actually mean that, if Forum on-sold a unit to a buyer, that buyer would be under no obligation to use Tessa as its own letting agent. If so, then it is not inconsistent with a Tessa provision.
On 8 May 2019, the following email exchange occurred between Mr Warat and Mr Hartman.[51]
[51]The emails appear in the trial bundle in various places, not in one discrete chain, between TB551 and 566 inclusive. Deposed to in the first Hartman affidavit, [79], TB92-94.
(a)At 5:54pm (3:54am United States Eastern time), Mr Hartman received an email from Mr Warat that:
(i) attached a copy of the execution page (only) of the call option deed;
(ii) identified the “main conditions” of the call option deed, which were limited to the call option period, settlement date, deposit, buyer, nominee, price, GST and guarantees and did not refer to a Tessa Provision; and
(iii) sought instructions to sign the call option deed under the Power of Attorney.
(b)At 5:58pm (3:58am United States Eastern time), Mr Hartman responded to Mr Warat’s email seeking confirmation that the call option deed included a provision consistent with the Tessa Provision. Mr Hartman deposed[52] that he asked this because:
(i) the issue of the management rights, and specifically receiving the Appointment Amounts under the MRBPA, was important to the plaintiff for the reasons he outlined at paragraphs [45] to [48] of his affidavit; and
(ii) it was, for that reason, the most crucial part of the Forum deal (aside from the purchase price itself).
(c)At 6:01pm (4:01am United States Eastern time), Mr Warat replied to Mr Hartman stating that the call option deed did not include a provision consistent with the Tessa Provision because the Final EOI provided that the appointment by Forum of Tessa was in Forum’s entire discretion.
(d)At 6:02pm (4:02am United States Eastern time), Mr Hartman responded “OK. Please sign under PoA”.
(e)At 6:06pm (4:06am United States Eastern time), Mr Warat sent an email to Mr Hartman attaching the Final EOI and asked, “Please approve signing under POA.”
(f)At 6:11pm (4:11am), Mr Hartman responded “Please proceed to sign under PoA”.
[52]First Hartman affidavit, [79](b).
Mr Warat gave the following evidence in his affidavit:[53]
[53]Affidavit of Mr Warat affirmed on 7 July 2021, [35]-[38], TB106.
[35]Sometime during, or around the time of, the exchange of emails discussed in paragraph 32 above, I received a telephone call from Mr Hartman during which:
(a)we discussed the fact that the Tessa Provision had not been included in the Sale Documents; and
(b) he stated words, the substance of which were:
(i)he was prepared to continue on and execute the Sale Documents without the Tessa Provision, because Metro’s priority was getting the Forum Lots sold;
(ii)receiving any payments from [Tessa] under the MRBPA concerning the lots being sold to Forum would be a “bonus”.
[36]As part of the process of preparing this affidavit, and in an effort to identify the precise time of the telephone call discussed in paragraph 35 above, I have reviewed the call records for both my work telephone and my mobile phone for the relevant day, but have been unable to identify a record of the call. I expect this is because I received the call from Mr Hartman on my mobile, and my Optus mobile phone records do not show incoming calls.
[37]Having reviewed the contemporaneous emails for the purposes of preparing this affidavit, I believe the telephone call took place sometime between or around my email of 6.01pm and Mr Hartman’s email of 6.11pm.
[38]I recall that I was in my office when I received the telephone call from Mr Hartman. I did not make a file note of it because the conversation did not seem significant at the time, and I was attempting to get the Sale Documents finalised as soon as possible believing that this was a priority for Metro. Mr Hartman often called or texted me on my mobile in relation to the legal work HWLE was performing for the Metro Group.
In answer to that evidence, Mr Hartman gave evidence that:[54]
(a)while he was in the United States, he stayed in a room that did not have a telephone;
(b)he only used his mobile telephone to make and receive telephone calls while he was there;
(c)he did not use any computer programs to communicate with others while he was there;
(d)an extract from his mobile telephone records (which he exhibited to his affidavit) for 6 to 9 May 2019 shows that he made no telephone call to Mr Warat’s office or mobile telephone number on 8 May 2019 (indeed, it shows no calls early in the morning USA time or in the early evening Australian time); and
(e)he denied that the telephone call occurred.
[54]Affidavit of Mr Hartman affirmed on 26 July 2021 (second Hartman affidavit), [4]-[10], TB111.
Late in the evening of 8 May 2019, Mr Warat received from Forum’s solicitors a copy of the call option deed executed by Forum. He executed the deed, under his power of attorney from Metro, early the next morning and returned it to Forum’s solicitors.[55]
[55]Warat affidavit, [39], [40], TB106. The agreement is at TB571-624.
Forum exercised its call option and signed the sale contract on 30 May 2019. Settlement occurred on 7 June 2019, when Forum acquired 54 units in the building.
The contested telephone call
It is now necessary to determine whether the telephone conversation between Mr Warat and Mr Hartman on 8 May 2019, about which Mr Warat gave evidence, occurred. There is no documentary evidence of the telephone call having taken place, at least during the period in which Mr Warat contends it occurred. It is necessary that I determine whether to accept some or all of Mr Warat’s evidence or that of Mr Hartman about it.
In cross-examination about that alleged call, Mr Warat said that:[56]
(a)he rarely makes file notes of his conversations with clients;
(b)he agreed with the proposition that, if a solicitor gives advice to a client about an important matter or if a client gives a solicitor oral instructions to proceed to sign a contract without a particular clause, the best practice is to make a file note of that conversation;
(c)when he thinks that something said might be contentious or important or something that he needs to record, he makes a detailed file note;
(d)in this instance, obviously, at the time he did not think that was the case because he did not make a file note of the conversation;
(e)he disagreed that he was mistaken about the conversation;
(f)there was no reason for him to lie about it and he was certain that the conversation took place.
[56]T3-52; T3-53; T3-54; T3-55; T3-58; T3-59 to 3-60.
A solicitor in commercial practice is generally expected to record in file notes at least important matters arising in conversations with the client and other persons. Where the solicitor has not recorded, either in a file note or elsewhere, the fact or the substance of a conversation in which, for example, the solicitor says that the client gave the solicitor certain instructions, a court in later proceedings in which that conversation is of crucial importance may well have cause to doubt the accuracy of the solicitor’s evidence and to prefer that of the client, including where the client denies that the conversation occurred at all. This is not because a court considers, or there is a principle of law, that, in the absence of a written record by the solicitor, it is always the case that “the word of the client is to be preferred to the word of the solicitor, or, at any rate, more weight is to be given to it,”[57] but because it is generally expected that a competent and diligent solicitor will, in the course his or her usual practice, keep a written record of instructions and other relevant matters relayed to the solicitor by the client. This is not only good practice to protect the client’s interests, but it also protects the solicitor’s interests in case of future litigation (such as this) as, without such a record, the solicitor’s evidence may well be disbelieved.[58]
[57]Griffiths v Evans [1953] 1 WLR 1424, 1428 (Denning LJ, in dissent). His Lordship went on to say that “If the solicitor does not take the precaution of getting a written retainer, he has only himself to thank for being at variance with his client over it and must take the consequences.” Other cases have applied that policy to the absence of notes of instructions, not just the creation and terms of a retainer. It has also been said that, where there is a conflict between the evidence of solicitor and client, “it is not surprising that there should be some leaning towards the interests of the supposedly more ignorant party:” Meerkin & Apel v Rossett Pty Ltd [1998] 4 VR 54, 66.
[58]As occurred, for example, in Legal Services Commissioner v Rowell [2013] QCAT 397, [18].
Notwithstanding some courts’ leanings toward believing the client’s oral evidence over that of the solicitor where the solicitor has no written record of an important conversation, it is certainly not the case that a client should be believed simply because the solicitor has no written record of relevant instructions, nor that a solicitor should be believed simply because of his or her professional status.[59] Both parties have an equal right to be believed. Which of their respective versions is to be accepted normally depends on the persuasiveness of their evidence, as judged by surrounding objective circumstances. Findings of fact, especially those based upon an opinion as to creditworthiness of witnesses, are to be made from a careful and objective examination of the evidence adduced with respect to those facts.[60]
[59]Adamson v Williams [2001] QCA 38, [20]-[21].
[60]Dew v Richardson [1999] QSC 192, [10]; Howarth v Miotti [2009] QSC 96, [68].
HWLE pleaded the conversation in its first defence, filed in June 2020, and it has maintained that pleading ever since. That indicates that, about 13 months after Mr Warat says it occurred, he recalled it with sufficient detail to instruct the firm’s counsel to plead it. This is not a case in which a solicitor is seeking to recall a conversation that allegedly occurred many years earlier.
Mr Warat said that the statement that he recalls Mr Hartman making about Mr Hartman’s reason for being prepared to instruct Mr Warat to execute the contract without a Tessa clause in it – that Metro’s priority was getting the Forum lots sold and any payments from Tessa would be a bonus – did not seem important to him at the time. That was one reason for not making a file note about it, nor recording it in an email. The gist of Mr Warat’s evidence was that Forum appeared to him to be keen to lock Forum into the deal and wanted the contract signed promptly – that is, immediately. The reason was not important to Mr Warat. But Mr Warat was adamant that the conversation occurred.
The fact that that statement was not important to Mr Warat is, logically, a reason why it is less likely that Mr Warat would remember at least that part of the conversation than if it had appeared to him to be important. His evidence that it was not important to him may indicate an unusual attitude to a change in instructions which, one might objectively think, was important. However, his advice about the clause and the instructions he received to proceed in its absence were, of course, recorded in the exchange of emails. The reason for the instructions may be seen as unnecessary to record in writing.
On the other hand, Mr Hartman, in his second affidavit,[61] was adamant that the conversation did not occur. He was not cross-examined about his denial that he made the call. His telephone records support a finding that he did not ring Mr Warat during the 10 minutes or so in which Mr Warat said it occurred. Similarly, Mr Warat said that the telephone records he has located do not show any call made by him to Mr Hartman.[62]
[61]Filed in response to Mr Warat’s affidavit in which, among other things, Mr Warat gave evidence about the alleged telephone call: TB110 at [4]-[10].
[62]Warat affidavit, [36], TB106.
Also relevant to the question whether Mr Warat’s recollection of the conversation is wrong is that, on 15 July 2019, Ms Leacy wrote an email to a litigation partner of HWLE, David Jenkins, sending him a copy of the Final EOI and expressing concern that (as she understood it) Forum had appointed another company (McGrath) as letting agent, as a consequence of which Metro would not receive any Appointment Amounts from Tessa. A solicitor for Forum had apparently spoken to her and said it was not bound to appoint Tessa as there was no requirement under the sale contract. Ms Leacy said,
I need to rebut this somehow as I can’t see why we didn’t include it in the Contract, unless Jason thought it would be third line forcing.
Apparently Mr Warat was away at that time. Mr Jenkins responded to Ms Leacy, noting that the first step was to speak to Mr Warat and work out why the Tessa clause was not in the contract. Ms Leacy then sent an email to Mr Warat and asked for “any background about why it was not included in the contract.”[63]
[63]This series of emails is at TB734-736.
There is no evidence of any written or oral response from Mr Warat to that email. There is no evidence that Ms Leacy or Mr Jenkins spoke with him. In particular, there is no record at all that Mr Warat told either of them about the alleged conversation at that time, which was, of course, only some 10 weeks after it allegedly occurred. Counsel for HWLE did not, in re-examination, ask Mr Warat whether he had ever told anyone else about the conversation. Nor did HWLE call either Ms Leacy or Mr Jenkins to give evidence about whether he had told them about it in July 2019.[64] The first “record” of the conversation is in the defence filed in June 2020, indicating that Mr Warat gave instructions about it shortly before the defence was filed.
[64]Any evidence that Mr Warat told them about the conversation in July 2019 may have been admissible in rebuttal of the assertion to Mr Warat that he was mistaken about the conversation, which implied an assertion that he had consciously or subconsciously invented it: Evidence Act 1977, s 101(1)(b); Nominal Defendant v Clements (1960) 104 CLR 476, 479-480, 490, 494-495. HWLE’s failure to call them without explanation could lead the court to infer that their evidence would not have assisted HWLE in this respect, but no submission to that effect was made by counsel for Metro.
These matters, particularly the absence of telephone records of a phone call between Mr Warat and Mr Hartman on 8 May 2019 and the absence of any record or other evidence that Mr Warat told anyone else about the conversation when Metro first complained to HWLE, support a conclusion that Mr Warat’s recollection and evidence of the conversation occurring that day were incorrect.
In his evidence, Mr Warat accepted that he had made a mistake in advising Mr Hartman that, under the Tessa provision in the Final EOI, it was in Forum’s entire discretion who to appoint as letting manager. There was no attempt to cover up or excuse that error. Mr Warat was forthright in accepting the error. He was also forthright in denying any motive to lie and expressing the reasons why he would not do so, when it was put to him that the conversation did not occur.
I found Mr Warat to be a forthright and apparently honest witness. Of course, I would expect that of a solicitor of many years’ experience, but his standing in the profession is not a factor in the view I take of his credit. However, I consider that it is particularly unlikely that he would lie or exaggerate in giving his evidence, given the effect that a finding to that effect would have on his professional reputation and perhaps even his ability to continue in practice. I do not see any reason for him to have made up evidence about the telephone call occurring or what Mr Hartman said to him during the call. Nor do I consider that he has inadvertently reconstructed his evidence of the call, now mistakenly believing that it occurred when it did not.
On the other hand, Mr Hartman’s evidence generally demonstrated to me that he had no recollection of conversations with anybody about matters the subject of this proceeding. He appeared to accept that a conversation occurred only if it was clearly referred to in a note or email.[65] Additionally, Metro (in particular Mr Hartman) seemed very keen to secure the sale to Forum, in order to rid itself of the balance on the unsold units in the development.[66] That attitude is consistent with Mr Warat’s evidence to the effect that he understood that Metro was keen to lock Forum into the deal and wanted the contract signed promptly. It is also consistent with Mr Hartman’s conduct in promptly instructing Mr Warat to execute the contract even though he knew it did not contain a Tessa provision, rather than simply instructing Mr Warat to add the provision into the draft contract and return it to Forum for its agreement, especially after Mr Warat had emailed to him a copy of the Final EOI which clearly did include such a provision.
[65]See, for example, the discussion at [35] to [46] above about his email exchanges with Mr Tutt about Tessa allegedly agreeing to undertake management of Forum lots at 5% commission and then about its bank being unwilling to fund Appointment Amounts after a bulk sale.
[66]As recorded in [48] and [49] above (and the defendant’s submissions [113]-[119], [126], [131]).
I accept Mr Warat’s evidence that he and Mr Hartman had a conversation to the effect that he described. However, the absence of any documentary evidence of the conversation – particularly the absence of any file note by Mr Warat, the absence of any reference to the call in the emails exchanged that evening, the absence of any record of such a call in either party’s telephone records and the absence of any contemporaneous record or other evidence that Mr Warat told anyone else about the conversation when asked by his colleagues why there was no Tessa provision in the sale contract - demonstrates to me that any such call did not occur that day. It is clear, from paragraph 37 of his affidavit, that Mr Warat has reconstructed, from the emails he exchanged with Mr Hartman that evening, what he considers likely to be the time at which and the day on which the conversation occurred: he clearly does not specifically recall it occurring between 6.01pm and 6.11pm on 8 May 2019. However, I do not consider that he has invented or reconstructed the fact that such a telephone call occurred and the substance of the conversation.
Mr Hartman was prepared to take the risk that Tessa would not be appointed and therefore would not be liable to pay Appointment Amounts to Metro for any or all of the Forum units. His priority was to commit Forum to a short period within which to decide whether to exercise its option, in the expectation that it would do so and Metro would have successfully sold the balance of units and thus completed that development. He knew that Forum had no obligation, under the sale contract, to appoint Tessa. I consider that he also knew that the Final EOI was not binding. He decided nevertheless to instruct Mr Warat to execute the Option Deed.
This conclusion is fortified by the fact that, despite Metro originally telling Forum that “any sale would need the stock to sign Form 6 – rental with on site manager,”[134] when Forum provided the Capri EOI, which did not include a Tessa provision, Metro accepted it and instructed Ms Leacy to prepare contracts based on it. That is what she did and those documents were the basis of the contracts drawn by Mr Warat. Metro’s willingness to accept an EOI and to instruct HWLE to draw contracts without a Tessa provision[135] are further indications that a Tessa provision was considered desirable but not essential to a contract of sale with Forum.
[134]TB294, 12 February 2019: [13] above.
[135]Despite Ms Lamshed later instructing Ms Leacy, on 4 March 2019, that “We are looking at bulk sale at Capri. All units to be assigned to Tessa” – TB325.
Metro therefore entered into the option deed (and consequently the sale contract) as a result of Mr Hartman’s conscious decision to do so knowing that it contained no Tessa provision and that Forum had no obligation to appoint Tessa.
Consequently, although Metro did lose a valuable commercial opportunity by the exclusion of a Tessa provision in the sale contract, it did so as a result of its own considered decision despite, not as result of, Mr Warat’s incorrect advice and knowing that the sale contract did not include a Tessa provision. That decision broke any “chain of causation” between HWLE’s negligence and Metro’s loss.
Therefore, the loss of that commercial opportunity was not caused by HWLE’s negligence and breach of contract.
Conclusions
HWLE was negligent in not including a Tessa provision in the sale contract and in advising Metro that, under the Final EOI, Forum was to have a complete discretion as to who it may appoint as its letting agent.
Metro knew that the provision was not in the contract and decided to proceed in any event, knowing that the Final EOI imposed no binding obligation on Forum.
If (contrary to my finding) Metro (by Mr Hartman) believed that the Final EOI was binding, that was not a belief instilled or supported (nor indeed known) by Mr Warat and Metro (by Mr Hartman) held that belief and acted on it despite Mr Warat’s advice and knowing that there was no Tessa provision in the contract.
Metro therefore consciously entered into the Option Deed, without a Tessa provision, despite HWLE’s negligence and because of its own free and informed decision. Any loss it suffered as a consequence was not caused by HWLE’s negligence, nor its breach of its retainer.
If I were wrong in those conclusions, Metro’s loss would be no greater than $71,430.
Metro has not claimed nominal damages for breach of contract, so I shall not award any such damages.
Therefore, Metro has failed to prove its claim, which should be dismissed. Subject to any submissions to the contrary, the plaintiff should pay the defendant’s costs of the proceeding.