A number of recent professional negligence cases decided in Queensland demonstrate the willingness of judges to make robust findings on the issue of causation of loss and make findings in favour of defendants even where there has been an obvious breach of the duty of care. Mantonella Pty Ltd v Myles Thompson  QCA 80 and Howarth v Miotti & Redchip Lawyers  QSC 96 examined this issue in the context of the solicitor-client relationship. Rodgers v ANZ Banking Group  QSC 86 looked at the duty of care owed by banks and financial service providers.
Mantonella Pty Ltd v Myles Thompson
The solicitor (Mr Thompson) had acted for both vendor and purchaser on the sale of a restaurant business. The vendor was an estate and Mr Thompson had been acting for it for some time. The retainer with the purchaser was initially to effect the settlement of the sale. However, the purchaser argued that general advice should also have been given by Mr Thompson.
The restaurant lease required the lessee to provide the lessor with a bank guarantee. The contract of sale required the estate to obtain the lessor's consent to the assignment before settlement. The purchaser entered into possession of the restaurant without obtaining formal consent to the assignment or providing the required bank guarantee. The lessor then terminated the lease relying on the failure to provide the bank guarantee.
The purchaser later issued proceedings against Mr Thompson claiming he had breached his fiduciary duties in acting for both parties and had failed to properly advise the purchaser on the terms of the agreement. The issue was that the contract of sale required the vendor estate to obtain consent to the assignment of the lease and, until that occurred, there was no obligation on the purchaser to pay the balance purchase price. Mr Thompson did not advise the purchaser of this. However, he did advise against entering into possession of the restaurant before the consent had been obtained.
At first instance, the Magistrates Court found in favour of Mr Thompson and then the District Court dismissed a subsequent appeal.
Breach of fiduciary duty
The Court of Appeal considered Mr Thompson's duty in acting for both parties and whether there had been a breach of fiduciary duty. Initially, the Court found there would not have been a breach of fiduciary duty as, when the agreement was entered into, the solicitor was not, in fact, acting for the purchaser. Mr Thompson was already acting for the vendor estate and then later accepted instructions to act for the purchaser in order to effect settlement. Therefore, in the beginning of the relationship, there was no 'real or substantial possibility of conflict'.
However, once it became clear that the purchaser and the estate's interests were not aligned, there was an actual position of conflict. Mr Thompson told the purchaser there was a conflict of interest in him acting for both parties but it was not 'fully informed' consent. In order for there to be 'fully informed' consent, the solicitor must explain that situations may arise where the solicitor cannot fully disclose relevant information or may not be able to give advice due to the conflict of interest.
Causation for breach of fiduciary duty
The decision confirms that common law causation principles do not automatically apply in the context of a breach of a fiduciary duty. Mr Thompson's counsel argued there was no causation of the purchaser's loss because the purchaser's own conduct had caused that loss. Justice Muir rejected this argument on the basis that there was an 'erroneous assumption' that the causation principle equally applied to claims for a breach of fiduciary duties. Once it is determined there is a non-disclosure of a material fact in the context of a fiduciary relationship, it is irrelevant to speculate on whether a party would have made the same decision, if armed with that fact.
A breach of fiduciary duty gives rise to a personal equity that is restitutionary in nature and does not automatically give rise to a right to damages for any loss. The Court emphasised that if a plaintiff seeks common law damages, the plaintiff must discharge the same burden of proof as would be required at common law as 'there is no equitable bypass of the need to establish causation'. Ultimately, the Court found that although there had not been fully informed consent, the purchaser's case failed on causation because it would have proceeded with the transaction irrespective of Mr Thompson's breach of fiduciary duty. The purchaser could not demonstrate it had suffered any loss, or that Mr Thompson had profited, as a result of that breach of fiduciary duty.
Howarth v Miotti & Redchip Lawyers
The Howarths purchased a unit off a plan from a Mr Murgia. They paid a large amount of money (although how much had been paid and whether it was the full amount of the purchase price was in dispute), entered into possession and settlement was scheduled but never occurred. Some years later the Howarths were evicted from the premises. They issued proceedings against their solicitors, Mr Miotti and Redchip Lawyers, for failing to protect their interests, for giving inappropriate advice and for terminating the contract of sale without their instructions.
The Howarths did not seek the advice of Mr Miotti before entering into the contract of sale. They had already paid the sum of $169,000 in cash instalments to Mr Murgia prior to seeking any advice from Mr Miotti. They claimed to have paid a further total sum of $117,000 in cash to Mr Murgia after they sought advice from Mr Miotti.
Problems began to arise once the Howarths moved into the unit in October 2002 and found a prospective buyer. At that time Mr Murgia informed them they could not sell the apartment because it was still mortgaged to the bank.
There were many discrepancies in the evidence and, ultimately, Justice Lyons found the Howarths were both entirely unreliable witnesses. The Howarths claimed they had sought advice from Mr Miotti as early as July 2000 just after the time they claimed to have signed the contract. Her Honour found the contract had not been signed until November 2000 after which they sought advice from Mr Miotti regarding the conveyance.
Justice Lyons found that the retainer between Mr Miotti and the Howarths was to act for the Howarths on the conveyance. Her Honour also found there was an extensive relationship between the Howarths and Mr Murgia well before Mr Miotti became involved in the matter. Mr Howarth admitted to signing agreements given to him by Mr Murgia without any reference to Mr Miotti and without any understanding of what was in the agreements.
Prior to settlement, Mr Howarth complained extensively about the state of the unit and told Mr Miotti that he did not wish settlement to occur. Mr Miotti gave evidence that he verbally advised Mr Howarth on protecting his position if he wished to terminate the contract but he said Mr Howarth rejected that advice and said he would sort the matter out himself. Mr Miotti therefore did nothing about effecting settlement, the settlement date passed and the contract was not finalised. The Howarths never complained about this fact to Mr Miotti although they knew settlement had not proceeded.
Duty of care and breach of duty
Justice Lyons criticised Mr Miotti for delegating the conveyance to paralegals without considering the terms of the contract in detail and for failing to keep contemporaneous, or in fact, any file notes on certain critical discussions including the discussion regarding termination of the contract.
Her Honour found that even though the contract had been entered into between the parties before Mr Miotti was retained, he had a duty to explain and advise the Howarths on the contract executed before his retainer arose – especially insofar as that contract contained unusual terms. He should have advised them regarding the payments they had already made and the risks of paying more to Mr Murgia where settlement had not yet been effected.
Failure to establish causation
The difficulty for the Howarths arose because they could not establish any funds were paid after the retainer with Mr Miotti had commenced. They gave extensive evidence that payments had been made, however, Justice Lyons rejected these arguments and found that on the balance of probabilities no further funds were transferred once Mr Miotti had been retained. Her Honour found that Mr Miotti had failed in his duty but she was not convinced the Howarths would have followed his advice had he given them appropriate guidance. It was clear on the evidence that the Howarths had put a great deal of faith in Mr Murgia and continued to deal with him even after finding that he had failed to comply with the initial agreement. The Howarths failed to establish that they would have acted any differently had different advice been given nor could they establish any actual loss as a result.
Rodgers v Australia & New Zealand Banking Group Facts
The Rodgers had a longstanding banking relationship with the National Australia Bank (NAB) which had begun to deteriorate by 2001. The Rodgers had a fledgling business they were keen to pursue and therefore approached the Australia & New Zealand Banking Group (ANZ) to discuss transferring their facilities. The relationship with ANZ later soured as the start-up company became insolvent. ANZ moved to enforce its securities. After a series of actions between the parties, the Rodgers brought an action against ANZ claiming certain representations had been made to them regarding the amounts they could borrow and that ANZ would not enforce its securities while the business was still starting up.
The Rodgers were self-represented and a large portion of their evidence was not accepted by the Court. Justice McMeekin found that a number of the so called 'representations' were, in fact, true and that the Rodgers knew them to be true.
Duty of care
His Honour rejected the argument put forward by ANZ that banks do not owe customers duties of care. He found they do owe duties of care to ensure that the advice and information provided to customers is accurate. However, he found they were not under any duty to inform customers of internal banking systems. Justice McMeekin found that it is self evident that banks have those internal systems to protect the bank and not consumers.
Failure of causation
His Honour found that the negligent advice pleaded by the Rodgers was either information rather than advice or, alternatively, that the alleged representations were actually true.
He found Mrs Rodgers in particular to be articulate, intelligent and perfectly capable of understanding what was going on. He noted that in representation cases, it is imperative to show that the loss flows directly from the alleged inducement. In this case, that was not made out by the Rodgers and their case failed.
The Rodgers' conduct would have been no different had the so called representations not been made. The Rodgers were very keen to pursue the start-up business and this was the primary reason they changed from banking with NAB to ANZ as the NAB had refused to support the startup company.
These three recent cases demonstrate the following:
- Even where the solicitor/client retainer begins after an agreement is entered into, the practitioner has a duty to advise generally on the terms of the agreement – especially where the agreement has unusual terms.
- Where fiduciaries are in a position of conflict, it is not enough to simply note there is a conflict of interest – there must be fully informed consent.
- Bankers and financiers owe duties of care to their customers to provide only accurate information regarding products and services.
- Causation is an essential element in an action for damages and the Queensland bench has recently demonstrated a willingness to apply those principles strictly in professional indemnity matters.
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