Endihill Pty Ltd v Grasso Searles & Romano (a firm) [1992] QCA 352 [1993] 2 Qd R 136

IN THE COURT OF APPEAL [1992] QCA 352 SUPREME COURT OF QUEENSLAND No. 1768 of 1990 BETWEEN: ENDIHILL PTY. LTD. (Plaintiff) Respondent AND: GRASSO SEARLES & ROMANO (First Defendant) Appellant AND: CLARKE & KANN (Second Defendant) JUDGMENT - THE COURT Delivered the Fourteenth day of October 1992 These are an appeal and cross-appeal from a judgment given in the Supreme Court for the sum of $256,857.41 and costs. That was the primary judge's assessment of the damage done to the plaintiff, now respondent, in consequence of the negligence and breach of contract of the appellant firm as solicitors for the respondent. In part, the damages awarded are unchallenged; the admitted items total $129,798.76. The appellant has argued that two items included in the damages awarded against it, namely a difference in the purchase price of a piece of land plus interest and a difference in the cost of construction of a building on that land, should not have been allowed. By the cross-appeal the respondent contends that a balancing item which the primary judge took into account against the claim, namely a saving of interest on a loan, should not have been allowed. To make comprehension easier, the appellant will be called the solicitors and the respondent will be called -- 1 of 17 -- 2 the client. The solicitors admitted liability at the trial, on the basis that their negligence or breach of contract resulted in a failure to settle a contract for sale of land which the client had made as purchaser. That contract was dated 7 January 1986 and by it the client undertook to purchase land at Shaw Road for $340,000; it had intended to build on the land in the same year and rent the building out. The client sued the vendor for specific performance and when the action came on trial in December 1989 it was settled on certain terms including that the client paid an increased price for the land, the amount of the increase being $105,000; that sum plus interest was included in the judge's award. The client brought the action for specific performance and agreed to pay the enhanced price, intending to construct a commercial building on the land. It began to do so shortly before the trial and the judge found that the increased cost of construction would be $83,000 and awarded that sum too. His Honour was of opinion that between June 1986, when construction had originally been planned to begin, and January 1992 when it actually began, the cost of construction had gone up by that sum; it was common ground that that figure should have been $86,000, in accordance with the evidence of one Kilpatrick, which evidence his Honour accepted. The total expected cost of the building was said to be over $1m. -- 2 of 17 -- 3 It was argued for the solicitors at the trial and accepted by the judge that the consequences of the solicitors' mistake could not be regarded as having cost the client the whole extra sum which the client had to agree to pay to secure the land, plus the extra building cost, without considering possible savings because of the delay. The judge held that if the project had proceeded as the client initially planned, the client would have had to borrow a substantial sum to finance the purchase. As things turned out, when the client in fact paid for the land in 1989 it had the money at hand and did not have to borrow; so, his Honour held, there was a saving of interest on the borrowing which would have had to be made and that was assessed at $90,000. The client's cross-appeal challenged the making of that allowance. The submissions on behalf of the solicitors concentrated on the assertion that the client lost neither land nor building as a result of the solicitors' fault; it got the land and was in the process of erecting the building, but all that happened years later than originally contemplated. In the meantime, the total of the money value of the land and cost of the building rose, but not as fast as the rate of inflation, however measured. According to the argument for the solicitors, the case should be looked at as one where damages had to be assessed for the consequences of these transactions being delayed. As for the client, its counsel in the outline of argument contended -- 3 of 17 -- 4 that had the client got the land and building in 1986 it would have obtained a hedge against inflation and it was suggested that the matter should be treated as one requiring assessment of the value of loss of that hedge. In oral argument, counsel for the client focused on a different point, saying that in accordance with orthodox principles, the courts disregarded, in general, past changes in the value of money, when assessing damages. It was argued for the client, in effect, that if the value of the land and building were in fact equal to the moneys paid and to be paid for them, still the judge's assessment was right. This was said to be so because, so counsel contended, the question of inflation - i.e. decline in the value of money - should be ignored in such a claim as this; as we have pointed out, the same party's written submission did not invite the Court to ignore inflation. Real property, like most other property, tends to change in price as time passes, up or down. But on the client's argument the delayed purchaser who pays a higher price always sustains a loss to the extent of the additional sum paid, even if that price merely reflects an increase in the value of the property (in the money of the day). Equally, on that view, the delayed purchaser would earn a "profit" if during the delay the value and price both fell. In order to deal with the matter it is necessary to refer to some authority, but it must be said that neither -- 4 of 17 -- 5 side referred the Court to a decided case in which a closely similar problem has had to be considered, nor have we found any such case. The basic principle on which both sides appeared to rely was that stated by Lord Blackburn in Livingstone v. The Rawyards Coal Company [1880] 5 App.Cas. 25 at 39 and of course in other cases: "... where any injury is to be compensated by damages, in settling the sum of money to be given for reparation of damages you should as nearly as possible get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation". In the present case, that involved a comparison of the client's position, considered as having carried out its plan to buy and build in 1986, as compared with the reality, which was that it bought in 1989 and built in 1992. The client was not obliged to pursue the specific performance claim. It decided in its own interests to purchase the land and erect the building, some years later than originally intended. It is reasonable to infer that it took this decision because it expected to make money. The question is, as it appears to us, whether the client would have made more money out of the initially contemplated transaction than it made, in the events which happened, and, if so, how much more? A thorough analysis of the consequences of this change -- 5 of 17 -- 6 of plan would be rather complex. On the evidence, the client formed at material times part of a small group of companies controlled by Mr. G.A. Cavallucci. When it became necessary to defer the Shaw Road project, Mr. Cavallucci turned his attention to another major venture; he did so, however, on behalf of another company in the group, not on behalf of the client company. There was no suggestion that the Court should assess damages on the basis of the loss to the group as a whole as a result of the delay, but it is relevant to note that there were transactions between the companies in the group, having to do with the transactions immediately in question, which would have complicated the process of arriving at a comprehensive analysis of the results of the delay. Neither of the parties suggested that such a complete analysis should be essayed, but each argued that certain consequences should be treated as relevant and others irrelevant. An example is provided by the interest saving referred to above, amounting to $90,000. The judge introduced that subject by saying in effect that the client suffered loss in having had to pay out more for the land and the building because of the solicitors' fault, but that a balancing exercise is necessary. His Honour held that the interest saving should be taken into account against the client. Mr. Chesterman Q.C., who led for the client before this Court, contended that this approach ignored the fact that whenever the land was bought, money had to be supplied, the use of -- 6 of 17 -- 7 which involved a cost; if the money was borrowed the cost was interest and if not the cost was the loss of the opportunity to use the money in some other profitable way, for example by lending it out. Therefore, it was said, the judge should have made no allowance against the client for the expenditure it would have incurred by way of interest, had it bought the land in 1986. It appears to us that it is proper to approach the matter in the way suggested on behalf of the solicitors, namely as raising a question of the cost of a delay. Considering the results of the deferment as a matter of principle, it is seen that the Court's task is to determine how much worse off, on revenue and capital account, the client was, as a result of the delay in getting the land. On revenue account, the only item considered by the judge was that just discussed, the $90,000 interest saving. We think, with respect, that there is something to be said for the criticism of the $90,000 allowance which was made before us. Whether the money used in the purchase came, as it did, from credit funds held, or had to be borrowed, there was as a practical matter a cost of use of those funds for the relevant period. But we find it unnecessary, because of the conclusion at which we have ultimately arrived on the whole case, finally to determine whether in the circumstances there should have been an offset against the $90,000, to take account of the loss of the opportunity to -- 7 of 17 -- 8 turn to other profitable use the funds which were paid in 1989 to make the land purchase. Another revenue element which would on a full accounting have to be taken into account is the interest or opportunity cost of funds which would have been used in erecting the building and another, the sums lost by way of rental from the building over the period from 1986 to 1992. These elements were not put forward as requiring consideration and need no further discussion. With respect to capital expenditure, one has to consider the change in the client's capital position which would have taken place had it been able to purchase the land and build in 1986 and compare that with the change in its capital position which ensued, or was likely to ensue, as a result of the 1989 purchase and 1992 construction. As to the former, there was nothing in the evidence to show that the hypothetical 1986 capital expenditures would have altered the client's capital position; that is, it was no part of the client's argument that had it purchased and built as planned in 1986 the result would have been an immediate unrealised capital profit. It commonly happens that the addition to a piece of land of a suitable building increases the value of the land by substantially more than the cost of construction, but it was not sought to be shown on behalf of the client that that would have been so in 1986 -- 8 of 17 -- 9 or that any such unrealised capital profit would have been greater in 1986 than in 1992. There was expert evidence, which the judge accepted (Exhibit 41), that the land price paid in 1989 was reasonable - that is, in conformity with the then value of the land. Cavallucci in fact said the land was worth $520,000 to him in 1989 - more than the client then paid for it. There was, so far as we can see, no direct evidence as to the relationship between the expected value of the building whose construction began in January 1992 and the cost of construction. But it would be unrealistic to infer that the erection of the building was, from the capital point of view, an unprofitable enterprise. Had the client thought it would be, the client no doubt would have refrained from engaging in it. Further, the solicitors' case on this point is assisted by evidence which was given that between 1986 and 1992, building costs rose quite modestly, by a proportion substantially less than the decline in the value of money. The solicitors' counsel argued, as we have mentioned, that the problem should be approached as an assessment of the cost of delay and also argued that so approached, no loss in any relevant respect was shown. That argument was elaborated on by a suggestion that there had to be taken into account against the increased nominal cost of (for example) the land, a figure assessed as the decline in the -- 9 of 17 -- 10 value of money from 1986 to 1989. That appears to us to be a way of assessing the cost of delay of dubious orthodoxy. We have preferred to look at the matter on the basis of a comparison of the capital and revenue positions arising from the hypothetical transactions, on the one hand, and the capital and revenue positions arising from the actual transactions, on the other. It appears to us therefore that, on the evidence, it was not shown that the capital transactions actually made in 1989 and 1992 had any worse result than those which would have been made in 1986. This makes it unnecessary to go further into the comparison of the results from the revenue point of view, since it is not submitted that, on a revenue basis, the client was shown to have been disadvantaged by the delay. It was, in effect, submitted on behalf of the client that the judge's treatment of the capital results of the transactions was supported by the decision in Wroth v. Tyler [1974] Ch. 30. There, damages were awarded in lieu of a decree of specific performance where a vendor defaulted under a contract for sale of a house. The damages were assessed on the basis of the difference between the house's value at the date of judgment and the price. Similarly, it was argued here that the judge should have, as he did, assessed damages on the basis of the price paid for the land in fact, ignoring the circumstance that the money in which -- 10 of 17 -- 11 the price was paid in 1989 was worth less than a similar sum would have been worth in 1986. It is difficult to see how Wroth v. Tyler can be of any assistance in solving the problem in the present case. This was not a suit for specific performance, nor for damages in lieu. It is true that a suit for specific performance was brought by the client (not of course against the solicitors, but against the vendor) but that suit did not produce a decree nor a judgment for damages. The client simply agreed, to settle the case, to buy the property at an enhanced price which it no doubt thought it was then worth. If Wroth v. Tyler were relevant in determining a claim for solicitors' negligence delaying the carrying out of a transaction, it might be argued to favour an approach taking into account the rise in the money value of the subject land during the period of delay, rather than the contrary approach. The award made in Wroth v. Tyler certainly included that rise in value; in contrast, here the judge made an assessment of the effect of the delay which ignored the rise in value. Similar comments may be made as to the applicability of the decision in Johnson v. Agnew [1980] A.C. 367, in which an order of the same kind as that in Wroth v. Tyler was made. Counsel also referred to the decision of the House of Lords in Birmingham Corporation v. West Midland Baptist (Trust) Association [1970] A.C. 874, but that was a compulsory acquisition case; the problem there faced appears to be quite remote from the present. -- 11 of 17 -- 12 Some reference was made to the treatment of inflation in personal injury cases. It is the practice to assess damages for non-economic loss in the money of the day, so that if an injury which would have produced a certain award when it occurred is "worth" twice as much at the date of trial, the latter sum is awarded. It is not easy to see that the existence of this practice has any bearing upon the proper method of determining the cost of a delay in entering into a real estate transaction. Something should be said of the contention that the damages should have allowed for the loss of a hedge against inflation. The value of the land and cost of the building did not, over the relevant period, increase at any faster rate than the decline in the value of money; the sum claimed could reasonably be described as an inflation loss. As we have mentioned an argument based on loss of an inflation hedge was made in the client's written outline, but not pressed at the hearing. Circumstances can perhaps be postulated in which such an award would be justified, where a purchase of specific property is delayed for some years. It might be impracticable to turn the purchase money to profitable use during the period of delay, making an award of the kind sought here a proper one. No such case was made by the client. It was in 1986 the owner of a very substantial asset, a Hill End property which was unencumbered and available to fund an investment; that was -- 12 of 17 -- 13 sold in 1988. Late in 1987 Cavallucci decided to turn his attention to another major project, at Lutwyche Road, in view of the delay in acquiring Shaw Road. Resources which would otherwise have been applied to Shaw Road were used at Lutwyche Road; the Hill End property was made available as security and, in a practical sense, the client's capacity to call on the services of Cavallucci himself and those of the group's building company was diverted to the Lutwyche Road project. There was a significant lapse of time, it appears, while the future of the Shaw Road project remained uncertain and Lutwyche Road had not been determined on as a replacement. No attempt was made separately to quantify the inflation loss during that period, during which the client had moneys on interest-bearing deposit. To look at the matter more broadly, the client was not run as a truly independent company, but was part of a group controlled by Cavallucci and which was engaged in various activities, some briefly and some more elaborately alluded to in the evidence. The long deferment of the Shaw Road project did not bring those activities to an end, but made them different from what they otherwise would have been. It was a matter for the group's controllers and, in particular, Cavallucci to decide from time to time which assets in the group should be deployed, and to what purposes. It was not shown that from 1986, when building at Shaw Road was -- 13 of 17 -- 14 intended to begin, to 1992, when it did in fact begin, the client's resources had to lie fallow or be held in reserve. To the extent that such resources were not used to what was, from the point of view of the client itself, maximum effect, that was substantially due to decisions made in the interests of the group and not to the solicitors' breach. The sums the judge awarded in respect of the increased price of the land and the increased cost of the building should not be allowed, nor interest on the former. This renders academic the propriety of the balancing item of $90,000 which the judge thought proper to set against those sums; it was not contended, nor did the notice of appeal allow for the possibility, that there could be judgment for a lesser sum than $129,798.76. There was a suggestion that the judgment should be reduced by another $50,000, by reason of a partial discharge of the solicitors' liability, but for reasons which need not be set out, that has become an academic point and was not really pressed. The appeal will be allowed by reducing the sum for which judgment was given to $129,798.76. The respondent must pay the costs of the appeal; no application under the Appeal Costs Fund Act 1973 has yet been made. -- 14 of 17 -- IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND No. 1768 of 1990 BETWEEN: ENDIHILL PTY. LTD. (Plaintiff) Respondent AND: GRASSO SEARLES & ROMANO (First Defendant) Appellant AND: CLARKE & KANN (Second Defendant) _______________________________________________ Mr. Justice Pincus Mr. Justice Davies Mr. Justice Moynihan _______________________________________________ Judgment of the Court delivered on 14th October, 1992. _______________________________________________ APPEAL ALLOWED. JUDGMENT BELOW VARIED TO THE EXTENT THAT AWARD OF DAMAGES BE REDUCED TO $129,798.76. RESPONDENT TO PAY COSTS OF APPEAL. _______________________________________________ -- 15 of 17 -- IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND No. 1768 of 1990 Before the Court of Appeal Mr. Justice Pincus Mr. Justice Davies Mr. Justice Moynihan BETWEEN: ENDIHILL PTY. LTD. (Plaintiff) Respondent AND: GRASSO SEARLES & ROMANO (First Defendant) Appellant AND: CLARKE & KANN (Second Defendant) JUDGMENT - THE COURT Delivered the Fourteenth day of October 1992 MINUTE OF ORDER: 1. The appeal is allowed. 2. The judgment below is varied to the extent that the award of damages is reduced to $129,798.76. 3. The respondent must pay the costs of the appeal. CATCHWORDS: DAMAGES - MEASURE OF APPEAL - Appellant/solicitors admitted liability for failure of contract for sale of land to settle - whether client would have made more money from initially contemplated transaction and if so how much more - whether sums in respect of increased price of land and building ought be allowed. Counsel: P.A. Keane Q.C., with him J.C. Bell for the Appellants R.N. Chesterman Q.C., with him Ms M.A. Wilson for the Respondent Solicitors: Corrs Chambers Westgarth for the Appellant Greves Creswick for the Respondent -- 16 of 17 -- 17 Hearing Date(s): 17 September 1992 -- 17 of 17 --