Stanek & Stanek v Bradley & Steindl t/a Steindl Bradley & Associates
[1997] QDC 313
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- Stanek & Stanek v Bradley & Steindl t/a Steindl Bradley & Associates[1997] QDC 313
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Stanek & Stanek v Bradley & Steindl t/a Steindl Bradley & Associates[1997] QDC 313
Stanek & Stanek v Bradley & Steindl t/a Steindl Bradley & Associates[1997] QDC 313
IN THE DISTRICT COURT HELD AT BRISBANE QUEENSLAND | Plaint No. 238 of 1997 |
[Before Boulton DCJ]
[GH & LMJ Stanek v. AG Bradley & SA Steindl t/a Steindl Bradley & Associates]
BETWEEN:
GUNTER HORST STANEK AND LOIS MARGARET JOAN STANEK | Plaintiffs |
AND:
ANTHONY GEORGE BRADLEY AND LEIGH ANTHONY STEINDL Trading as STEINDL BRADLEY & ASSOCIATES | Defendants |
JUDGMENT
Judgment delivered: 17 December 1997
Catchwords: | |
Counsel: | A.J.H. Morris QC with him P. Lane for the Plaintiffs M. Bland for the Defendants |
Solicitors: | Gadens Ridgeway for the Plaintiffs Deacons Graham & James for the Defendants |
Hearing Date(s): | In the District Court at Brisbane from 10 to 13 November 1997 |
IN THE DISTRICT COURT HELD AT BRISBANE QUEENSLAND | Plaint No. 238 of 1997 |
BETWEEN:
GUNTER HORST STANEK AND LOIS MARGARET JOAN STANEK | Plaintiffs |
AND:
ANTHONY GEORGE BRADLEY AND LEIGH ANTHONY STEINDL Trading as STEINDL BRADLEY & ASSOCIATES | Defendants |
REASONS FOR JUDGMENT - BOULTON D.C.J.
Delivered the 17th of December 1922
In or about April 1987 the plaintiffs were the owners of the Canberra Hotel in Toowoomba having purchased it in or about 1983. They were not experienced hoteliers. Mr Stanek was a builder by occupation. His wife, it seems, had been a secretary. They had lived in New Guinea for a lengthy period and had returned to Australia, at least in part, for the sake of their children's education.
The hotel, when purchased, was in run-down condition. It was extensively renovated by Mr Stanek. When this was done, it was their intention to lease it to an experienced publican with a view to selling the freehold some three years or so into the lease. They were conscious of their own inexperience in hotels and believed that the hotel would be more attractive to a purchaser if it had been conducted for several years by an experienced operator.
A prospective purchaser, Mr Laine, was identified by the plaintiffs' accountant. This led to the plaintiffs being given the name of the defendant firm. They contacted Mr Bradley on or about 8th May 1987 and on that day or shortly afterwards had an interview with him in his office at Browns Plains.
It is common ground that the plaintiffs requested a clause providing that they have access to the lessee's trading figures. Given their intention to sell during the lease, that was a logical requirement to make. In response to a question from Mr Morris Q.C. about the second paragraph of the letter of 8th May 1987 (Exhibit 5) Mr Bradley replied:
“That was because that was the only specific clause he required to be put in the lease and otherwise it was standard so I mentioned it.”
The subsequent omission of such a clause from the final form of the lease is at the heart of this action. It is common ground that Mr Laine objected to it and that various fallback proposals were ventilated. From the plaintiffs' side, it appears that they first indicated a willingness to accept the profit and loss accounts - rather than an actual examination of the books - and later gave some consideration to accepting the profit and loss account for one year only immediately prior to an attempt being made to sell the freehold of the hotel. From the Laine's side, it is clear that they rejected the clause in its original form and that progressively they rejected the remaining tentative proposals. Such rejection was communicated to Mr Bradley by Mr Davidson, who was Mr Laine's solicitor.
The version of events put forward by Mr Bradley at trial was to the effect that the plaintiffs accepted the outright refusal by Mr Laine to provide any trading figures whatsoever, effectively consenting to the omission of Clause 54 in its original or modified form from the lease. As will be seen later in my reasons I reject this version of events. I much prefer the plaintiffs' version which is to the effect that they made the offer of compromise referred to above but that other suggestions were not accepted by them. They signed the lease in the belief that Clause 54 was still present in the document and Mr Bradley never gave them any indication to the contrary.
The plaintiffs gave evidence that Mr Bradley notified them “You have a lease”. He produced the final version of the lease mentioning some small amendments but made no mention whatsoever of the omission of the clause concerning trading figures. They did not check at the time and were not provided with a copy of the final document. They were unaware of the absence of the clause until they made a request for trading figures in 1990.
Mr Bradley spoke of a sequence of five telephone calls that he had - three with Mr Davison and two with Mr Stanek. The final call to Mr Stanek was as follows:
“...I said to Mr Stanek, ‘Davidson's client will not agree to the production of books in the 12 months prior to your selling a freehold or entering into a contract to sell the freehold, nor is his client prepared to supply the figures in the last year of the lease.’ I then said to Mr Stanek, ‘You have had the conduct of the hotel for some time; you have the records of your conduct of the hotel; you've got personal knowledge of the overheads, staff and income of the hotel; you've got access to the licence fee and, on that basis, if you were wanting to work out some figures you would be in a position personally to be able to do so.’
What was Mr Stanek's response?-- Mr Stanek's response was that he agreed - he said, ‘I agree with you’, and as a result 54 was deleted.”
Mr Bradley claimed at trial to have a clear recollection of the sequence of telephone calls. He was subjected to close cross-examination on these claims. In the end result it seems that his recollections are unreliable, although I am not prepared to find that Mr Bradley is being deliberately untruthful.
Resolving a difficult issue of credit after the lapse of some ten years is not without its difficulties. As would be expected, reference to contemporaneous documents is of considerable assistance. I have derived assistance also from correspondence and other documentation during the period when the plaintiffs became aware of the omission of the clause. I have had particular regard to the following considerations:
- (i)I am satisfied by the evidence of Mr Lacey that trading figures were vital to any careful strategy to sell the freehold of the hotel and that the plaintiffs were aware of this feet when they were seeking to lease the hotel. Mr Lacey's evidence satisfied me that the annual figure for licensing fees taken by itself was woefully inadequate as a basis for a proper valuation exercise.
- (ii)Despite the fact that Mr Bradley had file notes - however untidy and disorganised - of conversations with the plaintiffs about other variations to the lease, and file notes of conversations with Mr Davidson, there is absolutely no file note of conversations with the plaintiffs going to the outright deletion of Clause 54.
- (iii)Mr Bradley's evidence of an express acceptance by Mr Stanek “I agree with you” to which I have referred above emerged for the first time in his evidence. As a solicitor Mr Bradley could not have been unaware of the importance of such an unequivocal statement if it had in fact been made. In earlier cross-examination of Mr Stanek, the same event was put in less definite terms “and at any rate I suggest that you told Mr Bradley to go ahead at the end of that telephone conversation”.
A further problem with Mr Bradley's account of this matter is that there had been at least some telephone conversations between Mr Davidson and himself. If Mr Stanek had done a complete about face on this issue saying “I agree with you”, it seems an odd omission that Mr Bradley did not then ring Mr Davidson and say that there was now agreement between the parties. Nothing of that kind occurred.
- (iv)In 1990, the plaintiffs telephoned Mr Bradley requesting trading figures, and on 1st May 1990, the letter, Exhibit 6, to Davidson and Sullivan was sent requesting “full details of the hotel trade pursuant to the covenant of the lease...”.
A further letter was written on 23rd May 1990 (Exhibit 7) where it was further said:
“In the meantime would request that your clients produce to them copies of the profit and loss accounts on the hotel for the first and second years of the lease.”
Another letter followed on 6th June 1990 (Exhibit 8):
“We refer to previous communication relative to the abovementioned matter particularly ours of 23rd May 1990 and note that we have not received details of the profit and loss accounts as requested therein.
Our clients are shortly going on holidays for a month and your client's early attention to this matter would be appreciated.”
On 8th June Mr Bradley received the letter (Exhibit 9) from Davidson and Sullivan. If Mr Bradley's memory of deliberate omission of Clause 54 had not been revived by the correspondence to this point of time it must have been absolutely clear as at 8th June that there was no Clause 54 to be found in the lease.
- (v)What occurred after 8th June is even more difficult to explain. On 13th June 1990, Mr Bradley wrote the letter (Exhibit 23). It must have been around this time that he telephoned the Staneks and ask them to come into his office. The account given by Mrs Stanek of this conversation was not contradicted. Her evidence was as follows:
“Well, how did you find out that the clause was missing?-- Well, he asked us to come into his office and told us that he was sorry - not actually sorry, he said he didn't know how it happened but the trading figures were not actually part of the contract.
Now, this is pretty important. Did you recall his exact words about how the trading figures didn't find their way into the lease?-- He said he couldn't understand how it had happened.”
Mr Bradley's initial version of a conversation with Mrs Stanek on this issue was somewhat different. In examination-in-chief, he described the conversation with Mrs Stanek shortly after 8th June 1990:
“...I said to her, ‘There is no provision in the lease for production of records. That clause was deleted.’
What did she say in response to that?-- I can't remember any comment she made in response. She - sorry, I rang her and said - it was her - request that she required it. I rang her and told her that it wasn't in the lease. I think she asked why not and I said it was deleted during the initial negotiations.”
After some cross-examination, however, Mr Bradley admitted that there was a statement made by him to Mrs Stanek similar to the one which she had mentioned.
“That's the conversation in which you told Mrs Stanek that you didn't know why it had been deleted. That's the truth, isn't it?-- I did tell her on one occasion I didn't know why it had been deleted, I admit that, because she spoke to me and said why and I couldn't remember.
That is the conversation referred to in that passage of your evidence?-- I think so.
Why did you give false evidence?-- I certainly told this woman that I did not, I did not know why it was deleted or how it was deleted.
Which is quite inconsistent with the evidence in chief which you gave yesterday?-- I can't explain it, Mr Morris. I can't remember what happened yesterday. I can't remember that conversation.”
Mr Bradley's reasons for answering Mrs Stanek that he did not know was:
“...My recollection is that at the time she asked me why it had been deleted and I said I did not know-----
Why did you-----?-- -----at that time because I had not checked the lease.”
I find it impossible to accept this explanation. This was not a situation where Mr Bradley was asked an unexpected question about a matter of detail. I have taken some pains to point out that there was earlier correspondence going on from 1st May. The conversation with Mrs Stanek followed the receipt of Exhibit 9 on 8th June. For Mr Bradley to say in those circumstances that he did not know why or how the clause was deleted is quite inconsistent with his present assertion that there was an express agreement with Mr Stanek to that effect.
- (vi)Then again there is the absence from later correspondence with the Staneks of any assertion that they had agreed to such a course. The final paragraph of Exhibit 42 makes express reference to the objections of the lessee but none at all to the Staneks having concurred.
- (vii)A final aspect of the matter that I find unsatisfactory is Mr Bradley's assertion that when he refreshed his memory from the file notes he had a clear recollection of the sequence of negotiations including the Staneks' agreement. In fact the file notes are silent on the issue of an agreement. They record no instructions to proceed from the Staneks.
The abovementioned matters are some of the major ones relied upon by the plaintiffs as reasons why I should reject the version of Mr Bradley. There were some lesser considerations advanced, but on the very decided view that I have taken in the matter, I do not find it necessary to advert to them.
An attempt was made to attack the credibility of the Staneks on the basis that their reaction to the omission of the clause was somewhat muted, that they had not complained to Mr Bradley and that they continued to utilise his services thereafter. Both the Staneks explained this by saying that Mr Bradley was making further efforts to obtain the trading figures. They still hoped to obtain these. With the passage of time they became increasingly frustrated rather than angry. I note that the draft lease, Exhibit 2, has a faint scribble mark through Clause 54. It seems to me to be likely that this reflects the concession on the part of the Staneks that it was too wide in its terms. It seems likely that Mr Bradley lost sight of the need to insert a modified version in accordance with the Staneks' instructions.
There was unchallenged evidence before the court; from Mr William Hart, a solicitor, to the effect that the deletion of a clause such as Clause 54 without the clients' instructions was a clear breach of a solicitor's duty of skill and care. Such a view is really self evident and counsel for the defendants did not suggest otherwise.
But for the defendant firm's negligence, the plaintiffs would have insisted on the inclusion of a clause in the lease requiring the provision of trading figures leading up to an attempt to sell the freehold of the hotel. On the evidence, that was most likely to occur in 1990.
I am also prepared to find that the lease being offered to Mr Laine was an attractive one. Mr Laine himself certainly thought so. Further negotiations on the issue may have produced a satisfactory result for the plaintiffs. If they had not, I am satisfied that the plaintiffs would, on balance, have refused to deal further with Mr Laine and would have sought an alternative lessee. It was Mr Lacey's evidence that the terms of the lease being negotiated by the plaintiffs were reasonable as to the rental being sought. I will come to consider later the provisions of s.18B of the Liquor Act and the inclusion of a clause in the lease directed to that issue. For the present, it seems more probable than not that a satisfactory lessee could have been found to take the lease in its final form with a further provision as to trading figures. Such a lessee may, of course, not have had the ability and experience of Mr Laine. This is an issue that I will have to consider when I come later to the question of damages.
Section 18B of the Liquor Act
I turn the second issue in the case which surrounds Clause 53.1 of the lease. This section was, on the evidence, directed towards circumventing s.18B of the Liquor Act.
Mr Bradley's evidence concerning this clause, when under cross-examination, was as follows:
“My question was, how does that afford protection to people like your clients? You see, you sold this to Mr and Mrs Stanek on the basis that this was a way of protecting them against the operation of section 18B?-- No, I did not.
Didn't you tell them that?-- No, I told them I had a clause that had not been tested, we had developed it over a period and that I could not guarantee the results if it was tested by the court.
But you certainly told them, leaving aside any qualifications or reservations you might express, you certainly told them this clause was designed and intended to protect them against the alteration of section 18B?-- To allow them to charge an increased rent if the licence fee went up, yes.
It doesn't guarantee them, leaving aside questions of validity under section 18B, it just doesn't guarantee that at all, does it?-- Well, we - well, at the time I believed it would. It had not been tested and I told the Staneks that it had not been tested.
Let's forget about section 18B. Let's assume for the moment that you are perfectly right and there is no problem with section 18B. Assume that it's valid and operates in accordance with its terms. Even so, how does it protect the landlord?-- In the last year of the lease it doesn't.
In any other year of the lease?-- It allows the landlord if he can't agree with a tenant in relation to the increase in rent to go to a valuer and have a valuer decide the rental.
Which on the very best view might be between zero per cent and one hundred per cent of the increased amount?-- Be that as it may-----”.
Mr Stanek said, and I accept, that he was surprised to hear from Mr Bradley that a landlord was responsible for one quarter of the licence fee incurred by the lessee. He described himself as “scared”. He was asked:
“Well, did you express these views to Mr Bradley?-- Of course, yes.
And what did Mr Bradley say?-- He said - he laughed. He said, ‘Don't worry, we will make sure that you have,’ you know - ‘that you are covered in your lease’.
Do you remember anything specific that he said, any words he used or how he described that?-- Not to my knowledge. He was very confident in the way he presented - he said, ‘Look, we are the experts, you have absolutely nothing to worry about. We will make sure you have no problems.”
Mr Morris Q.C. for the plaintiffs submitted that the defendants' drafting of Clause 53 was defective in the following respects:
- “(i)The clause was void as offending s.18B of the Liquor Act 1912-1985;
- (ii)Further or alternatively, the clause was “void for uncertainty”;
- (iii)Further or in the further alternative, the clause failed to afford adequate protection to the plaintiffs, in that it only allowed for the plaintiffs to recoup an amount up to their quarter share of the licence fee (as determined by a valuer), rather than 100% of their quarter share of the licence fee; and
- (iv)Further or in the further alternative, it afforded no protection to the plaintiffs in respect of the whole of the licence fee for the last year of the lease.”
Clause 53 of the lease which is Exhibit 4, is in the following terms:
“53. Rental Review.
53.1 Should in any year throughout the term of this lease the licence fee payable to the Queensland Licensing Commission exceed the amount specified in Item 2 of the First Schedule hereto then the rental hereinbefore agreed to be paid shall be increased to such an amount as shall be determined between the lessor and the lessee by mutual agreement and failing agreement as shall be determined by a valuer appointed by the President for the time being of the Queensland Institute of Valuers whose decision thereon shall be final and conclusive PROVIDED HOWEVER and in any event the increased rental hereinbefore agreed to be paid shall not be increased beyond such amount as shall be equivalent to one quarter of the difference between the amount specified in Item 2 of the First Schedule hereto and one quarter of the licence fee as at the date of recalculation.”
It is not necessary to set out s.18B(1) in its entirety. Suffice to say that the lessee of licensed premises is entitled to a contribution of one quarter of the licence fee from the owner of the premises. Section 18B(1A) goes on to provide:
“Any agreement under which a licensed victualler as referred to in paragraph (i) of subs.(1) or an owner who is a tenant of another person as referred to in paragraph (ii) of subs.(1) is required -
- (a)to repay a sum deducted or recovered under that subsection or any part of the sum;
- (b)To pay an equivalent or similar sum to offset the deduction or recovery of a sum under that subsection; or
- (c)to forfeit or lose in any other way in whole or in part a benefit arising out of the provisions of that subsection
is an ‘agreement to the contrary’ for the purposes of that subsection and is not enforceable against the licensed victualler or owner as aforesaid and action does not lie for damages for an alleged breach thereof.”
In Meredith v. Fitzgerald (1948) 77 C.L.R. 161, Latham C.J. with whom Rich, Starke and Williams JJ agreed, held that a provision somewhat similar to the one contained in Clause 53 of the subject lease was not “an agreement to the contrary” as that term is used in the Liquor Act. Latham CJ observed at p.171:
“The provision for further rent does not interfere with the right of the tenant to recover 3/8ths of the licence fee from the landlord and the tenant, therefore, is entitled to recover the sum claimed by her in the action. But the tenant is under an obligation to pay the whole of the rent, including the ‘further rent’, and therefore the landlord can set off his claim for further rent against the tenant's claim for the recovery of 3/8ths of the fee.”
In Pullos v. Gifford Enterprises Pty. Ltd. (1990) 2 Qd.R. 251 at 258 Ambrose J. in the leading judgment of the Full Court observed in respect of s.18B(1A) of the Queensland Act:
“The effect of the 1985 Amendment is to make a dramatic change to the substantive law in Queensland affecting the rights of a lessor to achieve the avoidance of the pecuniary detriment which Meredith v. Fitzgerald said he could do by increasing rental payable under the lease without infringing the prohibition imposed by s.18B(1)(i).”
The Full Court was considering in that case the issue of retrospectivity, but I note that Ambrose J. at p.258 observed in respect of a clause which again was somewhat similar to the clause contained in the subject lease:
“On my reading of the legislation it is only subsequent to 23rd December 1985 that a provision for increased rental of the sort to which Clause 1.03 of this lease is an example would be ineffective and ‘not enforceable’ in Queensland against the lessee.”
Mr Morris Q.C. was not able to refer to any decided case where wording similar to that in Clause 53(1) was used, but it would seem from a mere reading of the legislation itself that the clause in the subject lease would be unenforceable against the lessee. Mr Lacey seemed to suggest in his evidence that clauses of this kind continue to find their way into hotel leases, but in my view it would have been untenable for a solicitor, even in 1987, to advise a client that Clause 53(1) was an effective bulwark against the operation of S.18B(1A).
Mr Morris Q.C. goes on to submit that Clause 53(1) is void for uncertainty. He adverts to the fact that failing agreement of the parties there is provision of a determination by a nominated valuer “whose decision thereon shall be final and conclusive” subject only to a specified ceiling. There is absolutely no basis for the exercise which the valuer is to conduct. He refers to an article by the Honourable Mr Justice B.H. McPherson, Arbitration, Valuation and Certainty of Terms (1986) 60 A.L.J. 8 where, at p.14, his Honour observes under the sub-heading “An External Objective Standard”:
“What is required, it is submitted, is some external objective standard by reference to which the matter in dispute is intended to and can be determined...”.
His Honour goes on to consider the ascertaining of a market price or market rental and comments as follows:
“The fundamental point is, however, that such an agreement is legally enforceable only because, although certainty in relation to an essential element is initially absent, a ‘standard’ is supplied by which that element can be determined, but it is the standard (market value) and not the means (arbitration) that makes the contract enforceable.”
The issue is not free of difficulty. Courts strive to give efficacy to the agreements of parties and it may well be that on a liberal view of the clause in question it may be found that market rental is in feet being referred to. If this was in fact intended, it is poor drafting to say the least. A reasonably competent solicitor would advise his clients of its deficiencies.
Unfortunately, however, a finding that “market rental” is in fact being referred to holds no joy for the defendants because Mr Morris Q.C. points out very cogently that there is no guarantee that the valuer in such circumstances would arrive at a figure that gave any or all of the desired relief. The clause could not be relied upon to produce the desired result.
As if this were not enough, Mr Morris goes on to point out that, because of the delay in payment of licence fees to the following year, the clause gives no protection whatsoever in respect of increased licence fees in the last year of a lease. It does nothing to address the hazards involved to an owner if the lessee embarks on the selling of discount liquor in the last year of the lease.
Mr Bradley admits that he gave no warnings to the client concerning the deficiencies in (ii), (iii) and (iv) above. He claims to have warned the plaintiffs of the danger in (i) saying that the clause had not been judicially considered and that there was a chance that it would be found to be unenforceable.
The plaintiffs say that Mr Bradley gave no such warning. On the contrary, they say that he reassured them on the grounds that he had inserted a clause which had taken years to draft that would protect them against their liability under s.18B. For reasons that I will come to shortly, subject to one qualification, I again prefer the version of the plaintiffs.
It seems that Mr Bradley did entertain some extravagant notions about the clause in question. When one considers the manifest deficiencies of the clause, the statement that “it had been developed over a period of time” is nothing short of extraordinary. The instructions given to counsel in Exhibit 58 to consider drawing proceedings to sue on the clause are in the same category.
Mr Bradley's contention that he warned the Staneks that the clause had not been tested in court is not supported by the documentation. There is no contemporary letter or file note to that effect. His letter to the Staneks after receiving the opinion of Mr Morris, Exhibit 60, makes no mention of such a warning having been given. It was only under cross-examination that he claimed to have given such a warning.
“...I'm asking you about your conversations with them. You didn't say to them, after the problem arose, after my opinion had been provided, you didn't say to them, ‘This is what I warned you might happen’?-- I'm sure I did.
But that somehow escaped your mind when you were giving evidence yesterday?-- I don't think anybody asked me about that yesterday.”
I must admit to having been puzzled at some evidence given by Mr Stanek about challenging s.18B in court. Mr Bland took this up with him in cross-examination:
“When he spoke of challenging things in court, are you certain you knew what he was talking about?-- I presumed that it meant that the clause which demands that the landlord pay the licence fee is a strange law, and that's the law. I thought he meant that if you want to change that law, you would have to challenge it in court. It would cost too much money to do so.”
This answer really makes no sense. Given Mr Bradley's evidence, that he told the plaintiffs that clause 53(1) had never been challenged in court and that such a comment does appear to make sense, it seems that I should accept that such a comment was in fact made but was misconstrued by the plaintiffs. I am not prepared to go further and find that Mr Bradley warned them that clause 53(1) might be unenforceable. On the contrary I find that he proceeded to give the plaintiffs assurances of the time and money and expertise which had gone into the development of the clause and expressed confidence in its efficacy. The clause, whether it had been challenged in court or not, was woefully inadequate.
Apart from an increase of $194 agreed between the parties in the first year of the lease, there was no attempt in subsequent years to secure agreement or to seek a determination.
Paragraph 11 of the Further Amended Plaint in subparas.(a), (b), (c) and (d) provides particulars of negligence on the part of the defendants arising out of the issues to which I have just referred. Paragraph 11(e) goes on to allege a further particular of negligence as follows:
“(e) Failing to advise the plaintiffs to demand or seek a higher rental for the hotel in view of s.18B of the Act;”.
This allegation has considerable significance because it not only adds a particular of negligence, but also raises an issue which is quite vital to whether or not the plaintiffs suffered any loss. If it were the case that the plaintiffs were saddled with the consequences of s.18B irrespective of what advice they had received and irrespective of any clause that had been inserted in the lease, then the abovementioned failures on the part of the defendants would have been of no consequence.
Mr Morris Q.C. submitted that the defendants should have inserted a “ratchet” clause whereby the rental would be structured to include, along with its other components, a percentage of turnover or of profits. Mr Morris submitted that it was negligent on the part of the defendants not to advise the plaintiffs to demand or seek such a provision. He further submitted that such a clause would have been effective - if accepted by the lessee - to protect the owner against the application of s.18B and its accompanying hazards.
That such clauses have existed over a period of time, particularly post-1985, is clear. Mr Lacey, in his evidence-in-chief, proposed such a “turnover rent” and gave details of how it might be structured. He said that in his experience, such turnover rents were common enough in 1987. Mr Hart was predictably critical of the form of s.53(1). On the subject of a turnover rent he appeared somewhat cautious, responding to Mr Morris:
“I have seen, for example, an opinion that you've given which said a certain thing, and I've not necessarily shared that view ...”
Mr Hart did though urge a consideration of the increasing rent. When pressed on the subject of rentals based on turnover or profits, he replied:
“There would certainly be that as a possibility. So that the income to the lessors might well have comprised base rent and another stream of income, depending on either turnover or profit.
Is that something, Mr Hart, of which a solicitor exercising reasonable skill and care would have considered and given advice to his client?-- Yes, I believe he certainly would have considered it. At the back of my mind always is the question of whether the lessee would accept it. But yes, I think it is something that should have been discussed.”
The existence of arrangements whereby increased rental was used to offset the owner's liability to pay portion of the licence fee is referred to by Williams J in K.A. & A.B. Haase Pty Ltd v. Tricontinental Corporation Limited (1995) 2 Qd.R. 598. In that case, such arrangements were expressly referred to by His Honour and in the second reading speech of the Minister in introducing amending legislation late in 1992. His Honour observes at p.602:
“Obviously what happened in practice between 1945 and 1992 was that the rent payable by the licensee to the owner of the premises was determined, bearing in mind that the owner was liable for a percentage of the licence fee; in other words, the licensee paid a higher rental because of the statutory liability imposed on the owner”.
It seems clear enough that consideration should have been given to a higher rental in order to offset the fraction of the licence fee. That consideration should have included the possibility of a turnover or profit based component. Such a measure would, if included in the lease and if upheld by the Court in the event of challenge, have been effective to protect the owner against the very real dangers that were faced. Significant uncertainty though exists as to the two preconditions referred to. One would think it likely that given the existence of such clauses in shopping centre leases the presence of a similar clause in a hotel lease might have good chances of surviving a legal challenge. Like Mr Hart, however, I entertain some scepticism as to procuring the acceptance of such a provision by some lessees. Having seen Mr Laine give evidence, I would think that the chances of imposing such a condition on Mr Laine would have been near to nil. Mr Lacey, however, was aware of the presence of such provisions in hotel leases. A solicitor exercising reasonable skill and care should have advised his clients accordingly.
The defendants were plainly negligent in respect of the matters referred to in para. 11 (a), (b,) (c) and (d) of the further amended plaint. I am also prepared to find that they were negligent in failing to advise the plaintiffs to demand or seek a higher rental for the hotel in view of s.18B of the Act and in this context to have explained the operation of a “ratchet” clause. The consequences of such negligence are less clear. One might regard the one quarter of the licence fee for the remaining four years of the lease as some sort of base figure reflecting their loss. That, however, is a figure which already reflects the performance of the hotel under the control of Mr Laine and, as I have already pointed out, I think it most unlikely that they would have obtained a rental turnover component from Mr Laine. When I come to the question of damages arising from these heads of negligence, I would think it necessary to discount the base figure significantly to reflect the various contingencies to which I have referred.
Damages
The measure of damages is calculated by ascertaining the sum which will restore the injured party to the position she or he would have in if not for the defendant's negligence.
Mr Bland submits that the plaintiffs' damages should be assessed at the date of the defendants' breach (namely when the lease was entered into in 1987 rather than in 1990 or at some other time). He refers to Johnson v. Agnew [1980] A.C. 367 at 400-1.
Such a rule, however, is not invariable and does not seem to be appropriate to the present situation where the plaintiffs had an intention to sell the freehold of the hotel some three years into the lease (i.e. mid-1990) and where the solicitors' breach did not come to light until at or about that time.
There is in the present case an element of speculation as to what would have occurred if the defendants had acted with the requisite skill and care. The situation is referred to in Jackson & Powell on Professional Negligence 3rd ed in the chapter dealing with solicitors at para.4-168 as follows:
“Evaluation of a chance. In the course of assessing damages, it is frequently necessary to speculate what would have happened if the solicitor had properly discharged his duty. Where the matter is in doubt, an approach sometimes taken by the courts is (i) to assess damages on the basis of a particular hypothesis, and then (ii) to scale down the award according to the probability that the hypothesis is correct.”
This seems to be an appropriate course to follow in the present instance and to accord with the law as laid down in Malec v. J.C. Hutton Pty Ltd (1990) 169 C.L.R. 638.
In Green v. Chenoweth C.A. No. 10998 of 1996 (Unrep.) the Queensland Court of Appeal considered the application of the Malec doctrine and whether it had any application to the issue of causation. In the majority judgment, McPherson JA said:
“In my respectful opinion, a plaintiff in an action for damages for negligence continues to be bound to establish that the defendant's negligent act or omission caused the injury complained of, or at least that it materially contributed to it: Duyvelshaff v. Cathcart & Ritchie Ltd. (1973) 47 ALJR 410, 417 col. 1A; Wilsher v. Essex Area Health Authority [1988] A.C. 1074, 1088, 1090. I do not consider that this conclusion is affected by the decision in Malec v. J.C. Hutton Pty. Ltd. (1990) 169 C.L.R. 638, which was concerned with the different, if not always wholly unrelated, question of assessing the quantum of damages for a contingency once an injury is proved to have been caused.”
I am satisfied on the balance of probabilities that the negligence of the defendants caused the plaintiffs to suffer loss. As I have already indicated, however, there are different courses that events may have taken if the solicitors had
- (i)followed their clients' instructions to require trading figures and/or
- (ii)correctly advised their clients on the ramifications of s.18B of the Liquor Act and of the further strategies for requiring additional rental.
I am satisfied that the plaintiffs had a strong preference for leasing the hotel prior to selling the freehold. On the evidence they had done virtually nothing to advertise the sale of the lease. Mr Laine had been recommended to them by a professional contact. He was an experienced hotel operator and to this extent suited their requirements. He was also a hard-nosed businessman who would not take kindly to other persons prying into his financial affairs. Once in the lease he would, as events showed, not hesitate to bring pressure to bear for a renewal of the lease. Mr Laine was shrewd enough to see the potential of the lease and to recognise that the rental being asked was most reasonable.
I take the view that Mr Laine would have been very likely to concede the issue of trading figures if they had been insisted upon. I have already said that I think it most unlikely that he would have agreed to a profit or turnover component in the rental.
Given the potential of the lease and the reasonable rental being sought, it would also seem very likely that if Mr Laine had persisted in his refusal of trading figures, the plaintiffs would have succeeded in obtaining another lessee, although perhaps one with less experience. There was then, in my view, only a small prospect of the plaintiffs being put in the position of having to sell the hotel in 1987.
Having regard to the plaintiffs' family situation, it also seems most unlikely that they would have postponed a sale of the freehold until the end of the lease or beyond. There is then quite strong support for the hypothesis that they would have sold the freehold of the hotel in or about the middle of 1990.
Mr Lacey, in his valuation, which is Exhibit 47, addressed a number of different scenarios at different times, but it would be fair to say that the hypothesis of a June 1990 sale was the one that was advanced strenuously on behalf of the plaintiffs.
With the benefit of hindsight we know that Mr Laine's trading figures could be considered a success. It is obvious that a different lessee may have been less successful or may even have failed altogether.
There is of course the interesting possibility as to what would have happened if Mr Laine had agreed to provide trading figures but had refused a “ratchet” clause for rental. The plaintiffs would seem to have been aware of the grave danger presented by heavy discounting practices on the part of the lessee in the final year of the lease. If properly advised by their solicitors - and assuming that they were being provided for the trading figures by Mr Laine - there would seem a strong chance that they would have continued to deal with Mr Laine albeit with a somewhat increased level of rental. Their intention to sell the freehold before the end of the lease would have spared them the problems associated with the licence fee for the final year. This is not to say that a purchaser of the freehold in 1990 would not have been apprehensive at the prospect of the lessee engaging in discounting of liquor in the remaining years of the lease if there were no effective bulwark against the operation of s.18B.
Mr Lacey has given evidence of what might have been achieved if the plaintiffs had been able to sell the hotel some three years into the lease with access to Mr Laine's trading figures. Mr Lacey's evidence on this issue is really not challenged. He has found the open market value of the hotel as at June 1990, calculated with the benefit of trading figures, at $650,000 and as against this has found the valuation without such trading figures as at the same date at $420,000. The discrepancy is $230,000. Of course this figure is based upon the actual performance of the hotel under the control of Mr Laine.
Having regard to the abovementioned factors I propose to discount the abovementioned figure by 20%. That produces an end result of $184,000.
Mr Morris Q.C. concedes that the difference between the rent which was receivable in accordance with Mr Lacey's formula and the rent actually received should be restricted to the financial years 1987/88, 1988/89 and 189/90. This concession arises out of his submission to the effect that June 1990 was the likely date for sale of the freehold. The figures provided to me are as follows:
Rent Actually Received
Year | Base Rent+ CPI | Refund of Licence Fee | Total Paid |
1987/88 | 62,400 | 3,387 | 65,787 |
1988/89 | 71,468 | 3,387 | 74,855 |
1989/90 | 76,847 | 3,387 | 80,234 |
Rent Receivable in accordance with Formula Proposed by Mr Lacey
Year | Base Rent+ CPI | Turnover Rent | Total |
1987/88 | 62,400 | 1.5% × 263,411 = 3.951 | 66,351 |
1988/89 | 71,468 | 1.5% × 736,206 = 11,043 | 82,511 |
1989/90 | 76,847 | 1.5% × 1,026,333 = 15,395 | 92,242 |
Difference Between:
Rent receivable in accordance with Mr Lacey's formula | 241,104 |
Rent actually received | 220,876 |
20,228 |
Once again I propose to discount this figure. Because of the abovementioned factors, I apply a 40% discount rate. That produces a figure of $12,136.80.
Mr Morris Q.C. concedes that the plaintiffs are not entitled to be reimbursed the sum of $2,432 by way of legal fees in circumstances where they are being awarded the fruits of the lease. That seems correct. I do however award the sum of $450 by way of counsel's fees. These would not seem to be recoverable as legal expenses in the present action. There is no basis upon which the plaintiffs should be required to pay for Mr Morris's opinion.
In his initial submissions on the question of damages, Mr Morris claimed legal fees of $3,307 paid to Messrs Cleary and Lee and interest payable to one Barry Dominic Foye in the sum of $31,270. The plaintiffs came back into possession of the hotel in 1992 and experienced serious financial problems. They were refused credit by various financial institutions. It was submitted that the abovementioned legal expenses and interest on borrowings were a consequence of the defendants' negligence.
I heard further submissions of counsel on these issues. Mr Morris persisted with his claim for interest on the borrowings from Mr Foye, but I take the view that they are not properly claimable.
There were many commercial decisions to be made by the plaintiffs in the post-1990 period. Mr Laine was seeking a renewal of the lease. There was the decision as to whether or not they should re-enter the premises in 1992. They might have elected to sell the freehold at some stage or grant a lease to someone else. In fact, it emerges from the valuation of Mr Lacey that, as at the date of trial in 1997, the plaintiffs are still the owners of the freehold. They have granted a long term lease of the premises to a Mr and Mrs Dyer which is not to expire until 11th April 2004.
There are of course other factors of more general application. In the post-1990 period there has been the economic recession of the early 1990's which had a profound effect upon businesses Australia wide. Mr Lacey makes reference to the increased competitiveness between hotels and the declining position of hotels in the liquor market.
It is sometimes appropriate where a plaintiff has been locked into a failing business to approach the question of damages in a comprehensive way. Such an approach was taken in Dayle v. Olby (Ironmongers) Ltd. [1969] 2 QB 158, where the Court of Appeal allowed damages for consequential loss arising from a difficulty in selling a business which had failed. In Gould v Vaggelas (1985) 175 C.L.R. 215 at 233, Gibbs CJ referred to this method and commented at p.223:
“Such a method could only be safely adopted if it were held, as it was held in that case, that all trading losses flowed directly from the fraud”.
Such an approach is not appropriate in the present instance and would run counter to the prime submission on the part of the plaintiffs that their loss be crystallised as at 30th June 1990. There is simply no comprehensive evidence of the kind that would enable the legal expenses to Messrs Cleary and Hoare and the interest on borrowings from Mr Foye to be evaluated in the light of the whole business operation. Indeed, there seems no compelling evidence that the plaintiffs could not have cut their losses and sold the freehold at virtually any stage.
I therefore disallow the amounts claimed in respect of Messrs Cleary and Lee and in respect of Mr Foye.
There is also a claim for damages arising out of an aggravation of Mrs Stanek's nervous condition as a result of the stress occasioned by the failure to sell the hotel freehold at the time that was planned.
I have a report from a specialist psychiatrist, Dr. Reddan, which is Exhibit 48. I note that the defendant did not require Dr. Reddan to be called for cross-examination. Dr. Reddan noted that Mrs Stanek had been prescribed minor tranquillisers during her time in New Guinea. She had never seen a psychiatrist until 1993 and there was no family history of psychiatric illness. Her opinion is then as follows:
“It is my opinion that Mrs Lois Stanek developed the psychiatric disorders, pain disorder, and a generalised anxiety disorder (DSM IV) for the first time in approximately 1992. It is my opinion that neither of these psychiatrist disorders would probably have arisen if Mrs Stanek had not suffered material and financial loss and significant fear for her future arising out of the difficulties in the contract with the lessee and her necessity to return to the hotel. I would recommend that more detail be sought from Dr Jane Sullivan as to whether Mrs Stanek developed polymyalgia rheumatics or some other autoimmune disease. If she has developed such an autoimmune disease I cannot comment on what role the stress of her recent difficulties would have had in developing it and I would recommend that a consultant immunologist or other physician be consulted in relation to this. Almost certainly, however, the stress and worry associated with these events did contribute in some measure to Mrs Stanek developing higher cholesterol and blood pressure levels than she previously had. The stress and worry also worsened her pre-existing migraine condition.”
There is no other medical evidence in the case and I therefore confine myself to the psychiatric disorders referred to by Dr. Reddan.
The learned authors of Jackson and Powell on “Professional Negligence” 3rd ed. (1990) at para. 4-211 make reference to the situation where a plaintiff's health is affected:
“Distress affecting health. Where the solicitor's breach of duty causes such distress as to affect the client's health, then this constitutes a separate head of damages. This is subject to the rules as to remoteness which will often defeat a claim. In Malyon v Lawrance, Messer & Co., the solicitor's negligence led to an extension of the period for which the plaintiff suffered neurosis, following a road traffic accident; £1,250 was awarded under this head.”
The situation seems to be less clear where distress is suffered which falls short of affecting a plaintiff's health.
There would seem to be some reluctance to allow damages for distress in commercial situations. At para.4-215 Jackson and Powell, having referred to the Court of Appeal decision in Hayes v Dodd [1990] 2 All E.R. 815 go on to observe:
“As a result of Hayes v. Dodd, mere foreseeability is no longer sufficient for the recovery of damages for distress in contract. However, the precise nature of the test is unclear, and its application uncertain, although it will rarely be applicable to cases where solicitors are sued for negligence. Hayes v. Dodd concerned the conveyance of commercial property. The Court of Appeal have recently not allowed damages for distress in a surveyor's negligence case concerning a domestic survey. It is submitted that, by analogy, damages for distress could not be recovered from solicitors for the conveyance of residential property.
There is little authority on whether damages for distress can be recovered in tort, and the issue is not discussed in either of the Court of Appeal authorities referred to above. Such damages were awarded in Crossnan v. Ward Bracewell & Co., but without any discussion about the principles to be applied. The issue is, of course particularly important if the existence of a contract does not bar a remedy in tort.”
In the present case, the defendant solicitors were aware that the plaintiffs wished to dispose of the hotel within a three year period or thereabouts. The solicitors were aware of the fact that the plaintiffs were not experienced in the hotel trade and had family reasons as well. There was, however, no indication that delay in selling the hotel would cause Mrs Stanek psychiatric problems. The solicitors could not reasonably have expected to have that prospect in contemplation. But even on the more generous test in tort, it would seem that the plaintiff's claim under this head should fail.
In Mt. Isa Mines Ltd v Pusey (1971) 125 C.L.R. 383, the High Court dealt with the case of a worker who developed a serious mental disturbance normally comprehended in the term schizophrenia. The trial judge did not find that this phycological reaction was a foreseeable consequence of the defendant's conduct, but held that it was a particular manifestation within a broad category of injuries which were foreseeable. In upholding the decision of the trial judge Skerman J, the High Court held that it was not necessary that the particular injury from which the claim arose should have been foreseeable; it was sufficient to found liability that the class of injury, mental disorder, was foreseeable as a possible consequence of particular conduct. Accordingly, the defendant was liable.
There is no evidence in the present case to support the view that mental disorder to Mrs Stanek was reasonably foreseeable.
I assess the plaintiffs' damages in the sum of $196,586.80. I allow interest on this sum at 10% per annum for a period of 7½ years. That produces a further $147,439.50. That produces an end result of $344,026.30.
I give judgment for the plaintiffs against the defendant in the sum of $344,026.30. I order that the defendants pay the plaintiffs' costs of and incidental to the action to be taxed.