O'Brien v Eliades S193/1996 [1997] HCATrans 187 (6 June 1997)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S193 of 1996

B e t w e e n -

ROSLYN O'BRIEN

Applicant

and

JAMES GEORGE ELIADES

Respondent

Application for special leave to appeal

GAUDRON J

McHUGH J

GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 6 JUNE 1997, AT 10.48 AM

Copyright in the High Court of Australia

MR A.T. McINNES, QC: May it please the Court, I appear with my learned friend, MR W.N. MARKS, for the applicant. (instructed by Lange & Co.

MR D.F. JACKSON, QC: If the Court pleases, I appear with MR J.B. SIMPKINS, for the respondent. (instructed by Phillips Fox)

MR McINNES: Your Honours, this case involves the question of a solicitor's liability to a client who is acting on conveyance and a finance application.

GAUDRON J: What do you say is the precise legal question that arises.

McHUGH J: Whether the solicitor's duty is limited to retainer or assumed liability or whether the duty is wider than that.

GAUDRON J: That is a very odd question in the context of this case where there are not precise findings about the retainer.

MR McINNES: Your Honour, we say the retainer does not really matter very much, the precise terms. The Court of Appeal said it was limited to the retainer and the assumed liability. What we are saying is that the solicitor, having knowledge, that his Honour spelt out firstly, that the client has been very unsophisticated and the solicitor could hardly have not known of the difficulty they were getting themselves into by accepting the finance, that he had a duty to tell them or at least to tell them to go and seek financial advice. The other matter was, your Honours, that he told them that Citicorp, his other client, came within the criteria required for the lending of money to a husband and wife to - - -

GAUDRON J: How does that give rise to a legal issue though?

MR McINNES: Your Honours, it comes within the duty of the solicitor. If the solicitor has that knowledge, the Court of Appeal said that he was not in breach of duty to his clients to not pass the knowledge on, that in fact, on the application, the money the O'Briens had, they did not come within the criteria. The criteria was only reached - - -

GAUDRON J: But that was a matter really for Citicorp, was it not? That seems to me to be a quite different issue from one of advising the clients as to the financial implications of the transaction in relation to which the solicitor was retained.

MR McINNES: Your Honour, it is of prime importance if the client is told, "On the money that you have and that you have disclosed and say is available, you do not come within the Citicorp criteria for a loan because they take the view that for your family you need to be left with $580 a week." It is quite another thing for the solicitor to know that they have added $153 which, in fact, is not available, to make up the criteria. Now, if they were told that, "You don't come within that criteria unless you can find another $153" it makes a very significant difference to the clients' state of knowledge and what course they may take.

GAUDRON J: Is not your strongest point that which appears at page 112?

MR McINNES: Yes, your Honour.

GAUDRON J: Where it is said that the difficulties were "so obvious that a solicitor could not reasonably leave them unstated"?

MR McINNES: Yes. That followed from what his Honour said which was recorded and I was going to, with your Honours' permission, refer you to page 93, what his Honour at first instance found. With permission, if I might just read his Honour's summary and his finding, commencing at line 3:

a solicitor acting reasonably would also be under an obligation to point out to his clients the contingencies and difficulties which might prevent them from meeting their obligations. Unless Mr Eliades' responsibilities extended to these things, his professional responsibility with respect to tasks he actually did set about performing was futile. It is not enough for a solicitor to act out his instructions in a formal way as if in a dumb show; when dealing with clients whose involvement in business has been very little, he has to spell out the obvious.

It is plain enough that if either the O'Briens or Mr Eliades had taken the initiative to go in detail to the impact of the rebate on their monthly repayments, the figure of $153 would have been passed on to the O'Briens for their consideration, and its implications would have been borne in on them. But they did not have this advantage.

GUMMOW J: Now, it is the next paragraph that worries me a bit because although one would have thought it might have been done, what was not done was to treat this case as a case of breach of fiduciary duty. Now, this solicitor is acting for three parties.

MR McINNES: Yes.

GAUDRON J: And perhaps it is own interests that were in conflict with the position of your client, not the interests of the other parties.

GUMMOW J: That is right. His personal position is to continue to have the favour of the other two clients.

MR McINNES: Yes, but on the other hand, your Honour, we would say whether he was acting for his other clients or not, when he is faced with this situation, that he ought to bring it to their attention if he knows how the criterion was achieved, and one would think that that would be almost incontrovertible.

GUMMOW J: What do you say then to the passage at 112, at the foot of the page?

MR McINNES: Your Honours, that is where we say that the Court of Appeal got it wrong.

GUMMOW J: The sentence is beginning at line 26, "Stated bluntly", that seems to me - - -

MR McINNES: Yes:

such a duty would require solicitors, retained to act on a purchase or mortgage for their skill in the law, to inform every client for whom they so acted of their views about the financial prospects of the purchase or mortgage where they felt or ought reasonably to have felt that there was risk of loss.

GAUDRON J: I assume you adopt a duty of that kind or you propound a duty of that kind.

MR McINNES: Yes.

GAUDRON J: But where does the duty come from, if not from the retainer, because the finding of retainer seems to be against you.

MR McINNES: Your Honours, Hawkins v Clayton, of course, Justice Deane's statement, and if I might go to Waimond in a moment, if I might just finish on this.

GAUDRON J: Do you assert a fiduciary duty as well?

MR McINNES: No. Your Honour, we did not put it on the basis of a fiduciary duty, we put it on the basis of negligence. Your Honours, what is wrong, in our submission, with the reasoning in the Court of Appeal, of course, it does not place any obligation on the solicitor at all to give financial advice. Once they become aware, once the solicitor becomes aware there might be a financial problem, he can fulfil his duty by saying to the client, "I think there's a financial problem. You should go and get proper financial advice" and that absolves him of his duty. It does not place the solicitor in any obligation at all to give advice which he is not capable of giving. But in an instance like this, of course, it is so obvious and so clear that one would have thought that the advice would have been given but if he did not want to do that, if he did not want - - -

GUMMOW J: What should the advice have been?

MR McINNES: "I think that there's a financial problem in this matter. You should go and get independent financial advice." That would resolve it.

GAUDRON J: Is there a finding though that if simply that advice had been given by the solicitor, that your clients would not have gone on with it? I think the finding was a more limited one, that if they had been advised of the financial difficulties by the solicitor - - -

MR McINNES: No, there was no specific finding in relation to going to get financial advice, it was just in relation to if the advice had been given.

GAUDRON J: Was the case conducted on the basis of that limited advice, "Go and get financial advice"?

MR McINNES: No, no. The Court of Appeal asked what he should have done and the answer was either of two things: he should have told them or if he did not want to do that, he did not want to upset Citicorp, he could tell them to go and get independent advice.

McHUGH J: But does not the trial judge, in effect, find that part of the retainer was to obtain finance for them and to handle their application for finance?

MR McINNES: Yes.

McHUGH J: On that basis, you then say, as I understand it, there was a duty to advise and Mr Eliades walked out.

MR McINNES: That would add to the duty, if he had. But whether it is part of the retainer or not - the Court of Appeal seemed to think it was not - then he still had the duty to bring to the clients' attention the difficulties which they were facing in relation to finance in this instance.

GAUDRON J: It was not related to finance, was it? Their difficulties were in relation to repayments or the instalments, and, I would imagine, into the accretions to the capital sum until such time as the instalments were operating in reduction of the capital sum borrowed.

MR McINNES: Yes, your Honour. That is on the one hand and the other one is that a figure that the clients had no idea - never claimed - were taken into account and he should have told them that on the Citicorp's reckoning they could not afford the money that they were borrowing - to repay the money they were borrowing.

GUMMOW J: Perhaps his contractual duty to urge the obtaining of independent advice has in it the further factor that he was disabled from giving that independent advice by reason of his conflicts.

MR McINNES: By reason of his - - -?

GUMMOW J: By reason of his conflicts of interest which seemed to me to have been real.

MR McINNES: Yes, but he could have escaped that by simply saying, "You'd better go and get some financial advice." If he felt that he was going to lose Citicorp as a client by giving them the advice, he could have said, "You had better go and get some advice."

There is another case, your Honours, of the Court of Appeal of New South Wales of Waimond Pty Ltd v Byrne, 18 NSWLR 642. The then President, Mr Justice Kirby, with whom Acting Justice Hope agreed, held at page 652, at line D:

The attempt to limit a solicitor's duty strictly to the scope of his retainer is inconsistent with the holding of the High Court in Hawkins. It attempts to confine the duty of care to a contractual format. But as the majority established in that case, that duty lies also in tort. The consequences of tort liability may not be the same as of contractual liability. Although the contract of retainer will be an important indicium of the nature of the relationship which gives rise to the common law duty of care (as the minority held in Hawkins) it will not chart exclusively the perimeters of that duty. Deane J pointed out (at 579) that, depending upon the circumstances of the particular case, the duty may require the taking of positive steps "beyond the specifically agreed professional task or function", where these are necessary "to avoid a real and foreseeable risk of economic loss being sustained by the client". This Court is bound to conform to the majority holding in Hawkins. I therefore do not agree that Oliver J's definition of the scope of the duty applies. It is a remnant of the earlier view expressed in Groom v Crocker that the liability of a solicitor to a client derives exclusively from the contract between them. That notion of a solicitor's duty to a client is now exploded. It should not be reintroduced by the back door of Oliver J's approach to the definition of the content of the duty of care owed in negligence.

So, my submission is that there are two Court of Appeal decisions in conflict because in Waimond's Case the Court of Appeal is saying it is wider. It is not to the retainer, whereas in the instant case the Court of Appeal upheld that the terms of the retainer and the ambit of the additional assumed responsibility relied - - -

GUMMOW J: I have never understood, having been a solicitor myself, why it is that the retainer does not change in the course of the transaction. Judges and barristers seem to treat the client's retainer to a solicitor as something that is chipped in stone and hand it over as they walk in the door for their first conference. Life is not like that.

McHUGH J: The passage at 112 almost has something of a 19th century view about it, that the solicitor is somebody there who just advises on questions of law and the findings at 25 through to about 28 in this case show that this solicitor was heavily engaged in arranging in the financial aspects of the matter - - -

GAUDRON J: And suggest that his own interests might have been put at risk if he did not proceed in the way that he did. Could you explain to me how the case about acting for all parties was put at first instance?

GUMMOW J: Why was it that the Court of Appeal was moved to deal with it at 99, albeit conclusively? It must have been on the table in the Court of Appeal and at the trial in some way?

MR McINNES: The purchasers saw advertisements for Hooker Homes in the Central Coast.

GAUDRON J: Yes, we know the facts but what we are concerned about is how the conflict of interest argument was put at first instance.

MR McINNES: Your Honour, it was not so much a conflict of interest. It was a duty of care to the clients that were put and it was said that there was a conflict of interest.

GUMMOW J: As I understood your case, in some way that duty of care has to react to and take account of the other engagements that the solicitor had.

MR McINNES: It may be an explanation as to why he did what he did or failed to do what he should have done.

GUMMOW J: Well, that is the question, that last point.

MR McINNES: Your Honour, there was no explanation put forward, really, as to why he acted the way he did because we said that whether he was acting for a client alone and not for the financial company or the vendor of the real estate and he acquired this knowledge, then he was obliged to pass it on to his clients and if he did not do so he was negligent. That was the basis. That was the basis of Waimond Pty Ltd where a clerk had obtained knowledge about a certain transaction while employed with one firm of solicitors; had then gone to another firm of solicitors, taken the papers with him and became aware that there was a breach of trust and that was not passed on. It is a fairly complex set of facts, your Honours. I do not know that I can summarise it, but the knowledge of the clerk was held to be the knowledge that was elucidated and that led to the passage that I have just read.

McHUGH J: Your point is that this is not really a case of contract, it is question of whether there is sufficient proximity requiring the giving of this advice, having regard to the fact that he is a solicitor; there is finance involved; there is this relationship with the other companies; and all the circumstances where there was the duty of care in the circumstances of this case.

MR McINNES: Yes. The proximity, in my submission, is quite clear: solicitor's duty to his clients.

McHUGH J: Certainly, there was proximity in relation to a legal relationship but this is an ongoing relationship and the question arises whether at some stage the parties were in such proximity that it imposed a duty on the solicitor to give this advice about these repayments.

MR McINNES: Yes, your Honour, and the duty was when he obtained that information, he is acting for them and to act in their best interests. That is the way we put the submissions, your Honours.

GAUDRON J: Yes, thank you, Mr McInnes. Yes, Mr Jackson.

MR JACKSON: Your Honours, no doubt the case can undergo various constructions and reconstructions but might I endeavour to go to the parts that have interested your Honours in the argument so far. If one goes to page 112, what your Honours will see is that the broad proposition is stated but the way in which it is put has a correct but, in our submission, not unduly Victorian air in the sense that if your Honours look at the last sentence on the page, what is said, we would submit, is completely accurate as a general proposition, "The solicitor's duty is found in" (a) "the terms of the retainer and", (b) "the ambit of any additional assumed responsibility relied upon."

GAUDRON J: That is rather narrow, is it not, that last part? As a matter of law, that must be wrong.

McHUGH J: Indeed, it is contrary to, for example, Hill v Van Erp for a start.

MR JACKSON: With respect, your Honour, there is nothing to suggest that in saying the second part of that, the ambit of any additional assumed responsibility relied on, that their Honours were intending to exclude the possibility of liability in negligence. It is the assumed responsibility in the context in which the case was conducted. That that is so appears from the next line on the top of page 113 where it is said:

Moreover, in order to make such a case in negligence, the O'Briens were bound to prove -

and your Honours will see what is set out there. As his Honour says, there was no such evidence that they would have acted on that advice.

GAUDRON J: That is contrary to the trial judge's findings.

MR JACKSON: The trial judge's finding, your Honour, to which I will come in just a moment, really is one that is very difficult, in our submission, to sustain because if one goes to see the pieces of evidence that could possibly sustain it, they really do not support that proposition.

GAUDRON J: But the finding was made.

MR JACKSON: The finding that is made is really one that, in our submission, is not really quite that. What his Honour seems to be saying at first instance was that if they had known in some way that the amount of the rebate had been taken into account, the different course might have been followed. That is, your Honour, as far as it goes.

GAUDRON J: I am looking at page 51, Mr Jackson.

MR JACKSON: Your Honour, what I am seeking to say is that his Honour's finding in that regard is one that the passages of evidence that there are cannot support because what is quite apparent - and, your Honours, I will come to this passage in just a moment - is that they were aware of what the repayments were and what their own assets were and what they had to supply. Your Honours, could I just say first of all if one goes to page 105, at the bottom of the page, line 42, one will see that he:

assisted the O'Briens in the completion of the application for finance form upon the basis of information -

they supplied. He calculated the capacity figure to satisfy himself. He:

did not inquire into the full financial circumstances of the O'Briens.

And your Honours will see I will not read out the next few lines, but at line 10:

He told the O'Briens it was up to them to make sure that they could handle the repayments in the event that finance was approved. He was not cross-examined about this.

Now, your Honours, so far as their knowledge of the amounts of them were concerned, it was clear that he had - it appears from the findings of the primary judge that they understood the position about how much they had to pay and when they had to pay it. Your Honours will see that at page 46, lines 16 to 35 in the first place. There are two meetings referred to. The first is 5 November 1982. The date is at the top of page 46. Your Honours will see, at line 19:

he told them that they would be required to pay -

and the amounts are then set out. His Honour then finds, in the next paragraph, he probably gave them "some such advice". That is dealing with that occasion. But more fully, on the second meeting, on the next page, page 47, there is a heading "The meeting on 3 December 1982" and then line 41, "Mr Eliades' evidence was to the effect that". Now, that passage goes through to the bottom of the page where he shows them their monthly repayments and gives them a short explanation of the term of the loan. At the top of the next page your Honours will see the remainder of that paragraph. Then, your Honours, line 25 on page 48, having accepted his account of the interview:

I accept that he pointed out and that at that time Mr and Mrs O'Brien saw and understood what the finance agreement and also what the mortgage provided about monthly instalments and their escalation, and the rate of interest. The O'Briens could hardly have failed to see the provisions.....about the monthly instalments.

And the passage goes through, your Honours, to page 49 - - -

GAUDRON J: But that all stops short of combining all those pieces of information, all those factual matters, into the advice that it was economically foolhardy to proceed with it; that in their circumstances the risks were considerable.

MR JACKSON: Your Honour, all that he was doing in that regard was that he had to fill in for them the application form in relation to the application for finance.

GAUDRON J: Including the risk, though - surely there was a risk that should have been explained - that if there was a default at any time in the first five years they might end up liable for more than the sum borrowed.

MR JACKSON: Your Honour will see the passages to which I referred, at pages 45, 46, 47 and 48, that what he did was to explain to them the terms of the mortgage and what the mortgage provided about monthly instalments and their escalation and he - - -

GAUDRON J: And left it to them to conclude what the risks were.

MR JACKSON: Your Honour, the evidence that he gave, which was not cross-examined upon, was that he told them they had to make sure they could handle repayments in the event that finance was approved. Now, your Honour, what more, in a sense, could he do? I mean people know - he did not have all their financial arrangements. He knew what they had told him for the purpose of that. Your Honour, so far as the situation of the solicitor is concerned, he has filled in the document in order to put it in so they can obtain finance. He tells them that they will get finance on that basis and then, people who have income - no doubt, limited income, of course - from a number of sources, and then says to them, "These are the repayments; this is when you'll have to make them; this is what the mortgage is, and it's up to you to make sure you can handle the repayments in the event that finance is approved." Now, your Honour, that is the normal thing one would expect to happen in circumstances of that kind.

Now, your Honours, if one looks at the passages referred to at pages 123 and 124, what your Honours will see is that all those passages are ones which are inconsistent with the findings made by the primary judge about the knowledge of repayments, and when one - - -

GAUDRON J: Not exactly, Mr Jackson. If you look at lines 34 and 35, "if I had have known what the end payments were", that seems to relate to the growing capital debt.

MR JACKSON: No. Your Honour, this was a loan that had different amounts; a stepped loan.

GAUDRON J: Yes, but there was no reduction of capital for some years. The problem, at the end of the day, really was that these people had to pay out much more than they had borrowed because of the increasing capital debt because the instalments which they were told they had to make sure they could pay were not going to the reduction of capital.

MR JACKSON: Your Honour will find that at pages 46 and 48 there are specific findings that he had told them of the amount they would be required to pay monthly for each of the months and each of the years and, in particular, at page 48, about line 30, the judge accepted that they:

saw and understood what the finance agreement and also what the mortgage provided about monthly instalments and their escalation, and the rate of interest.

Your Honours will see that is developed through the remainder of that page to the top of the page.

GAUDRON J: But the complaint of the witness at page 123 in the passage to which you took us was not directed to any of those things, it was directed to the final debt when, notwithstanding the repayments, notwithstanding their capital contribution to the purchase, there were end payments.

MR JACKSON: Your Honour, in our submission, that is not correct, but I cannot take it beyond.

GAUDRON J: Well, I must say that is how I read it. "The end payment".

MR JACKSON: Your Honour, what I would seek to say is that it is apparent from the findings actually made that he knew what the payments were to be and the judge so found and he found they knew and understood.

GAUDRON J: What the instalments were to be?

MR JACKSON: Your Honour, in the end, were all paid by the instalments. Your Honour, in relation to that particular question and answer, the next question and answer was:

When you say "the end payments", are you referring to the scheduled payments on the second page of MFI6?---Yes.

And they are the instalments payments. Your Honours, the point I was seeking to make in relation to that was that if one looks at those passages on 123 and 124 that are extracted by our learned friends, they all go to matters in respect of which there were findings the other way by the primary judge. The only other passage relied on is the one referred to at page 129C in paragraph 14, which takes one back to page 50. This is what his Honour says between lines 23 and 24:

The inducing factor for Mrs O'Brien's.....was her perception that there would be a sizeable reduction in the debt burden which the O'Briens faced.

Your Honours, could we say in relation to that, that whilst that refers back to that passage, if one actually goes to what she said, one sees the important evidence to which the Court of Appeal referred at page 106, and it is the passage at the bottom of the page, line 44, where her cross-examination is set out, and it goes through to about line 30 on the next page. Your Honours will see her evidence about her view at the time. At the top of page 107:

We had paid out all our debts.....fresh start.....no other debts at the time, and the maintaining of the mortgage, I didn't think, would be a problem.

And, your Honours, I will not read out the next three questions and answers.

So, your Honours, what we would seek to say is that whatever case one might have made of it starting afresh, as it were, the case, in our submission, is one where the evidence did not, in the end, support reliance. There was no satisfactory finding made nor was there a finding of any retainer, we would submit, based upon the evidence which could sustain the proposition that more had to be done by Mr Eliades than he did in completing the document, telling them the result of completion of it and having done that, telling them what the terms of the transaction were, in detail. They understood it, as the judge found, and he told them they had to make sure they would be able to pay it as necessary. Your Honours, those are our submissions.

GAUDRON J: Thank you.

MR McINNES: Your Honours, in respect of acting upon the information, there is a passage at page 50, line 22.

GUMMOW J: Yes, we are aware of that.

MR McINNES: That shows that Mrs O'Brien - it is a very good reason for believing that she would not have entered into the transaction at all if she had understood just what she was up for.

GUMMOW J: At page 130, the draft notice of appeal, only one of the two borrowers is a moving party.

MR McINNES: Yes.

GUMMOW J: Does that have some consequence on the judgment that would be given here?

MR McINNES: I would submit not, your Honour. Only one of the parties wished to appeal.

McHUGH J: Would you not have to make the other party a respondent to the appeal?

GUMMOW J: You are really seeking an order for a judgment in favour of you and a stranger to the proceedings for the one sum of money.

MR McINNES: Yes. Well, perhaps, your Honours, if your Honours granted leave, that I should do that and join as a respondent the party who does not wish to appeal.

GAUDRON J: Strictly speaking, he should have been a party to today's proceedings, Mr McInnes.

MR McINNES: Yes, your Honour.

GAUDRON J: If the Court were minded to grant you special leave, it would have to be conditional upon, I think, Mr O'Brien's consenting to be a party to the proceedings.

MR McINNES: I understand that there would be no - - -

GAUDRON J: I say "consenting" because that would seem to be necessary to waive what is, when one considers it now, not merely a procedural defect but a question going to observance of natural justice.

MR McINNES: Yes. I understand there is no difficulty about that, your Honours.

GAUDRON J: The Court is minded to grant you special leave, Mr McInnes, but it would have to be conditional upon some indication that Mr O'Brien consents to be a party to the appeal.

GUMMOW J: Either as appellant or respondent.

GAUDRON J: Yes, either as appellant or respondent. We could stand the matter down in the list to later in the day to enable you a chance - - -

MR McINNES: Your Honour, the parties, of course, have long since divorced and - - -

MR JACKSON: Your Honour, perhaps if the case could be mentioned before a Justice on a day to be fixed because it may take more than an hour or two to fix it up.

MR McINNES: We cannot say that he would be available today, your Honour.

GAUDRON J: Very well. There will be no order made at this stage but you have liberty to apply to have the matter relisted before a single Justice, being a member of this Bench. If it could be done, perhaps, the week after next, it would be an advantage.

GUMMOW J: I will be duty Judge in Sydney in that week.

AT 11.27 AM THE MATTER WAS CONCLUDED