Frost & Sutcliffe v Tuiara [2003] NZCA 277; [2004] 1 NZLR 782; (2003) 10 TCLR 912 (27 November 2003)

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Frost & Sutcliffe v Tuiara [2003] NZCA 277 (27 November 2003); [2004] 1 NZLR 782; (2003) 10 TCLR 912

Last Updated: 16 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA104/03

BETWEEN FROST & SUTCLIFFE
Appellant

AND TURUA TUIARA AND MEREAINA TUIARA
Respondents

Hearing: 10 November 2003

Coram: Gault P Tipping J McGrath J

Appearances: M G Ring and M O Robertson for Appellant
P Moodley for Respondents

Judgment: 27 November 2003

JUDGMENT OF THE COURT DELIVERED BY TIPPING J

[1] The principal issue in this appeal from the judgment of Baragwanath J, reported at [2003] 2 NZLR 833, concerns the Judge’s conclusion that the duty of care owed in tort by the appellant solicitors to the respondents was wider in scope than the duty which they owed in contract. The respondents (Mr and Mrs Tuiara) entered into a transaction as a result of which they lost their house. They sued the appellant solicitors claiming that Mr Douglas Sutcliffe, who handled the transaction on their behalf, had failed to discharge his professional responsibilities properly.
[2] Three causes of action were pleaded; the tort of negligence; breach of contract and breach of fiduciary duty. The Judge found there was no breach of contract and no breach of fiduciary duty. He found, however, that Mr Sutcliffe had been negligent and his firm was liable to the Tuiaras in tort. He came to that conclusion notwithstanding the fact that the breach of contract and tort causes of action, as pleaded, were exactly co-extensive in both the duties of care alleged and the particulars of breach. We will revert to that aspect after setting out the background circumstances. As the case is reported below we will describe the relevant facts only to the extent necessary to consider the issues raised by the appeal.
[3] In March 1999 the Tuiaras entered into back to back agreements with a company called Richmond Thornby Holdings Ltd (RTH) for whom their nephew John Noble worked. The overall arrangement was proposed by him. The first of the two contemporaneous agreements involved the Tuiaras selling their house to RTH. The second agreement involved RTH selling the house back to them in six weeks time for $8,000 less. RTH was to pay them the difference of $8,000 upfront as a deposit on the first agreement. The appellant firm was known by the Tuiaras to be acting also for RTH in the transaction. Mr Douglas Sutcliffe was to act for the Tuiaras, and his brother, Mr Terence Sutcliffe, who normally acted for RTH, was to do so on this occasion. As the Tuiaras knew would happen, RTH mortgaged the property to its bank before the date on which the property was due to be transferred back to the Tuiaras. RTH then went into liquidation and could not procure a release of the mortgage. The Tuiaras could not therefore regain title and lost their home with nothing but the original $8,000 to show for the transaction. Their case at trial was that Mr Douglas Sutcliffe had actively encouraged them to enter into the transaction. The Judge rejected that proposition, observing that, on the contrary, Mr Sutcliffe had “made significant efforts to dissuade them from it”.
[4] That was indeed so. Mr Sutcliffe advised the Tuiaras strongly, both orally and in writing, against entering into the transaction. He wrote them a letter of which Mrs Tuiara acknowledged receipt at the foot. In it he said:

19 March 1999

Mr T & Mrs M Tuiara

Re: Sale of your property at 21 Ashley Avenue, Mangere. To Richmond Thornby Holdings Limited and Repurchase.

You have been asked to sell your property to Richmond Thornby Holdings Limited which will pay you only $8,000.00 now and will resell it to you in 6 weeks.

We note our advices to you as to our concern at advising family as regards to transaction of this type. This is especially the case when their own home is placed at risk. My initial advice to you would be “don’t”.

I record however, that you have decided that you do wish to proceed with the arrangement.

The effect of registration of the sale will mean that you have lost your home if anything goes wrong.

As advised, if for any reason Richmond Thornby Holdings Limited can’t get a release of the mortgage it will take on the property, effectively you will have lost your house and have to start again. You will have a right against the security the Company grants but this would be likely to be of no value.

We note that at this stage you have satisfied yourselves the Company will be in a position to repurchase the property from you in 6 weeks.

To summarise, our advice simply is it is better not to proceed with the transaction. We note however that you wish to assist your family, and you have done so in the full knowledge that the transaction is a financial risk to you and you may suffer financially in the event the Company being unable to complete the resale of the house for you.

We note we have strongly recommended you consult an independent Solicitor in respect of the matter but you have declined to so.

Yours faithfully

FROST & SUTCLIFFE

per:

[signed]

D J Sutcliffe

[5] In spite of the fact that this letter was listed in their affidavit of documents, and receipt was endorsed at the foot, as noted above, the Tuiaras denied having received it. Mrs Tuiara said, presumably for causation purposes, that if she had received it, she would have understood it and she and her husband would not have entered into the transaction. The Judge found, not surprisingly, that the Tuiaras did receive the letter and understood it; yet they decided to go ahead. They were no doubt influenced in their determination to proceed by the seemingly easy way of gaining $8,000, their reliance on their nephew who was promoting their involvement and the fact that other family members had successfully participated in similar transactions.
[6] Against that background we now address the pleadings. The case went to trial on an amended statement of claim dated 31 May 2000. The first cause of action was breach of contract. Para 7 alleged that Mr Sutcliffe had made certain representations to the Tuiaras, including that it was “fine” for them to enter into the transactions; and that there was no risk associated with them. These allegations were tenable only on the basis that the Tuiaras had not received the 19 March letter. How that proposition could be reconciled with the Tuiaras’ affidavit of documents is hard to see. The contract cause of action then pleaded several implied terms and a number of particulars of their breach. There was also a more general plea that the solicitors had failed to exercise all due professional care, skill and diligence “in or about attending to the [Tuiaras’] requirements and protecting [their] interests”.
[7] The second cause of action was brought in tort and was described as “Breach of duty of care”. No wider duties than those pleaded in contract were invoked. Indeed the tort cause of action amounted simply to a repetition of the contract pleading with exactly coincident allegations of breach. The third cause of action was for breach of fiduciary duty and was based essentially on two propositions : a failure to ensure that independent advice was given, and a failure to decline to act further without the “full consent” of the Tuiaras.
[8] The Judge’s approach to the tort cause of action must be addressed on the basis that he had already held that there had been no contractual or fiduciary breach. Mr Ring pointed out that the Judge had given no indication prior to the delivery of his judgment that he was contemplating a wider duty in tort than in contract. None had been pleaded and there had been no submission that the duties in tort and contract were materially different. Indeed counsel informed us that the submissions had implicitly accepted that the duties the solicitors owed in contract and tort were co-extensive. There is therefore a substantial due process issue in the course which the Judge took. We do not need to rest our judgment on that issue as we are satisfied that the Judge came to an erroneous conclusion in any event. Even if the tort duty had been pleaded and argued on the wider basis which the Judge adopted, we are satisfied the correct legal analysis does not support that view of the matter. In order to put the Judge’s approach in context it is necessary to refer to the way in which he constructed his judgment.
[9] Having expressed himself as content to assume that Mr Sutcliffe had done all that was required of him by the contract between his firm and the Tuiaras, the Judge turned to the claim in tort. He observed that the topic of “overlapping” causes of action is fraught with difficulty, and then cited a number of authorities: see para [56] of the reported judgment below.
[10] The Judge then said, at para [60], that the facts of the present case showed the inadequacy of contract as the sole determinant of the scope of “professional responsibility”. The Judge then continued:

Here the practitioner knew or should have ascertained the general circumstances of the client plaintiffs who sought advice upon a very dubious transaction. Importantly, it was in the context of the practitioner’s challenged advice that the plaintiffs endorsed the letter that circumscribed the scope of the retainer. The contractual issue of what:

the reasonably competent practitioner would do having regard to the standards normally adopted in his profession ... directly related to the confines of his retainer

must become in tort what that practitioner would be expected by the standards of his profession to do having regard to all the circumstances, including:

• the lack of experience and limited education of the clients; and
• the significance of the transaction; neither of which is of direct moment when construing the written contract of retainer; as well as
• the consequences of its failure.

[11] As Mr Ring submitted there are, with respect, major difficulties with this analysis. The contractual duty created by implied term, was to exercise such skill, care and diligence as was required in all the circumstances, including the scope of the retainer. In this case the contract of retainer could not sensibly be viewed as limiting the scope of liability to a greater extent in contract than in tort. The scope of the retainer was equally apt to influence what a competent practitioner should have done whether the obligation is analysed as contractual or tortious.
[12] There may be rare cases where, in a case like the present, it is possible to regard the tortious duty as wider than that in contract, but these must be very much the exception rather than the rule. An express contractual limitation of the scope of the contractual duty in an artificial and improper way might result in the Court finding that the duty so excluded was nevertheless still owed in tort. The basis for that approach would be a policy one, preventing the professional person from improperly limiting the scope of their professional responsibilities by express contractual term. But there cannot be any suggestion of that in the present case. The three circumstances isolated by the Judge as relevant to the solicitors’ duty in tort were clearly within the ambit of the duty in contract as well. As this Court said in Gilbert v Shanahan [1998] 3 NZLR 528, 537, in a passage the context of which was the tort of negligence, but which did not suggest any general difference between contract and tort:

Solicitors’ duties are governed by the scope of their retainer, but it would be unreasonable and artificial to define that scope by reference only to the client’s express instructions. Matters which fairly and reasonably arise in the course of carrying out those instructions must be regarded as coming within the scope of the retainer.

[13] We consider the Judge erred when he took the view (implicitly at least) that the three circumstances, which he isolated in the passage cited above, were not relevant to the contract claim. It is, with respect, difficult to take the view, using one of those circumstances as an example, that the consequences of the failure of the transaction were material in tort but not in contract.
[14] The Judge moved on to cite from Deane J’s judgment in the High Court of Australia in Hawkins v Clayton (1988) 163 CLR 539, 574, and from the judgment of Kirby P in Waimond P/L v Byrne (1989) 18 NSWLR 642, 650-2. He then added, at para [63], that he did not read what Oliver J had said in Midland Bank Trust v Hett Stubbs & Kemp (a firm) [1979] 1 Ch. 384; [1978] 3 All ER 571, “as excluding a tort claim in such cases as the present”. The issue, however, was not exclusion of tort but whether the scope of an admittedly available tort claim was co-extensive with the claim in contract. The Judge then added:

Indeed the ratio of Merrett v Henderson, which cited with approval Oliver J’s conclusion that a tort claim may survive the expiration of the limitation period for the claim for breach of contract, is that a tort claim is not stifled by the existence of a contract; its ambit is wider. [our emphasis] That had indeed been the very point of Oliver J’s decision. Whether a duty of care exists in tort may be informed but is not necessarily determined by the existence and terms of a contract, provided it is not inconsistent with them: see Riddell v Porteous [1999] 1 NZLR 1, 9. In the present context ambit of the tort claim includes the fact that the practitioners secured the plaintiffs’ endorsement of the 19 March retainer letter in the course of advising them in a manner that is said to be negligent. I consider it wrong in principle to conclude that the tort claim is implicitly excluded by the contract; clear words would be required to attribute such an intention to the parties. I am satisfied that despite the narrow scope of the contractual retainer there existed a wider duty of care in tort arising from the plaintiffs’ placing confidence in the defendants to act in their best interests as their legal advisers. It results from the defendants’ holding themselves out as practising their profession in the normal way. The law will impute a duty to meet the standards of the ordinary competent practitioner advising such clients in such circumstances. I turn to whether it was breached.

[15] The Judge’s reference to the ambit of the tort claim being wider is, in context, valid only to the extent of the limitation difference. There is no support in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145; [1994] All ER 506 for what the Judge seemingly saw as a general proposition. Indeed Lord Goff, who gave the leading speech in that case, indicated more than once that, at least as a general rule, he did not envisage the concurrent duty of care in tort as being wider in its scope than the duty in contract: see in particular his reference to the decision of the Privy Council in Tai Hing Cotton Mill Ltd v Liu Chong Hong Bank Ltd [1985] 2 All ER 947, and his observation at 526:

It is however right to stress, as did Sir Thomas Bingham MR in the present case, that the issue in Tai Hing was whether a tortious duty of care could be established which was more extensive than that which was provided for under the relevant contract.

[16] Furthermore, in a passage which, prima facie at least, must be regarded as having general application, Lord Goff indicated at 533 that there was no material difference between the relevant contractual duty and the duty owed in tort in Henderson v Merrett itself.
[17] Deane J’s approach in Hawkins, upon which the Judge relied, must be regarded as having been overtaken by later developments, at least in this country and the United Kingdom. Deane J’s view was that when a duty is owed in tort, it is not necessary to imply a term into the contract to the same effect. But clearly if there is a contract between the parties the implication of a concurrent duty co-extensive with that in tort is now commonplace. A contracting party may often owe the same duties in both contract and tort. Hawkins v Clayton is demonstrably not authority for the proposition that in a case such as the present the tortious duty is or may be wider than that in contract. Indeed in his judgment at p585 Deane J himself recognised, that if, contrary to his preferred view, there were concurrent duties in contract and tort, the scope of those duties must logically, at least prima facie be co-extensive. He actually used the words “co-extensive in content and concurrent in operation”. Hence, had Deane J been of the view which has ultimately prevailed, he would have supported at least prima facie co-extensiveness.
[18] Kirby P came closer to asserting the proposition which the Judge ascribed to Deane J when he said in Waimond at 652:

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.

[19] It is important to bear in mind the factual context in which Kirby P expressed himself as he did. The facts relevant to the tort cause of action in Waimond were wider in scope than those upon which the cause of action in contract depended. In that respect the case is an example of the kind of situation which we mention in para [22] below. Care must therefore be taken not to apply Kirby P’s approach in the apparently general terms in which it was expressed. As indicated above, that generality is not supported by what Deane J said in Hawkins; nor for that matter by what the other Judges in the majority said in Hawkins. It would be strange if in ordinary circumstances the parties by their contract could not restrict or modify the tortious duty which might otherwise have been owed. Prima facie the two duties, in cases like the present, should be co-extensive. Any wider duty in tort would need some clear and principled justification, and should, as noted above, be the exception rather than the rule.
[20] In their dissenting judgment in Hawkins v Clayton Mason CJ and Wilson J supported that approach, albeit they recognised, as we do too, that it is not appropriate to foreclose entirely on the possibility that in some circumstances it may be necessary, for example to avoid professional impropriety, to hold that the duty in tort is wider than that in contract. The means to achieve that end would be to hold on policy grounds that the law will not in some cases allow the general duty in tort to be cut back by the terms or the scope of the contractual retainer.
[21] We consider that more has been read into some of what Deane J said in Hawkins v Clayton than was probably intended and more than is, in any event, appropriate. Baragwanath J cited the following passage from Deane J’s judgment, when saying at para [61] of the judgment below:

In tort a broader approach may be required than in contract. In Hawkins v Clayton ... Deane J ... stated:

“The clear trend of modern authority is to support the approach that the duty of care owed by a solicitor to a client in respect of professional work prima facie transcends that contained in the express or implied terms of the contract between them and includes the ordinary duty of care arising under the common law of negligence . . ..”

The difficulty with this passage is with the word “transcends”. The use of that word tends to suggest that tort is the predominant remedy. The statement can be read as the reverse of the earlier approach which was that when there was a contractual duty there was no room for a similar one in tort. Deane J has been understood as saying that when there is a duty in tort there is no room for a similar one in contract.

[22] The view which now prevails is that in conventional circumstances the two causes of action will usually be concurrent and co-extensive. That will be so unless the relevant factual context involves matters which are not relevant to the contract cause of action but do have relevance to the relationship of the parties in tort. If the relevant facts are not co-extensive, there may be a wider duty in tort because of the greater width of the circumstances relevant to that cause of action. But if the relevant facts are the same for the purposes of both contract and tort, the situation would have to be most unusual before it would be appropriate to hold that greater duties were owed in tort than in contract. We have suggested a possible example in para [12] above. We also observe that, in general, parties should be able to limit the scope of their potential liability by the terms of their contract. It would not normally be appropriate for that express or implied limitation to be outflanked by an unlimited application of general tortious liability.
[23] The Privy Council clearly recognised and accepted in Clark Boyce v Mouat [1993] 3 NZLR 641 that in general terms solicitors are entitled to limit the scope of the retainer, and hence their potential liability, as they see fit. Lord Jauncey of Tullichettle, delivering the judgment of their Lordships, implicitly recognised this when he said at 648:

When a client in full command of his faculties and apparently aware of what he is doing seeks the assistance of a solicitor in the carrying out of a particular transaction, that solicitor is under no duty whether before or after accepting instructions to go beyond those instructions by proffering unsought advice on the wisdom of the transaction. To hold otherwise could impose intolerable burdens on solicitors.

[24] It must follow that a solicitor may, at least in general terms, contract with a client on the basis that advice on the wisdom of the transaction is not within the scope of the retainer. There is, however, a clear difference between the wisdom of a transaction and its legal effects, whether actual or potential. In the latter respect a contract of retainer which purported to exclude responsibility for giving advice or its accuracy might be thought so antithetical to the professional relationship between the parties that the purported exclusion might not be effective to oust the solicitor’s general responsibilities in tort. It is not necessary to decide that issue in the present case. Anything more definitive should be left for another day.
[25] So far we have identified two aspects of the Judge’s approach with which we cannot agree. The first is that the basis upon which he found for the Tuiaras was neither pleaded nor argued. The second is that the case was not one in which there was any basis for holding that the solicitors’ duties were wider in tort than in contract. There is a further problem with the Judge’s approach. It derives from the Judge’s statements in para [64] of his judgment and specifically his conclusion that the solicitors were negligent because Mr Sutcliffe did not tell the Tuiaras why they should not enter into the transaction. The Judge perceived a crucial difference for present purposes between “I advise you not to proceed” and “I advise you not to proceed because”.
[26] We have several concerns with the Judge’s reasoning. First, this approach implies that more detailed reasons should have been given, even though they were not asked for. Secondly, the Judge’s approach further implies that more detailed reasons were necessary in tort but not in contract. Thirdly, the suggested breach was not pleaded. Indeed the Judge seems to have encouraged the Tuiaras’ expert witness, who was initially of the view that Mr Sutcliffe’s letter could not be criticised, to regard the lack of more detailed reasons as a flaw. Fourthly, the Judge seems to have been of the view that the absence of reasons had something to do with the fact that Mr Sutcliffe’s firm was also acting for RTH. This has the appearance of introducing a fiduciary element into the claim in tort when the Judge had expressly held there was no breach of fiduciary duty. Furthermore Mr Sutcliffe, whose evidence the Judge accepted, had said he was not influenced in his approach to the case by the fact that RTH was a client of the firm.
[27] Fifthly, we note Mrs Tuiara’s evidence that she understood the letter and she and her husband would not have proceeded if they had received it. As the Tuiaras were saying that the letter, if received, would have dissuaded them from proceeding, it is hard to see how any lack of sufficient reasons could have been causative of their actually entering into the transaction. Their evidence was that the letter would, without the missing reasons, have been sufficient to deter them. Hence even if the lack of reasons did amount to a breach of the solicitors’ duty of care, the Tuiaras would have faced a major problem in terms of causation. Sixthly and finally, we consider that in substance the letter gave the Tuiaras sufficient reasons to satisfy any duty there may have been to bolster with adequate reasons the advice not to proceed.
[28] It must be remembered that the letter was simply confirmatory of oral advice, during the course of which, from our reading of the evidence, Mr Sutcliffe also advised the Tuiaras that if RTH could not reconvey they would lose their home. We do not consider the duty of reasonable skill and care required Mr Sutcliffe to go into all the intricacies of how things could go wrong. He clearly told the Tuiaras that he was not able to advise on RTH’s financial position and whether it would be able to complete the second leg of the transaction.
[29] The suggestion that clear advice not to do something may be understood as “formulaic”, as the Judge put it, whereas more detailed reasons would carry more persuasive weight may possibly have force in some circumstances. But here the Judge noted that the Tuiaras were unsophisticated people with no business experience. We doubt very much whether the giving of further reasons would in all the circumstances have made any difference.
[30] Looked at in simple and realistic terms, Mr Sutcliffe clearly told the Tuiaras to obtain independent advice. They chose not to. He told them very plainly “Don’t”. He told them equally plainly they would lose their home if anything went wrong. His summary was that it was better not to proceed, in spite of the Tuiaras having satisfied themselves that RTH would be able to complete the resale in six weeks time. As the Privy Council said of the conduct of the solicitor in Clark Boyce v Mouat, we too conclude that there was nothing more which Mr Sutcliffe ought reasonably to have done. We record that Mr Moodley did his best to persuade us that the Judge’s approach should be upheld, but we have found ourselves unable to accept his submissions in that respect.
[31] For the reasons given the appeal is allowed. The judgment of the High Court declaring that the present appellants were liable to pay the present respondents damages for the losses resulting from the transaction is set aside. The consequential orders made by the High Court are also set aside. We direct that judgment be entered in the High Court for the appellants. Any consequential matters, including costs in the High Court, are to be dealt with there in the absence of agreement. We reserve the question of costs in this Court, being unsure of whether there are any constraining factors. If agreement cannot be reached memoranda may be filed.

Solicitors:
Shieff Angland, Auckland for Appellant
Kendall Abraham Lipman, Auckland for Respondents