Court of Appeal limits damages flowing from negligent conveyancingFeb 2020 |
In McLennan v Meyer Vandenberg1 the Court of Appeal of the Australian Capital Territory considered the extent of damages that should be awarded in a solicitor’s negligence claim, heard at first instance by the Supreme Court of the Australian Capital Territory (ACT) in January 2019. That case, McLennan v Clapham & Ors2, was discussed in a previous Carter Newell publication available here.
In 2009, the appellants purchased a property in the suburb of Griffith (Griffith Property), during which they received advice from a partnership of solicitors (solicitors) regarding the contract of sale. Previously, the Griffith Property had been insulated with loose fill asbestos material but, at the time of the purchase the ACT Government purported to have removed this material. The solicitors did not advise as to the risks associated with purchasing the property given this history.
In May 2014, an environmental survey conducted by the appellants confirmed the presence of loose-fill asbestos in the Griffith Property and consequently the ACT Government repurchased the land from the appellants for $1.876 million, demolishing the property as part of the Government’s 'buy-back' scheme regarding asbestos affected properties. Following this, the appellants were given first right to purchase the land, buying it back for $1.21 million and constructing a house on the site for approximately $1.386 million. As at August 2017, the new property was valued at $2.45 million.
The primary judge’s decision
At first instance, the Supreme Court found the solicitors had breached their duty of care to the appellants by failing to adequately advise them of the risks of purchasing a property previously affected by asbestos. Further, the court was satisfied that, had the appellants received appropriate advice, they would not have purchased the Griffith Property. This finding is not disputed on appeal.
Regarding quantum, the Supreme Court awarded $37,638.34 of the overall $1.83 million claimed by the appellants. The court accepted that the solicitors’ negligence caused the appellants to incur costs associated with confirming the presence of the asbestos, relocating from the Griffith Property, holding costs of the Griffith Property and rental expenses from the period 31 October 2014 (when the appellants moved out of the Griffith Property) until 30 June 2015 (when they surrendered it to the ACT Government).
However, the court considered the buy-back of the Griffith Property by the ACT Government on 30 June 2015 to be a break in the chain of causation. On that date, the ACT Government paid full current market value for the Griffith Property, valued on the basis that it was uncontaminated by asbestos. The price received by the appellants was significantly more than what they had paid for the Griffith Property in 2009, entirely mitigating any further or ongoing loss to the appellants. For this reason, the court did not award damages for the costs of building the new house. The appellants’ claim for loss of income caused by disappointment and distress associated with the solicitors’ negligence was also refused on the basis the appellants did not allege they suffered a recognised psychiatric illness.
Appellant’s grounds of appeal
The appellants appealed the damages awarded.
The Court of Appeal grouped the appellants’ grounds of appeal into the following categories:
- Those addressing the consequences of the ACT Government buying back the property in 2015. The appellants argued the scheme did not fully restore them to the position they were in before the solicitors’ negligence or break the chain of causation, but was merely an item in mitigation. As such they claimed damages for the rebuilding and repurchase of the property, and rental and holding expenses incurred after the buy-back on 30 June 2015.
- Those claiming the primary judge erred in not awarding economic loss;
- Those claiming the primary judge erred in determining their claim for disappointment and distress was excluded pursuant to s 35 of the Civil Law (Wrongs) Act 2002 (ACT) (CLW Act).
- Those seeking further damages in relation to the appellants’ claim the solicitors’ conduct was misleading and deceptive;
- Those claiming the primary judge erred in failing to award interest on damages. Interest was awarded by the Court of Appeal on the conclusion that the primary judge made an oversight, contributed to by the inadequacy of the appellant’s submissions.
Decision on appeal
Consequences of the buy-back scheme
The appellants’ asserted that as there were eight months between the valuation of the Griffith Property and its purchase by the ACT Government the payment of $1.876 million did not represent 'full current market value'. The Court of Appeal found that as this distinction was not made at first instance and no evidence was led regarding a change in value, the primary judge did not err in proceeding on the basis the payment represented full current market value.
Therefore, the Court of Appeal found the fundamental issue for determination was whether receipt of full market value in June 2015 broke the chain of causation. For the following reasons, the Court of Appeal agreed the primary judge correctly concluded:
- Damages should not be assessed on the basis that the appellants were to end up in the Griffith Property, as the argument before the court was that had proper advice been given, the property would not have been purchased and the appellants would have had to find another property.
- The starting point to assess damages is to consider the difference between the amount paid and value received as this represents the loss suffered. Under the buy-back scheme the market value was assessed on the basis the property was uncontaminated. Therefore, the difference between the amount paid and value received was, in this case, zero.
- There were no factual circumstances which rendered it inappropriate to treat the receipt of market value as full compensation for the purchased asset and the subsequent decision to repurchase the land from the ACT as being unrelated to the negligence of the solicitors.
The first appellant had sought economic loss from 18 February 2014 at either an average daily rate of $900 or $1500 for loss of income relating to her role as a management consultant, either as a subcontractor or through her own business. The Court of Appeal held that it was open to the primary judge to find that the claim for economic loss had not been substantiated, stating the first appellant’s evidence provided no substantial explanation of the connection between the 'asbestos issues' and the failure to engage in consulting work. As such, this ground of appeal was rejected.
Damages for disappointment and distress
The written submissions by the appellants’ claimed damages for disappointment and distress 'caused by the physical inconvenience of losing the family home'. The Court of Appeal noted this submission limited the scope of the appellants’ claim. Alternatively, the oral submissions at trial more closely related to a claim for pure distress.
The Court of Appeal held disappointment and distress to be mental harm pursuant to s 32 of the CLW Act, defined as 'impairment of the person’s mental condition'. The mental harm was not resultant of any physical harm. As such, the court held the claim was excluded pursuant to s 35 of the CLW Act, which states 'damages must not be awarded for pure mental harm to a person resulting from negligence unless the harm consists of a recognised psychiatric illness'. As correctly concluded by the primary judge, no such psychiatric illness was pleaded by the appellants.
Misleading and deceptive conduct
In assessing damages for misleading and deceptive conduct, the Court of Appeal held the primary judge correctly started by concluding that the appellants were fully compensated by the acquisition of their property at full market value by the ACT Government. The trial judge recognised that where a misrepresentation induces a plaintiff to enter into a contract to purchase property, the starting point for the measure of damages is the difference between the price paid or payable under the contract and the value of the property as at the date of the contract. The Court of Appeal held the primary judge had not taken a confined approach to assessing damages, and the court was not compelled to order all losses subsequent to the buy-back of the property by the ACT Government.
The primary judge’s findings were upheld by the Court of Appeal on the basis that the purchase of the Griffith property by the ACT Government did break the chain of causation. The Court of Appeal further held that the repurchase of the land and rebuilding of a house on the site were voluntary actions of the appellants which took them outside the scope of the solicitors’ negligence.
This case serves as a warning to litigants to consider the loss truly flowing from a negligence claim. While the solicitors were found to have acted negligently, the appellants overstated their claim. This appeal further increased their legal fees, which were already likely to far outweigh the damages awarded.
1  ACTCA 35.
2  ACTSC 1.
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