Mega firm escapes liability for clear negligence in limitations decision

Winnote Pty Ltd v Page [2006] NSWCA 287 is not only a case about digging up peat for profit but a learned essay on the application of that simple little rule that you can’t sue your lawyer more than 6 years after your cause of action against him accrued. Victorian soils yield difficult legal questions: Perre v Apand [1999] HCA 36, a 70,000 word exegisis devoted to making the law of tortious damages for pure economic loss even less clear than before, was a case about digging up potatoes for profit. The decision is a crystal clear illustration of two principles: (i) a limitation period for a professional negligence claim may expire before the client is aware of either of the negligence or the loss; and (ii) the limitation period commences when some non-negligible loss is first suffered, even if the main loss is suffered a lot later. It also makes clear that in negligent advice cases (or negligent failures to advise cases) once the negligence has occurred, there is no ongoing duty to give the correct advice during the course of the remainder of the retainer, and the courts will conduct their analysis by reference to the substance of the matter, not by reference to the ever-so-clever pleadings of sophisticated plaintiffs.

The client signed a lease over a peat bog, mined it and sold it to people who wanted to grow mushrooms in it. What it should have done was obtain a mining licence from the Crown, entitling it to mine peat without the landowner’s consent, and pay the Crown a lot less than what it paid the landowner. When asked what the client needed to do, legally speaking, to get the peat out of the ground and sell it, the solicitors had given the wrong advice in 1988, apparently because they considered that peat was not a mineral as defined in the relevant legislation. A lease (which should have been called a profit a prendre — a right to enter on land and take from it — according to the Court) was drawn by the solicitors, but they naturally failed to point out that it would be illegal to mine the peat as envisaged by the lease, that the lessor did not own it, and that a much better idea was to get a mining licence. They were negligent, but they got off because the cause of action expired before the client knew of the problem and it sued too late.

Many years after commencing the operations, the client offered to sell the unprofitable business. The prospective purchaser got himself a mining licence over the land and, in a sharp bit of practice indeed, turfed the client off it instead of buying the business, much to the client’s surprise.

The professional negligence proceedings were commenced a bit more than 7 years after the negligent failure to advise that the client was signing up to what President Mason described as “a lemon”. The actual breaches of duties established were:

  • failing to advise that the landowner had no title to the peat on the land;
  • failing to advise that he had no right to licence the client to extract it; and
  • failing to advise that he had no right to any royalty for its extraction.

If the cause of action accrued at the time when the client signed up to the lemon of a lease, the claim was statute barred, unless there was a continuing duty to give that advice which was continually breached until the retainer ended, in which case the client could point to a breach within the 6 year limitation period prior to the institution of proceedings, and claim damages from that point onwards.

The question was whether the “damage” for the purposes of the proposition that a cause of action in tort occurs when some measurable, or not negligible, damage is first suffered occurred, in this case:

  • when the lemon was signed up for; or
  • when the prospective purchaser prevented the client from doing what it had been doing by cleverly getting a mining licence.

The client really did not help itself by pleading as an alternative to its principal claim that damage was suffered by signing up to the lemon of a lease and claiming those damages, but that claim was ultimately abandoned on the appeal. The sole damage sued for in the end was the profits foregone after the prospective purchaser turfed the client off the peat bog by procuring a mining licence. But President Maston found that measurable and not negligible damage was suffered in the early stages of the retainer, before the lease was entered into, more than 6 years before the proceedings were commenced. His Honour said (bear in mind that the plaintiff needed to establish that the cause of action accrued after November 1989):

“61 Entry into the [lease] and onto the land … prejudiced [the client] from the outset. There was measurable damage, albeit that the assessment exercise would have been a difficult one had [the client] got the matter to court in 1989-90. In October 1988 [the client] paid [the solicitors] $3,650 for professional costs in drafting the [lease]. Further substantial costs were paid in August 1989 for legal services provided by [the solicitors] in relation to obtaining the lease. On 21-22 August 1989 [the client] paid [the landowner] $7519 on account of royalties and $5305 on account of his costs, these being obligations imposed by the [lease]. The royalties were paid for peat that was not [the landowner’s] to sell. In truth, [the client] had exposed itself to a claim in conversion by the true owner of the peat, ie the Crown in right of Victoria. All of these were items of wasted expenditure that did not produce any proven commensurable value…

62 If it matters, the royalties paid to [the landowner] were also at higher rates than those payable to the Crown: the [lease] royalty rate was $4 per m³, subject to annual escalation and a minimum annual amount of $10,000 compared to the statutory rate under the Mines Act of 2.75 per cent of the value of peat sold.”

The facts that the client was ignorant of any problem until after the limitation period had expired, and that the only loss sued for (far bigger, according to the claim, than the loss identified in the quote immediately above) was suffered within the limitation period, were of no assistance to the client. President Mason:

  • endorsed (at [55]) the statement of Handley JA in another case that “The general principle is that time runs from when the cause of action is complete, whether or not this is discovered or discoverable. The exceptions for … prospective and contingent losses are only apparent exceptions to this general rule.”; and
  • said (at [66]):

“Merely because a substantial loss occurs (ex hypothesi) at a later point of time does not establish that there was no damage stemming from the same breach occurring at an earlier date being damage that occurred outside of the limitation period, thereby barring the whole claim (Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 531, Segal v Fleming [2002] NSWCA 262 at [26]). In this area of economic loss, the same principle applies as for personal injury, namely time commences to run from the first measurable occurrence of damage (Scarcella v Lettice (2000) 51 NSWLR 302).”

His Honour found that where the allegation is one of negligent advice, the advice is given once and for all when it is given. There is no duty to keep checking it. In contrast, where a solicitor is instructed to commence proceedings and fails to do so, she breaches her retainer every day it continues until the date it is statute barred. In addition, in this particular case, there were neither adequate pleadings nor any evidence of breach of a duty after the original advice had been given. President Mason said:

“109 [The client’s] counsel suggested that the retainer incorporated some kind of obligation to correct or keep under review any advice given about a lease, licence or permit needed to extract peat. But no such obligation was pleaded, nor was there evidence directed to this aspect of a solicitor’s duties, generally or in the particular case. A retainer that required matters to be kept under constant review in such a way would have costs implications for the client. After the advice of … 1988 had been given, attention turned to the practical matters of drafting the [lease], its execution, stamping and registration, lodgement of caveats pending registration and so on. [The firm] was never instructed to review its earlier advice or to carry out fresh or later investigation as to the status of peat under the Victorian legislation.

110 [The client’s] submissions on breach of a continuing duty elide its need to establish both that the duty to exercise care in giving the omitted advice continued [into the( 6 year limitation period prior to the institution of proceedings] and that it was breached after that date. …”

His Honour recorded but did not comment on the correctness of a submission put by [the solicitors] that, even if a breach of an ongoing duty be established, it will give up a fresh cause of action only if it causes loss going beyond the the loss resulting from the barred cause of action. That was based on the judgment of Glass JA in Hawkins v Clayton (1986) 5 NSWLR 109 at 124 and Sheldon v McBeath (1993) Aust Torts Rep 81-209 at 62,082.

Finally, the burden of proof in a limitation defence was dealt with. The defendant who pleads a limitation defence bears the onus of proving (in relation to the torts relied upon by the plaintiff) that actual and measurable loss occurred outside the statutory period (Segal v Fleming [2002] NSWCA 262.)

This is all as it should be. Until a cause of action arises, there is no right to sue. Test it this way. A client goes to a lawyer and says “What do I need to do in order to mine this peat?” The lawyer says “Lease the land for the best price you can negotiate with the owner, and dig out the peat.” Away it goes and signs up to a lease, the drafting of which it pays for, paying the owner money he is not entitled to, and structuring a business around the assumption that it has exclusive right to sell the peat for the term of the lease. It sues the lawyer for negligence, and the lawyer says “Ha! I’m going to have your claim summarily dismissed because you haven’t suffered a loss yet. As far as you know, you might be able to keep selling the peat for ever. Come back when someone comes along and takes it all away from you suddenly by getting a mining licence from the government.” So long as you accept the proposition that there is no discoverability test for the accrual of causes of action for pure economic loss, it is obvious that the client should be entitled to sue at the outset, and not have its rights deferred until a contingent bigger loss eventuates (if at all).

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