Lawyers
are under no obligation to offer unsought advice on the wisdom of a business
transaction and neither are they responsible for client losses suffered when
trying to extricate them from contracts previously entered into.
Hamilton solictors, Norris Ward McKinnon, were
asked by new clients, a Mr and Mrs Kaye to sort out a bungled 2005 purchase of
the franchised Palmers Garden Centre in Cambridge. A different Hamilton law firm, Tanner
Fitzgerald Getty, had acted for them on the initial purchase. There were allegations of negligence after
$725,000 was paid for land occupied by the business without Tanner Fitzgerald
securing title to the premises – title which was needed for registration of a
mortgage to Southland Building Society funding the purchase. The Kayes were able to take possession of the
business initially only under a licence to occupy. This cost them $2840 per month in rent. Adjustments to the remainder of the $449,000 contract
price still had to be fixed by a valuer looking at goodwill, stock and plant. Penalty
interest was escalating while the Kayes refused to make any further payment
until adjustments were made. Their
business venture eventually failed, being sold at a mortgagee sale in April
2009.
Matters reached the High Court when Norris Ward
McKinnon sued the Kayes for $70,000 in unpaid fees. The Kayes counterclaimed for $2.5 million
saying Norris Ward had failed to do their job properly: failing to promptly
secure a cost-efficient resolution of the legal issues they faced, failing to
suggest Alternative Dispute Resolution procedures, and failing to properly advise
the true extent of Tanner Fitzgerald’s earlier negligence.
Justice Peters ruled Norris Ward had properly carried
out the Kayes’ instructions to sort out the earlier botched purchase. The Kayes appeared to believe, she said, that
lawyers are not doing their job properly if they are unable to extricate
clients from contracts already entered into or to negotiate more advantageous
outcomes from an existing contractual commitment.
However, Justice Peters ruled Norris Ward was
negligent in not clearly specifying the level of damages likely to be
recoverable from Tanner Fitzgerald for that law firm’s earlier negligence. The Kayes were seeking $1.8 million in
damages from Tanner Fizgerald. Initially,
Norris Ward led them to believe they would get damages “in the hundreds of
thousands of dollars”. Later expert
advice was that the Kayes would get at best $60,000 to $70,000 with a deduction
for their own contributory negligence.
Evidence was given that the Kayes accepted $90,000 from Tanner
Fitzgerald in 2009 in an out of court settlement as full payment of their
claim. Justice Peters ruled that a
reasonably competent lawyer would have advised the Kayes at an earlier stage
that the amount claimed from Tanner Fitzgerald was excessive. But even if negligent in not giving accurate
advice sooner, this negligence did not cause any loss to the Kayes, she said.
Norris
Ward McKinnon v. Kaye – High Court (14.05.15)
15.047