| Case Title: | About Life Pty Ltd v Maddocks Lawyers [2021] NSWSC 1370 (28 October 2021) |
| Court: | Supreme Court of New South Wales |
| Date of Orders: | 28 October 2021 |
| Parties: | About Life Pty Ltd (1st Cross-Claimant) Tammie Phillips (2nd Cross-Claimant) Michael Green (3rd Cross-Claimant) Thomas Beecroft (4th Cross-Claimant) Maddocks Lawyers (Cross-Defendants) |
This is a professional negligence claim against a law firm, which arose from a matter that involved the sale of business of the About Life wholefood grocery store in Double Bay (operated by About Life Pty Ltd).
About Life leased premises in Double Bay from the Council of the Municipality of Woollahra. Maddocks Solicitors acted for About Life on the sale of the Double Bay business to Harris Farm in October 2017 for $10 million.
What was not realised at the time of the transaction was that Woolworths held a right of first refusal to the premises under a Deed of Agreement with About Life. This was entered into around three years prior, which About Life directors had forgotten about.
These proceedings were commenced by Woolworths, in order to enforce their position. About Life conceded; Harris Farm opposed and were not successful.
The lease was assigned to Woolworths for $10 million less their legal fees of $350,000. Unfortunately About Life was not able to sustain their business operations and went into external administration.
Harris Farm sued About Life for damages. About Life settled the claim for $430,000 prior to external administration.
About Life asserts that Maddocks should have sought instructions from their client, which would have revealed the existence of the Deed.
About Life sought damages for the following:
- Loss of opportunity to use the proceeds from a straight-forward sale to Woolworths at the outset i.e. to pay down debt, recapitalise, and maintain viability; and
- a failure of a duty of care; and
- the directors sought damages for the $430,000 settlement to Harris Farm
Maddocks claim that they did not cause any loss, especially given the dire state of affairs About Life was in at the time.
Each side obtained expert evidence from both legal and accounting experts.
Value of Lost Chance
The court assessed that About Life is entitled to such damages it would have been entitled to had Maddocks performed what was required of them; and that a successful outcome was lost because of Maddocks’ conduct.
That damage was assessed to be the difference between the actual outcome for About Life, and what the outcome would have been if it had entered into the contract with Woolworths in accordance with the Deed of Arrangement. The court considered the submissions from the two accounting experts when determining the net loss About Life. The business went into administration on 17 December 2018 with $11.8 million in net liabilities, which the court discounted to 30 June 2017 at a discount rate of the Reserve Bank cash rate plus 2%, being 3.5% p.a. (compounded monthly) giving the value of -($10.37) million.
The court added to this an amount of $5.526 million being the value of loss chance calculated as the effective sale price to an actual prospective buyer less a 10% Sellars discount; the total of both amounts being $15.896 million.
Woolworths Costs
As part of the settlement under the Deed of Arrangement with Woolworths, About Life paid Woolworths’ legal fees for the dispute with Harris Farm in the amount of $325,000.
The court saw fit to entitle About Life to recover this amount (plus interest) from Maddocks due to the reasonable commercial decision About Life had to make in order to keep relations amicable with Woolworths.
Contributory Negligence
Maddocks alleged that About Life contributed to the outcome by:
- failure to comply with the first right of refusal;
- failure to inform Maddocks of the existence of such Deed;
- making misleading statements to both Harris Farm and Maddocks that there were no obstructions to the assignment of lease;
- failure to take advice from or respond to Maddocks on potential issues;
- failure to note on the lease that such a Deed was in existence (precaution against the risk of harm)
Maddocks submitted that any damages assessed as contributed by Maddocks to About Life should be reduced by close to 100 percent, or at the very least 70 percent.
Although the court did consider that About Life did fail to take reasonable care of its interest and assets, the court assessed that Maddocks bore greater responsibility and thus reduced Maddocks’ liability by a total of 20 percent.
Essential judgment terms as follows:
- Second cross-claim:
- Judgment in favour of About Life Pty Ltd (cross-claimant) against the cross-defendants in the sum of $12,716,800 plus interest from 01.07.17;
- Judgment in favour of About Life Pty Ltd against the cross-defendants in the sum of $280,000 plus interest from 13.12.17;
- Cross-defendants to pay the cross-claimant’s costs of the second cross-claim;
- Third to fifth cross-claims:
- Judgment in favour of the cross-claimants (directors of About Life) in the sum of $344,000 plus interest
- Cross-defendants to pay cross-claimant’s costs of the 3rd to 5th cross-claims
To view the full case CLICK HERE to be taken to the NSW Caselaw website.
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