Under a long-running client relationship with Metro, a subsidiary of Metro Property Development, HWL Ebsworth (HWLE) and partner Jason Warat was retained to draw up and negotiate contracts for a new project. However, the firm failed to follow instructions by not including a provision in the final expression of interest (EOI).

In January 2018, Metro entered into a management rights and business procurement agreement with a company known as Tessa. During a sale of 54 units to Forum Australia Residential Partnership in October of that year, Metro advised HWLE to draw up a contract of sale and an EOI that included a provision that, if Forum should choose to rent any of the units, it would engage Tessa as its letting manager.

HWLE drew the contract of the sale of units to Forum but did not include the Tessa provision. The District Court of Queensland heard that Forum instead appointed a different company to be the letting manager of the units it made available for rent.

Metro contended that, in failing to include the provision, “HWLE was negligent and in breach of its retainer and that negligence and breach have lost Metro the opportunity to have such a provision in the contract with Forum and consequently to receive an appointment fee from Tessa for each of Forum’s units”, the court heard.

If Tessa had been retained by Forum for those units, Metro said the fees would have amounted to $848,588, including GST, but did accept that Tessa may not have been appointed to all of the units. However, it argued that without the provision, Metro’s lost opportunity was between 50 and 75 per cent of that sum.

In general terms, HWLE accepted that it “should have included a Tessa provision in the contract sent to Forum” and that it “wrongly advised Metro, when asked why such a clause was not included in the contract … that it was because Forum had complete discretion as to the appointment of a letting agent” in the final EOI.

“However, it asserts that those errors did not cause Metro any loss because Metro decided to instruct Mr Warat to execute the contract of sale knowing that the final EOI did not include such a provision (although it was non-binding) and that the contract did not and deciding for itself that it would proceed without any clause.

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“Further, HWLE contends that Metro has not proved what the terms of the contractual Tessa provision may have been, nor that Forum would have agreed to such provision, nor that, if it had, Tessa would have accepted appointment as Forum’s letting agent and paid any appointment amounts to Metro,” the court heard.

The court found that HWLE was negligent in two relevant ways. First, that Mr Warat was negligent in failing to include the Tessa provision. Mr Warat did not include it, “either because he overlooked it when reviewing the draft contracts or, having read the final EOI, wrongly considered that its effect was to provide that Forum had a complete discretion or not to appoint Tessa as its letting agent”.

“Clearly, his execution of a form of Tessa provision from the sale contract was negligent. That failure was also in breach of Metro’s instructions,” the court said.

Secondly, HWLE was negligent because when asked if he could confirm the clause for management rights, Mr Warat advised Metro that he did not include it because “the letter of other [apparently referring to the final EOI] said it was in their entire discretion”. That advice, the court added, “was clearly wrong”.

The District Court noted that Metro, after having been told that there was no Tessa provision in the sales contract, took only one minute to contact Mr Warat and asked him to execute the option deed. Then, having been sent a copy of the final EOI, Metro again gave approval to execute under the power of attorney.

Due to this and the developers lack of concern about the missing provision, there “is a strong indication that he did not consider the existence of a Tessa provision to be of great importance, certainly not in comparison with securing an agreement”.

The court found that Metro consciously entered into the option deed without the provision, despite HWLE’s negligence and “because of its own free and informed decision”. Any loss that it may have suffered as a consequence was not caused by HWLE’s negligence nor because of its breach of retainer.

As Metro did not claim nominal damages for breach of contract, no awards were granted. It was also ordered to pay HWLE’s costs of the proceedings.

The entire judgment can be read on AustLII and JADE: Metro Waterloo Pty Ltd v HWL Ebsworth Lawyers [2021] QDC 295 (26 November 2021)