It’s Double Bay, darling … Woolworths … Harris Farm … Fighting for prime retail patch … Law firm’s negligence … Maddocks in the frame for $13 million … Record damages
It must be the largest, or one of the largest, damages verdicts against a law firm for professional negligence.
The firm acted for About Life, a groovy chain of food emporiums that stocked multiple brands of anchovies, truffle oil, ready-to-eat meals, coconut body butter, detoxifying clay face masks and everything for kitchens in well-heeled suburbs.
It started out in 1996 as a juice bar and cafe in Rozelle run by sisters Tammie Phillips and Jodie Stewart. They were soon expanding into food retail operations in multiple locations across Sydney and in Melbourne.
One of the company’s biggest operation was in Sydney’s Double Bay, also known in the local patois as Double Pay. Woolworths had a big footprint in the shopping centre, including space for a Thomas Dux store.
In 2014 it was agreed that About Life would take over the Dux retail area immediately below the Woolworths and Dan Murphy outlets.
The landlord for all these properties was Woollahra Council. As part of its arrangement with the Thomas Dux site, Woolworths was given right of first refusal should About Life later decide to assign the very long year lease to someone else.
Woolworths was trying to protect itself against Coles or a similar retailer opening up on its patch.
The About Life directors promptly forgot all about the Deed of Agreement of Lease which contained Woolworth’s right of first refusal.
Three years later About Life was in financial strife, having expanded too quickly. Money was tight, the bank wanted assurances, suppliers were kept on a string, the IT system was not working properly, stocks on the shelves were thinning, and customers were dwindling.
Grocery chain Harris Farm came to the rescue with an offer to buy the About Life in Double Pay for $10 million. It did not actually want the business, it wanted the location.
By this stage things were panicky and About Life needed the sale concluded quickly, otherwise its business faced the prospect of going down the gurgler.
Maddocks acted for About Life on the sale to Harris Farm, with commercial property partner Bronwyn Badcock handling the work.
All the arrangements were proceeding at a brisk pace with everyone blissfully unaware of Woolies’ right of first refusal.
About 23 minutes before the exchange of contracts, Ms Badcock sought final reassurances from the directors of About Life that the lease document was accurate and “if for example there are any side deeds or variations, then the document is not complete”.
This did not trigger any memory by Tammy Phillips about the deed. It was only after contracts were exchanged that, horror of horrors, the Deed of Agreement for Lease surfaced.
Harris Farm was the last shop Woolworths wanted near its front door, and it promptly brought proceedings to prevent the assignment of the lease.
Arthur Emmett AJA decided in Woolworths favour in August 2017. Woolies then decided to resolve the matter by offering $10 million for the About Life lease – an indication of retail values in Double Pay.
Harris Farm then entered the spree commencing proceedings to stop the transfer of the lease to Woolworths.
In the meantime, About Life was juggling its diabolical financial situation with offers and counter-offers from other retailers and increasingly concerned Bank Johnnies at the CBA.
The About Life directors settled the Harris claim for $344,000. Woolworths agreed to take over the lease and then offer About Life a sub-lease for three years; with $470,000 of Woolworths litigation costs deducted from the $10 million.
The rest was paid to the bank, for super, PAYG and accounts payable.
The Commonwealth Bank pulled the plug on About Life shortly before the sale of the remainder of the business to another retailer, The National Grocery Co.
The remaining shops were sold to pay the rest of the bank debt and more tax. Woolworths then terminated the occupation licence of the Double Bay store.
On November 17, 2017, About Life filed its claim against Maddocks. By December 2018 the business was in voluntary administration.
About Life claimed its demise was caused by delays in the Double Bay sale. This increased its indebtedness, deprived it of working capital and the ability to repay debt. Essentially, it was a case of lost chance.
Maddocks said the company’s collapse was due to pre-existing problems and that regardless of the delays with the Double Bay sale, it would have gone under anyway.
The evidence from experts said that a competent solicitor would do a search of the registered lease and not simply rely, until very late in the piece, on the lease provided by the purchaser’s solicitor.
Justice Rees said:
“I consider that a competent specialist property lawyer, acting to protect their client’s interests, would have considered that further instructions should be obtained from the client as to whether there were any restrictions on About Life assigning the lease, given the proceeding transaction involving Woolworths.”
Instructions on “key issues” were not obtained from the client and had this happened then memory of the right of first refusal might have sprung to mind.
The email sent shortly before the exchange did not discharge Maddock’s duty to the client. There was a lack of clarity and the timing was all out.
“Ms Badcock appeared to have been infected by the apparent need for early exchange …”
“Ms Badcock’s email assumed a level of knowledge which the client did not necessarily have, and which Ms Badcock had not checked to make sure the client had.”
Such was the pressure and speed to get the deal done with Harris Farm it might have been understandable that Bronwyn Badcock did not have the opportunity to know the client, the background to the lease and what the client could legitimately achieve.
While there were opportunities for a reminder of the agreement with Woolworths to be triggered on the part of the key About Life people, the judge believed this did not happen.
It seems to be been up to Ms Babcock to have prompted Ms Phillips recall of the forgotten 2014 agreement with Woolworths.
After Justice Rees crunched all the numbers and considered the lost chance she arrived at damages for About Life of $12,716,800 together with interest from July 1, 2017 and another $280,000 with interest from December 13, 2017.
A further $344,000, with interest, was awarded the directors Tammy Phillips, chairman Michael Green and Thomas Beecroft to compensate for the settlement of the Harris Farm case.
All up, an eye-watering $13,340,800
About Life’s contributory negligence accounted for a 20 percent discount in the amount of the damages.
Tammie is now the CEO of Oliver’s Real Food.
Maddocks is contemplating its position and looking at its top-up cover and whether the limited liability scheme helps.