‘5. The plaintiffs hereby release the defendants from all claims, actions, suits, demands arising from or in any way connected with the Proceedings, the allegations contained in the Statement of Claim and of the liquidation of the third plaintiff.’

That’s the kind of release you can get when you’re willing to pay several mil for it. But what does it mean? ‘Don’t even think of bugging me ever again, in relation to anything that happened in the past, whether you’re aware of it or not’ or something more confined?  It is a question which crops up relatively often in practice, but the law on the subject has always seemed pretty obscure.  When several mil’s on the table people jump into these kinds of releases. Sometimes, they come to regret it. Justice Einstein explained the principles, in Shepherds Producers Co-operative Limited v Lamont [2009] NSWSC 294, commencing with the handy summary of the principles applicable to the construction of releases reproduced below. Unless the parties adopt plain language to make clear that the release giver is giving up claims or rights of which it is and could not reasonably be aware, there is a risk that the release will be read down so as to encompass only to matters specifically in contemplation between the parties at the time when the release was given.   But in this case, his Honour found that the release was a defence to the subsequent proceeding between the parties which was the subject of this decision. Though he admitted evidence of the dispute as described in the mediation agreement which governed the mediation at which the settlement was agreed upon, his Honour did not consider it to be a particularly important piece in the puzzle.  Furthermore, because to read ‘and’ conjunctively would have produced a silly result, he construed ‘in any way connected with the Proceedings, the allegations contained in the Statement of Claim and of the liquidation of the plaintiff’ as really having been intended to mean ‘… or of the liquidation of the plaintiff’.  This is what his Honour said:

‘(1) In construing a release… the Court should ascribe to the release the meaning that the release would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time that they signed the document containing the release: ICS v West Bromwich BS [1998] 1 All ER 98 per Lord Hoffman at 114.

(2) In order for the Court to give effect to what in an objective sense the contracting parties intended, it is clear that a party may agree to release claims or rights of which it is unaware and of which it could not be aware, provided clear language is used to make plain that that is its intention: see Salkeld v Vernon (1758) 1 Eden 64, 28 ER 608 per Lord Keeper Henley.

(3) Consistent with this emphasis on intention, general words in a release are limited to what was specifically in the contemplation of the parties at the time when the release was given: Grant v John Grant and Sons Pty Ltd (1954) 91 CLR 112 per Dixon CJ, Fullagar, Kitto and Taylor JJ; Iletrait Pty Limited v McInnes (NSWCA, 17 April 1997, unreported) per Priestley JA with whom Grove AJA and Handley JA agreed).

(4) Although there are no special rules of construction, such as a contra proferentem requirement, in the absence of clear language courts have been slow to infer that a party intended to surrender rights and claims of which it was unaware and could not have been aware: BCCL v Ali [2001] 1 All ER961 at 966 per Lord Bingham, (contrast Lord Nicholls in BCCL v Ali (supra) at 971-72 who was of the view that for the purposes of construction a general release is simply a term in the contract).

(5) Although each release should be considered against its own matrix of facts, an example of this line of “cautionary principle” (Lord Bingham’s phrase) is the frequently cited judgment of the High Court of Australia in Grant v John Grant & Sons Pty Limited (supra), where Dixon CJ, Fullagar, Kitto and Taylor JJ (at 125) referred with approval to the proposition put by Sir Frederick Pollock in his “Principles of Contract” (Stevens: London, 1950) 13th ed at 412, that “in equity a release shall not be construed as applying to something of which the party executing it was ignorant.”

(6) Despite the fact that, strictly speaking, releases are subject to no special rules of construction, a transaction in which one party agrees in general terms to release another from any claims upon it does have special features: BCCL v Ali at 984 per Lord Hoffman.

(7) In such circumstances it may well be appropriate to imply an obligation upon the beneficiary of such a release to disclose the existence of claims of which it actually knows and which it also realises might not be known to the other party: BCCL v Ali at 984 per Lord Hoffman, for such an obligation is consistent with a concern to protect parties from sharp practice, by preventing advantage being taken of the known ignorance of the conceding party; BCCL v Ali per Lord Nicholls at 973. (The Bank made no such disclosure here.)

(8) Most recently in this Court in Amaca Pty Limited formerly known as James Hardie & Coy Pty Limited v CSR Limited [2001] NSWSC 324, Bergin J adopted the principles of construction broadly as outlined above, including the “cautionary principle” and taking into account the purpose of the contract and the circumstances in which made.’

‘26 In this application, the defendants raise the issue of the plaintiff’s prospects of successfully suing her solicitor for negligence in relation to the mistake he made concerning the time within which he had to apply for an extension of the period of validity of the County Court writ. Accordingly, it is necessary to consider the principles to be applied in relation to this issue. Prior to the Full Court’s decision in Repco Corporation Limited v Scardamaglia,[53] there was a reluctance in this Court to express any concluded view about the relevance of the consideration of alternative causes of action that might be open to a plaintiff who failed to obtain an extension of the limitation period. In Scardamaglia, Smith J[54] said:[55]

“In the present case, if the section does require consideration of the possibility of Mr Scardamaglia’s right to sue his legal representatives, I am not persuaded that that possibility is something that should affect my view that on balance it would otherwise be just and reasonable to exercise the discretion in his favour. While it might be said that on the evidence before the Court the rights against the legal representatives appear to be strong, there is no admission of negligence by the legal representatives and the issues that may arise in any such action have not been investigated or pursued fully in these proceedings. In any event, confining Mr Scardamaglia to an action against the legal representatives would carry with it its own prejudice. He would be able to seek compensation not in respect of his injuries but for his loss of his right to sue Repco. He would find himself having to prove two cases – the original case against Repco and a further case, the case against the legal representatives. The proceeding would, therefore, be more time consuming and more costly. There would also be a real risk, that, if successful, any sum recovered would be less than any sum that he would have recovered in the original proceeding; for any damages awarded would be for the lost chance to recover damages in the proceedings against Repco (Johnson v Perez (1988) 166 CLR 35; Nikolaou v Papasavas, Phillips and Co [1989] HCA 11; (1988) 166 CLR 394).”

27 In Tsiadis [v Patterson [2001] VSCA 138; (2001) 4 VR 114] the Court of Appeal resolved the question, concluding that it was appropriate to determine in an application under s 23A to have regard to the plaintiff’s ability to recover damages from a former solicitor where that solicitor’s negligence had made the application necessary. This, of course, does not mean that in every case where there is the possibility of successfully bringing proceedings against a solicitor, that the discretion contained in s 23A (or in this case s 23K) should be exercised against the plaintiff. As Forrest J said in Gordon v Norwegian Capricorn Line (Australia) Pty Limited:[56]

“It follows that a potential claim against former solicitors is a relevant consideration, but that the question of what weight is to be given to it depends on the circumstances; a court must be careful in ascribing weight to the prospect of such a claim, given that the full circumstances surrounding such a claim may not be known. A Court may also take into account the prejudice to the plaintiff in prosecuting the claim against the solicitors as opposed to prosecuting the claim that is potentially statute barred. That prejudice may take several forms — diminution in the value of the claim as well as any added costs and the complexity of the proceeding against the former solicitor.”

28 Before turning to an analysis of the matters required to be taken into account by s 27L and the competing considerations in the circumstances of this case, it is necessary to say something concerning the strengths of a suggested possible cause of action the plaintiff might have against her solicitors.[57]

A potential claim by the plaintiff against her solicitors

29 Substantial reliance is placed by the defendants upon the fact that the plaintiff has a cause of action against her solicitors in which (they say) negligence has been admitted. The solicitor (Mr [C]) is described by the defendants as “plainly at fault” and having admitted that it was his “ineptitude that caused the plaintiff to be in [her] current position”.[58] In summary, the defendants contend that Mr [C] was negligent when he overlooked the order of Judge Duggan and thereby wrongly believed he had until 4 November 2007 to file the statement of claim and serve the writ. The defendants describe the potential claim against Mr [C] as “extremely strong”.[59] However, closer analysis is required.

…

32 With the benefit of hindsight, it can be seen that the preferable course was, knowing a report would be received shortly, to serve the County Court writ. However, Mr [C] obviously did not have the benefit of hindsight. His decisions fall to be examined as the facts unfolded. If the plaintiff’s present application for an extension of time under s 27K fails, she certainly has an arguable claim in negligence against Mr [C] in relation to the failure to serve the County Court writ on or before 3 October 2007. However, such a case would not be (to use the words of Senior Counsel for the plaintiff) “a lay down misere”. As Megarry J said in John v Rees:[63]

“As everybody who has anything to do with the law well knows, the path of the law is strewn with examples of open and shut cases which, somehow, were not; of unanswerable charges which, in the event, were completely answered; of inexplicable conduct which was fully explained; of fixed and unalterable determinations that by discussion, suffered a change.”

…

34 In this case there is no relevant admission of negligence on the part of Mr [C] or the potential defendants to an action by the plaintiff against her solicitors. That is, there is no admission by Mr [C] that he should have served the writ before he obtained the report of Associate Professor Marshall, or that he negligently took too long to investigate and prosecute the plaintiff’s proceeding. Whilst it might be said that the plaintiff’s prospects in such a case are reasonable, in reality there is insufficient material before me to enable a definitive conclusion as to the plaintiff’s likely prospects of success in such a proceeding. While the existence of a potential claim is relevant, it is not, in my view, a matter to be accorded great weight in the performance of the synthesis required by s 27K. Further, there are two additional reasons why only limited weight should be accorded to this matter. They are:

(a) First, any damages recovered from the plaintiff’s solicitors would only be for the loss of the right to sue the current defendants rather than damages for the injuries actually sustained.

(b) Secondly, there are added costs and an added complexity associated with bringing a new claim against the plaintiff’s solicitors, rather than the present proceeding.[64]‘

[53] [1996] 1 VR 7.

[54] With whom Brooking and J.D. Phillips JJ agreed.

[55] At p.15.

[56] [2007] VSC 517 at paragraph [86].

[57] And in particular Mr Cramp.

[58] See paragraph 5(h)(ii) of the second defendant’s outline of submissions dated 17 April 2009 and paragraph 32 of the first defendant’s outline of submissions dated 16 April 2009.

[59] See for example paragraph 32 of the first defendant’s outline of submissions dated 16 April 2009.

[60] See Savcor Pty Ltd v Catholic Protection International APS [2005] VSC 213.

[61] Reasons of Judge Wodak at paragraph [13].

[62] See Savcor, supra and the reasons of Judge Wodak at paragraph [25].

[63] [1970] 1 Ch 345 at 402.

[64] See generally Gordon v Norwegian Capricorn Line (Australia) Pty Limited [2007] VSC 517 at paragraph [86].

‘A Solicitor’s Penumbral Duty of Care?

267 Mr Conti submitted that there was a duty of care on Dalla in the present case that went beyond his contractual obligation to exercise the care and skill of a reasonably competent solicitor to explain the documents. He urged the court to follow the decision of Brereton J in Riz, and in particular an aspect of the decision where Brereton J held that the solicitor involved in that case should have given advice about the improvidence of the transaction the client was proposing to enter into. That submission requires me to examine the present state of authority about whether a solicitor can owe to a client what has been called a “penumbral” duty, that is a duty of care that extends beyond the scope of the solicitor’s contractual obligations to the client.

268 In Citicorp Australia Ltd v O’Brien (1996) 40 NSWLR 398 Sheller JA (with whom Meagher JA and Abadee AJA agreed) considered a situation where a husband and wife had purchased a home financed by a mortgage repayable by monthly instalments, the amount of which increased at the end of each of the first three years, but thereafter remained constant. Some elementary financial planning would have shown that, even assuming the couple remained in the type of employment that they had, it was unlikely that their income would increase during the first four years of the mortgage, at a rate sufficient to enable them to pay the mortgage instalments and have enough money left to live on. Mr Eliades was a solicitor they engaged to act on the contract for sale and on the mortgage of the property. Sheller JA said, at 413:

“As a matter of contract, such a retainer would not, by inference or implication, extend to require him to provide financial advice to the O’Briens.”

269 The trial judge had held Mr Eliades liable in negligence. The trial judge had said, as recorded by Sheller JA at 407:

“There was a need for Mr Eliades to consider the O’Briens’ financial position, to protect their position and to advise them in relation to it having regard to these contract terms, and this made the terms on which they could obtain finance, the carriage of an application for finance and the feasibility of any proposal for finance matters within his retainer for which Mr Eliades incurred professional responsibility to the O’Briens. It could not be a reasonable view of his professional duty that he should only see that they got finance on some basis which enabled them to complete their purchase; the terms on which they obtained finance had to be related to the overall objective of owning and keeping the house, or the retainer would be futile.”

270 Another finding that the trial judge made in O’Brien, recorded by Sheller JA at 408, was:

“As counsel said, no further duty beyond the precise retainer arises. Yet the retainer must be carried out to a reasonable standard of professional care, skill and responsibility. In the O’Briens’ circumstances it ought to have been very obvious to a reasonable solicitor acting for them that, putting together the facts of their income, prospects and the amounts of the obligations incurred, that the chances of their carrying their projects through to a successful outcome in which they owned the house and paid off their debts were very small. The difficulties which the O’Briens faced were so great, and to professional persons, so obvious that a solicitor could not reasonably leave them unstated.

In my finding the terms of the documents were not adequately explained, in that this effect of the workings of the documents was not brought home to the O’Briens. The deficiency in explanation was not a deficiency in explaining the detail in what the documents said, or in explaining the broad nature of the documents. The deficiency was in explaining how the obligations undertaken would operate in the O’Briens’ circumstances. It is not a matter of explaining anything obscure or subtle, requiring a deep knowledge of their affairs to understand. A superficial knowledge of their affairs was quite enough to show that there was a need to spell out where they would stand as they attempted to pay the instalments and meet the interest obligations.”

271 This Court upheld an appeal by Mr Eliades, Sheller JA saying, at 418:

“In my opinion the difficulties faced by the O’Briens which his Honour considered were so great and, to professional persons, so obvious that a solicitor could not reasonably leave them unstated, did not impose the duty his Honour held Mr Eliades to be under. Stated bluntly, such a duty would require solicitors, retained to act on a purchase or mortgage for their skill in the law, to inform every client for whom they so acted of their views about the financial prospects of the purchase or mortgage where they felt or ought reasonably to have felt that there was risk of loss. One consequence of this would be to require solicitors to give opinions, which they were not qualified to give, with the obvious consequence that if they were wrong and the client had acted on the basis of those views, they would be liable in negligence. For good reason such a proposition is contrary to authority. The solicitor’s duty is found in the terms of the retainer and the ambit of any additional assumed responsibility relied upon.

Moreover, in order to make such a case in negligence, the O’Briens were bound to prove that, if Mr Eliades had advised them for the reasons suggested not to go on with the contract for purchase or finance, they would have acted on that advice. They gave no such evidence and in my opinion it was not open to his Honour to infer in the absence of any such evidence that the O’Briens would have taken some course other than the course they did in fact take.”

272 In Heydon v NRMA Ltd [2000] NSWCA 374; (2000) 51 NSWLR 1 this court accepted that the duty of care of the solicitors involved in that case was coextensive with the solicitors’ contractual liability, and there was no “penumbral” duty. The course of authority was summarised by MacPherson AJA at [364]:

“At one time a solicitor’s duty was considered to be limited by the terms of the retainer from the client, there being no affirmative legal obligation to give advice going “beyond the specifically agreed task or function”. Then, in Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539 at 585, it was held that there was no justification for imposing a contractual duty of care that was co-extensive with the parallel duty independently imposed in the law of negligence. It followed that an obligation might arise requiring a solicitor to take positive steps, beyond the specifically agreed professional task or function, to avoid a real and foreseeable risk of economic loss being sustained by the client, or even by others who were not the clients who had retained the solicitor. The result was that in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 at 652, a majority of this Court held that an affirmative duty to advise might exist in relation to matters that were not directly within the ambit of the retainer from the client. The decision on this point in Waimond Pty Ltd v Byrne has since been followed on several occasions. More recently, however, in Henderson v Merrett Syndicates Ltd [1994] UKHL 5; [1995] 2 AC 145 at 193–194, the House of Lords rejected the reasoning of Deane J in Hawkins v Clayton, holding instead that there was “no sound basis for a rule which automatically restricts the claimant to either a tortious or a contractual remedy”, and that it was the contract that defines the relationship of the parties, so that ordinarily “the parties must be taken to have agreed that the tortious remedy is to be limited or excluded”. In Astley v Austrust Ltd [1999] HCA 6; (1999) 197 CLR 1, the High Court decided to follow the reasoning in Henderson v Merrett Syndicates Ltd, in preference to that of Deane J in Hawkins v Clayton. The result, in my respectful opinion, is that what was said by Deane J in Hawkins v Clayton has ceased to be good law in Australia. Because it formed the or a pivotal point in the reasoning in Waimond Pty Ltd v Byrne, it is no longer possible to say that there is a “penumbral” duty in tort requiring a solicitor to advise on matters going beyond the limits of his or her retainer. On that aspect, the decision in Waimond Pty Ltd v Byrne is inconsistent with the reasoning in Astley v Austrust Ltd, and should, in my opinion, no longer be followed. It had the effect of enlarging or extending the range of matters on which a solicitor, and possibly also a barrister, might be required by the law of tort to advise a client or other persons.”

273 Malcolm AJA and McPherson AJA also referred to Astley as providing a reason why the Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 principle did not apply to advice given by barristers, at [309], [365] and [417].

274 Similarly, concerning the scope of a solicitor’s duty of care Malcolm AJA said, at [147]:

“In this context the content of the duty of care and the liability is the same whether it is founded on contract in the case of a solicitor, or whether it is founded on a duty of care in tort in the case of a barrister. In each case the duty is to apply the relevant degree of skill and exercise reasonable care to carrying out the task. There is no implied undertaking that the advice is correct, but only that the requisite degree of professional skill and care has been exercised in the giving of the advice. Of course, where there is reason for doubt or there are risks which a person possessing the relevant degree of skill and competence should perceive, it follows from the above that there may be a duty to warn of the kind recognised by their Honours in Rogers v Whitaker. Thus, in Hawkins v Clayton (at 583–585), it was held by Deane J that, in the case of a solicitor, the circumstances may give rise to a duty to do more than simply perform the task defined by his instructions, if circumstances arose giving rise to a real and foreseeable risk of economic loss by the client, or, in particular circumstances, even a person who was not a client but who may be adversely effected. See also Waimond Pty Ltd v Byrne in which the judgment of Deane J was followed. In Henderson v Merrett Syndicates Ltd [1994] UKHL 5; [1995] 2 AC 145, the House of Lords declined to follow Hawkins v Clayton insofar as it suggested that in the case of a solicitor liability lay only in contract rather than concurrently in contract and tort. In Astley v Austrust Ltd, the High Court decided to follow the decision in Henderson v Merrett Syndicates Ltd in preference to the judgment of Deane J so that in the case of solicitors, the liability remains a concurrent liability in contract and in tort.”

275 This paragraph followed reasoning leading to the conclusion that lawyers who were the leaders of their profession in particular areas of the law were to be judged by the standard of an ordinary skilled person exercising and professing to have that special skill, not by some higher standard. It seems to me that what Malcolm AJA was intending by opening the paragraph I have quoted with the words “In this context” was to indicate that the paragraph was dealing with what is the content of the standard of an ordinary skilled person exercising and professing that special skill.

276 Ormiston AJA referred briefly, at [678] to “ … the “Waimond” principle described and correctly criticised in the judgment of McPherson A-JA” and also said, at footnote 478 to para [667]:

“Insofar as I have failed to deal with certain of the matters raised in argument, I would adopt the reasoning of the other members of the Court, to the extent that is not inconsistent with this judgment.”

277 Heydon was not a case where it was necessary to consider whether, in a situation where a solicitor gives advice, conveys information or expresses an opinion on a topic outside that for which the solicitor has been retained, the solicitor comes under any, and if so what, duty of care. Thus, the remarks of the judges in Heydon concerning the absence of a penumbral duty of care should not, in my view, be treated as applying to that situation. Nor is the present case one where it is necessary to consider whether there is a duty of care if a solicitor embarks upon acting outside the scope of his or her retainer. There is no complaint in the present case that Dalla went outside the scope of the task he was retained to perform and erred in so doing. Rather, the complaint is that the task for which he was retained was inadequately carried out, and that as well he failed to take positive action to protect Kowalczuk and Mars from the financial danger for which they would be heading if they borrowed the money and granted the mortgages.

278 The question of whether a solicitor owes to a client duties beyond the contractual duties was further considered in Curnuck v Nitschke [2001] NSWCA 176. There, solicitors were retained to advise, institute and maintain proceedings against the vendor of a defective truck. The client was slow in providing particulars both of the defects and of the damages, but by a date approximately three years after the date of purchase of the truck some further instructions on those topics had been obtained, counsel who had already drafted a statement of claim returned his brief with a draft of some further particulars, and said that the statement of claim and further particulars would enable the solicitors to commence the proceedings. However the following month the client entered into a Deed of Arrangement under Part X of the Bankruptcy Act 1966 (Cth). Counsel advised the trustee of the Deed that the client had reasonable prospects of succeeding, but that the particulars of loss were yet to be completed. Even so, the trustee was not willing to fund the action. On a date less than four years after the purchase of the truck, the trustee assigned the benefit of the cause of action against the vendor of the truck back to the client. The solicitors took no further action concerning the matter before the limitation period expired.

279 Fitzgerald AJA held that the solicitors were in breach of both their contractual and tortious duty by failing to notify the clients of their decision not to act in relation to the cause of action after it was reassigned, or to warn clients of the limitation period (at [59]). He took the view that, even though entering the Deed of Arrangement terminated the solicitors’ instructions to commence proceedings, it did not terminate the entire relationship of solicitor and client or bring the entire contract to an end, and after the reassignment the solicitors were in breach of their ongoing contractual duty to (at least) provide “information and advice which was appropriate for a prudent finalisation of their relationship if that was to occur.” (at [63])

280 Davies AJA at [2]-[5] noted the course of authority that had led McPherson AJA in Heydon to conclude that the decision in Waimond was no longer good law. He continued, at [6]-[9]:

“However, I do not read the decisions in Henderson v Merrett Syndicates Ltd and Astley v Austrust Ltd as leading to that conclusion. The fact that the causes of action in tort and contract may be concurrent does not mean that their incidents are necessarily the same. Under contract law, duty turns upon the terms, scope and context of the contract. Under torts law, issues of proximity and foreseeability are crucial to liability. Public policy may play a part. And there are many other differences. The respective laws on damages are different. The principles of contributory negligence and contribution differ as between the causes of action. The limitation periods may be different. A plaintiff is entitled to sue in both contract and in tort or in either, and may choose the best result.

Waimond Pty Ltd v Byrne seems to me to be well based upon the principle enunciated in Henderson v Merrett Syndicates Ltd and Astley v Austrust Ltd. In that case, the duty of a solicitor to speak with his client with respect to a certain transaction did not arise from his contractual retainer. It arose out of the relationship of proximity which existed between the solicitor and his client. The solicitor knew that a transaction, which he had been instructed to carry out for another client, affected the interests of his client. The majority of the Court considered that the circumstances were such that the solicitor had a duty to check with his client or to advise him to seek independent advice.

It is one thing to say, where a solicitor has a contractual relationship with a client and where the matter in issue arises within the scope of the retainer, that there will be no difference between the duty of care imposed by the contract and that imposed by the law of negligence. It is another thing to say that, in respect of a matter which is beyond the scope of the contract, a tortious duty of care may not arise from the relationship between the parties.

In Australia, there have been several cases where a duty of care has been imposed upon solicitors notwithstanding that the solicitor’s retainer did not impose that duty. (See Hawkins v Clayton; Hill v Van Erp [1997] HCA 9; (1997) 188 CLR 159; and Waimond Pty Ltd v Byrne.)”

281 Unlike Fitzgerald JA, Davies AJA decided the case on the basis of assuming that there was no ongoing contractual obligation. He noted, at [10]:

“The solicitors were aware that the cause of action had been reassigned to the appellants. They were the bailees of the appellants’ cause of action, insofar as that cause of action consisted of legal papers. They were aware that the documents remained with them because they were the solicitors who had handled the matter. They were aware, moreover, that the cause of action which their file represented would become valueless with the passing of the six year limitation period.”

282 Those circumstances, together with the vulnerability of the client arising from the limitation period not being a matter of general knowledge but of legal knowledge, were in his view sufficient to give rise to a tortious duty of care. (How that vulnerability comes into play, in light of the trial judge’s finding, recorded by Fitzgerald JA at [50], that the client knew that there was a limitation period, is not altogether clear.)

283 Meagher JA agreed with both Fitzgerald AJA and Davies AJA.

284 Other cases in this court have also accepted that a solicitor can in some circumstances owe a duty of care to a client in circumstances where no contractual duty is owed: Walmsley v Cosentino [2001] NSWCA 403 at [55] per Powell JA (with whom Priestley and Beazley JJA agreed); Miller v Cooney [2004] NSWCA 380 at [30] per Sheller JA (with whom Hodgson and Santow JJA agreed).

285 In Watkins v De Varda [2003] NSWCA 242 at [145] Ipp JA (with whom Sheller JA and Foster AJA agreed) referred to Heydon at pages 103 and 118 (which is where para [309] occurs) without any express disagreement. However too much should not be read into that. Ipp JA at [146] also referred to [364], 118 of Heydon, where McPherson AJA said the reason why contractual and tortious duties were co-extensive was that:

“… it was the contract that defines the relationship of the parties, so that ordinarily “the parties must be taken to have agreed that the tortious remedy is to be limited or excluded.””

286 Watkins was a case where there was no contract of retainer at all, so it was not possible for a contract to limit or exclude the tortious remedy. As I understand it, the purpose of Ipp JA referring to these passages in Heydon was to distinguish them, and thus he had no occasion to consider their correctness or completeness.

287 Similarly, Buss JA (with whom Wheeler and McLure JJA agreed) in Townsend v Roussety & Co (WA) Pty Ltd [2007] WASCA 40; (2007) 33 WAR 321 at [116], referred to Heydon at [364] and [309] without any express disagreement, but again was a case where there was no contract of retainer, so there was no occasion for His Honour to consider the correctness or completeness of those remarks.

288 In Riz Brereton J considered a claim for negligence, brought by a couple who had borrowed money on mortgage to invest in the ill-fated scheme operated by Karl Suleman Enterprizes, against the solicitors who had acted for them on the mortgage. The breach alleged (para [91]) was of failing to cease to act for the plaintiffs unless and until they had obtained financial advice, or failing to warn the plaintiffs that their proposed investment was imprudent. The plaintiffs in Riz told their solicitor of the returns that they expected to get from it, namely $12,000 per fortnight on an investment of $150,000, which amounts to a return of in excess of 200%. Brereton J held, at [129] that it should have been plain to the solicitor that the plaintiffs “were putting their home at risk for the purpose of raising funds for an investment in respect of which they had expectations that objectively were absurd.” Brereton J said, at [109]:

“I accept that the scope of a retainer is of considerable significance in identifying the extent of a solicitor’s duty of care. However, the scope of a solicitor’s duty of care to a client is not confined to the contract of retainer but may extend in the circumstances of a particular case to require the taking of positive steps, beyond the specifically agreed task or function, where such steps are necessary to avoid a real and foreseeable risk of economic loss being sustained by the client [Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642].”

289 After a review of the authorities relating to the scope of a solicitor’s duty of care when advising on mortgage and loan documentation, he concluded, at [113]:

“… the prevailing position is that the scope of a solicitor’s duty of care is not limited to the terms of the retainer but, depending upon the circumstances of the particular case, may require the taking of positive steps beyond the specifically agreed professional task or function, where these are necessary to avoid a real and foreseeable risk of economic loss being sustained by the client.”

290 Brereton J came to a more specific conclusion about the state of the law at [128]:

“… although the duty normally owed by a solicitor to a client only extends to legal advice, it is often difficult in a given situation to disentangle legal and business or practical advice, and a solicitor who is carrying out a transaction for a client is not justified in expressing no opinion when it is plain that the client is rushing into an unwise, not to say disastrous, adventure. The cases that state that it is not the function of a lawyer to give financial advice mean that a lawyer is not expected to bring to his or her task the knowledge and expertise of a stockbroker, an accountant or a financial planner. But a lawyer giving independent advice is required to address the fairness or reasonableness of a proposed transaction, so that the client can appreciate its disadvantages; if this involves matters beyond the lawyer’s expertise, then the lawyer should seek specialist assistance. That is not to say that the solicitor is to be expected to give financial advice – of the type that a stockbroker might – about the proposed investment. But where it is evident that the borrower is relying on the investment to generate the income to service the loan which is secured over the family home, and where at first sight the expectation appears utterly unrealistic, a solicitor acting reasonably would … take steps for the protection of the client’s interest.”

291 The Appellants submitted that this Court should follow Brereton J’s decision in Riz, and use it as a basis for concluding that Dalla was in breach of his duty in failing to warn against the borrowing.

292 Riz was decided after the first instance decision in the present case. Mr Craddock SC, counsel for Dalla, submits that it is not open to the Appellants to put an argument based on Riz in this appeal, when there was no submission put below that there was any difference between the contractual retainer duty and the tort duty. While I accept that it was not put below that there was any difference between the contractual duty and the tortious duty, it was still put below that it was a breach of duty not to warn about the imprudence of the transaction. That is sufficient, in my view, to allow the argument based on Riz to be considered on the appeal.

293 How the argument based on Riz is considered in this judgment needs to be approached with some care. There was no application by any party to re-argue the correctness of any of the decisions of this Court concerning the duty of care of a solicitor advising on mortgage or loan documents. That in itself limits the options available in deciding this case. As well, the decision in Riz is itself the subject of an appeal that has not yet been argued. While this Court should consider the argument based on Riz, in this appeal, if possible that should be done in a way that does not foreclose the outcome of the appeal in Riz itself.

294 Assuming without deciding that the principles I have quoted from Riz are correct, the present case is distinguishable from Riz. In the argument of this case there was no attempt made to identify, in the way Davies AJA did in Curnuck, any specific features of the relationship between Dalla and Kowalczuk that might give rise to a tortious duty of care that went beyond the scope of the contractual duty. Dalla was aware that both the Berowra loan and the Haberfield loan were intended to be very short term loans, that were to be refinanced. He did not enter into the question of what Kowalczuk intended to do with the monies that were raised. He was uninformed about Kowalczuk’s income (apart from the statement in the documents that emanated from Accom that his income was $100,000), occupation (given that the trial judge rejected Kowalczuk’s evidence that the documentation concerning the Berowra loan transaction had been signed at his place of work), and asset and liability position. At the time he was advising concerning the Haberfield loan, he did not know that the Berowra loan had gone into default. The only relationship that existed between Dalla and Kowalczuk was that Dalla was engaged, on two separate occasions, for the isolated task of explaining the mortgage transaction documents. Thus, the factual situations that Brereton J saw as triggering a duty to give more than legal advice within the scope of the retainer, namely “it is plain that the client is rushing into an unwise, not to say disastrous, adventure”, and that the client has an “expectation [that] appears utterly unrealistic” (at [128]) are not present in the present case. Thus, even if the principles on which Brereton J proceeded in Riz are correct, there is no “penumbral” duty in the present case.’

The application was made on the orthodox basis (under the predecessor of the Legal Profession Act, 2004) and supplemented by somewhat half-hearted arguments under the Fair Trading Act, 1999, the state equivalent of the Trade Practices Act, 1974. The law is quite clear that regardless of whether lawyers engaged in their core professional roles of representation and advising are engaged in in trade or commerce (the traditional view is that they are not), some aspects of their businesses are. What this decision says is that in negotiating fees, lawyers are engaging in trade or commerce, and so causes of action which seek relief in relation to costs agreements under the Fair Trading Act, 1999 and which are dependent on conduct in trade or commerce are available to clients. (It might be worth tucking away for future thought whether a lawyer who does not negotiate and seeks to recover fees only on scale or practitioners remuneration order, could be said to be engaging in trade or commerce, but it is unlikely such a costs agreement would be the subject of an application to set it aside.)

The decision also asserts that the Fair Trading Act, 1999’s definition of ’services’ requires that the services be in trade or commerce, contrary to an earlier considered decision of the Legal Practice List, which it seems may not have been cited to Senior Member Vassie. No argument on this point is recorded in the decision. Ironically, if this decision is followed, the result may be a narrowing of VCAT’s jurisdiction, because in those causes of action which do not specifically require conduct in trade or commerce, but require ’services’, VCAT’s previous position was that the services did not have to be in trade or commerce to come within the definition, because though the words ‘trade or commerce’ appeared in the definition, the definition was inclusory, and only ‘included’ certain conduct in trade or commerce, rather than mandating ‘trade or commerce’ as an essential characteristic of activity falling within the meaning of ’services’. An example of such a jurisdiction is the one to resolve ‘consumer-trader disputes’, a jurisdiction which essentially grants to VCAT common law jurisdiction enhanced by special legislative powers over all disputes arising directly out of the provision of services, regardless of their value. In those instances of lawyers’ conduct which are not engaged in in trade or commerce, Senior Member Vassie’s construction of the Act would deny VCAT jurisdiction where it would otherwise have had jurisdiction by virtue of the expansive construction of the definition of ’services’. (Note that J P Sesto & Co v Jadewealth Pty Ltd [2009] VCAT 80 is essentially the same judgment in the same case.)

What Senior Member Vassie said was:

‘179. One head of jurisdiction available to VCAT under the Fair Trading Act is the statutory cause of action under section 159 for compensation for any loss or damage caused by a contravention of a provision of that Act. The provisions of that Act which Mr and Mrs Leong allege to have been contravened are sections 9 (misleading or deceptive conduct in trade or commerce) and section 8A (unconscionable conduct in trade or commerce in relation the supply or possible supply of goods or services by or to a business consumer). Section 158 of that Act makes consequential remedies available if the cause of action under section 159 has been made out. Under that head of jurisdiction, the Amended Application asked only for declarations that Mr Sesto’s conduct was unconscionable and hence contravened section 8A and was misleading or deceptive and hence contravened section 9, and for compensation pursuant to section 159. It did not ask for any consequential remedies under section 158. In particular, it did not ask for an order under section 158(2)(a) that a costs agreement was void.

180. The other head of jurisdiction available to VCAT under the Fair Trading Act is the jurisdiction under Part 9 to hear and determine a “consumer and trader dispute” which is defined (so far as presently relevant) in section 107(1) as a dispute or claim arising between a purchaser of services and a supplier of services in relation to a supply of services. In section 3 “services” is defined in such a way as to require [that] they are to or are to be provided, granted or conferred “in trade or commerce.” The Amended Application invoked this head of jurisdiction …, but under this head it asked only for an order for “restitution” pursuant to section 108(2)(b). It did not ask for an order under section 108(2)(g) for rescission of a costs agreement.

181. Under each head of jurisdiction, it is necessary to show that Mr Sesto, being the person whose conduct is complained of, or being the supplier, was acting “in trade or commerce”. That is because, under one head, the provisions allegedly contravened proscribe certain conduct “in trade or commerce”, and, under the other head, whatever are supplied are not “services” as defined if they are not supplied “in trade or commerce”. See Sigma Constructions (Vic) Pty Ltd v Maryvell Investments Pty Ltd [2004] VSCA 242.

182. In his final oral address Mr Twigg referred to a decision of Judge Harbison, Vice-President of VCAT, Walsh and Kane v Patrick J. Cannon, Coburn & Associates Pty Ltd … [2008] VCAT 962. In that case her Honour decided that solicitors were not engaging in conduct “in trade or commerce” when they accepted instructions from a testator and then accepted instructions from the executors of the estate when the testator died. It was not clear to me whether Mr Twigg was submitting that that decision meant that a solicitor who procures a costs agreement and does work pursuant to it does not engage in conduct “in trade or commerce” so that there is no jurisdiction under the Fair Trading Act for VCAT under either head of jurisdiction. If he was, and if I were to uphold the submission, the ironical consequence would be that proceeding no. C6430/2008, by Mr Sesto against Jadewealth, would have to be struck out for want of jurisdiction, because the jurisdiction that the proceeding had invoked was the “consumer and trader dispute” jurisdiction.

183. I think it is true to say that VCAT conducts its Civil Claims List and its Legal Practice List in accordance with an assumption that a solicitor supplies to a client “services” as defined by the Fair Trading Act because whatever the solicitor does for the client is done “in trade or commerce”. It also true to say that the decision in Walsh and Kane raises a question about the correctness of that assumption, at least in some cases. So does a decision of Osborn J. of the Supreme Court of Victoria in L.T. King Pty Ltd v Besser and White Cleland Pty Ltd [2002] VSC 354, which was cited in Walsh and Kane. Neither case, however, decides that a solicitor never engages in conduct “in trade or commerce” vis-à-vis the client. Each case merely allows for the possibility that in some circumstances a solicitor does not engage in conduct “in trade or commerce.” Indeed the decision in L.T. King was that in the circumstances of the case the defendant firm of solicitors did engage in conduct “in trade or commerce.”

184. In Naylor v Oakley Thompson & Co … [2008] VCAT 1724 Judge Ross, Vice President of VCAT, heard an application by respondent legal practitioners for an order striking out a proceeding summarily on grounds which included the proposition that VCAT had no jurisdiction because the legal practitioners had not been acting “in trade or commerce”. Judge Ross heard that application the day before Judge Harbison heard Walsh and Kane, but Judge Harbison gave her decision first. Judge Ross made no mention of Judge Harbison’s decision and may well have been unaware of it. At all events Judge Ross stated that he was not persuaded that the correctness of the proposition was so clear that the proceeding should be dismissed summarily for that reason.

185. In Naylor Judge Ross pointed out that comments of Osborn J. in L.T. King about whether conduct of solicitors was “in trade or commerce” were obiter and “did not lay down any prescriptive criteria.” Judge Ross cited well-known High Court authorities describing the hallmarks of conduct “in trade or commerce” for the purposes of section 52 of the Trade Practices Act 1974 (Commonwealth), which is the analogue of section 9 of the Fair Trading Act. Judge Ross also cited a Federal Court decision of French J. (as he then was) in 1987 which took a wide view of the expression “in trade or commerce” in the context of the conduct of a profession. Decisions of State Supreme Courts (cited in Walsh and Kane) taking a narrower view related to different legislative provisions.

186. I consider that a solicitor who procures a costs agreement with a client, performs work under that agreement and renders invoices pursuant to it, is engaging in conduct “in trade or commerce” and is providing “services” (necessarily “in trade or commerce”). I would not hold otherwise unless there were a decision of a superior court which imperatively bound me to hold otherwise. There is not. Accordingly, if Mr Twigg did submit that VCAT has no jurisdiction under either head made available by the Fair Trading Act, then I reject the submission.’

Original post: The Law Institute is putting on a lecture at lunchtime on 24 June 2008 by an ex-megafirms lawyer who has gone boutique, Margot Clarkson. It will be about the very specific topic of limitation periods for negligent misstatement cases (though somewhat oddly, the case featured in the flyer, Wardley v Western Australia (1992) 175 CLR 514 is a pure misleading and deceptive conduct case).  I treated that topic at some length in an article imaginatively titled ‘Legal Professional Liability Part II’ at (2001) 9 Torts Law Journal 1 (I have reproduced the relevant bit below), and have blogged about it from time to time since (see these posts).  It’s a difficult topic, and such a seminar is welcome. It costs $80 for LIV members and $160 for non-members.

This is what I said in the article:

4.6 Application of the law of limitation of actions

The maxim that equity follows the law assists defendants to professional negligence suits in relation to limitations questions where a breach of fiduciary duties is also alleged. It is necessary briefly to consider the relevant rules in contract, tort, and equity in relation to claims for pure economic loss. It seems to me that these rules are misunderstood by some practitioners, who are led into error by inappropriate analogies with cases involving latent damage to buildings, cases based on the Trade Practices Act 1974 (Cth), and the statutory exceptions in relation to personal injuries.85 Solicitors who institute proceedings which are out of time are more than usually likely to be on the wrong end of both a costs order against them personally, and a writ alleging professional negligence: the courts look particularly unfavourably on negligent handling of limitations issues.86

Section 5(1) of the Limitation of Actions Act 1958 (Vic) provides:

The following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued: (a) Actions founded on simple contract (including contract implied by law) . . . or actions founded on tort.

The real question is when does the cause of action accrue? For it is from this time that the six years are counted unless there is fraud, or the action is based on the doctrine of mistake, or one of the other exceptions to the general principle applies.87

The policy of the law is “to advance, rather than retard the accrual of a cause of action”. And, “[t]his is especially so if the law provides parallel causes of action in contract and in tort in respect of the same conduct. The disparity between the time these parallel causes of action arise should be smaller, rather than greater.”88

4.6.1. Contract (breach of retainer)

The action for breach of contract accrues on the occurrence of the conduct which falls short of the implied contractual promise to act with due skill, care and diligence, even if no loss has been suffered by the innocent party as a result. The client is entitled to sue for breach of contract and recover nominal damages even where no loss has yet been suffered as a result of the conduct which was in breach of the implied term. In the absence of fraud,89 there is no difficulty in professional negligence cases of establishing the expiration of the limitation period applicable to the breach of retainer except in correctly identifying the conduct which constituted the breach.

4.6.2. Tort and the Trade Practices Act

The application of the rule for the same claim in negligence is conceptually more difficult, more prone to confusion with other specialised rules relating to other corners of the tort of negligence, and is also the subject of an apparent tension between two competing lines of authority. As will be seen, however, the tension is more apparent than real, and its ramifications are generally outside the sphere of professional negligence. By way of aside, the Trade Practices Act imposes a limitation period of three years on claims for misleading or deceptive conduct.90 The shorter limitation period seems to make judges strain against the apparent injustice of barring claims so early and there is a danger that the resultant decisions will infect the law of tort by reverse analogy. The wording and structure of the Trade Practices Act, which provides one limitation period for both damage which has already occurred and damage which is likely to occur, is another factor which distinguishes limitations cases decided under that Act from the breach of duty cases, but one which is neglected in judicial and academic analysis alike.91

The rule is that the tort of negligence accrues when some damage is first suffered by the innocent party as a result of the conduct which was in breach of the duty of care.92 It is not when the main damage “crystallises” or when some damage is first discovered. The law of negligence knows no remedy of nominal damages: damage is the gist of the cause of action. As restated recently by the House of Lords in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2), the position is this:

As every law student knows, causes of action for breach of contract and in tort arise at different times. In cases of breach of contract the cause of action arises at the date of the breach of contract. In cases of tort the cause of action arises, not when the culpable conduct occurs, but when the plaintiff first sustains damage. Thus the question which has to be addressed is what is meant by “damage” in the context of claims for loss which is purely financial (or economic as it is sometimes described).

. . .

Take first a simple case which gives rise to no difficulty. A purchaser buys a house which has been negligently overvalued or which is subject to a local land charge not noticed by the purchaser ’s solicitor. Had he known the true position the purchaser would not have bought. In such a case the purchaser ’s cause of action in tort accrues when he completes the purchase. He suffers actual damage by parting with his money and receiving in exchange property worth less than the price he paid. In the ordinary way the purchaser in this example will not know of the negligence of his valuer or solicitor when completing the purchase. Despite this his cause of action arises at the date of completion, and time begins to run for limitation purposes . . . a plaintiff could find his cause of action time-barred before he even knew he had reason to bring proceedings against anyone.93

This sounds harsh, but the High Court has recognised that a statute of limitations is a line in the sand, and the positioning of the line itself represents the outcome of the balancing exercise between the rights of plaintiffs to have their cases heard and the rights of defendants to certainty and to a fair trial. And the later the courts find causes of action accruing, the later plaintiffs must wait before having their rights vindicated before the courts, and the later most species of statutory interest begin to run. Deane J commented:

It is inevitable that a Statute of Limitations will, on occasion, lead to injustice in the special circumstances of particular cases. Such injustice, when it occurs, is an unavoidable cost of the benefits involved in ensuring that plaintiffs act promptly and that defendants are not subjected to the litigation of stale claims.95

There is no rule that causes of action for damages for negligently caused economic loss do not accrue until the damage is “reasonably discoverable”.96 The apparent tension in the law is between the predecessor to the Nykredit case in England, Forster v Outred,97 and the High Court’s decision in Wardley v Western Australia,98 where the majority stated:

When a plaintiff is induced by a misrepresentation to enter into an agreement which is, or proves to be, to his or her disadvantage, the plaintiff sustains the detriment in a general sense on entry into the agreement. That is because the agreement subjects the plaintiff to obligations and liabilities which exceed the value or worth of the rights and benefits which it confers on the plaintiff. But as will appear shortly, detriment in this general sense has not universally been equated with the legal concept of “loss or damage”. And that is just as well. In many instances the disadvantageous character or effect of the agreement cannot be ascertained until some future date when its impact on events as they unfold becomes known or apparent and, by then, the relevant limitation period may have expired. To compel a plaintiff to institute proceedings before the existence of his or her loss is ascertained or ascertainable would be unjust. Moreover it would increase the possibility that the courts would be forced to estimate damages on the basis of likelihood or probability instead of assessing damages by reference to established events. In such a situation, there would be an ever-present risk of undercompensation or overcompensation, the risk of the former being the greater.99

The court was there concerned with a Trade Practices Act claim by the Western Australian government that it had been induced by misrepresentations made by “officers of Bond Corporation” and Laurie Connell, amongst others, into giving an indemnity (a guarantee essentially) in respect of a loan by the NAB to bail out the floundering merchant bank, Rothwells.

At first glance, the law expressed in the above quote appears inconsistent with the case of Forster v Outred.100 There, a woman was convinced by her son to mortgage her unencumbered residence as security for a transaction he proposed from which she did not stand to benefit. The security was called on, and the woman sued her solicitor who advised her in relation to the proposed mortgage. The Court of Appeal found that the value of the house was diminished on the registration of the mortgage on the previously unencumbered title, and the six-year limitation period commenced from that time, so that by the time the woman brought proceedings prompted by the lender ’s realisation of the security, they were out of time.

Criticism of the case ought to be directed, if at all, to the finding of fact that some loss was suffered on the registration of the mortgage on title. There is nothing wrong with the legal reasoning (which is consistent with the recent statement of the relevant principles in the House of Lords and the Supreme Court of Queensland referred to above),101 if one accepts the factual premise on which the reasoning is based. In fact, the majority of the High Court has acknowledged this in Wardley v Western Australia. They asserted that Forster v Outred was “explicable by reference to the immediate effect of the execution of the mortgage on the value of the plaintiff’s equity of redemption”,102 and Supreme Courts have on five separate occasions asserted by reference to the majority’s judgment in Wardley v Western Australia that the High Court affırmed the principle in Forster v Outred,103 in particular in a recent judgment of the Supreme Court of Victoria which thoroughly reviews the relevant authorities.104 The distinguishing factor in Wardley v Western Australia was that the Government lost nothing in giving the indemnity; its loss was purely contingent.

The situations where “the disadvantageous character or effect of the agreement cannot be ascertained until some future date when its impact on events as they unfold becomes known or apparent” are confined to circumstances such as where one party is induced to purchase a business on the basis of representations as to the business’s future earning capacity. In that case, the unfolding of events is necessary to disprove the representation.105 But the introduction into such a transaction of a claim against a solicitor often means that clients must either plead that they entered into a transaction which they would not have entered into but for the negligent conduct of the solicitor, or plead that they lost a chance to do something differently. In each case, the damage is suffered at the time that the transaction was entered into or when the chance was lost, which is also most likely to have occurred at the time of the transaction.106

The cases where results do not sit neatly with this simple logic are not cases in which solicitors are sued, and are decisions on claims under the Trade Practices Act.107 Many of them involve the entry into guarantees or mortgages, a species of loss which is amenable to being characterised as contingent and not actual prior to the security being called on, in a way that claims against solicitors are not. The exceptions to these observations fall within the fraud and concealment exceptions to the general rule.108

By way of illustration:

• Where a solicitor drafted an invalid rent review clause, the cause of action accrued on execution of the lease, not later when the landlord tried unsuccessfully to exercise his rights under the clause and discovered the deficiency.109
• Where a solicitor drafted an invalid restraint of trade clause while acting for a partnership introducing a new partner, the original partners’ cause of action accrued when it admitted the new partner, not later when it was unable to restrain the new partner from setting up business in competition nearby, having resigned from the partnership.110
• Where a solicitor drafted an invalid tenant’s option clause in a lease while acting for the purchaser of a business conducted at the leasedpremises, the tenant’s cause of action accrued on the purchase of the business, not later when its attempts to sell the business were stymied by the intending purchasers’ solicitors’ identification of the invalidity of the clause.111
• Where a solicitor allowed a client’s claim to become statute-barred, the client’s claim against the solicitor for negligence accrued at the expiration of the limitation period, not later when the defendant actually pleaded the relevant defence.112
• Where a solicitor negligently advised his client to execute a deed relating to spousal maintenance, thereby foregoing his rights to vary the agreed arrangements if his circumstances changed, the client’s cause of action accrued on entering into the deed, not later when his application for variation of the maintenance arrangements was met by the wife’s application to enforce the deed.113

Another case, involving a quantity surveyor rather than a solicitor, also illustrates well the principle that it is when loss is first suffered that the cause of action arises. In Byrne v Hall Pain & Foster (a firm),114 the plaintiffs alleged that but for the quantity surveyor ’s negligent report, they would not have bought the property, which turned out to be worth less than what they paid for it. The cause of action was held to arise on the exchange of contracts, not on settlement (with the somewhat unfortunate result for the plaintiffs, that they were a few days out of time and had their claim struck out).

4.6.3. Equity

Outside the context of strict trust law,115 the Victorian Limitation of Actions Act does not bar an equitable claim against a fiduciary. As has been reconfirmed recently in the Supreme Court of Victoria, however:

It is well established law that in certain circumstances an equitable claim may be barred by what is known as the doctrine of analogy. This operates to apply the statutory limitation period where the claim made in equity is analogous to a claim which is expressly provided for in the limitation statute.116

The principle represents the confluence of two of equity’s favourite Confucianisms: “Equity does not assist those who sleep on their rights”, and “Equity follows the law”.  The principle is codified in s 5(8) of the Limitation of Actions Act 1958 (Vic).

Gillard J observed in that Supreme Court case, which dealt with a strike-out application brought by defendant solicitors:

It is clear that the plaintiffs have brought their claim in equity because of the concern that a claim for damages, for breach of retainer at common law would be statute barred.117

There is no discussion to be found in the reports of the application of the rule to pleadings of breach of fiduciary duties against solicitors which are analogous to alternative claims in contract and/or tort for the simple reason that no such claim has ever been successful. A claim against a constructive trustee has been held to be sufficiently analogous to claims of the kind which are subject to the statute of limitations, however, and the situation must be a fortiori in relation to a dressed up negligence claim against a solicitor.118 Cases which are not governed by analogy, including justified pleadings of breach of fiduciary duties, are governed by the equitable doctrine of laches.119

85 See, for example, Harding v Winkler [2000] NSWSC 737 (NSW SC, Master Malpass, 28 July 2000, unreported, BC20004262).

86 Ignorance of a limitations statute may never be met by the rule that ignorance of a statute is negligent only if the statute is of common occurrence described in Stephens & Co v Allen (1921) 91 LJPC 32 (Privy Council); Central Trust Co v Rafuse [1986] 2 SCR 147; (1986) 31 DLR (4th) 481 and Summerville v Walsh (NSW CA, 26 February 1998, Mason P, Sheller and Beazley JJA, unreported, BC9800342).

87 The exceptions to the general principle are beyond the scope of this article as they apply equally in relation to all causes of action. The latest authorities on the exceptions are well summarised in Di Sante v Camando Nominees Pty Ltd [2000] VSC 211 (Warren J, 25 May 2000, unreported, BC200003166).

88 Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2) [1998] 1 All ER 305 at 311; [1997] 1 WLR 1627 at 1633 per Lord Nicholls.

89 In Safetycare Australia Pty Ltd v Maxwell [1999] VSC 535 (14 December 1999, unreported, BC9908825) at [77], Gillard J observed, in the context of an analysis of a limitations point, that “fraud unravels all”, citing London General Omnibus v Holloway [1912] 2 KB 72 at 81.

90 The Trade Practices Amendment Bill (No 1) 2000 (Cth) will, if passed as seems likely, increase the period to six years, semi-retrospectively.

91 Deane J drew support from the words of the legislation in Wardley v Western Australia (1992) 175 CLR 514; 109 ALR 247, as described in the following passage: “the context provided by the fact that an action under s 82(1) is to recover ‘the amount of the loss or damage’ and by other provisions of the Act lends some support for the conclusion that loss or damage has not been suffered for the purposes of s 82 at a stage where all that is involved is an isolated contingent liability to make a future payment in the event that some possible or even likely, but none the less uncertain, future state of affairs comes about. In particular, s 87 of the Act expressly distinguishes between the actual suffering of loss or damage and the likelihood (or contingency) that loss and damage will be suffered in the future. In terms, it empowers ‘the court’, in respect of persons ‘likely to suffer ’ loss or damage by conduct in contravention of Pt IV or Pt V, to make appropriate orders which will ‘prevent or reduce’ (emphasis added) actual loss or damage. Note also, that the obscurely worded provision of s 87(1CA)(b) arguably assumes that an independent cause of action arises under s 87(1A) for an order which ‘will prevent’ loss or damage which would otherwise be ‘likely to be suffered. See, eg, Magman International Pty Ltd v Westpac Banking Corp (1991) 104 ALR at 592.”

92 Good examples of this proposition are to be found in the outcomes of the following cases: Doundoulakis v Antony Sdrinis & Co [1989] VR 781; Wilson v Rigg [2000] NSWSC 16 (Sperling J, 7 February 2000, unreported, BC200000230); Di Sante v Camando Nominees Pty Ltd [2000] VSC 211 (Warren J, 25 May 2000, unreported, BC200003166); Byrne v Hall Pain & Foster (a firm) [1999] 2 All ER 400 (CA); and Scarcella v Lettice [2000] NSWCA 289 (Handley, Powell and Giles JJA, 1 November 2000, unreported, BC200006725).

93 [1998] 1 All ER 305 at 308; [1997] 1 WLR 1627 at 1630. The decision has been followed in Australia: Piesse Investments Pty Ltd v WR Mortgagee Ser116 (Qld SC).

94 Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2) [1998] 1 All ER 305; [1997] 1 WLR 1627, was a case where the plaintiff was trying to characterise the cause of action as having accrued earlier in order to assert entitlement to greater interest.

95 Hawkins v Clayton (1988) 164 CLR 539 at 589-90; 78 ALR 69. Mason and Wilson JJ agreed. Brennan J made a similar comment at CLR 561.

96 Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 489-94; Hawkins v Clayton (1988) 164 CLR 539 at 588 per Deane J; 78 ALR 69; Wardley v Western Australia (1992) 175 CLR 514 at 540; (1992) 109 ALR 247; Di Sante v Camando Nominees Pty Ltd [2000] VSC 211 (Warren J, 25 May 2000, unreported, BC200003166) at [35]. Compare the situation in Canada: Central Trust Co v Rafuse [1986] 2 SCR 147; (1986) 31 DLR (4th) 481.

97 [1982] 1 WLR 86; [1982] 2 All ER 753, a judgment delivered on 11 March 1981. See also the recent case of Maronis Holdings Ltd v Nippon Credit Australia Ltd (2000) 175 ALR 36.

98 (1992) 175 CLR 514; 109 ALR 247.

99 Ibid, at CLR 527; ALR 254.

100 [1982] 2 All ER 753.

101 See above n 95.

102 (1992) 175 CLR 514 at 528; 109 ALR 247 at 256.

103 Hill v Grand United Friendly Society (NSW SC, Windeyer J, 28 November 1996, unreported, BC9605666); Daly v Commonwealth Development Bank (NSW SC, Windeyer J, 10 October 1997, unreported, BC9705099); Di Sante v Camando Monimees Pty Ltd [2000] VSC 211 (Warren J, 25 May 2000, unreported, BC200003166) and Maronis Holdings Ltd v Nippon Credit Australia Ltd (2000) 175 ALR 36 at [24]. The harmony of the English and Australian lines of authority was re-emphasised in Piesse Investments Pty Ltd v WR Mortgagee Services Pty Ltd (1998) 41 IPR 116 (Qld SC), where it was asserted that the late-1997 decision of the House of Lords in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (No 2) [1998] 1 All ER 305; [1997] 1 WLR 1627, was not inconsistent with the High Court’s decision in Wardley v Western Australia.

104 Di Sante v Camando Nominees Pty Ltd [2000] VSC 211 (Warren J, 25 May 2000, unreported, BC200003166) at [36]ff.

105 See Karedis Enterprises Pty Ltd v Antoniou (1995) 59 FCR 35; 137 ALR 544.

106 Costa v Georghiou [1984] NLJR 82 (CA); DW Moore v Ferrier [1988] 1 All ER 400; [1988] 1 WLR 267 (CA); Gillespie v Elliott [1987] 2 Qd R 509 (FC) at 513-19, 520-1; Doundoulakis v Antony Sdrinis & Co [1989] VR 781 (FC) at 785-7; Christopoulos v Angelos (1996) 41 NSWLR 700 (CA); Vining v Marsden (NSW SC, Cohen J, 25 November 1996, unreported, BC9605607); Hill v Grand United Friendly Society (NSW SC, Windeyer J, 28 November 1996, unreported, BC9605666); Daly v Commonwealth Development Bank (NSW SC, Windeyer J, 10 October 1997, unreported, BC9705099); Piesse Investments Pty Ltd v WR Mortgagee Services Pty Ltd (1998) 41 IPR 116 (Qld SC); Wilson v Rigg [2000] NSWSC 16 (Sperling J, 7 February 2000, unreported, BC200000230); Hillebrand v Penrith Council [2000] NSWSC 1058 (Austin J, 14 November 2000, unreported, BC20007069).

107 Magman International v Westpac Banking Corp (1991) 32 FCR 1; 104 ALR 575; Karedis Enterprises Pty Ltd v Antoniou (1995) 59 FCR 35 at 40-3; 137 ALR 544 at 552-4; Wood v Wood (1997) 149 ALR 301 at 306-7; Gilbert v Shanahan [1998] ANZ Conv R 21 [Ext]. The recent decision of the High Court in Kenny & Good Pty Ltd v MGICA (No 2) Ltd (1999) 199 CLR 413; 163 ALR 611 involved a limitations question only in respect of the Trade Practices Act claim, as a reading of the first instance judgment shows: see MGICA (1992) Ltd v Kenny & Good Pty Ltd (1996) 140 ALR 313 immediately under heading 7.5, per Lindgren J. See the comments of Bryson J in Maronis Holdings Ltd v Nippon Credit Australia Ltd (2000) 175 ALR 36 at [24]-[28].

108 For example, Hawkins v Clayton (1988) 164 CLR 539; 78 ALR 69. See s 27 of the Limitation of Actions Act 1958 (Vic).

109 Costa v Georghiou [1984] NLJR 82 (CA).

110 DW Moore v Ferrier, Ferrier [1988] 1 All ER 400 (CA); [1988] 1 WLR 267.

111 Gillespie v Elliott [1987] 2 Qd R 509 (FC).

112 Doundoulakis v Antony Sdrinis & Co [1989] VR 781. See also Wilson v Rigg [2000] NSWSC 16 (Sperling J, 7 February 2000, unreported, BC200000230). As to the calculation of damages for the loss of the chance to bring the proceeding which became statute barred, see Crump v Sharah [1999] NSWSC 884 (Davies AJ, 2 September 1999, unreported, BC9906246).

113 Vining v Marsden (NSW SC, Cohen J, 25 November 1996, unreported, BC9605607).

114 [1999] 2 All ER 400.

115 See ss 21 and 5(2).

116 Safetycare Pty Ltd v Maxwell [1999] VSC 535 (Gillard J, 14 December 1999, unreported, BC9908825) at [65].

117 Ibid, at [64].

118 See Dixon J in Cohen v Cohen (1929) 42 CLR 91 at 99, and Soar v Ashwell [1893] 2 QB 390, considered by Gillard J in Safetycare Pty Ltd v Maxwell [1999] VSC 535 (14 December 1999, unreported, BC9908825) at [67], [69]-[71], respectively.

119 See, for example, Coulthard v Disco Mix Club Ltd [1999] 2 All ER 457; Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd (1999) 96 FCR 217; 169 ALR 419.

What happened was that a creditor of a company served a statutory demand on a company. The company’s solicitor did not file and serve within the necessary 21 days the application to set it aside on the basis of a genuine dispute as to the existence of the debt. He did so out of time. So by operation of the Corporations Law, 2001, the company was presumed to be insolvent, and the courts had no power to extend the time retrospectively.

The creditor applied to wind the company up. He failed, but only because of evidence adduced by the company at the last minute, and the company was ordered to pay the costs of the winding up application as a penalty for its tardiness. The evidence adduced was of the existence of a ‘White Knight’, someone unconnected with the company who was willing to provide it $50,000 on a long term basis. That was enough to put beyond doubt the company’s solvency and defeat any application to wind it up on the basis of insolvency (which was the only ground relied on). The solicitor, who was not an expert in insolvency, had asked counsel whether such evidence was necessary, but had received no response. The company (in liquidation) sued the solicitor for negligence in failing to lodge the original application within time, and then in failing to get the evidence of the white knight until the last minute, claiming:

• the costs it had had to pay the creditor in the unsuccessful application to set aside the creditors statutory demand;
• the costs it had had to pay the creditor in the creditor’s unsuccessful application to wind up the company (the solicitor accepted that the rule that costs follow the event was departed from because of the late adduction by the company of the critical evidence ([71]));
• fees paid to the company’s new solicitors after the first solicitor’s retainer was terminated by the company shortly before the trial; and
• the costs of its winding up, the winding up having followed upon its insolvency by virtue of its inability to pay the creditor the costs orders just mentioned.

The solicitor did not claim immunity in respect of the first claim [53]. He did claim it in respect of the second, though, and said that the third was the consequence of the second, so that he was immunised against both claims. He also defended the second claim by reference to reliance on counsel, but failed on that defence because though he had sought advice from counsel, he had never actually received any, and so could not rely on the defence.

Tobias JA observed of the judgment at first instance:

‘60 The [solicitor's] first defence … was based on the principle of advocate’s immunity. After referring to the decisions of the High Court in Giannarelli & Ors v Wraith & Ors (1988) 165 CLR 543 and D’Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 and that of Rothman J in Wilson v Carter [2005] NSWSC 1351 at [55], her Honour (at [73]) rejected the respondent’s submission that the failure to obtain evidence of financial assistance to the company was not made in circumstances where the conduct of the matter in court was in issue and that the proving of insolvency was not a matter intimately connected with such conduct.

61 The evidence, according to her Honour, overwhelmingly suggested to the contrary. She therefore concluded (at [74]) that the relevant conduct of the [solicitor] was intimately connected with the conduct of the winding up application in court. Nevertheless, while she accepted that immunity could extend [to] a failure to advert or attend to a particular matter in the preparation of a case for hearing, in the present case the evidence established that the [solicitor] did not accept the responsibility of advising in relation to these matters but sought to rely upon counsel. Accordingly, the facts of the present case were distinguishable from D’Orta-Ekenaike where both counsel and the solicitor had given relevant advice to their client.

62 For these reasons her Honour concluded (at [75]) that the principle of advocate’s immunity did not apply to the [solicitor's] conduct. She therefore found that the [solicitor] was liable for his negligence in failing to obtain appropriate evidence to rebut the presumption of insolvency.’

Tobias JA commented in dicta, in the appeal:

‘79 As to the issue of advocate’s immunity, the respondent submitted that the immunity only applied in circumstances where the solicitor was performing work which led directly to (or was intimately connected with) a decision affecting the conduct of the case in court. In the present case the appellant sought to rely on counsel and to limit his own responsibility to the administrative functions associated with obtaining and implementing such advice as might be received from counsel. However, the appellant’s failure was in actually obtaining counsel’s advice and/or retaining alternative counsel to advise in sufficient time.

80 In other words, where counsel’s advice had been sought but was not forthcoming on a matter which the appellant accepted was of critical importance, namely, ensuring that there was adequate admissible evidence of solvency, his failure to at least communicate with counsel (other than by way of the letters already referred to) and to obtain a definitive answer to the question as to whether further evidence was required, constituted a failure to exercise reasonable care in circumstances which could not be said to be intimately connected with the conduct of the case in court. Alternatively, to paraphrase the test described in Giannarelli by Mason CJ (at 560), the appellant’s failure was not one which attracted immunity, because the conduct was not “work done out of court which leads to a decision affecting the conduct of the case in court.”.

81 In particular, it was submitted that the statement of Rothman J in Wilson v Carter, referred to by the primary judge in [71], was too wide. In that case, Rothman J held (at [55]):

“The drafting of affidavits, the determination of the contents of those affidavits and the advices relating thereto, indeed all the tactical decisions associated with the preparation for and presentation of the extension application were in the circumstances of this case, ‘intimately connected’ with conduct of the case in court and affected the hearing. It is difficult to imagine out-of-court work more connected with the conduct of the case in court than the determination of the witnesses to be called and the evidence to be adduced from them. To the extent that these allegations concern out-of-court work, they are fundamentally directed to such matters or to preliminary steps leading only to such matters.”

82 The difficulty with this statement is that on its face it would appear to apply to a situation where, months before the hearing of the case in court an affidavit is drafted, sworn and filed which is defective in form but which defect is not ascertained before the affidavit is read when the offending paragraphs are rejected. No doubt it might be said that there was a continuing breach of duty constituted by the failure to appreciate in time the defective form of the affidavit. And yet it seems unrealistic to assert that the negligent preparation of that affidavit was intimately connected with the ultimate conduct of the case in court.

83 In D’Orta-Ekenaike, Gleeson CJ, Gummow, Hayne and Heydon JJ determined (at 16 [31]) that there was no sufficient reason for reconsidering the High Court’s decision in Giannarelli. They then considered whether the boundary of the operation of the immunity should be redrawn. Their Honours concluded (at 31):

“86. Again, we consider that no sufficient reason is proffered for doing so. In particular, there is no reason to depart from the test described in Giannarelli as work done in court or ‘work done out of court which leads to a decision affecting the conduct of the case in court’ or, as the latter class of case was described in the Explanatory Memorandum for the Bill that became the Practice Act, ‘work intimately connected with’ work in a court. (We do not consider the two statements of the test differ in any significant way.)

87. As Mason CJ demonstrated in Giannarelli, ‘it would be artificial in the extreme to draw the line at the courtroom door’. And no other geographical line can be drawn that would not encounter the same difficulties. The criterion adopted in Giannarelli accords with the purpose of the immunity. It describes the acts or omissions to which immunity attaches by reference to the conduct of the case. And it is the conduct of the case that generates the result which should not be impugned.”

84 If I were to choose between the two tests referred to in [86] of their Honours [sic.] judgment, then that articulated by Mason CJ in Giannarelli seems to me to be more readily and easily applied to the facts of any particular case than the alternative. On this basis one asks with respect to the present case: what work was not performed but which ought to have been performed by the appellant which led to a decision affecting the conduct of the respondent’s case in court? The work not performed was that of obtaining additional evidence of solvency in the form of that ultimately provided by Mr Burke. However, it is difficult to identify the decision to which that failure led and which affected the manner in which the case was conducted in court. This is particularly so where in fact the evidence of Mr Burke was called and was decisive in the respondent’s success in having the winding up application dismissed.

85 In these circumstances I am extremely doubtful as to whether the immunity has any application in the present case and whether her Honour was correct to find that the appellant’s conduct in failing to obtain evidence of financial assistance to the company was intimately connected with the conduct of its case in court on the hearing of the winding up applications.

86 During the course of argument reference was made to the recent decision of Harrison J in Dansar Pty Ltd v Pagotto [2008] NSWSC 112 where the alleged breach of duty on the part of the solicitors was their failure to advise the plaintiffs whether or not the relevant proceedings were hopeless. His Honour said (at [91]) that

“Such advice is wholly anterior to, and separate from, work done leading to a decision affecting the conduct of the first proceedings. ‘Conduct’ in that sense is clearly a reference to how, or the manner in which, litigation should be conducted, not a reference to whether or not it should be commenced at all or continued.” …

87 It was therefore submitted that the failure of the [solicitor] to obtain [the white knight's] evidence on or prior to [the date by which pre-trial directions required service of further evidence as to solvency] was not work which led to any decision affecting how, or the manner in which, the case should be conducted in court. Rather, it was a form of collateral negligence which had no effect on that conduct. Without finally deciding the issue, there seems on the face of it to be substance in that submission.

…

89 Their Honours nevertheless considered that a claim for wasted costs fell into a different category from a complaint that there had been a wrong intermediate or final result. At 30 [83], the following observations were made:

“There remains for separate consideration the last of the three kinds of consequence identified earlier as consequences of which a client may wish to complain: wasted costs. Again, at first sight it might be thought that seeking to recover wasted costs would not cut across any principle of finality. But it is necessary to recall that the general rule is that costs follow the event. To challenge the costs order, therefore, will often (even, usually) involve a direct or indirect challenge to the outcome on which the disposition of costs depended. For the reasons given earlier, that should not be permitted lest a dispute about wasted costs become the vehicle for a dispute about the outcome of the litigation in which it is said that the costs were wasted.”

The difference between the example posited by their Honours in the foregoing paragraph and the present case, is that the respondent did not seek to challenge the second costs order and certainly did not seek to mount a direct or indirect challenge to the outcome of the proceedings that were in its favour. The present is not a case where the disposition of costs depended on that outcome. It is not a case of costs following the event. No possible dispute about the outcome of the litigation in respect of wasted costs arises.

90 It will thus be seen that the present case does give rise to an interesting and important question relating to the application of the advocate’s immunity with respect to preparatory court work. However, for reasons to which I shall now turn, in my view it is unnecessary to come to any conclusion with respect to that question.’

The settlement of litigation may, as a general rule, be in the best financial interests of insurers. But settlement of cases which should not have been brought is corrosive of public confidence in the litigation system, infuriating for some insureds (not all, since many professionals want nothing more than to avoid the glare of court), and in my opinion bad for insurers in general.

I favour spending money on cases at the outset, lodging a beautifully pleaded, kick-arse defence, making early offers, and identifying by a proper letter of advice what the legal issues in the case are, and making educated guesses about whether the other side will prove its case. Paying lawyers to go through the interlocutory motions and then settle at a nice long mediation late in the proceedings is to give them very easy money. Then, when the mediation fails, preparation of the case begins, and inevitably something comes out and everything changes direction.

I find D’Orta-Ekenaike’s Case a difficult one to understand. On the one hand, the majority say it’s all about finality now. That is, if clients were allowed to sue their litigation solicitors, then the fundamental tenet of the third great arm of government — the judiciary — would be undermined. That tenet is that the umpire’s decision is final. There should be an end to controversy. If a client succeeds in saying she would have won the case, or lost less disadvantageously, or won earlier, or not suffered the stigma of being found to have lied on oath, but for her lawyer’s negligence, the judiciary would pronounce that the last decision was wrong, but it would remain binding between the parties. And more generally, litigation could go on forever. From time to time one does see third and fourth generation negligence claims (for example, Louis v G&O’B [2007] VCAT 1997, and my earlier post ‘Man gives up only after suing lawyer for negligence in suing lawyer retained to sue lawyer before that’.)

On the other hand, the majority purported to accept that the touchstone for the immunity is still the intimately connected test from Rees v Sinclair [1974] 1 NZLR 180, adopted by the High Court in Gianarelli v Wraith (1988) 165 CLR 543. That is, whether the conduct in question ‘leads to a decision affecting the conduct of the case in court’ or is ’work intimately connected with work in a court’. The majority in D’Orta-Ekenaike’s Case said the two tests mean the same thing.

The finality test and the intimately connected test are self-evidently not the same. They produce different results most markedly where there is no judicial determination of a controversy, when it might well be said that there is no finality of the kind worthy of protection. There may be good reasons why people should not be allowed to revisit settlements, but the immunity, which is grounded in notions that the umpire’s decision is final, is not the vehicle to achieve that arguably desirable outcome because there is no umpire’s decision. Of course you can get into all sorts of nice arguments about the fact that if the settlement gives rise to consent orders, those orders have the same force and finality as a judgment after a trial. But they have an over-technical ring in the context of a discussion of the immunity.

Despite the fact that Justice McHugh said in his separate reasons in D’Orta-Ekenaike’s Case at [166] that:

‘There is, of course, a greater public interest in maintaining confidence in the administration of criminal rather than civil justice. So, it is possible to sue a practitioner for the negligent settlement of proceedings or for the negligent loss or abandonment of a cause of action. Such claims lead to the litigation of a primary claim even if that claim can no longer be pursued,’

some cases since D’Orta-Ekenaike have applied the law of advocates’ immunity to allegations of negligence in litigation in which there was no adjudicated outcome after a contested hearing by reference to the intimately connected test, as if D’Orta-Ekenaike’s Case merely confirmed Giannarelli’s Case.

What is interesting about Fowler v La Fontaine is that Judge Nicholson refused to strike out the plaintiff’s professional negligence claim, saying that it was arguable that there was no immunity in respect of it, because there was no adjudicated outcome of the matters which were the subject of the negligence claim.

The facts were as follows. The plaintiff sold a business. The purchasers did not complete the sale. The plaintiff sued. The plaintiff’s case was characterised by delays, and missed deadlines. The case came to trial. It went 5 days. The plaintiff applied to amend its statement of claim to add a head of damages for trading losses suffered by the plaintiff. Such a claim required expert evidence which had not been prepared. So the plaintiff also sought an adjournment in which to get together the expert evidence. The trial judge granted the applications, and initially made no order as to costs, but indicated that his tentative views were that the plaintiff’s camp should pay the defendants’ costs of the four out of five days of the trial which were necessary only because of the plaintiff’s camp’s failure to get itself ready for trial in time. He also foreshadowed that he would call on the plaintiff’s solicitor and barrister to show cause why they should not pay the costs personally.

The plaintiff instructed new lawyers, discontinued the proceedings, was ordered to pay the defendant’s costs (presumably by consent, or by operation of the rule associated with discontinuance) and sued his old lawyers, having foreshadowed an intention to the judge in the original case of doing so. When that intention was foreshadowed, the judge withdrew his direction to the solicitors to show cause, content for that question to be decided in a separate professional negligence proceeding, and presumably made the costs orders by consent.

The lawyers defended by reference to the immunity. The Court said at [81]:

‘[The solicitors] identified seven areas of professional service [they] claimed attracted immunity. However, the reasoning in D’Orta-Ekenaike makes clear, [that] central to the availability of an immunity is the existence of a finality to be protected; for preserving finality of resolution of controversy is the raison d’etre for the immunity.’

Judge Nicholson took the view that the finality which was to be preserved was the finality of judgments which occurred after a merits hearing.

Though the court in the original case made final orders in relation to who should pay the defendant’s costs, it seems to have done so by consent and without a hearing, at least in relation to the question which fell to be determined in the professional negligence claim, namely who out of the plaintiff or his lawyers should pay the defendant’s costs. In that circumstance, Judge Nicholson said there was no finality of the kind which warranted protection by the immunity, and he declined to find that the plaintiff’s case was so obviously hopeless because of the immunity defence it should be struck out summarily. So the plaintiff lived to fight another day.

The relevant bit of the judgment is as follows:

‘The law to be applied
71 The conclusion that, at common law an advocate cannot be sued by his client for negligence in the conduct of a case, or in work out of court that is intimately connected with the conduct of a case in court has long been the position held in England and Australia. There has, in my view, been a shift in recent times as to the rationale supporting the Australian position. Arguably, in Giannarelli the initial rationale for sustaining advocates’ immunity is most easily distilled from the judgment of Mason CJ. He appears to have formulated his policy considerations on two propositions. The first relates to the peculiar nature of the barrister’s responsibility when he appears for his client in litigation. The second arises from the adverse consequences for the administration of justice which would flow from the re-litigation in collateral proceedings for negligence of issues determined in the principal proceedings.

72 In D’Orta-Ekenaike the majority also sought to base the immunity upon two propositions. But as can be seen there has been a shift:

(a) the place of the judicial system as a part of the governmental structure; and
(b) the place that an immunity from suit has in a series of rules all of which are designed to achieve finality in the quelling of disputes by the exercise of judicial power.

73 Accepting, as I must that the immunity is built upon a jurisprudential rationale, it is important to acknowledge the particular rationale I am to apply. It comes from the most recent decision of the High Court in D’Orta–Ekenaike. To the majority in D’Orta-Ekenaike the exercise of judicial power is about the quelling of controversies between parties or litigants regardless of the stature of the litigants. As such it is exercised as an element of the government of society, having aims wider and more important that the concerns of the particular parties to any particular litigation. They noted the importance to the community at large in the final quelling of specific controversies litigated in Courts. The majority’s line of reasoning had the judicial power, whether formally separated as it is in the Australian Constitution, or not, as it is at State level as constituting “the third great department of government.”

74 Their Honours reasoned that a central and pervading tenet of the judicial system is that controversies, once resolved, are not to be reopened, except in a few, narrowly defined circumstances. They noted this doctrine prevented a party to proceedings raising in new proceedings against another party to the original proceedings a cause of action or issue that was finally decided in the original proceedings. It was noted there were other rules of law which affect persons other than the parties to the original proceedings, which also had basis in considerations of the need for finality in judicial decisions. “Some of those rules are rules of immunity from suit.”

75 In that context they reviewed other immunities from suit. Immunities favouring parties to the litigation, witnesses, judges and juries fell into this category. The majority, in finishing their review of this kind of immunity said:

Of that immunity it has been said …that it responds to two related considerations, “to assist full and free access to independent courts for the impartial quelling of controversies, without fear of the consequences” and “the avoidance of the re-agitation by discontented parties of decided cases after the entry of final judgment” other than by appellate processes. That view of the matter reflects the consideration that what is at stake is the public interest in “the effective performance” of its function by the judicial branch of government.

76 The majority noted that an inevitable and essential step in demonstrating an advocate’s negligence in the conduct of litigation which caused damage to the client would be the re-litigation of the initial controversy. They reasoned immunity was not to be determined upon some special status that could be accorded to advocates, but, rather, the central justification for the advocate’s immunity is the principle that controversies, once resolved, are not to be reopened except in a few narrowly defined circumstances. This is a fundamental and pervading tenet of the judicial system, reflecting the role played by the judicial process in the government of society. If an exception to that tenet were to be created by abolishing that immunity, a peculiar type of relitigation would arise. There would be relitigation of a controversy (already determined) as a result of what had happened during, or in preparation for, the hearing that had been designed to quell that controversy. Moreover, it would be relitigation of a skewed and limited kind.

77 They also noted that if immunity for judges and witnesses remained, then permitting relitigation of controversies to examine the contribution of the advocate would be an exception to the general rule of finality.

78 Their Honours then analysed what they described as the nature of the discontented litigants’ complaint. Their Honours said:

In every case the complaint must be that a consequence has befallen the client which has not been, and cannot be, sufficiently corrected within the litigation in which the client was engaged. That consequence may take a number of forms. For the moment, it will suffice to identify what may appear to be the three chief consequences: (a) a wrong final result; (b) a wrong intermediate result; and (c) wasted costs.

A client may wish to say that the conduct of the advocate was a cause of the client losing the case because, for example, a point was not taken, or a witness was not called, or evidence was not led. The client may have no appeal, or no remedy on appeal, as, for example, would generally be the case if the evidence not called was available at trial.

A client may wish to say, as the applicant does in this case, that the conduct of the advocate (or here, the advocate and VLA) was a cause of the client suffering an intermediate consequence (conviction at the first trial and imprisonment) which was not wholly remedied on appeal. (The conviction was set aside but the client was incarcerated for a time and complains of that and what is said to have been caused by it.)

A client may wish to say that the conduct of the advocate was a cause of the client incurring unnecessary expense. That may be because a costs order was made against the client or because unnecessary costs were incurred in taking a step in the litigation.

What unites these different kinds of consequence is that none of them has been, or could be, wholly remedied within the original litigation. The final order has not been, and cannot be, overturned on appeal. The intermediate consequence cannot be repaired or expunged on appeal. The costs order cannot be set aside; the costs incurred cannot be recovered from an opposite party. And in every one of these cases, the client would say that, but for the advocate’s conduct, there would have been a different result. In particular, leaving cases of wasted costs aside, the client wishes to assert that, if the case had been prepared and presented properly, a different final, or intermediate, result would have been reached. And yet the judicial system has arrived at the result it did. The consequences that have befallen the client are consequences flowing from what, by hypothesis, is a lawful result. So, to take the present case, the imprisonment of which the applicant seeks to complain is lawful imprisonment. In a case where the client would say the wrong final result is reached, the result in fact reached is, by hypothesis, one that was lawfully reached. Whether the lawful infliction of adverse consequences (such, for example, as imprisonment) can constitute a form of damage is a question that may be noted but need not be answered. (my emphasis)’

‘In an important decision, the [English] Commercial Court considered whether or not a company which had perpetrated a fraud could claim against its auditors for failing to detect and report that fraud.  Even though this involved the company relying on its own fraud, the Court nevertheless held that it could continue with its claim against the auditors.  This was, according to the Court, because the fraud was “the very thing” that the auditors were under a duty to identify, and the “ordinary citizen” would not find anything repugnant in allowing the company to make a recovery in such circumstances.’

I was already a fan of the first edition of Judge Stephen Walmsley SC, Alister Abadee, and Ben Zipser’s excellent Professional Liability in Australia, published by Thomson, and had been waiting for the new edition with interest. I got myself a copy the other day. It’s good, and there are substantial additions since the first edition, including a lot on expert evidence, a new bit on professional discipline, analysis of the Financial Services Reform Act, 2001, analysis of the cases on the civil liability acts and a good analysis of proportionate liability.

It is a text which delves into all of the legislation which clusters around professional liability these days and grapples with it, a thankless task for an Australian text writer compelled to read and understand all of the states’ and territories’ regimes and then synthesise them. So the availability of compensation in professional discipline regimes is treated properly, as is the effect of professional standards legislation, which caps liability for scheme mebers. The research is wide-ranging and thorough: a VCAT decision is cited. It is written from a practical perspective rather than a theoretical perspective. There is not the over-reliance on English authority which sometimes characterises texts in this area. The writing tends to take positions rather than carrying on at great length about parallel or divergent lines of authorities without suggesting which is to be preferred. One suspects that bad decisions have simply been ignored in the hope that they will be forgotten. If only more text writers would operate in this fashion.

Professional negligence is one of those areas of law in which everyone claims to be a specialist. There are, for example, 387 barristers at the Victorian Bar who claim on their web profile to practise in professional negligence. Then there are undoubtedly many others, like me, who haven’t listed their practice areas using the scheme which allows for searching like that.

Thomson has kindly offered a 10% discount for readers of this blog if you go to their bookshop at 160 William St, Melbourne. Alternatively, the book can be purchased online, for $220 inclusive of postage and handling.

One might think that professional negligence is a simple application of the law of negligence, part of the repertoire of a common lawyer. Obviously, that is not true of claims against insurance brokers, which usually now require a knowledge of the financial services legislation. Even to the extent that is true, it is still helpful to have a book which articulates how the courts have applied the general principles to professional negligence cases, and the authors have really done a lot of hard work to that end. It is apparent that they have pored over the big cases which many of us never quite find the time to read carefully, like the Duke Group litigation, and Daniels v Anderson, and slotted in the insights obtained throughout the text. This text has the advantage of an outstanding section on general principles, written by Ben Zipser, and chapters full of detail about specific lines of professional negligence which are well cross-referenced to the general principles chapter but relatively self-sufficient so that it is unnecessary to be constantly flicking back and forth between the general and the applied chapters. The following professions are each covered in remarkable detail:

• doctors,
• solicitors,
• barristers,
• accountants,
• auditors,
• architects,
• engineers,
• surveyors,
• builders,
• valuers,
• stockbrokers,
• finance brokers,
• insurance brokers and
• financial services licensees more generally.

But it is no longer true that professional negligence is just an application of the law of negligence. There is of course contract to contend with, and even if that’s not news to many competent lawyers, they might not be so familiar with legislation which modifies the law of contract where there are ‘concurrent and coextensive’ duties of care owed in contract and in tort, passed to undo the High Court’s decision in Astley v Austrust Pty Ltd (1999) 197 CLR 1. That legislation sanctions a plea of contributory negligence to a professional negligence claim framed in contract. And then there is recent legislation which says that contributory negligence may reduce the plaintiff’s claim by 100%. And legislation which allows, effectively, contributory negligence to be raised as a defence to a misleading or deceptive conduct claim under s. 52 of the Trade Practices Act, 1974 (Cth.), but not under ss. 53-59, and only in claims which arose on or after 26 July 2004.

And there is the law of agency, the law of fiduciary duties, the laws of misleading or deceptive conduct, the law of partnership, the law of liability insurance, and, often enough, the law of bankruptcy to be contended with. Those things, in their combined application to professional liability do produce a distinct body of law worthy of a text. On the other hand, the law is not necessarily consistent in its application across the professions, which is why the detailed separate treatment of the different professions in this text is so helpful.

And then there’s the phenomenon of proportionate liability which has come into force since the last edition, and which is essential for any professional negligence lawyer to have a grip on. Ben Zipser has done a good job of summarising the proportionate liability regimes, though any text which tries to tackle all of the regimes at once is going to have some shortcomings for the practitioner who needs answers in relation to a particular matter in a particular jurisdiction. There is no old-fashioned contribution under s. 23B of the Wrongs Act, 1958 (Vic.) allowed in proportionate liability claims, but what is and what is not an apportionable claim is likely to remain uncertain for some time, especially where there are mixed claims at common law, under the Fair Trading Act, 1958 (Vic.) and under Commonwealth statutes which proscribe misleading or deceptive conduct. So the examples of contribution scenarios in the solicitors’ liability chapter, for example, will remain useful, and is an example of how practitioner-friendly this text is. Examples from cases are provided separately of contribution between barristers and solicitors, valuers and solicitors, accountants and solicitors, and successive firms of solicitors.

I am not the kind of reviewer who goes out of his way to note errors, however there are a couple which are worth noting for Victorian practitioners. An example of the thoroughness of the text writers is their treatment of the lawyers’ disciplinary tribunals’ power to award compensation, but the text seems to suggest at p. 555 that VCAT’s power to award compensation is not limited to $25,000 as it is in NSW, which is not correct. And on the same page, it is suggested that advocates’ immunity is no defence to a claim for compensation in VCAT, which is certainly not the view of VCAT’s Legal Practice List, where I have regularly had matters struck out under the immunity. Finally, though there is a paragraph in the chapter on solicitors devoted to statutory prohibitions on contracting out of liability, there is no reference to a provision hidden away in the Legal Profession Act, 2004 (Vic.) (s. 7.2.11(3)) which prohibits the contracting out in advance of liability for any ‘loss or damage caused to the client in connection with legal services’.

These little errors should not distract attention from the fact that this is an outstanding text, packed with practical information which is readily accessible and written in a way which is easy to understand.