Woman bankrupted because of solicitor’s failure to attend court suffered no loss

Mitchell’s Case [2005] VLPT 1

A client’s claim for compensation in a pecuniary loss dispute failed because she adduced no evidence that had she not been declared bankrupt by reason of her solicitor’s negligent failure to turn up to court, she could have avoided bankruptcy on any better basis than she did by paying out the full amount owing to creditors. She was criticised for not applying to set the bankruptcy aside before suing the solicitor. The decision is a shining example of the capacity of causation defences to succeed even in the face of plain negligence.

A solicitor saw a woman whose daughter in law worked with his wife. Her previous solicitors had obtained judgment against her and had served a bankruptcy notice on her. The solicitor had seen the woman before judgment had been entered, and had rendered a bill for $220 more than 8 months earlier. At that time, the solicitor had advised that pursuing the previous solicitors would be too complicated for him, and probably not worth it from the woman’s point of view, and declined to act.

When the client received the bankruptcy notice, she went back to the solicitor and gave him a copy. According to the reasons, the bankruptcy notice specified a hearing date. The Tribunal found the solicitor was instructed to appear at that hearing and apply for an adjournment. He did not, though, because he got the date wrong, and the woman was declared bankrupt. Mr Butcher seems to have accepted evidence that had an appearance been made, an adjournment would have been granted automatically upon application. (What is unexplained by the reasons is why the solicitor at the former solicitors’ firm whose work the woman wanted the Respondent solicitor to criticise was called by her to give that evidence.)

The woman had her bankruptcy annulled by paying out the full amount owing to creditors, $14,500 (more than $10,000 more than the amount of the judgment).

Mr Butcher dismissed a hopelessly optimistic argument by the solicitor that he had not provided legal services, but rather had provided something preliminary to legal services. He found a duty, a negligent breach, but found no loss occasioned.

The woman adduced no evidence that had she got an adjournment of the hearing, she would have done any better. What she was suing for was the amount she had to pay in order to annul the bankruptcy. Mr Butcher found:

“There has been also no evidence that any application was made to set the bankruptcy order aside. It would have been posible, given the circumstances of the non-appearance before the Federal Magistrates’ Court of Australia on the return date, to have applied to have the order set aside. This would have resulted in an order for costs thrown away but it may well have been that these costs would have been accepted by the legal practitioner.

However, the fact remains that even had this been the course of action there would have been no change to the situation in relation to the impending bankruptcy. It would still have been necessary for the client to either settle the matter or dispute the bankruptcy.

As I have said, I have no evidence to suggest that settlement on any terms, other than the terms upon which the matter was resolved, would have been achieved. I also have no evidence that bankruptcy could have been avoided.”

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