The NSW Court of Appeal dismissed an appeal from a decision finding that a solicitor was not immune from a negligence suit based on a failure to prepare evidence promptly, though its comments in relation to immunity were obiter dicta . Although the evidence did get adduced after a change of solicitors and before the end of the trial, so that the solicitor’s client succeeded, the client was penalised when it came to costs for adducing the critical evidence at the last moment, contrary to case management pre-trial directions. Not only did the succeesful client not get an order that the other side repay its costs, but it was ordered to pay the other side’s costs. The decision is Walton v Efato Pty Ltd  NSWCA 86. Another aspect of the decision is noted at this sister post. Justices of Appeal Beazley and Giles agreed with the lead judgment of Justice of Appeal Tobias.
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 ());
- 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 . 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  NSWSC 1351 at , her Honour (at ) 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 ) 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 ) 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 , was too wide. In that case, Rothman J held (at ):
“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 ) 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  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  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 ) 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 , 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.’