Latest on whether solicitors engage in trade or commerce: Part II

Part I is here. This part II is about a unanimous decision of the NSW Court of Appeal, Kowalczuk v Accom Finance [2008] NSWCA 343. Their honours followed a decision of the Full Court of the Federal Court in Shahid v Australian College of Dermatologists [2008] FCAFC 72; (2008) 168 FCR 46 at [181] which was on this point unanimous. In Shahid, Justice Jessup was the judge with whom the others agreed. His Honour declined to follow an earlier decision of the Supreme Court of NSW, Prestia v Aknar (1996) 40 NSWLR 165 insofar as it suggested that when certain professionals, including solicitors, engaged in their core professional work (in the case of solicitors, advising, drafting legal documents, and representing people, especially in litigation), they do not engage in trade or commerce, though there are aspects of what professionals do in their capacity as professionals which may be said to be in trade or commerce. Justice Jessup said to work out whether conduct of a professional was in trade or commerce, you simply ask whether the conduct was conduct ‘in professional practice’.

The tide is ebbing steadily away from this craziest immunity of the legal profession (probably shared, probably unbeknownst to them, by those engaged in divinity, the military, and medicine), and it looks like many professional negligence cases (especially of the wrong advice, rather than failure to advise species) may now increasingly confidently be pleaded in contract, tort, and misleading or deceptive conduct. Unless, of course, one of the parties takes the super-tasty appeal bait in para [350] of the judgment and the High Court says Justice Santow was dead right in Prestia v Aknar all along.

Here’s what Justice of Appeal Campbell, with whom Justices of Appeal Hodgson and McColl  agreed, said:

Breach by Dalla of Section 42 Fair Trading Act?

323 The Appellants submitted that the conduct of [the solicitor] Dalla breached section 42 Fair Trading Act.

324 Section 42 Fair Trading Act provides:

“A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”

325 The definition of “business” in section 4 Fair Trading Act includes in that expression “a trade or profession”. The definition of “services” in section 4 includes in that expression:

“… the rights, benefits, privileges and facilities that are, or are to be, provided, granted or conferred under:

(a) a contract for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the supply of goods …”

326 Section 4(1) also provides:

Trade or commerce includes any business or professional activity.”


business includes:

(b) a trade or profession.”

327 Section 4(4) provides:

“(a) a reference to conduct is a reference to an act or a refusal to act, including in either case an act that constitutes, or would but for the refusal constitute, making or giving effect to a provision of a contract or arrangement, arriving at or giving effect to a provision of an understanding, or requiring or entering into a covenant,

(b) a reference to refusing to do an act includes:

(i) a reference to refraining (otherwise than inadvertently) from doing the act, and

(ii) a reference to making it known that the act will not be done …”

Is Provision of Legal Advice “In Trade or Commerce”?

328 There was an admission on the pleadings that the provision of legal services by Dalla was in trade or commerce. In his reasons for judgment the judge referred at [69] to that admission, and continued:

“For the general reasons given by Young CJ in Eq in Metcash Trading Ltd v Hourigan’s IGA Umina Pty Ltd [2003] NSWSC 683 [now reported at (2003) 11 BPR 21,129] I think that incorrect.”

329 However, as there was an admission on the pleadings, he then went on to deal with the matter on the assumption that the admission should be acted upon.

330 The judge delivered judgment on 6 July 2007. On 17 July 2007 the judge had before him a Notice of Motion whereby Dalla sought to withdraw the admissions. The solicitor for Kowalczuk had notice of the application, and did not appear. The judge granted the leave that was requested. The granting of that leave is not contested, but Mr Conti submits that Metcash was incorrectly decided, and the giving of advice by Dalla in the present case was “in trade or commerce” within the meaning of section 42.

331 Metcash involved a solicitor who had acted for clients in September 1999 on the purchase of a business, and again in June 2002 on the sale of that business. The agreement by which the clients purchased the business in 1999 gave a right of pre-emption to the vendor. The agreement for sale of the business in 2002 was to sell the business to someone other than the original vendor, and was entered without regard to that right of pre-emption. The allegation against the solicitor was that he knew or should have known of the right of pre-emption, and by failing to advise the client of it, and failing to warn them about it, the solicitor contravened section 42 Fair Trading Act. Young CJ in Eq rejected that claim for two reasons.

332 The first was that while sometimes a solicitor who was negligent about his or her client’s affairs may also have breached a duty not to commit misleading or deceptive conduct, Boland v Yates Property Corp Pty Ltd [1999] HCA 64; (1999) 167 ALR 575 at [239] shows that there is a very real question about whether solicitors are engaged in trade or commerce. Young CJ in Eq said, at [54]-[56]:

“It must be remembered that merely because a solicitor gives advice to a client which client is involved in trade or commerce, or drafts a document in connection with a lease of premises that are to be used in trade or commerce, the solicitor does not by himself or herself ergo engage in trade or commerce: Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594 at 604; 92 ALR 193; 17 IPR 39. Of course, there can be situations where giving advice can be in trade and commerce: Bond Corp Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 215; 71 ALR 615, but the giving of advice by a solicitor in respect of a purchase or sale of a business is, ordinarily at least, not one of them.

This is to be contrasted with the situation of an estate agent who is in trade and commerce in selling parcels of realty and cases like Argy fall into this category.

Boland’s case tells us that the oft told myth that one can always sue a solicitor in a count under the Trade Practices Act or Fair Trading Act as an alternative to negligence is indeed a myth. If a solicitor is acting in trade or commerce it may be that he or she has committed false and misleading conduct, but one ascertains that not by applying the negligence tests but by looking at the words of the statute and measuring the conduct of the solicitor against those words.”

333 Boland was a claim brought against the solicitors and a barrister who had acted for the plaintiff in previous litigation, alleging that they had conducted the previous litigation in a way that was negligent, or contravened section 52 Trade Practices Act, or contravened section 42 Fair Trading Act. The statutory counts failed at first instance and were not the subject of any appeal. The appeal was confined to the allegation of negligence, on the basis that if the negligence claim failed the statutory claims would fail also. That explains why, in the High Court, it was only Callinan J who made any mention, at [239] of the statutory claims made in the specific case. (Gaudron J at [104]-[107] made some general remarks about the interaction between the law of negligence and section 52 Trade Practices Act, but not their application to the particular case.)

334 Because the claim against the solicitors and barrister was brought in the Federal Court, there had been particular focus on the Trade Practices claim at first instance, because it was only via the Trade Practices claim that the jurisdiction of the Federal Court was attracted. The Trade Practices claim had proceeded on the basis that, though the respondents in the Federal Court proceedings were natural persons, and the prohibition in section 52 was directed to a corporation, section 6(3) extended the operation of the Trade Practices Act so that (inter alia) section 52 applied to a person who was not a corporation concerning conduct involving the use of postal, telegraphic or telephonic services. It was alleged that the lawyers had sent letters and facsimiles that were part of the misleading and deceptive conduct. It was in this context that Callinan J said at [239]:

“As to the other matter, whether the appellants were engaged in conduct in trade or commerce, counsel for the respondent quite properly conceded in this court that that question was an even more controversial one. No doubt the respondent was anxious to find and pursue if possible statutory claims to which any immunity of lawyers in negligence suits might not provide an answer. These matters need not, however, be explored now, because no ground of appeal either to the Full Federal Court or to this Court raises any jurisdictional point.”

335 Those remarks were confined to the Trade Practices claim. The Trade Practices Act does not contain any provision to the effect that trade or commerce includes any business or professional activity. In those circumstances, the remarks of Callinan J at para [239] of Boland cannot be transposed into a statement that the question whether solicitors and a barrister were engaged in trade or commerce was a controversial one, for the purpose of the Fair Trading Act.

336 The definition of “services” in the Trade Practices Act includes identical words to those I have quoted above for the corresponding definition in the Fair Trading Act.

337 Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 215, another of the cases relied on by Young CJ in Eq in Metcash, was an application for summary dismissal of a claim, or striking out of parts of a statement of claim. The applicant for those orders was a firm of consulting and supervising engineers, who had advised a developer concerning a subdivision. The allegation against the engineers was, broadly, that they had misrepresented their experience and expertise in the design and supervision of land subdivisions, their ability to provide engineers who had such experience, and their ability to provide accurate estimates of the costs involved in carrying out a subdivision. French J rejected a submission that a professional could not be engaged in trade or commerce, because the professional is engaged in what is “essentially an intellectual activity and not an activity of a commercial or mercantile kind” (at 217). He accepted, at 218, that “trade or commerce” “is intended to cover the whole field in which the nation’s trade or commerce is carried on”. His Honour said, at 218, that although the word “services”:

“… does not appear in s 52, it is found in s 53 in a context which casts further light on the ambit of “trade or commerce”.

The express inclusion of “work of a professional nature” in the definition of services and the use of that term in s 53 to qualify the area of “trade or commerce” to which the section applies, suggests very strongly that the words “trade or commerce” as used in the Act are intended to apply to the provision of professional services.”

338 His Honour also noted the width of the term “trade” in its constitutional context.

339 He concluded, at 220:

“… where the conduct of a profession involves the provision of services for reward, then in my opinion, even allowing for widely differing approaches to definition, there is no conceivable attribute of the aspect of professional activity which will take it outside the class of conduct falling within the description “trade or commerce”.

This conclusion flows from both the judicial exposition and the particularly statutory context of that term.

It follows that the provisions of s 52 are applicable to the giving of professional advice by a consulting engineer and nothing flowing from the characterisation of that occupation as a profession prevents their application.”

340 The reasoning in that case might need reconsideration in the light of Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594, as one of the themes of Nelson was that “in trade or commerce” in section 52 should not be read as covering the full extent of what counts as “trade or commerce” for the purposes of the Constitution. However the important thing for present purposes is that Thiess was not dealing with the extended definition of “trade or commerce” contained in the Fair Trading Act.

341 In my respectful view, the reasoning in the part of Metcash that I am now considering is flawed because it does not take into account the extended definition of “trade or commerce” contained in section 4 Fair Trading Act. If that extended definition is taken into account, it becomes necessary to consider an argument to the effect that, when section 42(1) says “a person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive” it is to be interpreted so that the expression “in trade or commerce” is given the meaning explained in Nelson v Concrete Constructions, and also as though it said:

“A person shall not, in any business or professional activity, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”

342 In Prestia v Aknar (1996) 40 NSWLR 165 Santow J (as his Honour then was) gave lengthy consideration, at 178-195 to the meaning of “in trade or commerce” in the Fair Trading Act. He identified, at 188, two possible interpretations of the types of professional activity that fell within section 42(1). What he called the “wider interpretation” was that any conduct in a profession or by way of professional activity was in itself enough to attract the potential application of section 42(1). The “narrower interpretation” “requires that the activity inherently bear a trading or commercial character before it is caught”. Ultimately, his Honour decided that the narrower interpretation was preferable.

343 In Plimer v Roberts (1997) 80 FCR 303 the Full Federal Court held (as summarised by Jessup J in Shahid v Australasian College of Dermatologists [2008] FCAFC 72; (2008) 168 FCR 46 at [181]) that in section 42 Fair Trading Act:

“… the expression “trade or commerce” should be so read as to include any professional activity; secondly, that a professional activity will only be such as is unequivocally and distinctively characteristic of the carrying on of a profession; but thirdly, that whether the activity should also be such that, when done in the carrying on of a profession, it bears a trading or commercial character is an open question.”

344 In Shahid Jessup J, at [191] declined to apply the view in Prestia that, in the Fair Trading Act, the expression “any professional activity” is confined to such an activity which bears a trading or commercial character. He concluded at [194]:

“… I would not construe the expression “any professional activity” more narrowly than is implicit in the requirement that the activity in question be unequivocally and distinctly characteristic of the carrying-on of a profession, giving to the latter concept a connotation which is not limited to engagement in professional practice.”

345 On the basis of that construction of the Fair Trading Act (WA) Jessup J held that the Australasian College of Dermatologists had breached the Western Australian equivalent of section 42 Fair Trading Act. Branson and Stone JJ agreed (at [1]) and [30]), but would also have found the College had breached section 52 Trade Practices Act.

346 In Houghton v Arms [2006] HCA 59; (2006) 225 CLR 553 the High Court considered the Victorian Fair Trading Act 1999. Section 9 of that Act is the analogue of section 42 of the New South Wales Fair Trading Act. The question at issue in the case was whether a natural person who had engaged in misleading and deceptive conduct while acting solely as an employee of a corporation and not on his own account, could contravene section 9. The Court held he could. At [32] the Court, comparing section 52 Trade Practices Act and section 9 Fair Trading Act said:

“The text and structure of the comparable provisions of the two laws are not identical, but, as submitted by the respondent, it may be accepted that the construction of the phrase “in trade or commerce” as it appears in s 52 of the TP Act which was given by this court in Concrete Constructions (NSW) Pty Ltd v Nelson applies to s 9 of the FT Act.”

There is a footnote reference to the end of the sentence just quoted that reads:

“See Prestia v Aknar (1996) 40 NSWLR 165 at 182; Fasold v Roberts (1997) 70 FCR 489 at 528.”

347 Page 182 of Prestia, there referred to, is not in the part of the judgment where Santow J is considering how the extended definition of “trade or commerce” applies to section 42. I do not read Houghton v Arms as having given the High Court’s approval to that discussion.

348 In Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485 at 492 Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ held that an intermediate appellate court should not depart from an interpretation placed on uniform national legislation such as the Corporations Law by another intermediate appellate court, unless convinced that the interpretation is plainly wrong. In Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [135] Gleeson, Gummow, Callinan, Heydon, and Crennan JJ referred to that aspect of Marlborough, and continued:

“Since there is a common law of Australia rather than of each of Australian jurisdiction, the same principle applies in relation to non statutory law.”

349 Neither Marlborough Gold nor Say-Dee applies, as a matter of binding precedent, to whether I should follow the decision of the Full Federal Court in Shahid. Marlborough does not apply because there is not uniform national legislation involved – while each state has a Fair Trading Act, that are markedly similar to each other, the particular extended meaning of “trade or commerce” that appears in the New South Wales Act appears in the Western Australian Act, but not in other Fair Trading Acts. Further, Say-Dee does not apply, because the question is one of statutory interpretation, not application of the common law.

350 Even so, I think it would be out of keeping with the general approach to the law of precedent as between intermediate appellate courts in Australia, that is shown in Marlborough Gold and Say-Dee, for me to proceed as though I had a completely free hand in deciding whether to follow Shahid or not. As I perceive it, a consideration that motivates both Marlborough Gold and Say-Dee is that Australia is a single country, with a single body of common law and equitable principle applying within it. To the extent to which State Parliaments have passed legislation that is not in substance different, that legislation should be construed in a way that is not in substance different. I consider that, consistently with Marlborough Gold and Say-Dee, though not dictated by them, I should depart from the Full Federal Court’s decision in Shahid only if convinced it is wrong. I am not so convinced, and therefore shall apply it.

351 I conclude that the fact that Dalla was engaged in professional activities as a solicitor is not in itself sufficient reason why section 42 cannot apply to him. The provision by Dalla of legal advice to Kowalczuk was carried out “in trade or commerce”, within the meaning of section 42. That is far from conclusive, however, about whether the prohibition in section 42 actually applies to his dealings with Mars and Kowalczuk.

What Counts as Misleading or Deceptive Conduct by a Solicitor?

General Considerations

352 There are various ways in which a solicitor might engage in misleading or deceptive conduct in the course of his or her professional activities. Sometimes the task of a solicitor is to advise on the prospects of success of proposed litigation, or about how the courts are ultimately likely to decide some presently undecided legal question. Such advice involves the solicitor making a prediction about the future, and can be misleading or deceptive according to the same criteria as any prediction about what will happen in the future can be misleading or deceptive. When the advice in the present case is not of that character, it is not necessary to elaborate on when a prediction about the future can be misleading or deceptive.

353 Sometimes, in the course of seeking or carrying through legal work, a solicitor will make a specific representation of fact, and whether such a representation of fact is misleading and deceptive is judged by the same criteria as any other representation of fact. Sometimes the representation of fact might be an implied one. One particular circumstance in which an implied representation of fact might be made occurs when the task of the solicitor involves the carrying out of a transaction that requires legal skills, such as carrying through a conveyancing transaction, administering a deceased estate, or drafting a set of documents apt for a commercial transaction the client wants to enter. Though it will depend upon the circumstances of individual transaction, very often the mere entering of the solicitor upon the task involves a representation that he or she has knowledge and skills suited to carrying the task out, and sometimes conveying to the client the message that the task has been completed might involve a representation that is implied or by silence that the task has been completed in accordance with the degree of care and skill of a competent solicitor. In the present case no specific representation of fact is alleged to have been made by Dalla.

354 Sometimes, a solicitor will express an opinion, about the advantages and disadvantages involved in following different proposed courses of action or (more boldly) about which of several different proposed courses of action is more in the client’s interests. That sort of opinion is not strictly a prediction about the future, because it involves considering various hypothetical futures only one of which can actually come about, and none of which might actually come about. One aspect of the claims brought against a barrister and solicitors in Heydon v NRMA Ltd was an allegation that they had each breached section 42 Fair Trading Act by the advice they gave. In Heydon v NRMA at [307] Malcolm AJA said:

“A claim in damages for misleading or deceptive conduct is dependent on the effect or probable effect on the person to whom the conduct is directed, as distinct from any want of care or state of mind of the person engaging in the conduct: Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661. Where a legal adviser gives an opinion there is not ordinarily any representation or warranty that the opinion is correct, only that a reasonable degree of professional care and skill has been brought to bear on the formation and expression of the opinion: see the formulation of the duty in the joint judgment in Rogers v Whitaker, (at 483) per Mason CJ, Brennan J, Dawson J, Toohey J and McHugh J. Where negligence and misleading or deceptive conduct are both pleaded based upon the same material facts, it is not uncommon for the result to be that they will succeed or fail together: Boland v Yates Property Corporation Pty Ltd, (at 229; 601) per Gaudron J.”

(The reference to the judgment of Gaudron J in Boland should be to [104], 602). See also, to similar effect, at [329]-[331] per Malcolm AJA, [431]-[432] per McPherson AJA [692] 250 per Ormiston AJA. In the present case, I can see no circumstances in which there could be liability under section 42 if there were not also liability for the tort of negligence.

Can Inadvertent Conduct be Misleading or Deceptive?

355 The particulars in the pleading of the allegation of breach by Dalla of section 42 referred the reader back to paragraph 19 of the cross-claim (concerning the Berowra transaction) and to paragraph 48 of the cross-claim (concerning the Haberfield transaction). The trial judge dismissed the claim under section 42 saying:

“… the particulars of the conduct set out in paragraph 19 of the cross-claim are directed towards section 75B of the Trade Practices Act. Those matters go to failings or omissions, as the claimed breach is of refraining to do something, presumably by silence; such conduct needs to be intentional not inadvertent: section 4(4) of the Fair Trading Act. No intentional conduct was proved. If I were wrong in this I consider that the claim for breach of duty, which is made on the basis of the same facts pleaded in paragraph 19 of the cross-claim, would be at least as wide and I think wider than any s 42 claim.”

356 In reasoning in this way the trial judge was acting consistently with the decision in Metcash. The second reason why Young CJ in Eq dismissed the claim against the solicitors in Metcash was that the complaint against them was one of failure to warn about the pre-emption clause (so far as misleading and deceptive conduct in the course of the first retainer was concerned), and a failure to remember the clause or get out the file and look at it, (so far as misleading and deceptive conduct in the course of the second retainer was concerned). Young CJ in Eq held, at [59], that by reason of section 4(4) omissions can constitute conduct, but not if the omission is inadvertent.

357 This approach of Young CJ in Metcash, and of the trial judge in the present case, was justified by both the words of section 4(4) and authorities concerning them.

358 Purely as a matter of statutory interpretation, section 4(4)(a) takes the form of an exhaustive definition of “conduct”. Section 4(4)(b) is merely an inclusive definition of “refusing” to do an act. Thus, the reference to “a refusal to act” includes the matters referred to in section 4(4)(b)(i) and (ii), and also includes anything else that would count as a “refusal to act” in the ordinary meaning of those words.

359 In Semrani v Manoun [2001] NSWCA 337 Beazley JA (with whom Mason P and Ipp AJA agreed) considered a situation where Williams, an accountant, did not disclose to a Mr Manoun, information that Williams had that was of great importance to a business venture that Manoun was proposing to enter. Beazley JA at [56] ff considered section 42 and section 4(4) Fair Trading Act, and authorities relating to when there can be misleading and deceptive conduct through silence, and concluded, at [62]:

“The combined effect of the Act and the authorities therefore, is that for Williams’ silence to be actionable, he must have actual knowledge of a matter which he intentionally refrained from telling Manoun in circumstances where there was either a duty to disclose or where Manoun had a reasonable expectation that such information would be disclosed to him.”

360 Similarly, in Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211; (2002) 18 BCL 322 there was an allegation of breach of section 52 Trade Practices Act. Section 4(2)(c) Trade Practices Act is in the same terms as section 4(4)(b) Fair Trading Act. The allegation in question was that failure to disclose a particular project management agreement amounted to misleading and deceptive conduct. Hodgson JA (with whom Mason P and Stein JA agreed) said, at [58]:

“In my opinion, there is also a difficulty faced by Abigroup arising from the referee’s failure to find that the non-disclosure was intentional. I accept Mr Douglas’ submission that, in so far as what is alleged to be misleading or deceptive conduct arises from Peninsula’s refraining from disclosing the project management agreement, Abigroup needs a finding that this refraining was not inadvertent. Mr Walker submitted that it was sufficient that Peninsula knew of the project management agreement, acted intentionally in negotiating, and did not disclose the agreement in circumstances where this was not due to mistake. However, in my opinion the requirement in s4(2)(c) that a refraining be otherwise than inadvertent requires that there be actual advertence to the question of whether something should be done or not and the formation of an intention that it not be done. I think this is in accordance with the decision in Semrani.”

361 The only way in which the failures of Dalla to act, complained of in this case, could even arguably fall within the exhaustive definition of “conduct” in section 4(4)(a) is if it were a refusal to act. The various failures that Dalla is alleged to have engaged in do not count as a “refusal to act”, within the ordinary meaning of those words. Further, when the various failures that were relied upon have not been proved to be intentional, they do not fall within the extended meaning contained in section 4(4)(b). Thus, any such failures to act do not fall within the prohibition of section 42.’

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