Attwells v Jackson Lalic Lawyers Pty Ltd

Supreme Court of NSW|2013-10-10|Before: Harrison J, Schmidt J, Rein J, Pembroke J

Judgment 1HIS HONOUR: Gregory Ian Attwells and Noel Bruce Attwells have sued their former solicitors for negligence. On 10 July 2013, Schmidt J ordered that the question of whether their claim is defeated entirely, because the defendants are immune from suit, should be decided separately: see Attwells v Jackson Lalic Lawyers Pty Ltd [2013] NSWSC 925. These reasons deal with that issue. 2The facts are uncontroversial and in small compass. The plaintiffs provided guarantees to a bank in respect of the liabilities of a company to which the bank had advanced monies secured by mortgages over rural lands. The company defaulted and the bank proceeded against the plaintiffs on the guarantees. The proceedings came before Rein J on 16 June 2010 and were finally settled in accordance with consent orders. 3The full amount of the debt, including accrued interest, which was owing to the bank by the company at that time, was a little less than $3.4M. The maximum amount for which the plaintiffs were personally liable to the bank as guarantors, however, was only $1.75M. Notwithstanding that fact, the proceedings were settled on terms, reflected in the consent orders, that provided for a judgment against the plaintiffs for the full amount of the company's indebtedness to the bank, subject to an agreement that the bank would not proceed to enforce its judgment against them for that amount if they paid the lesser sum by a nominated date. In the events that occurred, the plaintiffs failed to do so. An attempt by the plaintiffs to set aside this arrangement as an unenforceable penalty was dismissed by Pembroke J on 11 February 2011: see Attwells v Marsden [2011] NSWSC 38. 4By their amended statement of claim filed on 16 August 2012 the plaintiffs allege that the defendants negligently advised them to consent to the judgment in these terms when the full extent of their liability to the bank was only ever for the lesser sum of $1.75M. Several slightly different formulations of the defendants' alleged negligence are included in the statement of claim but they are all for present purposes to the same or similar effect. 5The defendants have pleaded in their amended defence filed on 31 October 2012 that they are immune from suit in accordance with the principles relating to advocate's immunity. They contend that the work done by them pursuant to their retainer from the plaintiffs was done either in court or alternatively out of court but in circumstances that led to a decision affecting the conduct of the case in court or intimately connected with work in court. Several other bases upon which the defendants have responded to the plaintiffs' claim are not presently relevant.

The issue 6The effective point of difference between the parties that arises in these circumstances emerged in the course of argument. It is quite clear and easily stated. It calls forth the need at an early stage to identify with precision what is meant by "the controversy that has been quelled" in the proceedings out of which the negligent conduct is said to arise or from which it is said to flow. 7The plaintiffs contend that their liability as guarantors to the bank was not, and could never have been, for any amount greater than $1.75M. That is the amount for which they were sued in that capacity. To put that in context, if they had not defended the bank's claim against them as guarantors or had not employed lawyers to represent them for that purpose, the bank could not have obtained any judgment against them in default of their appearance for any amount greater than that sum. The controversy that was joined for determination in the proceedings, and which was quelled by the consent orders that were made, was whether or not the plaintiffs as guarantors were liable for that sum at most. It was on this reasoning no part of the controversy that was quelled by the making of the consent orders and the entry of judgment against them that the plaintiffs were, or could have been, liable for any amount greater than that. The issue of the plaintiffs' liability to the bank for any sum exceeding $1.75M was accordingly collateral to the issues in dispute in the proceedings and therefore something that may permissibly be visited in the current proceedings. It was in that sense not an issue that was being revisited or relitigated because it never formed part of the original litigation in the first place. 8The defendants' response to that proposition is to say that the issue or controversy in dispute that was quelled by the making of the consent orders and the entry of judgment against the plaintiffs was their liability to the bank as guarantors. On this approach, the quantum for which the bank sued the plaintiffs, or the existence of any limitation or ceiling upon the amount for which they could have been made liable, was irrelevant. By agreeing to the consent orders and to the entry of judgment for the greater amount, the plaintiffs agreed that their liability to the bank as guarantors was for the larger sum. That judgment cannot be revisited, dissected or relitigated in these proceedings.

The relevant principles 9The principles governing an advocate's immunity from suit are not in contest. They were stated in Giannarelli v Wraith [1988] HCA 52; (1988) 165 CLR 543 and confirmed in D'Orta-Ekenaike v Victorian Legal Aid [2005] HCA 12; (2005) 223 CLR 1. More recently the Court of Appeal revisited the relevant principles in Donnellan v Woodland [2012] NSWCA 433. In summary they would appear to be as follows. 10An advocate cannot be sued by his or her client for negligence in the conduct of a case, or for work performed out of court that is intimately connected with the conduct of a case in court. Where a legal practitioner gives advice that leads to a decision that affects the conduct of the case in court, the practitioner cannot be sued for negligence on that account. The immunity extends to work done out of court that leads to a decision affecting the conduct of the case in court. Neither a barrister nor a solicitor may be sued by a client in respect of any conduct in the making of preliminary decisions affecting the way in which the case is to be conducted when it comes to a hearing. The immunity applies to the conduct of a solicitor as well as a barrister if the conduct otherwise qualifies for immunity. There is no difference between instructions given based upon negligent advice and the negligent carrying out of instructions if both are intimately connected to the conduct of the litigation. Advice in relation to the settlement of proceedings that leads to a settlement of a matter during the hearing falls squarely within conduct protected by the immunity. Advice that leads to a settlement prior to a hearing is also covered, whether or not court orders are made.

The defendants' submissions 11Applying these principles, the defendants contended that the answer was plain. The advice given by the defendants led to a decision by the plaintiffs concerning the conduct of their case and to the decision to settle in accordance with what became the consent orders. That advice was intimately connected with the course of the proceedings and resulted in the judgment in favour of the bank against the plaintiffs for almost $3.4M. That was sufficient to dispose of the whole of these proceedings in favour of the defendants. 12The defendants relied in particular on what was said by Mahoney JA in Donellan v Watson (1990) 21 NSWLR 335 at 338 as follows: "I am conscious also that the question may arise as to the action of an advocate in the settlement of a case outside the court. In Swinfen v Lord Chelmsford...the court considered the liability of an advocate who compromises a proceeding contrary to his client's instructions. Ordinarily, such a compromise, even if the consensus be reached out of the court, is within the immunity. If the advocate, in court, secures an order based on the compromise, he will, I think, not be liable, notwithstanding that the making of the agreement and so the obtaining of the order was contrary to his instructions. I do not see the present case as inconsistent with this. It is concerned, not with negligence in the failure to carry an authorised compromise into effect." 13The defendants submitted that his Honour in that case was, in effect, distinguishing the case before him from the circumstances attending the settlement in the present case. The defendants relied upon Donellan as fortifying their contention that the immunity should apply here. 14In Gattellaro v Spencer [2010] NSWSC 1122 at [112], Hislop J said this: "[112] It is clear from Giannarelli and D'Orta that the immunity attaches to omissions as well as acts by legal practitioners. An omission to consider or fully consider matters such as the extent of instructions, the defences to be pursued, the adequacy of pleadings, the seeking and interviewing of potential witnesses, the settling of the proceedings are within the immunity. The immunity is applicable in cases involving a failure by a practitioner to turn his or her mind to a particular matter - see Keefe v Marks at 718." 15The defendants also referred to Chamberlain v Ormsby [2005] NSWCA 454 at [120].

The plaintiffs' submissions 16According to the plaintiffs, the following question requires a response: is the defence of advocate's immunity a complete answer to a claim against a solicitor for negligent advice in relation to the formation and legal effect of a contract that is made after a court has been informed that the proceedings before it have been settled, when the relevant terms of the contract and the impugned advice relate to matters that were not in issue in the proceedings that are said to give rise to the defence, and the terms of the contract are recorded in "consent orders"? 17Mr Kelly of senior counsel for the plaintiffs reasoned as follows. It is now established that the rationale for the defence of advocate's immunity is the principle of finality, which dictates that the issues between the parties to legal proceedings, once resolved, may not, as a matter of policy, be permitted to be re-litigated, except in a few narrowly defined circumstances, broadly described as the appeal process. That principle is fundamental to the role of the judicial branch of government and underpins a number of other legal doctrines. In D'Orta-Ekenaike at [34]-[35] Gleeson CJ, Gummow, Hayne and Heydon JJ said this: "[34] 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. That tenet finds reflection in the restriction upon the reopening of final orders after entry and in the rules concerning the bringing of an action to set aside a final judgment on the ground that it was procured by fraud. The tenet also finds reflection in the doctrines of res judicata and issue estoppel. Those doctrines prevent a party to a proceeding raising, in a new proceeding against a party to the original proceeding, a cause of action or issue that was finally decided in the original proceeding. It is a tenet that underpins the extension of principles of preclusion to some circumstances where the issues raised in the later proceeding could have been raised in an earlier proceeding. [35] The principal qualification to the general principle that controversies, once quelled, may not be reopened is provided by the appellate system. But even there, the importance of finality pervades the law. Restraints on the nature and availability of appeals, rules about what points may be taken on appeal and rules about when further evidence may be called in an appeal (in particular, the so-called 'fresh evidence rule') are all rules based on the need for finality. As was said in the joint reasons in Coulton v Holcombe: '[i]t is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial'." 18The plaintiffs contend that where a separate question of the variety contemplated by the Court of Appeal in Donnellan v Woodland has been ordered, the correct approach, conformably with principle, is as follows:

First, to identify the issues in the proceedings that are said to give rise to the controversy that has been quelled (the first proceeding).
Secondly, to identify the issues in the proceedings in which the immunity is claimed to be available (the second proceeding).
Thirdly, to compare the two in order to determine whether and if so to what extent permitting the issues sought to be raised in the second proceeding would cause the issues raised in the first proceeding to be re-litigated.
Fourthly, to allow the defence of advocate's immunity in relation to those issues which, if permitted to be raised, are found to offend the principle of finality by causing an issue that has been resolved to be re-litigated.
Fifthly, to reject the defence in relation to any issue that does not have that effect, provided the plaintiff still has a viable cause of action.
Sixthly, when approaching the matter in that way, (i) to have regard to substance, not form; and (ii) if the claim arises out of pre-trial work not occurring during the course of the hearing of the first proceeding (i.e. work done out of court, in the Giannarelli sense), to reject the defence in any event if it is not "intimately connected" with those proceedings (i.e. did not lead to a decision affecting the conduct of the proceedings in court). 19That approach was taken by the Court of Appeal in Bott v Carter [2012] NSWCA 89 (upon an application to dismiss the second proceeding under UCPR 14.4(1)(b)), where Basten JA (with whom McColl JA and Whealy AJA agreed) said at [21]-[23]: "[21] Much attention has been paid over the years to the scope of the advocate's immunity, commencing in modern times with Rondel v Worsley [1969] 1 AC 191. It has routinely been held to extend to pre-trial work not occurring in the course of a hearing, but which is described as 'intimately connected' with the conduct of the hearing: Rees v Sinclair [1974] 1 NZLR 180 at 187 (McCarthy P). It did not apply to a failure to take steps to commence litigation against a putative tortfeasor within the limitation period: Saif Ali v Sydney Mitchell & Co [1980] AC 198. These decisions were followed in Australia: Giannarelli v Wraith [1988] HCA 52; 165 CLR 543. [22] However, there was over the years on-going debate as to the true foundation of the rule and criticism of the imprecision, in relation to work done out of court, of the language of 'intimate connection' or, as expressed by Mason CJ in Giannarelli at 560, 'work done out of court which leads to a decision affecting the conduct of the case in court': see Attard v James Legal Pty Ltd [2010] NSWCA 311 at [5]-[8] (Giles JA). These issues were reviewed by the House of Lords in Arthur J S Hall & Co v Simons [2002] 1 AC 615, the separate advocate's immunity being abandoned in favour of reliance on principles of abuse of process which were held to underlie the legitimate operation of the immunity. That course has been followed in New Zealand: Lai v Chamberlains [2006] NZSC 70; [2007] 2 NZLR 7. [23] A similar reconsideration of basic principle has been undertaken in Australia, but with the result that the doctrine of the advocate's immunity has been retained: D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; 223 CLR 1. However, the justification is now soundly rooted in a principled approach to the fundamental need in the administration of justice for finality of judicial determination, subject only to constitutional requirements found in the entrenched supervisory jurisdiction of the High Court and State Supreme Courts and statutory provisions for appellate or other forms of review. Those roots (which also form the basis of at least one aspect of abuse of process) will inform the scope of the rule, in particular in relation to pre-trial activities and omissions. The scope of the immunity is no longer to be determined by differences in language but by the tendency of the claim to result in re-litigation of a controversy which has been quelled." 20Donellan was a case of negligent compromise of appeal proceedings leading to loss of benefits obtained at first instance. It is referred to with approval by McHugh J in D'Orta-Ekanaike at [156] as an example of a case in which the immunity was held not to apply. Relevantly, Mahoney JA (with whom Waddell AJA agreed, Handley JA deciding on other grounds) said at 337: "The present case does not fall within the rationale of the reasons for which the immunity is given. In Ginannarelli v Wraith, Mason CJ referred to the particular nature of the advocate's responsibility when he appears for a client in litigation and to the adverse consequences of re-litigation of issues determined in a court proceeding (at 555): see also Saif Ali v Sydney Mitchell and Co [1980] AC 198 at 212 per Lord Wilberforce, at 235 per Lord Keith of Kinkel. In the Saif Ali case, Lord Diplock expressed the opinion that some matters of this kind may fall outside the rationale and so the operation of the immunity. His Lordship (at 223E) said: 'A similar objection, it may be mentioned, would not apply in cases where an action has been dismissed or judgment entered without a contested hearing, and there is no possibility of restoring the action and proceeding to a trial. If the dismissal or entry of judgment was a consequence of the negligence of the legal advisers of a party to the action, a claim in negligence against the legal advisers at fault does not involve any allegation that the order of the court which dismissed the action or entered judgment was wrong'." 21In the present case, there was no claim against the plaintiffs for the full amount of almost $3.4M for which the bank sued the principal debtor. In the first proceeding, the bank sued the plaintiffs as guarantors of the indebtedness of the company and their maximum liability in that capacity, as certified by the bank, was in the order of $1.75M. Even that amount was not in issue in the first proceeding as a certificate of the relevant bank officer was admitted without objection during the opening by counsel for the bank. 22Similarly, there is no issue in these proceedings that the plaintiffs are liable to the bank for almost $3.4M. The judgment of the Court in that sum, entered on 16 June 2010, is not called into question in any way in these proceedings. Nor is the certificate. On the contrary, the plaintiffs rely upon the judgment for almost $3.4M and the certificate in order to calculate their loss. 23The plaintiff contended that once the issues in the two proceedings have been identified in this way, it is plain that no issue in the first proceeding is being re-litigated in these proceedings. The principle of finality is not offended in any way and the defence of advocate's immunity is therefore not available. 24Senior counsel for the plaintiffs sought to emphasise his contentions by reference to the following analogy. He posited the existence of proceedings between parties in which the central issue involved a contest concerning their respective beneficial interests in properties of which one or other of them was the legal owner. If the proceedings were ultimately settled upon terms that allocated some properties to one party and the remaining properties to the other party, neither could later complain that legal advice to compromise the litigation in that way was negligent because, for example, they allegedly received less than a fair share of the joint pool of distributable assets. Such a claim would be protected by advocate's immunity. 25On the contrary, according to this analysis, it would be possible to sue a legal practitioner who acted on the settlement for failure to advise about such things as the GST or capital gains or income tax implications of compromising the proceedings in that way. It is unnecessary for the purposes of this example to express a view about the likelihood of success of such proceedings. It is sufficient to observe that, according to the plaintiffs, the claim would not be immune from suit upon principles relating to advocate's immunity, because the issues of GST or capital gains or income tax were never issues being litigated in the property proceedings. A claim against the relevant legal practitioner for negligence alleging a failure properly to advise about those issues would in no sense be a re-litigation of any issue that was alive or in contest in the earlier proceedings. The tax issues are wholly collateral to those proceedings. The sanctity of the settlement is not called into question. No re-litigation of anything is involved and no principle of finality is offended.

Consideration 26The key to arriving at the correct answer seems to me to lie in ensuring that the right question is being asked. As earlier discussed, the plaintiffs contend that the question called up for consideration in the earlier proceedings was whether or not the plaintiffs were liable for $1.75M as guarantors of the company's obligations to the bank. There was no question in the proceedings that they were ever liable, nor was any claim made, for a sum greater than that. In contrast, the defendants contend that the proper question was the more general issue of what was the plaintiffs' liability to the bank as guarantors of the company's liabilities. As the consent orders and the judgment confirm, that liability was agreed by the plaintiffs to be almost $3.4M. 27This is not a case where the fact of the settlement per se is the matter complained of by the plaintiffs. It is apparent that the plaintiffs intended to settle the proceedings and gave instructions and accepted advice concerning it. What is in issue are the terms of the consent orders upon which the proceedings were settled and in accordance with which the judgment that was entered against the plaintiffs. 28The plaintiffs maintain that they do not seek to impugn the judgment below but that on the contrary they embrace it as an important indicator against which to measure or calculate their loss. In my view, that contention is apt to mislead. The plaintiffs do in fact seek to assert that the judgment that was entered against them is not an accurate reflection or measure of their liability to the bank. They seek to set up in these proceedings an argument that they are entitled to damages from their solicitors because the judgment is wrong. That necessarily raises the spectre of disputed evidence about what transpired in the circumstances and events leading up to the entry of the judgment and the plaintiffs' anterior agreement to the consent orders. It is only necessary to observe, in order to test that proposition, that the plaintiffs in these proceedings will be asserting that the judgment in the earlier proceedings is wrong and does not represent their genuine liability to the bank, whereas the defendants will be asserting that the judgment in the earlier proceedings is correct and by force of that judgment unquestionably establishes the plaintiffs' actual legal liability to the bank. 29I am not satisfied that the plaintiffs' analogy, and hence their fundamental proposition, withstands scrutiny in any event. The tax or revenue implications of the hypothetical settlement referred to in the example given were certainly not issues in the suggested case and it would not have become necessary to quell any formal controversy about them. It remains the fact, however, that any complaint against the legal advisers for committing the client to the settlement in the circumstances is a complaint that he or she would in effect not have entered into the settlement but for the negligent or absent advice. Advice on tax or revenue matters may have been collateral to the main issues in the putative proceedings but it was not thereby necessarily collateral to their compromise. A claim against lawyers in such circumstances arguably raises the prospect, if not the certainty, of a re-litigation of the facts and matters that led to the settlement. Such advice as may or should have been given concerning the wisdom of the settlement must be advice given out of court that was intimately connected or concerned with the conduct of litigation in court. As such it would fall within the scope of the relevant immunity. 30I was not referred to any authorities in which the plaintiffs' particular proposition was specifically applied or exposed. However, in Bott v Carter, to which I was referred, Basten JA observed at [33] that "the only question arising in the present case [was] the extent to which the appellant [could] identify issues which do not involve reagitation of the District Court trial and judgment." His Honour proceeded to examine the contentions on that topic and concluded that "[n]o claim of loss falling outside the scope of the immunity [had] been identified." 31In Biggar v McLeod [1978] 2 NZLR 9, Richardson J commented at 14 in these terms: "Advice on settlement of a cause, during trial, is as much an incident of the conduct of the trial as advice on and decisions as to the calling of witnesses and other matters, which, although not necessarily given and made in the courtroom, cannot in a practical way be severed from and dissociated from the conduct of the cause by the barrister in the presence of the judge." 32The present case is not one in which, as in Donellan, the defendants gave effect to a settlement that was in terms different to the settlement that they had been instructed to effect. The plaintiffs in this case, albeit arguably influenced by negligent advice, consented to the compromise of the proceedings on the very terms that resulted in the judgment of the court. The genuineness of that consent is immune from reconsideration at the defendants' expense if the judgment in which it resulted is itself otherwise invulnerable to challenge. I do not consider that the plaintiffs' claimed losses, subsisting in their liability to the bank for any amounts in excess of their certified obligations as guarantors, fall outside the scope of the defendants' immunity. 33Notwithstanding all of the above, there remain at least two related matters that in my opinion are particularly troubling in this case, and which directly intersect with the way in which I am able to dispose of this application. The first matter is the apparent or potential strength of the plaintiffs' allegations that the defendants have been negligent. As I have already commented, the plaintiffs would have been substantially better off if they had simply not defended the proceedings. The predicament that the judgment created for them is difficult to explain but even more difficult to understand. It is also difficult not to have a sense of unease about the possibility that an egregious error may go without the prospect of a remedy. 34The second matter, however, is that it is not possible in a fair and reasoned way to assert the first without a proper inquiry. As was observed by Beazley and Giles JJ in Symonds v Vass [2009] NSWCA 139, the question of whether advocate's immunity applies in a given case cannot be determined without proper findings of negligence. Whether advocate's immunity applies depends upon a clear understanding of what occurred and of the respect or respects in which there was negligence, which is something that cannot and should not be determined on a hypothetical basis. 35I acknowledge that the orders made by Schmidt J for this issue to be determined as a separate matter were made by consent. I remain troubled, however, that it is not possible to form a concluded view about whether or not an examination of the plaintiffs' liability to the bank over and above their certified liability as guarantors of the company's obligations will or may "identify issues which do not involve reagitation" of the judgment entered by consent by Rein J. I have been provided with an expansive statement of agreed facts for my purposes, but the allegations of negligence against the defendants cannot be usefully assessed or determined without considerably more material. Without being exhaustive I can well imagine that such extra material would necessarily include evidence from the plaintiffs with respect to their discussions with and instructions to the defendants, as well as the advice that they received, leading up to and concluding with the settlement. 36As Giles JA said in Symonds at [15] and [41]: "[15] Ordinarily the correct application of advocate's immunity would be left for the new trial, to be determined upon the findings of negligence. ... [41] ... It may be that any negligence in that central respect would attract advocate's immunity. But I do not think that it can safely be concluded, on what amounts to an hypothetical basis, that negligence in all respects alleged by the appellants falls within advocate's immunity." 37It follows that the view that I have expressed, that advocate's immunity does apply in the circumstances of this case, is a view arrived at upon what is predominantly an hypothetical basis. For example, I do not know what evidence might emerge at a final hearing concerning the advice that was sought or given about the settlement, whether relevant matters were adverted to or overlooked, whether the settlement reflected the terms that were explained to the plaintiffs or whether they were explained at all. I have no way of knowing whether the plaintiffs' liability as guarantors for the $1.75M was in some or any way discussed or considered in the course of advice to settle. I have not seen documents from the defendants' file in the original proceedings that may cast light on the issue one way or the other. Despite the preliminary and unfavourable (but admittedly hypothetical) opinion I have formed generally about the defendants' conduct as professional legal advisers to the plaintiffs at the time, it is obvious or at least prudent that I should not attempt to arrive at any final or concluded view on their prima facie liability in negligence, more so that I should not presume to act upon such a view, in order finally to evaluate the advocate's immunity defence. A comprehensive exposure and understanding of the negligence case against the defendants is likely reliably to inform the outcome of the advocate's immunity question, which should not be decided without it. 38In these circumstances, and having regard to the unease that I have regarding the force of the plaintiffs' concerns and the presently unresolved allegations that they have made, I do not consider that I can or should finally decide the question of whether their claim is defeated entirely upon the basis that the defendants are immune from suit.

Conclusions and orders 39In my opinion the proper course in the circumstances is to make no order. I will hear the parties on that question if required. It is also appropriate in these circumstances that the costs of the separate hearing before me should abide the outcome in the proceedings. The order that I propose is therefore that the costs of the separate application before me should be the costs in the cause.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 May 2016

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