JUDGMENT OF: MASON P; BEAZLEY JA; FITZGERALD AJA

Negligence - solicitor and client relationship - workers compensation rights extinguished by settlement - client advised of this immediately prior to giving instructions to settle - communication of advice in writing not essential

MASON P: This is the judgment in the matter of Burt and Ware. In September 1986 the respondent was injured in a motor vehicle accident. He was on a periodic journey from his place of residence to his place of employment at the time.

The appellants are solicitors who were retained by the respondent shortly after the accident. They challenged Judge McLachlan's finding of liability for professional negligence relating to the settlement of third party proceedings brought by the respondent against the Government Insurance Office (GIO), the insurer of the allegedly negligent driver of the other vehicle.

The action was commenced in the Parramatta District Court on 22 October 1986 and settled for the sum of $75,000, inclusive of costs, on 25 September 1987. The respondent received the net sum of $46,259 after deduction of medical expenses, legal fees and other deductions including the sum of $687.82 paid to the respondent's workers compensation insurer.

The GIO's insured had crashed into the rear of the respondent's motor vehicle which was stationary at the time. The respondent was wearing a seat belt. Accordingly it was found by the learned primary judge that the third party proceedings were effectively a dispute about quantum of damages, with no likelihood of a discount for contributory negligence.

Not only did the settlement of the third party proceedings terminate the respondent's so called common law rights arising out of the negligence of the GIO's insured, but it also terminated the respondent's right to recover further compensation pursuant to the Workers Compensation Act. It was common ground at the trial in the present proceedings that a reasonably prudent solicitor would have advised a plaintiff in September 1987 that settlement of a claim for damages would terminate the right to future payments of workers compensation. The appellant's case was that this advice was given. The respondent's primary case was that he had been advised the very opposite.

The third party proceedings were settled on the respondent's written instructions, and in the teeth of advice from Mr Burt, the appellant, and from Mr Mulligan, counsel retained by the appellant's on the respondent's behalf. That advice was based on the view that the respondent's medical condition had not stabilised and that the indications were that a considerably higher sum was likely to be recovered.

In a written memorandum Mr Mulligan had expressed the opinion that "the plaintiff's claim, if litigated, is worth about $125,000, inclusive of costs, and certainly more with a generous judge".

Mr Mulligan of counsel had had a pretrial conference with the respondent on 1 July 1987. Mr Burt was present. The respondent's main injuries were to the neck and back. At that stage a discogram had revealed significant disc damage to the respondent's spine at the level of L4-S1, and L5. Arrangements had been made for Dr Bannister to perform an exploratory operation and spinal fusion if appropriate.

In oral advice, carefully confirmed in a memorandum dated 7 July 1987, counsel had advised that it would be most unwise to settle at that stage. However, as he recorded in that memorandum, it was already apparent that the respondent was very anxious to settle, having regard to his personal financial position at the time.

On 17 September 1987 the GIO offered to settle for $70,000, inclusive of costs. This offer was obviously communicated promptly to the respondent. Counsel provided a written memorandum reconfirming his advice not to accept the offer. It was there that he recorded his opinion about the value of the respondent's claim, as it appeared to him at the time. Counsel asked his instructing solicitor to show the memorandum to the client, prior to the client considering the GIO's offer of settlement.

Subsequently, Mr Burt conferred with the respondent at his office. It was on 25 September 1987. At that conference the respondent was shown the written memorandum from counsel, a document which he signed. The respondent confirmed his instructions to settle on the figure which at that stage appears to have risen to $75,000, confirming those instructions by signing a two page settlement sheet addressed to his solicitors. That sheet authorised acceptance of the offer and noted that various deductions totalling approximately $29,000 would be made, leaving "clear to me the sum of approximately $46,000".

The settlement sheet contained the following paragraphs:

I acknowledge that I have been advised both by my solicitor and barrister that under no circumstances should the above offer be accepted as it is in their opinion not enough money and not enough time has elapsed since the accident and my back operation for my case to be properly assessed. I have been informed that as a result of my accident and back operation in my solicitors and barristers' opinion my condition may not improve and could worsen which could in theory prevent me from ever working again.

My solicitor has advised me according to advices of a general nature that he has received from the Department of Social Security I will be prevented from claiming any social security payments or benefits until the time that it would have taken me to receive $18,500 (GIO assessment for future economic loss) however it will be up to the Department of Social Security in its own discretion to assess this period of disqualification from benefits.

In a reserve judgment Judge McLachlan noted that the respondent's main submission at trial was that the appellants (predominantly Mr Burt, who had the conduct of the matter) did not advise him at the time of settlement that by accepting the settlement he would extinguish his workers compensation rights.

In his evidence the respondent acknowledged that one of the factors in the settlement, so far as he was concerned, was that he needed money because of his financial situation at the time. He acknowledged that he was advised that there would be a deduction in respect of workers compensation payments made, but he said that he was not told by Mr Burt that his workers compensation rights would be extinguished. Indeed, he said that he had, prior to settlement spoken to "someone at the Workers Compensation Commission", who said that if he settled his third party claim, he would still retain his workers compensation rights. He said that he put that to Mr Burt who confirmed that position.

Mr Burt in his evidence made it clear that the reason for the settlement, despite advice to the contrary from both counsel and himself, was that the respondent was in financial difficulties. He recalled that he explained that the respondent would lose his workers compensation rights. He recalled using the phrase, "the settlement extinguishes your rights", at the time the plaintiff signed the authority that has been referred to. The plaintiff said, according to his evidence, "I will take the chance, I want the money".

The trial judge's critical findings were expressed in the following terms:

I must express some doubt as to the credibility of the Plaintiff and/or that time has persuaded him that some things happened where in fact they did not. I accept that either Mr Mulligan or Mr Burt or both advised the Plaintiff verbally that the settlement would extinguish his rights to workers compensation. That, unfortunately - in my view - does not save Mr Burt from the finding I have made. The best way of protecting his position would have been to say something in the authority Exhibit "O" or, at the very least, a note on the file in very specific terms that he had advised the Plaintiff.

Lest it be thought that I am of the opinion that Mr Burt is incompetent, I say that I accept him as a competent and experienced solicitor and I prefer his evidence to that of the Plaintiff. He just failed to communicate with the Plaintiff in writing as to that very crucial legal position. If we look at paragraph 9(d) of the Statement of Claim, we see that word "adequately".

The second sentence of the passage just quoted is somewhat tentative as to whether Mr Burt, as distinct from Mr Mulligan, gave the requisite advice about loss of workers compensation rights. However the second paragraph that I have just quoted, appears to accept Mr Burt's evidence that such advice was given by him. In any event, he was in the circumstances of this case, entitled to take advantage of the fact that the advice was given in his presence by counsel retained by him.

The critical question becomes therefore whether the failure to communicate with the respondent, in writing, was vital, as the judge inferred. The respondent does not suggest that written advice was essential. In my view such a proposition would be quite untenable. I do not think that this is what the judge was suggesting, although the passage that I have just quoted is a little ambiguous on the point. Rather, counsel for the respondent submits that the judgment should be understood as carrying the implicit finding that the absence of writing in this particular case was the reason why the oral advice, given by one or both of the two lawyers, was not understood by the client.

The difficulty for the respondent is that the judgment contains no finding on the critical issue of the respondent's understanding of what he was told. The mere fact that the respondent, to put the matter at its highest, may have been honestly confused as a witness at trial in 1997, does not establish, or even imply that this confusion was evident, or ought to have been evident to his solicitor in discussions that took place in September 1987. There is no suggestion that the conference on 25 September, at which final instructions were taken, was a rushed event. It is true that the respondent was in the normal position of stress in which a client, faced with an offer of settlement, is placed, and it is also true that he had the pressure of the financial imperatives that were driving him to reject the advice of his two lawyers.

Nevertheless, these factors do not indicate that any evidence of that confusion would have been apparent while the advice was being given about the settlement.

If one accepts that the relevant information concerning the loss of workers compensations rights was conveyed, in the language of the hearer, at a conference where the solicitor was at pains to dissuade the client from settling, then it is difficult to see the factual basis upon which the inference of inadequacy of advice could properly rest.

During argument, Justice Fitzgerald suggested to counsel for the respondent that there was no evidence that the solicitor had cause to suspect that the advice which was held to have been given in words of plain English was not understood by the client. As I understood his submissions, Mr Sexton made two responses to this suggestion. One response was to rely on the respondent's oral evidence, though rejected in terms, as evidence of the clients misunderstanding about the true position. I am far from convinced that this attempt at resuscitation is open on the pleadings, or the way the case was fought at trial, but, in any event, there is no finding to support the respondent on this issue and I am not prepared to infer the conclusion, in the light of the particular facts which I shall address in the context of answering the second response made by counsel to Justice Fitzgerald's question.

Mr Sexton's second response was to rely on the conversation evidenced in a telephone message note, a note obviously made either by Mr Allen, or by an employee of the of the firm. That note is addressed to Chris (ie Mr Burt). It records a telephone call from the respondent, made on 21 September 1987. The details of the recorded message are, "been in contact with social security, workers comp section, will settle for $70,000". This file note is said to corroborate in part the oral evidence of the respondent (see black appeal book at 10 and 11) where he said that he had spoken to someone at the Workers Compensation Commission at Parramatta, and where he said that he was told that if he "did take the third party settlement, that he still had the right to take the workers comp out".

The respondent was adamant that he had later discussed this conversation with Mr Burt. It is quite improbable that a representative of the Workers Compensation Commission would have given such patently wrong advice. It is also improbable that Mr Burt would have acquiesced in such advice. The respondent's evidence was not accepted on this issue and that finding is effectively unappealable, being based as it is upon a properly arrived at credibility finding that is supported by the probabilities.

However the respondent still has the file note. Does its message convey the warning bells of a confused client? I think not. I think that the probabilities firmly support the conclusion that what the respondent was telephoning about on 21 September 1987, was a conversation that he had had, not with a representative of the Workers Compensation Commission, but rather with a representative of the Department of Social Security. There is some indication on the evidence that the Department of Social Security had a compensation branch, (see black appeal book 86f). Be that as it may, what is clear is that the respondent, as well as his lawyers, were concerned to get information about the impact of the settlement of any claim, and in particular the third party claim, upon the social security rights of the respondent. Given that the respondent was quite severely disabled and unable to work it was apparent to all that he was entitled, subject only to the compensation and damages claims, to receive sickness benefit. There is correspondence from the Department of Social Security to the appellants in May 1987, discussing that very topic in the context of "workers compensation claim and third party".

In my view the inference properly to be drawn from the telephone file note was that the respondent was conveying the result of information he had gleaned from the Department of Social Security in relation to the impact of a settlement of the third party claim upon his right to sickness benefits. What confirms me in that view is the fact that the settlement sheet which I have already quoted from, contains the paragraph, which has been quoted, which specifically adverts to the advice about the impact of the settlement upon the right to claim any social security payments or benefits until the time that it would have taken the respondent to receive $18,500 (GIO assessment for future economic loss).

If therefore, that was what the respondent was conveying in his telephone call on 21 September, and that was what the solicitor properly understood him to be addressing, then it cannot be prayed in aid as an indication of a warning bell of confusion apropos the situation of the impact of the settlement upon workers compensation rights.

Accordingly, I am of the view that the trial judge was in error in finding that there was negligence in a situation where he had found that the advice had been conveyed immediately prior to the settlement instructions being given to the effect that settlement would extinguish the workers compensation rights of the respondent. I am not suggesting that a solicitor does not have a responsibility to ensure that advice is communicated and received and understood, but that responsibility is not that of the insurer, it is the responsibility of taking reasonable care to see that appropriate advice is conveyed. Here such care was taken, or to put it more correctly, it was not established that there was a lack of care in circumstances where the advice was orally conveyed immediately prior to the settlement instructions being taken.

For these reasons I propose that the appeal be upheld, that the cross appeal which was related to damages be dismissed, that the judgment and orders of 3 November 1997 be set aside, that in lieu thereof there be a verdict for the defendants in the proceedings below. I propose that the respondent be ordered to pay the appellant's costs of the proceedings in the Court of Appeal and to have a certificate under the Suitors Fund Act, if qualified. The one amendment I would make to those proposed orders would be an order that there be a verdict for the defendants, with costs.