Carew Counsel Pty Ltd v French [2002] VSCA 1

Carew Counsel Pty Ltd v French [2002] VSCA 1 - VSCA 2002 case summary — Zoe

[4]

The appeal arises from a proceeding by the plaintiff/respondent (whom I will call "French") in proceedings No. 785 of 2000 in the County Court by which he alleged a negligent breach of retainer by the defendant/appellant (whom I will call "Carew Counsel"). There was a separate claim by Carew Counsel for payment of outstanding professional fees arising out of a common law proceeding by French against Guan Hy (proceedings No.9707194) for personal injuries which had been suffered by French in a transport accident on 18 August 1990. Those proceedings had been brought pursuant to the relevant provisions of the Transport Accident Act 1986 in the course of which the defendant's interests had been represented by the Transport Accident Commission (the "TAC"), which was, pursuant to the Act, the statutory insurer. In those proceedings, which had been commenced in or about 1996, Carew Counsel had acted on behalf of French both in respect of an application to a County Court judge for leave, pursuant to s.93(4) of the Transport Accident Act, to bring common law proceedings for "a serious injury" and in respect of the subsequent personal injury claim. On 21 October 1998 the common law personal injury claim was compromised on terms that included the payment by TAC to French of $185,000, retention of benefits already paid, plus costs to be taxed. Following the settlement of the claim, the settlement sum remained in the hands of the TAC abiding competing claims made in respect of it by creditors of French. Ultimately, on 5 March 1999 (and after French had been declared bankrupt), an amount of $102,582.95 was ordered by a County Court judge to be paid into court to abide the claims, including a claim by Carew Counsel for unpaid solicitor/client costs. The sum represented the balance of settlement monies (not including party/party costs) after deduction of various amounts in circumstances to which I will hereafter refer. (The amounts so paid into court on the directions of the County Court judge will be referred to as "the fund".)

[44]

The major issue raised on this appeal by counsel for the appellant went to the question of whether the judge was in error in finding that Carew Counsel was negligent in failing to advise Testart of French's "declaration of intention". The facts upon which the learned judge made his findings were not in dispute and it is not suggested that this Court is not in as good a position as the trial judge to determine that issue for itself (see Warren v. Coombs & Anor.[1]). Appellant's counsel submitted that, in making his findings of negligence, the trial judge failed to address the principal argument which had been put to him on behalf of Carew Counsel in the course of the trial. Essentially that argument was that in the circumstances which obtained in this case - namely that the TAC was the person holding the monies on behalf of French and was, accordingly, the person with the capacity to do damage to the interests of French by deducting sums from the money held and paying it to creditors - the only reasonable and prudent step which a prudent solicitor acting in French's interests could and should have taken was to take advantage of s.54H of the Bankruptcy Act and to immediately send a sealed copy of the notice of declaration of intention to the TAC. The prudent solicitor was entitled to expect, so the submission ran, that the TAC would comply with the provisions of that section during the "stay period" and refrain from deducting monies from the "settlement sum" being held on behalf of French, and also refrain from paying monies retained or so deducted to Testart or, indeed, to any other person than French. The submission of Carew Counsel continued that a prudent solicitor could not be expected, in the circumstances of urgency to which I have referred, to send a copy of the intention of declaration to a creditor who, at that time, had taken all the necessary steps to enforce payment of a debt owed to it. This was so, it was submitted, because, if in defiance of the Bankruptcy Act, the person in control of the debtor's damages chose to deduct sums and pay them to such a creditor, the receipt of that sum and the banking of it by that creditor would not be an infringement of s.54E(2)(b) of the Bankruptcy Act. Further, it was submitted to this Court (although not to the judge) that s.54E did not operate to prevent Testart from banking the cheque received from the TAC because it was a "secured creditor" within the meaning of s.54L of the Act. In any event, it was submitted, the failure to provide the copy of the declaration of intention to Testart did not, relevantly, cause loss to French because, even if Testart had returned the cheque to the TAC it would (having regard to its own advices) have either sent it back to Testart or paid it into Court. Indeed, in considering French's claim for losses accruing to him on account of the negligence of Carew Counsel, his Honour had said:

[49]

For my own part, I think there is force in the contention which has been made by appellant's counsel to this Court. His Honour appears not to have recognised the force of the submission made to him that the TAC was, or might reasonably be regarded as, a person entitled, inter alia, under a law of the State "to retain or deduct money from money payable or owing to the debtor" and to apply such monies towards discharging "a frozen debt" owed by a debtor to a person and, as such, was bound to refrain from (inter alia) paying monies to persons other than the debtor or applying monies so retained or deducted. In my view, the appellant's counsel is correct in contending that his Honour focussed his attention too narrowly upon the provisions of one particular section of Division 2A of the Bankruptcy Act (namely s.54E) to the exclusion of the impact of s.54H and, in doing so, assessed the reasonableness of the conduct of Carew Counsel upon an erroneous basis. In the limited time span available to the solicitor, it seems to me to have been eminently reasonable that he should send the notice of declaration of intention to the person who was in control of the settlement monies of the debtor rather than to a creditor in the position of Testart who, as his Honour recognised, "was not a creditor who was by then [i.e. 6 November 1998] attempting to enforce a remedy against a debtor's personal property as provided for by s.54E(2)(b) of the Bankruptcy Act". As his Honour said, by that stage, "Testart had already served the garnishee order on the TAC and there was nothing more for them to do". It seems to me that, in those circumstances, the reasonable and prudent step to be taken by the solicitor - acting on the instructions of his client and in accordance with those instructions - was to ensure that the person holding and controlling the settlement monies should be the person to whom the notice of declaration of intention should be produced, so that those monies were preserved intact. That person, after all, was also a lawyer who could reasonably be expected to comply with the provisions of the Bankruptcy Act. Indeed, as his Honour said when assessing the value of the work done by the solicitor after the settlement of the common law proceedings:

[61]

The exquisite difficulty of the situation confronted by Mr. Williams of Carew Counsel in the tight time frame available to him has been underlined by the competing submissions made by counsel for the respective parties both before the judge and before us. Each counsel recognized that the provisions of Division 2A of the Bankruptcy Act are, so far as their researches have gone, "untried and untested". Counsel for French submitted that, on the proper interpretation of the Division, s.54H had no application in the circumstances of this case, but that s.54E did. Counsel for Carew Counsel contended for the opposite. Counsel for French submitted that the TAC was not "a person who [was] entitled under a law of ... the State ... to retain or deduct money from money payable or owing to the debtor"; and was not a person who was entitled under such a law to apply such money towards discharging a "frozen debt" owed by the debtor to a creditor, within the meaning of s.54H. This argument depended for its validity upon a narrow construction of the words "a person entitled under the law of a State" to deduct monies from money payable to the debtor. It was contended that the attachment of debt provisions of the Magistrates' Court Act do not, of their own force, "entitle" the TAC to deduct monies and apply them to the discharge of debts; rather they give a discretion to the Court to make a garnishee order which, if made, "compels" the garnishee to comply. The contrary argument is that, whether one looks to the procedure provided by the Magistrates' Court Act, and the Rules made under it, or the order of the court which is the product of the Act and the Rules, it is the "law of Victoria" which produces in the TAC the obligation to deduct and apply and that compulsion necessarily comprehends the "entitlement" of which s.54H speaks[4]. Furthermore, as I have said, the submissions made to his Honour and this Court as to the applicability of s.54E in the events which had occurred were again in direct conflict. Counsel for French argued that production of a copy of French's declaration of intention to the creditor would have been effective to prevent Testart from banking the cheque forwarded by the TAC because the action of "banking the cheque" was the equivalent of "enforcing its remedy against the debtor's property" within the meaning of s.54E(2). Counsel, in advancing this argument, sought to draw some comfort from the provisions of s.54F which apply to the duties of the Sheriff who is given notice of a "declaration of intention". However, counsel for Carew Counsel submitted that little comfort can be drawn from this section in interpreting the words in s.s54E(2)(b) because, in contrast, s.54F(2) specifically enjoins the Sheriff, in such an event, from "taking further action to execute or sell property under enforcement process issued" and s.54F(3) specifically enjoins the Sheriff from "paying to a person proceeds of enforcement process issued". Those injunctions, so it was submitted, are significantly different from those provided for in s.54E(2).

[62]

None of the issues relating to the impact of the complex of provisions in Division 2A of the Bankruptcy Act appears to have been decided by the trial judge as a result of which, as I have already said, the reasonableness or otherwise of the solicitor's conduct appears to have been considered without proper regard to all the circumstances which bore upon that conduct. As his Honour correctly noted, the solicitor's duty is to act with reasonable care and skill in the discharge of his retainer to his client. What is required for the performance of this duty in the particular case depends upon the circumstances, including the scope of the retainer and the nature of the task entrusted to and undertaken by the solicitor[5]. A solicitor who brings a reasonable degree of skill and knowledge to his task, and exercises reasonable care, in the circumstances, in carrying it out will not be liable per se for an error of judgment[6]; nor will he be liable, necessarily, for a mistake made upon a "nice and difficult point of law"[7]. In giving advice or making decisions in the exercise of the retainer, the solicitor does not warrant or guarantee the soundness of the advice or decision but only that the requisite degree of skill and care has been used in arriving at them[8]. In my view, the prudent solicitor in receipt of the novel retainer of protecting the impending bankrupt's damages from the hands of the client's creditors, and knowing what Mr. Williams knew on 4 November 1998, would have taken the steps which he did. The aim was to "freeze" the settlement monies in the hands of the TAC and to stop them from being applied in payment of debts owing by the client to the client's creditors. In my opinion, it was reasonable for the solicitor - in the urgent circumstances which confronted him, and being possessed of a working knowledge of the provisions of Division 2A of the Bankruptcy Act - to have produced the sealed copy of his client's declaration of intent to the person who was in control of the settlement monies of the client (namely the TAC) in the reasonable belief that those settlement monies would, as a consequence of s.54H, be retained by the TAC and not applied in payment of "frozen debts". Furthermore, I am of the view that the prudent solicitor, in the circumstances predicated, would not have produced such a sealed copy of the declaration of intention to Testart, because he would be reasonably entitled to take the view that, if the TAC disbursed some of those settlement monies to Testart, notwithstanding production to it of the copy of declaration, Testart would not be obliged to refrain from banking the cheque or to return it to the TAC. It cannot be assumed, as his Honour appears to have done, that the solicitor had not "researched" s.54E or that, if he had, had disregarded it contrary to the interests of his client. That was not, I think, an inference open to his Honour in the circumstances. The only reasonable inference open, in my opinion, is that the solicitor was aware of all the provisions of Division 2A of the Bankruptcy Act, and thought that the appropriate and reasonable step to take, for the purpose of keeping the settlement monies intact, was to seek to ensure that those monies remained in the hands of the TAC until paid to the solicitor or until the competing claims upon them could be determined. To expect the solicitor, in the circumstances, to go beyond what he did and to produce copies of the declaration to all competing creditors would be, in my view, imposing a "counsel of perfection" upon the solicitor because he would be entitled to assume that s.54E would not have stopped those creditors from banking the cheques sent to them by the TAC; or at the very least, he would be entitled to assume that, once the TAC had parted with the monies in favour of those creditors, they would, notice or not, be very reluctant to part with them.

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Judgment (89 paragraphs)

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