Mr McGovern
363 Mr McGovern was initially briefed, amongst other things, with the Supreme Court pleadings, Mr Wales' brief; and a copy of the 2001 deed, wrongly described in the observations as being a deed entered in July 2001. The document provided was unsigned and undated, bearing only a fax transmission header dated 13 July 2001. Mr McGovern had also been provided with other material which suggested that such a deed had been entered, including 2001 correspondence from the Christians' lawyers, which disputed the purported exercise of the power of sale of their units under the 1999 deed, given the terms of a deed entered earlier in 2001.
364 When initially advising DJZ, Mr McGovern was considering a possible misleading and deceptive conduct claim in the context of the representations it was claimed had been made prior to the entry into the 1999 deed. He agreed in cross examination that he gave consideration to that claim, in the context of the terms of that deed and any subsequent events which could have had an impact on such a claim. That being so, it is apparent that the 2001 deed, which purported to vary the 1999 deed, including as to the guarantees provided by the Christians under the deed, was a necessary consideration. The effect of the payment of some $287,500 to SRUT by the Christian interests, by way of contribution to capital under the 2001 deed, as well as other aspects of the agreement there reached, also required consideration, particularly in relation to the question of damages.
365 While the version of the 2001 deed with which Mr McGovern was briefed was incomplete, undated and unsigned, the submission that Mr McGovern had not been briefed with any February 2001 deed may not be accepted. If Mr McGovern had any doubts that a deed in the terms of the 2001 deed with which he was briefed had been entered, as he had been instructed, like Giles Payne, he should have sought a copy of the executed deed. Competent practice did not permit Mr McGovern to proceed on the basis of an assumption that such a deed had not been entered, or that a deed in different terms had been entered in 2001, given his instructions.
366 The terms of Mr McGovern's brief are earlier set out. In his first advice he recommended that DJZ should be separately represented in ongoing proceedings. That advice was accepted. Mr McGovern also advised that there should be further investigation as to the value of the units. That was pursued. It was at this time that his retainer altered.
367 Mr McGovern was then briefed to draft documentation necessary for DJZ to be separately represented in the ongoing proceedings and to pursue the misleading and deceptive conduct claim in those proceedings. He then asked for and was provided with a copy of the documents filed in the Supreme Court. He found that those claims relied on the 1999 deed. No defence or cross claim relied on the 2001 deed and there was no suggestion that it would be relied on. Mr McGovern later gave written advice in the terms earlier set out, including:
"So understood it seems to me that the present Supreme Court proceedings, relying as they do upon the deed of 1 July 1999, offer the most reasonable prospect of being able to secure the reasonably arguable claims of Surf Road Nominees Pty Ltd and the investors. Essentially the deed of 1 July 1999 was intended to govern the relationship between the parties and to provide a mechanism for creating rights of guarantee and indemnity."
368 Mr McGovern explained in his evidence that he gave this advice in order to reassure Mr Gilles and his clients that on the pleadings as they then stood, and on the evidence filed and served, DJZ had reasonable prospects of success. It was argued that this advice went beyond the scope of his retainer and that it was in any event, correct.
369 Even accepting that Mr McGovern had decided to provide advice which went beyond the scope of his retainer, which I do not, it is apparent that the 2001 deed was a necessary consideration in the advice which he gave, given Mr McGovern's instructions that the 1999 deed had been later varied by that deed, and what DJZ was pursing in the proceedings, which he advised had reasonable prospects of success. Any consideration of DJZ's prospects in the proceedings required a consideration of the impact, if any, of the 2001 deed. Having decided to offer this advice, Mr McGovern was required to exercise necessary skill and care in the advice which he gave.
370 Mr McGovern's evidence was that before he provided this advice, he had closely considered the 1999 deed, noting both the guarantee and indemnity and had revisited certain relevant texts and authorities. He also noted that no one had pleaded that the defendants were relieved of their obligations under the 1999 deed, because of the entry into the 2001 deed. It followed, in his view, given affidavit evidence with which he was also briefed, that the claims advanced by the plaintiffs in the proceedings were reasonably arguable. In his opinion, without further amendment of the pleadings, no claim being advanced was doomed. The possibility of pleading amendment to rely on the 2001 deed, was not addressed.
371 Mr McGovern explained that his view initially was that he needed to have some understanding of what had happened to the units in the unit trust, in order to consider the question of damages for the Trade Practices Act claim. The 2001 deed, which contained an agreement not to sell the units held by the Christian interests, did not marry up with the 1999 deed and a notice of the exercise of the right of sale provided by that deed given in May 2001. Mr McGovern's evidence was that the 2001 deed could be considered to be a covenant not to sell. He thus needed to understand what had happened.
372 Mr McGovern was not certain whether he had read Mr Wales' advice about the 2001 deed, before he gave his own advice. He was briefed with Mr Wales' brief, which included observations from Mr Pritchard, calling for advice in relation to a potential difficulty created by the 2001 deed. Mr McGovern had read this brief.
373 Mr McGovern's evidence was that he asked Mr Palmieri at their conference, if he could tell him anything about the deed which had been entered in 2001. Mr Palmieri could provide no useful information. Despite this, Mr McGovern suggested no further investigation to establish what had happened in relation to the 2001 deed, even though he considered that what had happened to the units held as security under the 1999 deed, to be relevant to the potential Trade Practices Act claim he was advising on. Had that investigation been suggested, Mr McGovern's instruction that the 2001 deed had been entered in the terms briefed would have been confirmed. Instead, Mr McGovern proceeded on the basis of certain incorrect assumptions.
374 Mr Palmieri also told Mr McGovern that the Christians' units had been 'taken', when asked about any sale of those units under the 1999 deed. From this, Mr McGovern assumed that the units had been sold as the result of the exercise of rights under the 1999 deed. This was despite the correspondence from the Christians' solicitors, disputing the right to sell, given the terms of the 2001 deed, with which he had been briefed.
375 Mr Palmieri also said that Mr James' shares had been taken. Mr McGovern assumed from this that Mr Palmieri was referring to the units in the SRUT, which beneficially owned the business, because Mr James' company, New South Head Nominees Pty Limited held units, not shares, in the Trust. Mr McGovern came to the conclusion that there had been a 'wash sale' of the units in the Trust under clause 8 of the 1999 deed. This would not have involved any discharge of the James' interests. That is not, however, what had occurred.
376 Mr McGovern's conclusions rested on Mr Palmieri's instructions at the meeting. His evidence was that Mr Palmieri did not then have any facility in reading English, but he was an experienced businessman. Mr McGovern did not show him the 2001 deed with which he had been briefed. When he asked him about any deed entered in 2001 and Mr Palmieri could provide him with no information, Mr McGovern then simply directed all of his further advice to the 1999 deed. Mr McGovern explained that he proceeded as he did, because he considered that as the pleadings in the Supreme Court made no reference to the 2001 deed, the exercise of the power of sale must have taken a different form. He concluded that whatever had happened in respect of the 2001 deed, it was of no consequence to what he had to advise on.
377 It was argued that Mr McGovern was entitled to proceed on the reasonable belief to which he had come, given what Mr Palmieri had told him.
378 I am unable to accept that submission. Given the complexity of the matters about which advice was being given, that belief, resting as it did on the little Mr Palmieri was able to tell Mr McGovern about what had happened in relation to a deed entered in 2001, was not a basis which competent legal practice permitted such advice to be based.
379 Mr McGovern's evidence was that he himself did consider the law in relation to guarantees, when giving his final advice. When he gave his evidence, he had seen Mr Wales' advice in relation to the 2001 deed. When he first saw that advice is not clear, but it was apparent from that advice that Mr Wales had referred to a deed in the form of the 2001 deed with which Mr McGovern was briefed. Mr Wales seemingly had no difficulty in proceeding on the basis of an instruction that a deed in that form had been entered. Mr McGovern's evidence was that whenever he saw the advice, he agreed with it, but in his own advice he had made no mention of any risk that the 2001 deed could give rise to potential arguments, which could be used against DJZ in the proceedings on foot.
380 Indeed, Mr McGovern's April advice made no reference at all to the February 2001 deed. The chronology which he had prepared for himself, as was his practice, also made no reference to this deed. His evidence was that it was his practice to exclude any undated document from such a chronology and to flag it in his brief. When he came to review the facts, he took account of such documents, in order to work out how, if at all, they might fit into the factual background.
381 In so approaching his instructions and coming to the conclusions which he reached, Mr McGovern obviously erred. By its terms the 2001 deed had amended the 1999 deed. His instructions were that such a deed had been entered. The fact that Mr Palmieri could tell him nothing more about the deed entered in 2001, was not a sound basis for concluding that no such deed had been entered. Mr McGovern knew that the Christian's lawyers had asserted that there was no right of sale under the 1999 deed, given the terms of a 2001 deed and that Mr Wales had been asked to advise on a potential problem posed by such a deed. Yet Mr McGovern took the view that there was no necessity to further investigate whether his conclusion that there had been a sale effected under the 1999 deed was correct.
382 Mr McGovern's advice, that there was no claim being advanced in the Supreme Court proceedings which was doomed to fail, rested on the fact that under the pleadings, no reliance was placed on the 2001 deed. An obvious explanation for the plaintiffs not referring to the deed, was the potential problems it might cause for their claims. An obvious explanation for the defendants not referring to it, was that they were not aware of its existence, not being parties to the deed.
383 Mr McGovern did not consider or advise in relation to any available reliance on the 2001 deed, even though on his instructions a deed in those terms had been entered and it had been considered by Mr Pritchard, that the deed raised a potential problem. Nor did he consider what impact that might have had on the misrepresentation claim. The view which he reached was that the units must have been dealt with by some mechanism other than the 2001 deed, namely the 1999 deed. Neither this assumption, nor the 2001 deed itself, was mentioned at all in Mr McGovern's April advice, nor it would seem at the conference that day, as posing any potential problem, or requiring any further investigation or consideration. Mr McGovern did not even suggest that an executed version of the 2001 deed be obtained, or any other document by which the transaction which he assumed must have occurred by some other means, had been implemented. The advice which he gave Mr Palmieri in conference was directed simply to the operation of the 1999 deed.
384 In December 2003, Mr McGovern was approached about appearing in the Supreme Court proceedings, by Mr Fitzpatrick, but he was not free to accept the brief. Mr Fitzpatrick then mentioned that an agreement had been entered in November, under which some of the guarantors under the deed of guarantee were released from their obligations. Mr McGovern's evidence was that he immediately commented that the agreement might work to release the defendants from their liability under the guarantee. Mr McGovern's consideration of the February 2001 deed, which raised a similar and other issues, was not earlier raised with Giles Payne and Mr Palmieri. It would seem that while Mr McGovern may have appreciated the problems which the 2001 deed potentially gave rise to, he made no mention of this in his earlier written advice, or in conference, because of the view to which he came, that no such deed had been entered.
385 Mr McGovern explained that when he wrote the advice in which he commented on DJZ's prospects, he felt himself at liberty to mention any other matter which might be of potential benefit or comfort to DJZ. Given his instructions, which required him to consider the 2001 deed which had amended the 1999 deed, he plainly ought to have raised any potential difficulty as well. By this stage he had advised DJZ that it ought to be seperately represented in the Supreme Court proceedings and had been instructed to prepare amended pleadings to pursue the misrepresentation claim. That also required consideration of the case being advanced in relation to the 1999 deed, amended as he had been instructed by the 2001 deed. While Mr McGovern did not advise on prospects of success of the claims already being advanced, given that he was commenting on what was reasonably arguable, if there were problems with the claims being advanced, because of the result of what had been agreed in the 2001 deed, DJZ ought to have been alerted to the difficulty, whether or not the defendants had yet relied on such problems.
386 Mr McGovern accepted that it would have been his duty to advise DJZ, if he believed their claims were doomed to fail. Had any other difficulty come to his attention, his duty also required him to draw them to attention. In cross examination, Mr McGovern maintained that the letter sent from the Christian's solicitors, which relied on the 2001 deed, as removing the right to sell their units under the 1999 deed, did not require his attention, because of Mr Palmieri's instructions. Given that his written instructions were that a deed had been entered in 2001 and the deed with which he was briefed, had the effect claimed, that view may not be accepted.
387 Had necessary attention been paid to the effect of the 2001 deed on the 1999 deed, at the least the difficulty which Mr Wales had earlier addressed, ought to have been considered by Mr McGovern and raised with DJZ.
388 Mr McGovern's cross examination showed that he had considered the terms of the 2001 deed, but he did not refer to it in his advice, or draw attention to any potential risk that it might have any impact on the case being advanced in the Supreme Court, because of the view which he reached that the Christians' units must have been dealt with by some mechanism other than the deed with which he had been brief. Given the views which Mr McGovern proffered DJZ as to its 'reasonably arguable claims', there was, at the least, an obligation to explain the conclusion which he had reached. Had that occurred, his error in relation to the 2001 deed would have been revealed. On the evidence, Mr McGovern's view of the 2001 deed was quite different to the understanding of either Mr Gilles and Ms Becker.
389 Mr McGovern expressed the view that his advice would not have differed, if he had been briefed with an executed version of the 2001 deed. This was because he did not perceive it as adverse, or materially so, to DJZ's prospects of success, because it was not being relied on in the proceedings and that he had no duty to speculate about defences which might or might not be relied on. The 1999 deed remained fully enforceable and the defendants had not been discharged.
390 There is an obvious difficulty with that evidence. It was not a question of Mr McGovern speculating about possible defences not yet advanced, but advising about the claims being advanced by DJZ under the 1999 deed, given his instructions that it had been amended by the 2001 deed and whether, as he said in his advice, in that context the claims being advanced were 'reasonably arguable'. Mr McGovern did not give consideration to the 2001 deed, which competent legal practice required be given, if such advice was to be proffered. Nor did he give necessary consideration to the 2001 deed in the context of the misrepresentation case. Had he revealed the basis for his conclusions about the 2001 deed, his misunderstandings would have been revealed. Even if the advice which he gave went beyond his retainer, as was argued in submissions, that was not a licence to advise negligently.
391 Mr McGovern's case was that even if he had given advice as to the problems posed by the 2001 deed, DJZ would have still pursued the litigation, given the concerns then driving Mr Palmieri. It followed that there was no casual link between the advice which Mr McGovern gave and any damages DJZ suffered.
392 Undoubtedly, given Mr Palmieri's concerns about the joint venture properties, DJZ may still have continued with its pursuit of the proceedings, even despite the potential problem which the 2001 deed created. Having alerted DJZ to the problem created by 2001 deed, that Giles Payne would have given different advice to that given about the 2001 deed in October 2003 and the advice given about settlement in January 2004, after Mr Alexis recommended settlement in December 2003, is evident. I am unable to accept the arguments advanced in relation to causation.
393 Mr McGovern gave no advice in relation to the 2003 agreement, although when approached by Mr Fitzpatrick, he then raised the potential problem created by the 2003 sales agreement.
394 Given the views which I have reached in relation to the 2001 deed not having been the causative effect of any damage suffered by DJZ, given what the Court of Appeal's judgment turned on, it is not necessary to further consider whether any order should be made against Mr McGovern. Had I not reached that conclusion, plainly, he too, would have been found partially responsible for the damages suffered by DJZ.