Drake v Wight & Strickland Lawyers

Solicitors: L Drake & J Drake (First and Second Plaintiffs in person) Mullane & Lindsay (Defendant) File Number(s): 2014/370202

Judgment

1. HER HONOUR: By notice of motion filed 23 April 2015, the defendant seeks orders that the amended statement of claim filed 1 April 2015 be dismissed pursuant to rule 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), or alternatively, that the amended statement of claim be struck out pursuant to UCPR 14.28.
2. The plaintiffs are Lawrence and Judith Drake ("the Drakes"). The Drakes appeared in court and their son Christopher Drake spoke on their behalf. The defendant is Wight & Strickland Lawyers ("Wight & Strickland"). It was represented by Mr Gristi of counsel. The Drakes relied upon the affidavit of Lawrence Allan Drake sworn 14 May 2015, the affidavit of Judith Evangeline Drake sworn 21 July 2015 and the affidavit of Christopher Paul Drake filed 29 July 2015. Wight & Strickland relied on the affidavit of Anthony Cavanagh sworn 23 April 2015 and Morgan Bedford Moroney sworn 28 July 2015.
3. Wight & Strickland's motion in these proceedings was heard with the motion of the defendants in 2014/370178 Drake v Wood Marshall Williams Solicitors. The first defendant in those proceedings is Neale Marshall and the second defendant is Charles Parisi. Both defendants are legal practitioners who, at the relevant time, practiced at the firm Wood Marshall Williams Solicitors ("Wood Marshall Williams").
4. On 10 June 2015, the motions came on before me for hearing. The Drakes sought an adjournment on the basis that they were not legally represented and wanted an opportunity to seek whether the trustee in bankruptcy would "revest the Drakes' right of action to them". An adjournment was granted. On 29 July 2015, the notices of motion were heard.

Background

1. For the purposes of this application only, I have taken the Drakes' case at its highest and I will take what they have pleaded as being correct.
2. By amended statement of claim filed 1 April 2015 ("ASC"), the Drakes' claim against Wight & Strickland arises from a retainer entered into between the parties in March 2008 for the provision of legal services. Those legal services involved Wight & Strickland advising the Drakes in respect of a claim being made against them by Ms Dorothy Badman ("Ms Badman") and acting on their behalf in proceedings issued by Ms Badman in the Equity division of this Court (see Badman v Drake [2008] NSWSC 1366). The Drakes allege that Wight & Strickland advised them to defend the proceedings and advised them that they had good prospects of success.
3. Prior to those proceedings being commenced, there was a transaction on 4 February 2008 in which a mortgage over a property at Rouse Hill was discharged and the property was transferred to the Drakes. Paragraphs [4] and [5] of the ASC refer to this underlying transaction, that gives rise to these current proceedings. It is as follows: (i) In January and February 2008, Wight & Strickland acted on behalf of Armond Shoostovian ("Mr Shoostovian") in a transaction for the discharge of a mortgage over the property at Rouse Hill. Mr Shoostovian was a director of AS Group Nominees Pty Ltd, the owner and mortgagee of the Rouse Hill property. (However, in the Badman judgment there is no reference to the involvement of Wight & Strickland in the underlying transaction. Rather, Wood Marshall Williams acted for AS Group Nominees Pty Limited in the underlying transaction.) (ii) Following the discharge of the mortgage, the property was transferred to the Drakes. (iii) The sum of $378,623.19, required to discharge the mortgage and pay fees associated with the transaction, was supplied by Ms Badman. (iv) The discharge of the mortgage and settlement of the transfer occurred on 4 February 2008 at the offices of Wood Marshall Williams. (v) Neither the Drakes or Ms Badman were independently legally represented in respect of the transaction.

Badman v Drake

1. In Badman, Ms Badman commenced proceedings against the Drakes. The hearing before Young CJ in Eq was the hearing of a preliminary question. At some point, Wight & Strickland, as well as Peter Zacharatos, a partner of Wight & Strickland, were joined to the proceedings by Ms Badman as the third and fourth defendants. However, Wight & Strickland continued to represent the Drakes. Wight & Strickland were represented by counsel but appeared to take little part in the hearing. Apparently, Wight & Strickland and Mr Zacharatos were joined by Ms Badman as defendants as she alleged that they assisted the Drakes in their "dishonest and fraudulent design, with knowledge of their breach of trust" by acting as their solicitors (see Badman at [97]).
2. On 19 December 2008, Young CJ in Eq held that the transaction should be set aside due to equitable fraud and undue influence. His Honour determined that the appropriate order was that the Drakes pay equitable compensation to Ms Badman in the sum of $378,623.19 plus interest.

The pleading in the current amended statement of claim

1. The Drakes allege in the ASC that: (i) Wight & Strickland gave incorrect advice as to which party had the burden of establishing that Ms Badman did not enter into the transaction voluntarily [7]. (ii) Wight & Strickland sought to defend the action brought by Ms Badman on "incorrect legal grounds" [8]. (iii) Wight & Strickland were negligent in failing to advise the Drakes that they did not have a reasonable defence to the proceedings brought by Ms Badman [10]. (iv) Costs were wasted or thrown away by Wight & Strickland, being the legal fees of $110,635.36, by running a case that should not have been run [12]. (v) Had Wight & Strickland acted with proper care, skill and diligence, the matter would not have been defended, it would have settled or consent judgment been entered, and the legal costs incurred would have been vastly reduced [13]. (vi) They have suffered direct financial loss as a result of the negligent actions of Wight & Strickland [14].

Summary dismissal

1. UCPR 13.4(1) provides that the Court may dismiss proceedings generally, or in relation to any claim for relief, in three circumstances. These are, if the proceedings are frivolous or vexatious, if no reasonable cause of action is disclosed or if the proceedings are an abuse of the process of the court.
2. UCPR 14.28(1) provides that the Court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading firstly, discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings, or thirdly, is otherwise an abuse of the process of the court.
3. UCPR 14.28(2) provides that the court may receive evidence on the hearing of an application for an order under subrule (1).
4. In O'Brien v Bank of Western Australia Ltd [2013] NSWCA 71, the Court of Appeal applied the High Court decision of Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118. In Spencer, the High Court was concerned with s 31A(2) of the Federal Court Act 1976 (Cth), but the following principles are of general application (O'Brien at [3]): 1. On a summary judgment application, the real issue is whether there is an underlying cause of action or defence, not simply whether one is pleaded (at [23]). 2. The critical question can be expressed as whether there is more than a "fanciful" prospect of success (at [25]) per French CJ and Gummow J) or whether the outcome is so certain that it would be an abuse of the process of the court to allow the action to go forward (at [54] in the judgment of the plurality). Demonstration of the outcome of the litigation is required, not an assessment of the prospect of its success. 3. Powers to summarily terminate proceedings must be exercised with exceptional caution (French CJ at [55] and Gummow J at [24]).
5. See also General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, in which Barwick CJ comments that a lack of a cause of action must be "clearly demonstrated" in terms that the case is untenable and cannot possibly succeed (at 128-129).
6. Recent decisions of this Court and the Court of Appeal demonstrate that the impact of s 56 of the Civil Procedure Act 2005 (NSW) is such as to expand the circumstances where an order for dismissal under UCPR 13.4 may be made.

(a) Bankruptcy

1. On 30 January 2009, the Drakes were declared bankrupt. On 31 January 2012, they were each discharged from bankruptcy. The Drakes have been discharged from bankruptcy for over three years.
2. Section 58 of the Bankruptcy Act 1966 (Cth) provides: "Vesting of property upon bankruptcy - general rule (1) Subject to this Act, where a debtor becomes a bankrupt: (a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and (b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee."
3. "Property" is defined in s 5 of the Bankruptcy Act as: "real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property".
4. Section 58 of the Bankruptcy Act provides that when a debtor becomes bankrupt, the property of the bankrupt vests forthwith in the trustee. That property includes any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt.
5. A bare right to sue in respect of alleged property and economic losses is property of the bankrupt which will vest in the trustee pursuant to s 58: see Campbell J in Kovarfi v BMT & Associates Pty Ltd (No 2) [2014] NSWSC 100 at [27]. The exceptions to s 58, as set out in s 116(2)(g) of the Bankruptcy Act, are not applicable to these current proceedings.
6. The issue as to whether a cause of action such as this divests from the trustee and revests in the (former) bankrupt was expressly considered by Campbell J in Kovarfi (No 2). Kovarfi (No 2) also involved an application to dismiss a statement of claim. In those proceedings, the plaintiffs became bankrupt in 2005 and were discharged from bankruptcy in 2008. They subsequently commenced proceedings in respect of losses allegedly suffered in 2004.
7. As stated by Campbell J in Kovarfi (No 2), the issue above was "settled beyond argument" by the decision of the Court of Appeal in Daemar v Industrial Commission of NSW (No 2) (1990) 22 NSWLR 178. In Kovarfi (No 2) at [35] his Honour continued: "[35] The next question then is whether, upon discharge from bankruptcy, the cause of action divested from the trustee and re-vested in the first and second plaintiffs. The answer to this question is settled beyond argument in New South Wales by the decision of the Court of Appeal in Daemar v Industrial Commission of New South Wales (No 2) (1990) 22 NSWLR 178. The judgment of Kirby P, as his Honour then was, Clarke JA and Meagher JA agreeing, depends upon the language of s 152 of the Act in particular. That provision is in the following terms: A discharged bankrupt must, even though discharged, give such assistance as the trustee reasonably requires in the realization and distribution of such of his or her property as is vested in the trustee. Having noted some differences of opinion in early English and Australian cases, Kirby P referred with approval to the decision of Needham J in Pegler v Dale (1975) 1 NSWLR 265 and said: [S 152], as Needham J pointed out, assumes that property vested in a trustee at the time of sequestration remains vested in that trustee, even after the discharge of the bankrupt. There is nothing in the section which specifically revests in the discharged bankrupt the property which was, by the sequestration order, vested in the trustee. That property includes shows as inaction, not only as Needham J construction is attentive to the language of section 152, it is appropriate to the scheme of the Bankruptcy Act. Under that act, it is the function of the trustee to gather in for the benefit of the creditors the property of the bankrupt at the time of sequestration. Save as exceptions provided by the act, such property is to be then available for distribution to the creditors. The property includes shows as an action. It thus includes the 'actions' which a bankrupt may have commenced at the time of the sequestration order. The act exempts certain personal actions. But for reasons which given at the original stay proceedings, the claimant's action against the Industrial Commission and Mr Sheath is not in that class."

The position of the Trustee

1. The Drakes sought permission from their trustee in bankruptcy to "revest the Drakes' right of action" so that these current proceedings may continue.
2. Christopher Drake and his father depose to a number of conversations and there are emails by Christopher Drake addressed to Mr Mark Marlow ("Mr Marlow") of Jones & Partners, the trustee in bankruptcy (Aff, Christopher Drake 29/7/15). There is also evidence of correspondence between Mr Marlow and the solicitor for Wight & Strickland (Aff, Morgan Moroney 28/7/15). As any assignment given by the trustee has to be in writing, I shall refer to what the trustee has said in writing.
3. On 27 July 2015 at 11.42 am, Mr Marlow emailed Christopher Drake and stated: "I refer to your recent enquiries regarding your parent's action (Lawrence & Judith Drake) against both Wight & Strickland & Wood Marshall Williams and your parents affidavit dated 20 July 2015. I note that the trustee does not grant permission as per your affidavit at paragraph 3. It is for the court to determine whether this action can proceed."
4. On 27 July 2015 at 12.09 pm, Mr Marlow emailed Christopher Drake in the following terms: "I refute that any such permission was ever given I do note we had some discussions in regards to your parents request and any conclusion was left open pending further review."
5. On 27 July 2015 at 1.24 pm, Mr Marlow emailed Christopher Drake as follows: "I make no further comment other than to say I have taken advice on behalf of the trustee and non-response is not approval."
6. On 27 July 2015, Ms Moroney, the solicitor acting for Wight & Strickland, also wrote to Mr Marlow stating: "… we would be grateful if you would: (a) confirm that you have given your permission to Mr and Mrs Drake for them to pursue the actions; (b) advise whether or not any further arrangements have been made between you and Mr and Mrs Drake in relation to the actions (including whether or not you have assigned any rights to Mr and Mrs Drake); (c) provide copies of any communications (including any agreements or transactional documents) between you and Mr or Mrs Drake in relation to the proceedings (limited to documents created in 2015). …"
7. On 27 July 2015 at 11.32 am, Mr Marlow replied to Ms Moroney: "I refer to your letter dated 27 July 2015 and note the following A) The trustee had not granted permission for the bankrupts to pursue the actions B) No rights or other arrangements have been made C) Unsure of what this means noting no written arrangements have been entered into with the plaintiffs."

(b) Advocate's immunity

1. On this topic, the Drakes say that Wight & Strickland provided advice that caused the litigation to continue and that they must have filed documentation stating that there was a reasonable defence. The Drakes submitted that to provide negligent advice which caused the litigation, and then to hide behind advocate's immunity, is a complete misuse of the purpose of the immunity.
2. The Drakes also submitted that their case is not about how Wight & Strickland conducted their defence, but is that Wight & Strickland gave advice that their case should be defended when it should not have been. They say this advice falls outside the advocate's immunity. The Drakes further submitted that Wight & Strickland encouraged, manipulated and coerced them (to the point of encouraging them to mortgage their property in order to pay for a fundamentally doomed defence) and that all of the cases referred to by Wight & Strickland are different to this case.
3. In Donnellan v Woodland [2012] NSWCA 433 at [263], Basten JA stated that "principle requires that this Court address the availability of immunity first".
4. In Donnellan, Beazley JA appears to accept that there may be exceptions to this rule. At [7] her Honour stated: "If the correct position is that the immunity should be determined prior to the determination of the question of negligence, an immunity claim ought properly be able to be dealt with on the pleadings by way of a strike out application pursuant to the Uniform Civil Procedure Rules 2005 (UCPR), r 13.4 or r 14.28. This was the view of this Court in Bott v Carter (2012) NSWCA 89. especially at [11]. Bott v Carter itself involved an application to strike out the statement of claim."
5. In Bott, Basten JA stated at [11]: "The question to be determined by the Court is purely one of law, namely whether any of the allegations, if proved, would be capable of supporting a relevant cause of action."
6. Wight & Strickland submitted that consistent with the above Court of Appeal authorities, the application for dismissal or strike out on the basis of advocate's immunity can properly be dealt with on the pleadings.
7. The common law immunity afforded to advocates was established in Rondel v Worseley [1969] 1 AC 191; [1967] 3 All ER 993 and is said to extend to "work done out of the court which leads to a decision affecting the conduct of the case in court" (see Giannarelli v Wraith [1988] HCA 52; (1988) 165 CLR 543 at 560 per Mason CJ). The protection offered by the immunity is said to exist "only where the particular work is so intimately connected with the conduct of the case in Court that it can fairly be said to be a preliminary decision affecting the way that cause is to be conducted when it comes to hearing": Rees v Sinclair [1974] 1 NZLR 180 at 187 per McCarthy P. Rees v Sinclair was referred to with approval by the High Court in Giannarelli at 560 and by the Court of Appeal per Beazley P (with whom Basten, Barrett, Hoeben JJA and Sackville AJA agreed) in Donnellan at [169].

(c) The Limitation Act 1969 (NSW)

1. Wight & Strickland submitted that the Drakes' claims are largely time barred.
2. The Drakes accepted that the cause of action did not arise until the case was lost. That is on 19 December 2008, when judgment was delivered in Badman. However, they submitted that in some cases, extensions to the limitation period should be granted, and that this is such a case given the gross negligence of Wight & Strickland and the difficult circumstances faced by them (the Drakes). The Drakes argued that defending the Badman proceedings brought about their bankruptcy and that even now (they are in their eighties) have been unable to pay for the services of a solicitor and have been forced to bring their case unrepresented.
3. The Drakes submitted that much time has been wasted by them attempting to secure the services of a solicitor (they have visted 16 different firms) to help with their case, but to no avail, and that it would be unjust to now deny them the right to be heard.
4. Section 14 of the Limitation Act relevantly provides that a cause of action founded on tort is subject to a limitation period of six years running from when the cause of action first accrues to the plaintiff. These proceedings were issued on 17 December 2014. Therefore, the action cannot succeed if the cause of action accrued prior to 17 December 2008.
5. A cause of action accrues once damage is suffered. The authorities have consistently stated that the exercise, as regards the relevant damage in a case for economic loss, is to identify the harm to a plaintiff's economic interest: see for example Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539; Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613.
6. Counsel for Wight & Strickland submitted that the Court of Appeal decision in Christie v Purves [2007] NSWCA 182 demonstrates that a cause of action can accrue irrespective of whether the plaintiff is aware of having suffered a loss. In Christie, Ipp JA noted the following principles (at [35], [36] and [40]): 1. plaintiff cannot sue for damages in negligence until the cause of action accrues. However, once it accrues, time commences to run: see Commonwealth of Australia v Cornwell (2007) 229 CLR 519; [2007] HCA 16 at [5]-[6]. 2. Time may run before a plaintiff discovers, or could have on reasonable inquiry have discovered, that damage has been sustained. 3. For economic loss to be sustained there must be some actual, measurable damage that is beyond what can be regarded as negligible. A plaintiff's cause of action can accrue even if some of their damages are prospective.

Conclusion

1. The overall result is that the Drakes' proceeding should be dismissed. The ASC should be dismissed. The right of action did not divest from the trustee in bankruptcy and revest in the Drakes on their discharge from bankruptcy and the proceedings are incompetent. Further, the proceedings are subject to advocate's immunity.
2. The effect of bankruptcy and advocate's immunity cannot be cured by repleading the ASC. In these circumstances, the ASC and the proceedings are dismissed.
3. Costs are discretionary. Costs usually follow the event. The plaintiffs are to pay the defendant's costs of the proceedings. The Court orders that: (1) The amended statement of claim filed 1 April 2015 is dismissed. (2) The proceedings are dismissed. (3) The plaintiffs are to pay the defendant's costs of the proceedings on an ordinary basis as agreed or assessed.

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: 06 August 2015