Gattellaro v Spencer

[2010] NSWSC 1122

Supreme Court of NSW|2010-03-31|Before: Hislop J, David J

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Court

Supreme Court of NSW

Decision date

2010-03-31

Before

Hislop J, David J

Catchwords

COMMON LAW - professional negligence - solicitors - litigation - alleged failure to properly conduct case - immunity.

Source

Original judgment source is linked above.

Catchwords

COMMON LAW - professional negligence - solicitors - litigation - alleged failure to properly conduct case - immunity.

Judgment (112 paragraphs)

[1]

Introduction 1 This is a claim brought by the plaintiff, Mrs Gattellaro, to recover damages from the defendants, a firm of solicitors, who acted on behalf of the plaintiff and her husband in relation to litigation with the Westpac Banking Corporation (Westpac). The plaintiff alleges the defendants were negligent and in breach of retainer in respect of the conduct of the litigation, causing her to sustain significant losses.

[2]

Background 2 Mr and Mrs Gattellaro were born in Italy in 1935. They came to Australia in the 1950s. In 1959 they married. They have a son (Anthony, born in 1961) and a daughter (born in 1970). 3 They purchased land at Chiswick, NSW in 1965 in their joint names. In 1969 a mortgage was taken out with the Commercial Banking Co. of Sydney to finance construction of the family home on the land. That mortgage was discharged upon repayment of the loan. 4 The plaintiff is a dressmaker by occupation. Mr Gattellaro was a builder. For a time Mr Gattellaro carried on business through a company, Falgat Constructions Pty Limited ("Falgat"), with the plaintiff's brother. In 1972 the plaintiff's brother ceased his involvement in Falgat and the plaintiff became a director and secretary of the company, Mr Gattellaro being the only other director. 5 On about 12 occasions the plaintiff and Mr Gattellaro purchased properties in their joint names and employed Falgat to renovate them, the properties then being resold at a profit. The funds for these transactions were generally obtained by bank mortgage to the plaintiff and Mr Gattellaro. Falgat also built houses and home units. 6 In June 1977 the plaintiff and Mr Gattellaro purchased a property at Marrickville with the intention of renovating and reselling it. They mortgaged the property to The Commercial Bank of Australia Limited ("CBA"). CBA also took a mortgage over the Chiswick property securing the personal indebtedness of the plaintiff and Mr Gattellaro to the bank. This mortgage contained a clause to secure, among other things, all moneys that Mr Gattellaro and the plaintiff, or either of them, had then guaranteed to CBA or thereafter guaranteed to CBA (or its successor, Westpac) 7 In 1978 the Marrickville property was sold and the mortgage over it discharged. The mortgage over the Chiswick property was not discharged at that time. 8 The plaintiff, Mr Gattellaro and Falgat were indebted to CBA. Following a merger between the CBA and Westpac in October 1982, a statutory novation took place substituting Westpac for CBA in its contractual relationships with Falgat, the plaintiff and Mr Gattellaro. 9 In the mid 1980s difficult economic times were encountered. The plaintiff and Mr Gattellaro were unable to sell the renovated properties and some home units which had been built by Falgat. The indebtedness to the bank increased. 10 In 1985 Westpac moved to secure the advances to Falgat by seeking a guarantee signed by the plaintiff and Mr Gattellaro. There was an issue whether any such guarantee was signed by the plaintiff and/or Mr Gattellaro. 11 At the beginning of June 1986 the accounts of Falgat at the Goulburn Street branch were in debit to a total of approximately $195,000 and the accounts of the plaintiff and Mr Gattellaro at that branch were in debit to a total of approximately $187,000. The indebtedness of the plaintiff and Mr Gattellaro was secured by the 1977 mortgage over their home at Chiswick. 12 On 2 June 1986 the accounts of Falgat, the plaintiff and Mr Gattellaro at the Goulburn Street branch were closed. New accounts were opened at the Westpac Plaza branch. The debts were consolidated. A bill acceptance line of credit in favour of the plaintiff and Mr Gattellaro was arranged. This was used to pay out the indebtedness of Falgat, the plaintiff and Mr Gattellaro at the Goulburn Street branch. 13 The plaintiff and Mr Gattellaro entered into a mortgage with Westpac over the Chiswick property to secure the advance of $450,000 on 2 June 1986. The 1977 mortgage was discharged at this time. 14 These measures afforded the plaintiff and Mr Gattellaro time which enabled them to sell some properties and significantly reduce the total indebtedness to Westpac. In January 1989 Westpac sought repayment of the outstanding indebtedness by serving a notice pursuant to s 57(2)(b) of the Real Property Act 1900 on the plaintiff and Mr Gattellaro. The plaintiff and Mr Gattellaro refused to pay. They alleged CBA in 1977 had failed to credit $30,000 to their account and in 1980 had improperly debited the account with $42,873.99. It was asserted that these sums, together with the interest that had been charged in consequence, exceeded the sum claimed by Westpac. 15 In about February 1989 Mr Gattellaro retained the defendants, on behalf of the plaintiff and himself, to act for them in respect of the dispute with the bank. 16 The first and second defendants acted for the plaintiff and Mr Gattellaro at various times. The third defendant did not personally act for Mr Gattellaro at any time. I have referred in this judgment to the defendants generally rather than to the individual defendants, save when necessary.

[3]

The litigation 17 Westpac, by summons filed on 30 May 1990, as mortgagee under the 1986 mortgage over the Chiswick property, sought judgment for possession of that property and judgment for the outstanding amount due on the mortgage. The amount due at that time was $197,378.09. This was the commencement of lengthy litigation leading to the High Court, resulting in significant loss to the plaintiff and Mr Gattellaro, including the loss of their home. 18 On 19 April 1991 the summons was superseded by a statement of claim which recited the default of the plaintiff and Mr Gattellaro and sought the relief as claimed in the summons. 19 On 26 June 1991 the plaintiff and Mr Gattellaro filed a defence in which they admitted they entered into the mortgage dated 2 June 1986 but denied they were indebted to Westpac as CBA had failed to credit $30,000 to their account and had improperly debited the account with $42,873.99. The plaintiff and Mr Gattellaro also cross claimed against Westpac in respect of those moneys together with interest thereon. 20 The cross claim was amended in 1999. In addition to the sum sought to be set off, the amended cross claim sought relief pursuant to the Contracts Review Act 1980 on the basis the mortgage dated 2 June 1986 was unenforceable as to the indebtedness of Falgat because the plaintiff and Mr Gattellaro had been given no explanation that the mortgage of 2 June 1986 would secure against properties owned by them the previous debts of Falgat. Claims under the Trade Practices Act 1974 were also included. 21 Westpac filed an amended defence to the amended cross claim. It alleged, inter alia: "10. In further answer to the allegation made in the Claim to the effect that prior to 2 June 1986 the moneys advanced by the Bank to Falgat Constructions Pty Limited ('Falgat') had been unsecured, the Bank: (a) denies the allegation; (b) says that by mortgage dated 17 June 1977 and registered number Q283741 ('the 1977 mortgage') the cross-claimants mortgaged the property referred to in paragraph 2 of the Statement of Claim to the Bank (by its predecessor the Commercial Bank of Australia Limited) to secure, among other things, all moneys that the cross-claimants, or either of them, had then guaranteed to the Bank (or its predecessor) or thereafter guaranteed to the Bank (or its predecessor). Particulars Paragraphs 2 and 27 of the 1977 Mortgage (c) says that by a guarantee made in or about November 1985 the first cross-claimant guaranteed to the Bank payment of all moneys owing to the Bank by Falgat. Particulars The Bank is not able to produce a copy of the guarantee. Its existence is to be inferred from the entries made in the Bank's diary notes of 27 November 1985 and 21 February 1986 (2) and from item 22 in the defendants' List of Documents dated 7 March 1991 in these proceedings." 22 The amended defence was served shortly before the original hearing date, which was vacated to permit the defendants, counsel, the plaintiff and Mr Gattellaro to consider the amended defence. The plaintiff and Mr Gattellaro impliedly joined issue on that pleading as they did not file a reply thereto.

[4]

Hulme J 23 The proceedings came on for hearing before Hulme J on 1 November 1999. 24 His Honour rejected the defence of set off. He was not persuaded that the plaintiff and Mr Gattellaro had not received the full credit to which they were entitled. As to the claim for $42,873.99, he concluded the debit was one with which Mr Gattellaro was content at the time and thus one which was authorised and the bank entitled to make. He observed that counsel for the plaintiff and Mr Gattellaro did not address any of the claims alleged to support the set-off. However, as they had not been formally abandoned his Honour dealt with the substance of them. 25 As to the contracts review defence in respect of the 1986 mortgage, his Honour concluded that the 1986 transaction considered as a whole, or looking at the mortgage separately, was not unjust. It was conceded that on the pleadings his Honour was not entitled to interfere with the interest rate payable. 26 His Honour, although he considered it was strictly unnecessary for him to pursue the defence based on the guarantee of Falgat's indebtedness, concluded that at the time of the mortgage of 2 June 1986 the bank had, even if it could not find the document, an unlimited guarantee from Mr Gattellaro guaranteeing Falgat's liability to it. His Honour was not persuaded the bank held a guarantee from the plaintiff. 27 His Honour found there was nothing in the evidence which supported pleadings that the bank had been guilty of misleading or deceptive conduct under s 52 of the Trade Practices Act or had negligently misstated the effect of the mortgage. 28 Accordingly, his Honour found that all of the defences to Westpac's claim failed. He ordered that the plaintiff and Mr Gattellaro give possession of the Chiswick property to Westpac. He ordered the plaintiff and Mr Gattellaro pay the sum of $983,339.02. 29 His Honour in his judgment said, as regards Mr Gattellaro: "There was nothing in Mr Gattellaro's demeanour which told against his reliability, indeed rather the contrary…On the other hand, the content of what Mr Gattellaro had to say was nowhere near as impressive. It is clear from a consideration of the documents that Mr Gattellaro was quite confused when cross examined about his complaint concerning the sum of $30,000…Mr Gattellaro was also disposed to deny the undeniable when to admit may have harmed his cause…Furthermore, I am unable to accept that Mr Gattellaro was as ignorant of what was occurring as he would have me believe." 30 His Honour in his judgment said, as regards the plaintiff: "So far as appearance in the witness box is concerned, Mrs Gattellaro also seemed honest. However her answers were to the effect that there was a great deal - and I think too much to be believable - she did not know or recall."

[5]

The Court of Appeal 31 The plaintiff and Mr Gattellaro appealed from the decision of Hulme J to the Court of Appeal. The appeal was limited to the Contracts Review Act issue. It was heard on 15 December 2000. Judgment was given on 6 April 2001. 32 In essence, the plaintiff and Mr Gattellaro alleged the 1986 mortgage was unjust in that, without adequate explanation and without them so understanding they became personally liable for the previous indebtedness of Falgat for which they had not been personally liable and made their home security for that indebtedness when it had not previously been security for it. Westpac, in a notice of contention, contended that the indebtedness on the accounts at the Goulburn Street branch was secured by an unlimited guarantee given by the plaintiff and Mr Gattellaro, or at least by Mr Gattellaro, and that the obligations under the guarantee were secured by the 1977 mortgage of their home. 33 Westpac submitted that, in that situation, there was nothing unjust about the 1986 mortgage because it did not make the plaintiff and Mr Gattellaro liable for any amounts for which they were not previously liable and did not make their home security for any indebtedness for which it was not previously security. 34 Westpac was unable to produce the signed guarantee, and relied on other materials to prove its existence. The majority of the Court of Appeal held that the documents produced by the bank provided a sound basis for finding that a guarantee had been given, at least by Mr Gattellaro, and on the probabilities that it was unlimited and secured by the 1977 mortgage. The 1977 mortgage secured Mr Gattellaro's obligations as guarantor, and included a personal covenant by the plaintiff whereby she undertook liability to pay the amount it secured. Although with the modification that the plaintiff's personal obligation was under the 1977 mortgage rather than the guarantee, Westpac's contention had been made out. 35 In Marston v Charles H Griffith & Co Pty Limited (1982) 3 NSWLR 294 at 300 it was held that if a guarantee is drawn up for two guarantors and only one signs, then the signatory is not bound, because the only promise he made was to join with the other to guarantee, and if the other does not join, then he is not bound (absent a clause in the guarantee to the contrary). 36 It was submitted, pursuant to the principle in Marston, that the guarantee given by Mr Gattellaro might not have become operative in the absence of signature by the plaintiff as co-guarantor. However the Court of Appeal, having regard to a printed form of guarantee, took judicial notice that the bank used standard form guarantees and concluded that the guarantee given by Mr Gattellaro would have been in the same form. The form provided that the guarantee was binding on each signatory notwithstanding that one or more of the persons named as guarantor did not execute it. Accordingly, the Court of Appeal, Priestley JA dissenting, rejected the defence pursuant to the Contracts Review Act and dismissed the appeal.

[31]

The failure of the defendants to differentiate and identify the plaintiff's instructions and to act on those instructions 55 The plaintiff's submission was essentially that at least until 5 June 2001 the defendants took their instructions from Mr Gattellaro and generally corresponded with him rather than with the plaintiff. It was contended that the defendants should have sought and obtained instructions directly from the plaintiff, and that, had they done so, the defence may have been better prepared and possibly the claim may have settled at an early stage without loss of the family home. 56 I do not agree. The services of the defendants were retained by Mr Gattellaro on behalf of himself and the plaintiff. He and the plaintiff had been happily married for many years. The plaintiff gave evidence she customarily left money matters to Mr Gattellaro. Mr Gattellaro gave instructions to the defendants on behalf of himself and the plaintiff. He did so with the plaintiff's concurrence. Initially the only defence being pursued was one of set-off of moneys allegedly misdirected by the CBA. The plaintiff and Mr Gattellaro were in the same interest in this regard and the plaintiff, like Mr Gattellaro, was of the opinion that the set-off should be pursued. 57 The defendants assumed that the information provided by them to Mr Gattellaro would be conveyed to the plaintiff. In my opinion, the defendants were entitled to make that assumption, there being no indication of conflict between the plaintiff and Mr Gattellaro. The plaintiff, in evidence, conceded Mr Gattellaro would tell her of developments if asked, or if she needed to know. She said she would not have read letters addressed to Mr Gattellaro and herself. 58 On 17 July 2000 the plaintiff conferred with counsel retained on behalf of herself and Mr Gattellaro. She made no complaint and gave no instructions additional to those given by Mr Gattellaro. There were subsequent conferences with the plaintiff and she signed an affidavit verifying the defence. It may be the defendants conferred with the plaintiff prior to 17 July 2000. The second defendant had a recollection of conferring with the plaintiff shortly after instructions were obtained from Mr Gattellaro. However, as this was denied by the plaintiff and was not the subject of a file note, I make no finding on this aspect. 59 When the defendants were originally instructed there was no suggestion that the plaintiff or Mr Gattellaro was unaware of the nature of the mortgage or, in general terms, its effect. The only issue was whether the plaintiff and Mr Gattellaro were entitled to a set-off which equalled or exceeded the bank's claim. In those circumstances, I do not consider that the defendants had a duty to go further than to seek relevant documents from Mr Gattellaro and the bank, a statement from Mr Gattellaro and to submit the matter to accountants for expert advice and to counsel for advice, all of which they did. 60 In my opinion, there was no breach of duty by the defendants in accepting and acting upon the instructions of Mr Gattellaro on behalf of himself and the plaintiff or in assuming that their advice to Mr Gattellaro would be available to the plaintiff. 61 The defendants ceased to act for the plaintiff and Mr Gattellaro from 15 March 1994 to 20 March 1997 (see 91 hereof). At that time the defendants, in my opinion, were entitled to assume Mr Gattellaro would have informed the plaintiff that the defendants had ceased to act for them. On 20 March 1997 Mr Gattellaro contacted the defendants and they agreed to resume acting for him and the plaintiff. New counsel, Mr McVay, was engaged. 62 Subsequently, a Contracts Review Act defence was pleaded. This was the result of a conference between counsel and Mr Gattellaro. This defence was pleaded and argued on hearing before Hulme J. No loss resulted from this issue not being pleaded at an earlier time. 63 The defendants, on 17 April 1991, suggested to Mr Gattellaro that settlement at, say, $100,000 should be considered. This suggestion was rejected by Mr Gattellaro. In my opinion, there was no acceptable evidence the plaintiff, if individual advice had been given to her, would have instructed the defendants to make an offer. 64 In this regard both the plaintiff and Mr Gattellaro at that time believed that the defence and cross claim were meritorious and would result in their success in the litigation. They were strengthened in this conclusion by advice from counsel that there were good prospects of success at least as to the set off of the $42,873.99 plus interest. A second counsel described their case as "easy". Additionally, they would have needed to borrow to pay part of any such settlement as they had only $43,669 in their investment account as at December 1990. 65 Similarly, I do not accept the plaintiff's evidence that in July 1992 she would have been prepared to settle had she known her house was at risk and had she been told of an offer of $280,000. I accept the defendants' submission that the plaintiff well knew at this time that her house was at risk and she had so known since January 1989 when served with the Real Property Act notice. She conceded this in her evidence, only to later resile from it. Moreover, I do not accept that Mr Gattellaro, who was notified of the bank's offer, would have sanctioned any such settlement or that the plaintiff would have settled at that time contrary to his wishes. The plaintiff's evidence to the contrary was, in my opinion, the product of reconstruction with the benefit of hindsight. After Mr McVay was briefed he conferred with the plaintiff and Mr Gattellaro on a number of occasions prior to the hearing by Hulme J. The plaintiff and Mr Gattellaro were advised by Mr McVay that they were unlikely to succeed in resisting the bank's claim. Despite this advice, the plaintiff took no steps to attempt to settle the matter. One cannot infer from the fact the plaintiff made offers of settlement after Hulme J's judgment was published that she would have made offers prior thereto if she was separately advised by the defendants. 66 In my opinion, the plaintiff has not established any breach of duty or retainer or that the plaintiff suffered loss as a result of the defendants' acts or omissions in not taking instructions directly from the plaintiff.

[41]

The Marston defence 81 Although the proceedings were adjourned because of the amended defence to the amended cross claim, there was little evidence as to what occurred by way of consideration of this aspect of the matter during the adjournment. There were conferences with counsel but the second defendant's evidence was that he had little recollection of the steps taken by him. 82 The High Court acknowledged that as a matter of law the plaintiff and Mr Gattellaro bore the onus of establishing that the Marston defence applied to exclude liability in Mr Gattellaro for the guarantee with the consequence the plaintiff and Mr Gattellaro had to prove that there was a joint promise in the guarantee. 83 In the absence of the guarantee document, these matters could not be established except by oral evidence. However, such evidence could not be given by the plaintiff or Mr Gattellaro, each of whom denied seeing the guarantee document. There was no evidence available to the plaintiff and Mr Gattellaro to establish this matter unless through cross examination of the bank's witnesses. 84 The plaintiff alleges the defendants were negligent in not pleading this defence. The plaintiff submitted that it was negligent of the defendants in these circumstances not to plead a "fallback" position and to lead from Mr Gattellaro evidence such as "The bank said you did sign a guarantee, accepting that you don't recall it, what would your attitude have been if your wife was expected to sign that guarantee and did not sign it?" 85 The defendants' counsel submitted that a husband would not want his wife to be also caught by a guarantee and thus he would not make it a condition that she sign. Additionally, as, on the evidence of the plaintiff and Mr Gattellaro, there was no guarantee, such evidence could not be credibly led from Mr Gattellaro. In my opinion, there was no failure to take further steps to prepare the matter in this regard. In any event, no loss was suffered by the plaintiff or Mr Gattellaro by reason of not pleading a Marston defence as the High Court determined that issue notwithstanding the absence of an appropriate pleading.

[82]

The offer of $650,000 96 Special leave to appeal to the High Court was granted on 14 February 2003, the subsequent hearing taking place on 19 June 2003 with judgment given on 11 February 2004. 97 The only offer of settlement made after the grant of special leave was an offer made by Westpac's solicitors who, by letter dated 15 May 2003, offered to settle for $650,000. The offer was expressed to be open until 5.00 pm on 20 May 2003. The plaintiff conceded she did not instruct the defendants to attempt to settle once the offer of $650,000 was rejected by Westpac on 12 February 2003. 98 On 19 May 2003 the defendants referred the offer to counsel for his comment. Counsel required a break-up be obtained from Westpac's solicitors. On 19 May 2003 the defendants asked Westpac's solicitors for a break-up of the figure of $650,000. Westpac's solicitors responded to this request on 20 May 2003 and extended the time for acceptance of the offer to noon on 21 May 2003. On 20 May 2003 the first defendant telephoned counsel to inform him of the break-up. 99 In my opinion, the defendants owed a duty to the plaintiff to take reasonable care to inform her and/or Mr Gattellaro or Anthony of the offer within a reasonable time so as to enable the plaintiff and Mr Gattellaro to consider acceptance or rejection of the offer. 100 The first defendant gave evidence that he endeavoured to contact the plaintiff or Mr Gattellaro on 20 May 2003 but was unsuccessful. A note in his file confirmed this evidence. 101 The first defendant gave evidence he conveyed Westpac's offer to the plaintiff's son prior to the offer lapsing. He said he confirmed with the son that his parents would not be interested in accepting the offer. 102 The plaintiff's son had been authorised by the plaintiff to pass and receive messages to the plaintiff from the defendants because the plaintiff was at work and Mr Gattellaro was ill. 103 The first defendant's file note recorded the conversation with the plaintiff's son. It was undated. It stated: "To Gattellaro N/a Anthony Dad's in hospital gain. Got to have balloon put in. SB Bank had made an offer of $650,000 but not open for long - ran past Graham but then couldn't get answer to your place. Didn't think parents would be interested at that figure. 'No, that's right' Cont 19/6 Virgin flight if get in early $49 Dad will try and get down - not aware Confirmed 19/6" 104 Counsel for the plaintiff contended that that offer was not conveyed to the son until after the time for accepting the offer had expired. 105 Plaintiff's counsel relied upon the following evidence in support of the submission:

[109]

(g) In Biggar v McLeod [1978] 2 NZLR 9 the New Zealand Court of Appeal held the settlement of an action during its progress in court can be regarded as work related to the conduct of litigation. [Subsequent authority - Lai v Chamberlains [2005] 3 NZLR 291 concluded advocates' immunity was no longer part of the law of New Zealand.] Biggar was referred to, with apparent approval, by McHugh J in D'Orta at [154]-[156]. 110 The defendants rely upon the advocates' immunity in respect of their conduct of the matter. 111 The plaintiff submitted: "Our central proposition on immunity is that while we accept that we would not be entitled to challenge the decision not to pursue the '77 mortgage and the guarantee filed by means of the reply, if that had been the subject of cerebration and consideration by the defendants or counsel. If they had thought that through and sought instructions on it or provided advice about it and made a forensic decision about it, then we would not be able to challenge that decision under the immunity…Certainly we say the immunity does not provide any comfort to the defendants in the circumstances of this matter and that the breaches complained of in respect to conceptualisation of the case and advising in respect of it go beyond forensic decisions but are the entire basis on which the advice was given transcend the realm of forensic decisions to bloom into the negligent failure to advise." 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. 113 That the immunity rule should apply in a case such as the present is consistent with the finality principle which provides the primary justification for the immunity. In my opinion, the matters complained of by the plaintiff fall within the immunity rule.

Gattellaro v Spencer

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