Gellert v Bellamy [1999] NSWCA 123 | Case summary

1 MEAGHER JA: This is an appeal from a decision of Hulme J which was adverse to the appellant, Mr Gellert, who was one of five defendants in the Court below. He is a solicitor of this Court. 2 Mrs Bellamy, the plaintiff/respondent, sued the appellant under the Contracts Review Act. The plaintiff lost this issue, and no appeal arises out of it. She also sued the appellant in negligence. On this issue she won, and out of her victory arises the present appeal. Every cause of action she brought against the 2nd, 3rd, 4th and 5th respondents she lost, and she has not appealed from that result. 3 Mrs Bellamy, a 69 year old woman, mortgaged her home (which was her only asset") to the defendants so that she could pay the moneys advanced to her by the defendants to her son-in-law. His name was Tom Barton. He had been married to her daughter from upwards of 25 years. His name was well known in financial circles, but not entirely favourably. At the time of entering the loan his last financial venture had failed and he possessed no assets; yet his mother-in-law was under the impression that he was reasonably prosperous. He fancied that he could re-establish himself with the $250,000 the defendant lent to him (via his mother-in-law). 4 The appellant was the solicitor for the (nominal) borrower (Mrs Bellamy), the lenders (the second, third, fourth and fifth defendants), and for the (real) borrower Mr Barton. 5 The end came quickly. Mr Barton exhausted the $250,000, and more besides; the lenders sought to exercise their security against Mrs Bellamy's house; and she, realizing for the first time what a quandary she was in, sought to do something to save her home. The question for Hulme J was, what could she do? 6 There was no evidence that the appellant was fraudulent. 7 But there is ample evidence that he was negligent in discharging his duties to Mrs Bellamy, and his Honour so found. At no stage did he warn Mrs Bellamy of the danger she was in: any new change in Mr Barton's affairs for the worse (and they never changed for the better) and her house would go; it would have been prudent for him to have made this clear to her privately, not when there were present any of the other parties for whom he acted; on the evidence, he never saw her apart from Mr Barton. If he were unable to do this, he could have insisted on her taking independent advice from another solicitor, but the thought never seems to have crossed his mind; and this failure is ironically magnified by his having considered that both Mrs Bellamy and Mr Barton should jointly have received independent advice. 8 His position is rendered worse by a consideration of his relationship with Mr Barton. They were apparently at Law School together. They were friends. Mr Barton confided in him. He admired and trusted Mr Barton. Either he knew about Mr Barton's affairs or he did not. If he did not he pretended he did. If he did know, he should have warned his client, Mrs Bellamy, what a predicament she was in; if he did not know he should have pointed out to her how to equip herself with the necessary knowledge. It is, of course, true he was Mrs Bellamy's solicitor not her financial adviser; but, that did not absolve him from telling her that she should not proceed without arming herself with full knowledge. 9 In my view his Honour was correct, and the appeal should be dismissed with costs. 10 HANDLEY JA: I agree with Meagher JA. 11 GILES JA: Mrs Bellamy mortgaged her home to raise money to be paid to her son-in-law Mr Barton for Mr Barton's proposed business. Mr Gellert acted for Mrs Bellamy, although Mr Barton was the moving force in the transaction and realistically the borrower on the security of Mrs Bellamy's home. Hulme J held that Mr Gellert was liable in negligence to Mrs Bellamy for the loss suffered when Mr Barton could not repay the borrowed money and the mortgagees took her home. Mr Gellert appealed. 12 The core of Hulme J's reasons for finding Mr Gellert negligent was - "Nothing I have said to date indicates that Mr Barton brought any improper pressure to bear on the Plaintiff or that, as between those two, there was anything improper in the transaction. However it seems to me that the circumstances required that the Plaintiff be advised separately from him. This Mr Gellert failed to do and, as I have said, failed to advert to. Nor did he give the Plaintiff advice to seek such advice elsewhere. I am satisfied that any advice Mr Gellert gave to the plaintiff to obtain independent advice was clearly along different lines, i.e. that she and Mr Barton should (as a group) do so. In this respect in my view Mr Gellert failed in his duty to the Plaintiff. In so concluding I am not unconscious of the approach of the Court of Appeal in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 and Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at 413 tending to limit a solicitor's duty to matters required by his instructions. However it seems to me that the proper execution of the instructions in this case required the First Defendant to address the possibility of a conflict of interest between each and every of the parties on whose behalf he acted. Circumstances of oppression or misleading of elderly people by others, particularly those they trust, are notorious - see eg The Commercial Bank of Australia Limited v Amadio (1982) 151 CLR 447, of which the First Defendant said he had heard - and given the interest of Mr Barton in the transaction, the First Defendant was under an obligation to take steps to ensure that the Plaintiff was protected against him." 13 It was first submitted that a duty to advise Mrs Bellamy to obtain advice separately from Mr Barton was inconsistent with an earlier finding that there was nothing negligent in acting for all parties to the transaction. What his Honour had said was that he was unwilling to find that the mere acting for Mrs Bellamy, Mr Barton, and the lenders was negligent. There is no inconsistency. While not being negligent merely because acting for Mrs Bellamy and Mr Barton, that he was acting for both of them required Mr Gellert to give the advice abovementioned; indeed, he should have given it even if he had not been acting for Mr Barton. 14 Then it was submitted that it was not found that Mr Gellert was retained to give advice of a financial or commercial nature to Mrs Bellamy, or to advise her whether the transaction was a sensible one for her to enter into, and that while citing Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 his Honour had failed to apply the principles enunciated in that case. The submission misses the point of his Honour's reasons. There was stark potential for Mr Barton taking advantage of Mrs Bellamy, given their relationship; and Mr Barton's interest in having the borrowed money, Mr Barton's prime role in the transaction, and Mrs Bellamy's apparent willingness to provide the mortgage of her home, were all the more reason for Mr Gellert to question, in Mrs Bellamy's interests, whether she was acting free of any improper influence. The distinction between advice of a financial or commercial nature and other advice required of a solicitor is not a clear one (see for example Amadio Pty Ltd v Henderson (1998) 1 FCR 149 at 217-8), but in my view advice that she should be advised separately from Mr Barton would not be advice of a financial or commercial nature, or upon whether the transaction was a sensible one for Mrs Bellamy to enter into, although it could lead to such advice (by Mr Gellert if requested or by someone else). In my opinion, his Honour was correct to find that Mr Gellert owed to Mrs Bellamy a duty to endeavour to bring about advice separately from Mr Barton in order to guard against improper influence on his part. 15 As an element of this last complaint, it was submitted that Mrs Bellamy had not pleaded a case that Mr Gellert was bound to give her financial advice or ensure that she received it. The particulars of negligence included that Mr Gellert did not ensure that Mrs Bellamy "received independent legal advice". In my view that sufficiently caught the finding in the reasons of Hulme J. 16 Then it was submitted that his Honour was in error in his "apparent decision that the transaction was 'improvident'". It plainly was improvident, as would have been obvious to Mr Gellert had he sufficiently turned his mind to the matter, but again the submission misses the point. Mrs Bellamy may or may not have appreciated the improvidence, and may or may not have been willing to proceed in full knowledge of the improvidence. Mr Barton's influence may have hindered her appreciation or influenced her determination. Mr Gellert did not adequately guard against the influence, failing in the duty already discussed. 17 Turning to causation of loss, Hulme J's reasons were - "Did the First Defendant's failure cause any loss? The Plaintiff gave evidence that to the effect that in early discussions concerning the matter Mr Barton had mentioned a trust bond and said that if he got into difficulties, the money would be there to pay the loan out. Later she agreed that this evidence related to only a sum of $200,000, the balance being intended by Mr Barton to be used for other purposes. This topic was not referred to in the Plaintiff's affidavits and the Plaintiff's explanation for its omission was not persuasive. She agreed also that it was not mentioned to Mr Gellert. Nevertheless, so firm was the Plaintiff on the topic that, despite my reservations concerning some of her evidence I am disposed to accept that some such representation was made by Mr Barton. Furthermore, logic indicates that certainly the Plaintiff would have, as the evidence suggests, in the initial stages been concerned at the possibility of loss. It seems to me that, properly and independently of Mr Barton advised, the probabilities are strongly that the Plaintiff would have mentioned such a proposal to whoever was advising her. What would have happened then is however a more difficult matter. The possibilities are numerous. The transaction might not have gone ahead at all. Mr Barton might have been prevailed upon to provide at least some security for the Plaintiff. He might have been caught out in a lie. The transaction might have gone ahead as it did. My inclination is to think that the last of these is the least likely. Although there were motives other than financial ones which provoked the Plaintiff to participate in the transaction, I think the probabilities are against her, properly advised, taking the risk with her only asset which she did. I am thus satisfied that she has suffered loss as a result of the First Defendant's breach of duty." 18 It was submitted that his Honour's conclusion was "no more than speculation unsupported by the evidence". On the contrary, in my view it was open to his Honour to reason as he did, and to conclude that the probability was that Mrs Bellamy would not have gone ahead with the transaction. Any discussion with Mrs Bellamy independently of Mr Barton was likely to bring mention of the so-called trust bond, and it was likely that there would have been some further enquiry which would have disclosed that Mrs Bellamy's obscure understanding of the trust bond was incompatible with the use she thought Mr Barton was to make of the borrowed money. It is clear enough that family feelings moved Mrs Bellamy to provide a mortgage of her home (being the motives "other than financial ones" to which his Honour referred), but it can readily be seen that initiation of further investigation through advice independently of Mr Barton may have led to recognition of the transaction as improvident and refusal to proceed. His Honour thought that, on the probabilities, it would have done so, and I do not think that any reason has been shown to overturn his conclusion. 19 I do not think that error has been shown in his Honour's decision. I concur in the view that the appeal should be dismissed with costs.

Gellert v Bellamy

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