Goddard Elliott (a firm) v Fritsch [2012] VSC 87

For the plaintiff and first defendant by counterclaim

1 When Goddard Elliott agreed to act for Paul Gerhardt Fritsch in a property settlement proceeding in the Family Court of Australia, it knew the proceeding raised complex commercial and taxation issues and he was mentally ill. Despite nearly two years of preparation and not due to any fault on his part, Mr Fritsch's case was not ready to proceed at the commencement of the trial, which was adjourned for three days.

2 On the return date, the proceeding settled at the door of the court on terms which were overly generous to the wife. At that time, Mr Fritsch was very ill; soon afterwards, he was admitted to a psychiatric hospital. He contends the settlement resulted from the negligence (and other wrongs) of Goddard Elliott, particularly by taking and acting on instructions which he did not have the mental capacity to give. In this court, he seeks as damages the alleged extra amount (said to be $1.6 million) he would have received in a just and equitable settlement by order of the court.

3 Mr Fritsch also sued his barristers Noel Ackman QC and Clive Rosen and his accountant Kevin Ferguson. During the hearing, he settled his claims against all three. Goddard Elliott did not settle. It contends Mr Fritsch had mental capacity to instruct and voluntarily settled the case to avoid significant forensic, taxation and other risks. Mr Fritsch had repented after-the-fact at his own bargain. There was no negligence (or other wrong). If there was, it is covered by an ancient principle, surviving in Australia, which immunises solicitors and barristers against liability for loss and damage caused by court-related negligence.

4 The proceeding in this court began when Goddard Elliott made a claim against Paul (as he was referred to by all parties) by way of amended statement of claim dated 5 October 2005. This was a straightforward claim for outstanding legal fees in the sum of $103,931.61, plus interest or penalty interest and costs.

Paul Fritsch (as defendant and plaintiff by counterclaim)

5 Paul conceded Goddard Elliott's claim for outstanding legal fees, subject to the resolution of an issue of detail about the amount owing.

6 Paul's claim was set out in his second further amended defence and counterclaim dated 1 October 2010. He pleaded his case in contract (against Goddard Elliott, Mr Ackman, Mr Rosen and Mr Ferguson), negligence (against all of them), breach of fiduciary (against the lawyers) and misleading and deceptive conduct contrary to ss 4 and s 9 of the Fair Trading Act 1985 (Vic) (against all of them but in different specified respects).

7 In the contractual claim, Paul alleged there were contractual terms of his engagements with Goddard Elliott, Mr Ackman, Mr Rosen and Mr Ferguson that they would each exercise all reasonable care, skill, diligence and competence as solicitors, counsel and expert accountant respectively (paragraph 15D). He also claimed there were implied terms that the lawyers would always act in his best interests and refrain from bringing improper pressure to bear on him (paragraph 15E). He alleged Andrew Goddard of Goddard Elliott breached those terms of the firm's engagement by failing to prepare for the scheduled final hearing in particularised respects (paragraph 19(a)). In summary, it failed to obtain proper valuation and tax liability evidence (paragraph 19(a)(i)-(vi)), failed to ensure the availability of witnesses (paragraph 19(a)(vii)), failed properly or adequately to brief or instruct counsel and failed properly to draw and file the husband's financial statement (paragraph 19(a)(ix)). In the running of the case, Paul also relied on Goddard Elliott's failure to prepare a response the wife's comprehensive affidavit on the question of costs and on its failure to seek, obtain and file proper evidence of Paul's post-separation contributions to the maintenance and conservation of the matrimonial assets.

8 In this contractual context, Paul also relied on the lawyers' imposition of improper pressure and procuration of a coerced settlement (paragraph 21(a) and (b)) and the making of the representations (Goddard Elliott, Mr Ackman and Mr Rosen) and further representation (Goddard Elliott, Mr Rosen and Mr Ferguson) referred to below (paragraph 27A(a) and (b)(i)).

9 In the negligence claim, Paul alleged Goddard Elliott, Mr Ackman, Mr Rosen and Mr Ferguson owed him a duty to take reasonable care in their respective professional capacities (paragraph 16(a)). It was clear from the way Paul conducted the case that, in relation to the negligence claim, he generally relied on the conduct and failures alleged in respect of the contractual and fiduciary duty claims. On that basis, he claimed the duty which the lawyers owed him was breached. In this negligence context, he also relied on the making of the representations (Goddard Elliott, Mr Ackman and Mr Rosen) and further representation (Goddard Elliott, Mr Rosen and Mr Ferguson) referred to below (paragraph 27A(a) and (b)(ii)).

10 In the breach of fiduciary duty claims, Paul pleaded that the duty arose out of his professional relations with his lawyers. He alleged that, in breach of this fiduciary duty, the lawyers procured him to enter a grossly unfair and inappropriate settlement and in circumstances where he had no or insufficient mental capacity to do so (paragraph 20(a) and (b)). His case was that, by reason of his major depression and chronic post stress disorder, which were aggravated by stress, he was unable to make decisions in his own best interests or properly instruct his lawyers (paragraph 20(b)). It was implicit in claim that the lawyers knew or should have known this and breached their fiduciary duty towards him by procuring the settlement in the circumstances. He expanded the claim in the running of the case to include the contention that the lawyers breached their fiduciary duty by coercing into the settlement.

11 In the misleading and deceptive conduct claims, Paul alleged the lawyers told him on 16 September 2004 that he would only have to meet a certain tax liability if he made voluntary disclosure or in the unlikely event of a tax audit (in paragraph 22(a)), that if the proceeding went to trial the judge would refer the papers to the Australian Taxation Office and there would likely be a tax investigation (paragraph 22(b)), that if Paul did not settle the case he would probably have to pay the wife's entire costs of about $200,000 (paragraph 22(c)) and that the judge's hostility towards Paul would be likely to have adverse consequences for him (paragraph 22(d)). These allegations were called 'the representations'. He made one other allegation of this kind against these defendants which he did not press (paragraph 22(e)).

12 Paul also alleged a further misleading and deceptive statement against Mr Goddard, Mr Rosen and Mr Ferguson. He alleged they told him on 16 September 2004 that he could use certain monies standing in a family company account to pay the wife without having to pay tax on that sum (paragraph 23). This was called 'the further representation'.

13 It was alleged that the representations and the further representation were made in trade and commerce and were misleading and deceptive contrary to s 9 of the Fair Trading Act and that s 4 of that Act applied to them (paragraphs 24 and 25). What made the representations and further representation misleading and deceptive was particularised (paragraph 26). He alleged he agreed to enter into the settlement in reliance on them (paragraph 27).

14 Paul alleged he had suffered loss and damage by reason of the civil wrongs done to him for which the defendants were liable (paragraph 28). He particularised his loss in this manner (rounded to the dollar):

This amount of $1,572,038 (plus interest and costs) was claimed as damages for breach of contract or in negligence, or equitable compensation for breach of fiduciary duty or pursuant to s 159(1) of the Fair Trading Act.

Goddard Elliott (as first defendant by counterclaim)

15 As the first defendant by counterclaim, Goddard Elliott admitted the retainer with Paul (paragraph 3) and the implied contractual terms, the duty of care and the fiduciary obligations which arose in consequence (paragraphs 4D and 5). In summary, it pleaded it had not breached those terms or that duty or obligation.

16 Goddard Elliott denied the allegation that it had breached the terms of its engagement by failing to exercise all reasonable care, skill, diligence or competence (paragraph 8). It denied the breach of fiduciary duty alleged to have occurred in relation to the settlement (paragraph 9) and the reliance on that breach in reference to the contractual claim (paragraph 10). It denied the allegations of misleading and deceptive conduct based on the representations and the further representation (paragraphs 11 and 12).

17 Goddard Elliott alleged it had arranged for all witnesses who were intended to give evidence to be present at the proceeding in the Family Court (paragraph 8(a)-(d)). Counsel were properly briefed and conferences were conducted (paragraph 8(d)(ii) and (iii)). Mr Ferguson had prepared a valuation report which was updated on Paul's direct instructions (paragraph 8(a), (b)). Any difficulties encountered by Paul resulted from the provision of those instructions (paragraph 8(e)). As to taxation matters, Paul was being advised by his own accountant (paragraphs 8(f) and 12). The statement of financial circumstances was in fact prepared by Paul with the assistance of that accountant, not by Goddard Elliott (paragraph 8(j)).

18 As to the alleged coerced settlement, Goddard Elliott alleged Paul agreed to enter into that settlement although the barristers did not recommend it (paragraph 8(h)) and only after giving authority in writing (paragraph 8(i)). Goddard Elliott relied on a letter dated 9 September 2004 from Paul's treating psychiatrist (which did not say he lacked capacity) (paragraph 9(b)).

19 Goddard Elliott admitted giving certain advice to Paul in relation to overdue taxation and the calculation of the asset pool (paragraphs 11(a) and (b)), as well as in relation to other matters (paragraphs 11(c)-(e)), but denied making the representations and the further representation (paragraphs 11 and 23). It denied that the representations and the further representation constituted conduct in trade or commerce that was misleading or deceptive within s 9 of the Fair Trading Act. Relying on s 4 of that Act (paragraphs 13, 14 and 26), it alleged the representations which were made to Paul (as set out in paragraphs 11(a)-(e)) were reasonable expressions of present opinion and not made in trade or commerce (paragraph 14A). It denied the allegation of reliance on the part of Paul and alleged he entered into the settlement on the basis of advice which was properly given by Goddard Elliott and the barristers (paragraph 16). If the further representation was made, it was so done by Mr Ferguson or Mr Rosen, not by Goddard Elliott (paragraph 12A(a)).

20 In reference to Paul's claims based on breach of contract, negligence and breach of fiduciary duty, Goddard Elliott alleged it was immune from suit because any alleged negligent acts or omissions constituted work out of court leading to a decision or decisions affecting the conduct of a case in court and constituting work intimately connected with work in court (paragraphs 9(c) and 10). It also alleged these claims were contrary to public policy for being a collateral attack on the consent orders of the judge of the Family Court (paragraphs 9(d)). It relied on the immunity in reference to the representation (by implication) and the further representation (paragraph 12A(b)) as well.

21 It was denied by Goddard Elliott that Paul had suffered any loss or damage by reason of the wrongs alleged (paragraph 19). It alleged any loss or damage was caused or contributed to by his own negligence (paragraph 18) and that he had failed continually to mitigate his loss (paragraph 20). Finally it alleged that Mr Ackman, Mr Rosen and Mr Ferguson were each liable for any loss or damage as concurrent wrongdoers with the result that, under Part IVAA of the Wrongs Act 1958 (Vic), the liability of Goddard Elliott was limited to that provision of loss or damage which the court considered just having regard to the extent of its responsibility for the loss or damage (paragraph 21-23).

Noel Ackman QC and Clive Rosen (as second and third defendants by counterclaim)

22 In accordance with the settlement reached between Paul and Mr Ackman and Mr Rosen, his claims against those defendants by counterclaim were dismissed with no order as to costs. However, by reason of the reliance by Goddard Elliott as the first defendant by counterclaim on the proportionate liability provisions of pt IVAA of the Wrongs Act, they were retained as nominal parties to the proceeding. In that context it will later be necessary to give consideration to the terms of settlement.

Kevin Ferguson (as fourth defendant by counterclaim)

23 In accordance with the settlement reached between Paul and Mr Ferguson, his claims against that defendant by counterclaim were dismissed with no order as to costs. As with the second and third defendants by counterclaim, Mr Ferguson was retained as a nominal party to the proceeding by reason of the potential application of the proportionate liability provisions of the Wrongs Act. In that context it will also later be necessary to give consideration to the terms of settlement.

24 On the pleadings I have just summarised, the issues raised for determination were:

• did Goddard Elliott, Mr Ackman and Mr Rosen breach their duty of care towards Paul

• did Goddard Elliott, Mr Ackman and Mr Rosen breach their fiduciary duty towards Paul

• did Goddard Elliott, Mr Ackman, Mr Rosen and Mr Ferguson make misleading and deceptive statements

• did Goddard Elliott, Mr Ackman and Mr Rosen procure the settlement by coercion or when Paul lacked capacity

• does the advocates immunity apply to the negligence, coercion and misleading and deceptive statements

• did the negligence, coercion or misleading and deceptive statements cause Paul Fritsch any loss

• what orders for apportionment of liability should be made

• what amount of fees are outstanding as between Paul and Goddard Elliott

25 As Paul settled his claims against Mr Ackman, Mr Rosen and Mr Ferguson, the issues which I must determine are those issues but only in relation to Goddard Elliott.

26 The trial was conducted over 25 sitting days in October and November 2010. The transcript numbers 2,450 pages.

• Paul Fritsch
• Hon Eric Baker (former judge of Family Court of Australia)
• Arthur Velakoulis (Paul's treating psychiatrist)
• Keith Harvey (independent taxation lawyer)
• Hans Norbert Fritsch (Paul's brother)
• Peter Walton (Fritsch family accountant)
• Sofie Fritsch (Paul's mother)
• Florence Plumridge (Paul's former mother in law)
• Arno Fritsch (Paul's father) (affidavit evidence only)

• Andrew Goddard
• Hon Joseph Kay (former judge of Family Court of Australia)
• Clive Rosen
• Darren Hockley (independent tax accountant)
• Kevin Ferguson.

28 The court book initially numbered 13 volumes. It was reduced to seven volumes by the end of the trial. The Family Court file was received into evidence, along with a large number of other exhibits. Where possible, I have based the findings of fact on the documentary evidence.

Settlements between Paul Fritsch and Noel Ackman QC, Clive Rosen and Kevin Ferguson

29 During the trial and before Goddard Elliott opened its case, Paul settled his claims against Mr Ackman and Mr Rosen. As the settlements were relied on by Goddard Elliott's in its proportionate liability defence, the terms were received into evidence. The material terms were as follows:

1. By proceeding No 8154 in the Supreme Court of Victoria at Melbourne, the plaintiff (Goddard Elliott) commenced legal proceedings against the defendant (Fritsch) (the proceedings).
2. Fritsch counterclaimed in the proceedings against Goddard Elliott and later against the second defendant by counterclaim (Ackman) the third defendant by counterclaim (Rosen) and the fourth defendant by counterclaim (Ferguson).

1. In the interests of avoiding the further expense and inconvenience of litigation, and with a denial of liability Ackman and Rosen wish to settle the proceedings on the terms hereof.

1. Ackman shall pay to Fritsch $90,000 on or before 15 November 2010 towards Fritsch's legal costs in full and final settlement of Fritsch's claims in the proceedings including his claim for interest and costs.
2. Rosen shall pay to Fritsch $90,000 on or before 15 November 2010 towards Fritsch's legal costs in full and final settlement of Fritsch's claims in the proceedings including his claims for interest and costs.
3. Fritsch hereby releases and forever discharges each of Ackman and Rosen from all claims (including claims or complaints which he might otherwise make to professional disciplinary bodies), causes of action, suites, demands, costs (including any costs orders already made in the proceedings) arising out of or incidental to the proceedings or the facts giving rise thereto.
4. Ackman and Rosen hereby release and forever discharge Fritsch from all claims, causes of action, suites, demands, costs (including any costs orders already made in the proceedings) arising out of or incidental to the proceedings or the facts giving rise thereto.
5. If either of:

(a) Ackman; or

(b) Rosen;

fail to pay the sum which respectively by clauses 1 and 2 they agreed to pay to Fritsch, by the time prescribed by such clause, then the party in default consents to judgment against them in the proceedings for the balance outstanding of the sum which they agreed to pay.

1. Fritsch hereby agrees forthwith to take all steps reasonably necessary to have orders made in the proceedings as follows:

(a) that the proceedings between Fritsch and Ackman and Rosen be dismissed (although the parties acknowledge that Ackman and Rosen will remain named as defendants by counterclaim for the purposes of allegations of proportionate liability made in the defences of Goddard Elliott and Ferguson); and

(b) there be no order as to costs.

30 During the trial and after Goddard Elliott went into evidence but before it closed its case and before Mr Ferguson opened his case, Paul settled his claim against Mr Ferguson. This settlement was also relied on by Goddard Elliott in its proportionate liability defence. The material terms are

1. By proceeding No 8154 in the Supreme Court of Victoria at Melbourne, the plaintiff (Goddard Elliott) commenced legal proceedings against the defendant (Fritsch) (the proceedings).
2. Fritsch counterclaimed in the proceedings against Goddard Elliott and later against the second defendant by counterclaim (Ackman) the third defendant by counterclaim (Rosen) and the fourth defendant by counterclaim (Ferguson).

1. In the interests of avoiding the further expense and inconvenience of litigation, and with a denial of liability Ferguson and Fritsch wish to settle the proceedings on the terms hereof.

1. Ferguson agrees to pay to Fritsch $60,000 on or before 26 November 2010 as a contribution towards Fritsch's legal costs in full and final settlement of Fritsch's claims in the proceedings including his claim for interest and costs.
2. Fritsch hereby releases and forever discharges Ferguson from all claims (including claims or complaints which he might otherwise make to professional disciplinary bodies), causes of action, suites, demands, costs (including any costs orders already made in the proceedings) arising out of or incidental to the proceedings or the facts giving rise thereto.
3. Ferguson hereby releases and forever discharges Fritsch from all claims, causes of action, suits, demands, costs (including any costs orders already made in the proceedings) arising out of or incidental to the proceedings or the facts giving rise thereto.
4. If Ferguson fails to pay the sum which by clause 1 he agrees to pay to Fritsch by the time prescribed by such clause, then Ferguson consents to judgment against him in the proceedings for any amount outstanding of the sum which he agrees to pay.
5. Fritsch and Ferguson agree to orders by consent in the proceedings as follows:

(a) that the proceedings between Fritsch and Ferguson be dismissed (although the parties acknowledge that Ferguson will remain named as fourth defendant by counterclaim for the purposes of allegations of proportionate liability made in the defence of Goddard Elliott); and

(b) there be no order as to costs.

31 On one view, the settlements affected the amounts which Goddard Elliott could recover against Paul. On that issue and with the leave of the court, Goddard Elliott made supplementary submissions dated 20 April 2011 and 20 May 2011 and Paul made supplementary witness submissions dated 10 May 2011. I will consider this issue later.

Failure of Goddard Elliott to call Noel Ackman QC

32 Mr Ackman was not called by any party to give evidence. It was submitted for Paul that the rule in Jones v Dunkel[1] should be applied in his favour on the basis that it was reasonably to be expected that Goddard Elliott would call Mr Ackman to give evidence on its behalf. Goddard Elliott strongly contested that submission.

33 As we have seen, there were four defendants by counterclaim in the proceeding: Goddard Elliott, Mr Ackman, Mr Rosen and Mr Ferguson (in that order). The solicitors for Goddard Elliott were Obst Legal and its counsel was Aileen Ryan. The solicitors for Mr Ackman and Mr Rosen were Landers & Rogers and their counsel were (separately and respectively) James Peters QC (with Jonathan Davis) and Kim Knights. The solicitors for Mr Ferguson were DLA Phillips Fox and his counsel was Tim Walker.

34 The settlement of the claims between Paul as the plaintiff by counterclaim and Mr Ackman and Mr Rosen as the second and third defendants by counterclaim was by the single document 12 October 2010 which I have already set out. It was signed by those parties. In accordance with that settlement, the claim against Mr Ackman and Mr Rosen was dismissed.

35 The settlement was reached while evidence was still being led on behalf of the plaintiff. The defendants had not yet opened their case. After the settlements and consequential orders, Goddard Elliott was the one remaining active lawyer defendant by counterclaim. After Goddard Elliott opened it case, it called a number of witnesses to give evidence, including Mr Rosen and Mr Ferguson (the latter by then had also settled his case with Paul). Goddard Elliott did not call Mr Ackman. No explanation was offered, besides the explanation that it was not obliged to call him. It was not submitted Mr Ackman was not available. He obviously was available, being present at court on a number of occasions during the trial. My invitation to rule on whether Mr Ackman was in Goddard Elliott's camp before it closed its case was declined.

36 In a case like the present, the rule in Jones v Dunkel will apply where 'it might reasonably have been expected'[2] or 'it would be natural'[3] for one party to call or produce the witness. It has been held the rule applies in a case where there has been an 'unexplained failure by a party to call a witness who is in the camp of that party'.[4] That was the principal matter at issue in the present case.

37 Goddard Elliott submitted Mr Ackman was not 'in the camp' of Goddard Elliott. There was no basis for contending Goddard Elliott had better access to Mr Ackman's knowledge than Paul. Mr Ackman was a co-defendant who was separately represented by solicitors and counsel. Mr Ackman had settled with Paul but Goddard Elliott had not. There was no basis for contending Goddard Elliott had the greater confidence of Mr Ackman. Mr Ackman was not an employee of Goddard Elliott, but was retained independently. Even in that capacity, Mr Ackman was entirely independent of Goddard Elliott. The retainer had ended and Mr Ackman had no continuing relationship with Goddard Elliott.

38 It was further submitted that, even if Mr Ackman could be seen to have been in Goddard Elliott's camp while he was retained by that firm, this was no longer the situation. The retainer having ended, Mr Ackman, could not be regarded as someone who was more likely to give evidence favourable to Goddard Elliott. The interests of Goddard Elliott and Mr Ackman and Mr Rosen in the proceeding brought by Paul did not coincide. The proportionate liability legislation made the individual liability of each defendant highly relevant to the liability of the other. It was not unrealistic to expect Paul to call Mr Ackman as a witness.

39 It was finally submitted that there was already a great body of evidence on the issues of fact about which Mr Ackman could have spoken. The rule in Jones v Dunkel does not require a party to give cumulative evidence which would add little to the evidence which had already been given on a subject.[5] Mr Rosen gave evidence in the present case. Although he was not the senior counsel, he was the one who was more constantly present on 16 September 2004 when the critical events happened. Mr Ackman had to be absent late in the day for medical reasons.

40 I do not accept these submissions. This proceeding arises out of a property settlement proceeding in the Family Court in which Paul was represented by Goddard Elliott, Mr Ackman and Mr Rosen. Paul's independent expert accountant was Mr Ferguson. In this proceeding, he alleges negligence and other causes of action against them. On the one side and in one camp on his own is Paul as the plaintiff by counterclaim and on the other side in the one camp as a group there is Goddard Elliott, Mr Ackman, Mr Rosen and Mr Ferguson as the defendants by counterclaim. After Mr Rosen and Mr Ferguson settled with Paul, they were called to give evidence on behalf of Goddard Elliott, as was natural and reasonably to be expected. It was only Mr Ackman who was not so called. The settlement of the claim as between Paul and Mr Ackman did not take Mr Ackman out of the defendants' camp and put him in Paul's camp or in no camp.

41 It is true that Mr Ackman is not and never was Goddard Elliott's employee. Mr Ackman was the retained, independent senior counsel. Mr Ackman was a co-defendant. Goddard Elliott and Mr Ackman might be liable in different proportions for any damages. All of these matters are relevant when determining whether it was reasonably to be expected that Goddard Elliott would call Mr Ackman to give evidence and I have taken them into account.

42 What is more important, however, is the nature of the case which has been brought by Paul against the defendants. In the negligence and other claims which have been made, and in the factual basis of what has been alleged, the nature of that case puts all of the defendants by counterclaim in the one camp. While there is a significant difference between what has been alleged against Goddard Elliott, Mr Ackman and Mr Rosen on the one hand and Mr Ferguson on the other, even that does not put any of them in a different camp to the other. I take into account that those defendants were represented by separate counsel (although Mr Ackman and Mr Rosen had the same solicitors) and their litigious interests were not conterminous. But they were still all united in their defence, on legal and factual grounds, against the plaintiff's claim. I reject the submission that, after the settlement between Paul and Mr Ackman, Paul should have treated Mr Ackman as a witness in whom he could have had as much confidence as Goddard Elliott. It defies the nature of the case which Paul had brought and the history of the participation of the parties in the proceeding.

43 I also reject the submissions that Mr Ackman's evidence would have been cumulative. He was the senior counsel briefed by Goddard Elliott to represent Paul. There were not many witnesses to the important events which happened. The question of Paul's mental capacity, about which Mr Ackman had significant and informed views, was a fundamental issue in the proceeding. Despite his absences on 16 September 2004, Mr Ackman was present for substantial periods on that day and allegedly played an important part in what occurred. Mr Ackman played the central role in seeking a ruling from the Ethics Committee in the previous days. The settlement agreement contains his handwriting. The circumstances surrounding that agreement are central factual issues in the case. Mr Ackman was the sole author of the memorandum dated 24 September 2004. In his evidence, Paul made factual allegations about Mr Ackman. Far from Mr Ackman's evidence being cumulative, I consider him to be a witness of substantial importance.

44 In my view, Mr Ackman was a witness whom Goddard Elliott could reasonably have been expected to call to give evidence. None of the authorities relied on by Goddard Elliott[6] persuade me otherwise and the principles which they state tend only to confirm my conclusion.

45 What use may be made of the unexplained failure by Goddard Elliott to lead evidence from Mr Ackman whom they could reasonably have been expected to call? The general principle which is stated in Blatch v Archer[7] is that 'all evidence is to be weighed according to the proof which it was in the power of one side to have produced and in the power of the other to have contradicted'. It was held by Newton and Norris JJ in O'Donnell v Reichard[8] (which was followed by Buchanan, Eames and Nettle JJA in Ronchi)[9] that, in so weighing the evidence, the unexplained failure of the party to call the evidence may be taken into account against that party for two purposes:

(a) in deciding whether to accept any particular evidence, which has in fact been given, either for or against that party, and which relates to a matter with respect to which the person not called as a witness could have spoken; and (b) in deciding whether to draw inferences of fact, which are open to them upon evidence which has been given, again in relation to matters with respect to which the person not called as a witness could have spoken.[10]

46 The unexplained failure of the party to call the witness cannot be used to reason that the evidence of the witness would not have been favourable to the party. The trier of fact cannot allow the inference which may (not must) be drawn to be elevated that high. It is limited to the inference that, if called, the evidence would not have assisted the case of the party failing to call the witness.[11] As was held in Weissensteiner v The Queen,[12] that inference is available when evaluating all of the evidence which is before the court, including the evidence given by witnesses whose credibility and reliability has been attacked. As applied in the case of evidence of that kind, Mason CJ, Deane and Dawson JJ held this to be the principle:

Doubts about the reliability of witnesses or about the inferences to be drawn from the evidence may be more readily discounted in the absence of contradictory evidence from a party who might have been expected to give or call it.[13]

That is of some importance in this case as Paul's credit and reliability has been attacked.

47 That principle was applied in a case like the present by the Full Court of the Supreme Court of South Australia in Meegan v Shore.[14] It too was a case where the plaintiff had brought an action in negligence against her lawyers. She too alleged the lawyers had failed properly to advise and represent her in relation to a settlement of legal proceedings. As was Paul's evidence in the present case, the reliability of the plaintiff's evidence about what had occurred in critical meetings was hotly contested. The defendant relied on the plaintiff's failure to call her companion to give evidence. He was present at one important such meeting. The reliability of the plaintiff's evidence was in question. Nyland, Gray, Vanstone JJ overturned the verdict of the trial judge in favour of the plaintiff. One ground of doing so was the trial judge should have taken into account the plaintiff's failure to call the witness, who was in her camp, in evaluating the plaintiff's evidence, both as to what happened at the meeting and generally.[15] The facts of the present case are very similar, except that it was the defendant, Goddard Elliott, who failed to call a witness. The same principle applies.

48 In conclusion, it was within the power of Goddard Elliott to call Mr Ackman as a witness in relation to important issues of fact in the case, particularly Paul's mental capacity and what occurred when the proceeding in the Family Court was settled on 16 September 2004. As Mr Ackman was in Goddard Elliott's camp, it was reasonably to be expected that it would call him to give evidence on its behalf. For reasons which were not explained, it failed to do so.

49 The unexplained failure of Goddard Elliott to call Mr Ackman gives rise to an inference that his evidence would not have assisted Goddard Elliott's case. That inference may be taken into account against Goddard Elliott in evaluating the whole of the evidence in the case, including the evidence of Paul. By reason of Goddard Elliott's failure to call Mr Ackman, I might more readily resolve any doubts I have about the reliability of Paul's evidence.

Admissibility of affidavit evidence of Arno Fritsch

50 It was submitted for Paul that the court should receive into evidence the affidavit of Arno dated 10 December 2008. Arno died on 14 December 2008 and was therefore unavailable to give evidence.

51 The circumstances of the signing of the affidavit were set out in Norbert's affidavit dated 4 October 2010. Arno was diagnosed with prostate cancer in 2005 but was in good health until September 2008. His health then deteriorated. His health improved, but then deteriorated again. He was in and out of hospital. In late November 2008, he was given two to three months to live.

While his condition then deteriorated further, he was lucid until near the end. On Arno's suggestion, Paul's solicitor, Brian Mulcahy, took the affidavit from Arno on 10 December 2008. At that time, Arno was 'weak but mentally alert'. His condition deteriorated rapidly on 12 December 2004 and he died on 14 December 2004.

52 Arno's affidavit adopts (as substantive content) his short unsworn affidavit of about 14 September 2004 with a correction about a $387,000 loan which he made to Paul. The correction was that the loan had been repaid and was not outstanding on 16 September 2004. The unsworn affidavit otherwise deals mainly with the Fritsch family business structure. The sworn affidavit explains that structure in more detail and gives evidence of Paul's state of mental ill-health and Arno's version of the days leading up to and the events of 16 September 2004. It is his evidence of what occurred on 16 September 2004 that is most controversial. Arno's evidence is set out more fully later in this judgment.

53 By reason of s 59(1) of the Evidence Act 2008 (Vic), Arno's evidence would not be admissible, although plainly relevant, because it contains previous representations.[16] This is the hearsay rule.

54 There are exceptions to the hearsay rule. Paul relies on the exception in s 63, which materially provides:

(1) This section applies in a civil proceeding if a person who made a previous representation is not available to give evidence about an asserted fact.

(2) The hearsay rule does not apply to:

(b) a document so far as it contains the representation ...

55 By s 62(1), the 'previous representation' to which s 63(1) refers is a reference to a previous representation 'that was made by a person who had personal knowledge of an asserted fact'. The contents of Arno's affidavit fall into this category. In my view, in that affidavit he swears to facts within his personal knowledge.

56 By s 63(2)(b), the hearsay rule does not apply to a document in so far as it contains the previous representation. Therefore the hearsay rule does not apply to the whole of Arno's affidavit and, being entirely relevant, it is admissible subject to discretionary exclusion. Section 67 imposes notice requirements in relation to the application of s 63. These have been complied with in the present case. By cl 4(1) of pt 2 of the dictionary, Arno was taken to be unavailable to give evidence because he is dead.

57 The court has a general discretion to exclude evidence. It is specified in s 135:

The court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might:

(a) be unfairly prejudicial to a party; or

(b) be misleading or confusing; or

(c) cause or result in undue waste of time.

58 On behalf of Goddard Elliott, it was submitted the court should refuse to admit Arno's evidence under s 135(a) and (b), particularly the former. It was submitted Arno was not a disinterested witness. His evidence could not be tested by cross-examination. He was personally involved in the factual controversy. In parts, his evidence was highly prejudicial to Goddard Elliott. The reliability of the evidence could not be tested by cross-examination. Arno could have given the evidence on commission or in a de bene esse examination, though he did not do so. Moreover, parts of the affidavit were misleading and confusing.

59 In exercising the discretion to refuse to admit evidence under s 135, the starting point must be that the evidence is admissible. That the evidence was made admissible by the operation of s 63 is not, in my view, a relevant consideration. Evidence is either admissible or it is not. To refuse to admit the evidence, a case for the exercise of the discretion under s 135 must be established. The exercise of that discretion is not to be an indirect way of defeating the policy of the Evidence Act in favour of the admission of certain hearsay evidence under s 63. Thus I begin my examination of the question from the starting point that Arno's evidence was admissible.

60 Section 135 allows the evidence to be refused if 'its probative value is substantially outweighed' by the specified dangers. I think it is sensible first to identify the probative value of the evidence and then to consider whether it would be outweighed by those dangers.

61 'Probative value' is defined in pt 1 of the dictionary as meaning 'the extent to which the evidence could rationally affect the assessment of the probability of a fact in issue'. The probative value of Arno's evidence is high. In particular, he was personally present at the Family Court on 16 September 2004 and gives evidence about what occurred on that day. He gives evidence of Paul's state of mind on this day (and previous days), what his lawyers said to him and how they acted towards him, all of which are important factual issues in the proceeding.

62 I then turn to whether the probative value of this evidence is substantially outweighed, particularly by the danger that the evidence might 'be unfairly prejudicial' to Goddard Elliott as a party. What is required is not just that the probative value is outweighed, but that it is 'substantially outweighed'. Furthermore, it is not prejudice itself which must be established, but the danger that the evidence might be 'unfairly prejudicial' to the party.

63 A significant kind of unfair prejudice at which s 135(a) is aimed is the potential misuse of evidence. However, in considering the potential for misuse to occur, the court must take into account the mode of the trial. In the present case, I am conducting the trial as a judge alone. It is generally accepted that judges sitting in cases alone do not misuse evidence. Therefore this is not a consideration in this case.

64 Because it is unfair prejudice which must be established, it is not enough that the evidence will assist one party and damage the other party in the case,[17] as Arno's evidence does here. It is in the nature of such evidence that it is prejudicial to the case of the other party. The question is whether it is unfairly prejudicial.

65 The authorities discuss whether the inability of a party to cross-examine the witness can be taken into account as unfair prejudice.[18] There is a concern that taking this consideration into account might defeat the policy of admitting certain hearsay evidence. It seems inevitable, however, that this is a consideration which must be taken into account. In the final analysis, it will usually be necessary to determine whether the risk of unfair prejudice to the other party can satisfactorily be addressed by taking the absence of cross-examination into account when considering what weight should be given to the evidence.

66 In cases like the present, that is how judges have approached the matter. In Lane v Jurd (No 2),[19] a party sought to rely on the statement of a witness who had died. Despite the partiality of the witness, McClelland CJ in Eq admitted the statements after taking the absence of cross-examination into account:

Counsel for the plaintiff has asked me, if I should come to that conclusion, to refuse to admit the evidence under s 135 on the ground that it would be unfairly prejudicial to the plaintiff to do so. There is some substance in that submission in that Mr Major was not an entirely disinterested person. He was the father of the second defendant, and the plaintiff, by reason of his unavailability, is unable to cross-examine him with a view to testing the accuracy of what is asserted in his statement. I recognise the weight of those considerations but they do not persuade me that admission of this statement would be unfairly prejudicial to the plaintiff. Clearly they limit its probative value, but that can be assessed in the light of all the evidence.[20]

67 A similar case was DJZ Constructions Pty Ltd v Pritchard.[21] This was a negligence action brought by a client against his lawyers. The plaintiff sought to admit statements from witnesses who were not available. Schmidt J admitted the statements, giving these reasons:

It is settled that 'unfair prejudice' in s 135 of the Evidence Act means a risk that evidence will be misused in some way. That was not a possibility in this case. The lack of any opportunity to cross-examine had to be weighed in the balancing exercise which the section requires, but was not decisive of the question of whether the statements should be admitted (see for example Ordukaya v Hicks[22]). I came to the conclusion that in this case this difficulty was one which went to the weight to be given to the statements, once received, rather than to their admissibility.[23]

68 That is the approach which should be adopted in the present case. I am not satisfied the inability of Goddard Elliott to cross-examine Arno will result in unfair prejudice such that the probative value of Arno's evidence is substantially outweighed by the danger of the evidence being unfairly prejudicial to that party. However, Arno's affidavit must be given less weight because he was not able to be cross-examined. In that regard I take into account that Paul and Norbert were strenuously cross-examined by counsel for Goddard Elliott. In relation to Arno's evidence, that is the testing of which Goddard Elliott and the court have been deprived.

69 There is nothing 'misleading or confusing' (s 135(b)) about Arno's evidence. This is not a ground for discretionary exclusion in this case.

70 On a number of bases, Goddard Elliott made submissions attacking Paul's credit.

71 It was first submitted the contents and non-disclosure of Mr Walton's letter of 17 May 1996 should be taken into account against Paul in terms of his credit. I accept that submission.

72 As will be seen in next section of this judgment, the letter shows a purpose of the restructure of the Fritsch family businesses was to protect Paul's interest in those businesses from the wife. Paul was a party to that restructure. He kept the letter and the restructure secret from the wife. In the proceeding in the Family Court, he failed to disclose the restructure and the letter to Mr Goddard, the court and the wife, which cannot be excused. These matters reflect adversely on his credit. On this basis, I would be cautious before accepting Paul's evidence generally, but especially in relation to financial issues.

73 However, this needs to be seen in perspective. Paul's explanation for these matters was not entirely without merit and I do not accept he was generally an untruthful witness. The evidence established Arno and Norbert were intimately involved, for reasons of their own, with obtaining and considering Mr Walton's advice. Paul was dominated by his father, who controlled his income. The letter had legitimate purposes, as well as the purpose of protecting Paul's interest in the Fritsch family businesses from the wife. As the trial judge said in the proceedings in the Family Court, people are entitled to obtain advice of this kind and they do. Having listened to the whole of Paul's evidence, and seeing him survive a vigorous cross-examination, I do not think he fully appreciated the significance of the advice in the letter and the consequences of its non-disclosure. I do not conclude that the doubts about Paul's credit which have been established are as strong as have been submitted.

74 Goddard Elliott submitted Paul had deliberately under-declared his income in his financial statement dated 10 June 2004. The weekly income figure of $122 was compared with the yearly income declared in the taxation return for 2004 of $202,902 and a facsimile transmission from Paul to Mr Ferguson dated 15 September 2004 saying his total yearly income was about $66,000.

75 Paul was heavily cross-examined about this issue and I am satisfied with the evidence he gave. As submitted for Paul, the 2004 taxation return did not necessarily undermine his evidence. I regard the income figure of $122 in the financial statement as opportunistic but not a deliberate under-declaration.

76 I do not accept Paul's failure to lodge a taxation return since 2005 reflected poorly on his credit. The transactions after the case was settled show he has been trying to deal with his taxation problems. That process has not come to an end.

77 Goddard Elliott submitted Paul was a director of APN Nominees until shortly after the wife's property settlement application was commenced. He had the Protoline cheque book and could and did sign cheques in his own favour. Company documents were kept in the family home. In the light of that and other evidence, Paul's denials that Protoline was his entity should count against his credit.

78 I accept that submission with a similar reservation to the one I expressed in relation to the letter of 17 September 1996. The evidence showed Arno (who in law beneficially owned Protoline) allowed Paul to treat the company as his own (so the company was Paul's alter ego for family law purposes). But Arno did beneficially own APN Nominees and retain ultimate control, including control of the distributions. Further, the evidence shows Paul was dominated by Arno, who was intent on protecting the family wealth at all costs. By reason of these matters, I would be careful about accepting Paul's evidence generally and especially in relation to financial matters, but his evidence still warrants consideration.

79 Goddard Elliott submitted Paul behaved 'dishonourably' in removing the wife's case summary from her computer and sending a copy to Goddard Elliott, which should count against his credit.

80 I reject this submission. The parties were separated under one roof in the family home at the time. They had access by default to each other's papers, which access the wife had utilised on an earlier occasion. What Paul did on this occasion was a product of the situation, however unfortunate it was.

81 Goddard Elliott relied on certain failures of Paul to pay fees. There were explanations for these failures and these matters are not relevant to his credit.

82 Goddard Elliott submitted Paul's demeanour in court was evasive and he persistently gave long-winded, convoluted and unconvincing answers to questions and also sought to look into the court book before answering some questions.

83 Having listened to and observed Paul give evidence over several days, I reject this submission. Making due allowance for his state of health, the medication he was taking, the passage of time since 2004 and the stress of giving evidence, I did not find his responses to be evasive or persistently long. Several witnesses (including Mr Goddard) looked into the court book when a volume was left in front of them. That is quite natural. Far from being unconvincing, much of Paul's evidence was very convincing, even after examining it with the additional caution which was due (especially in relation to financial matters).

84 Goddard Elliott submitted senior counsel for Mr Ackman had established that Paul had given false evidence about retiring. No such thing was established. The burden of the evidence was that Paul had done no real work for many years. He did not give a self-serving explanation of why he went to Bowrings occasionally.

85 Goddard Elliott submitted it was to Paul's discredit that he told Mr Ferguson that he wanted to conduct a fire sale of all the matrimonial assets and split the proceeds with the wife. As Mr Goddard said in evidence, a lot of husbands think like that under the pressure of a marriage breakdown and property settlement proceedings. This is hardly a matter going to credit.

86 On several bases, Goddard Elliott submitted Mr Walton lacked credit. It referred to his evidence about the origins of the letter of 17 May 1996, his failure to produce the letter, the affidavit of 17 September 2004 (the 'perjured affidavit') which referred to the restructure of being due to a 'feared insolvency', his evidence about how long he had acted for Paul and his incorrect evidence that you cannot lodge a correcting document with ASIC.

87 The evidence shows that Mr Walton was the loyal accountant of the Fritsch family, and especially Arno and Norbert. He was not an independent witness and did not pretend to be one. I take that into account generally.

88 On the whole of the evidence, I accept Mr Walton's evidence that the driving force of the letter of 17 May 1996 was Arno and possibly Norbert. The contents of the letter, read as a whole, support that finding. The surrounding circumstances, the nature of the relationship between Arno, Norbert and Paul and the evidence about what was occurring at the time also support that finding.

89 Although I was concerned that Mr Walton had not produced the letter of 17 May 1996 in response to the subpoena issued by the Family Court, I do not find that he did so deliberately. Having listened to his evidence and seen him being cross-examined, his explanation that the letter, which was eight years old, had been archived is plausible. Mr Walton's affidavit of 17 September 2003 was, on the other hand, not full and frank. It did not tell the whole story of why the 1996 restructure was carried out. That does go to his credit and makes me cautious about accepting his evidence generally. The other matters relied on by Goddard Elliott do not.

90 This is the main factual part of the judgment. In it I will make some findings of fact. But my purpose is to set out what occurred in the property settlement proceeding in the Family Court as the foundation for the principle findings of fact which will I will make later.

91 The Family Court has the jurisdiction under s 79(1) of the Family Law Act 1975 (Cth) to make orders for the alteration of property interests of the parties to a marriage. Section 79(2) requires such orders to be 'just and equitable'.

92 Later in this judgment, I will refer to the principles which have been stated by the Family Court for the exercise of this jurisdiction. I will also set out and consider the evidence which was given by two former judges of that court as to how the trial judge would have decided the case had it gone to trial. So that the following factual part of this judgment may be better understood, I will give a brief summary of the principles which are applied as they relate to the main issues in the case.

93 The Family Court prefers to adopt a four-step approach to making property settlement orders: (1) identify the net pool of assets and liabilities; (2) identify each party's financial and other contributions in percentage terms; (3) take other factors into account in determining what the their respective shares should be; (4) make an overall assessment of what is just and equitable.

94 In the present case, a number of issues arose under step one, particularly the valuation of Paul's interest in the Fritsch family businesses, whether certain trust assets which were being held on Paul's behalf would be taken into account in increase of the net pool and whether certain liabilities (contingent income and capital gains tax and a parental loan) would be taken into account in reduction of that pool. As to step two, Paul had made a significant financial contribution at the start of the marriage. The parties were in dispute about how much allowance should be made in his favour by reason of that contribution. Under step three, it was agreed the wife's parental and homemaking contribution should be recognised. Step four was discretionary.

95 Parties to a property settlement proceeding have an obligation of full and frank disclosure. The wife alleged Paul had breached that obligation, causing her significantly greater than usual accounting and legal costs. She was seeking an order for those costs and indemnity costs generally against Paul. How exposed Paul was to such an order was an issue in the proceeding.

96 Paul was a toolmaker and fitter and turner until 1969. At the time he gave evidence his income came entirely from his war service disability.

97 Paul married Lianne Jane on 25 March 1978 when he was aged 30 and she was aged 18 years. They had three children, Benjamin Paul Fritsch (born 17 June 1980), Laura Jane Fritsch (9 March 1983) and Thomas Norbert Fritsch (16 May 1987). These three children were aged 24, 21 and 17 years in September 2004. At that time Paul was aged 56 years and Lianne 45 years.

98 The marriage encountered difficulties. Paul said in his evidence his wife had an affair in 1987 which she resumed in 1993. Paul and Lianne reconciled. Lianne's affidavit in the property settlement proceeding said the marriage encountered difficulties again in 1996 and separation was a real possibility. Paul's evidence in this proceeding was to the contrary. The marriage did encounter difficulties again and they separated under the one roof in August 2002. They continued to live in separate bedrooms in the family home until the property proceeding was settled on 16 September 2004, even sharing a computer during that time.

99 Paul was the son of Arno and Sofie Fritsch, who immigrated to Australia from Germany in 1952. Paul's younger brother was Hans Norbert Fritsch (known as Norbert). Arno built up an automotive engineering business from small beginnings. It was known as Bowring Engineering Services Pty Ltd. In 1977, Paul and Norbert joined the business. The two sons worked in the business in different ways.

100 Under the then arrangements, Arno, Paul and Norbert were directors and shareholders of the family company. The revenues from the business flowed from that company into the Bowring Unit Trust. Through further trusts, the father had 51 units in the Bowring Unit Trust and the two sons had 25 units respectively. From that trust the revenues flowed into three separate trusts: one belonging to Arno (the Fritsch Family Trust), one to Norbert (the Norbert Fritsch Family Trust) and the other to Paul (the Paul Fritsch Family Trust). By virtue of his majority unit holding, Arno controlled the Bowring Unit Trust. Distributions were therefore at his discretion, but were regular and substantial in the early years when the businesses were successful. The sons controlled their trusts and made distributions from them at their own discretion.

101 In the 1980s, a small engineering company called Mermaid Metals was established as part of the Fritsch family. It was owned by the Merbow Unit Trust which was structured in the same manner as the Bowring Unit Trust. It was never as profitable as Bowring Engineering.

102 These arrangements were restructured in 1996. The restructure came about after the family accountant, Peter Walton of O'Keeffe Walton Berry, wrote a letter of advice to Paul dated 17 May 1996. The letter (five pages) was marked 'Private and Confidential' and addressed to 'Mr P Fritsch' at 'Bowring Engineering Services Pty Ltd' at 125 Cochranes Road, Moorabbin VIC 3189'. It begins 'Dear Paul' and the subject row states 'Business Structure and Family Arrangements'. The letter begins by referring to 'our meeting of 14 May' and then makes a number of 'comments and recommendations'. However, the letter was clearly not intended to be read by Paul alone but also by Arno and Norbert. In it options are discussed which are in the interests of the family generally but not necessarily of Paul individually. It is equally clear the letter was not intended to be read by Lianne and it was kept secret from her.

103 Of the objective of the restructure, Mr Walton said:

As I see it, the objective of any changes that may be made is to protect or isolate the business interests of the Fritsch family (ie Bowring Engineering and Mermaid Metals) from any possible future family law dispute or settlement that may involve Paul Fritsch.

1. Current areas of risk/possible problems
2. Broad description/explanation for changes
3. Precise steps to be taken.

Mr Walton went through the issues arising under each of these headings in some detail.

104 As to the current areas of risk/possible problems, Mr Walton referred to Paul's 25 per cent share in ownership of the Bowring Unit Trust via the Paul Fritsch Family Trust but said a valuer could conclude the value of that interest was 33 per cent of the net income, reflecting recent distribution. Therefore, for the purposes of discussion, he valued Paul's share on that basis ($500,000 of a total of $1,500,000). Mr Walton then referred to the loan accounts and cash balances. He discussed the issuing of letters of demand for repayment of those amounts.

105 As to the broad description/explanation of changes (heading 2), Mr Walton expressed his understanding that the Family Court has the power to look through artificial private and business arrangements, although it is also guided by expert advice. He said the business would have greater protections 'if the value of Paul's interest in Bowring is diminished and if the value of loan accounts owned by Paul are also reduced'.

106 Mr Walton went on to recommend that Arno exercise his 51 per cent controlling interest (via the Fritsch Family Trust) in the Bowring Unit Trust to reduce the distributions from the Bowring engineering business to the Paul Fritsch Family Trust to the level of a base salary only. This was intended to provide 'strong evidence' that the value of Paul's interest in Bowring engineering was 'close to zero'. Arno could maintain a sub-trust under the Fritsch Family Trust for Paul's benefit if appropriate.

107 As to the loan accounts owed by the Bowring Unit Trust to Paul and Norbert's trusts, these should be paid out with those amounts then given back to the Bowring Unit Trust by 'deed of gift', which was also justified on a commercial basis.

108 Turning to the equal interest of Paul and Norbert in Bowrep Engineering Pty Ltd (a separate though related company to Bowring Engineering Services Pty Ltd), these should 'be separated for mutual protection'. The shares should be sold to 'two new companies' owned by their trusts. Non-taxable dividends of $1,600,596 should be declared by Bowrep to those companies. Bowrep Engineering Pty Ltd could then be de-registered with no further consequences.

109 Mr Walton made other comments and recommendations relating to the business of Mermaid Metals, to the Gertrude Investment Trust and the Chadwick Glen Trust (entities related to Bowring Engineering and Bowrep Engineering).

110 As to the precise steps to be taken before 30 June 1996 (heading 3), Mr Walton made several recommendations, of which these are the most pertinent:

• Bowring Unit Trust profit distribution to be varied, with a small distribution only to the Paul Fritsch Family Trust
• Bowring Unit Trust loans to be paid out to the Paul Fritsch Family Trust and the Norbert Fritsch Family Trust
• Paul Fritsch Family Trust and the Norbert Fritsch Family Trust to execute a deed of gift of a similar amount to the Bowring Unit Trust
• Paul Fritsch and Norbert Fritsch to establish new corporate beneficiaries
• the trustee of the Paul Fritsch Family Trust should be a company controlled by Paul, not MOK Nominees Pty Ltd (another entity related to Bowring Engineering).

Mr Walton recommended that advice from a family law solicitor be obtained before finalising these matters. He said the matters discussed in the letter should be treated as 'extremely confidential' and asked that he be contacted at the earliest opportunity.

111 In his evidence in this court, Paul said he did not remember the meeting with Mr Walton on 14 May 1996. He did acknowledge receiving the faxed letter. He did not recall receiving it or reading it. If he did read it, he forgot about it quickly and paid no attention to it. Mr Walton presented the advice at the request of Norbert and Arno. As to the suggestion that he asked for the advice, Paul's response was: 'I deny that categorically'. He did not disclose the letter to Mr Goddard because he did not recollect it.

112 Paul agreed he and Norbert had shares in Bowrep Engineering. As a result of the restructure, Norbert's shares went to his company Yamit Pty Ltd and Paul's went to Protoline Nominees Pty Ltd. APN Nominees Pty Ltd (the trustee of the Fritsch Family Trust) owned Paul's shares as the sole shareholder of Protoline. The purpose of the arrangements was to minimise his trust income and assets in the light of any divorce proceedings. He accepted the Protoline arrangements were set up in 1996 as indicated by the incorporation documents dated 28 June 1996. He was appointed to be the company secretary and the director of the company. The 12 shares were allocated to APN Nominees, not as the trustee of the Paul Fritsch Family Trust as the incorporation documents incorrectly showed, but of the Fritsch Family Trust.

113 Norbert Fritsch gave oral evidence about the letter to this court. His affidavit in the property settlement proceedings dated 15 September 2004, which he told this court was true, also dealt with the restructure. Norbert said he wanted to separate his family business interests from Paul's as much as possible. The request for the advice did not come from Paul but from Norbert and also Arno. The meeting of 14 May 1996 which Mr Walton referred to was with Arno and Norbert, not Paul. The background to seeking the advice was that Paul was clearly unhappy with the family business arrangements. Paul was unreliable and had gone into another business called Scotchline, which did not succeed. Possible divorce proceedings involving Paul were also an issue, but Norbert did not find out about Paul's recent marital difficulties until later. He achieved the separation of his family business interests in 1996. The distributions which Arno decided to make to Norbert went into his trust via his company Yamit. Any distributions to Paul went to Protoline, which would be owned by Arno.

114 Norbert gave evidence about the subsequent decline of Bowring Engineering. At the time he gave evidence he was aged 61 years and managed everything. He had a foreman and six employees. Of those, there was himself, his wife and his handicapped son, who was a process worker. The company was once successful and had 25-29 employees. Taken to the sales and profit figures for 1999-2003 attached to Mr Ferguson's report, Norbert said there had been a significant decline in both in that period. The decline continued to 2009, where the sales were only $727,247 and the profit only $106,964. He was keeping the business alive for the two long-term employees. The business was unsaleable and that had been so for many years. The Mermaid Metals business was closed in 2008 and absorbed into Bowring's Engineering. I accept this evidence and will take it into account in the loss and damage (notional trial) part of this judgment.

115 Mr Walton's evidence was that Norbert did not want his family assets to be shared with Paul. He wanted his interest in Bowrep to be 'split' from Paul's. That is what occurred in 1996. Norbert's share went to Yamit. Paul's share went to Protoline, which was owned by Arno's company APN Nominees. Arno owned the shares in Protoline through APN Nominees, which was the trustee of the Fritsch Family Trust. When Protoline was incorporated, a staff member in his office incorrectly specified that APN Nominees was the trustee of the Paul Fritsch Family Trust. Mr Walton said: 'It was never that way and never intended to be that way'. I accept this evidence. Mr Walton said there were no procedures at the Australian Securities and Investment Commission for correcting the form. Mr Hockley later gave evidence that there were corrections procedures but they had not been used. That this procedure was not used does not cause me to doubt Mr Walton's evidence.

116 Mr Walton said Norbert was the stable one in the family. Paul had undertaken unsuccessful businesses and had 'some issues with his marriage'. Arno was strong on doing what was needed to protect the family business. That was why he maintained control of Protoline. But Arno let Paul pay the bills, which meant he could pay money to himself, and was a signatory to the accounts.

117 In Arno's affidavit dated 10 December 2008, he swore to the truth of his unsworn affidavit in the property settlement proceedings. In that unsworn affidavit, he said from 1988-1990 Paul was discontented and became involved in another business enterprise. To the detriment of Bowring, he devoted most of his time to that interest. Later Norbert wished to separate his interest from Paul's interest in the Fritsch family businesses. That was done in 1996. At that time, Protoline was incorporated. Thereafter Paul's distributions from the Bowring unit trust went to Protoline, not directly to the Paul Fritsch Family Trust. This was not done pursuant to the advice in Mr Walton's letter of 17 May 1996. From 1996 until September 2002, Paul was a director of Protoline and administered the company subject to Arno's ultimate control.

118 It was Mr Walton's evidence that he thought Arno and possibly Norbert had asked him to see Paul to discuss the matters referred to in the letter of 17 May 1996. He agreed the letter did not refer to any approach by Norbert. He did meet Paul alone. He wrote to Paul as it was he that he met with. The object of the advice was not to reduce Paul's interest in Bowring's. He agreed the anticipated divorce proceedings were an issue, but so was Norbert's desire to separate his interests from Pauls.

Lianne Fritsch's property settlement application (September 2002)

119 Lianne made application for final and interim orders on 10 September 2002. The return of this application was time abridged to 30 September 2002. The final order sought was a property settlement order. The interim orders sought were orders preventing the husband from dealing with specified corporate companies and their assets, giving authorisation to the release of financial information to Lianne and for her maintenance and other matters. Her affidavit in support mentioned the husband's 'deep depression', his need of assistance, his secrecy and his restriction of her access to financial information.

120 Paul engaged Goddard Elliott pursuant to a family law fees agreement dated 12 September 2002. Paul said he had been introduced to Andrew Goddard as an expert family lawyer with experience in dealing with complex corporate and trust cases. Paul engaged him after interviewing him and Mr Goddard had 'professed he was an expert in that field'. Mr Goddard was a partner in the firm and had the conduct of the matter. He was an accredited family law specialist. Mr Goddard accepted that, when Paul approached him, he held himself 'out as an expert, an accredited family law practitioner, experienced in complex financial matters'. He did not previously know Paul. He helped the Law Institute of Victoria to establish the specialisation scheme. In 2008 he was given the president's award to lifetime service to the legal profession.

121 Mr Goddard prepared Paul's response to the wife's application dated 24 September 2002 and his affidavit of 24 September 2002. He agreed in evidence that, from the wife's affidavit dated 9 September 2002, he knew he was about to get involved in complex financial matters.

Paul Fritsch removed as director of APN Nominees (September 2002)

122 On 26 September 2002 and within three weeks of Lianne making a property settlement application (see below), and by a meeting of which short notice was given, Paul was removed as a director of APN Nominees by the sole shareholder Arno. He was replaced by Arno, who then became the sole director as well as the sole shareholder of that company.

123 Paul denied this was done to dissociate him from Protoline. It was done by Arno who did not tell Paul why. It was not done by him in breach of an order of the Family Court. He agreed it was done at short notice. He was aware his father had concerns and wanted to move expeditiously. He did it to protect his own interests and not to assist Paul in the property settlement proceedings. Mr Walton said this was done by Arno after Paul and Lianne separated to protect the family business. The wife's family law application 'was the signal' this needed to be done. Arno did not want Paul to be a director or be involved in managing the business in the circumstance. It was not done to improve Paul's prospects in the property settlement proceedings.

124 Interim orders were made by consent by the Family Court on 30 September 2002. Among other things, the orders required the husband (and the wife) to give 28 days' notice of any intention to engage in activities designed significantly to alter their financial circumstances or to engage in any dealing of the kind described in the wife's application. The orders also required the husband to give all necessary authorisations to enable the wife to obtain all relevant financial information and documentation from the husband's accountant and any company in which he had an interest.

125 There was a notation on the order that 'until further Order the husband intends to maintain the status quo as to financial matters and benefits to the wife as identified in her Affidavit'. Paul at first said in oral evidence he did not authorise this notation. He could not go to court because he'd come out of hospital only the day before from an ear operation. His instructions were to contest what the wife wanted - maintenance in particular - and he only found out later what orders were made. That is not consistent with his affidavit of 3 October 2003, which states he 'authorised Counsel to consent to the Notation ... in the hope and expectation that the arrangements would operate for a short term interim period only'. Nor is that consistent with Paul's fax to Mr Goddard dated 28 April 2004 (page 3 of 11) which acknowledged what he was told about the orders. When taken to that document, he admitted he did consent, but only for a short time and the payments in fact went on for a long time. Mr Goddard's evidence was that 'we just had to do the best we could in those circumstances' and Paul was made aware of that beforehand.

126 Paul said he could not pay the wife $5,500 per month from his own resources. He had to liquidate assets from the matrimonial pool. He also used part of the liquidated assets to maintain the joint assets. The total amount he claimed for maintaining the joint assets, the wife and children was $225,909 (as set out in Mr Walton's letter of 10 April 2008). He had documentary evidence of the amount paid, which he had given to Mr Goddard. The actual amount was higher (approximately $356,000). There was money spent on 'the family home, repair of Sorrento, mowing ... Electricity, telephones ... ongoing costs ... money was spent on the children'. Paul said he was only claiming half of the money spent on the children and maintenance of joint assets, but the full amount that went to the wife.

Lianne Fritsch seeks further discovery (December 2002)

127 In September and November 2002, the parties exchanged simplified financial statements. On 9 December 2002 and 13 December 2002, Lianne issued a subpoena and amended application directed (among other things) at discovery of documents in the possession of the Fritsch family companies and obtaining security for costs. The amended application was supported by a long affidavit sworn by Sally Nicholes of Middletons Lawyers, the wife's solicitors. Paul gave Mr Goddard the letters of demand which Arno had sent on behalf of the money owed by his trusts to Protoline, saying he was demanding the repayment of these debts. According to Mr Goddard's evidence, his instructions were that Arno was in control of Protoline.

128 At the time and throughout the proceedings, Bill Impey of Kennedy Wisewoulds represented O'Keeffe Walton Berry (the Fritsch family accountant), Arno and Sofie Fritsch and Norbert Fritsch. Mr Goddard said he thought this was appropriate as their interests were separate. That firm provided some information to Middletons and objected to the request then being made for more. On various occasions afterwards, Kennedy Wisewoulds provided further information to Goddard Elliott or the wife's solicitors.

Arno Fritsch demands repayment of Protoline loans

129 On 5 December 2002 and as director of Protoline, Arno demanded repayment of the sums of $545,168 and $959,120 respectively which allegedly owed by Paul's trusts (the Paul Fritsch Family Trust and the Chadwick Glen Trust) to that company within seven days. No action was ever taken to enforce that demand. Paul gave evidence he told his father he did not have the money to meet these demands. Mr Goddard said Paul gave him the letters and said his father was demanding repayment of the debts.

130 In a letter dated 13 December 2002 and copied to Goddard Elliott on 16 December 2002, Mr Impey wrote on behalf of O'Keeffe Walton Berry, Arno and Sofie Fritsch and Norbert Fritsch to Middleton's explaining the Protoline arrangements. The letter said:

[Protoline] is a corporate beneficiary of the Fritsch Family Trust, the Trustee of which is A.P.N. Nominees Pty Ltd.

The director is Arno Fritsch, the sole shareholder is A.P.N. Nominees Pty Ltd (the shareholding of which is held solely by Arno and Sofia Fritsch).

Protoline Nominees Pty Ltd has an unpaid distribution of $782,913 from the P F Family Trust and $959,120 from the Chadwick Glen Trust as at 30 June 2002.

The letter notably did not refer to the recent history of these arrangements.

131 In his evidence, Paul agreed the Paul Fritsch Family Trust and the Chadwick Glen Trust would distribute to Protoline. But rather than receiving the money directly, the monies were paid to Paul and Lianne, who paid the corporate tax rate of 32 per cent. The debt of about $1,700,000 was subsequently reduced to about $1,200,000. The loans were not supported by formal loan agreements. It was a condition of them getting the money that the payments were treated as loans, at call and at Arno's discretion.

132 Mr Goddard told the court the wife's lawyers were very suspicious of Paul because of the restructure and the role of Protoline in the business arrangements. The wife's applications had to be seen in that light. It was 'one of the nastiest cases that [he'd] ever had'.

Family Court orders for sale of 5/7 Elm Grove, Mount Waverly (December 2002)

133 Orders by consent were made in the Family Court on 17 December 2002. Among other things, the orders allowed for the sale of 5/7 Elm Grove, Mount Waverley and the division of the proceeds. Under the orders, it was for the trial judge to categorise the nature of these payments. This meant it was a live question whether the payments were made by way of maintenance to the wife or by way of interim property settlement. The orders also narrowed the subpoena of 9 December 2002 to focus on documents related to the debts to Protoline and the court noted the parties intended to attend mediation at a later date. Mr Goddard said the orders for the sale of the property were being sought by the wife for her legal costs and accounting fees.

134 A Family Court report was filed on 24 December 2002 by the clinical psychologist (Robyn Weir).

Lianne Fritsch seeks further discovery (May 2003)

135 On 22 May 2003, the wife issued a further interim application. Among other things, it sought maintenance, further documentary disclosure and answers to specific questions. It was supported by an affidavit sworn by the wife on 21 May 2003 which complained about the lack of disclosure to date. As Mr Goddard said, the lack of disclosure was despite orders being made by the court six months earlier. The issue of disclosure was a 'running sore', with the wife continually demanding documents from Paul which should have been demanded of third parties (Arno and Norbert).

136 Mr Goddard said he received a letter from Mr Walton dated 26 May 2003 providing him with information about Paul's financial position. The letter claimed his trusts had debts to Protoline and calculated his worth accordingly.

Goddard Elliott seeks medical report on Paul Fritsch's mental health (May 2003)

137 An issue in the proceeding in the Family Court was Paul's future working capacity and medical condition. This had been mentioned by Lianne in her first affidavit. Mr Goddard obtained a report on this matter from a consultant psychiatrist, Dr David Sturrock. Mr Goddard's letter dated 30 May 2003 requesting that report described the difficulties he had encountered with obtaining instructions from Paul, including, missing or arriving late for appointments and the 'extreme difficulty' in getting quick instructions from him at the last hearing. Mr Goddard said in evidence he was 'concerned about' Paul and he was 'slow to give responses'. That was clear from his behaviour in conferences and at court and from his appearance. He repeatedly gave evidence that, for example, Paul 'needed time' to deal with things. Dr Sturrock's report (dated 10 June 2003 and annexed to his affidavit of 13 June 2003) diagnosed a deterioration of Paul's medical condition into a 'Major Depressive Episode' and recommended anti-depressant medication. Mr Goddard said at that stage Paul did not want to take medication.

Paul Fritsch claims Protoline debts as liabilities (June 2003)

138 Paul filed an updated simplified financial statement on 16 June 2003. The statement claimed as liabilities to be taken into account in the pool of assets and liabilities two debts owing to Protoline by his trusts, being $769,324 (Paul Fritsch Family Trust) and $959,120 (Chadwick Glen Trust), totalling $1,728,444. That statement was based on the advice of Mr Walton. Those debts were known in the proceedings as the Protoline debts. Mr Goddard said the statements were sworn and meant to be accurate.

139 In affidavits dated 18 June 2003 and 25 June 2003, the wife's independent accountant, June Wilson, said she needed more information to complete her task. She said the 'family businesses are part of a relatively complex structure of trusts and other entities' and it was necessary to 'lift the corporate veil'. She referred to the company distribution and ownership issues involved in valuing Paul's interest in the businesses and sought meetings with Mr Walton. She said Paul's share of the business was 33 per cent based on the recent distributions. Mr Goddard said Paul's instructions at that time were that his distributions from the family business were 'entirely up to Arno'. Mr Walton's evidence was that the recent 33 per cent distributions were not consistent over a long period of time and Paul's interest in the business was 25 per cent based on unit holding. In that regard, he stood by the views he expressed in his letter of 30 June 2003.

140 On the hearing of the wife's interim orders application on 2 July 2003, further orders for the production of documents by the husband were made by consent. These were provided to Mr Goddard by Mr Walton on 4 July 2003. Martin Bartfeld QC represented Paul at this hearing. By a memorandum dated 2 July 2003, he said the court would lift the corporate veil and look at 'the real situation' as to the husband's ownership share of the family companies. He advised 'that there should be no further messing about with discovery'. Mr Goddard said Mr Bartfeld's advice was correct and he was satisfied that Paul knew this. It was something that Paul was 'well and truly onto'. He disagreed with Pauls' evidence that he was not given a copy of this memorandum. He was given it in accordance with Mr Goddard's usual practice. Paul had referred to the memorandum in his fax to Mr Goddard dated 3 July 2003.

Paul Fritsch seeks advice from Goddard Elliott on Protoline debts (July 2003)

141 At this and other times throughout the Family Court proceedings, Paul asked Mr Goddard for advice as to whether and how he could claim the Protoline debts as liabilities in the pool of assets and liabilities and as to certain taxation issues. In a fax to Mr Walton dated 3 July 2003 which was copied to Mr Goddard, he told him he would be seeking Mr Bartfeld's opinion 'on the strength of my trusts and their discretionary powers'. That was necessary before any settlement offer could be formulated. On 12 August 2003 he said to Mr Goddard 'it would be appropriate to check out other cases with a similar structure and situation to ours which has come before the Family Court in the past and the result'. Mr Goddard sent that request to Mr Bartfeld.

142 Mr Walton wrote to Mr Goddard on 15 August 2003 enclosing further financial information. It showed a nil distribution to the Paul Fritsch Family Trust by the Bowring Unit Trust in 2002. That was despite significant distributions in previous years. Mr Goddard noted that this seemed to coincide with the making of the wife's application. He did not remember what explanation had been given.

Lianne Fritsch's further difficulties getting full and frank disclosure (August 2003)

143 The Protoline debts continued to be a major issue between the parties. As Middletons wrote to Goddard Elliott on 22 August 2003, the wife's independent accountant (Ms Wilson) required further information about the loans by Protoline to the Chadwick Glen Trust and the Paul Fritsch Family Trust. The issues were complicated by the fact that, under the trust and company documentation, the shares in Protoline were specified to be held by APN Nominees as trustee for the Paul Fritsch Family Trust (Paul's trust) and not the Fritsch Family Trust (Arno's trust), suggesting that Protoline was really owned by Paul and not Arno. Middletons sought an early response to their request. Using information provided by Mr Walton, Mr Goddard replied to the request on 29 August 2003.

144 This reply did not satisfy Ms Wilson. Her affidavit of 2 September 2003 went into great detail about her need for the financial accounts of Protoline and other information about how the Protoline debts arose. She referred to Paul's 'resignation' as a director of Protoline on 26 September 2002 and the delays in obtaining information. She complained the form was received by the Australian Securities and Investments Commission on 3 October 2002 three days after the making of the order requiring Paul to give 28 days' notice of making significant changes to his financial circumstances. Mr Goddard told the court this was a serious allegation because the wife was alleging the husband had resigned to defeat an interim order she was seeking on 30 September 2002. Also on 2 September 2003, Middletons wrote to Goddard Elliott requesting information. The letter attached the application for shares in relation to Protoline dated 28 June 1996 showing the shares were held by APN Nominees as trustees for the Paul Fritsch Family Trust, not the Fritsch Family Trust. Mr Goddard said his instructions from Paul were that these allegations were being made because the wife had stolen documents from him.

145 The wife's requests for documents and information resulted in a consideration by Mr Walton and Mr Impey of what the wife should be given. There was correspondence between the two about the subject. Mr Goddard wrote to Middletons on 29 August 2003 giving further information in Paul's hand and promising more, but stressing that information in the hands of third parties (Arno and Norbert) had to be obtained from them. Mr Goddard said he was effectively saying '[a]nything we can provide, we will provide'.

Family Court makes further orders for discovery (September 2003)

146 Further consent orders were made by the Family Court on 3 September 2003. Mr Rosen said in evidence the wife sought the orders because of repeated problems with getting discovery and cooperation from Paul and his family. There was resistance on the part of Paul and his family which was never explained. The orders required the husband and Mr Walton to provide the documents and information specified in Ms Wilson's affidavit of 2 September 2003. Those documents related to the Protoline debts and how they arose, whether the shares in Protoline were held by APN Nominees for the Paul Fritsch Family Trust or the Fritsch Family Trust and the resignation of Paul as a director of Protoline and the reasons for this. Paul agreed he knew the status of the Protoline debts was a major issue in the wife's application. It made a big difference to the pool of assets and liabilities if these liabilities were included.

147 By an affidavit sworn 3 September 2003 and filed on 10 September 2003, Ms Nicholes (the wife's solicitor) deposed at considerable and persuasive length (29 pages and 54 paragraphs) about the great difficulties experienced by the wife in obtaining disclosure over a long period of time. The affidavit was obviously designed to put the husband at risk in relation to costs and would certainly have done so. Paul's affidavit dated 3 October 2003 reserved his position 'until a later stage' in the proceeding. Mr Goddard never prepared a full reply to this or the other affidavits of the wife on the subject of costs.

148 According to Paul's fax to Mr Goddard dated 4 September 2003, he spoke with Mr Goddard that morning. They discussed their intention of briefing Mr Bartfeld for an interim hearing on 8 October 2003. The letter is long and repetitive, as many of Paul's instructions in writing were. He conferred with Mr Goddard on that day for one and a half hours. There was a conference with Mr Ackman on the same day.

Peter Walton's 'perjured' affidavit (17 September 2003)

149 At this time, Mr Walton was preparing an affidavit for Mr Goddard on the ownership and control of Protoline and the relationship between the Fritsch Family Trust, the Paul Fritsch Family Trust and APN Nominees Pty Ltd. He sent a draft by fax dated 9 September 2003. It stated that Protoline was Arno's company and was a vehicle whereby he could lend money. Mr Walton provided a further draft to Mr Goddard on 15 September 2003, with only minor amendments. He swore the final draft on 17 September 2003.

150 The affidavit says that, prior to 1996, Bowrep Pty Ltd was a beneficiary of the Paul Fritsch Family Trust and the Norbert Fritsch Family Trust. This was changed when Arno, Paul and Norbert told Mr Walton 'they were concerned about the financial security of the business in relation to Bowrep Pty Ltd being a beneficiary of two families which placed the assets of one family at risk in relation to an event, such as insolvency, that may occur in the other family'.

151 This is the affidavit which senior counsel for the wife would later describe as the 'perjured affidavit'. In his evidence, Mr Walton agreed there was no reference to Paul's desire to reduce his assets. He did not agree the affidavit presented a misleading picture. A family law settlement could give rise to insolvency. He was only later told of the affidavit being described as perjured. In this court, it was never put to Mr Walton that the affidavit was perjured.

152 At this time, the parties were living separately under the one roof. Lianne had access to Paul's study and they shared a computer. It appeared from the material filed by the wife's solicitors that Lianne was copying documents which she found there. Mr Goddard said those were Paul's instructions. Mr Goddard had made complaint about this to Middletons, as did Paul in his affidavit dated 18 September 2003. Paul made an interim application filed 19 September 2003 for delivery up of his documents, but he and Lianne did not change their living arrangements. That affidavit of Paul's dated 18 September 2003 also gave details of his poor health in recent times (lung infection, stress etc). Therefore he was being carried by Norbert and other people at work. Mr Goddard said he had prepared this affidavit.

153 There was an email exchange between Mr Goddard and Mr Bartfeld on 18 August 2003. The subject of the email was compliance by Middletons with practice directions. But the emails also record that Mr Walton had provided Mr Goddard with a draft valuation report which Mr Goddard had held back. The report set out Mr Walton's view that Paul and Norbert's minority interests in the Fritsch family businesses had only nominal value. Mr Goddard also asked Mr Bartfeld whether Mr Walton should be asked to value those interests on the basis that their value was not just nominal. Mr Bartfeld agreed with the possibility, but suggested nothing be put in writing at that stage.

154 Lianne issued another subpoena on 29 September 2003, this one directed to how the accumulated profits of Bowrep Pty Ltd were distributed to Paul and Norbert (via their companies). It was addressed to O'Keeffe Walton Berry and was returnable on 8 October 2003.

June Wilson's first report (October-December 2003)

155 The wife's independent accountant, Ms Wilson, swore an affidavit on 2 October 2003 annexing her report on the valuation of Paul's financial interests. It is a formidable document and very detailed. It adopted various alternative approaches to the valuation task. As to the value of the husband's share in the Fritsch family businesses together with his other assets, Ms Wilson gave these alternatives:

Including Protoline debts $449,000 - $559,000

Excluding Protoline debts $2,191,000 - $2,291,000.

Because of the evidence of recent distributions, the report valued Paul's 25 per cent unit holding in Bowring Engineering and Mermaid Metals as being worth 33 per cent of the fair market value of the business of these companies.

Kevin Ferguson engaged by Goddard Elliott (October 2003)

156 It was not until about this time that Mr Ferguson was engaged as an independent forensic accountant on behalf of the husband. That put him at least a year behind Ms Wilson, the wife's equivalent. Mr Ferguson is a chartered accountant by profession. He is a member of the Institute of Chartered Accountants and a fellow of CPA Australia. He is a registered tax agent. He practices principally as a forensic accountant, including in family law cases.

157 Mr Ferguson's initial engagement was by a letter from Goddard Elliott to Mr Ferguson dated 2 October 2003 and 'on a limited basis for the purposes of a critique of Ms Wilson's report'. The letter said the family accountant, Mr Walton, had been most helpful, but 'additional independent accountant advice' was required. Mr Goddard said he engaged Mr Ferguson because he 'was concerned that we needed an independent accountant who was not connected to the parties'. He said on a number of occasions he saw Mr Walton as being very loyal to the family, especially Arno. I accept his evidence that it was highly unlikely Mr Walton would ever be accepted by the court as a forensic accountant for the purpose of valuing the pool of assets and liabilities.

158 Mr Goddard's letter of engagement said there were three issues: what was the percentage interest of the husband's entitlement in the Bowring Unit Trust (Bowring Engineering) and the Merbow Unit Trust (Mermaid Metals), what was the appropriate method of valuing a minority interest in a corporate structure controlled by Paul's father and whether certain inter-entity transactions were genuine (the 'transactions created a liability between the Paul Fritsch entities and the Arno Fritsch entities'). Mr Ferguson accepted the engagement by letter dated 6 October 2003.

159 As it transpired, Mr Ferguson did not provide a report in response to this letter. Mr Goddard said that was because shortly afterwards he engaged Mr Ferguson to do 'the whole job' and they were 'coming towards mediation'. The expanded engagement was by letter dated 13 October 2003. Following telephone discussions with Mr Goddard, the letter engaged Mr Ferguson 'to value our client's business interests in preparation for the forthcoming Mediation'. He was provided with a great many documents, including the court documents and the court and company documents. His attention was directed to the fair market value of Paul's interest in Bowring Engineering and Mermaid Metals (25 per cent or 33 per cent), the Protoline debts and the economic challenges confronting the engineering businesses.

160 Mr Ferguson began work quickly, visiting the Bowring factory, having conferences with Mr Walton and seeking further information from Goddard Elliott in October and November 2003. He also had discussions with Ms Wilson in November, who complained that she had been involved for at least 18 months. On 27 November 2003, Norbert wrote to him with information about how Arno and Sofie had built up the family business and the challenges it was facing in modern times. In oral evidence Norbert said the contents of this letter were true.

Family Court orders for sale of 7/7 Elm Grove, Mount Waverly (October 2003)

161 Further interim orders were made by consent by the Family Court on 8 October 2003. The orders allowed for the sale of 7/7-11 Elm Grove, Mount Waverley and the division of the proceeds. The categorisation of these payments would be a matter for the trial judge. The orders did not deal with the issue of the capital gains tax which Paul had to pay in respect of this sale in the sum of $41,000. They set the wife's maintenance at $400 per week but reserved to her the right to argue that the husband should reimburse her for the amount of the reduction.

162 Mr Rosen represented Paul at the hearing. He said Paul 'was not emotionally resolved' about the break-down of the marriage. He 'was very, very distressed'. When asked about his mental capacity, he said Paul was 'coping well'. He said he was aware of Paul's Vietnam experience and psychiatric problems but he had 'no reservation at any stage that Paul Fritsch understood, comprehended' information. He never had any reservations that Paul lacked the capacity to give instructions.

163 The orders of 8 October 2003 contained a notation that the parties were to participate in an out of court private mediation on 26 November 2003. The orders adjourned extant interim applications to the judicial duty list on 4 December 2003. That hearing was later adjourned to 22 December 2003. The mediation was adjourned to 11 December 2003 as Mr Ferguson's report was not ready. This occurred against the strong complaints of the wife's solicitors, who were now claiming indemnity costs. There were also issues about non-payment of maintenance.

164 Mr Goddard's advice to Paul was to make an open offer of settlement. He gave that advice in a letter to him dated 18 November 2003. The offer he recommended was the sale of the matrimonial home and the equal division of the proceeds.

$41,000 reserved for capital gains tax reserve (December 2003)

165 In early December, Paul wrote to Mr Goddard and Mr Ferguson saying (among other things) that there was approximately $41,000 in capital gains tax payable on the sale of 7/7-11 Elm Grove, Mt Waverley which was a real debt and had to be taken into account in the asset pool. The sale went ahead after Middletons (on behalf of the wife) agreed that this sum would be retained out of the sale proceeds in the trust account of Hills Oakley (the conveyancing solicitors) pending characterisation of the amount by the trial judge or by agreement. Hills Oakley was informed and the sale went ahead on that basis.

Kevin Ferguson's first report (9 December 2003)

166 Mr Ferguson's report was completed on 2 December 2003. The value of the husband's interest in the Fritsch family business was estimated to be in the amount of negative $1,067,472 (Ms Wilson: $87,000 - $187,000 (including the Protoline debt) and $1,829 000 - $1,929,000 (excluding that debt)). Paul's interest in the business of Bowring Engineering and Mermaid Metals was estimated to be 25 per cent (Ms Wilson: 33 per cent). In oral evidence he said the 25 per cent valuation was based on the 25 per cent unit holding which Paul had and on Arno's total control of whether and what distributions would be made.

167 The parties were in dispute about the husband's maintenance of the wife and other matters, which were addressed in her affidavit dated 8 October 2003 which was filed on 8 December 2003.

168 Following comments by Paul and Mr Walton, Mr Ferguson's report was revised. The second (and final) report was dated 9 December 2003. Based on figures which Mr Walton supplied and which he said in evidence were then correct, the report claimed as liabilities the amounts of $782,913 and $959,120 owing to Protoline by the Paul Fritsch Family Trust and the Chadwick Glen Trust.

Disclosure at mediation of Peter Walton's letter of 17 May 1996 (11 December 2003)

169 The mediation went ahead on 11 December 2003. Paul was represented by Mr Bartfeld QC. Mr Goddard, Mr Ferguson and Norbert attended, as did Paul. Mr Rosen was not present. Lianne was represented by David Brown SC. The day before, Mr Goddard told Mr Bartfeld that the wife's lawyers had 'something' on the husband. That turned out to be Mr Walton's letter of 17 May 1996, which was produced at the mediation and disarmed the husband's legal team.

170 According to Paul's statement of assets and liabilities, the asset pool was $2,458,732 net. According to the wife's statement of assets and liabilities, the asset pool was $5,091,701 net. She also sought $150,000 costs for discovery and accounting fees. The major difference between the parties was the Protoline debts (about $1.7 million).

171 From these positions, the parties moved towards each other at the mediation. But the matter did not settle. The last offer by the husband was for the wife to receive the matrimonial home and all of the proceeds of the sale of 7/7-11 Elm Grove, Mt Waverley (leaving Paul with the $41,000 CGT liability), which she rejected. The last offer by the wife was for her to receive the home and a Sorrento property, and other sums, which he rejected. Mr Goddard told the court the parties were only apart by 'the beach house' (about $360,000). It almost settled but 'Norbert interfered'. At the mediation, and most of the time, Paul was 'struggling'. When he accepted Norbert's advice, he was 'starting to shut down'. It had become all too much for him. Norbert admitted in evidence advising Paul not to accept the offer.

172 Mr Bartfeld reported on the mediation in a memorandum dated 11 December 2003. Among other things, the memorandum said the wife was prepared to concede bringing the Protoline debt into account as a taxation liability. It said Mr Walton should have known about and disclosed the letter of 17 May 1996 in his affidavit. His credibility was severely damaged by the letter and he might be exposed to personal consequences. Therefore he should seek independent legal advice. It said Paul had failed to appreciate the seriousness of the situation in which the letter placed him. Mr Goddard said he agreed with that assessment, and gave a copy of the memorandum to Paul.

173 In his evidence, Paul denied he was given a copy of the memorandum, but accepted he subsequently saw it. He agreed the letter of 17 May 1996 was damaging and would be used to attack Mr Walton's credit. However, he did not agree with Mr Bartfeld's entire memorandum.

174 Mr Goddard said the first problem about the letter of 17 May 1996 was it showed Protoline was derived from Paul's share in Bowrep, which he owned with Norbert. The second problem, and 'absolutely the killer', was the letter had not been disclosed. He thought the letter gave Mr Walton 'serious trouble' because it showed his affidavit of 17 September 2003 'wasn't true. It was a false affidavit in terms of what the position was'. The letter spoke of 'family law disputes' while the affidavit spoke of 'possible bankruptcy or financial trouble'. But he emphasised it was the non-disclosure which was the 'more important' issue. Mr Goddard said he did speak with Mr Walton about the letter. He said it had slipped his mind. Paul's instructions were the same. Mr Goddard said he did not think Mr Walton could have forgotten about the letter. He said 'I didn't believe that anybody could have forgotten, either Paul or [Mr] Walton'. He said he told Paul the court would not accept this account.

175 Mr Goddard was questioned about his response as Paul's solicitor to the letter of 17 May 1996. He told the court his advice to Paul was to settle the case. He went on to say:

With hindsight I should have withdrawn at that stage when the letter came to light. I'd been lied to for 15 months about this Protoline business, and obviously with the benefit of hindsight ... the appropriate course would have been to say to Paul I think you need to find another lawyer ... and looking back I think I did consider my position ... It would have been very expensive for a new lawyer to take the case over.

Mr Goddard also said that 'I feel now in retrospect, that I made a mistake by not withdrawing'. He said 'I didn't want to withdraw. I was concerned about Paul and I let that override my better judgment'. He did not discuss his concerns with Paul. He decided not to withdraw because he thought this 'would prejudice the client and I liked him and I wanted to try and help him. So in the end I continued'. He did so even though 'I thought I had been deceived'. In evidence about his relationship with Paul on 16 September 2004, he said he was concerned about Paul both as a friend and a solicitor. He said 'I think he considered me his friend'.

176 Mr Rosen said in evidence he saw the letter later. It was 'a very descriptive step-by-step' account about what the husband should do. He told Paul at the time of the later hearing that 'Justice Watt will take real exception to this' and the letter was 'damaging in the extreme'. It represented a 'very serious, grave risk' to Paul's case. That was explained to Paul by Mr Ackman and Mr Goddard as well. Paul's reaction to such advice was to shrug his shoulders and he just 'brushed it aside'. It was put to Mr Rosen that once the Protoline debt was later conceded by Paul, the letter was much less of an issue. He was asked to specify just what issues the letter went to. He said there 'was a fundamental issue of credit with Mr Walton', yet Paul wanted to call him as a witness. He said the letter showed Mr Walton 'had given advice which was fundamentally contrary to the concept [underlying] the Family Law Act'. He also referred to Paul's credit and his evidence that he had received a loan of $387,000 from his father.

177 Mr Goddard told the court it was clear after the mediation Paul had to settle. From September 2002 until December 2003, all the wife's questions were answered on the basis that Protoline was Arno's entity. The letter showed that was 'not genuine'. Also, the restructure went a step further than Mr Walton had recommended. Norbert controlled his distributions after they were made. Paul did not. The distributions were made to Protoline, which Arno controlled. They were not made to the Paul Fritsch Family Trust, which Paul controlled. Mr Goddard said Paul had 'all kinds of rationale for that', especially that the family was 'dark on him' because of his failed Scotchline venture and not contributing much to Bowrep. Paul's instructions were that Arno took control of his share in Bowrep. Arno told him that '[y]ou'll be the director of [Protoline]. You will be the signatory [of the cheques]. You use the money. But I will be the person in control'. But, said Mr Goddard in his evidence, this was 'diverting money from his assets to his dad, and that's the sort of thing the Family Court does not like'. That 'just wasn't on'. Paul had not 'a hope in hell of persuading a Family Court judge that all the stuff about Scotchline and so on excused putting the shares in Protoline in Arno's trust'. As to the taxation status of the alleged debts, Mr Goddard's evidence was the wife's lawyers were at least conceding there would be a tax liability arising out of the treatment of the loans as not genuine. This concession was not put in writing. Mr Goddard did not to seek to have it confirmed.

178 It was Paul's evidence that Mr Goddard told him then and on other occasions that it was 'a very bad letter'. He told Mr Goddard he 'didn't recall the letter' and 'the contents of [the] letter weren't enacted by me'.

179 Mr Ferguson met with Ms Wilson after the mediation. He reported on that meeting in a letter dated 12 December 2003 to Mr Goddard. He told the court the wife's lawyers were then at least conceding the tax on the Protoline debts should be brought to account.

180 Lianne issued another subpoena on 12 December 2003, this one seeking all bank statements from 1 January 2002 in relation to the Paul Fritsch Family Trust, Chadwick Glen Pty Ltd and the Chadwick Glen Trust. She also issued another on 22 January 2004. The documents were produced in court on 27 January 2004 and were released for inspection and copying.

181 Mr Walton sent to Mr Impey a copy of the letter dated 17 May 1996 on 15 December 2003. In evidence he agreed the letter came within the terms of the wife's subpoena dated 29 September 2003. Documents coming within the subpoena were looked for and supplied but the letter was not found. He did not previously recollect the letter. He found the letter only after ordering another search for it. It was located in the 'dungeon' of his firm when he sent somebody to see if it was there.

182 On 16 December 2003, Mr Goddard had a long meeting at O'Keeffe Walton Berry with Paul, Arno, Norbert, Mr Walton and Mr Impey (Kennedy Wisewoulds). Mr Walton said he did not recollect the letter of 17 May 1996. The company structure was discussed in detail. Arno provided information in writing to Mr Goddard shortly afterwards. Mr Goddard said there were discussions about conceding Protoline because it was clear it would not be accepted by the court as a 'genuine Arno entity'.

Lianne Fritsch seeks indemnity costs (December 2003)

183 Lianne issued a further amended application on 18 December 2003. Among other things, it sought costs against the husband on an indemnity basis. She also swore an affidavit on 17 December 2003 on maintenance issues. The affidavit described how she had found the letter of 17 May 1996 in her husband's briefcase, and she had copied and returned it and other documents. Paul said in his evidence the letter had not been returned.

Paul Fritsch's requests for expert tax law advice (December 2003-February 2004)

184 I have referred to Paul's communications to Mr Goddard on 3 July and 12 August 2003 about the need for expert opinion in relation to the trust and taxation issues.

185 Paul wrote to Mr Goddard again on 19 December 2003, heading the fax 'VERY IMPORTANT'. He referred to the 'Protoline situation' and 'if not the absolute acceptance of the tax debt which ever way'. He said 'We do not want the other side to take all the liquid assets and leave me with the liabilities'. At the end of the letter he said: 'ANDREW MUST HAVE OPINION FROM EXPERT AND YOU MUST UNDERSTAND THIS SITUATION'.

186 Paul repeated these requests to Mr Goddard on other occasions. He also expressed frustration at the opinion not being obtained. In a letter by fax to Mr Goddard dated 11 February 2004, he said 'nobody has been able to give an opinion no matter how often asked'. In a letter hand delivered to Mr Goddard on 27 April 2004 he said the asset pool and tax liability issues had been discussed at a meeting on 4 February 2004 between Mr Goddard, Mr Ferguson, Mr Walton and himself. The information then discussed 'was to form the basis of your inquiry and opinion from a suitable QC'.

187 It was put to Paul in cross-examination that Mr Goddard would say in evidence that he had told Paul Mr Ferguson was an expert who would give an opinion on this subject. Paul said Mr Goddard may have said that, but Mr Goddard did not use Mr Ferguson for that purpose and Mr Ackman insisted on having the report of Mr Harvey. Mr Goddard did not say it would be preferable to wait for Mr Ferguson's final report and then reassess the situation. He did not require funds in advance before obtaining an opinion from senior counsel.

188 Mr Goddard's evidence was he would have discussed these requests with Paul. He did not have a great recollection of what was discussed after seven years. They discussed who would give the opinion. He said they already had an opinion from a leading silk - Mr Bartfeld. To get an advice of any value, the brief needed to be properly prepared. I do not accept Mr Goddard's explanations for not getting this evidence and will consider this aspect of his evidence in more detail later.

Peter Walton's advice about taxation status of Protoline debts (December 2003)

189 At this time, Mr Walton gave advice in relation to the taxation liabilities of Paul and the Fritsch Family. By a letter dated 19 December 2003, he said that as at 30 June 2002 there was $1,742,034 owing by Paul in respect of the Paul Fritsch Family Trust ($782,913) and the Chadwick Glen Trust ($959,121), representing unpaid distributions of profits (the Protoline debts). If these amounts were not repaid and a dividend of $1,742,034 was declared to cancel out the debt, Paul would still be liable for tax in the amount of approximately $460,395. Mr Walton said in evidence it did not then occur to him that the debts could have constituted deemed dividends. He said Mr Goddard acknowledged at the time that the tax liability attaching to the debts was an issue to be considered. Mr Ferguson was given the letter and also agreed that taxation issues had to be considered. He said in evidence this was the first time he had heard the tax of the Protoline debts, rather than the debts, would be claimed as liabilities.

190 Paul was concerned neither Mr Ferguson nor Ms Wilson 'had calculated tax liabilities in the equation' and he told Mr Goddard that on 8 January 2004. By an email on 19 January 2004, Mr Goddard asked Mr Ferguson to provide a statement of assets and liabilities so an offer of settlement could be formulated. The email said there were 'some issues relating to tax liabilities and contingent tax liabilities' which would require consideration. Mr Goddard said it was mandatory under the rules of the Family Court to make an offer of settlement. It was also essential because Mr Bartfeld's advice was the case had to be settled. It was also desirable because it would give some protection as to costs. He knew then one issue to consider was the contingent tax liability on the Protoline debts. That was because, even without an income tax assessment, the court could take the possibility of a tax liability into account. He saw Mr Ferguson as the 'expert that we were relying upon in relation to taxation matters'. His 'understanding' was there would be direct communication between Mr Ferguson, Mr Walton and Paul in relation to those matters. I noted that Mr Ferguson never provided advice personally on these issues. He only adopted Mr Harvey's opinion (see below) and was the vehicle for presenting that opinion to the court.

191 Mr Goddard unsuccessfully sought to adjourn the hearing fixed for 22 December 2003. It went ahead and consent orders were made that the husband pay $10,000 to the wife and altering the distribution of the proceeds of sale of 7/7-11 Elm Grove, Mt Waverley in favour of the wife. The trial judge was to characterise these payments. The orders dismissed all extant interim applications. That was so the case could be sent to final hearing.

Andrew Goddard's concerns re Paul Fritsch's mental health (from January 2004)

192 As we have seen, the first affidavit of the wife dated 9 September 2002 had mentioned Paul's 'deep depression'. Mr Goddard said in evidence the wife was alleging Paul 'had mental health issues and over time, [he] came to the same conclusion'. I have referred to the evidence of Mr Goddard's general concern about Paul's mental health and its impact on the way he gave instructions. By his report dated 13 June 2003, Dr Sturrock had diagnosed Paul's condition as having deteriorated into a major depressive episode.

193 On the same subject, Arno wrote to Mr Goddard by fax on 18 December 2003. He expressed concerns about Paul's mental condition in the context of the property settlement proceeding. He said Paul was living with them and they were at a total loss to know what to do. Paul was in 'A TOTAL STAGE OF CONFUSION DISORIETATION and MENTAL EXAUSTION [sic]'. There were 'stacks of documents ... strewn all over the house on every table available'. He could not meaningfully attend court on Monday. He was 'CLEARLY NOT IN A POSITION TO HANDLE HIS AFFAIRS'. In his affidavit dated 10 December 2008, Arno described this letter as a 'plea to Mr Goddard to help'.

194 Mr Goddard was himself continually concerned about Paul's mental state. In an email dated 18 December 2003 he wrote to Middletons that Paul had 'reduced capacity to deal with these proceedings', referring to Dr Sturrock's earlier report. By a letter dated 12 January 2004 he sought and updated report from Dr Sturrock. The letter referred to Paul's difficulties at work and in providing instructions 'under the time pressures of the Court proceedings', his problems with 'remembering all relevant matters at the same time' and his frequent follow up calls. Mr Goddard said in evidence he made the request as he wanted to know if Paul could return to work, which was an issue under s 75(2) of the Family Law Act. He said he saw no improvement in Paul's condition over the previous year and in fact Paul 'was deteriorating'.

195 Dr Sturrock saw Paul on 14 January 2004 and 22 January 2004 for further psychiatric assessment. On 4 February 2004 he reported there was 'no indication of formal thought disorder, hallucinations or delusions'. But Paul 'had suicidal thoughts' and was losing hair from his scalp. He said Paul was 'at the end of his tether with an ongoing depression perpetuated by work, family and legal matters'. He prescribed medication, which Paul was very reluctant to take at that time (but later did). Later Dr Sturrock would not certify that Paul was unfit for work duties unless he tried that medication.

196 Mr Rosen gave oral evidence about Paul's mental state. He said on a number of occasions he 'had different views' to Mr Goddard (and Mr Ackman) on that subject. He was fully aware of Paul's psychiatric condition in 2003 (and later) but he was 'coping well'. He never had any 'reservations' about Paul's ability to comprehend and give instructions. Paul did not the lack mental capacity to give proper instructions at any time. Mr Rosen saw no need for Mr Goddard to get an updated report in relation to Paul's mental condition, in 2003 or later. I do not accept this evidence of Mr Rosen's, and his later evidence to the same effect, as it is completely contrary to the other evidence.

197 On 11 February 2004, the wife's application for the property settlement hearing to be afforded priority was successful. Mr Rosen represented Paul. At the hearing on that day, Mr Brown (senior counsel for the wife) described Protoline as the 'alter ego' of Paul Fritsch, meaning it was really his company and not the company of Arno Fritsch. He submitted Mr Walton had sworn a 'perjured affidavit'. The case was referred to the trial notice list for trial directions on 5 March 2004. Mr Rosen said his advice to Paul was that at all times there should be compliance with his obligation of full and frank disclosure.

198 On 24 February 2004, Mr Goddard gave Paul a full report in writing of what occurred at this hearing, including the allegation that Mr Walton had signed a perjured affidavit. The letter referred to the need to discuss this allegation with Mr Walton and for Paul to settle his policy with respect to the 'Protoline/Bowrep' issues.

199 On Paul's instructions, and without telling Mr Goddard, different solicitors (Mulcahy's, who are acting for Paul in this court) obtained a valuation of the Bowring engineering business and the one-third interest which Paul had in properties at 121 Cochranes Road, Moorabbin and 485 Warrigal Road, Moorabbin. Mulcahy's asked for that valuation on 23 February 2004 from Kevin Connolly, licensed valuer, whose report was later provided. Paul said in evidence he did this because Mr Goddard was away and he wanted a valuer with experience in the engineering industry to express an opinion.

200 At this time, Mr Goddard wrote to Mr Impey at Kennedy Wisewoulds asking for an affidavit from Norbert. The letter of 25 February 2004 said 'we may be subject to adverse comment and adverse inferences might be drawn' if Norbert did not provide an affidavit. It would also be necessary to 'consider carefully' whether Arno should swear an affidavit. He sought Mr Impey's advice as to whether the two would be prepared to assist. In evidence Mr Goddard gave several reasons for needing this affidavit, and for needing one from Arno as well.

201 Mr Goddard wrote a letter of advice to Paul on 27 February 2004 emphasising the possibility of a concerted attack on his credit in court and the likely adverse impact of that attack on his whole case. He referred to a conversation with Mr Brown in which Mr Brown said the wife's case would focus on Protoline, which was Paul's 'alter ego' and controlled by him. Mr Brown said he would establish that Mr Walton's affidavit was intended to mislead the court. Mr Goddard referred to arguments which could be put on Paul's behalf, including those relating to 'calculation of liabilities for tax and like matters'. As he had after the mediation, Mr Goddard advised Paul to make the wife an offer of settlement of the matrimonial home and half the contents. Mr Goddard told the court he subsequently discussed these concerns with Paul. In his evidence, Paul accepted that 'serious allegations' were being made, but said it was Mr Goddard's task to 'mount a defence'.

202 Paul subsequently wrote to Mr Goddard. He tried to explain the rationale behind Protoline. In the letter dated 2 March 2004, he referred (among other things) to the tax liability issues and said 'I desperately look forward to some guidance and communication at this time'.

203 The wife made an offer of settlement on 3 March 2004. It sought for the wife the matrimonial home, the Sorrento property, retention of court ordered amounts and $400,000 in cash. It left Paul with 4/7-11 Elm Grove, Mount Waverley, the motor vehicles and other personal assets and the interest in the Fritsch family companies (which the wife valued at $2,151,000). The offer was based on a pool of $5,605,435.63, with 52 per cent ($2,900,590.13) going to the wife and 48 per cent ($2,704,845.50) going to the husband. Paul rejected the offer.

204 On 4 March 2004 Paul sent a fax to Mr Goddard about the offer that Paul had rejected. In evidence, Mr Goddard said of the fax that 'he's obviously got a very strong grasp of everything'. That was a point he made on a number of times in his evidence about Paul's comprehension of the issues in the case.

Peter Walton's further advice on taxation status of Protoline debts (5 March 2004)

205 Mr Walton gave advice to Mr Impey (Kennedy Wisewoulds) on behalf of Arno and Norbert. His letter of 5 March 2004 was copied to Mr Goddard and Paul. The letter set out in detail the family business arrangements and the inter-entity monetary transfers. There were significant concerns regarding taxation and the overdrawn loan accounts. The taxation issues must be resolved in one of three ways: payment before lodging of a tax return, issuing fully franked dividends or treating the loan accounts as representing deemed dividends. Mr Walton said he had no recollection of the letter of 17 May 1996 and did not recollect the meeting referred to in it. If Arno wished to continue to assert his ownership and control of Protoline, he and Norbert had to swear an affidavit in the property settlement proceedings. Alternatively, dividends could be declared, leaving Paul with a tax liability of $460,592. The issue needed urgent attention so it would not have to be dealt with by the court. Mr Goddard's evidence was that nothing was done by Paul or the Fritsch family to address these issues.

Pre-trial directions and preparing for final hearing (March-June 2004)

206 At the trial notice hearing on 5 March 2004, directions were issued for the preparation of the case for trial. A compliance certificate was required by 16 June 2004 from the solicitors for the parties.

207 Lianne issued an amended application on 19 March 2004. It claimed an increased share of the matrimonial property and sought costs on an indemnity basis. In a fax dated 22 March 2004, Paul told Mr Goddard it was a 'crushing document' and said 'I would be worried if we were pressured to respond again without sufficient time for proper preperation [sic]'. Mr Goddard's evidence about this fax was that Paul 'hated being under time pressure to make decisions'. His response was filed on 26 March 2004 and sought the realisation of all matrimonial assets, with 45 per cent going to the wife after payment of expenses and tax. Her reply was filed on 2 April 2004. It sought the dismissal of the husband's application.

208 The wife continued to press for more financial information. For example, Middletons wrote to Goddard Elliott on 25 March 2004 seeking the details of payments referred to in the documents obtained by subpoena. At this time, Paul wrote to Goddard Elliott on a number of occasions giving information and instructions, sometimes at tedious length and detail.

Goddard Elliott seeks co-operation of Norbert Fritsch (April 2004)

209 There was a long conference between Mr Goddard and Mr Walton at O'Keeffe Walton Berry on 13 April 2004. It was resolved to send a letter to Mr Impey at Kennedy Wisewoulds (who were acting for Arno and Norbert) setting out the background of the letter dated 17 May 1996, the payments made by Protoline and to whom, the directors and shareholders of that company (and the changes made), the taxation issues and the way that the wife was attacking Protoline as being Paul's 'alter ego'. The letter was designed to seek the co-operation of Norbert in the property settlement proceeding. Mr Goddard's notes of the meeting, and a draft letter to this effect, were sent to Paul and Mr Impey shortly afterwards (14 April 2004). The notes say it will also be necessary to determine whether Arno should assist. Mr Goddard told the court Paul had continuing concerns about Arno's health. He also said it would not have been proper for him to approach Norbert or Arno directly as they were being represented by their own solicitor, Mr Impey.

210 The husband's undertaking of disclosure was filed on 21 April 2004.

211 On behalf of the wife, the updated report of Ms Wilson (the wife's independent accountant) was filed on 22 April 2004. Including the Protoline debts, the report valued Paul's interest in the Fritsch family companies together with his other assets as within the range of $324,000 - $407,000. Excluding those debts, the value of his interests fell within the range of $2,066,000 - $2,149,000. She maintained her valuation of Pauls' share of Bowring and Mermaid Metals as 33 per cent.

212 Paul filed a request for answers to specific questions on 26 April 2004. The questions went to the wife's expenditure on the household and the children and other matters. The wife's answers were filed on 10 June 2004.

Paul Fritsch again asks Goddard Elliott to get expert taxation advice (April 2004)

213 I have noted Paul's earlier requests for expert advice in relation to the trust and taxation issues. At this time, Paul was still concerned that there was still no evidence filed on his behalf about the Protoline debts and the taxation issue. He wrote in a fax to Mr Goddard on 28 April 2004 that 'ANDREW, WE HAVE TO GO INTO THE DETAILS OF THE PROTOLINE BUSINESS SERIOUSLY, IT CAN'T BE PUT OFF'.

214 Mr Goddard gave evidence that he 'didn't do anything' to get an opinion. At no stage did Paul withdraw his instructions in this regard. He said elsewhere in his evidence that he personally was 'not a tax expert' and was 'not pretending to be a tax expert'. His advice to Paul in relation to the tax was '[i]f you owe tax better to pay it before the trial'. He referred to that advice in his memorandum dated 8 October 2004. He said there was a risk the court would not allow the tax if it had not been paid. On the other hand, if the tax was paid, 'the court would be much more convinced that it was real'. Mr Goddard said: 'As I saw the problem, and again I may be wrong ... an expert opinion would not do it'. For the reasons which I later give, I think this position was professionally untenable.

Paul Fritsch receiving psychiatric treatment (May 2004)

215 By this time Paul was being treated by the psychiatrist, Arthur Velakoulis. Dr Velakoulis gave evidence and provided four reports dated 12 May, 26 July and 9 September of 2004 and 9 July 2006. Dr Velakoulis is a private psychiatrist at the Melbourne Clinic (which is a private psychiatric hospital). He is also a consultant psychiatrist with the Veterans' Psychiatry Unit with the Heidelberg Repatriation Hospital. In his evidence he adopted his reports, on which he elaborated. Dr Velakoulis had been seeing Paul approximately monthly from April 2004 and had continued to see him on that basis to the present day.

216 Mr Goddard first requested a report from Dr Velakoulis on 6 May 2004. Dr Velakoulis provided a report (his first) on 12 May 2004. At that time, Dr Velakoulis had seen Paul twice - on that day and 28 April 2004. He said Paul was 'quite unwell' and had 'Major Depression - of at least moderate severity' and 'Anxiety Disorder - possibly Post Traumatic Stress Disorder relating to his Vietnam service'. He said he was not capable of working and required intensive counselling and anti-depressant medication. I will refer to his later reports in their chronological place. Mr Goddard also gave evidence that he thought Paul was seeing a psychologist (John Finch) at the Victorian Vietnam Veterans Counselling Service.

217 An updated financial statement was filed by the wife on 2 May 2004 and again on 16 June 2004. On 10 May 2004 the husband filed an objection to answering the wife's request for the answers to 140 specific questions.

Paul Fritsch withdraws $100,000 in superannuation (May 2004)

218 On 11 May 2004, Paul withdrew $100,000 from his superannuation account. The withdrawal was proved by the relevant documentation, which was received into evidence. Paul gave evidence that he used the money to meet various costs and expenses in relation to his wife and their property and the children. He was claiming this expenditure on his side of the asset pool. Mr Goddard said in evidence he had no recollection of being told of this withdrawal. He recalled being told by Paul in about August 2004 of his intention to withdraw $100,000 from his superannuation, which he did not do on the advice of the barristers.

Protoline loans conceded and taxation claimed as contingent liability (May 2004)

219 Mr Goddard briefed counsel to advise on whether to serve the wife with a notice to admit facts. The brief dated 14 May 2002 said Paul was conferring with his accountant to prepare an updated financial statement, the Protoline debts would not be claimed (giving rise to certain taxation consequences) and the asset pool was close to finalisation. Mr Goddard told the court the decision not to claim the Protoline debts as debts was made shortly before that. Paul's evidence was this decision was made about this time.

220 Mr Goddard's evidence was that, as a result of this decision, it was a 'significant issue' whether tax may or may not be payable on the monetary payments that gave rise to the Protoline debts. Paul was constantly bombarding him with requests to look into the tax implications of not claiming the debts. The first such requests were made in early 2004. I have referred to these. Mr Goddard said he sought advice on the subject from Mr Walton and Mr Ferguson. As to crystallising the tax implications of not claiming the debt, he was leaving that to Mr Ferguson. When asked how, at that time, he intended to prove the taxation owing, he said 'through Mr Ferguson'.

Paul Fritsch's financial statement and recasting of case (May 2004)

221 Paul's first draft of his financial statement is dated 14 May 2004 and is in his handwriting. There is another draft dated 3 June 2004, also in his handwriting. There is another typed and sworn version dated 4 June 2004, which apparently was not filed. That draft was reviewed by Mr Walton at the request of Mr Goddard and Paul. The final version was sworn on 8 June 2004, served on Middletons that day and filed on 10 June 2004. Mr Rosen said in evidence he always stressed to Paul the need for these statements to be full, frank and accurate.

222 This financial statement was marked as having been prepared by the respondent's lawyer (Mr Goddard). Mr Goddard's evidence was that 'Paul gave instructions. He went to his accountant and they worked it out. They worked out the details'. Therefore Mr Goddard corrected the provenance of the statement by letter to Middletons dated 28 June 2004, saying it had been prepared by Paul. He did not inform Paul he had done this. Paul's evidence was that he spent 'a lot of time ... preparing it with Mr Goddard in his office on three occasions'. He said the 'form came from Mr Goddard ... it was based on his advice'. As I will later say, I have concerns about how this correction was carried out, but I do not find Mr Goddard's actions to be negligent.

223 The financial statement claimed a debt owing to Arno Fritsch of $387,000 (as a loan towards buying the matrimonial home), $461,000 by way of taxation liability on the Protoline debts and a taxation reserve of $542,000 (for the taxation on the Protoline debts). Mr Goddard's evidence was that this was the first time these amount had been claimed and the figures had 'totally recast' Paul's case. Paul said the figures reflected Mr Walton's calculations.

224 As to the $387,000, Mr Goddard said it was always Paul's instructions that this amount was a loan from Arno and not a gift. There was never any evidence of it being repaid. The case was conducted on the basis that it was a loan. If it was a gift, it would have been taken into account as a relatively recent contribution. While it would have been treated by the court as a significant contribution because it helped to buy the matrimonial home, the treatment would not have been on a dollar for dollar basis.

225 Paul would swear affidavits in the property settlement proceedings that the loan of $387,000 was provided by Arno in 1999 to help him and Lianne buy the matrimonial home. He gave evidence of borrowing that money at that time for that purpose in this court. Arno said in his unsworn affidavit (later adopted and sworn to be true) that he made the loan on an interest free basis by way of a distribution from Protoline. He wanted a mortgage for security, but never got one and the loan was never repaid. It was Paul's evidence in the property settlement proceedings that the loan was never repaid. After the settlement of the proceedings in this court, it was discovered that the loan had been repaid and Arno's affidavit evidence was to that effect.

226 Paul said in evidence he had changed position and claimed the tax on the Protoline debts rather than the debts on the advice of Mr Bartfeld and Mr Goddard. That advice was he would not be successful in establishing that Protoline belonged to Arno and not Paul.

227 Mr Goddard again sought instructions from Paul to make an offer of settlement to the wife, which the rules of the court required. Mr Goddard's letter of 9 June 2004 said he had been seeking those instructions for six months. The risks in the litigation were again referred to, including the potential indemnity costs order in favour of the wife. An offer involving equal division of the matrimonial property was recommended. Paul acknowledged receiving that advice and discussed it with Mr Goddard on 10 June 2004. Two alternative offers were made by him to the wife on 11 June 2004, both involving equal division.

228 Mr Goddard agreed one of the reasons he advised Paul to settle was the court might not accept the tax liability he was claiming, particularly as it had not been paid. He also had regard to the 'particular circumstances of this case'. He agreed the court did have the discretionary capacity to take a contingent tax liability into account.

229 On 10 June 2004, Mr Goddard sought a psychiatric report from Mr Finch at the Vietnam Veterans Counselling Service. It sought a report on Paul's condition and fitness for work.

230 Mr Goddard filed a compliance certificate with the Family Court on 16 June 2004 in advance of the pre-trial conference listed for 30 June 2004. It certified the husband's compliance with the directions made in the trial notice hearing.

231 Meanwhile, Norbert wrote a letter to Arno and Paul on 15 June 2004 setting out the serious difficulties being encountered by the Bowring engineering business. He referred to a number of personal, business, health and other issues, especially the fall in the sales of the business. He said that the viability of the business was under threat. Norbert said in evidence his letter gave an honest account of the problems confronting the business.

232 Two affidavits sworn by Lianne were filed on 16 June 2004. The first was a long and detailed affidavit on the difficulties encountered by the wife in obtaining documents and information from the husband. Her legal and accounting costs were specified to be $275,698.92, for which she sought an order for indemnity costs. Negligently, Mr Goddard never prepared a response to this and the other costs affidavits filed on behalf of the wife. The second affidavit was the wife's evidence on the substantive issues in the property settlement proceedings. A full reply was prepared to the affidavit. A report from a property valuer, Gavan Lethlean, was also filed on that day, which valued the matrimonial home at $1,950,000, 4/7-11 Elm Grove, Mount Waverley at $290,000 and the Sorrento property at $360,000.

233 An updated report of Ms Wilson (the wife's independent accountant) was filed on 24 June 2004. It valued Paul's interest in the Fritsch family businesses together with his other assets as falling within the range of $324,000 - $407,000 (with the Protoline debts included) and $2,066 000 - $2,149,000 (with those debts excluded). It maintained the valuation of Paul's interest in Bowring engineering and Mermaid Metals at 33.3 per cent.

234 Pauls' affidavit of evidence in chief was filed on 16 June 2004. Mr Goddard sought an affidavit from Mr Connolly (a property valuer) on 28 June 2004 on the value of the Bowring engineering business. He also sought minor corrections of Mr Connolly's report as to the value of the properties at 121-123 Cochranes Road, Moorabbin and 485 Warrigal Road, Moorabbin. Mr Connolly's property valuation in respect of the two properties and the business was filed on 2 July 2007. It valued the properties at $675,000 (485 Warrigal Road, Moorabbin) and $800,000 (121-123 Cochranes Road, Moorabbin) and the Bowring engineering business at $83,141.

235 It was about this time Mr Ferguson re-entered the scene. His last report had been dated 9 December 2003, which was the day before the mediation. He had attended the mediation and afterwards had been involved in some conferences in December 2003. There was correspondence to and from him in December of that year. On 19 January 2004, Mr Goddard sent him an email asking for a statement of assets and liabilities so an offer of settlement could be made. The email said there 'are some issues relating to tax liabilities and contingent tax liabilities which require consideration'. That request was not then followed up. Mr Ferguson attended a conference at O'Keeffe Walton Berry on 4 February 2004 which sought to finalise the asset pool, but there is no evidence of any follow up of his involvement in that regard either.

236 From an email of Mr Goddard's dated 17 June 2004, he next spoke with Mr Ferguson on 8 June 2004. That email requests Mr Ferguson to sign an affidavit exhibiting his earlier valuations, to be filed by 29 June 2004. Mr Goddard did not then ask Mr Ferguson to do any additional work, but he did subsequently ask him to update his earlier report, which Mr Ferguson did. In oral evidence, Mr Ferguson said his work 'stopped' in February 2004 and 'started again I think on 8 July [20]04'.

237 It was put to Mr Goddard that there was very little evidence of contact between him and Mr Ferguson in the period from February to July 2004. Mr Goddard said he had no independent recollection of what contact had occurred and the correspondence in the file would reveal that. On the basis of that correspondence and the other evidence, I find the gap in Mr Ferguson's involvement was about six months.

First pre-trial conference and further preparation (30 June-28 July 2004)

238 There was a long pre-trial conference on 30 June 2004, which Mr Goddard attended. Various aspects of pre-trial preparation were discussed. A hearing during the week of 6 September 2004 was expected. The pre-trial conference was adjourned to 29 July 2004.

239 On 1 July 2004, Mr Goddard spoke with Mr Connolly about his availability, Mr Rosen's clerk as to his availability and Paul as to progress. Paul said he wanted Mr Goddard to contact Mr Ferguson. Paul actually conferred with Mr Ferguson by telephone on 8 July 2004 and 10 July 2004. On 14 July 2004 Paul agreed with Mr Goddard to ring Mr Ferguson the next day.

240 Also on 1 July 2004 Mr Goddard spoke with Mr Impey about getting an affidavit from Norbert. He then wrote to Mr Impey enclosing a copy of Paul's affidavit of evidence in chief, explaining why it was 'absolutely vital' to have an affidavit from Norbert by 29 July 2004. In conference with Mr Goddard on 2 July 2004, Paul said he would speak with Norbert. On 14 July 2004, Paul told Mr Goddard he had done so, but that Norbert had a problem with his manager being on leave for a family emergency. On 20 July 2004, Mr Goddard sent an email to Mr Impey (of Kennedy Wisewoulds) saying they had received no reply to their request for Norbert's assistance and asking Norbert to contact Mr Goddard as a matter of urgency. There was no response at that time. Mr Goddard's evidence was there remained concerns about Arno's health.

241 On 2 July 2004, Mr Goddard requested revised reports from Mr Connolly (property valuer), Dr Velakoulis (Paul's treating psychiatrist) and Dr Sturrock (Paul's consultant psychiatrist). He reported this to Paul by letter dated the same day. Mr Goddard said he made these requests of the doctors primarily because of his concerns that Paul's mental health was impacting on his capacity for work but also because of his concern that it was impacting on his 'ability to cope with these proceedings'.

242 Also on 2 July 2004, Mr Connolly's affidavit was filed, attaching his report on the value of the Bowring engineering business and the two Moorabbin properties. When taken to that report, Norbert said it contained accurate photographs of the old and outdated equipment and machinery which was still in use.

243 Dr Sturrock saw Paul again on 7 July 2004 and 14 July 2004. By that time, Paul was taking anti-depressant medication prescribed by Dr Velakoulis. Dr Sturrock provided a draft report to Mr Goddard on 21 July 2004. This led to his affidavit dated 23 July 2004 annexing his reports of 4 February 2004 and 21 July 2004. The most recent report described Paul as having a 'shot' memory and intermittent suicidal thoughts. He was tearful and not functioning adequately. He was dishevelled, distracted and intensely preoccupied. He was not psychotic, but had a chronic disorder with depressed mood and intermittent exacerbations of a major depressive episode. He had some features of post-traumatic stress disorder. He was not capable of work.

244 Lianne issued a fresh subpoena on 14 July 2004 returnable on 29 July 2004. It sought client lists, contracts, pricing lists and other documents of Mermaid Metals.

245 As instructed by Paul, Mr Ferguson attended a long conference with Mr Walton and Paul at the offices of O'Keeffe Walton Berry on 21 July 2004. A large number of issues were discussed, on which Mr Ferguson reported to Mr Goddard by letter dated 22 July 2004. It is clear that Mr Ferguson was by then engaged in the task of updating his report of 9 December 2003. Mr Ferguson's oral evidence was that Mr Walton and Paul always insisted, as they did at this time, that Arno controlled Protoline, even though he allowed Paul to issue and sign cheques and had been a director at some stage. He said Mr Connolly's valuation was presented at this meeting. He thought the valuation had some 'silly' figures in it, but they could run with it if they wanted to.

246 Mr Walton provided further information to Mr Ferguson on 23 July 2004, as did Paul on that day.

247 Arno wrote to Mr Impey on 23 July 2004 about the several difficulties confronting Bowring engineering at that time, being Norbert's health, Paul's health, Arno's health and the downturn in the Bowring business. He said he appeared to have little option but to close the business down. In his oral evidence, Norbert expanded on his health problems, which were serious and continuing.

248 Dr Velakoulis provided an updated report on 26 July 2004. In that report he described seeing Paul at the Melbourne Clinic on 28 April, 12 May, 21 June, 14 July and 21 July of 2004. He was to see him further after that. In that report, which he confirmed in his oral evidence, he gave a diagnosis of a major depressive illness with chronic post-traumatic stress disorder. Among other things, he said Paul had 'become indecisive and ambivalent about day-to-day decisions'. He prescribed regular psychotherapy and anti-depressant medication. Paul was to continue to be treated as an outpatient of the clinic. The report was annexed to his affidavit of 8 September 2004.

249 At this time, Mr Ferguson was working on updating his earlier report. Mr Goddard sent him further information on 28 July 2004 (twice) and told him the trial was now fixed for hearing on 13 September 2004, with a round table conference likely to happen the week before. Mr Goddard also conferred with Roger Berick of PBR Australia Pty Ltd, who was engaged to give evidence about the difficult state of the engineering industry. He swore an affidavit on that subject on 28 July 2004 which was filed the next day. Mr Goddard met with Paul in late July, resulting in his affidavit in response to Lianne's substantive affidavit, which he swore on 27 July 2004.

Second pre-trial conference and final directions (29 July 2004)

250 The pre-trial conference occurred on 29 July 2004. The trial date was fixed for Monday 13 September 2004 for four days. A conference of experts was ordered within 14 days. They were to file a joint statement within three clear business days of the hearing. The experts specified were Ms Wilson (the wife) and Mr Connolly (the husband).

• each party was to notify each other party at least 14 days before the trial of any objections to affidavits
• each party was to reply in writing to any objections at least 7 days before the trial
• each party was to lodge any objections (or replies) with the judge's associate at least 24 hours before the trial
• each party was to notify each other party at least 14 days before the trial of the documents they intended to tender in evidence in chief, and where those documents could be inspected
• each party was to notify each other party within 3 clear business days of the trial which documents could be tendered by consent and which could not
• the parties were to file a joint case summary document at least 2 clear business days before the trial
• each party was to file a summary of argument at least 2 clear business days prior to the trial.

252 The witnesses of the wife were specified to be:

• Lianne Fritsch
• June Wilson (wife's independent accountant).

253 The witnesses of the husband were specified to be:

• Paul Fritsch
• Kevin Connolly ('Expert - valuation report property at Syndal')
• Roger Berick
• David Sturrock ('Expert - Consultant psychiatrist re husband's capacity to earn income').

Neither Mr Ferguson nor Dr Velakoulis were specified. Paragraph 21 of the directions required Ms Wilson and Mr Connolly to confer within 14 days. Mr Goddard's notes of attendance at the pre-trial conference also refer to a conference between Ms Wilson and Mr Connolly within 14 days. The notes do not refer to Mr Ferguson.

254 In one explanation of these directions, Mr Goddard said he did not know why there had been an order for Ms Wilson and Mr Connolly to confer as 'Connolly was mainly there for the real estate'. Mr Connolly had provided a valuation of both Paul's properties and the family businesses (in his affidavit dated 2 July 2004). Mr Connolly was a 'business broker and a real estate valuer'. Mr Ackman would later advise his qualifications were not sufficient to give evidence on the business valuation issues and they had to rely on Mr Ferguson.

255 In another account, Mr Goddard said 'it appears that Mr Connolly was the likely expert', and he referred to the meeting which was to occur between him and Ms Wilson. He agreed the directions 'seem ... to indicate' he was not going ahead with Mr Ferguson. He did not remember his actual intentions. But Mr Connolly was not going to be dealing with tax issues. He agreed that, 'looking at the form' containing the directions, he had no evidence in contemplation to prove the tax arising from the Protoline debts. He was in fact intending to rely on Mr Ferguson for that purpose. He could not explain why this was not disclosed in the form.

256 Mr Goddard confirmed in his evidence on a number of occasions that he was intending to use Mr Ferguson as the expert for both valuation and taxation purposes. Speaking as at August 2004, he said Mr Ferguson was to be used '[i]n terms of valuation and the tax'. He said 'I felt that if Mr Ferguson didn't know the answer he would tell us'. In other evidence he said 'Mr Ferguson had been requested to prepare a report for the purpose of the trial' and that report was to be in respect of the 'business valuation' and the 'tax implications'. He said Mr Ackman and Mr Rosen were briefed to represent Paul at the hearing shortly after the conference.

257 It was of fundamental importance to Paul's case to obtain expert taxation evidence from a qualified witness. The evidence I have just set out shows that, two months prior to the trial, Mr Goddard was still not sure who would give that evidence.

Preparing for final hearing on 13 September 2004 (3 August-8 September 2004)

258 On 3 August 2004, Mr Goddard spoke by telephone with Paul. Mr Goddard's notes of that conversation record the position that '[we] must have Norbert on affidavit. Otherwise we subpoena him'. Mr Impey advised Mr Goddard on 9 August 2004 that Norbert would not give an affidavit. Mr Goddard later told Paul, who did not know why. Paul denied in evidence that Norbert did not want to give evidence because it would be perjured evidence. He could not answer for his father and brother. He had instructed Mr Goddard to subpoena Norbert and Arno and not at the last minute. In his presence, Mr Goddard had telephoned Arno and got his agreement to provide an affidavit. Mr Goddard's evidence was that Norbert could have been sent a subpoena at any stage on short notice, but that turned out not to be necessary.

259 Norbert told the court he was reluctant to give evidence for Paul and to provide an affidavit. There were various reasons. Mainly he was 'resentful of Paul and his whole divorce proceedings'. He declined to help until the very end. By that time, Paul 'absolutely needed it'. He said he and Arno expected to be subpoenaed.

260 Mr Goddard's notes also recall Paul was to follow up with Mr Ferguson, which he did on the same day. Mr Ferguson prepared a draft statement of assets and liabilities on that day. Paul invited Mr Ferguson to visit the Bowring Engineering factory on 11 August 2004, which he did (on 12 August 2004). Paul wrote to Mr Ferguson about valuation issues on 7 August 2004.

261 Mr Ferguson prepared a draft statement of assets and liabilities as at 3 August 2004. In evidence he said he did this because it was sometimes requested by barristers. He did not say he did it because Mr Goddard asked him to in anticipation of the hearing. The statement included the tax on the Protoline debts ($461,000) on the deemed dividend basis. It gave Mr Ferguson's estimate of the asset pool of about $3,800,000. In oral evidence he said these were his views at the time.

262 Mr Ferguson was asked about his view of Paul's mental capacity at this time. He said Paul 'was always unhappy ... in a down mood and ... depressing'. Whether he understood matters depended on 'whether he liked my view or not'. He did not have to consider Paul's capacity to give instructions as Paul 'doesn't have to give me instructions'. He said he got his instructions from others. On one occasion he said Paul was 'fine' and on another emphatically rejected the use of that word to describe him.

263 On 9 August 2004, Mr Goddard wrote to John Kennedy, ear, nose and throat specialist, requesting a report on Paul's hearing disability. The report was provided in a letter dated 11 August 2004, which was annexed to Dr Kennedy's affidavit of 31 August 2004.

264 Mr Ferguson wrote to Mr Goddard on 16 August 2004 saying the documents being sought in the wife's subpoena returnable on 29 July 2004 were not sufficient to enable an informed valuation of the Bowring engineering business to be formulated, particularly in relation to its future maintainable earnings. He enclosed a report on the material events which had to be taken into account, including staff, nature of the business, forward orders and other matters. On the same day, Mr Goddard wrote to Middletons advising (among other things) that 'we confirm that our client has accepted your suggestion that he again instruct Mr. Ferguson in this matter'. He told the court he had no independent recollection of this suggestion being made, but the letter showed it was.

265 Mr Goddard's letter also served Middletons with copies of the affidavits of David Freeman, Mr Connolly, Dr Sturrock, Paul, Mr Berick and the report dated 26 July 2004 of Dr Velakoulis. It advised of Norbert's serious illness and Arno's intention to close Bowring's. It also said Mr Rosen was not available in the week of 13 September 2004 and suggested a deferment of the commencement of the hearing to on or after 4 October 2004.

266 Mr Goddard spoke with Mr Ferguson on 17 August 2004. He was to send him further information by fax on that day. The next day, Mr Ferguson wrote to Mr Goddard saying that, in relation to updating the assets and liabilities, the major items of contention concerned the valuation of the business. Mr Ferguson asked that Mr Walton assist Norbert to prepare a budget for the Bowring Unit Trust for the 2005 financial year. He anticipated receiving supporting affidavits from Mr Walton and Norbert, if necessary.

267 The question whether Norbert or Arno should be sent subpoenas was under constant review. It was discussed in conference by Mr Goddard with Mr Ackman and Mr Rosen on 19 August 2004 but not resolved. That was because it was thought there was a prospect of getting voluntary cooperation, which was preferable to calling the witnesses 'cold'. It was Mr Goddard's evidence that Mr Ackman rang Mr Ferguson from the conference to say his report had to be ready before the hearing on 13 September 2004. At Paul's request, Mr Ackman was asked not to 'talk figures' with the wife's lawyers. Later that day Mr Ferguson told Mr Goddard he would 'pencil in' 2 September 2004 for a conference.

268 Mr Ferguson made further suggestions to Mr Goddard on 23 August 2004 regarding Ms Wilson, including the provision to her of the 2003 financial accounts and inviting her to visit the factory. He again asked for the 2005 financial year budget to be prepared by Norbert and Mr Walton. On Mr Ackman's instructions, which he confirmed in oral evidence, Mr Ferguson wrote to Ms Wilson on 30 August 2004 to arrange a conference with her as to the statement of assets and liabilities. He provided her with certain documents, including a draft statement, and told her what he was waiting on. The two talked by telephone on 1 September 2004 about a range of valuation issues.

269 Mr Walton provided the draft budget for the 2005 financial year in respect of the Bowring engineering business on 31 August 2004 by fax to Mr Ferguson. A few items were awaiting clarification.

270 There is an undated summary of an argument of the wife. It was given to Goddard Elliott on about 10 September 2004.

271 It was known that Mr Goddard would be away on holidays from 20 August 2004-3 September 2004. Mr Goddard appointed Gai Campbell (a senior associate) to look after the file in his absence. On 1 September 2004, Paul wrote to Goddard Elliott ('Kerrie and Gai') complaining he had no communication and things were happening very quickly. He reminded 'everyone' that Mr Goddard, Mr Ferguson, Mr Walton and himself had been party to meetings at the offices of O'Keeffe Walton Berry where a report containing liabilities for tax, CGT and disposal costs had been discussed. Paul said 'at no time has this been presented to the other side'. He said 'all the liabilities must be taken (should) be taken into account and presented'. He said please 'let me know whats [sic] going on'. Paul's fax was forwarded to Mr Ferguson the same day.

272 In a memorandum of a telephone call with 'Kerry' of Goddard Elliott on 1 September 2004, Mr Ackman is recorded as saying that 'Paul has perjured himself and we are trying to get him out of trouble so its [sic] no point in getting fixated about figures'. Mr Ackman also said Paul could send some further information to Mr Ferguson. Mr Goddard said Mr Ackman was talking about the statements in Paul's sworn financial statements about the Protoline debts. He gave evidence that he discussed Mr Ackman's view about the perjury with Paul. His advice to Paul was not to go to trial 'if we could possibly avoid it'.

273 A large volume of financial and other information which had been requested by Ms Wilson was delivered to the offices of Middletons on 3 September 2004. The material is described in Mr Ferguson's letter to her dated 8 September 2004.

274 On 7 September 2004, Mr Goddard advised Mr Ferguson of a round table conference which had been listed for 9-10 September 2004. The importance of the conference as an opportunity for settlement was stressed. Mr Ferguson was pressed to meet with Ms Wilson. He was asked to contact Mr Goddard.

275 The wife's solicitors filed and served her proposed joint case summary on 8 September 2004. The major issues in contention in that summary were in relation to the liabilities, which the wife wholly rejected. Middletons sought any amendments prior to the round table conference. Mr Ferguson and Ms Wilson discussed the draft statement of assets and liabilities by telephone and email on 8 September 2004. Mr Ferguson prepared a letter that day setting out their differences, which he emailed to her and to which she responded. Mr Ferguson said in oral evidence that, as was set out in the letter, he remained of the view at this time that the husband's asset pool was about $3,700,000.

276 On that day (8 September 2004) there was a conference between Mr Ackman, Mr Rosen, Mr Goddard and Mr Ferguson. Mr Ferguson's file note of the conference sets out the matters which were discussed. Paul's evidence was he expressed his concern that, even at that late stage, and with the round table conference to be held the next day, there was still no statement of assets and liabilities to put forward on his behalf. It was resolved that Mr Ferguson was to consider a range of matters in his updated report, including the Protoline debts. Paul's evidence was that on this day he informed Mr Ackman that Arno and Norbert were prepared to give affidavits.

277 According to the husband's list of affidavits relied upon which was prepared by Goddard Elliott for the hearing on 13 September 2004, the affidavits sworn/filed on behalf of the husband were:

• Mr Kennedy (31 August 2004/(13 September 2004 to Watt J))

• Dr Velakoulis (8 September 2004/(13 September 2004 to Watt J))

As to other potential witnesses of the husband, the position was:

• Mr Ferguson (no affidavit and report not completed)
• Arno Fritsch (no affidavit and then willing to assist)
• Norbert Fritsch (no affidavit and then willing to assist)
• Mr Walton (affidavit sworn on 17 September 2003 and filed on 19 September 2003)
• Mr Connolly (affidavit sworn on 28 June 2004 and filed on 2 July 2004)

Dr Velakoulis's urgent report on Paul Fritsch's mental health (9 September 2004)

278 On Wednesday 8 September 2004 Mr Goddard verbally requested Dr Velakoulis urgently to provide an update on Paul's mental state, which Mr Goddard said 'also related to the proposed application for an adjournment'. Mr Goddard said he did so because 'Noel Ackman became concerned about Paul's capacity'. He said 'Mr Ackman wanted to get evidence as to his capacity to give instructions' which could be used 'to obtain an adjournment'. Mr Ackman was concerned as to whether 'Paul was understanding and giving proper instructions'. Mr Goddard said 'I hadn't been concerned about that issue but that had been a matter that Noel Ackman was concerned about'.

279 Dr Velakoulis saw Paul on that day and provided a report on the next (9 September 2004). Mr Goddard said he gave a copy to Mr Ackman and Mr Rosen. Dr Velakoulis confirmed his diagnosis of 'Major Depression and Chronic Post Traumatic Stress Disorder', which was 'occurring in the context [of] divorce proceedings, a decline in the family business, and the ill health of his father and brother'. Given the 'severity of his symptoms', he had discussed 'inpatient psychiatric care' with Paul in 'recent weeks'. Paul's mental condition was 'in ... decline'. He experienced 'poor concentration and attention, forgetfulness, periods of "confusion" ' and 'transient suicidal ideation'.

280 Dr Velakoulis wrote that presently Paul was 'not well, and despite changes to his medication regime, he may require hospitalisation if he continues to deteriorate'. He did not re-test Paul's cognitive capacity, but recent tests revealed 'no significant abnormalities, suggesting that his underlying function in cognitive domains is intact'. As to participation in the upcoming and future proceedings in the Family Court, Dr Velakoulis said: 'It would be preferable for Paul to be clinically better prior to such a difficult process, but I have also discussed with him (were the court proceedings delayed) the possibility that even with intense treatment, he may actually experience a similar decline in the context of future court proceedings'.

281 In his oral evidence, Dr Velakoulis elaborated. He said the view he expressed to Paul was that he should be given inpatient psychiatric care - admit himself voluntarily into a psychiatric hospital - especially because of his persistently despondent mood, which carried a risk of self-harm. He told Paul that going 'into hospital was appropriate for [his] medical care'. Paul had a diminished ability to analyse information due to both his post-traumatic stress disorder and his depression. His condition was associated with 'attentional and concentration difficulties'. He agreed he could not advise that Paul lacked the capacity to give instructions. His intent in writing the letter of 9 September 2004 was to 'suggest that he would be able to absorb concepts, deliberate, and come to a reasonable conclusion given certain parameters largely relating to his condition not deteriorating, and also him not being under undue stress'. He would 'ideally have liked to have sat down and interviewed Paul', but there was 'no time to do that'. He was asked questions about what might indicate he was functioning properly. He agreed that reading and understanding a document and having a fight over the $41,000 capital gains tax liability on 13 September 2004 might indicate that he was. He was asked questions about what might indicate he was not functioning properly. He said various aspects of his appearance and behaviour on that day might indicate that he was in 'an extremely poor state' to be coming to conclusions.

282 Mr Rosen's evidence was that, even after considering the report of Dr Velakoulis, he was not concerned about Paul's mental health. He was processing information and 'gave proper instructions'. He was 'in no way incapable, incompetent or unable to deal with this situation'. I have given my reasons for not accepting this evidence.

283 When asked about what was done in running the case to take account of Paul's mental conditions, as recommended by Dr Velakoulis, Mr Goddard said 'it didn't appear that this letter was good enough to get us an adjournment'. It was brought to Mr Goddard's attention that his did not answer the question. It was his evidence that the doctor was 'having a bit of an each way bet' because he was saying 'there's no guarantee that he'd be OK on the adjourned hearing date'. He had said earlier that, in other cases where the psychiatrist had said the client was unfit, it was clear 'we had to have a litigation guardian'. But usually the view of psychiatrists was ambiguous, as with Dr Velakoulis.

Round table conference and Paul Fritsch's declining health (9-10 September 2004)

284 On 9 September 2004, Mr Ferguson forwarded (by email) to Ms Wilson (the wife's independent accountant) a letter enclosing Paul's draft statement of assets and liabilities. That was the first day of the two-day round table conference. Mr Ferguson's calculation of the husband's pool was about $3,800,000. The statement mistakenly left out the tax provision (deemed dividend basis) for the conceded Protoline debts, which was later corrected. A note to the statement expressed Mr Ferguson's then view that the 'Income Tax Liability' was dependent on a declaration of dividend and disclosure and receipt of an income tax assessment.

285 Present at the conference for the wife were Mr Brown SC, Sharon Johns (junior counsel), Ms Nicholes and Lara Ruddle (assisting Ms Nicholes). Present for the husband were Mr Ackman, Mr Ferguson and Mr Goddard. Mr Rosen was not present. Paul was also in attendance. The case did not settle.

286 Paul said he spent most of the time outside of the room. Mr Goddard and Mr Ackman advised him in the hallway to accept an offer which had been made by the wife. That offer was for 'the house, Sorrento and $150,[000] or something to that effect'. Mr Goddard said 'that was as good as it gets, that it's a good deal'. Paul's evidence was that, on this day (9 September 2004), Mr Ackman spoke with him about the taxation on the Protoline debts. He told Paul 'there's only a tax if you put your hand up [or] if you are audited'. Mr Goddard also told Paul 'there was no tax payable, that I didn't have to pay a tax'.

287 It was put to Mr Goddard that on 10 September 2004 he prepared a document for Paul to sign accepting the offer of the wife. He said he had 'no recollection either of any such offer having been made ... or of preparing any document.' He said it would have been 'a good offer in my view'. He denied the authority to settle which Paul signed on 16 September 2004 was a document which he started preparing on 10 September 2004. Of that authority he said he did not know 'who wrote in this business about Sorrento and $150,000. It's not part of what I [wrote].'

288 Paul's notes of a conference on 9 September 2004 indicate that Mr Ackman was of the view that tax on the Protoline debts was payable and he wanted an affidavit from a taxation law expert on that subject. Mr Goddard agreed in evidence that evidence of that kind was indeed needed, although he did nothing to get it on 8, 9 or 10 September 2004. In oral evidence, Paul said he was told on this day by Mr Goddard and Mr Rosen that the tax on the Protoline debts was 'only a tax if you put your hand up [or] that if you are audited'. Mr Goddard denied saying anything of the kind.

289 In the evening of 9 September 2004, Mr Walton on his own initiative contacted the tax law specialist Keith Harvey of Ambry Legal and asked him for advice in relation to the taxation status of the Protoline debts. Mr Walton said he did this because he was not confident the tax issue was being given proper consideration, even at that late stage. Mr Goddard said it was Mr Walton who had engaged Mr Harvey. That was 'to give an opinion in relation to the tax'.

290 Mr Harvey then sent Mr Walton a long email setting out the basic facts as they had been relayed to him and expressing the preliminary view that the debts would be taxed as deemed dividends in the hands of Paul's trusts (the Paul Fritsch Family Trust and the Chadwick Glen Trust).

291 Mr Harvey gave oral evidence to the court. He adopted his report dated 15 September 2004. He said he had been asked to assist Mr Ferguson to provide an expert report. He received his initial instructions from Mr Walton and was then engaged by Paul. I will set out his evidence more fully later.

292 Based on the advice of Mr Harvey, Mr Walton wrote to Paul on 10 September 2004 expressing his personal opinion that the two trusts would be deemed to have received dividends in the amount of $959,120 and $782,913 respectively and the taxation due by the beneficiaries (Paul and Lianne) was $844,886. The higher taxation figure reflected the forgiveness of debt as against the deemed dividend method. He discussed the issue with Arno, but he would not give him a 'definite answer' about his intentions in relation to repayment of the loans. Therefore, and on Mr Harvey's advice, he considered then that a reasonable person would treat the debts as forgiven, especially given the passage of time. Mr Walton said this advice superseded his earlier advice, which was based on the deemed dividend method. He said he was never asked to give evidence in the family law proceedings or held himself open to do so.

293 Mr Ferguson discussed this advice with Mr Walton on the same day. Mr Ferguson's note of the discussions records his view that: 'N.B. This argument re "forgiveness of debt" is the first time raised. All previous communications referred to effect of declaring dividend with imputation credits'. Another note of Mr Ferguson that day asks: 'Will the scenario proposed by Peter Walton actually happen'. He also wrote to Mr Walton asking who the assessments would be issued to and under what circumstances, including but not limited to 'Mr Paul Fritsch instructing voluntary disclosure; Tax Audit and the likelihood of same; Other Persons'.

294 Mr Ferguson explained in oral evidence that, where the debt was deemed forgiven, '[y]ou pay tax in the hands of a debtor in full' and without any franking credits. Under self-assessment, the forgiving would be disclosed on the lodgement of a tax return. That was a matter for the accountant's advice. In Paul's case, that was Mr Walton. Mr Ferguson was questioned at length about the self-assessment obligation. His evidence was highly nuanced. In the end, he accepted that, when determining whether there was an actual tax liability, voluntary disclosure was not taken into account. Actual payment turned on self-disclosure and assessment. He went on to say that if the debts had been repaid beforehand from other sources of funds, the tax issue did not arise. In his words, 'if you come into some money for whatever purpose and you had it available the simplest way is to put it back into the company'.

295 Mr Walton's evidence was that he found Mr Ferguson's questions of 10 September 2004 difficult because, under the self-assessing tax regime, the tax is 'either payable under the tax law or it's not'. That is what he would have advised Mr Ferguson in response to the questions. Counsel for Goddard Elliott accepted in submissions that this position was correct.

296 There was a conference on Friday 10 September 2004 between Mr Ackman, Mr Goddard, Mr Ferguson and Paul. Mr Walton's advice and a range of other matters were discussed. According to Mr Walton's evidence, on Paul's request he faxed to Mr Ackman a statement of Paul's current financial circumstances. It included the $844,886 taxation liability and the $387,000 loan from Arno. According to Mr Goddard's notes of this conference, Mr Ackman referred to Mr Walton as a 'tainted source' because of the letter of 17 May 1996 and because he was Paul and Arno's accountant. In his evidence, Paul did not recollect but did not deny any of this this.

297 Mr Goddard wrote in the notes that 'the safest bet for the professionals was to let the Court decide but my instinct was to settle'. In evidence he explained his view, which was 'that if Paul got a severe bollocking in court ... [t]he outcome could be tragic'. Mr Goddard said they were told at the conference that Arno and Norbert would assist in the case. At that stage, they did not have any material from them or Mr Ferguson's report. Mr Ackman stressed the incompleteness of the information and raised the option of an adjournment.

298 Mr Rosen's evidence was that, at this time, they were confronted with 'shortcomings in the preparation of the case'. One was there 'was not a report from Mr Ferguson'; (that is, there was no expert evidence about what tax was payable on the Protoline debts). Another problem was there was no affidavit in opposition to the wife's application for indemnity costs, which Mr Rosen and Mr Ackman raised with Mr Goddard. Mr Rosen said he had a concern that any tax payable would be seen by the judge to be waste, but he agreed that was not being alleged by the wife.

299 It was decided Mr Ackman would have to speak with Arno and Norbert, who had agreed by then to provide additional information, and seek an adjournment of the trial which was fixed to begin on the following Monday 13 September 2004. Paul said Mr Ackman insisted that day on Mr Harvey completing his report. Mr Goddard said Mr Ackman was confident an adjournment would be granted. He said if Mr Walton had not organised Mr Harvey to give evidence, they would have been left to rely on Mr Ferguson.

300 Mr Ferguson's evidence was that his report was 'substantially complete at that stage on a valuation of the business', meaning at the time of this conference on 10 September 2004. It was not complete in terms of the major liabilities in the asset pool, being the loans and the tax. He was asked why nothing had been done about getting and analysis of the taxation issues on 10 September 2004. He said that this required the assistance of a third party. His role was that of a 'forensic accountant'. It was not his role 'to give advice'. Paul had 'a tax accountant', being Mr Walton. It was for Mr Walton to 'give the advice on tax'. He was not asked to give instructions to another expert for the obtaining of tax advice. Again he said he had only came back into the matter on about 8 July 2004. Mr Goddard did not then ask him to consider the issue of the tax liability in relation to the Protoline debts. If he had asked him to do so, he would have told Mr Goddard that he was not the right person for that task. It followed, he agreed, that there was not on 10 September 2004 a legal opinion in relation to the tax liability on the Protoline debts. He agreed Mr Harvey was 'eminently qualified' to give that opinion.

301 It was Paul's oral evidence that on 10 September 2004 he again spent 'virtually the whole day' outside Mr Ackman's chambers. Mr Goddard again tried to persuade him to accept the wife's offer of the previous day. According to Paul, Mr Goddard said it was 'the best deal ... I could possibly get'. Paul said the authority which he signed on 16 September 2004 was 'pretty much' a document which Mr Ackman showed him on this day (Friday 10 September). The document was in three different handwritings. The crossed out sections on the first page were 'there on ... the Friday'. Other sections were there also. On the question of the taxation liabilities, Mr Goddard said 'you do not need to pay ... the tax'. Mr Goddard denied saying this.

302 Paul gave evidence that he became quite sick in the morning. He 'couldn't breathe' and was 'shaking' and 'nauseous'. Mr Goddard said he did not recall seeing Paul in that condition. Paul said he spoke to Dr Velakoulis by telephone at least twice on that day. On the first occasion, Dr Velakoulis told Paul he should be 'in hospital' and was in no state to be signing anything. In the later conversation, he said the same thing. Paul said Dr Velakoulis also spoke the Mr Ackman. Later Mr Ackman told Paul the case had not been properly prepared and had to be adjourned. The lawyers then stopped trying to persuade Paul to settle and Paul was relieved.

303 Dr Velakoulis gave oral evidence of his contact with Paul on 10 September 2004 and the matter is dealt with in his later report dated 9 July 2006. As that report said, he received a telephone call on that day from Mr Goddard 'who expressed concern regarding Paul's mental state'. Mr Goddard said he did not remember doing this but assumed from Dr Velakoulis' letter that he did so. Dr Velakoulis got from the conversation that 'Paul had intimated that if the court case did not go well, he may well suicide'. He later spoke with Paul. That was at about 12.45 pm. Paul admitted to suicidal ideation. Dr Velakoulis recommend his immediate voluntary admission to the Melbourne Clinic. Paul said he would think about it. Paul rang back at about 4.15 pm. Given the intended adjournment application, he was in a less distressed state.

304 Looking back over the events in his report of 9 July 2006, Dr Velakoulis gave this summary to the position in early September 2004:

My clinical impression during the period of early September 2004 was that Paul was moderately depressed, transiently suicidal, anxious, suffering from variable abilities of concentration and attention, subjective forgetfulness, poor motivation and impaired sleep. The pending court case and associated stress seemed to be the major factor in his decline. He was related PTSD symptoms were also evident. Hospital admission was recommended on several occasions

Formal cognitive testing ... did not reveal any primary cognitive impairment, but his depression and PTSD symptoms, in the context of significant stress, would have had an impact on his ability to attend to information, to concentrate and deliberate on complex matters, and to arrive at a reasoned and logical conclusion. He was prone to becoming perplexed and flustered under pressure. A recommendation was made in my letter of 8th September to Ander Goddard that the impact of his mental illness on his cognitive capacities be considered during his court case, that it would be preferable that Mr. Fritsch be clinically better prior to such a court process, but that a similar decline could occur in any future proceedings.

305 Dr Velakoulis next saw Paul on 29 September 2004. Paul did not attend his provisional appointment on 13 September 2004. Given his court commitments, that was not unexpected. From his conversation with Mr Goddard on 10 September 2004 until after the case was settled, Dr Velakoulis had no contact with Paul's lawyers.

306 Mr Goddard gave a copy of the report to Mr Ackman and Mr Rosen. Mr Ackman concluded it was not sufficient to get an adjournment they were seeking.

Husband's adjournment application (13 September 2004)

307 When informed of the intended adjournment application, the wife's solicitors (Middletons) wrote a long letter of opposition which was received by Mr Goddard late in the afternoon of 10 September 2004. The letter said the wife would be seeking indemnity costs against the husband. It gave notice that Paul, Mr Walton, Mr Ferguson (if he intended to provide sworn evidence), Mr Connolly, Mr Berick, Dr Kennedy and Dr Sturrock should be available for cross-examination, as should those witnesses whose affidavits has been filed late. Middletons had earlier sent to Mr Goddard the orders sought by the wife. After hours on Friday 10 September 2004, Middletons sent by email to Goddard Elliott the wife's summary of argument document and the orders sought, and noted they had received neither the joint case summary nor the summary of argument from the husband. Also on 10 September 2004, the associate to Watt J, who was to hear the trial, telephoned Goddard Elliott to give details of the hearing and seek copies of the husband's orders sought, joint case summary and summary of argument.

308 Mr Goddard said in evidence he did not get back to Middleton's about the documents because 'we didn't have the final figures until the 16th'. If the matter had not been resolved, the joint case outline could have been completed. Because the figures were not finalised, there was no document summarising the husband's version of the net pool of assets and liabilities filed with the court. He was 'absolutely' not in a position to complete such a document. The court did have Paul's financial statement setting these matters out.

309 On Monday, 13 September 2004, Paul swore an affidavit in support of the adjournment application. The affidavit said there were at least four major areas of dispute:

• the sum of $387,000 advanced by Arno to assist with buying the matrimonial home

• the value of Paul's 25 per cent share in the Bowring engineering business

• the tax liability advice given in Mr Walton's letter of 10 September 2004 (which was exhibited), which Mr Ferguson needed time and further information to consider

• the difficulties confronting the possible closure of the Bowring engineering business

Paul's affidavit said he had been advised that he needed primary evidence from Arno and Norbert as to these matters. They had previously declined to provide affidavits, but on 10 September 2004 Arno had said he was now prepared to do so. Without that information, Mr Ferguson could not prepare his report.

310 By letter dated 13 September 2004, Mr Ferguson wrote to Mr Goddard confirming the need to interview Arno, to consider the financial accounts of the Bowring Unit Trust for 2004 and the taxation issues raised by the advice of Mr Walton and to obtain an independent opinion from a specialist tax lawyer in relation to those issues. A draft affidavit exhibiting the letter was prepared for the adjournment application but not used. Mr Ferguson gave oral evidence that by this stage '[w]e all thought that there is a tax liability. The question is, is it going to be disclosed and is it going to be paid'. He said 'that's the matter to be put. The court [would] make its mind up on that issue'. He pointed out the liability was in fact disclosed in his report, which accepted Mr Harvey's advice that the tax was payable according to the forgiveness of debt method.

311 Mr Ackman made the application for the adjournment on 13 September 2004. Watt J said at the start of the hearing that he had received a summary of argument and the orders sought only from the wife. Mr Ackman said the husband could not produce these for the same reasons that the adjournment was being sought. In particular, the husband's list of assets and liabilities could not be prepared.

312 Mr Ackman said at the start of the hearing, and repeated the point later, that he was not seeking an adjournment on the basis of Paul's psychiatric condition. It was not being put that he was unfit to give instructions. Rather, it was only the previous Wednesday (8 September 2004) that Arno and Norbert had said they would assist, having previously refused to do so.

313 Mr Goddard's evidence was that Mr Ackman had decided in his submissions to be 'up-front' with the court about the letter of 17 May 1996, and he was. Referring to the letter, Mr Ackman said the in-house accountant (Mr Walton) was not a reliable witness for the husband. The independent accountant (Mr Ferguson) needed more information to complete his report and file an affidavit. At this stage, Paul was not accepting Mr Ferguson's advice. There was no dispute between the husband and the wife as to the valuation of other assets, only the Fritsch family businesses. The objection of the wife that Mr Connolly was not properly qualified had been accepted by Mr Goddard. When taken to the letter of 17 May 1996, his Honour said: 'Unfortunate or not, people do seek that sort of advice and they're entitled to'.

314 Mr Ackman said further evidence was needed about the debt owed to the father. There was $461,000 in taxation due on a private company dividend. Mr Ferguson was not convinced the dividend would ever be declared. Paul wanted the tax to be taken into account. To do that, Mr Ackman needed to speak with Arno and Norbert.

315 Mr Ackman told Watt J he was 'totally unable to put before your Honour what I am able to say' and was 'totally unable to do justice to my client's case because I don't even know what it is'. His Honour said he needed some clear vision as to how an adjournment would improve the situation.

316 Taken to the medical evidence (Dr Velakoulis's two reports), his Honour said they went each way but showed Paul needed the case to be dealt with. Of the four-day estimate, his Honour said he thought it 'a bit optimistic', but he had more than that available and could 'roll the case into next week'. He gave Mr Ackman until 2.15 pm that afternoon to clarify the position of Arno and Norbert.

317 At 2.15 pm Mr Ackman filed (by leave) Paul's affidavit sworn that day and Mr Ferguson's letter dated also that day. Mr Impey was called and gave evidence. Mr Impey told his Honour Norbert had given instructions that he would confer with Mr Ackman. Mr Impey said Arno had previously said he would do so. Mr Impey also understood Arno would swear an affidavit.

318 Mr Ackman took his Honour to the issues raised in Mr Ferguson's letter and the need for further information. His Honour referred to the evidence of Ms Wilson, the wife's valuer, whose affidavit had been filed in June. He said 'how could your instructors ... possibly have left the evidence of that valuer [Mr Walton's] as the only evidence of value? I mean, it's setting up an adjournment, isn't it?' Mr Ackman said Mr Ferguson and Mr Walton had been in frequent contact. He said 'we're totally unarmed' and the husband should not be punished for that. His Honour repeated his observations in relation to Mr Walton, saying he had a 'very clear partisan interest'. He later asked why the need for a different expert to Mr Walton was realised so late, given Mr Ferguson had been engaged in November 2003 and the parties had been through the pre-trial process. Mr Ackman said he could not assist his Honour in relation to that.

319 In opposition to the adjournment, Mr Brown QC said Mr Ferguson had been engaged as an independent accountant but had been replaced by Mr Connolly, who was a business broker with no relevant qualifications. At the pre-trial conference on 29 July 2004, the husband's expert was Mr Connolly, not Mr Ferguson. In view of Mr Connolly's lack of qualifications, the wife objected to his evidence and this was accepted by Goddard Elliott. The first the wife heard of Mr Ferguson being an interest was in the week of 6 September 2004. He criticised Paul for disputing his accountant's advice and 'shoot[ing] the messenger'. His Honour said he had the Monday and Tuesday of next week available to continue with the hearing of the matter. Otherwise it would go off until 2005.

320 His Honour declined to grant a long adjournment but did agree to give the husband two days in which to complete his preparation of the case. His Honour made these orders:

1. I adjourn the further hearing of this matter to Thursday 16 September 2004 at 10.00am as a part-heard matter.
2. The husband file and serve any affidavit on which he seeks to rely by:

(a) Norbert Fritsch;

(b) Arno Fritsch; and

(c) Mr K Fergusson [sic]

by 4.00 pm on Wednesday 15 September 2004.

1. I request that Mr Impey make his clients available to confer as necessary for the husband to be able to comply with paragraph 2 of this order.
2. I reserve all questions of the wife's costs of and incidental to the adjournment.
3. Certify for senior and junior counsel for both parties.
4. The husband file and serve a Case Summary document by 4.00 pm on Wednesday 15 September 2004 ...

AND THE COURT NOTES THAT in the absence of compliance with paragraph 2 of this order the wife has indicated her intention to seek leave to proceed on 16 September 2004 on an undefended basis or on such other basis as the Court may deem appropriate.

321 In oral evidence, Paul said he was told during the hearing by Mr Goddard, 'You've got a hostile judge'.

322 Mr Rosen described Paul's demeanour at this time. He said Paul 'was not unduly distressed'. He went on to say Paul 'was certainly processing the information, and he was certainly well able to give instructions'. I do not accept this evidence.

Further preparation for final hearing (13-15 September 2004)

323 Mr Harvey conferred with Paul at the offices of Ambry Legal later in the afternoon of 13 September 2004. He began the task of taking instructions for the purpose of giving an independent opinion on the Protoline taxation issues. In oral evidence, Mr Harvey said he conceived himself as assisting Mr Ferguson rather than having independent accountability to the court.

324 On 14 September 2004, there was a long conference at the offices of O'Keeffe Walton Berry between Mr Walton, Mr Harvey, Mr Impey, Mr Rosen, Mr Ferguson, Mr Goddard and Paul, Arno and Norbert Fritsch. The issues in contention were discussed at length. Mr Ferguson's notes were extensive. All were agreed the tax should be taken into account.

325 Mr Rosen said in evidence that Arno said at the meeting that Paul did not owe the money he got to help buy the home. Arno said 'it's for the family'. In response, 'Paul said nothing'. Mr Impey was present. I note no other witness gave evidence of these statements by Arno.

326 In oral evidence, Mr Harvey made observations about Paul at this conference which I consider to be significant. He said Paul 'wasn't participating' in the conference. His father was participating more. It was a concern of the family that the tax office might get involved and someone from the tax office might sit in on the case. He said this 'wasn't a concern of Paul's because he was sitting on - it wasn't even a proper chair, he was off to the side. He wasn't really participating in - didn't seem in a - able to participate in the meeting'. His observations of Paul were that 'he was very vague ... he was my client and I wasn't getting instructions from him. I was concerned that his father was making all the decisions and it wasn't his father who was my client'. Norbert's evidence was that the tax concerns may have been about Paul's affairs, not those of the Fritsch family. Mr Harvey said his advice was that Paul should 'self-advise the tax office of what had occurred', in which case the penalties would be minimal.

327 In his affidavit dated 10 December 2008, Arno said '[d]uring the meeting, Paul was feeling unwell and made little contribution. He was obviously and apparently very sick.'

328 Arising out of that conference, Mr Goddard prepared an affidavit for Norbert, which he swore on 15 September 2004 after seeing a draft and providing comments. In the affidavit, Norbert said the Fritsch family businesses were controlled by Arno. There had been difficulties in his business relations with Paul over the years. Norbert wanted to separate his business interests from Paul's so far as practicable. That was achieved in 1996. Arno had loaned Paul $387,000 in 1999 to help with buying his home. Over time, Paul had ceased doing any productive work at the factory and was not fit to resume work. The Bowring engineering business was declining and its plant was outdated. He had his own health problems.

329 Mr Goddard also prepared an affidavit for Arno on 15 September 2004. It was short but supportive of Paul's case. Mr Goddard sent it by facsimile transmission to Arno's solicitor (Mr Impey) that afternoon for his approval. It was not sworn but Mr Goddard said in oral evidence that it would have been if the case had not been settled. Arno's affidavit of 10 December 2008 said the contents of this draft affidavit were true and correct, except the loan of $387,000 had been repaid.

330 Mr Harvey provided a draft legal opinion on the taxation issues on 14 September 2004 (addressed to Mr Ferguson), which was distributed for comment. On that day, Mr Ferguson provided questions and comments, which Mr Harvey considered. A copy of the draft was also provided to Mr Impey.

331 The final advice was provided in a letter from Mr Harvey to Mr Ferguson dated 15 September 2004. Mr Harvey's advice was that Paul would be liable for taxation on the amounts of $947,717 and $144,619 owing by the Chadwick Glen Trust and the Paul Fritsch Family Trust respectively to Protoline. These would amounts would be seen as forgiven debts and therefore as deemed dividends under s 109F of the Income Tax Assessment Act 1936 (Cth). The amounts of taxation were $558,918 and $70,140 respectively, totalling $659,058. Mr Ferguson thanked Mr Harvey for his advice, which he adopted in his report.

332 At this time and at Mr Ackman's request, Mr Ferguson considered the letter of 17 May 1996, a copy of which was given to Mr Ackman by facsimile transmission on 15 September 2004. By an undated letter apparently sent by facsimile transmission to Mr Goddard on 15 September 2004 (and date stamped by Goddard Elliott on 16 September 2004), Mr Ferguson gave that advice. After reviewing the events which had occurred as a result of the letter, Mr Ferguson said 'the present proceedings [in the Family Court] effectively negate all of the advice referred to'. His oral evidence was that 'nobody lost out' as a result of the arrangements. In Mr Walton's evidence, that was a 'fair comment'. In my view, that assessment of Mr Ferguson was correct and the trial judge in the Family Court would have assessed the matter in the same way.

333 There was a telephone conversation between Mr Walton and a tax partner ('Ashley 'of the wife's consultant accountants, Ernst & Young) on 14 September 2004. That day Mr Walton sent a memorandum of the conversation to Mr Goddard, who forwarded it to Mr Impey. The memorandum records the discussion between Mr Walton and Ashley about the Protoline taxation issues. The Ernst & Young accountant referred to the involvement of the Australian Taxation Office and emphasised the desirability of settlement. Mr Walton agreed the situation was 'grave' and that 'all efforts should be made to resolve the issue' before court.

334 In the afternoon of 15 September 2004, Mr Goddard filed with the court the affidavit of Norbert which was sworn that day and the husband's summary of argument.

335 According to Arno's affidavit evidence, on 15 September 2004 Paul stayed at his parents' house. He worked on his notes until 4.00 am. He left at 7.00 am on 16 September 2004 without having breakfast for an appointment with Mr Goddard. There is no evidence Mr Goddard knew of this.

Ruling sought from Ethics Committee (15-16 September 2003)

336 In a letter to Kate McMillan SC dated 15 September 2004 and signed by Mr Ackman and Mr Rosen, a ruling was sought from the ethics committee of the Victorian Bar. Mr Goddard said he was informed. The letter described the case as 'a complicated matrimonial dispute as to property involving a number of various commercial considerations'. It said Paul had 'significant psychiatric problems (as attested to by two psychiatrists) but apparently he is able to provide instructions'. The taxation and business valuation issues were set out. A hypothetical problem was formulated. The problem was that Paul might not accept Mr Ferguson's advice that the liabilities were not genuine and might (against counsel's advice) insist on the case going ahead with those liabilities being claimed anyway.

337 On the question of Paul's capacity, the letter said that, even if Mr Ferguson's and counsel's advice were to be accepted by Paul, 'it is with extreme reluctance and without any apparent cognitive understanding of why he is so agreeing'. It asks what the position would be if such advice was accepted 'without any, in our opinion, real comprehension, or genuine "acceptance" of our advice'. The possibility that Paul had committed perjury in some of his affidavits was also referred to.

338 In the light of counsel's view that they should withdraw if Paul rejected their advice, the ruling of the ethics committee was sought.

339 In his oral evidence, Paul took issue with some of what Mr Ackman said. In particular, Paul said he was not declining or refusing Mr Ferguson's advice. The problem was he did not know at the time what advice he was going to be given.

340 In an email that day, Ms McMillan sought clarification. She asked whether Mr Ferguson's report was actually or only might be different to Paul's sworn evidence, whether Paul was 'capable of giving instructions or not' and whether Mr Ferguson's report was in evidence or alternatively could only Mr Walton be called.

341 Late in the afternoon of 15 September 2004, Mr Ackman replied to these queries. He said Mr Ferguson's report had not been filed but he anticipated it would be different to Paul's sworn account. Mr Walton was not to be called as his evidence 'is demonstrably tainted'. Without Mr Ferguson's evidence, the wife's valuation evidence would go unchallenged.

Whereas the client may be literally capable of giving instructions according to his psychiatrist, Counsel is in no way satisfied that he comprehends or appreciates the decisions he must make.

Mr Ackman then referred to Dr Sturrock's report dated 4 February 2004:

In the words of consultant psychiatrist David Sturrock in report dated 4 February 2004 'this man appeared to be at the end of his tether with an ongoing depression perpetuated by work family and legal matters. He appeared to have difficulty giving me coherent account of his situation. It would not surprise me that others at work thought he was unfit to be there. His presentation was consistent with his stated history of being ineffective at work and your experience of having difficulty receiving instruction from him.'

This is entirely consistent with his presentation to Counsel and when he gives instructions it is impossible to have confidence that he understands the import and/or effect of these instructions.

343 Ms McMillan's reply was sent by an email which is time stamped 12.19 pm on 16 September 2004. it said:

Dear Noel and Clive

On the basis of the information provided by you in your most recent email and yesterday's email, the Ethics Committee considers that you should have regard to the following:

(a) In relation to your first request for a ruling, subject to observing your duties under Rules 16 and 17, the Committee considers that this is not an ethical question.

(b) In relation to your second request for a ruling, the Committee notes the information that the medical reports indicate that the client is capable of giving instructions and again considers that this request does not raise an ethical issue.

Counsel will no doubt be astute in having the client's instructions recorded in writing and witnessed by the instructing solicitor.

The Committee does considers [sic] that the circumstances set out by you do not entitle you to a ruling that you may return the brief.

344 Mr Rosen gave extensive evidence about the approach to the ethics committee. He admitted signing the letter dated 15 September 2004. He said Mr Ackman was more concerned about Paul than him. Mr Ackman was being cautious. Mr Rosen had 'never, ever sought a ruling from the ethics committee in 40 years'. He signed the letter 'but it was not in any way, on my part, a concern that [Paul] was not competent, capable and functioning at a proper level'. He said 'I honestly believe he had no difficulty in giving proper instructions'.

345 Mr Rosen said he signed the letter with Mr Ackman because he 'would not avoid taking that responsibility'. He did so as junior counsel. But he was not personally concerned 'to that degree at all about Paul Fritsch'. He did not want to return the brief. He did not believe Paul was accepting advice with extreme reluctance and without any apparent understanding, as said in the letter which he signed. That was 'Mr Ackman's language'. He was not suggesting to the ethics committee that he was also of that view, despite the words '[w]e believe'. He accepted that sending the letter would be a prudent step and 'signed th[e] letter accordingly'. He was 'not going to rock the boat'. He did not think Paul was a perjurer, despite the reference to that problem in the letter.

346 Mr Rosen said he was not aware of Mr Ackman's second letter to Ms McMillan. Taken to Mr Ackman's statement in that letter that it was 'impossible to have confidence' in Paul understanding his instructions, Mr Rosen said he was not of that view. He said he could 'work with' the difference of view between him and Mr Ackman. In acting for clients, there is a sharing of functions between junior and senior counsel. Accepting his role was that of the barrister, Mr Rosen was 'more concerned with pastoral care'. The leader is 'more concerned with other things'.

347 Mr Rosen later agreed the issue needed to be resolved between him and Mr Ackman. He said it was resolved with Paul signing the authority to settle on the basis that he and Mr Ackman were not recommending it (as written in the authority).

348 The barristers did not withdraw. Mr Rosen said '[w]e were required to remain and retain the brief and we did'. Mr Goddard's evidence was that he was informed of the ruling that the barristers should continue. He did not recall when. He did not withdraw.

Kevin Ferguson's final report (16 September 2004)

349 Mr Ferguson's report is dated 16 September 2004 and updated his earlier reports. It supported Paul's case, except as to the alleged loan for $387,000 from Arno Fritsch.

• the value of the Bowring engineering business was $516,000 and the value of Paul's 25 per cent share of ownership in that business was $116,317 (approximately one quarter, not one third). The value of the Mermaid Metals business was $220,142 and the value of Pauls' 25 per cent share of that business was $55,035 (approximately one quarter, not one third)
• the value of Pauls' assets in the Paul Fritsch Family Trust was $545,981
• the value of Paul's assets in the Chadwick Glen Trust was $544,961
• further evidence has not been forthcoming to support the existence of a loan of $387,000 from Arno Fritsch to Paul Fritsch
• Mr Harvey's opinion was adopted, being that Paul had taxation liabilities of approximately $659,058 in respect of the Protoline debts and those liabilities should be taken into account in calculating the matrimonial asset pool
• capital gains tax totalling $109,141 would be payable if the Chadwick Glen Trust's properties and the Sorrento property had to be sold to satisfy the orders of the Family Court.

351 According to the transcript of the hearing before Watt J on Thursday 16 September 2004, Mr Ackman told his Honour at 10.03 am that 'subject to one matter, the matter is proceeding'. Paul had given instructions for Mr Ferguson's completed report to be filed subject to a couple of things being explained. Mr Ferguson needed to meet with Ms Wilson, for which time was needed. Mr Ackman asked for the matter to be stood down. Mr Brown did not oppose that course. His Honour said he would leave the bench for an hour.

352 At 12.01 pm, Mr Brown (in Mr Ackman's presence at the bar table) told his Honour that 'miraculously ... this case is very, very close to settlement'. He said 'we would be very hopeful that we would have minutes later on today' but 'we may not be able to'. His Honour said 'if not, you'd be back with them tomorrow I imagine'. Mr Brown agreed, but said 'the sleeping hours are very, very dangerous hours sometimes'. His Honour agreed and asked that his associate be told when the matter was ready. He said he could not deal with 'complex consent orders' at 10.00 am the next day due to another commitment. Mr Brown said 'we'd perhaps be looking at maybe midday if we're not ready tonight'. His Honour agreed. Mr Brown said 'hopefully we'll be back with the orders this afternoon'.

353 At some point on that day, Paul signed an authority to settle. The circumstances in which he did so are highly contested. I will make findings about these issues later. Here I will set out the uncontested evidence.

354 The terms of the authority, including the crossed out words, are as follows:

I Paul Gerhardt Fritsch instruct my solicitors and counsel to offer my former Wife by way of settlement of property the former matrimonial home and transfer to her the property @ Sorrento & $150,000 cash of $650,000 within 120 days. The Former Mat home is valued at $1,950,000 & Sorrento 360,000.

The total value of my offer is therefore $2,310,000 1,950,000 in property & $650,000 cash in $2,510,000 $2,600,000.

My Barristers, & my Solicitor have informed me that this offer is well in excess of what I may have to pay the wife if I succeed in all my arguments. However it is considerably less than I may pay the wife if she succeeds.

I have decided that in all the circumstances & I wish to put that offer to the wife although my lawyers cannot recommend it. I have personal & family reasons for so doing I wish to settle it and for the health of my family.

I understand the contents of this letter & I wish to make this offer & I make it of my own free will having had fully explained to me the consequences of so doing.

_________________

PAUL FRITSCH

16/9/04

_________________

Clive Rosen Counsel

_________________

N.J. Ackman

355 The words from 'I' to 'home and' are in the handwriting of Mr Goddard. The crossed out words 'transfer to her the property @ Sorrento & $150,000' are in the handwriting of a person not identified in the evidence. The words from 'The total value' to 'recommend it' are in the handwriting of Mr Ackman. The crossed number '2,310,000' meaning $2,310 000, with the number '1' overwriting the number '5', which has been overwritten by Mr Ackman with the number '$1,950,000' (and the crossed out number '$2,510,000') is in the handwriting of a person not identified in the evidence, as is the number '1' which was overwritten by Mr Ackman with the number '6' in the number '$650,000'. Between the words 'recommend it.' and 'I understand', Paul has crossed out forcefully with a number of lines the words 'I have personal and family reasons for so doing' and written the words 'I wish to settle it and for the health of my family'. The words from 'I understand' to 'the offer' were written by Mr Ackman. After that, the words from 'and I make' to 'so doing' were written by Paul.

356 The authority bears Paul's signature and the date '16/9/04', Mr Rosen's signature and Mr Ackman's signature.

357 The matter came on before his Honour at 5.24 pm. The hearing ended at 5.38 pm after 14 minutes. Mr Brown represented the wife and Mr Rosen the husband. His Honour had already seen copies of the minutes of proposed consent orders.

358 Mr Brown gave a short account of what the agreement and proposed orders represented in terms of the asset pool in percentages. His Honour said that, even with the best level of representation available, he preferred the record to show 'that I took those things into account before making the orders by consent'. He also referred to 'brooding' costs issues and proposed making orders saying that there would be no orders for the payment of costs by either party, including reserved costs.

359 Mr Brown referred to the 24 year length of the marriage, the three children and the child support agreement with respect to the youngest one. He said the real estate was the property at Balwyn (valued at $1,950,000 by agreement), Sorrento ($360,000 by agreement) and Glen Waverley ($281,000 by agreement), all unencumbered. The husband's superannuation was $450,000 - $470,000. The issues as to the value of the business interests of the husband were tendentious. Mr Brown referred to Mr Ferguson's report which they 'received this morning'. In his view, those interests were worth $800,000. On the husband's case, the assets 'net of debt, including contingent tax debts ... were about $3.8 million'. According to the wife the pool 'was about $5.2 million'. Mr Brown said '[w]e valued the business net of all the taxation liabilities yet to be raised'. He said 'there were very real tax problems in the case'. His Honour said he had read the wife's valuer's evidence. Mr Brown said the parties had to address the issue of whether there were contingent liabilities arising out of the operation of the entities incorporated in 1996, and mentioned Protoline.

360 Mr Brown said the principal issue in contention was the value of Paul's interests in the Bowring engineering business. The difference between the parties in terms of the pool was approximately $1.4 million, being the difference between $3.8 million and $5.2 million. On a compromise which recognised the costs issues, the proposed consent orders represented about 55 per cent to the wife and 45 per cent to the husband on the husband's pool, and 50 per cent each on the wife's pool. By the settlement, the wife achieved a payment of $2.6 million, plus a little more. He submitted the orders represented a just and equitable settlement and final settlement of the property proceedings. Mr Rosen joined in those submissions and the orders were sought by consent.

361 His Honour determined to make the orders sought and gave these reasons:

HIS HONOUR: All right. Well, now, in this matter the parties have been represented by solicitors and counsel who are very experienced in this area and one might say that the level of representation of itself would be a sufficient basis for me to be satisfied that the settlement is just and equitable in all the circumstances. However, in accordance with my usual practice I have asked counsel to explain the broad terms of the settlement to me, and this has been done and Mr Brown has outlined the area of dispute, the compromise that has been reached and what that reflects. Having heard that explanation and having regard to the evidence that I was aware of in this case which would have made adjustments beyond contribution based entitlements very difficult, having regard to health issues and so forth, I regard this settlement as well and truly within the range of just and equitable outcomes within the meaning of section 79(2) of the Family Law Act and I have no hesitation in making orders by consent in the terms of the minutes dated this day, as amended by me by the addition of paragraph 18. I will direct that those minutes remain upon the court file. Now, do I take it I will be directing your solicitor to engross?

362 The consent orders were signed personally by Paul and Lianne before being made by the judge. In terms, the orders:

• by 14 January 2005, required the husband to:
  • pay $650,000 to the wife
  • transfer 12 Myambert Avenue, Balwyn to the wife (paragraph 1)
• contemporaneously with that, required the wife to:
  • give the husband certain indemnities (paragraph 2(a))
  • resign from any office in the Paul Fritsch Family Trust, the Chadwick Glen Pty Ltd and the Chadwick Glen Trust (paragraph 2(b))
  • transfer any shares in these entities to the husband (paragraph 2(c))
• on compliance by the husband with the orders, discharged certain previous orders (paragraph 4, there being no paragraph 3)
• required the husband to give certain indemnities to the wife in relation to all liabilities in specified entities in the Fritsch family businesses and the trusts of the husband, and other matters (paragraph 5)
• in the event of default of the husband in making the $650,000 payment by the due date, required him to transfer the properties at 4/7 Elm Grove, Mount Waverley and 3 Morotai Street, Sorrento to the wife, with a power of sale and distribution of the proceeds (paragraphs 6-7)
• by 30 September 2004, required the husband to vacate the Myambert Avenue property, with the wife having sole use and occupation in the meantime (paragraphs 8-9)
• from 1 October 2004, gave the wife sole use and occupation of the Myambert Avenue property (and responsibility for its outgoings) (paragraph 10)
• gave the wife her Telstra shares (paragraph 12(a)), her savings (paragraph 12(b)) and an agreed proportion of the chattels (paragraphs 12(c) and 14)
• gave the husband sole use and benefit of the Morotai Street, Sorrento and Elm Grove, Mount Waverley properties (and responsibility for their outgoings) and specified chattels, shares, superannuation entitlements, savings and his interests in the Fritsch family business and his own trusts and companies (paragraph 11)
• gave the wife $7,000 of the amount of $41,000 which amount was now to be released (being held in trust from the sale of 7/7 Elm Grove, Mount Waverley) (paragraphs 12(d) and 13)
• required the chattels at the Myambert Avenue property to be divided in agreed proportions and in default of agreement by arbitration (paragraph 14)
• contained a number of enforcement provisions (paragraph 15)
• required the return of subpoenaed documents (paragraph 16)
• dismissed all extant applications (paragraph 16 where second occurring)
• provided there would 'be no order for the payment of costs by either party including costs reserved' (paragraph 18)
• noted that pursuant to s 81 of the Family Law the parties intended the orders to end their financial relationship and avoid further proceedings.

363 The child support agreement was made between Paul and Lianne under the Child Support (Assessment) Act 1989 (Cth) and dated 16 September 2004. It was signed personally by each of them and witnessed by their respective solicitors. It made specific provision in relation to the one child of the marriage who was under the age of 18 years, Thomas. The agreement required Paul to pay Lianne $50 per week in respect of Thomas from 1 October 2004, all his education expenses at Carey Grammar School or such other school as was agreed, his private health insurance costs at La Trobe Health Services and other medical expenses not otherwise covered (paragraph 2(a)-(d)).

Kevin Ferguson reworks asset pool after settlement (16-17 September 2004)

364 According to Mr Ferguson's oral evidence, he returned to his office at about 2.00 pm on the afternoon of 16 September 2004. He spoke with Kingsley Hall, the tax partner at Hall Chadwick accountants, at about 2.15 pm. Mr Hall's office was near Mr Ferguson's. The discussion was recorded in a file note which Mr Ferguson made at about 3.00 pm. The discussion concerned the forgiveness provisions in s 109F of the Income Tax Assessment Act. Mr Ferguson's note gave this summary: 'If not disclosed then will only be discovered on Audit'.

365 In a letter dated 16 September 2004 to Mr Goddard which he received on 17 September 2004, Mr Ferguson 'analysed the Family Law Settlement effected in the instructions of Mr Paul Fritsch'. The letter opened by saying it was written '[f]urther to discussions with Mr Noel Ackman QC and Mr Clive Rosen'.

366 The letter attached a statement of assets and liabilities at August 2004. Referring to that statement, Mr Ferguson said 'there are a number of matters which are of concern'. He specified these matters as follows:

Notwithstanding our advice particularly self-assessment issues unless there is voluntary disclosure by Mr Paul Fritsch the liabilities may only arise in the event of Tax Audit. Neither event may occur.

1. Creditors - Personal to Mr Fritsch and post-separation - particularly Accountancy Fees due to Mr Walton may relate to the proceedings.
2. Loan - Mr Arno Fritsch would only be repaid if demanded and no evidence has been sighted to indicate such event will occur.
3. Capital Gains Tax on Sale of Assets would only arise when the Capital Gains Tax event occurs. The events have not occurred to this date and may in some instances never occur.

Mr Ferguson then calculated the asset pool taking these matters into account. The range he gave was between $5,336,374 (Ms Wilson) and $4,885,464 (Mr Ferguson). As the wife received a total of $2,903,039, this was about 55 per cent of the wife's calculation of the asset pool and 60 per cent of the husband's calculation. Mr Ferguson's calculations involved taking out of the husband's asset pool the amounts of $659,058 (taxation on Protoline debts on deemed dividend basis), $61,500 (creditors), $387,000 (loan due to Arno Fritsch) and $109,141 (capital gains tax payable on property sales). This approach was different to that which he adopted in the report which he produced earlier that day. I will return to this evidence.

Noel Ackman QC's explanatory memorandum (23 September 2004)

367 By letter dated 17 September 2004, Mr Goddard sent to Paul copies of Mr Ferguson's report of 16 September 2004, Mr Ferguson's letter dated that day, Mr Ferguson's earlier undated letter, the orders of the court and the child support agreement. That day Mr Goddard spoke with Mr Impey, Mr Ferguson, Mr Ackman and Paul. His file note of the conversation with Mr Ackman says: 'He [is] to provide a Memorandum. I told him that I was not concerned about the client failing to pay and that I was sitting on a Title'. That day he forwarded Mr Ferguson's letter of 16 September 2004 to Mr Ackman. On 22 September 2004 Mr Goddard wrote to Paul a detailed letter summarising the orders and giving advice about the need to locate a title.

368 Mr Ackman provided a memorandum on 23 September 2004. He said it had been clear in the days leading up to the hearing that the matter was not ready to proceed. He went on:

Whereas Mr Ferguson Accountant had been employed on behalf of the husband since last year, he had not completed his report as to the valuation of the business entity in which the husband had a minority interest.

369 Mr Ackman then described the application for the adjournment and its rejection. He said the matter was complicated by the failure to complete the accountant's report as to the value of the business and by the letter of 17 May 1996, which 'clearly indicated' steps had been planned to obfuscate the position to defeat the interests of the wife. The letter was extremely damaging, especially given the husband's obligation of full and frank disclosure. There was also a general obfuscation and non-disclosure on his part since the parties separated in 2002.

370 Mr Ackman went on to refer to the 'other very significant feature of this case', being the husband's 'psychiatric profile'. He referred to Dr Sturrock's two reports and said the material indicated Paul 'was suffering from a number of psychiatric conditions including significant depression'. This was consistent with his observations of Paul's presentation. When Paul was being advised, 'it was often difficult to have confidence that he understood the import and/or effect of that advice'. However, Paul's treating psychiatrist said he was able to give instructions and his condition might improve after the case. Therefore his mental condition could not be relied on in the application for the adjournment.

371 Mr Ackman referred to his contact with the ethics committee and the two problems which he raised - what instructions Paul would give as to Mr Ferguson's report and the need for Mr Ackman to satisfy himself that Paul comprehended the advice he was receiving.

372 As to Paul's instructions in relation to Mr Ferguson's report, Mr Ackman said that the problem did not arise. He gave these reasons:

I was advised by both the accountant and my instructing solicitor who had been present with him whilst our client had the report explained to him by Mr Ferguson on the morning of the 16th of September, that he had not only understood the report but was prepared to accept it as an accurate assessment of the value of his interest in the business.

At about 10:00 a.m. on the 16th of September Senior Counsel was able to confirm the advice of the instructing solicitor and Mr Ferguson, with the client, who agreed that he had had explained to him, read and understood the report of Mr Ferguson.

373 As to Paul's comprehension of the advice he was receiving, Mr Ackman said he approached that matter in this manner:

The advice inter alia of the Ethics Committee appeared to Counsel to be that given the fact that the matter was already before His Honour, and Counsel's obligation was not to abandon a client in the face of the Court, that the best and only protection that could be provided to Counsel was to obtain written instructions from the client that he understood and comprehended the advice given.

374 Mr Ackman then addressed the calculation of the asset pool. He said that beyond some minor disagreements, the real problem was Paul's attempt to claim various liabilities which Mr Ferguson felt were doubtful. He referred to page one of Mr Ferguson's report of 16 September 2004 but I have not been able to identify what part of the report this is a reference to. He said the main liabilities were a taxation debt of $659,058 and a loan of $387,000. The loan had only recently appeared in Paul's financial accounts. In relation to the taxation debt, Mr Ackman referred not to Mr Ferguson's report but to his later letter of 16 September 2004 which was written after the settlement. Mr Ackman also referred to other complicating considerations.

375 The memorandum goes on to deal with Paul's authorisation of the settlement. Mr Ackman said Paul gave that authorisation in this manner:

[Paul] signed a handwritten authority (with handwritten additions made by himself) in which he agreed that he 'wished to settle it for the health of my family'. The authority made it clear that although we were unable to recommend the offer the husband wished to settle the litigation 'for the health of my family'.

376 Mr Ackman said he returned to chambers at 12.30 pm and was asked to return at 3.30 pm. He was not asked to settle the proposed terms of settlement which had been perused and accepted by Mr Rosen and Mr Goddard. He said the minutes of proposed orders were prepared by junior counsel for the wife and read and explained to Paul by Mr Goddard not in Mr Ackman's presence. At about 4.10 pm the minutes had not been signed. Mr Ackman explained that:

My instructing solicitor was of the view that because of the relationship of trust and confidence that he had with his client that he was confident that he would be able to explain them to the client and have them signed by 4:30. Ultimately he informed me that he was able to do this by 5:30 p.m. at which time the orders were made in the absence of Counsel who had a dental appointment.

It was determined by my instructing solicitor that it was more important to complete the settlement that day and to avoid the possibility of either party changing their mind overnight and, the cost of Senior and Junior Counsel attending on the next day.

[T]his was a most stressful and difficult case which was created on the run, and in the face of a troubled client. However by its conclusion Counsel was satisfied that the husband had understood the nature of the settlement and for a number of personal reasons had agreed to the settlement despite the fact that the said settlement was unable to be recommended to him by Counsel.

377 Mr Goddard's evidence was he did not request this memorandum of Mr Ackman. It just 'turned up', which was 'a bit unusual'. I note Mr Goddard's other evidence that Mr Ackman told him on 17 September 2004 that he would provide a memorandum. Mr Rosen said he did not sign the memorandum and was not aware Mr Ackman had made one until afterwards.

Paul Fritsch complains about settlement (September 2004 onwards)

378 There was other contact by Paul with Mr Goddard about the case on 24 September 2004 and 27 September 2004. Mr Goddard's evidence was that Paul did not make any complaint about the settlement at this time. The first definite complaint which Paul made about the settlement was in a long telephone conversation with Mr Goddard on 8 October 2004. He dictated a memorandum about the conversation straight afterwards. The memorandum records Paul saying 'he was not mentally fit to provide instructions on the date of the Hearing'. Mr Goddard told Paul that Mr Ackman had obtained an opinion from his psychiatrist (Dr Velakoulis) 'that he was fit to give instructions'. Paul said that was two days earlier and he 'was no longer fit' at the hearing. He told Paul to obtain independent legal advice. There was then a discussion about aspects of the court's order. Mr Goddard and Paul discussed the possibility of re-opening the proceeding. Mr Goddard advised him to get independent advice if that was what he wanted to do. Mr Goddard told Paul he had to consider how he would pay Goddard Elliott and the taxation liability. Paul said his advice was the tax was payable on a deemed dividend basis. Mr Goddard said he had continually advised Paul to pay the tax and 'the Family Court, would not take into account, Tax which was alleged to be due but had not been paid over the years'. He also told Paul he was not a tax expert. Paul told Mr Goddard he would be in hospital for another week and would come and see him to discuss payment of the outstanding fees when he got out. Mr Goddard gave evidence elaborating on the memorandum. He said this was the first occasion on which Paul said he was mentally unfit.

379 Paul telephoned Mr Goddard on 22 November 2004 and made further complaints about how favourable the orders were to the wife. In a later telephone conversation they made an appointment to meet, which Paul cancelled on 29 November 2004. Mr Goddard wrote to Paul the next day (30 November 2004) giving advice about the default provisions in the orders.

380 There are several hand written memoranda of telephone conversations and letters of complaint from Paul to Mr Goddard which are long, detailed, difficult to read and some of which seem to reflect a disturbed state of mind. They are dated 2 December 2004, 5 December 2004, 7 December 2004, 10 December 2004, 12 January 2005 ('WRITTEN WHILST IN MELB[OURNE] CLINIC'). There are typed letters to Mr Goddard of a similar but more coherent nature dated 17 January 2005 (in which Paul said he was admitted to the Melbourne Clinic in December 2004 and on Monday 10 January 2005) and 19 January 2005. These and also other letters (for example, from Goddard Elliott to Paul dated 3 December 2004) and memoranda (for example, Mr Goddard's memorandum dated 17 January 2005) also attest to the work which Mr Goddard was doing as Paul's solicitor in complying with the orders. Even if technically admissible on substantive issues, the communications coming from Paul are really only probative of his disturbed state of mind and of his complaints about the settlement. The communications also generally show Mr Goddard continued to act for Paul until the settlement was concluded.

381 A memorandum of Mr Goddard dated 10 December 2004 records a discussion with Paul about getting a report from Mr Ackman. It was Mr Goddard's evidence that Paul did seek that report. As the memorandum says, Paul was 'complaining particularly about Noel Ackman and says he should have got a report'. As was also recorded in the memorandum, Mr Goddard 'told him that [he] saw Ackman and relayed his request. Mr. Ackman said the client settled the matter and that is the end of that'. Paul asked for a report from Mr Goddard. Mr Ackman had earlier provided a memorandum dated 23 September 2004. There is no evidence of that being given to Paul and it is not referred to in Mr Goddard's memorandum of this conversation.

Paul Fritsch seeks advice about reopening the case

382 Paul wanted to get legal advice about reopening the case. In oral evidence he said he asked Mr Mulcahy for that advice, who referred him to Howie & Maher because he was not a family law solicitor.

383 Paul sought advice from Howie & Maher in late December and they briefed Barbara Phelan of counsel. Her advice of 27 January 2005 was that an application to set aside the orders could be made under s 79A of the Family Law Act but would not be successful. Ms Phelan said the improper pressure which was allegedly placed on Paul was not the responsibility of the wife and his real complaint was against the lawyers. There was no link between the behaviour complained of and the integrity of the judicial process. The settlement was 'on the face of it not either unjust nor inequitable'. The result was 'within the range although a little on the high side for the wife'. On this advice, Paul made no application to set aside the orders. The Hon Eric Baker gave similar advice on 7 September 2006.

384 With Mr Goddard continuing to act for Paul, the orders of the Family Court were carried out. Goddard Elliott's twelfth interim account dated 25 February 2005 (their last) was for professional services rendered between 28 September 2004 and 21 February 2005.

Paul Fritsch accesses Protoline money to pay Lianne Fritsch (February 2005)

385 Paul used the $552,000 standing in the Protoline account to pay for most of the amount of $650,000 which was due to Lianne in cash under the orders. The balance was made up by Norbert. He accessed that amount after Protoline resolved to pay a dividend in that amount to the Fritsch Family Trust. In evidence is the resolution dated 1 February 2005 of Arno as the sole director of Protoline. The Fritsch Family Trust then distributed that amount to the Paul Fritsch Family Trust. By a cheque dated 1 February 2005, the wife was paid $552,000. In re-examination, Mr Harvey was asked about who would be liable for the tax on this $552,000 payment. He said either the Fritsch Family Trust or the Paul Fritsch Family Trust would be the taxpayer. He could not decide which because he had not seen a distribution from the Paul Fritsch Family Trust to anybody.

Transactions intended to extinguish Protoline debts (mid- 2006)

386 On Mr Walton's advice, a number of transactions and arrangements were put in place by Paul in mid-2006 with the intention of extinguishing the Protoline debts.

387 On 10 January 2005, Paul had his trust, the Paul Fritsch Family Trust, transfer its units in the Bowring Unit Trust and the Merbow Unit Trust for $510,000 and $89,999 respectively to Protoline. The transactions are evidenced by the relative directors' resolutions, transfer forms and unit certificates. In the middle of the year, Mr Walton described the next stage of the arrangements. He did so in various documents, including a memorandum of understanding (undated and unsigned) between Arno, Paul and Norbert, a letter dated 17 May 2006 from Anna Tang (assisting Mr Harvey) to Mr Walton, a letter dated 18 July 2006 from Mr Harvey to Mr Walton and a letter dated 18 July 2006 from Mr Walton to Paul.

388 As described in these documents, the essential features of the arrangements were as follows:

• after the conclusion of the property settlement proceedings with Lianne, Paul was advised by Mr Walton that unless the Protoline debts were paid by Paul, the taxes advised by Mr Harvey would be payable (paragraph 4.2.1 of Mr Walton's letter of 18 July 2006 to Paul)
• to extinguish the debts:
  • Paul would have the Paul Fritsch Family Trust transfer units in the Bowring Unit Trust and the Merbow Unit Trust valued at $600,000 in total to Protoline (this had already occurred on 10 January 2005)
  • Paul would have the Chadwick Glen Trust transfer one third of its interest in the two Moorabbin properties ($491,667) to Protoline for $492,000 (this had already occurred on 26 May 2005)
• the amount of $1,092,336 would be 'paid' as consideration for these transactions by cancelling the Protoline debts ($947,718 owing by the Chadwick Glen Trust and $144,618 owing by the Paul Fritsch Family Trust)
• the proposal necessarily involved an acknowledgment by the two trusts that the Protoline debts were still payable, rather than being deemed forgiven as advised by Mr Harvey
• there are other aspects of the proposals which involve the creation of a new third party corporate beneficiary which were not implemented.

389 These proposals were implemented, as evidenced by:

• the various documents relating to the transfers of the units in the Bowring Unit Trust and the Merbow Unit Trust owned by the Paul Fritsch Family Trust dated 10 January 2005 and previously referred to
• the transfers of land dated 26 May 2005 from Chadwick Glen Pty Ltd to Protoline Nominees Pty Ltd in respect of the two Moorabbin properties, and the relative subsequent certificates of title
• the evidence of Paul and Mr Walton in relation to the transactions

390 Mr Harvey was brought in to give advice about these proposed and partly implemented transactions. He conferred with Mr Walton on 26 April 2006 and set out his understanding of the proposals in Ms Tang's letter to Mr Walton of 17 May 2006 (Ms Tang assisted Mr Harvey). He gave his advice in his letter to Mr Walton of 18 July 2006. Mr Harvey advised that there had been no acknowledgment of debt by the two trusts such that (so as to restart the limitation periods) the debts were still payable. Therefore the debts had become forgiven under div 7A of the Income Tax Assessment Act and taxable as deemed dividends, as he had previously advised. The subsequent sale of assets by the Paul Fritsch Family Trust and the Chadwick Glen Trust to Protoline did not alter that tax liability. If effective acknowledgments of debt had been made (such as to re-enliven the applicable limitation periods) then the contrary would be the case and the asset transfers would have extinguished the debts and the tax liabilities, with other specified consequences.

391 In his evidence, Mr Harvey was specifically taken to his letter of advice to Mr Walton dated 18 July 2006. He confirmed his view that the statute of limitations applied to the unpaid present entitlements as loans. An unpaid present entitlement was a loan. He did not agree that a draft ruling issued in December 2009 meant an unpaid present entitlement could not be converted into a loan. He referred to a Full Federal Court judgment to the contrary and the inclusive definition of 'loan' in s 109D(3) of the Income Tax Assessment Act. Whether the Protoline debts were unpaid present entitlements or loans, they had crystallised as deemed dividends for taxation purposes by September 2004 and were taxable as such.

392 Mr Harvey's evidence was that Paul's acknowledgment evidence did not represent a forgiving of those debts. Any such acknowledgment had to be by the person who was owed the money or may be properly evidenced by the parties. The subsequent transactions did not alter the taxation status of the forgiving which had already occurred. It may be that the Paul Fritsch Family Trust was liable for the tax because it got the money from the Fritsch Family Trust, but Mr Harvey would need to see the documentation to determine this.

393 In his oral evidence, Mr Harvey was taken to the transactions as recorded in the memorandum of understanding (undated and unsigned). He agreed the sale of the units held by the Paul Fritsch Family Trust in the Bowring Unit Trust and the Merbow Unit Trust for $600,000 and the sale of a one third interest in the two Moorabbin properties which were owned by the Chadwick Glen Trust for $491,667, totalling approximately $1,092,000, were intended to offset the debts owed by those trusts to Protoline. What Mr Walton was trying to do was to reverse the position put in the Family Court so that, rather than the Protoline debts being forgiven and taxation being payable on a deemed dividend basis, the debts were extinguished by the transfer of the units and property such that no tax was payable. The debts had already been forgiven. Under the reasonableness test, tax had become payable on the deemed dividend basis. When the liability arose under div 7A of the Income Tax Assessment Act on that basis, the liability could not be extinguished. The status of the debts as forgiven was final under the law at the time on the application of the test. Now the commissioner had discretion 'to waive the magic wand', but not then. Therefore, the restructure was contrary to his advice.

394 Mr Walton did not agree with Mr Harvey's advice that the Protoline debts had already been forgiven and therefore could not be offset by the proposed and actual asset transfers. In Mr Walton's view, Mr Harvey had previously advised it was 'more likely than not' that the tax had crystallised on this basis (paragraph 51 of Mr Harvey's advice dated 15 September 2004) and that was on the basis of the facts then known. It was necessary to make a judgment on the current facts what a reasonable person might conclude. On all of the present information, Mr Walton came to the different view that the actual debts would be seen to be extinguished by the transactions in 2005. His view was that the transactions did extinguish the debts between Paul's two trusts and Protoline, which 'made the tax liability less likely to crystallise. But I can't sit here and say it has not crystallised'. Without the transactions, he agreed with Mr Harvey's assessment that the debts were forgiven debts. Paul had yet to file a tax return, so the matter was not fully resolved. The arrangements were implemented by Paul on the basis of Mr Walton's advice.

395 In the course of considering these matters, Paul asked Mr Walton to examine certain assets and liabilities of the Fritsch family in the period up to September 2004. Mr Walton advised Paul about these matters in a letter to him dated 28 June 2006. Mr Walton advised that the alleged loan of approximately $387,000 claimed by Paul to be owing to his father had been repaid. He confirmed this in his oral evidence. He did not have this information when he assisted Paul to complete his form 13 for the family law proceedings and supplied information to Mr Ferguson. However, the asset pool as assessed by Mr Ferguson in his report of 16 September 2004 had been overstated by the same amount such that the net position was correct. Arno's affidavit evidence was that the $542,000 which Paul used to pay the wife was a re-borrowing by him of money from Protoline (paragraph 10 of his affidavit dated 10 December 2008). That was the position adopted on behalf of Paul by his counsel in their submissions to the court.

396 Mr Walton gave a written report dated 10 April 2008 to Mulcahy's on Paul's dispute with Goddard Elliott. The letter attached an asset pool on which Paul relied in these proceedings. Mr Walton gave evidence about various items. He said the amount of $41,000 which was claimed for capital gains tax was a real liability which had been paid. The capital gain had been disclosed in Paul's 2004 tax return and he had paid the tax which had been assessed on that basis. He took the court to the relevant documents.

397 He also gave evidence about the amount of $145,886 for the tax liability which arose from his use of the amount of $552,000 in the Protoline account to pay Lianne what was due to her ($650,000, with the balance being made up by Norbert). This liability did not arise by reason of the indemnity which had been given to Lianne in the terms of settlement, for the payment was a capital sum in her hands. Rather it arose as tax payable by Paul or his trust and '[t]here's no way it could have come out without it having a tax'.

398 That completes my account of the proceeding in the Family Court. I now turn to the first issue arising for determination.

399 I have already set out Paul's claims as the plaintiff by counterclaim as specified in his final pleading and prosecuted in the running of the case.

400 In summary, Paul alleged Goddard Elliott was negligent in failing adequately to prepare for the final hearing of the property settlement proceeding on 13 September 2004 in five respects:

• failing to commission and have prepared on time a report in relation to the valuation of the Bowring Engineering businesses and Paul's interest in those businesses and its properties

• failing to obtain legal and other appropriate expert advice in relation to the tax liability associated with the Protoline debt

• failing to ensure the attendance of necessary witnesses and notify them of the hearing date

• failing properly and adequately to brief counsel; and

• failing properly to prepare the husband's financial statement in a specified respect

• failing to prepare a response to the comprehensive affidavit of the wife on costs

• failing to seek, obtain and file any proper evidence of Paul's contributions by way of maintenance and conservation of matrimonial assets

As can be seen, Paul's case was put on the basis of alleged negligent omission.

401 These claims were put in both contract and in tort. As the standard of care is the same in both, the parties made their submissions under the heading of negligence. I will adopt the same course.

402 Other claims of breach of the duty of care were made. These will be considered and determined later in this judgment under the headings to which they more directly relate.

403 It was not put on behalf of Paul that his counsel (Mr Ackman and Mr Rosen) or his accountant (Mr Ferguson) were in any way responsible for the alleged want of preparation on the part of Mr Goddard. In this analysis I will therefore focus entirely on whether Paul has made good the allegations made against Goddard Elliott.

404 Whether Goddard Elliott was negligent in the preparation of the case is logically distinct from whether the advocates' immunity applies to shield it from the liability which might flow in consequence of such negligence. Therefore my consideration of whether Goddard Elliott was negligent in the preparation of the case should not be limited by the issue whether any negligence is covered by that immunity. The application of the immunity cannot be considered in the abstract. The application of the immunity can only be determined once the nature of the negligence (if any) has been identified. As Giles JA said in Symonds v Vass,[24] '[d]eciding the application of the immunity requires a clear understanding of what occurred and clear findings of the respect or respects in which there was negligence on the part of the lawyer'.

405 Professionals such as solicitors and accountants owe a concurrent contractual and tortuous duty to take reasonable care in the provision of advice and services to their clients.[25] The contractual duty is implied by operation of law and the tortuous duty arises out of the relationship between the parties.[26] The liability of professionals for a breach of their duty in contract and tort is a concurrent liability. Where a breach of the duty is alleged, the client is therefore free to choose under which (or both) heads the claim is to be brought. As the standard of the duty is to take reasonable care and is the same in both contract and tort, the issue of liability will be determined according to the same standard in both cases.

406 The position is different in relation to barristers. Because historically barristers have been engaged by solicitors on behalf of clients, the relationship between a barrister and a client has not been regarded as contractual. The duty owed by the barrister to the client is a tortuous duty and the liability of the barrister to the client is a tortuous liability.[27] It may be different where the barrister is directly retained by the client under statutory arrangements permitting that course, but the two barristers here were retained by the solicitor on behalf of the client. As the standard of care in tort is the same as the standard of care in contract, the difference in the source of the duty to take that care is immaterial in this case.

407 In both contract and tort, the standard of care which is expected of a person providing professional services is the standard which was stipulated in Rogers v Whitaker[28] in these terms:

In Australia, it has been accepted that the standard of care to be observed by a person with some special skill or competence is that of the ordinary skilled person exercising and professing to have that special skill.[29]

408 In Heydon v NRMA Ltd,[30] this standard was applied to solicitors and barristers. It was held that, in determining whether a solicitor or barrister has exercised reasonable care in the provision of professional advice, the 'standard of care and skill is that which may be reasonably expected of' an ordinary skilled practitioner.[31]

409 The principles enunciated in this decision have been widely followed, including by judges of this court.[32]

410 When considering whether competent and professional legal or accounting advice has been given, the exercise of reasonable skill is the touchstone, not the wisdom of hindsight. That point was made by Megarry J in this oft-cited passage from the judgment in Duchess of Argyll v Beuselinck:[33]

There are few things that could not have been done better if done with hindsight. The advantages of hindsight include the benefit of having a sufficient indication of which of the many factors present are important and which are unimportant. But hindsight is no touchstone in negligence. The standard of care to be expected of a professional man must be based on events as they occur, in prospect and not in retrospect.

411 It is likewise not negligent for a lawyer (or other professional) to commit a mere error of judgment. According to Bray CJ in Jennings v Zilahi-Kiss,[34] a professional person 'is only liable for the use of ordinary care and skill' and 'is not bound to guarantee against all mistakes or omissions'. To like effect it was held by Oliver J in Midland Bank Trust Company Ltd v Stubbs and Kemp[35] that the standard is not that of the 'particularly meticulous and conscientious practitioner ... [but] what the reasonably competent practitioner would do having regard to the standards normally adopted in the profession'.

412 The High Court has not yet directly determined that the standard of care which is expected of a barrister or solicitor practicing in a specialised area is the application of the skill or competence which an ordinary practitioner in that area would bring to bear. However, the underlying rationale of the general standard of care which has been enunciated by that court would suggest that this is the correct approach. I would refer to the general statement of the scope of the standard of care in Rogers which I have already cited. According to that statement, the standard of care which is expected of 'a person with some special skill or competence' is that of 'the ordinary person exercising and professing to have that special skill' or competence. It would therefore seem appropriate for a professional having or professing to have a degree of specialised skill or competence within a particular area to be judged according to the standard of what would reasonably be expected of an ordinary practitioner with that specialised skill and competence. If we return to first principles, that conclusion would seem to be demanded. If the practitioner has held themselves out as possessing that degree of expertise, this would usually be the basis of their engagement by (in contract) and relationship with (in tort) the client. The application of the standard in this manner would appear logically to follow from those incidents.

413 This is the way in which the matter has been approached in authorities which I would follow. In Duchess of Argyll,[36] Megarry J held a client 'was entitled to expect from [a] solicitor or firm a standard of care and skill commensurate with the skill and expertise which that firm has'. In F v R,[37] King CJ held the 'standard of care is that to be expected of an ordinarily careful and competent practitioner of a class to which the practitioner belongs'. It followed that the standard of care which was to be expected of the specialist doctor in that case was that of 'an ordinarily careful and competent specialist'.[38] In Yates Property Corporation v Boland,[39] it was held:

When a client retains a firm that is or professes to be specially experienced in a discreet branch of the law that client is entitled to expect that the standard of care with which his retainer will be performed is consistent with the expertise that the firm has or professes to have.[40]

414 Likewise, the solicitors and barristers in Heydon[41] were judged by Malcolm AJA according to the standard of the 'ordinary skilled persons' exercising or having their particular 'special skill and competence'. In that case, that was a particular skill or competence in 'company and commercial' and 'trade practices' law.[42] McPherson AJA adopted the same approach.[43] Following King CJ in F v R[44] and Malcolm AJA in Heydon,[45] Gray J held in Meegan v Shore[46] that the standard of care which the solicitor owed to the client in that case was 'that of a solicitor exercising or professing to have special skill and expertise in the field of workers' compensation'.[47] This is the approach which has been followed by judges of this court.[48] The standard of care which is expected of specialist accountant is assessed on the same basis.[49]

415 It was held by McClelland CJ in Equity in Trust Co of Australia v Perpetual Trustees WA Ltd[50] that what is required in the performance of a lawyer's duty

depends on the scope of the ... retainer, the scope of any additional responsibility assumed by the solicitor and relied on by the client, the nature of the task entrusted to, or undertaken by, the solicitor, and the circumstances of the case.[51]

Thus the content of the duty 'is not rigidly confined to the strict terms of the retainer'.[52] The attributes of the client are taken into account in determining the scope and application of the standard of care. In Meegan,[53] Gray J said that the standard of care reflected (among other things) 'the client's state of knowledge, dependence and vulnerability; that is, relevant to the scope of the solicitor duty, is the extent to which the client appears to need advice'.[54] In determining what was the reasonable standard of care to be expected of the solicitor in that case, the court took into account that the plaintiff 'was in a position of some vulnerability', including by virtue of her depression.[55] To like effect, this is what Chesterman J said in Algar v Gall Standfield & Tiley:

relevant to what a reasonably competent practitioner would do in the circumstances are the client's needs and ability to understand what is needed, and to articulate the solicitor what is required.[56]

However, on the general principle that a lawyer's duty of care must be related to what they were instructed to do,[57] the importance of the terms of the retainer as informing the content of the duty has been emphasised.[58] The duty is to take that care which is reasonably required; if the retainer is limited, the scope of the duty will be understood in that light.[59]

416 The duty of care which the lawyer owes the client may require the lawyer to bring the attention of the client, and give advice in relation to, the potentially harmful consequences of an event or circumstance. In accordance with the general principle that the duty is 'to take reasonable care to avoid foreseeable risk of injury',[60] the duty to do so may apply in relation to matters giving rise to reasonably foreseeable risks to which the client would reasonably be likely to attach significance,[61] as for example in a complex commercial transaction giving rise to taxation issues whose consequences the solicitors could reasonably be expected to consider.[62]

417 On this analysis, the standard of care is that which is reasonably to be expected of a practitioner of ordinary skill and competence. In the application of that standard, account is taken of any special skill or competence which the practitioner has or professes to have. Where the practitioner has or professes to have special skill or competence, the standard of care is that which is reasonably to be expected of an ordinary practitioner having that special skill or competence. That does not involve the application of a different or higher standard of care but one which reflects what is reasonably to be expected of an ordinary practitioner having or professing to have the special skill or competence concerned. The attributes of the client, including their vulnerability, are taken into account in determining the scope and application of the standard of care. In particular cases there may be a duty to bring to the client's attention and advise in relation to matters, including taxation matters, giving rise to foreseeable risks to which the client is reasonably likely to attach significance.

418 There appears to be no reported case in which a court has held it be a breach of a lawyer's duty of care to take and act on instructions from a client who the lawyer knew or should have known lacked the mental capacity to give instructions. I think a lawyer does owe such a duty to their client, and that was not disputed by Goddard Elliott in this case. The existence of the duty is an aspect of the general duty of care which a lawyer owes to their client, for it always to be expected of a lawyer exercising ordinary skill and competence that they are reasonably satisfied of the client's mental capacity to instruct. In most cases, the issue will not arise and the lawyer will be implicitly so satisfied, consistently with the general presumption of mental capacity. But where, as in the present case, the circumstances place the lawyer on notice that the client's mental capacity is in issue, active consideration will be required.

419 After the rejection of Bolam v Friern Hospital Management Committee[63] and Sidaway v Governors of the Bethlem Royal Hospital[64] by the High Court in Rogers,[65] the common law of Australia is that evidence of professional practice and opinion is relevant and admissible[66] but not conclusive of whether a professional has breached the duty of care which was owed to the client or patient.[67] That position has been altered by legislation in Victoria, as it has in other jurisdictions. By s 59(1)-(2) of the Wrongs Act, a professional is not negligent if their actions conform to widely accepted and not unreasonable peer professional opinions. The existence of such opinions is a matter of fact and therefore of evidence. However, the enactment of this provision does not alter the position that, in cases involving an allegation of negligence against a solicitor or barrister, expert evidence is not necessary to establish the scope and alleged breach of the standard of care which was owed by the lawyer to the client, since the court is considered able to determine those issues for itself.[68] Expert evidence in relation to those matters was not led in the present case.

Retainer between Paul Fritsch and Goddard Elliott

420 On the evidence, Paul engaged Goddard Elliott in 2002 pursuant to a family law fees agreement in writing in relation to 'Family Law Matters'. More particularly, the engagement was to represent Paul as his solicitor in the property settlement proceedings in the Family Court of Australia which had been commenced by the wife. At all material times, Mr Goddard had the conduct of the matter on behalf of and as a partner of the firm. He knew Paul was suffering from depression. The fee agreement specified that he would be the 'Primary Operator' and would 'primarily perform the work' and was 'a Partner'. He was and professed to be a specialist family law solicitor with particular expertise in complex financial, corporate and trust matters. He was engaged by Paul and accepted the engagement on that basis. That the property settlement proceeding involved issues of such nature was clear from the wife's initiating application and affidavit in support. The fees charged by Goddard Elliott contained an '[a]ppropriate allowance for instructions generally, including skill, care and attention to complex financial matters, involving third party interests' (second interim account dated 23 December 2002).

421 It follows from the applicable principles that the duty of care which Goddard Elliott owed to Paul was that standard of skill and competence which would be brought to bear by an ordinary solicitor who was a specialised family law solicitor with particular expertise in complex financial, corporate and trust matters, taking into account that the client was suffering from depression. As an aspect of the general duty of care which Goddard Elliott owed to Paul, it owed to him a duty of care not to take or act on instructions from him when it knew or should have known that he lacked the mental capacity to give the instructions.

422 Mr Goddard did not hold himself out to be and he was not an expert in taxation matters. Taxation is not expressly referred to in the fees agreement. It was therefore not an aspect of Goddard Elliott's engagement as Paul's solicitor that particular advice be provided in relation to such matters. However, questions of taxation frequently arise and are just as frequently of importance in property settlement cases in the Family Court, especially because they can influence the composition of the matrimonial asset pool and the orders which that court might make. From the nature and subject matter of the property settlement proceeding between Paul and his wife, it was implicit in the fees agreement that the 'Family Law Matters' to which the agreement related required Goddard Elliott to give due consideration and advice in relation to the taxation implications or status of particular proposals or transactions. Further, in the present case, the taxation implications or status of particular proposals or transactions were matters giving rise to foreseeable risks of the kind to which Paul might reasonably attach significance. It follows that Mr Goddard could reasonably be expected to identify the relevant taxation issues and to take the necessary steps to bring them to Paul's attention and have them resolved in a timely way. Where necessary, that would involve referring the issue to a specialist lawyer or accountant. The duty of care which Goddard Elliott owed to Paul is to be understood and applied on that basis.

423 According to the jurisprudence of the Family Court and the expert evidence which I examine below, the composition of a matrimonial pool of assets and liabilities is affected not only by liabilities which have already occurred or which definitely will occur in the future but also by liabilities which will probably occur in the future. Furthermore, liabilities may be considered which have not yet arisen but which will probably arise in the future upon the happening of some event. Such contingent liabilities include a probable liability to pay taxation, such as capital gains tax or income or other like tax. At all times, however, the jurisdiction of the court is to determine whether it is just and equitable to make the property settlement order. Any consideration of these questions is carried out in the context of the court's broad and essentially discretionary jurisdiction to make that substantive determination. Furthermore, whether it is a wife's application, as in the present case, or a husband's application in another case, the court is required to determine what is a just and equitable property settlement in the interests of both the husband and the wife.

424 Mr Goddard's responsibility on behalf of Goddard Elliott was to conduct Paul's case from the commencement of the wife's application to the hearing and determination of that application in accordance with the jurisdiction and principles of the court, as I have explained them. In particular, as relevant to the issues raised in the case, it was Mr Goddard's responsibility to investigate all of the factual and legal issues which reasonably arose in relation to the composition of the pool of assets and liabilities, as to both the assets and the liabilities and as to both present and contingent liabilities. Nothing happened and nothing Paul ever said or did operated in any way to qualify that fundamental professional obligation.

Business valuation and expert taxation evidence

425 As the failure to have the business valuation report and the expert taxation evidence ready for the hearing on 13 September 2004 are intrinsically connected, I will deal with these issues together.

426 Extensive submissions were made on Paul's behalf under this heading. In essence, it was put that, entirely due to Mr Goddard's negligence, Mr Ferguson's report was not ready by 13 September 2004 and that no expert taxation evidence was obtained until just prior to the hearing, Mr Walton engaged Mr Harvey. As I will be upholding Paul's submissions in this regard, I will focus hereafter on Goddard Elliott's submissions.

427 As to failing adequately to prepare for the hearing on 13 September 2004, the first allegation was that the business valuation evidence was not prepared (paragraph 19(a)(i)-(iii)). Goddard Elliott relied on the concession in Paul's opening submissions that Mr Ferguson's report dated 16 September 2004 was accurate and correct. It was submitted the real complaint was that it was not available on 13 September 2004.

428 Goddard Elliott referred to the work Mr Ferguson had done prior to his 're-engagement' in July 2004. He was engaged in October 2003 to prepare a report for and attend the mediation in December 2003. In July 2004, after being re-engaged, he spoke or met with Paul, Mr Walton and Mr Goddard. He attended a meeting with Mr Walton at O'Keeffe Walton Berry on 21 July 2004 and reported to Mr Goddard. He sought and obtained further documents from Mr Walton. After being told of the hearing date, he prepared a draft statement of assets and liabilities.

429 Further, the evidence showed that in August 2004 he had a site visit to the Bowring factory and provided a report. He gave advice to Mr Goddard on the major issues of contention and suggested the preparation of a budget for the Bowring Unit Trust for the 2005 financial year, which was supplied at the end of the month. Mr Ferguson told Paul about the primary differences between him and Ms Wilson over the assets and liabilities.

430 It was submitted that, in September 2004, Mr Ferguson examined and advised on the letter of 17 May 1996 and had a series of conferences up to 10 September 2004. His report was substantially prepared by that time. On that day, he received a fax from Mr Walton with different tax advice (approximately $845,000 was payable, rather than $460,000), raising forgiveness of debt as an issue for the first time. Mr Ferguson raised legitimate questions about that advice. There were conferences with the barristers, who decided an adjournment should be sought, and it was.

431 In Goddard Elliott's submission, Mr Ferguson wrote to Mr Goddard on 13 September 2004 outlining the further information he required so his report could be completed (that letter was an important document, in its submission). The report was not completed because the further information was needed. This was not Mr Goddard's fault. The further information could only come from Arno, Norbert, Paul and Mr Walton. Mr Walton had changed the ground rules with his most recent tax advice. Mr Goddard was not at fault for his was relying on the accountants (Mr Walton and Mr Ferguson) for tax advice, which he did not give himself. Mr Ferguson was doing all he could to prepare his report, and Mr Goddard acted with reasonable competence in this regard.

432 Moving to the second pleaded particulars of negligence (paragraph 19(a)(v) and (vi)), Goddard Elliott accepted that requests for specialist taxation advice had been made by Paul and Mr Ferguson had sought clarification about the Protoline debts. Mr Goddard's view was that the clarification had been given. Following Mr Walton's advice, the debts had been conceded and the payable tax had been claimed. On Mr Goddard's evidence, he had advice from 'both accountants, Walton and Ferguson' and had advised Paul to pay the tax. As Mr Goddard saw the problem, 'an expert opinion would not do it'.

433 It was submitted that Mr Harvey's advice was obtained only after Mr Walton introduced the deemed dividend issue on 10 September 2004, three days before the hearing. That was not Mr Goddard's fault. There was no error on his part in not getting an independent expert to give an opinion earlier. The matter was not previously in dispute between Mr Walton and Mr Ferguson, the latter being the independent accountant whose advice had already been obtained. It was Mr Goddard's judgment call not to obtain further evidence and no reasonably competent solicitor would have decided otherwise. It would be unreasonable to impose with hindsight the very steep burden of obtaining evidence in addition when he had two accountants already advising. That burden should not be imposed when one of the accountants, who was not particularly independent or impartial, came up with a new tax liability figure when the previous figure was not in dispute.

434 Alternatively, no loss was caused by any negligent failure in this regard. The advice from Mr Harvey was prepared quickly and in time for inclusion in Mr Ferguson's report of 16 September 2004. On that day, the case was ready to proceed and no loss or damage was caused by not having the independent advice earlier. I will consider these submissions separately.

435 Despite the conspicuous skill with which counsel for Goddard Elliott conducted the case, these submissions must be rejected for essentially two reasons. The first reason is the failure of Mr Ferguson to have his report ready on time was not due to any fault on his or anybody else's part but was rather due entirely to Mr Goddard's mismanagement of the case. The second reason is that there was no expert taxation evidence available at the start of the hearing because Mr Goddard did not prepare that evidence and he should have done so. I will explain each of these conclusions more fully in turn, beginning with some necessary preliminary observations arising from the evidence.

436 This proceeding is not a commission of enquiry into the extent of moral blame which Paul and his family should bear for secretly restructuring their business arrangements in 1996 to the detriment of the wife and for failing to disclose this to Mr Goddard and the Family Court. This is the trial of an action for breach of duty of care, breach of fiduciary duty and misleading and deceptive conduct which would turns on whether the lawyers and the accountants properly performed their legal obligations towards Paul, not on whether Paul and his family had properly performed their moral and other obligations to the wife, the Australian Tax Office and the Family Court.

437 The evidence in the factual part of this judgment establishes Paul was a party to the 1996 restructure, which he kept secret from the wife. He did not disclose the letter of 17 May 1996 to wife or the court, which the Family Court would almost certainly have found was a breach of his obligation of full and frank disclosure. Those circumstances had a number of significant forensic consequences for the conduct of the property settlement proceeding. They also raised certain credit issues in that and indeed in this court. But those circumstances were not and are not a defence to the legal claims which Paul has made and which it is the responsibility of this court to determine.

438 However much the Family Court (or even this court in an analogous context) may have been disturbed or even appalled at the implications, if not the intent, of the 1996 restructure in terms of the potential harm done to the legitimate interests of the wife, it was bound by the Family Law Act and the applicable principles to make a determination of what was a just and equitable property settlement in the circumstances. The evidence of two eminent former judges of the Family Court and the considerable body of jurisprudence of that court on the exercise of this jurisdiction shows this process to be disciplined, principled and judicial in character.

439 By reason of the contents and non-disclosure of the 1996 letter and the damage to Paul's credibility which this undoubtedly did, Paul would have commenced the hearing of the proceeding from a position of forensic disadvantage had the case actually gone to trial. The court would nonetheless have worked through the issues according to the process which I have described, having regard to the provisions of the Family Law Act, the authorities of the court and the evidence and submissions of the parties. For Paul, forensic disadvantage was a commencing and not a necessary end point. There was clearly plenty of ground which could have been made up with the kind of specialised family law advice and assistance which Goddard Elliott and his senior and junior counsel were retained to provide.

440 As counsel for Goddard Elliott submitted to this court, there were several reasons to be cautious about accepting Paul's evidence, and I have been cautious. Having regard to Paul's participation in the 1996 restructure, his failure to disclose that restructure and his refusal to accept much (if any) responsibility for those events, I think the trial judge in the Family Court would have approached his evidence with caution. But Paul would not have lost his case on the business evaluation and taxation issues by reason of his credibility problems. That was because, by their very nature, the resolution of those issues would not have been significantly affected by those problems. Mr Goddard's failure to appreciate the fundamental distinction between a credibility problem on the one hand and a legitimate legal issue on the other was at the heart of his failure properly to prepare this case.

441 Having regard to the disclosure of the 1996 letter at the mediation in December 2003 and Paul's failure to disclose it previously, Mr Goddard should have withdrawn and ceased acting for Paul soon after that, as he conceded. Even putting aside his personal reaction to that event, his position as Paul's solicitor was badly compromised by what occurred. Continuing to represent Paul was likely to require, as it ultimately did require, the reformulation of the case and the making of a clean breast of things. As the 1996 letter had not previously been disclosed to Mr Goddard, it would have been difficult, if not impossible, for Mr Goddard to assist in carrying out that process, for he had been professionally embarrassed by the manner in which the letter came to light. Further and understandably, he was emotionally affected by what occurred: he felt 'deceived' and 'lied' to. Yet he decided to continue acting for Paul and not just as his legal counsellor but also his 'friend' whom he 'liked'. By his own frank admission, he should not have been acting for Paul after the mediation and should have left the task of reformulating the case to someone whose objective professional judgment would be unimpaired.

442 I wholly accept the submissions made on Goddard Elliott's behalf that Mr Goddard's conduct of the property settlement proceeding on Paul's behalf must be considered as a whole. I have gone to considerable lengths in the factual part of this judgment to set out the very considerable steps which he took in the preparation of the case. I call up all of that description here as background to the findings I am about to make on the negligent preparation of the case. Those findings are based on the proposition that the duty of care which a solicitor owes to their client is not satisfied by part-performance; nor does excellent performance in one area of a solicitor's work make up for negligent performance in another.

443 I will overlook in these findings that Mr Goddard waited until just two months before the mediation in 2003 to engage Mr Ferguson as Paul's expert accountant. That was his judgment call and he may have had legitimate forensic reasons for adopting that course.

444 What the engagement of Mr Ferguson at that time does show, however, is that an independent accountant with Mr Ferguson's qualifications was, in Mr Goddard's view, a necessary witness in Paul's case. There was no issue about this in the proceeding but I would wish to underline the point. The calculation of the pool of assets and liabilities could not have been carried out without proper evidence of Paul's interest in the Fritsch family businesses and properties. Those businesses and properties had to be properly valued. Ms Wilson was the highly industrious independent accountant on the wife's side. Unless Paul was to rely on her evidence, which was not ever the course to be taken, his side needed an equivalent to her, which Mr Ferguson was to be. Mr Walton could not perform this function because, as the family accountant, he was not independent and impartial. Forensically, that position never altered from October 2003 until September 2004, except that the revelation of the 1996 letter (which Mr Walton authored but failed to disclose), and that he had sworn the affidavit dated 17 September 2003, provided added reasons for not consigning this role to him. A witness with Mr Ferguson's qualifications was a necessary witness in Paul's case for the whole of that period and it was never suggested otherwise.

445 Against that background, I must examine the facts in relation to the preparation of Mr Ferguson's report. Those facts are largely undisputed and were recounted as evidence given by Paul and more importantly by Mr Goddard and Mr Ferguson. The relevant documents largely speak for themselves. In the factual part of this judgment, I have set out the sequence of events and what was and was not done. What I find is that Mr Goddard allowed Mr Ferguson's evidence to drift for some six months from about February to July 2004. Why he did that I am unable to say. If it was a professional judgment, I would have been required to evaluate it. I am unable to find it was a professional judgment. I think it was a negligent omission.

446 On the evidence, in this period Mr Goddard did little if anything to ensure Paul would have independent valuation evidence of his interest in the Fritsch family businesses ready in time for the hearing in September 2004. Mr Ferguson regarded himself as having 'stopped' work in February 2004. Mr Ferguson said there was then contact between him and Mr Goddard in June, following which Mr Ferguson regarded himself as 'started again' in early July. His initial re-engagement appears to have been for the purpose of updating his report of December 2003 rather than for the purpose of taking on fully the task of presenting Paul's business valuation case at the hearing. By mid-August, Mr Ferguson was tasked with that wider responsibility.

447 There is a confusing body of evidence which reflects poorly on the state of Mr Goddard's preparation of the valuation and other evidence at this time. Taking the second pre-trial conference on 29 July 2004 as my reference point, this was the time and the occasion for saying who the expert witnesses of the parties would be. Cases are managed towards hearing in the Family Court on that basis. Directions are issued accordingly. It was extraordinary that Mr Connelly, who was a business broker and real estate valuer and not an accountant, was the witness who Mr Goddard specified in this category. He could (and did) give admissible property valuation evidence, but not business valuation evidence, at least not without a serious risk of legitimate forensic objection, for property valuation is a different field of expertise than business valuation.

448 Mr Goddard's inconsistent explanations for using Mr Connolly for both purposes are hardly satisfactory, even allowing for the passage of time. Not surprisingly, any thought of using an unqualified witness such as Mr Connelly for the specialised task as providing business valuation evidence was abandoned soon afterwards. In mid-August Mr Goddard gratefully accepted the suggestion of the wife's solicitor that 'he again instruct Mr Ferguson in the matter' and Mr Ackman would also insist that Mr Ferguson be used.

449 No plausible professional explanation was offered for this confused state of affairs in relation to a matter of such central importance to the case. It cannot be excused or explained away as an error of judgment. Mr Goddard cannot point to anyone else as being responsible, such as Paul, Mr Walton or Mr Ferguson. The state of affairs was his responsibility alone.

450 However unsatisfactory all this was, Mr Ferguson's report may well have been prepared by 13 September 2003 if it were not for the taxation issues concerning the amounts comprising the Protoline debts. As Mr Ferguson said in evidence, at that time his report was substantially complete. The comments made by Mr Ackman during the adjournment application on that day about the incomplete state of Mr Ferguson's report need to be understood in the context of Mr Ferguson's evidence about what the precise position was in that regard. The facts disclose the report was not ready for the commencement of the hearing on that day because the late re-engagement of Mr Ferguson coalesced with the late resolution of the taxation issues concerning to the Protoline money, to which issues I now turn.

451 As necessary background I repeat that, prior to the mediation in December 2003, the Protoline debts were claimed by Paul in reduction of the matrimonial pool of assets and liabilities. After that, Paul 'conceded' the debts (in the sense that he did not claim them as liabilities for that purpose) but instead claimed as a liability the taxation payable on the funds which constituted the debts. There is a substantial body of evidence that this was his intention and his instruction and, furthermore, that this was understood to be so by Mr Goddard and the wife's lawyers. Having regard to the jurisdiction of the Family Court to make a just and equitable order and the principles of the court in relation to taking taxation liabilities into account when doing so, it was not surprising that Paul should adopt that position and give that instruction. The question is, what did Mr Goddard do about it?

452 What Mr Goddard did not do, despite Paul's express requests, was to obtain expert legal or accounting advice. I have set out in the factual part of this judgment the many requests which Paul made in this regard. I refer to his communications on 3 July, 12 August and 19 December 2003 and on 11 February and 27 April 2004 and especially the exasperated facsimile transmission dated 28 April 2004. A client could hardly have done more to instruct if not to implore his solicitor to take a necessary and important step in the preparation of their case.

453 Mr Goddard, who was a candid witness, admitted he did nothing to get an opinion. His advice to Paul was to pay the tax. He said the court might not take it into account unless he did. It was Mr Goddard's view that 'an expert opinion would not do it'. There are a number of difficulties with this position.

454 First, Mr Goddard never advised Paul he was not following his instructions or that his requests for expert legal or accounting advice were pointless or otherwise inappropriate. There is not in evidence any reply on the part of Mr Goddard to Paul's many written communications on this subject. On the evidence, what Mr Goddard did was simply to ignore the requests and let the case drift towards a hearing without obtaining evidence of the particular kind which Paul very reasonably wanted. For his part, Paul never withdrew the instructions or requests, which were vindicated by the ultimate course of events.

455 Second, while Mr Goddard thought it was unnecessary to have expert taxation or accounting advice, he was actually relying on Mr Ferguson to give advice of that very nature. It was never clear to me, and it is not clear to me now, how those two positions could be reconciled. However, even assuming the two positions can be reconciled, the facts show Mr Ferguson was not of the view that this was included in his sphere of responsibility. That was Mr Goddard's fault not his.

456 Thirdly, Mr Goddard's view that expert taxation evidence 'would not do it' is professionally untenable. Far from not doing it, such evidence was critical to the resolution of one of the main issues, if not the main issue, in the proceeding. It was negligence for Mr Goddard not to appreciate that and act accordingly.

457 Turning Mr Ferguson's evidence, he dealt with his role when giving an account of the position on 10 September 2004. He said an analysis of the taxation issue required the assistance of a third party, meaning an expert lawyer or accountant. He was a 'forensic accountant'. Mr Walton was giving evidence on taxation issues. Mr Goddard had not asked him (Mr Ferguson) to give advice in relation to the taxation liabilities arising on the Protoline debts. On this evidence, Mr Ferguson clearly did not understand himself to be the expert who would provide the kind of specialist advice which was necessary to identify the taxation liabilities arising under those debts.

458 Mr Goddard's evidence was that, as of August 2004, Mr Ferguson was preparing a report for the trial in relation to the 'business valuation' and the 'tax implications' of the Protoline debts. I have set out his evidence of using Mr Ferguson for both purposes. Mr Goddard's evidence seems to add rather than subtract from sum total of confusion concerning the status of Mr Connolly's and Mr Ferguson's participation in the proceeding at and around that time. What is clear, however, is that, on the whole of the evidence, it was Mr Goddard who was responsible for Mr Ferguson being of the view that his role did not extend to that subject. There is no documentary or oral evidence proving that Mr Ferguson's responsibilities did extend that far. The picture which emerges from the whole of the evidence is that, in relation to taxation issues, Mr Ferguson was reliant on the specialist advice of others and was not the provider of that advice, certainly not in relation to something as specific as the taxation liabilities arising under the Protoline debts.

459 As Mr Ferguson was not providing that advice and Mr Walton was not being used at all as a witness, there was no expert evidence on that subject until Mr Harvey provided advice to Mr Walton at his request on 10 September 2004. That advice was confirmed by Mr Harvey directly on 15 September 2004. Mr Ferguson's evidence was to be the vehicle for proving this advice and his report could not be completed until the advice was obtained from Mr Harvey. When it was obtained on 15 September 2004, Mr Ferguson completed his report, which (I find) he provided to Mr Goddard before court on 16 September 2004.

460 I do not accept the submission that Mr Goddard was entitled to leave questions concerning the taxation liabilities arising under the Protoline debts in the hands of Mr Ferguson and Mr Walton. The taxation status of the debts was not their responsibility to settle for the purposes of the proceedings. They never did settle it in the period leading up to the hearing. It was Mr Goddard's responsibility to ensure it was settled for the purposes of the proceeding, which he could readily have done by following his client's instructions to obtain expert legal and taxation advice. He did not just make a bad judgment call in failing to do that. He was negligent. Mr Walton stepped in to engage Mr Harvey to give the advice not because he was performing that role in the litigation but because he realised Mr Goddard was proposing to court disaster by running the trial without that evidence being obtained.

461 On the evidence, I uphold Paul's claim of negligence in relation to the business valuation and taxation evidence. Mr Goddard failed to have presented in time for the commencement of the hearing on 13 September 2004 a completed report from a suitably qualified expert in relation to the valuation of the Fritsch family businesses and Paul's interest in those businesses and the taxation liabilities arising under the amounts comprising the Protoline debts. In failing to ensure such a report was prepared in time for the commencement of the hearing, Mr Goddard did not perform his responsibilities as a solicitor according to the standard which could reasonably be expected of an ordinary solicitor with specialist family law expertise in complex corporate and trust cases. On the same basis, there was a negligent failure properly and adequately to brief counsel with that evidence. I otherwise dismiss the claim of failing properly and adequately to brief counsel.

462 The next allegation of negligence was failing to ensure the attendance of witnesses including Mr Walton, Mr Ferguson, Mr Connolly, Mr Berick, Dr Kennedy, Dr Sturrock, Dr Velakoulis, Arno, Norbert and Mr Harvey (paragraph 19(a)(vii)). Reliance was also placed on failing to subpoena Arno and Norbert. This was also a basis on which the claim of failing properly and adequately to brief counsel was put. I include in this category failing to notify the witnesses of the need to make themselves available to given evidence on the hearing dates.

463 In Goddard Elliott's submission, five affidavits and a report had been sent to the wife's solicitors by Mr Goddard on 16 August 2004, being those of David Freeman, Mr Connolly, Dr Sturrock, Paul, Mr Berick and Dr Velakoulis. Only Mr Walton, Mr Ferguson, Mr Connolly, Mr Berick, Dr Kennedy and Dr Sturrock had been required for cross-examination (subject to objection). There was no evidence to demonstrate Mr Goddard had failed to ensure their attendance. He was not asked what steps he took or did not take in this regard. Mr Ferguson was notified in writing of the hearing date scheduled for 13 September 2004. I have set out the evidence of all this in the factual part of the judgment.

464 I accept those submissions. The allegation that Mr Goddard failed to have the witnesses present to give evidence at the hearing must be rejected. The witnesses were all available to give evidence and Mr Goddard could and would have arranged for them to attend if that was necessary. The reason he did not do so was that the proceeding was adjourned on 13 September 2004 and the case was settled on 16 September 2004. If the hearing had gone ahead on the latter day, Mr Goddard would have ensured the attendance of the witnesses.

465 From the factual part of the judgment, it can be seen that Paul wanted his father and brother to be subpoenaed to give evidence at the hearing. He thought their evidence would help his case and his reaction to their reluctance to assist was to say to Mr Goddard that subpoenas should be issued, despite their ill-health.

466 Mr Goddard was of a different view. While accepting their evidence would be helpful in some respects, he was concerned it would be damaging in others. He was concerned about their ill-health. Most importantly of all, he wanted their evidence to be given voluntarily and after conferring with counsel. He did not want their evidence to be given 'cold' because of the risks which this involved. He was of the view that subpoenas could be issued at the last minute if all attempts to secure their voluntary cooperation should fail.

467 In my view, these issues all fell within the scope of Mr Goddard's professional judgment. Other solicitors may have issued subpoenas in the same circumstances. But Mr Goddard had good reason for not doing so. In the end, his position was vindicated. By 8 September 2004, Arno and Norbert had agreed to assist voluntarily, and they actually did so. They conferred with counsel on 14 September 2004 and provided a sworn (Norbert) and unsworn (Arno) affidavit. Arno's affidavit could and would have been sworn had the case gone ahead on 16 September 2004. There appears to have been a communication breakdown in relation to the attendance of Arno and Norbert at court on that day. They were not told to attend. However, if needed to give evidence, they clearly could have attended on Mr Goddard's request, as they did for other reasons. There was no negligence by Mr Goddard in relation to failing to ensure Arno and Norbert's attendance at court.

468 I dismiss the claim of negligence based on failing to have witnesses present at the hearing and to issue subpoenas to Arno and Paul. I also dismiss the claim of negligence of failing properly to brief counsel which was based on this alleged failure. I likewise dismiss the claim based on failing to notify witnesses of the hearing dates.

Correcting notation of who prepared Paul Fritsch's financial statement

469 Paul's financial statement (form 13) dated 8 June 2004 contained a notation that it had been prepared by Goddard Elliott (as did earlier statements). As we have seen, after the statement had been filed and served, Mr Goddard wrote to the wife's solicitors advising that Paul, not Goddard Elliott, had prepared it. Paul alleged Goddard Elliott was negligent in doing so because this amounted to a failure properly to prepare a financial statement (paragraph 19(a)(ix)).

470 Paul disputed that he had prepared this statement. On his evidence, it was prepared by Mr Goddard on Paul's instructions. It was common ground that Mr Goddard did not seek instructions from Paul about writing this letter or inform him that he would or had sent it.

471 Several issues of concern arise out of Goddard Elliott's actions in this regard. The letter was sent without telling Paul or discussing the issue with him. There was a risk that, in the mind of the wife's solicitors, the strength of Paul's case would be undermined. Those solicitors may not have interpreted the letter as a simple correction of the record. The statement had been sworn by Paul on the basis of the notation that it had been prepared by Goddard Elliott. There was not agreement between Paul and Mr Goddard as to who had prepared the statement. Mr Goddard did not seek to clarify the matter or try to get agreement with Paul on that subject. He simply acted unilaterally in putting forward his own view. It was not made clear in the evidence why he decided to do this. I suspect it had something to do with the recasting of the Paul's case which the form brought about. If he had concerns about this, he did not raise them with his client. That he should acted in this way after the document was filed and served and without obtaining instructions from or even consulting with Paul beforehand or afterwards is hardly evidence of a sound relationship between solicitor and client.

472 Although I have concerns about these matters, I have come to the conclusion that Mr Goddard's actions did not amount to negligence. I think he made a professional judgment that the record, as he saw it, needed to be corrected. He thought that was a matter for him to determine as the solicitor. I cannot say that in so doing he breached Goddard Elliott's duty of care towards Paul.

473 In final submissions, Paul alleged Goddard Elliott had been negligent in failing to prepare an affidavit in response to the comprehensive affidavit of the wife on costs. Goddard Elliott complained this was not a pleaded particular of negligence. However, the matter was thoroughly canvassed in the evidence and I think it fairly arises from the general pleading of want of preparation as developed in the running of the trial.

474 In the factual part of this judgment, I set out the evidence of the wife's intention to seek an order for indemnity costs against the husband. The wife and her solicitor frequently complained about the lack of disclosure by the husband. Her difficulties in obtaining documents and financial information were described in a number of affidavits of the wife and her solicitor. The wife amended her application on 18 December 2003 to include a claim for indemnity costs, which she pressed hard right to the end. The wife's last affidavit dated 16 September 2004 said her legal and accounting costs were $275,698.92. That affidavit was never answered.

475 Mr Goddard said in evidence the general rule was that each party bore their own costs. But there was a risk in this case that Paul's conduct would expose him to an order for costs. It was 'highly unusual' for cases involving parenting orders to result in a departure from the general rule. It was highly unlikely Paul would be ordered to pay costs in relation to the parenting order component of the proceeding. But that was 'a very small part of the case'. He did not expect 'the wife to have succeeded in getting the costs of all of the proceeding'. He was at risk even in relation to the wife's attempts to get documents from third parties. He thought the wife would get not all her costs but 'a substantial order as to costs'. He agreed the wife's affidavits in relation to costs were highly detailed and extensive. If unanswered, the implications for Paul would be 'devastating' and 'likely to be expensive'. He thought the husband had 'no answer' to much of the wife's costs affidavits. He thought the costs issue would be dealt with after the substantive case was determined and they would have time to deal with it. He had started an affidavit to deal with these issues. He accepted Paul was anxious that there was no evidence in opposition to the wife's application for indemnity costs. He never provided Mr Ackman or Mr Rosen with an outline of the husband's defence to the wife's application for costs. The application was, in his view, 'a lay down misére' in terms of the applications for discovery, but the wife would not get 'all of the costs of the proceeding'. He said 'I thought about $100,000' is what she would get.

476 I refer below to the provisions of s 117 of the Family Law Act and the principles which are applied by the Family Court in making orders for costs, including indemnity costs. I also set out the evidence of the two former judges of the court on this issue. In short, the usual order is for each party to bear their own costs. An order for costs might exceptionally be made. An order for indemnity costs is rarely made. The case for an order for costs and indemnity costs must be clearly established. Non-disclosure by a party, as alleged here, is a relevant consideration.

477 Considering the facts of this case against those provisions and principles, the wife's application for an order for indemnity costs clearly had some foundation. Paul was at risk of such an order being made. As an aspect of the duty of care which Goddard Elliott owed Paul, its responsibility was to eliminate or, more realistically perhaps, to reduce this risk. That is what a reasonably competent specialist family law solicitor would have done in the circumstances.

478 Mr Goddard did advise Paul on a number of occasions he was at risk of having an order for costs made, which was responsible advice to give. Giving that advice did not amount to full performance of Goddard Elliott's duty of care towards Paul. Mr Goddard did not, as he should have done, prepare an answering affidavit. He allowed the case to drift towards trial without the issue being properly addressed. Mr Ackman and Mr Rosen raised their concerns with Mr Goddard about the lack of any answering material in relation to costs.

479 On my assessment of Mr Goddard's evidence on this subject, two things stand out. The first is that he seemed to regard the wife's case on costs as virtually unanswerable. The second is that he seemed to think the question of costs could be dealt with at the end of or after the trial so that answering material could be provided at that time.

480 Paying as much respect as I can to Mr Goddard's professional judgment as the solicitor with the conduct of the matter, the wife's case on costs was not unanswerable. Mr Goddard himself did not think the case was completely unanswerable. His evidence was that any order for costs would not exceed about $100,000. Mr Kay's evidence was that an order for full indemnity costs was unlikely. As I read the evidence, Paul was not responsible for most of the wife's legal and accounting expenses. The wife was trying to make Paul responsible for Arno and Norbert's non-disclosure. Paul had substantial expenses of his own. There was clearly much that Mr Goddard could have done in answering affidavits to defend Paul against the wife's costs claim.

481 The jurisprudence of the Family Court provides some support for the notion that, in this case, Mr Goddard might have been able to defer consideration of the issue of costs. It seems that is the usual course (see below). However, in this case the wife had gone heavily into evidence on the issue of costs and was seeking indemnity costs. The negotiating positions of the parties in relation to settlement were influenced by their state of preparation on this issue. The wife's position was strengthened by having gone into evidence and the husband's position was weakened by not having answered this evidence. This was a case in which it was not tenable to leave the costs issue until later.

482 Goddard Elliott breached its duty of care towards Paul by not preparing any answering affidavits on his behalf in relation to the question of costs.

Paul Fritsch's post-separation expenditure on maintenance and conservation

483 It was Paul's case that he made substantial payments after the separation towards the ongoing conservation and maintenance of the family assets, mainly real estate, but also motor cars. From the sale of 5 and 7/7-11 Elm Grove, Mount Waverley the wife received $285,630 and Paul received $173,085. Paul contended that he applied his share of those proceeds plus the $100,000 he withdrew from his superannuation account to meet expenses that were really joint expenses.

484 In cross-examination, Mr Goddard accepted Paul wanted this expenditure included in the husband's pool of assets and liabilities, but it was not done. What he accepted was he understood but did not follow his client's instructions. He said counsel was informed of this claim. That was disputed by Mr Rosen, who said Paul's spending on maintenance and conservation of assets 'wasn't part of his brief at all'. Mr Ackman was not called on this or any other subject.

485 Mr Goddard accepted the court could consider payments by way of maintenance and conservation of the matrimonial property as post-separation contributions and the amounts claimed by Paul should have been included in the husband's balance sheet. He thought some of these claims were legitimate and 'others perhaps not'. On another occasion, he said he 'wasn't convinced' about this aspect of Paul's case. He accepted that the court generally took such contributions into account without necessarily attributing a dollar amount.

486 Goddard Elliott relied on Mr Ferguson's evidence that money spent on an asset increased its value, which was reflected in the pool accordingly. The wife must have spent money on the house and children also. Paul was the breadwinner and could be expected to spend money on maintenance of this kind. The amounts he spent had not been proved.

487 Later in this judgment, I identify the principles which are applied by the Family Court in relation to contributions of this nature. I also set out the evidence of the two former judges of the court who gave evidence on this subject. In brief, legitimate expenditure on the maintenance and conservation of matrimonial assets may be treated as a post-separation contribution of a party. The expenditure must be beyond that which might reasonably be expected of the principal breadwinner of the family.

488 In my view, this was another instance of negligent omission on Mr Goddard's part. Despite Goddard Elliott's submissions, this claim was clearly open. Paul's instructions were to make the claim and support it with evidence he was willing to provide. He was regularly providing reports to Mr Goddard about the amounts he was expending. He was giving proof of payment to Mr Goddard. Even on Mr Goddard's own evidence, it seems Paul had a case worth advancing in this respect. Mr Goddard did not advise Paul to abandon this aspect of his case. He simply did not follow his client's instruction and allowed the issue to drift with the consequence that, by the time of the trial, there was no evidence to support Paul's claim on this basis. The submissions for Goddard Elliott do not persuade me otherwise.

489 Goddard Elliott breached its duty of care towards Paul by not preparing any affidavits or other supporting material on his behalf in relation to the amounts he spent after separating on the maintenance and conservation of matrimonial assets.

490 In summary, I find Goddard Elliott was negligent in its preparation of the property settlement proceeding in these respects:

• failing to have expert business valuation and taxation evidence ready for the commencement of the hearing on 13 September 2004

• failing to prepare any answering affidavits in relation to the wife's application for costs and indemnity costs

• failing to prepare any affidavits or other evidence in relation to the post-separation amounts spent by the husband in the maintenance and conservation of the matrimonial assets.

491 I have already set out the pleaded allegations under this heading.

492 In summary, Paul alleged Mr Goddard, Mr Rosen and Mr Ackman represented:

• Paul would not have to pay tax on the Protoline debts unless he 'put his hand up'
• if the proceeding went to trial, the trial judge would refer to the Australian Taxation Office and there would be a tax investigation
• Paul would have to pay the wife's entire legal costs
• the judge was hostile to Paul's case, with adverse consequences for him.

493 Paul alleged a further representation against Mr Goddard, Mr Rosen and Mr Ferguson: that he could use certain money to pay the wife without paying tax on it.

494 The representations and the further representation were alleged to have been made in the context of the settlement of the property settlement proceeding on 16 September 2004. I have set out the relevant evidence and facts in the factual part of the judgment and also in the evidence of what occurred on that day.

495 It was submitted the representations and further representation constituted misleading and deceptive conduct contrary to s 9(1) of the Fair Trading Act, which provides: 'A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive'. Paul also submitted the representations and further representation were representations as to future matters within the scope of s 4 of the Act, which materially provides:

(1) For the purposes of Part 2, if a person makes a representation about a future matter, including the doing of, or the refusing to do any act, and the person does not have reasonable grounds for making the representation, the representation is deemed to be misleading.

(2) In any proceeding under this Act concerning a representation made by a person about a future matter, the person making the representation bears the burden of proving that he or she had reasonable grounds for making the representation.

496 It is first necessary to consider whether the representations and further representation were made in trade or commerce. I will then determine whether the claims of misleading and deceptive conduct are made out. I will consider the application of the advocates' immunity to these claims later.

497 The representations and further representation can only be actionable under s 9(1) of the Fair Trading Act if they were made 'in trade or commerce'.[69]

498 The provisions of the Fair Trading Act are the equivalent of the corresponding provisions of the Trade Practices Act 1974 (Cth) and analogous legislation in other states. There is a body of authority concerning those provisions which is relevant.

499 In his oft-cited judgment in Re Ku-ring-gai Co-operative Building Society (No 12) Ltd,[70] Deane J drew attention to the width of the phrase 'in trade or commerce':

The terms 'trade' and 'commerce' are not terms of art. They are expressions of fact and terms of common knowledge. While the particular instances that may fall within them will depend upon the varying phrases of development of trade, commerce and commercial communication, the terms are clearly of the widest import.[71]

500 As the phrase 'in trade or commerce' is of such wide import, it has been a concern of the courts at the highest level that activities which are merely incidental to trade and commerce might be unintentionally covered. That is not how the phrase is interpreted. In Concrete Constructions (NSW) Pty Ltd v Nelson,[72] the High Court considered the proper interpretation of s 52 of the Trade Practices Act. It looked to the purpose of the legislation and held:

What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character.[73]

501 In Sigma Constructions (Vic) Pty Ltd v Morwell Investments Pty Ltd,[74] Batt JA (Vincent and Nettle JJA agreeing) treated the observations of the High Court in Concrete Constructions as a 'safe guide' to the meaning of 'in trade or commerce' for the purposes of the Fair Trading Act.

502 In my view, the phrase 'activities or transactions which of their nature, bear a trading or commercial character' is apt to describe the out-of-court provision of professional services by a lawyer to their client in litigation, whether the lawyer is acting as a solicitor, a barrister, or an amalgam of both. However, the High Court has not expressly determined that the provision is to be interpreted in this manner. In Boland v Yates Property Corporation Pty Ltd[75] the issue did not have to be decided. In the same case, Callinan J said the issue was 'controversial'.[76]

503 In Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd,[77] French J considered the application of s 52 of the Trade Practices Act to the giving of advice by a professional engineer. After examining the meaning of the words 'trade' and 'commerce' and the concept of a profession, his Honour held:

However, where the conduct of a profession involves the provision of services for reward, then in my opinion, even allowing for widely differing approaches to definition, there is no conceivable attribute of that aspect of professional activity which will take it outside the class of conduct falling within the description 'trade or commerce'.[78]

504 With respect, I agree with those observations. It would be consistent with this decision to hold that the provision of legal services for fee and reward to a client is covered by the expression 'in trade or commerce'. However, the decision obviously does not actually stand for that proposition: a lawyer acting for a client provides services which are different to an engineer in a civil works project.

505 Goddard Elliott relied on the decision of the Appeal Division of this court in Little v Law Institute of Victoria (No 3),[79] which binds me. Kaye, Beach and Ormiston JJ firmly rejected the proposition that a statement made to a court by a party in litigation was made 'in trade or commerce'. In particular, Kaye and Beach JJ held:

In our opinion, statements made during the course of litigation cannot be categorised as statements made in trade or commerce nor can they be categorised as representations ...

A statement made to a court during the course of litigation is not a statement made in connection with or as part of a commercial arrangement.[80]

506 The actual facts of Little are entirely distinguishable from the present case. The alleged misleading and deceptive statement was there made by a party in court in his official capacity when taking proceedings against a solicitor who was allegedly practising without professional indemnity insurance. The misleading and deceptive statements were allegedly made here by lawyers in the course of giving professional legal advice out of court, albeit at the door of the court.

507 As can be seen, at one point Kaye and Beach JJ used broad language to express their conclusion. Goddard Elliott relied on that language. Their Honours said a statement made 'during the course of litigation' was not made in trade and commerce. However broad that language may be, I must understand the ratio decidendi of the decision in the light of actual facts of the case. Moreover, the language used by their Honours at another point was not as broad. They said a statement made 'to a court during the course of litigation' was not made in trade and commerce. Ormiston J expressed his judgment in language which perhaps better represents what the decision stands for as an authority on this point:

where the allegedly misleading and deceptive statements are made in the course of evidence, whether on affidavit or otherwise, for the purpose of persuading a judge of this or any other superior court to exercise his judicial functions in making an order in favour of a litigant.[81]

So understood, as I think it must be, Little does not stand in the way of the claim in the present case.

508 A similar case, equally distinguishable from the present, is Chapman v Luminis Pty Ltd (No 4).[82] The plaintiff brought proceedings under s 52(1) of the Trade Practices Act and the equivalent State legislation in respect of legal opinions expressed by a statutory reporter. It was held by von Doussa J that the reporter was performing a statutory function which was not trading or commercial in character, even though the function was professional and discharged for fee and reward.[83] The professional services provided by the lawyers in the present case are not of that statutory nature. They are ordinary legal services provided to a private client for fee or reward in relation to litigation.

509 At issue in LT King Pty Ltd v Besser[84] in this court was whether a communication made by solicitors in the completion of a commercial transaction on behalf of their client was made 'in trade or commerce'. Osborn J held in the affirmative, giving this summary of his conclusions:

(B) The question of whether conduct in the course of providing professional services is conduct 'in trade or commerce' requires an assessment of the essential character of those services.

(C) When the conduct in issue constitutes services provided by a member of a profession such conduct will not automatically amount to conduct in trade or commerce by reason only that the services are provided for fee or reward.

(D) It is clear that the essential character of core activities undertaken by the legal profession is not that of trade and commerce.

(E) Conversely the essential character of some activities undertaken by the legal profession is that of effecting or directly facilitating commercial transactions.

(F) The characterisation of particular conduct will always be a matter of fact and degree and it is not possible or desirable to judicially define the concept by prescribing specific criteria.

(G) In the present case it is sufficient to conclude the essential character of the conduct in issue was commercial being a communication prior to settlement (in a non-litigious context) of the payment of moneys outstanding under a loan agreement and associated costs.[85]

510 I regret I cannot agree with his Honour's characterisation of the work of the legal profession. On the clear view I take of that work, most of it is trading or commercial in character, although exceptionally some of it will not be. I would put the matter the other way around to Osborn J.

511 Following Little, his Honour said: 'In the case of the practice of the law it is not appropriate to describe conduct in the area of litigation as conduct in trade or commerce'.[86] In support of that proposition, his Honour referred to the judgments of Kaye and Beach JJ and Ormiston J in Little. I have explained already why I respectfully hold a narrower view of what Little actually stands for.

512 In Augment Communications Pty Ltd (in liquidation) v Sedgwick,[87] Little was again followed. The facts were close to those in Little. The alleged representation was made by a company in its capacity as a plaintiff in legal proceedings.[88] Following Little, Levy SC DCJ struck the claim out as an unarguable.[89] The present case is distinguishable. Paul's claims are not made against a party to proceedings but his lawyers (and accountant).

513 In Stockland (Constructors) Pty Ltd v Retail Design Group (International) Pty Ltd,[90] Hodgson JA (Sheller JA and Davies AJA agreeing) said Little was limited to representations in the conduct of litigation.[91] His Honour made that observation to distinguish Little from the case before his court, which concerned 'representations made in connection with the bringing of proceedings but not made in the course of proceedings themselves'.[92] That kind of case is also different to the one before me.

514 On my understanding of the authorities,[93] where the alleged representation was made by a lawyer to their client in connection with relation to court proceedings, the question is whether the representation was made by the lawyers when engaged in activities or transactions which, by their nature, were trading or commercial in character. Let me consider the two alternative ways in which that question can be examined and explain why I prefer the second.

515 The first approach would examine the representation in the context of the legal proceeding. Accordingly, the representation would take its character from its connection with the proceeding. On this view, it would be irrelevant that the lawyers were providing legal services on a commercial basis. In the context of legal proceedings, their services would not be provided 'in trade or commerce' but 'in litigation'. This approach fits nicely with the traditional characterisation of the practice of law as a profession and not as a commercial undertaking or industry.

516 The second approach would examine the representation in the context of the relationship between the lawyer as a provider and the client as a consumer of legal services for fee and reward. Accordingly, the representation would take its character from its connection with that relationship. On this view, a strong consideration, dispositive in most cases, would be that the lawyer was providing the legal services on a commercial basis. It would not matter that the context of the provision of the services was a legal proceeding, for the services would be provided 'in trade and commerce' notwithstanding that they were being provided 'in litigation'.

517 The reason why I prefer the second approach is that it is consistent with the wide meaning which has been given by the authorities to the expression 'in trade and commerce' and it better implements the protective purposes of the legislation. To determine whether particular services are provided 'in trade or commerce', it is artificial to focus attention on the particular profession, trade or calling. The essential question is whether the activity or transaction is, by its nature, trading or commercial in character. It is the nature and substance of the activity or transaction which is at issue. It not to the point that the trader is a 'professional' and in the present case a lawyer who was providing litigation services.

518 We are here concerned with lawyers in private practice. The practice of law in that manner is now organised along commercial lines, whatever be the size of the firm. A lawyer or group of lawyers can practice as a proprietary limited company or even as a public company. While the position might traditionally have been thought otherwise, the nature and substance of the provision of legal services, even in litigation, is commercial. A lawyer (whether a solicitor, barrister or amalgam) is a service provider who is in the business of providing legal services, including litigious legal services, to the client as a consumer. A lawyer in private practice, such as Goddard Elliott in the present case, is a trader in legal services. By force of statute, the legislative protections which apply across the board in trade and commerce also apply to the provision of legal services by private legal practitioners, which is only appropriate. That conclusion detracts not one iota from the fundamental professional obligations which the lawyer owes to the client and also to the court as an officer of the court. The application of the immunity is another matter which I will separately consider.

519 In the present case, the representations and further representation were allegedly made by a solicitor and two barristers (senior and junior counsel) to their client in the course of property settlement proceedings in the Family Court. The representations and further representation were made out-of-court, albeit at the door of the court, in the course of legal advice which the lawyers gave to their client and were not made in court documents or in giving evidence or making submissions. The relationship between the lawyers and the client was commercial in the sense that the lawyers were providing legal services to him for fee and reward. Therefore, in my view, the alleged representations and further representation were made 'in trade or commerce' within s 9(1) of the Fair Trading Act. It does not arise whether statements made by lawyers in other contexts, such as in court or in court documents, are also made in trade and commerce.

520 That brings me to whether Paul has made out his claims of misleading and deceptive conduct.

521 The allegation here is that Paul was told by Mr Goddard, Mr Rosen and Mr Ackman that he did not have to pay tax in the amount of $659,058 on the money he and Lianne had been advanced by Protoline (which was referred to as the Protoline debts), unless he put his 'hand up' or was 'audited'. On Paul's case, the lawyers were stating that he could legitimately use the self-assessment regime to avoid paying the tax by not lodging a taxation return.

522 Paul's strong oral evidence was that he was given this advice by Mr Goddard, Mr Rosen and Mr Ackman. His evidence finds some support in the evidence of Arno and Norbert. Mr Goddard and Mr Rosen strongly denied giving any such advice. The court did not hear from Mr Ackman. I have set out the relevant evidence in the factual part of this judgment.

523 On the evidence, it is clear enough that the subject of Paul's liability to pay taxation on the money which came from Protoline was extensively discussed between him and Mr Goddard, Mr Rosen and Mr Ackman in the days leading up to the hearing on 13 September 2004 and 16 September 2004. It is also clear that, in these discussions, the role of voluntary disclosure in the self-assessment taxation regime was a specific subject of consideration.

524 I am prepared to assume that, on 16 September 2004, Paul was informed by one or even all of his lawyers that any taxation on the Protoline money would be payable only after Paul had lodged a taxation return and the Australian Taxation Office had sent him an assessment requiring the payment of that tax. It is possible that an unfortunate expression, such as 'putting your hand up', was used by the lawyers in these discussions, but I note their denials in this regard.

525 Whether or not those words were used, and despite Paul's evidence, I do not accept it was ever conveyed to him, explicitly or implicitly, that any liability for payment of the taxation on his part was optional in the sense that he could legitimately avoid paying the tax by not lodging a taxation return disclosing the amounts which he had received from Protoline. That is the way Paul interpreted what he was told. Given his state of mind at the time, that is hardly surprising. On the evidence I cannot find that what Paul was told was reasonably capable of being understood by him in that way. As counsel for Goddard Elliott conceded, it would have been improper for the lawyers to give advice of that kind. I am not satisfied by the evidence that they did.

526 I therefore dismiss the claim of misleading and deceptive conduct which was based on the alleged statement of the lawyers that Paul did not have to pay taxation on the money which came from Protoline unless he put his hand up.

Taxation reserve could be used to pay Lianne Fritsch

527 Staying on the subject of taxation, I will consider here the further representation.

528 Paul alleged he was told he could use the taxation reserve of $542,000 which was standing in the Protoline account to pay the wife. The reserve was for the payment of taxation on the money which came from Protoline. Paul alleges he was encouraged to settle the case on the basis that he could use the money to pay most of the $650,000 in cash which would be due to the wife. This is the further representation alleged against Mr Goddard, Mr Rosen and Mr Ferguson.

529 Again the evidence is in dispute. Paul's strong testimony was that the further representation was made. It was matched by equally strong testimony from Mr Goddard, Mr Rosen and Mr Ferguson that it was not.

530 I assess this evidence in the context of the focus on the self-assessment regime and Paul's potential tax liabilities in the discussion between him and his lawyers to which I have already referred. Mr Ferguson was a party to these discussions. His note of 15 September 2004 and the letter of the afternoon of 16 September 2004 show how conscious he was of the issue.

531 Paul's evidence was that, on 16 September 2004, Mr Rosen suggested he telephone Mr Ferguson for advice about the subject. This evidence is plausible, for that is exactly what Paul did. That he did do so also fits in with the sequence of events as he deposed them to be. But Mr Rosen denied making the suggestion and there is no objective evidence either way. I simply cannot resolve the conflicting evidence in relation to this aspect of the case.

532 Mr Ferguson gave evidence denying advising Paul that tax would not be payable on the use of the money. But Mr Ferguson's evidence on the subject of the self-assessment regime was highly nuanced and not impressive. His letter dated 16 September 2004, the truth of which he confirmed in evidence, said he told Paul that if there was tax payable on the $542,000, it would have been mentioned in Paul's financial statement. That statement falls into the same category. But Mr Ferguson did refer Paul to Mr Walton. On the whole of the evidence, I do not think Mr Ferguson could reasonably be seen as having given Paul accounting advice. He was not Paul's family accountant. He was his forensic accountant.

533 As is the case with the representations, in the context of the self-assessment regime there was probably discussion between Paul and one or more of Mr Goddard, Mr Rosen and Mr Ferguson on 16 September 2004 in relation to the taxation consequences of using the $542,000 to pay the wife. However, I am not satisfied by the evidence that Paul was told by any of them that there would be no tax payable on that money if he used it for that purpose. Again, Paul interpreted the advice which he was given in that way, which reflects his state of mind. On the evidence, however, I cannot find that that is what he was told. Nor can I find that any of them implied that payment of taxation by Paul on that amount was optional. I cannot find that was what he was told was reasonably capable of being understood in that way. I therefore dismiss the claim of misleading and deceptive conduct which is based on the further representation.

534 Now to the remaining representations - the likely reference of the case to the Australian Taxation Office and tax investigation, the risk of paying the wife's entire legal costs and the hostility of the trial judge.

535 The evidence in support of these representations came from Paul, Norbert and Arno. Their evidence is disputed in the essential material respects by Mr Goddard and Mr Rosen. That each of these general topics was discussed between Paul and Mr Goddard, Mr Rosen and Mr Ackman is not to be doubted. What is to be doubted, and which I cannot find, is that Paul was told the things he alleges and in the terms that he alleges.

536 In assessing Paul's evidence, I have to take into account that, in the circumstances of the days leading up to 16 September 2004 and on that day, Paul could well have misinterpreted what he was being told. He was mentally unwell. He could well have re-characterised his lawyers' references to dangers and risks as statements of what would actually happen. His lawyers were entitled to refer to all of these matters in forceful terms as material dangers and risks which Paul should take into account in deciding what to do in the litigation. I find that is probably what they did. I cannot find on the evidence that they went further, even taking into account Norbert and Arno's evidence. I therefore reject these other allegations of misleading and deceptive conduct.

537 Even if I had found the representations and further representation had been made as alleged, there would have been a real question in my mind as to whether such representations could have been actionable if they were made, as I think they were made, in the ordinary exercise of the lawyers' professional judgment and not negligently. A consideration of s 4(1) and (2) would have been relevant in that context. Given the findings I have made, that consideration is not required

538 The claim of breach of fiduciary duty which the plaintiff made, both in his further amended statement of claim and closing submissions, was that Mr Goddard (and Mr Ackman and Mr Rosen) procured Paul to enter into a grossly unfair and inappropriate settlement in circumstances where he had no or insufficient mental capacity to instruct them by reason of his mental illness and the impact of the stress of the proceeding on him. I have already given a full description of this claim. It was implicit in the claim that Mr Goddard should have known Paul lacked the capacity to give instructions in relation to the settlement. As developed in the trial, the claim was expanded to include the contention that Goddard Elliott breached its fiduciary duty to Paul by coercing him, or imposing improper pressure on him, to settle the case. It was also Paul's contention that advocates' immunity did not apply to a breach of fiduciary duty.

539 The defence of Goddard Elliott, as pleaded and put in closing submissions, was to admit the fiduciary relationship between Mr Goddard and Paul but to deny the duties had been breached. Its alternative defence was that any breach of fiduciary duty was covered by advocates' immunity.

540 As was submitted for Paul, the authorities speak of an obligation not to procure a coerced settlement but do not specify its source and, in particular, whether it is a duty arising in contract or tort or as an aspect of the fiduciary relationship between lawyer and client. For example, in Harvey v Phillips[94] the High Court held it was for the client to decide whether or not to settle 'upon an appreciation of the advice of her counsel and solicitor but under no sense of coercion'. Whether there was a correlative duty on the part of the lawyer was not discussed. In Studer v Boettcher,[95] Fitzgerald JA said a 'lawyer is not entitled to coerce a client into a compromise',[96] even one which was objectively in their best interests, without saying whether that was a fiduciary proscription or an aspect of a lawyer's duty of care.

541 In my view, a lawyer has a duty of care not to coerce their client into a settlement or to take and act on instructions from a client to settle a case when they know or should have known the client lacked the mental capacity to give the instructions or could not be reasonably satisfied the client had that capacity. Subject to advocates' immunity, this duty of care is actionable in negligence.

542 I can see how a duty of that kind might also be a fiduciary duty. The relationship between lawyer and client is one of the well-accepted categories of fiduciary relationship[97] and it is the lawyer's fiduciary obligation to act in the best interests of their client.[98] The obligation to act in the best interests of the client is imposed by law because the lawyer's relationship with the client 'is a relationship of ascendency or influence by one party over another, or dependence or trust on the part of that other'.[99] That being the context in which a fiduciary obligation arises and the general scope of the duty, it might be thought the fiduciary obligations of a lawyer extend to not coercing a client to settle and to not knowingly or recklessly taking settlement instructions from a client lacking mental capacity. That view would dovetail with the obligations on the part of a lawyer to bring justified concerns about a client's mental capacity to the attention of the court and not to continue to act for a client lacking capacity without a next friend being appointed.

543 However, there are difficulties with that proposition, including that fiduciary duties are generally proscriptive rather that prescriptive[100] and a fiduciary duty is different in nature to the duty of care. Further, the only practical relevance of the alleged breach of fiduciary duty in the present case is to answering the question whether the advocates' immunity covers the civil wrong which was done to Paul as the plaintiff.

544 It is tempting to think the answer to that question might be influenced by characterising the wrong as something more than a breach of duty of care, ie a breach of fiduciary duty. Admitting the considerations pointing in the other direction, I have come to the view the application of the immunity does not turn on whether the wrong which was done here was a breach of the duty of care or a breach of fiduciary duty. The application of the immunity depends on the substance of the wrong which was done. The substance of the wrong which was done here was that the lawyers breached their duty of care towards Paul by taking and acting on instructions to settle the case when they should have known he lacked the mental capacity to give instructions. That was negligence in respect of something which was foundational to Paul's participation in the proceeding - his mental capacity as a client and a party. But I would not give a different answer to the question whether the immunity applies by characterising that negligence as a breach of fiduciary duty.

PROCURING SETTLEMENT WHEN PAUL FRITSCH LACKED CAPACITY

Presumption of legal personality and capacity

545 The common law treats human individuals as having legal personality and thus the capacity for legal rights and obligations. The individual is taken to have legal personality because 'rights and duties involve choice' and individuals 'naturally ... enjoy the ability to choose'.[101] For people, legal personality is thus a birthright. This foundational principle of the common law is also an international human right[102] which, in Victoria, is protected by the Charter of Human Rights and Responsibilities Act 2006 (Vic).[103]

546 Legal personality and the capacity for legal rights and obligations imply individual autonomy. That a person has the mental capacity to make decisions for themselves is implicitly asserted every time someone takes a legal step, including that of commencing or defending a legal proceeding. The assertion is afforded respect and not challenged unless capacity is made a legitimate issue. There is a presumption that everybody of full age has the mental capacity to manage their own affairs, including the commencement and defence of legal proceedings. That a party to legal proceedings has that capacity is the working assumption of the courts until the contrary is proven. The burden of proving to the contrary rests with those asserting incapacity.[104]

547 It has been held that 'juristic acts ... can only be done by persons having the necessary mental capacity'[105] and that the 'law requires that a person must have the necessary mental capacity if he is to do a legally effective act or make a legally effective decision for himself'.[106] This expresses in the negative the principle expressed in the positive which I have been discussing. This negative principle is for the protection of the legal process and all of the parties to legal proceedings. For the purposes of the present case, one aspect of the principle needs to be emphasised: it is just as much an interference with the individual autonomy which the law respects for a legal consequence to be imposed on someone lacking mental capacity as it is to deny the right to take such a step to someone who has it.

548 Putting aside cases where a lawyer may have a special representative authority by operation of a particular law or enactment, a necessary corollary of these principles is that the authority in law of a lawyer to represent a client depends on the client having the requisite mental capacity. The commencement of proceedings on behalf of a client implies the solicitor, as an officer of the court, is reasonably satisfied the client has that capacity. It is the same when a barrister represents a client at court. In most cases, there will be nothing suggesting the matter should be considered and the lawyer can presume their client has mental capacity. In others, however, the lawyer will be on notice that the issue requires active consideration. The present case was such a case.

549 The mental capacity of a client to instruct is a reflection of that mental capacity which the client must have to participate in the legal proceeding. As a lawyer is an officer of the court, it is their 'primary responsibility' to be reasonably satisfied that the client has the mental capacity to participate in the proceeding and to instruct.[107] Where the client does not have that capacity, the lawyer does not have the authority to represent them in the proceeding, except for certain limited purposes, most particularly perhaps for the purpose of an inquiry into that question. I say perhaps because they are not really representing the client in that process, but rather assisting the court as an officer of the court.

550 The lawyer's authority can only ever occupy that range which is marked out by the client's mental capacity. Their authority must end where that capacity ends. As Fox J said in Martin v Azzopardi,[108] '[i]f, and as soon as, the plaintiff was in [such a] condition he would be unable to retain a solicitor. That is to say, he would not have the mental capacity to understand the nature of the acts or transactions which he would be authorizing'. Consequences follow a breach of this principle. If the party lacks mental capacity and the solicitor knew or should have known, the solicitor is at risk of having to pay indemnity costs even in the absence of impropriety, as where the party is an infant and had to sue by their litigation guardian or next friend.[109] A solicitor who persists with representing a client who has lost mental capacity is liable to have costs awarded against them on an indemnity basis even if there is no impropriety.[110] The conduct of the proceeding by a lawyer on behalf of a client lacking this capacity is liable to be stayed on the same basis.[111] By the same logic working in reverse, the authority of a court-appointed next friend may be challenged, and a proceeding issued by them dismissed, where the party is shown to be capable of managing their affairs.[112]

551 In cases where a person's want of mental capacity is known or established, the courts have certain powers to appoint someone to represent the person in the proceedings. The person is not entitled to commence or defend the proceedings otherwise. In this court, the incapacity of a person with a disability (including someone with a mental illness) to commence or defend proceedings and the power of the court to appoint a litigation guardian to do so on their behalf is to be found in O 15 of the Supreme Court (General Civil Procedure) Rules.[113] In the Family Court of Australia, the equivalent rule of incapacity and powers of appointment are to be found in sub-r 6.08(1) of the Family Law Rules 2004 (Cth). In that court, the litigation guardian is called a 'case guardian'.

552 These powers are derived from the inherent jurisdiction of the Crown as 'parens patriae' to care for those who are unable to care for themselves.[114] The appointment of a litigation, case guardian or person with similar representative responsibility is to serve two protective purposes - the protection of the person with the disability and of the processes of the court as these apply to the parties generally.[115]

553 To make an application for the appointment of a litigation guardian for a person is a very serious thing because it deprives the person of their fundamental civil rights under the common law, most especially the 'right to sue or defend in [his or her] own name, and ... compromise in litigation without the approval of the court'.[116] In making that observation in Masterman-Lister v Brutton & Co (Nos 1 and 2),[117] Kennedy LJ drew attention to the importance of these rights, which have been 'long cherished by English law',[118] and the safeguards which are now to be found in the European Convention on Human Rights.[119] There is a similar connection between the right to commence, defend and settle proceedings as civil rights under the common law and the cognate human rights in ss 8 and 24 of the Charter of Human Rights and Responsibilities Act.

554 To examine whether a person has mental capacity for specific legal purposes is not to examine whether they should be subjected to involuntary medical treatment under mental health legislation[120] or have an administrator or guardian appointed to manage their property and personal affairs under guardianship and administration legislation.[121] A person can lack the mental capacity to participate in legal proceedings yet be capable of performing the usual activities of daily life. It is therefore not a requirement for the appointment of a litigation guardian or someone else with representative responsibility for the person that the person is proved to be of general unsound mind or a 'lunatic'. The responsibility of the lawyer to be reasonably satisfied of the client's capacity to instruct is to be understood on the same basis.

555 The standard of capacity which is required for a person to participate in legal proceedings is the same standard of capacity which is required for a person to enter into legal transactions. That required standard of capacity was stipulated by Dixon CJ, Kitto and Taylor JJ in Gibbons v Wright[122] in these terms:

The law does not prescribe any fixed standard of sanity as requisite for the validity of all transactions. It requires, in relation to each particular matter or piece of business transacted, that each party shall have such soundness of mind as to be capable of understanding the general nature of what he is doing by his participation.[123]

As you can see, the standard is based on the subjective understanding of the person. The understanding which is required is contextual and relates to the nature of what the person is doing. The question is not whether the person can do the legal act intentionally, as by putting their signature to a deed; it is whether they can understand the nature of the legal consequences which will be brought about.[124] On the facts, these principles are important in the present case.

556 Masterman-Lister[125] is of general importance and has been widely followed in Australia. Kennedy LJ said the standard 'was related to the individual plaintiff and [his or her] immediate problems'.[126] His Lordship went on to emphasise

the issue-specific nature of the test; that is to say the requirement to consider the question of capacity in relation to the particular transaction (its nature and complexity) in respect of which the decisions as to capacity fall to be made.[127]

The authorities are unanimous in support of two broad propositions. First, that the mental capacity required by the law is capacity in relation to the transaction which is to be effected. Second, that what is required is the capacity to understand the nature of that transaction when it is explained.[128]

557 In Masterman-Lister, the trial judge and Kennedy LJ on appeal applied the approach which had been adopted by Boreham J in White v Fell.[129] The relevant passage from the regrettably unreported judgment of Boreham J was set out in the judgment of Kennedy LJ[130] in these terms:

To have that capacity [he or she] requires first the insight and understanding of the fact that [he or she] has a problem in respect of which [he or she] needs advice ... Secondly, having identified the problem, it will be necessary for [him or her] to seek an appropriate adviser and to instruct [him or her] with sufficient clarity to enable [him or her] to understand the problem and to advise [him or her] appropriately ... Finally, [he or she] needs sufficient mental capacity to understand and to make decisions based upon, or otherwise give effect to, such advice as [he or she] may receive.

Under this approach, it can be seen the focus should be on the capacity of the client to understand they have a legal problem, to seek legal assistance about the problem, to give clear instructions to their lawyers and to understand and act on the advice which they are given. This approach has found favour in Australian authorities[131] and I would endorse it and follow it here.

558 As an aspect of the general duty to ensure a fair trial, the courts have a responsibility to provide certain assistance to self-represented persons.[132] The courts have the same duty not to allow a self-represented person lacking the required mental capacity to participate in legal proceedings without a litigation guardian being appointed as they do in relation to persons represented by a lawyer. But the test of capacity which is applied in the case of self-represented persons is more intensive than in the case of represented persons. As has been held, 'the level of mental capacity required to be a "capable" litigant [in person] will be greater than that required to instruct a lawyer because a litigant in person has to manage court proceedings in an unfamiliar and stressful situation.'[133] It follows that a person who does not have the mental capacity to represent themselves may have sufficient capacity to be able to give instructions to a lawyer to represent them.[134]

559 An important question in the present case is the client's capacity to give instructions and consider advice about settling the proceeding. Those issues were considered by Lord Denning MR in Kirby v Leather.[135] Applying the same issue-specific test as was approved in Masterman-Lister, his Lordship noted that the plaintiff could appreciate 'something of what had happened to him' (being involved in an accident). However, he 'was not capable of instructing a solicitor properly. He certainly was not capable of exercising any reasonable judgment upon a possible settlement'.[136] This passage was cited with approval in Masterman-Lister,[137] as it has been in Australian cases.[138] So, to be capable of giving settlement instructions to their lawyer, the person must be able to comprehend the lawyer's legal advice and the nature of the legal and other consequences which will be brought about by the settlement. I will hold in this case that Paul had no such capacity and that Goddard Elliott should have known it.

560 In the present case, it is pertinent to take this aspect of the matter a step further. Depriving a person of the right to settle proceedings represents an interference with their civil rights and their personal autonomy in the conduct of litigation. It is likewise an invasion of that right and that autonomy to fail to recognise when a party is mentally ill and therefore lacks the capacity to make proper litigious decisions on their own behalf. However well-intentioned may be the exercise of paternal concern or pastoral care for such a person by their legal representatives, the acceptance of instructions to settle from a person who lacks the mental capacity to give those instructions is not justified.

561 Of course, there is a powerful public interest in the settlement of legal proceedings.[139] It is legitimate for a lawyer to apply considerable pressure on a client to settle a proceeding when it is in the client's best interests to do so.[140] Lawyers should not be 'unduly inhibited' in performing this difficult but necessary function

by the apprehension that some Judge, viewing the matter subsequently, with all the acuity of vision given by hindsight, and from the calm security of the Bench, may tell him he should have done otherwise.[141]

However, the final choice must that of the client,[142] As was held in Harvey by Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ:

It is hardly necessary to say that, be [a] compromise wise or unjust in [the client's] interest, it [is] a matter for [the client] to decide in the exercise of a judgment formed upon an appreciation of the advice of [their] counsel and solicitor but under no sense of coercion.[143]

A client cannot make a judgment in this manner unless they have the mental capacity to do so. Whether Paul had that capacity is the central issue in this part of the judgment.

562 The final decision on the mental capacity of the person engaged in the transaction or the litigation rests not with the lawyers, not with the doctors, not with the client or party but with the court. Only the court can finally determine whether the person has sufficient understanding of the particular matters which are at issue so as to have the capacity to engage in the transaction or participate in the proceeding. The standard of capacity which is required is context and issue specific and only the court can be the judge of that context and those issues. If that principle had been understood by those acting for Paul in the proceeding in the Family Court, this judgment would not have had to be written.

563 When the issue is properly raised, it is the duty of the court at the earliest opportunity to examine whether the person has the mental capacity which is required. The principle is of long standing and was applied in the nineteenth century in Howell v Lewis.[144] Faced with conflicting evidence about the state of mind of a party, Kekewich J (a judge of considerable authority) proceeded in this manner:

I have some evidence of weakness of intellect which I cannot disregard, and that evidence includes medical evidence; and I think I should be doing wrong if I were to say that the presumption which I have mentioned should prevail. I think I must regard it as if there were a dispute, and I think that that dispute must be decisively settled before we can get on any further.[145]

The same course was adopted in Allregal Enterprises Pty Ltd v Carpaolo Nominees Pty Ltd.[146] Faced with an unrepresented person who appeared to be mentally ill, Pullin JA referred her to the Public Advocate for a capacity assessment and report. His Honour stated (or understated) this to be the applicable principle:

[I]f the court is put on notice by evidence that a person may not have the capacity to manage his or her own affairs, then in my opinion, the court is duty bound to decide whether the person does have capacity. To proceed without determining the issue means that the court is participating in what may be irregular proceedings.[147]

564 It has been held that, to facilitate such an examination, the English courts have the power to direct an inquiry into the state of mind of the person.[148] According to the foundational text on the topic, the Judge in Lunacy often had to 'act on evidence obtained by himself or by persons acting under his direction'.[149] In Australia, the supreme courts of the states have the inherent jurisdiction to order that the person be independently examined for mental capacity by a doctor reporting directly to the court.[150]

565 The drastic step of interfering with the person's legal right (and human right) to participate personally and directly in legal proceedings is not done lightly[151] and only ever to the extent which is demonstrably justified. The court will require the clearest of evidence. In most cases the court will base its decision on the medical evidence and the court will be reluctant to proceed without it. But it may base its decision on other evidence, including its own assessment of the issue and any pertinent observations of the person by the trial judge, with whom the resolution of the issue finally rests.[152] There is no duty psychiatrist stationed at every court just in case they are needed.

566 The responsibility of the court to determine whether a party has the requisite mental capacity can have important consequences for the conduct of legal proceedings by the court. The position of a person compelled to participate in a hearing when mentally ill may be seen to be analogous with someone compelled to attend a hearing who cannot for reasons of legitimate physical illness or other reasonable explanation. A person who is physically ill or otherwise (reasonably) cannot attend the hearing has a strong claim to an adjournment.[153] So also a person who is mentally ill but able to be physically present has a strong claim to an adjournment. As was held by Handley JA in Murphy v Doman,[154] in both cases there is a serious risk that the continuation of the proceeding by the court would be a denial of natural justice.

567 In consequence, when it is shown that there is sufficient concern about the capacity of a party to participate in legal proceedings, the court may need to adjourn the proceeding in order to examine that question. Where necessary, the court must consider these issues of its own motion.[155] One strong example is Palmer v The Chief Executive, Queensland Corrective Services Commission.[156] There the appellant was unrepresented. When doubts arose about his mental condition, the Queensland Court of Appeal moved of its own motion to address the issue. There being 'sufficient reason for concern [about the appellant's capacity] to litigate ... without a litigation guardian',[157] Keane JA (Muir and Chesterman JJA agreeing) adjourned the appeal to a date to be fixed. If the appellant was not then represented by a litigation guardian, the question of the appellant's capacity to litigate on his own behalf would be examined. The doubts arose not on the basis of medical evidence but on the basis of the incoherence of the appellant's submissions and his disclosure that he had suffered an acquired brain injury. Alternatively, where the evidence establishes that the want of capacity is likely to be temporary, the court can grant a short adjournment. That was the sensible course adopted by the Full Court of the Family Court of Australia in Storey v Storey[158] when the husband's doctor said he would not be able to attend court for a month due to depression. In the present case, the trial judge was deprived of the opportunity to deal with the implications of Paul's known mental health issues in this common sense manner.

568 We have seen the primary responsibility of a lawyer is to be satisfied the client has the mental capacity to instruct. Doubts about this issue in the mind of the lawyer can also have important consequences for the conduct of legal proceedings. If the issue cannot be resolved to the reasonable satisfaction of the lawyer, as occurred in the present case, the lawyer must raise the issue with the court. It is the court which has the final responsibility to determine the issue. That is how the matter was dealt with in Till v Nominal Defendant.[159] The plaintiff's counsel became concerned through the trial that his client lacked the necessary capacity to instruct. When he brought his concerns to the attention of McMeekin J, his Honour stayed the plaintiff's proceeding 'until his capacity to provide instructions and make decisions about his legal rights is established'.[160] His Honour referred the plaintiff to the Queensland Consumer and Administration Tribunal for a capacity assessment.[161] As we are about to see, the problem in the present case occurred because (among other reasons) Paul's lawyers did not adopt this course although it was definitely called for.

569 By these rules and principles, a person having mental capacity can, but a person lacking mental capacity cannot, commence or defend legal proceedings. The person lacking mental capacity must have a litigation guardian appointed (by whatever name). A lawyer must be reasonably satisfied that their client has the mental capacity to give instructions. If they are not so satisfied, they cannot act for or represent the client. They can only be, or act for and represent, the litigation guardian. When a client loses mental capacity, their lawyer loses the authority to act for and represent them. If a person commences a proceeding with that capacity but loses it thereafter, their capacity to participate in the proceeding on their own behalf and instruct their lawyer to do so is also lost. The lawyer loses their authority to act for and represent the party in those circumstances. Therefore, when it arises, the issue of the person's capacity to commence or participate in legal proceedings is a matter of the first importance for the court and for the person's legal representative as an officer of the court.

570 That brings me to the issues raised in the present case.

571 I have described how Paul's case was pleaded (procuring a grossly unfair settlement when Paul lacked capacity to instruct) and run (coercion as well).

572 Paul made extensive submissions on the facts, especially about what occurred on 16 September 2004. He submitted the court should find Mr Goddard, Mr Ackman and Mr Rosen coerced him into settling the case when he did not have the mental capacity to do so. His counsel put forward 25 reasons for accepting the evidence led on Paul's behalf and rejecting the evidence led on Goddard Elliott's behalf. He relied on the failure of Goddard Elliott to call Mr Ackman. I will determine these submissions in his favour later in the judgment and thus will focus at greater length here on Goddard Elliott's submissions.

573 I have taken into account all of the submissions made by Goddard Elliott on the coercion and capacity grounds. In view of the importance of the events of 16 September 2004, I will set out here in detail the submissions made in relation to the events of that day.

574 It was submitted that Paul's evidence that he was not given a copy of Mr Ferguson's report on the day should be rejected. It was common ground Paul collected Mr Goddard from his home and drove him to Mr Ferguson's office. Both Mr Ferguson and Mr Goddard deposed to Mr Ferguson giving the report to Mr Goddard. Mr Ferguson went to court later, with an additional copy. During the course of the morning, Paul asked him at court for a copy. Mr Ferguson lent him his copy, but got it back before he left. The evidence of Mr Goddard and Mr Ferguson should be preferred to that of Mr Fritsch. Their evidence was supported by that of Mr Rosen, who saw Paul at court with a copy of the report in his hand. I will accept these submissions.

575 Goddard Elliott relied on the court transcript which showed the matter was stood down at 10.00 am and then again at 12.00 noon because the case, in the words of senior counsel for the wife, was 'miraculously ... very, very close to settlement'. Mr Goddard's evidence was the matter settled shortly before lunch. Norbert and then the parents came in. There was discussion and debate between them and Paul, and then they left.

576 There were conflicting versions of the actual sequence of events in relation to the participation of the family. Mr Goddard's evidence was the family left before lunch and before the authority to settle was signed and then, after it was signed, the wife's solicitors went away to prepare the minutes of consent orders during lunchtime. Mr Rosen, who was there all day, deposed to the family not being at court in the afternoon. His evidence was Mr Ackman was present in the morning and returned to his chambers at lunchtime. He returned briefly in the afternoon to resolve the argument over the extra $7,000 bite. Then he left and did not return, due to a dental appointment. It was Mr Rosen who appeared before Watt J shortly after 5.00 pm. This account was supported by the evidence of Mr Goddard.

577 It was submitted by Goddard Elliott that the court should reject Paul's evidence that the words about settling for the sake of the health of him and his family had been dictated to him. Mr Rosen's evidence should be accepted which was Paul was very keen to settle and wrote those words himself.

578 Goddard Elliott relied on Mr Goddard going through the minutes of consent orders with Paul paragraph by paragraph, in Mr Rosen's presence. Paul raised several objections and made several comments which represent objective evidence of his capacity on the day. The subjects of discussion included the indemnities, the extra $7,000 bite and the support requested for his son's education. Goddard Elliott also relied on Paul seeking Mr Ferguson's advice in relation to whether tax would be payable if he used the $542,000 to pay most of what would be due to the wife. Also, Paul drove Mr Goddard home that night and on the previous day had sent Mr Goddard the wife's joint case summary which he got off her computer, and which he read and understood. Thus Paul was not in such a state as not to be able to comprehend what he was doing, or to be suffering from such incapacity that he could not give instructions on 16 September 2004.

579 Goddard Elliott submitted Mr Goddard, Mr Rosen and Mr Ferguson were the three professional people to give evidence. Mr Rosen had represented Paul on several occasions and never found him to be wanting in capacity. On 16 September 2004, Mr Rosen found Paul to be coping well - he had no reservations about his ability to comprehend and Mr Goddard was of the same view. Mr Rosen said the report of Dr Velakoulis dated 9 September 2004 did not cause him to change his view.

580 It was accepted by Goddard Elliott that there was plenty of evidence from Mr Goddard recognising that Paul was suffering from a psychiatric disturbance. He had engaged Dr Sturrock at an early stage because he was concerned about Paul's ability to cope. But Mr Goddard never saw Paul cry. Accepting his underlying problems, the evidence established he was able to comprehend what was said to him and to give instructions. While he always had trouble making a decision, the evidence was he settled of his own volition on 16 September 2004, as he nearly did on 11 December 2003. Paul never said he wanted to run the case at all costs, and that was not his position on 16 September 2004.

581 It was submitted the report of Dr Velakoulis of 9 September 2004 did not say Paul was unable or incapable of making 'an informed, considered and appropriate decision' (to use the words of the honourable Eric Baker in his opinion of 7 September 2006 (exhibit J)). Goddard Elliott pointed out the pleadings in regards to want of capacity were not framed as an allegation that the lawyers were negligent in failing to seek an adjournment on the basis of Paul's psychiatric condition. Goddard Elliott submitted that, on the whole of the evidence, three experienced lawyers had made a judgment call that Paul had capacity and wanted to settle voluntarily and it was not open on the evidence for the court to find otherwise.

582 Goddard Elliott identified certain passages in the evidence of Paul, Mr Goddard, Mr Rosen and Mr Ferguson which warranted careful perusal, which I have undertaken.

583 It was submitted Paul had good reasons to settle. There was a full-scale attack on his credit, he had not made full and frank disclosure, he was facing a vigorous cross-examination by senior counsel for the wife, he was accused of messing around with discovery and had not given information legitimately sought, his wife was seeking indemnity costs, all the liabilities were being disputed, the valuations and the share of his interest in the Bowring business were being disputed, the tax liability being relied on by him had not been paid and therefore would be difficult to establish and there was the possibility of a tax audit which was of concern to the Fritsch family at the conference on 14 September 2004.

584 Goddard Elliott submitted the allegation of undue pressure had not been pleaded but accepted that it was put during the course of the case. Even on Paul's evidence, there was no unreasonable pressure. In any event, his version of events was contradicted by the evidence of Mr Rosen, Mr Goddard and Mr Ferguson. The evidence of Norbert about Paul's condition on 16 September 2004 should not be accepted. None of the other witnesses saw Paul in a foetal position or in the condition described by Norbert. The evidence of the three professionals should be preferred. Norbert's evidence was otherwise complimentary of Mr Goddard. He saw him as being capable and caring. This is not consistent with Mr Goddard coercing Paul.

585 It was submitted the court should find the matter was settled with the full consent of Paul and that he now repented at the bargain which he struck. It was simply a classic case of buyer's remorse.

Events of 16 September 2004: evidence of main witnesses

587 It was Paul's evidence that he picked up Mr Goddard from his office and drove him to a meeting with Mr Ferguson at his office before court. The purpose of the meeting was to give additional information to Mr Ferguson. Paul gave Mr Ferguson a list of expenditures out of capital which he had made and what they were for. The total was about $225,000, which he was claiming in the asset pool. Mr Ferguson's report was nowhere to be seen. The report was not given to or explained to him by Mr Ferguson or Mr Goddard. Paul left Mr Ferguson's office and went to court, leaving Mr Goddard with Mr Ferguson. Paul said he saw the report only after the settlement. He did not see it at all on 16 September 2004. He only went through it when he was an inpatient at the Melbourne Clinic. I will not be accepting this evidence.

588 When Paul arrived at court, Mr Ackman took him into the courtroom. The judge came in. Mr Goddard was there by then. Mr Goddard repeated to Paul that the judge was 'hostile'. They did not have a response to the wife's costs claim, which was 'unanswerable' and amounted to about $200,000. Mr Goddard said to Paul 'I would be up for her entire costs'. He was trying to persuade Paul to settle the case. The wife's offer remained at $2,600,000, being the home plus a cash payment of $650,000. Mr Ackman said it was likely the Australian Tax Office would investigate Paul and his family. Paul said he 'didn't have much to work with' and 'had no report'. Mr Ackman and Mr Goddard were again saying 'I don't have to pay the tax because I would only have to pay if I put my hand up'. Mr Rosen said the same thing.

589 Paul said he was feeling sick, down and helpless. He tried to telephone Dr Velakoulis. Mr Goddard was aware of this. He had to walk away on a couple of occasions. He described doing so at one point after Norbert and the others had arrived:

I went to the balustrade and I looked down, and I was contemplating jumping off the balustrade to land in such a way that I just would - that I wouldn't be injured, or survive injured. And at that time Mr Goddard came up to me and - and took me away from that area.

590 Paul said he thought his parents arrived about 2.00 pm and Norbert earlier. He recalls Mr Ackman asking Norbert about a tax investigation. Paul said his 'whole mindset was in chaos over what was going on'. When his parents arrived, he 'was not feeling very well, unfortunately I was crying'. His mother hugged him. Mr Ackman, Mr Rosen and Mr Goddard were in the room. Mr Ackman addressed the family. He asked if Arno had anything to fear in a tax investigation.

591 The family met in the absence of the lawyers. It was resolved Paul would not agree to the wife's offer. His mother initially thought he should agree 'to save the damage it was doing to my health and my mental condition, and ... the family'. The decision not to settle was relayed by Arno to Mr Ackman, in Paul's presence. Arno told Paul he was not in a fit state to sign anything. His mother changed her mind and told Paul to 'fight it'. Then the family left.

592 After they left, the lawyers again tried to persuade Paul to settle. Mr Rosen and Mr Goddard said he could use the money reserved for tax to pay the wife. Mr Rosen invited Paul to check that out with Mr Ferguson. Paul telephoned Mr Ferguson, who had been at court earlier but had gone back to his office. Paul asked Mr Ferguson, 'being an expert in these matters', whether using the money for this purpose would attract tax. He said 'no, it doesn't - you don't, you won't have to pay tax on that money'. Mr Rosen then told him he had spoken with Mr Walton whose advice was the same.

593 It was Paul's evidence that by then he 'had just I guess given up, all my resistance to that had given up'. He said he 'was very tired, my mind was pretty much in chaos'. The lawyers were saying the case 'has got to be settled', he would 'be up now for all the costs', the judge is 'hostile' and 'is staying back especially for you' and signing would avoid a tax investigation. Paul was concerned about Arno and Norbert's health. At one stage Mr Rosen swore at him, saying 'come on, fucking get on with it'. Mr Goddard was 'very strong' in trying to get Paul to settle. Mr Rosen was also. When he signed the settlement, it 'was done very quickly, very rushed'. Paul said 'I don't feel I was in a state to understand'. He 'was not ... in a mental condition to sign it'.

594 Paul's evidence was the handwritten authority he signed came from a previous day. He recognised it. There were some changes made. He does not recollect what they were. The words 'I wish to settle it and for the health of my family' were dictated to him by Mr Rosen in response to his comments that he was concerned about his family's health. Paul was actually saying why he felt he was being pushed into settling for that reason.

595 Paul was taken to the minutes of the consent orders. He agreed he signed them. He agreed changes were made on his own insistence. He described going through the orders as 'an exercise in torture'. He had to look at the document clause by clause, and did not get the chance to read it as a whole.

596 Paul was taken to the indemnity clause (cl 5). He said Mr Goddard said he had to sign it. Again Mr Goddard said 'you don't have to pay the tax' and 'you can use that money' (being the Protoline taxation reserve). Paul said by that time 'I'm pretty well finished. I was still arguing but, I admit I didn't have much left, so I initialled [the clause]'.

597 There was also discussion about the $41,000 payable for capital gains tax (which Paul later said he paid, indeed more than that, in 2005). The wife was not agreeing to this amount. Mr Goddard said he should give her $7,000. Paul said Mr Goddard told him: 'Look this is a rout and they can do anything they want'. So Paul agreed to give her $7,000. He also agreed to the child support agreement which was put forward in relation to his son. Mr Goddard said he had to sign this agreement as Thomas's father. Paul said he only signed it on the basis it could be changed later. Paul said he was under a lot of pressure to sign these documents because he was told the judge was waiting back and was quite hostile at being kept back so late. After he signed the documents, they were 'virtually snatched up and taken off to court immediately'.

598 In court at about 5.15 pm, Paul said he was 'pretty well stuffed. I was shaking, I was saying my rosaries over and over and over and over and over and over again'. He felt like getting up and objecting, but did not know the protocol. He felt 'totally helpless'. He felt 'totally destroyed. I couldn't speak. I couldn't make my legs rise up'. He wanted to say:

it's wrong, I don't agree to it, I don't agree to that the - that because things weren't prepared properly that I should be made to be the scapegoat to sign all these things, and that the consent was wrong.

599 That night, Paul went home to his parent's place. The next morning he telephoned Mr Goddard to say the settlement was 'a huge mistake'. Mr Goddard told him he had consented. Paul got in contact with Dr Velakoulis shortly afterwards and he said Paul should go into hospital. Paul could not do that straight away because he had to vacate the family home. He tried to live at Sorrento, but could not. After 10 days or so, he went into the Melbourne Clinic as an inpatient and was put on suicide watch for two weeks. He was there as an inpatient for three weeks in October and again in January 2005 for a further period. Paul wrote many letters to Mr Goddard from the clinic, which he referred to in evidence. Mr Goddard always defended the settlement as the best deal that could be got.

600 In cross-examination by counsel for Goddard Elliott, Paul identified his handwritten notes of his meeting with Mr Ferguson on 16 September 2004. He created the notes that day before going into the meeting. He denied being given a copy of Mr Ferguson's report. The case was not stood down at 10.00 am for settlement discussions. It was because the report was not ready. Norbert could have arrived between 11.00 am and midday and his parents an hour or so later. The family did not leave before 1.00 pm but much later in the afternoon. Mr Ackman did not make his presentation until about 2.30 pm.

601 Paul said he was 'destroyed, distraught and disoriented' on the day. He 'had actually gotten into a state where I couldn't function'. He was crying at some stages. He was not advised to settle to avoid a hostile attack on his credit. He was told he had to settle and no tax was payable if he did not put his hand up. Mr Goddard told him he would be 'up for her court costs, which could be $200,000'. He said the '16th predominantly centred around ... Mr Ackman, Mr Goddard and Mr Rosen saying, you do not have to pay the tax'. Mr Ackman never said the court might not accept the tax liability because Paul had not paid it. He denied Mr Goddard had made no comment about tax because that was not his area. He denied settling because he wanted to do so in the light of all of the risks and uncertainty.

602 Paul said he signed the authority before lunch, but could not recall exactly when. He signed it after his family left. In answer to a particular question, he described the circumstances of doing so in this manner:

Um, what happened at that stage was that um, I had explained to Mr Goddard that I was not in a fit state to sign it and that the only condition I could sign it was that - I had to express that my mental health wasn't right and that - and I did it for the health of my - - -

Yes, well I - - - ? - - -Just a moment, the health of my family, my father had cancer and as you know, he's passed away and you know - and my brother wasn't well and I also claim that his illness was brought on by the stress of these things. And that Mr Noel Ackman then dictated what I wrote there. This was not done in any calm manner or any manner in which I um, was conscious of - of what I was doing.

603 Paul denied that Mr Ackman took him through the authority to settle before signing it. He said he 'never spoke to Mr Ackman. Mr Ackman was not there'. Paul said he was not there when the minutes were signed or when the authority was signed. He agreed to sign the minutes and that he went through them clause by clause, but by then he had 'capitulated and given in'. It was the same with the childcare agreement and agreeing to be liable for Thomas's education.

604 Paul admitted driving Mr Goddard home afterwards. He did not recall discussing the division of the chattels with him, just complaining about the unjust settlement. He said he complained to Mr Goddard soon afterwards by telephone and did not wait until 8 October 2004 to tell Mr Goddard he was mentally unwell. He admitted retaining Mr Goddard to complete the settlement transactions, including the property transaction. But he had no alternative to doing so.

605 In cross-examination by counsel for Mr Ferguson, Paul said when he rang Mr Ferguson on 16 September 2004 at the behest of Mr Rosen, he asked Mr Ferguson 'if the money was taken out of a trust or corporate entity such as [Protoline] would there be an extra tax if it was paid out to Lianne, the wife'. Mr Ferguson said 'there's no tax if I took the money out'. It was not a lengthy conversation and he did not recall Mr Ferguson referring Paul to Mr Walton. Paul said Mr Ferguson 'triggered my going ... forward with, the consent ... because I was being told that I should use the $542,000 to pay the wife'. Paul said when he rang Mr Ferguson he was very anxious. It was about 3.35 pm. Paul did not accept the truth of Mr Ferguson's account in his letter of 16 September 2004. Paul said he told Mr Rosen what Mr Ferguson had advised and Mr Rosen said Mr Walton had said the same thing. Paul did not speak with Mr Walton himself.

606 Paul was taken to his copy of Mr Ferguson's letter dated 16 September 2004. A note of his on that letter said 'PW informed me tax of $114k due'. Paul said 'it is correct to say that I suspected, and expected there would be tax on it'. Mr Ferguson had always said 'if you take it from a trust or a corporate entity there's a tax liability'. Before he spoke to Mr Ferguson, 'Mr Ackman and Mr Rosen and Mr Goddard had said to me that there's no tax payable if you take the money out of that entity'. Paul said he rang Mr Ferguson at Mr Rosen's request because he needed confirmation.

607 Paul did not agree that Mr Ferguson brought copies of his report dated 16 September 2004 to court with him that morning. Mr Ferguson did not give Paul his copy to read and get it back from him later.

608 Paul's evidence was he had not put in a tax return since 2004 (which he later corrected to 2005), because 'I'm just dead worried that I'll be up for hundreds and hundreds of thousands of dollars worth of tax'. He agreed he did not issue proceedings against Mr Ferguson until some three years after the settlement.

609 In re-examination, Paul said his sole source of income was his service disability pension. He was taking antidepressants and anxiety medication.

610 In examination in chief, Norbert said he was not asked by Mr Goddard to be available on 16 September 2004. Mr Goddard rang him that morning. He said they needed him to convince Paul to settle, which Norbert refused to do. It was a short conversation. Mr Goddard rang him later in the morning. He spoke with both Mr Goddard and Mr Ackman. Norbert was told Paul was 'in a very bad way'. He was asked to come in urgently. He rang his parents to ask them to go to court. Then Norbert drove to court from the factory. He spoke to Mr Walton on the way by telephone.

611 When Norbert got to court, he was met by Mr Goddard, who took him to a conference room. Mr Goddard, Mr Ackman and Mr Ferguson were there, with Mr Rosen 'over on the side'. He gave this description of Paul's condition:

It was terrible, it was - he was cowered, he was almost like in a foetal position up against the wall, he was - I said are you all right and he was babbling and it was just terrible.

Did he answer when you said are you all right?---No, he - Paul didn't make much sense, he - yes, yes, you know, like it was an answer but it was not - for me to get to talk to Paul for the whole of that day it was almost impossible to get a proper answer from him. He'd go back to his case and things that were wrong, and - but it was like running on a lot of history that he'd established on his case. He didn't make much sense.

612 Norbert said he was asked to convince Paul to settle his case. Norbert refused. Mr Ackman and Mr Goddard asked if Norbert could stand a tax investigation or had tax worries. Norbert said '[o]ur house is in order', that 'I haven't got any worries about tax ... [but] nobody likes it'.

613 Norbert described the process by which persuasion was being exerted on Paul. He said:

Mr Ackman was extremely agitated, almost aggressive, Paul was like this and he just - come on, sign this thing. Mr Goddard was advising him to sign. Mr Rosen I think at one stage was abusedly talking to him to sign. Just sign the thing, and Paul is it's like - like being down each time he was coming under these tirades.

614 Norbert said he rang Mr Walton about half an hour after he got to court. He told Mr Walton that Paul was in no condition to be making decisions. He did not see any settlement document at court.

615 Norbert said his parents arrived up to two hours after he did. They arrived after lunch. They came by taxi. It was about 2.00 pm. He was in the foyer waiting for them. He took them down to the conference room. Arno and Norbert spoke with the lawyers. Mr Ackman summarised the case in their presence. They were asked whether they would like to have their business 'be under the threat of a tax investigation'. Arno said 'nobody likes that type of thing'.

616 Norbert described Paul at that stage as being 'fairly largely out of the picture in this conversation'. He had 'gone into a state of just sitting there ... like a little old man in a corner'. He was 'hunched over and totally subdued'. Norbert said that, at a point before they were asked to leave the conference room, Paul got up and left. He then described speaking to Mr Goddard:

I said you'd better go and check Paul because there's something wrong, I'm really worried about him. Andrew said yes, I'm worried about him too, and he took off after him. They came back some short time later, and Paul just went and sat down again.

617 After that, they did leave the room. Paul remained with the lawyers. Some time later, they were asked to come back in. Paul was clearly wavering. At that point Sofie told Paul not to settle. Norbert described what he saw and said:

I could see that they'd really gone over him a bit. I said to - I said to Andrew I said Andrew if you get - I said if you get Paul to sign this you know it's wrong, you're actually - he's not in a state, he's not compos mentis, he doesn't know what he's doing. He doesn't realise the repercussions, and if you get him to sign it you know it's wrong.

618 Norbert described overhearing a 'strange' conversation between Mr Ackman and Mr Goddard. It was about 'getting Kevin Ferguson to re-write some figures that were presented so they would work'. It was mainly Mr Ackman talking to Mr Goddard. It was about getting Mr Ferguson to write some report 'so the judge could pass a settlement'. This was in the afternoon.

619 Norbert's evidence was he thought the case would be adjourned. The family left. He took his parents home. Before leaving, the family had a meeting with Paul and it was agreed he would not settle. They arrived home at about 5.30-6.00 pm in Wheelers Hill. They left court at about 4.00-4.30 pm.

620 In cross-examination by counsel for Goddard Elliott, Norbert said he got to court on the day at about 11.30 am. His parents arrived about two hours later, not mid-morning. When asked about the discussions concerning tax, he said '[w]e had nothing to hide from the tax office'.

621 In response to questions about what the lawyers were explaining to Paul, Norbert gave further evidence about Paul's condition on the day:

Anything that was explained to Paul that day, even though he might have been able to give answers or talk about it, he was obviously in no position to make any assessment with regards to tax or anything. So anything that was explained to Paul, his legal people should've known he was in no condition, absolutely no condition, to make any decisions.

But your brother, you've said, was talking and was speaking in the room?---My brother was talking to me. He didn't make sense. At one stage he was mumbling. I had to put my arm around my brother and say, 'It's all right.' And you've got to understand how bad that is, because he's the strong one in the family. I actually had to get my brother to even understand it. He was running on his memories of the case, but it wasn't making sense.

622 Norbert said the family was later excluded from the room. They did not ask to meet privately with Paul. He did agree the lawyers were explaining the risks in the case to Paul, including that Mr Walton had filed an urgent affidavit and that the wife was saying Paul was the alter ego of Protoline.

623 When it was put to Norbert that he and his parents left before lunch, he said: 'You've got to be kidding'. He said the phone records would prove otherwise. He denied that his evidence about the conversation between Mr Ackman and Mr Goddard in relation to Mr Ferguson reworking the figures was false.

624 Norbert repeated that, when Paul left the room, Mr Goddard was concerned about him. He said Mr Goddard 'took off ... as quick as a ... bat'. Asked why the family left Paul at court in such a poor condition, he said 'Andrew Goddard was acting as a friend of Paul['s] throughout all this'. He thought Mr Goddard would not 'let Paul fall through a crack' and 'the proceed[ings] of the day were coming to an end and ... Paul would be able to fight another day'.

625 Norbert was tested strongly on the issue of Paul's state of mind on the day, but maintained his evidence. He agreed he did not complain about the settlement when he heard about it afterwards. That was because 'Mr Goddard is not my solicitor'. He said he contributed about $144,000 to Paul's payment to Lianne.

626 In cross-examination by counsel for Mr Ferguson, Norbert said on 16 September 2004 he believed Arno had lent Paul about $387,000 to help buy his house. He agreed his evidence about the conversation between Mr Goddard and Mr Ackman was not mentioned in his outline of evidence. He said Mr Ferguson was on 'the peripher[y] of [his] vision on that day'. Mr Ferguson was 'not instrumental in coercing Paul'. The 'prime characters' were Mr Goddard, Mr Rosen and Mr Ackman. Mr Ferguson was 'absent ... a lot of the time'.

627 In re-examination, Norbert confirmed he spoke with Mr Walton once on the way to court from the car and later in the day after 3.00 pm, maybe twice. He thought Arno may have phoned him also.

628 In examination in chief, Mr Walton said he received a telephone call from Norbert at some stage on 16 September 2004. Norbert was at court. His recollection was it was early in the afternoon. In the conversation with Norbert, he referred to Paul being 'extremely stressful'. They discussed the pressure being put on Paul to settle.

629 Mr Walton also spoke with Paul at the end of that day. That was after the end of the proceedings. Paul 'sounded extremely drawn out and stressed'. Paul told Mr Walton the matter had settled, but he sounded 'totally depressed'. He also spoke with him the next day. He wanted to know how he could 'unwind the decision of the Family Court'.

630 In his affidavit dated 10 December 2008, Arno said he received a telephone call from Norbert about midday on 16 September 2004. He said he had spoken to Paul and Mr Goddard. Norbert said Mr Goddard had said Paul 'was in a bad way and needed family support to help him through the court proceedings'. Arno and Sofie decided to go to court immediately.

631 They arrived at court at about 2.30 pm. They went into a conference room. Present were Paul, Norbert, Mr Ackman, Mr Rosen, Mr Goddard and Mr Ferguson. Paul was sitting at a desk 'facing the wall'. Arno and Sofie 'were shocked by his appearance and withdrawn behaviour'. Mr Ackman gave a summary of the case. It was 'rushed and unclear'. During the summary, Paul 'seemed depressed, holding his head in his hands and shaking his head'. After the summary, Mr Ackman said he would leave the family to have discussions amongst themselves. During that discussion, 'Paul was crying uncontrollably. He did not appear to understand what was going on'.

632 During that family discussion, Arno and Norbert advised Paul not to settle. Sofie advised him to settle because she thought the process was doing him irreparable harm. When the lawyers returned, they told the Fritsches of their view, and Sofie changed her mind about supporting that view. Arno thought the lawyers were applying 'relentless' pressure on Paul to settle.

633 When Arno first went into the conference room, the lawyers asked him and Norbert whether there were any problems with the business. When it became clear they were referring to tax problems, Arno said 'there were none'. These questions were repeated after the family had met Paul alone.

634 The family were reluctant to leave Paul but Sofie was exhausted and Paul insisted on her being taken home. This was about 4.30 pm. Arno and Norbert thought Paul would not be signing any documents. They left at that time. Paul arrived home about an hour after they did and said he had settled the case at about 5.15 pm. His mental condition deteriorated and he was admitted to the Melbourne Clinic on 1 October 2004 for about 3 weeks. Arno said:

At the time that I was at court, my observation was that in his withdrawn state Paul did not have the mental capacity to make a decision of the magnitude of the one that he did make on the 16th September. From what I saw, his lawyers not only recommended it, they put intense pressure on him to make it.

635 Sofie gave oral evidence at the hearing in this court. Because of her age and infirmity, it was not of any assistance.

636 Mrs Plumridge gave evidence in relation to the presence of Paul's family at court on 16 September 2004. She is Lianne's mother. She was present in court on that day to support her daughter. She saw Arno and Sofie Fritsch at court when she left to have lunch sometime between 1.30 and 2.00 pm. She saw them on the way down to the coffee shop. She said 'we came out of our conference room and they were crossing I imagine to go to their conference room further along'. Mrs Plumridge held back while they did so.

637 Mrs Plumridge said she returned from the coffee shop after three-quarters-of-an-hour or so. She did not herself see any of Paul's family members present after lunch. She mentioned in evidence something which her daughter Lianne said to her. This was hearsay evidence and not admissible. In submissions to the court, counsel for Paul relied on the exception in s 64 of the Evidence Act. It was submitted it 'would not be reasonably practicable' to call Lianne, such that the exception in s 64(2) was enlivened. I reject that submission. It is reasonably practicable to call Lianne in relation to this matter if Paul was so advised.

638 It was Mr Goddard's evidence that, as usual, Paul picked him up from his office on the morning of the hearing. They drove to Mr Ferguson's office. Mr Ferguson was collating his report. They were there about half-an-hour. Paul left for court first and Mr Ferguson came later with Mr Goddard. He had 'a feeling' that Paul went off with a copy of the report. Mr Goddard and Mr Ferguson went to court later with a number of copies of the report.

639 At some point during the morning Paul was given a copy of the report. Mr Goddard could not be sure whether the report was filed with the court or given to the judge on that day.

640 The matter was stood down at 10.00 am. Then there were settlement discussions. Paul was having trouble making a decision. Mr Rosen suggested his family could assist. Mr Goddard rang Norbert. The family came promptly at about 11.00 am, Norbert slightly ahead of his parents. There was some discussion between counsel and the family. Then the family met amongst themselves. After that meeting, the family left. They were there about an hour, and left about 12.00 noon.

641 Mr Goddard's advice to Paul was to settle. He was worried about Paul, who had 'hinted on more than one occasion that if... the case went badly he would kill himself'.

642 During the discussions between counsel and Paul, there were no raised voices. Mr Rosen did not swear at Paul. Mr Goddard said '[i]t's just not his style'.

643 Paul accepted the wife's offer 'late morning'. It was before the indication to the court at 12.00 noon that 'the matter was miraculously going to settle'. Mr Goddard explained who wrote out the different parts of the authority to settle.

644 When asked about Paul's demeanour, Mr Goddard said Paul was 'distressed'. He was able to give instructions. He 'understood' the matters which were put to him. Taken to Dr Velakoulis' advice that Paul's mental condition would impact on his reasoning processes, Mr Goddard said Paul 'had some difficulties throughout the proceedings'. It was always a problem for him to 'come to conclusions efficiently'. On 16 September 2004, he was 'about the same as he'd always been, except that he was distressed because we hadn't succeeded in getting a longer adjournment'. Paul 'seemed to be concentrating and able to deal with the figures, and well understood what we were discussing'.

645 The family left before Paul signed the authority to settle. After the case was stood down again, the wife's lawyers went away to prepare minutes of consent orders and the child support agreement. Mr Goddard discussed these with Paul and gave him advice. Alterations were made on his instructions. For example, the obligation of the husband to pay for the child's tertiary education and adult maintenance was struck out. Mr Goddard did advise Paul to pay for the child's school fees, as he had been doing so all along. Paul 'quite reluctantly' signed the agreement on this basis. Mr Goddard did tell him the situation could be revisited if he could not afford to maintain the payments.

646 Mr Goddard's evidence was the wife was trying to get back $20,000 of the $41,000 which had been put aside for capital gains tax. Paul was not happy about that. Mr Ackman had gone to chambers but was asked to return to court. This was about 3.00 pm. Mr Ackman spoke with Mr Brown. The outcome was Paul conceded $7,000. This went into paragraph 12(d) of the consent orders. Mr Goddard explained the indemnity clause to Paul, who reluctantly accepted it. Mr Goddard explained the minutes to Paul. It took about two hours. The minutes were signed about 5.00 pm. Mr Rosen was there all afternoon and helped from time-to-time.

647 After Watt J made the consent orders, Paul drove Mr Goddard home. They discussed making arrangements about dividing the chattels. Paul's demeanour was 'resigned'. He did not say Paul had got 'a bum deal', at least not in relation to the settlement.

648 There was a 'little bit of urgency' to sign the minutes on 16 September 2004. There was a risk the wife would make more demands. It would have been another $10,000 in costs to come back another day. The wife may have sought her extra day's cost.

649 The next day (17 September) Mr Goddard spoke with various people, including Paul. He 'wasn't happy'. He asked if he could change his mind. Mr Goddard said no. He subsequently wrote to Paul explaining the orders.

650 In cross-examination by counsel on behalf of Paul, Mr Goddard said it was 'absolutely not correct' that Mr Ferguson's report was not received by him until 17 September 2004. They received it first thing in the morning on 16 September. Mr Ferguson collated it himself. It was available at court. Mr Ferguson and Mr Goddard went to the court with copies. Paul did receive a copy that day. He went to court from Mr Ferguson's office with a copy. He had the advanced copy to give to the barristers. Mr Goddard stayed behind with Mr Ferguson collating the other copies. The copy of the report which was date stamped 17 September 2004 was received at his office on that day. But there were copies available at court the previous day. He accepted a copy of the report was not on the court file. That was because the matter was resolved. A copy of the report was given to the wife's lawyers, which is why Mr Ferguson's valuation of Paul's interest in the Bowring Unit Trust at $116,000 was mentioned by Mr Brown in later submissions that day to Watt J.

651 Mr Goddard said that before 10.00 am, neither Mr Goddard nor Mr Ferguson had explained the report to Paul. It was left to the barristers to do that.

652 He said the choices at that time were to proceed with the case or to settle it. Making another adjournment application was not a choice.

653 Mr Goddard agreed that, with the affidavit from Arno, the $387,000 loan issue was addressed as best as it could be. They had a chance of keeping the wife's costs claim against Paul to $100,000. He was not convinced about the $225,000 which Paul was trying to claim for maintaining and conserving the matrimonial assets. There was no difficulty with proving Paul's entitlement to keep the $41,000 being held for capital gains tax. Consequently, with Mr Ferguson's report before the court, there was little else they were not prepared for on 16 September 2004.

654 Mr Goddard said that by 16 September, 'all property values were resolved'. If Mr Ferguson's report had been accepted, the assets would have been valued at $4,474,702. Then the significant issues in dispute would have been the liabilities.

655 Mr Goddard accepted that, prior to there being any agreement, he rang Norbert. It was on Paul's mobile telephone and was at the request of Mr Rosen. The request was made because they were 'having difficulty in getting Paul to decide on what he wanted to do in terms of either resolving the matter or pursuing the case in court'. Norbert was at the Bowring factory in Moorabbin. Referring to the Vodafone records, he said the entry for 10.23 am fitted that call. He denied Norbert said he did not want to get involved. He had no recollection of Mr Ackman getting involved in this call. Taken again to the Vodafone records, he said he had no record of ringing Norbert again at 10.41 am, but did not dispute it. If he did, Paul had not arrived at his decision at that point.

656 Mr Goddard said Norbert would have had to drive to court from Moorabbin. He arrived in the morning at about 11.30 am and ahead of his parents.

657 After the hearing was stood down at 10.00 am, Paul was 'showing signs of distress'. He was not crying. He was not in a foetal position. Mr Goddard was concerned about Paul because he had said in a motor vehicle on 13 or 16 September that if the case went badly 'he would consider killing himself'. Mr Goddard considered Paul to be 'an intelligent man with a psychiatric disability'. Paul was 'quite distressed because there was no long adjournment of the case. And he was forced to do what he never wanted to do, that is to make a decision under time pressure'. Paul 'struggled' with doing so. Taken to Mr Ackman's remarks about not having confidence in Paul's understanding, Mr Goddard said he was 'focussed on his distress, rather than on the question of capacity'. He was 'greatly troubled' by the suicide risk, both as Paul's friend and his solicitor. He did not turn his mind to whether he was personally covered by the ruling given to Mr Ackman to proceed with the case. He had 'sort of made my decision that I would stay with' Paul. He said he was 'more conscious of the problem [of capacity] now than I was then'. He said 'it's clear that I thought he had ... capacity. I was worried about his distress'. As you can see, in reference Paul the word 'distress' was oft repeated in Mr Goddard's evidence. I do not for a second doubt Mr Goddard's sincerity. But the same frequency of the word 'capacity' in reference to Paul may have been more apposite.

658 Mr Goddard said Norbert was not followed two hours later by his parents. They arrived in the morning. Paul met with his family and then they left. Mr Goddard was not aware of what transpired at that meeting. Paul was visibly upset, but not to the point that had been suggested by Norbert. That was a significant exaggeration.

659 Paul signed the authority to settle after his family left. He was confident Paul signed the authority to settle before the luncheon adjournment because the other side went away to prepare the documents over that period. He had no file notes of those events. Paul signed the authority 'somewhere in [the] vicinity' of 12.00 noon when the court was informed of the likelihood of settlement. He denied Paul's parents were still present after lunch. He was 'blown away' by Norbert's evidence of what happened that afternoon. He was 'certain' of the sequence of the events. He was 'absolutely astonished' by Norbert's evidence that he was there all day.

660 Mr Goddard said he started writing the authority to settle and someone else took over. He had 'no idea' who wrote the figure of $150,000.

661 Mr Goddard said that, sometime after 10.00 am, Paul had the opportunity to discuss the report with Mr Ferguson and the barrister. When asked whether Paul could have read, digested and comprehended the report in the time available, he said the 'situation was not ideal ... it's a problem, yes'. But Paul was 'generally familiar' with the issues.

662 Taken to liabilities, Mr Goddard said the $370,000 loan from Arno was disputed but arguable, the amount of $461,000 and not $659,000 was the correct figure for the tax because the wife should not be penalised for the non-payment and the $108,500 capital gains tax liability on the sale of properties was disputed but arguable.

663 Mr Goddard said he did not personally go through Paul's case with him by reference to Mr Ferguson's report. He was 'under the impression that [Mr Ackman and Mr Rosen] had done that, or Mr Ferguson'. Mr Goddard's advice to Paul was to settle, but not after a detailed examination of the liabilities. He did not advise Paul what percentage of the pool he would be getting by accepting the wife's offer.

664 Mr Goddard said he did take Paul through the minutes of the consent orders in detail and line by line. I accept this evidence: he led him through the minutes line by line.

665 It was Mr Goddard's evidence that 'I generally left the tax issues more to the barristers and the accountants. I didn't feel very confident in my knowledge in that area'. He said he gave no advice to Paul about tax issues. He did not on 10 September 2004 advise Paul that he didn't have to pay tax unless he put his hand up. Nor did he do so on 16 September 2004.

666 Mr Goddard said he could not remember whether Mr Ferguson gave advice to Paul to that effect. He said he gave Paul no advice about accessing the $542,000 and whether tax would be payable if he did so. It was quite likely he advised Paul to discuss that with Mr Walton or Mr Ferguson. He did not tell Paul just to sign the settlement document and think of his brother's and father's ill-health. He did not say this would avoid a tax investigation or that he would have to pay no tax. He did not hear Mr Rosen say that Paul could use the $542,000 and there would be no tax on it if he did. He did not say the case was a 'rout' on Paul's side.

667 Taken to the hearing where Watt J approved the consent orders. He was asked about Mr Brown stating that the husband's superannuation was $450,000 or $470,000. He agreed Mr Brown was probably reading from the wife's case outline where that figure was to be found. He said the figure should have been $414,000.

668 He was asked what he understood Mr Brown meant by saying the wife valued the pool at about $5.2 million 'net of all taxation liabilities yet to be raised'. He agreed the statement seemed to mean the tax liabilities were taken into account in calculating that figure. He accepted the figure could not be correct if the tax liabilities and Arno's debt had been taken into account. He agreed the wife never changed her bottom line that the pool was about $5.2 million. He was well aware that the figure made no allowance for tax debts at all, any other debts at all, any repayment of the loan to Arno or any capital gains tax.

669 Taken to Mr Brown's statement that the consent orders represented a 50/50 split of the wife's pool, Mr Goddard said he thought the settlement to the wife of $2.6 million was 50 per cent of her pool of $5.2 million.

670 Mr Goddard's assessment of Paul's case was that, before the letter of 17 May 1996 emerged, he was entitled to a 50/50 split. After that 'we had some serious problems'. He agreed the letter did not affect the liabilities.

671 Mr Goddard said Paul drove him home after the hearing on 16 September 2004. What strikes me is that, on Mr Goddard's evidence, this seemed very natural, whereas what happened at court was obviously not.

672 Mr Goddard said he did not consider speaking to Dr Velakoulis on 15 or 16 September 2004 in respect of whether Paul had the capacity to give instructions. He 'didn't think' of getting an independent assessment before Paul signed the consent orders on 16 September. He said 'in hindsight' it would have been a good idea, but 'hindsight is a wonderful thing'.

673 Mr Goddard was taken to the evidence about Paul walking towards the balcony. He said:

I have no recollection of that at all.

If he'd done that, would that have caused you concern?---Yes it possibly would've Your Honour, yes. And I think I would remember it if it had happened.

And would concern arise out of your belief that Paul at that stage was anxious?---Paul - I'm sorry, I want to be quite clear about this. Paul had given me some sort of indication that he was thinking about suicide and that was in addition to the material in the psych reports.

Mr Goddard said that, just before lunch, Paul was demonstrating anxiety. But his evidence was 'I don't recall that incident. If there was such an incident, I feel that I would recall it'. That was not a denial of the event. As I will find, I think the event happened, but I do not think Mr Goddard realised it.

674 Mr Goddard said there was no meeting in the afternoon with the family and Mr Ackman. Mr Ackman had left and came back briefly to 'sort out the issue with the $41,000'. He also 'absolutely' denied there was any conversation between Mr Goddard and Mr Ackman, as allegedly witnessed by Norbert, about Mr Ferguson re-writing the figures.

675 Taken to Mr Ferguson's letter of 16 September 2004, he agreed the letter seemed to indicate Mr Ferguson was back-peddling in respect of whether tax was payable on the Protoline debt. He agreed the letter was a 'complete about face'. He did not see the letter until the next day when it was received at his office. He denied asking Mr Ferguson for the letter. He did not discuss with Mr Ackman and Mr Rosen asking Mr Ferguson to change his report for the alleged reason that, if the tax liability on the Protoline debt was not taken out, the settlement was not fair and reasonable. He had no discussions with Mr Ferguson after Mr Ferguson left court. He had no recollection of speaking with Mr Ackman or Mr Rosen about the letter. He could give 'no explanation at all' for Mr Ferguson writing the letter. He said it has 'nothing to do with me'. I accept this evidence.

676 Mr Rosen said Paul arrived at court on 16 September 2004 after 9.00 am with a document in his hand. He said it was 'a report from Kevin Ferguson, the accountant'. The matter was stood down at 10.00 am because Mr Ackman wanted to clarify some matters. Mr Ackman referred to Mr Ferguson's report in what he said to Watt J. The case was stood down for one and then two hours.

677 Mr Rosen said he first saw Mr Ferguson's report not long after he arrived at court, well before 10.00 am. He saw Mr Ackman go through the report with Paul. The report was on the table. Paul and Mr Ackman had a copy. He believed Mr Goddard was present. Mr Rosen was confident of this despite the contents of Mr Ackman's memorandum of 23 September 2004.

678 At 10.00 am the matter was proceeding, just as Mr Ackman had informed his Honour. By this time both Mr Ackman and Paul understood the report. The case was not settled at that point. Nothing had been signed.

679 Mr Rosen said he knew Watt J's 'form' and he had formed the view that Paul 'would be ending up seriously paying a large amount of costs, no doubt at all'.

680 Mr Rosen said he asked Mr Goddard to contact Paul's family. Paul 'was on his own, he was very sad'. He said to Mr Goddard that 'it would be nice if Paul had some support here'. Mr Goddard called the family. Norbert did not arrive until about 11.30 am, followed by his parents. They were not there over lunch and did not stay into the afternoon. To Mr Rosen's 'amazement', they were not present long. They were there for a 'short time'. They turned up, spoke with Paul and left before lunch, 'certainly before 12 o'clock'. Mr Rosen said he tried to support Paul because his family had left.

681 Ultimately, Paul said he wanted to settle. He was 'lucid [and] had a good appearance'. Mr Rosen said he 'was understanding and discussing continually the subjects ... and he was then giving instructions without any hesitation or difficulty. He was never crying'.

682 Taken to the authority to settle, Mr Rosen said it was signed before 12.00 noon when they went back into court. Mr Goddard started writing the authority out and Mr Ackman took over. Mr Rosen did not dictate or write anything. He had 'no idea' where the reference to the Sorrento property and $150,000 (which were crossed out) came from. He did not recall Mr Ackman crossing anything out. Mr Rosen identified the various handwritings in the document. He said he and Mr Ackman 'never, ever advised [Paul] to settle'. That was because '[w]e could not comfortably predict, given the problems that he had, and the absolute potential of disaster'. They did alert him to the dangers of proceeding with the case and it going 'off the rails'. Paul was 'very adamant he wanted to settle. He wasn't really that concerned to listen seriously to what we were saying'.

683 Mr Rosen described the way in which Paul crossed out and wrote words on page 2 of the authority:

Then there's writing which we've been told is the writing of Mr Paul Fritsch. The sentence, 'I wish to settle it and for the health of my family'?---Yes.

Do you have any recollection as to the circumstances in which Mr Fritsch wrote that sentence?---Yes, I do.

What occurred?---The - we were seated discussing this authority. Noel Ackman had written this in his fairly loose form of expression. Mr Fritsch - I said to Paul, 'What are you - why are you doing this? What is it, Paul?' and he said, 'I'll show you.' He grabbed the pen from Mr Ackman. He then carefully with triple lines crossed out, 'I have personal family reasons', in front of me and then he wrote in - 'I'll show you', he said, 'Clive' - 'I wish to settle it and for the health of my family,' and this is his writing, Your Honour. And that's exactly the truth of what happened.

Mr Rosen said Paul did this voluntarily and while in control. Mr Rosen did not dictate any of these words to Paul. Paul wrote in the words because he wanted to 'demonstrably show to all of us' why he was settling. In a 'considered manner [Paul] was concerned to settle with his wife'. In relation to settling, Paul said '[p]lease, Clive I need some closure'.

684 Referring to the part of the authority which said that the consequences of settling had been fully explained to Paul, Mr Rosen said he, Mr Ackman and Mr Goddard were involved in talking to Paul about that. No one put any pressure on Paul or spoke to him in a loud voice. He was never sobbing, crying or in a foetal position as alleged by Norbert. That was 'absolutely untrue'. Mr Rosen never swore at Paul. He was 'grossly offended' by that suggestion.

685 Mr Rosen said he saw 'no difficulty' with Paul giving instructions at any stage. His instructions to Mr Rosen 'were always lucid'. He was never 'disabled or malfunctioning'. He accepted that Mr Goddard's view was different. Mr Rosen's assessment was 'he did have capacity' and 'always' so. He was 'very, very distressed' but that was because of the breakdown of his marriage. He never saw any inability in comprehending or digesting information or giving instructions, as mentioned as problems in Dr Sturrock's report. Paul was behaving like other husbands he'd acted for who had 'been through depression or other psychiatric problems'.

686 In relation to the presence and departure of Paul's family, Mr Rosen said the family were called 'definitely after the authority was signed' and 'before 12 o'clock'. The authority was signed 'before 12 o'clock' and before they arrived. He asked Mr Goddard to call the family because he felt the wife had family support and Paul did not. The authority was signed before Mr Brown went into court at 12 o'clock. The authority could not have been signed after the family arrived. The family were not told on their arrival that Paul had settled the case.

687 After the authority was signed, Mr Rosen said junior counsel for the wife went off to prepare the minutes of consent order and childcare agreement over the luncheon adjournment. When these documents were brought back to court, Mr Goddard and Paul sat down and went through them line by line. Mr Rosen told Paul he was there to answer questions if needed. This process took over an hour. Mr Ackman was not then present because he had left court. Mr Rosen stayed at court during the course of the afternoon. Mr Ackman did return to resolve an issue over the extra $20,000 which the wife was seeking out of the capital gains tax reserve. On his recommendation, Paul agreed to give her an extra $7,000.

688 Mr Rosen said there was no urgency to have the minutes signed that day. Paul said he wanted them finalised because, 'I don't want the deal to break down'. He said he did not want his wife to change her mind. Mr Rosen was continually saying 'Paul, take your time, that's ok'.

689 Mr Rosen said Mr Goddard and Paul discussed the childcare agreement, which was changed in relation to Paul paying the costs of Thomas's tertiary education. There was a lot of discussion about other aspects of the agreement.

690 When Paul signed the minutes of consent orders and the childcare agreement, Mr Rosen said his demeanour

had not changed. If anything it was appearing somewhat more relieved. He was coping well. He was certainly understanding what was being discussed and what he was doing and he was actually processing information in an intelligent, informed, appropriate manner.

691 Mr Rosen represented Paul at the hearing before the judge when the consent orders were made. He explained what would happen to Paul. Mr Rosen could not be present because of a prior appointment for serious dental problems. He did not leave Paul alone after the hearing. Paul said 'thank you so much. I'm so relieved. I'm so pleased'. Paul drove Mr Goddard home. There was never any complaint by Paul to Mr Rosen.

692 Mr Rosen said a claim by Paul for $225,000 which he spent on asset maintenance and conservation 'wasn't part of my brief at all'. He went on to say 'it was never made an issue ... for me'.

693 Mr Rosen said he never told Paul he could use the money retained for tax on the Protoline debts to make the cash payment which would be due to Lianne. 'I gave him no tax advice, and would not'. Paul had Mr Ferguson, Mr Walton and Mr Harvey for that.

694 Mr Rosen said the wife's application for indemnity costs was 'a very serious problem'. In his brief there had been no material in reply to the wife's affidavits in support of that application. He raised this as a problem with Mr Goddard, as did Mr Ackman. Mr Goddard said he was attempting to assemble the evidence for the hearing.

695 Mr Rosen said he believed Watt J would take a 'lot of convincing' because of the letter of 17 May 1996. To that judge, 'if people were playing games, particularly husbands, that was the end of the road'.

696 Taken to the actual issues to which credit was important, Mr Rosen said it related to the alleged loan of $387,000 from Arno. Credit did not relate to whether tax was payable on the Protoline debt, although the judge might refer the case to the Australian Tax Office. Asked to point to other issues to which credit related, he said the 'letter presented a contravention of the precepts of what family law stands for'. He disagreed there were no credit issues as to the matters about which Mr Walton could be called to give evidence.

697 Mr Rosen said he accepted tax was payable on the Protoline debts.

698 Mr Rosen said that, after the matter was stood down at 10.00 am, Paul said to him that he had 'been giving this a lot of thought' and wanted to settle. Mr Ackman was informed and he asked Mr Rosen to get another hour's time from the judge, which he did. Paul was not then showing signs of being extremely distressed.

699 Mr Rosen was taken to the terms of the settlement to which Paul agreed. He said the wife 'got a generous settlement. There's no doubt about it'. He said he told Paul that. He said it was 'a very generous settlement. I thought Paul was being magnanimous, absolutely'. He agreed there 'were arguable points for Paul not to settle' and he 'could have run' the case. He agreed there was no opposing evidence to the $659,000 tax being payable on the Protoline debt. But this 'would be a classic case where his Honour would classify all the shenanigans ... as waste and there would be a problem'.

700 Taken to Mr Ferguson's letter of 16 September 2004, Mr Rosen said he was not sure when the discussions referred to in the first paragraph took place. He said the discussions may have occurred, but he could not remember. He did not telephone or otherwise contact Mr Ferguson.

701 Mr Ferguson said he wrote the letter dated 16 September 2004 enclosing his final report on that day. Mr Goddard and Paul arrived at his office at about 8.45 am. He gave a copy of the report to them. They went up to the Family Court and he followed some time later with other copies. He gave these to Mr Goddard. During the morning, Paul said to Mr Ferguson he did not have a copy of the report and asked to borrow one. Mr Ferguson gave Paul his copy but got it back from him before he left court at about 1.00 pm.

702 Asked about Paul's appearance that morning, Mr Ferguson said he was '[f]ine. He was obviously the same as I'd seen him other times. He was never a happy man, to put it mildly, and he always just seemed unhappy'.

703 Mr Ferguson said he left court in time to have some lunch and be back at his office by 2.00 pm.

704 Mr Ferguson gave evidence about a conversation he had at about 2.15 pm with Kingsley Hall, the tax manager at Hall Chadwick, from whom he sublet his rooms. Mr Ferguson created a file note of that conversation.

705 Mr Ferguson gave evidence of a letter which he wrote in the afternoon of 16 September 2004 to Mr Goddard.

706 Mr Ferguson said, 'they phoned me' after he had spoken with Mr Hall. It was about 3.00 pm. Mr Ackman and Mr Rosen rang to say the matter was settled and 'just would I record the statement of assets and liabilities and the issues that were raised'. He said they kept talking to him as he made notes as 'an aide to myself to be able to dictate from'. His letter did some calculations of the asset pool on the basis of deleting certain liabilities.

707 Mr Ferguson's evidence was that he had had enough time to start dictating the letter when Paul rang. It was about 3.30 pm. Paul raised 'the subject of tax'. The 'first thing' that went through Mr Ferguson's mind was Paul had rung up 'after [the case] had been settled'. Paul was referring to the tax on the $542,000 in the Protoline account if that money was used to pay the wife. Mr Ferguson's evidence was 'I'm not his tax accountant'. He would not have given Paul tax advice without going through 'a whole procedure', as Mr Walton was his accountant, and Mr Ferguson 'wouldn't have done [that] in any instance'.

708 In cross-examination, Mr Ferguson said he probably left court at about 1.00 pm. He did not then understand the matter had settled. His understanding the matter had settled arose only after he spoke with counsel at about 3.00 pm. He was speaking with Mr Hall out of his own intellectual 'interest'. At that stage he might still have had to go to court. Whether there would actually have been disclosure of the tax liability to the Australian Tax Office was 'a matter of discomfort' if he did give evidence.

709 Taken to the letter dated 16 September 2004, Mr Ferguson said it was written after he was told the matter had been settled. Counsel said they wanted him 'to do the summary, just a narrative, of what they told me'. He 'had nothing to do with the settlement'. He could not recall 'if it was Mr Ackman or Mr Rosen' whom he spoke to. What he described as 'the analysis' in the letter was required by the barristers but sent to Mr Goddard as 'a matter of protocol'. Paragraphs (i)-(iv) in the letter reflected 'the narrative' which he was given by counsel.

710 Mr Ferguson said he was present 'from time to time' at court when discussions with Paul were taking place that morning. He could not remember the conversation. Sometimes he was not in the room. He was not a party to the discussions between Paul and the barrister. He said he did not recall Mr Ackman and Mr Rosen speaking with Paul about the tax liability issue. What he was told was consistent with the 'narrative' which was later conveyed to him by Mr Ackman.

711 Mr Ferguson denied giving Paul tax advice when Paul rang him that afternoon. He agreed he told Paul that if there was a tax liability on the use of the $542,000 it would have been mentioned in Paul's form 13. He referred Paul to Dr Walton. He 'definitely did not say no tax was payable'.

712 Mr Ferguson said he saw Norbert and the parents arrive before he left court at 1.00 pm. He did not know if they were still there when he left.

713 Mr Ferguson said he was not in the conference room where Paul was discussing his case. He did not see him specifically that morning, except to lend him a copy of his report and to retrieve it from him later. He said he assumed Paul asked to see a copy of the report because he had not seen one up to that point. He left the report with Paul. He did not go through or explain the report to Paul. Paul had already been taken through the draft report which had been supplied in previous days and weeks.

714 Mr Ferguson said he based his observations of Paul's demeanour on the limited contact he had with him that morning. He said he would not use the word 'fine' in relation to Paul, as he was always 'unhappy, depressed ... you felt the tension and you felt the anxiety'.

715 Paul was known to be a person with mental health problems. His wife Lianne had referred to his 'deep depression' in her first affidavit dated 10 September 2002.

716 From an early stage until just prior to the commencement of the hearing, Mr Goddard had been concerned about Paul's mental condition. Paul had expressed suicidal thoughts to him on a number of occasions. Mr Goddard thought he 'struggled' with his case and circumstances. As the factual section of the judgment shows, Mr Goddard obtained several medical reports from Dr Sturrock (the consultant psychiatrist) and Dr Velakoulis (the treating psychiatrist) in relation to this issue.

717 Dr Sturrock's reports were dated 10 June 2003 and 4 February and 23 July 2004. Dr Velakoulis's reports were dated 12 May, 26 July and 9 September 2004. Both Dr Sturrock and Dr Velakoulis diagnosed Paul as having major depression and post-traumatic stress disorder. To his credit, Mr Goddard obtained these reports not just because Paul's medical condition was relevant to the property settlement proceedings but because he was concerned about him personally.

718 Paul's medical condition was a concern to, and known by the lawyers to be a concern to, his family. This concern was expressed in the wife's first affidavit and in a facsimile transmission which Arno sent to Mr Goddard on 18 December 2003. That document referred to Paul's 'TOTAL STAGE OF CONFUSION' about the property settlement proceeding.

719 It was a known symptom of Paul's medical condition that his ability to give instructions was impaired. In May 2003, Mr Goddard told Dr Sturrock that Paul was 'slow to give responses', among other things. In May 2003, he told Middletons that Paul had 'reduced capacity to give instructions'. In January 2004, he told Dr Sturrock Paul had difficulty giving instructions 'under time pressure of court proceedings'. In his evidence, Mr Goddard made repeated reference to his personal difficulties with getting instructions from Paul and his continuing concern about his health.

720 It was not the medical evidence that Paul suffered from a cognitive impairment such that he had a continuous or generalised incapacity to give instructions or to manage his affairs. It was rather the view of the psychiatrists that his capacity to give instructions and participate meaningfully in the property settlement proceeding would be impaired to a greater or lesser extent, depending on the circumstances. They also referred to the clinical desirability of the proceeding being finalised.

721 Some reference to the medical evidence is appropriate here. To repeat, in his report dated 21 July 2004, Dr Sturrock recommended a course of anti-depressants. He thought Paul might thereby be 'able to think more clearly ... and inform his lawyers in relation to court proceedings'. In his report dated 4 February 2004, Dr Sturrock said Paul had 'suicidal thoughts' and his presentation was one of having 'difficulty in giving me a coherent account of his situation' which was consistent with Mr Goddard's 'experience in having difficulty in receiving instructions from him'. In his report dated 21 July 2004, Dr Sturrock said Paul needed 'ongoing psychiatric review and psychological counselling' and he was not surprised 'that he has difficulty instructing his lawyers'. Dr Sturrock thought Paul was unfit for work and could not get better 'until the settlement of his divorce'.

722 Turning to Dr Velakoulis, in his report dated 12 May 2004 he said Paul was 'quite unwell'. The severe stresses in his life 'had a significant impact on his ... concentration and attention level and his memory'. In his report dated 26 July 2004, Dr Velakoulis said he recommended 'intensive outpatient treatment' at a psychiatric hospital which Dr Velakoulis would provide at the Melbourne Clinic, as well as anti-depressant medication and psychotherapy. In his report dated 9 September 2004, which was obtained urgently by Mr Goddard on Mr Ackman's insistence, Dr Velakoulis said he had recently been discussing with Paul the need for 'inpatient psychiatric care, given the severity of his symptoms'. This can only be interpreted as meaning that Dr Velakoulis was speaking with Paul about him admitting himself into a psychiatric hospital. In that report, Dr Velakoulis said this about the impact of Paul's condition on him:

His current depressive illness and his Post-Traumatic Stress Disorder seemed to be impacting though on his ability to attend to information, to concentrate, to 'digest' concepts and come to conclusions efficiently. As such, this needs to be considered during his court appearances.

Dr Velakoulis amplified on this report and the circumstances in which it was given in his oral evidence, but I will confine myself here to the position at the time.

723 It is thus clear that in the two years running up to the hearing in September 2004, Paul was mentally ill and known by his lawyers and family to be so. He was a concern to his solicitor (Mr Goddard), his senior counsel (Mr Ackman), his wife (Lianne) and father (Arno) and his consultant (Dr Sturrock) and treating (Dr Velakoulis) psychiatrists. Immediately prior to the hearing Paul had intrusive suicidal thoughts, Dr Velakoulis was talking to him about a voluntary admission to a psychiatric hospital and he was taking antidepressant medication. These matters, which were dealt with more fully in the factual part of this judgment, were known to Mr Goddard, Mr Ackman and Mr Rosen. It is with these matters in mind that I approach the events of 8-16 September 2004.

Noel Ackman QC's concerns about Paul Fritsch's capacity

724 On Mr Goddard's evidence, by 8 September 2004 Mr Ackman had become 'concerned about Paul's capacity' to give instructions. Mr Ackman described his concerns in his correspondence with the Ethics Committee on 15 September 2004 and his memorandum dated 23 September 2004.

725 In Mr Ackman's memorandum to Ms McMillan dated 15 September 2004, he said Paul was 'very vague, has a poor memory and is very difficult to get instructions from'. Admitting the medical advice was that 'he was able to provide instructions', Mr Ackman said that Paul appeared to be 'without any apparent cognitive understanding of counsel's advice'. Counsel were concerned Paul would agree to a course which counsel advised 'without any, in our opinion, real comprehension, or genuine "acceptance" of our advice'. Mr Ackman would later say to Ms McMillan on that day that 'counsel is in no way satisfied that he comprehends or appreciates the decisions he must make'. After referring to Dr Sturrock's report of 4 February 2004, Mr Ackman said that Paul's presentation was such that 'it is impossible to have any confidence that he understands the import and/or effect of [his] instructions'.

726 In Mr Ackman's memorandum dated 23 September 2004, he referred to Paul's medical condition, Dr Sturrock's reports and his correspondence with the Ethics Committee. Mr Ackman said he had understood the ruling of the Ethics Committee to be that, given the medical evidence that Paul was able to give instructions, counsel should not abandon the client. Mr Ackman described the process by which Paul agreed to the settlement on 16 September 2004 and said that he 'understood the nature' of that settlement.

727 I think it is a fair inference to draw from this evidence that from 8 September 2004 to 15 September 2004, despite the medical advice, Mr Ackman was not satisfied Paul had any real comprehension of counsel's advice or the decisions he must make and it was impossible to conclude Paul understood the import and effect of his instructions. There being nothing to change the position overnight, Mr Ackman continued to represent Paul on 16 September not because he was of a different view but because he understood this to be what the ruling of the Ethics Committee required. Mr Ackman must have anticipated that ruling, for it came in Ms McMillan's email after court had commenced that day.

728 The difficulty with the course which Mr Ackman took was that it was always his responsibility, whatever the medical evidence was, to represent Paul as a client only if he was reasonably satisfied that he had the capacity to instruct. In the circumstances, the medical opinion given on 10 September 2004 could not have been and was not dispositive of Paul's capacity to give instructions as a client some days later. Moreover, when Mr Ackman was of the view that Paul had no comprehension of counsel's advice or the decisions he must make and that it was impossible to have any real confidence in Paul's understanding of his instructions, Mr Ackman was in effect of the view that Paul did not have the capacity to instruct. Being of that view and in the circumstances, Mr Ackman had no choice but to raise the issue with the court. That he did not do.

729 The position that Mr Ackman was in was that the medical opinion was ambiguous. In the circumstances, which are not uncommon, that is hardly surprising. The expression by a psychiatrist that a person lacks mental capacity is a very serious thing and may lead to consequences under the Mental Health Act. Dr Velakoulis was clearly not of the view that Paul's condition had progressed so far that he required involuntary treatment and admission to a psychiatric hospital under the provisions of that Act. Rather, in his report, he was bringing to the attention of Paul's lawyers the impact which his condition was having on his ability to participate in the proceedings. He was saying it would be better if Paul was in a psychiatric hospital as a voluntary patient. He was also saying it was desirable for the property settlement proceeding to be finalised. He was leaving to Paul's lawyers the ultimate question of whether, in the particular circumstances of the hearing, which Dr Velakoulis did not control, Paul had the capacity to instruct. It was Dr Velakoulis's clear hope, and his expectation, that Paul would have the capacity to instruct if his condition was taken into account in the conduct of the hearing. But he was not guaranteeing that to be so. He left that matter, and he had to leave that matter, in the hands of Paul's lawyers. Therefore, Dr Velakoulis's medical opinion did not absolve Paul's lawyers of the responsibility for exercising their continuing personal judgment in relation to the question of Paul's capacity to instruct. Rather, the opinion implicitly directed their attention to the continuing importance of that subject.

730 It follows that, when Mr Ackman continued to be of the view (in effect) that Paul lacked the capacity to instruct, as the correspondence with the Ethics Committee and his later memorandum shows, he should have raised the matter with the trial judge at the first opportunity. That was on 13 September when he made the adjournment application. At that time, he should have fully appraised the trial judge of Paul's medical history and present condition. The trial judge should have been taken through the reports. He should have informed the trial judge why he was of the view that Paul did not comprehend counsel's advice or understand the instructions he was giving. The application was not put on that basis and was put on entirely the wrong basis. It was bound to fail on the basis put and it did.

731 As I have explained, the capacity of a party to participate in legal proceedings is a matter of fundamental importance which is ultimately a matter for determination by the court. Therefore the trial judge in the Family Court would have conducted an appropriate examination of that question. As the two former judges of that court who gave evidence accepted, it would have been the court's responsibility to do so, even if that required an adjournment. As Mr Ackman's view was not fully supported by the medical evidence, the judge would almost certainly have ordered, or invited Paul to undergo, a further medical examination. Paul would almost certainly have consented. Dr Velakoulis would have been re-involved and may have given evidence. An informed decision would have been made about whether and according to what procedure it would have been possible to continue with the proceeding at that time and, if not, at what later time. There may have been issues of costs to consider. On the evidence I have received in this case, there are real doubts in my mind about the viability of the case continuing on and after 13 September 2004 due to Paul's very poor state of mental health. Unfortunately, in the events that happened, the judge was never given the opportunity to deal with the matter in this way. Had the judge been given that opportunity, I think his Honour would have found a way of resolving the matter in some practical way.

732 So far I have focused my attention on the role of Mr Ackman and I have not gone fully into the events of 13-16 September 2004. Before going to those events, I should say something about the evidence of Mr Goddard and Mr Rosen on the capacity issue.

733 Consistent with the honourable candour which he displayed when giving evidence generally, Mr Goddard said he was more concerned with Paul's distress than he was with his capacity. He said he was greatly troubled by Paul as a suicide risk. I am sure this was genuine. In Mr Goddard's own words, Paul was not just his client but his 'friend' and he 'liked' him. I infer Mr Goddard found the events of that week personally distressing, even harrowing. Throughout it all, Mr Goddard had decided to 'stay with' Paul. He clearly 'thought' Paul had capacity on 16 September, but he was not 'focussed ... on the question of capacity', which he is 'more conscious of ... now'. This 'thought' that Paul had capacity was, I find, an implicit assumption rather than a considered conclusion. While Mr Goddard gave most of this evidence in reference to the events of 16 September 2004, I think it accurately described his position in relation to the preceding days as well.

734 Mr Goddard's particular focus on Paul's distress rather than his capacity helps to explain his reaction to Dr Velakoulis's report of 9 September 2004, which was simply that it was not good enough to get an adjournment. Mr Goddard never did accept my invitation to give evidence about what was done in the running in the case to take account of Pauls' mental condition, as requested by Dr Velakoulis. It is in that context that I evaluate Mr Goddard's evidence that Paul had the capacity to instruct when he settled the case on 16 September 2004 and I regret that I cannot accept that evidence.

735 In several places in the factual section of this judgment, I have referred to Mr Rosen's evidence on the question of Paul's mental condition. Mr Rosen represented Paul in the Family Court on 8 October 2003. He said Paul was 'coping well'. He had no reservations that Paul understood and comprehended information. He repeated that evidence on a number of occasions. He said he maintained that view even being fully aware of Dr Sturrock's and Dr Velakoulis's reports. He was of the different view to Mr Ackman about Paul's capacity. Indeed, even after Dr Velakoulis's report dated 9 September 2004, he said Paul was 'in no way incapable, incompetent or unable to deal with the situation'. Mr Rosen described Paul on 16 September 2004 as 'lucid' and 'giving instructions without difficulty'.

736 I can only give a certain weight to this evidence of Mr Rosen on the issue of Paul's capacity to instruct, for three general reasons.

737 First, Mr Rosen's views on the issue are not supported by the evidence of the other witnesses. In particular, Mr Rosen's evidence that Paul was always 'coping well' and never gave any cause for concern was contrary to the medical evidence, as well as the evidence of Mr Goddard, Mr Harvey and the views expressed by Mr Ackman.

738 Secondly, Mr Rosen co-signed the memorandum dated 15 September 2004 seeking a ruling from the Ethics Committee. I have referred to the terms of that memorandum. It says counsel could not have confidence that Paul 'understood the effect of his instructions'. In oral evidence, Mr Rosen said he never was of that view and signed the memorandum as junior counsel and not wanting 'to rock the boat'.

739 I cannot accept that as an adequate explanation for co-signing the memorandum. That Mr Rosen would co-sign the memorandum without believing that its contents reflected his own view is a matter of concern. Of more concern is that there is just no way to reconcile Mr Rosen's views as given in his oral evidence with Mr Ackman's views as they were expressed in his communications with the Ethics Committee and his later memorandum.

740 Thirdly, Mr Rosen emphasised time and again his 'pastoral' role in caring for the client in the stressful and difficult circumstances of family law proceedings. The firm impression I gained was that Mr Rosen gave particular attention to this aspect of a barrister's work in this field. That Mr Rosen gave particular attention to this aspect of his work had implications for the division of responsibilities between him and Mr Ackman. He said that, as between he and Mr Ackman, he was 'more concerned with pastoral care', while the leader was 'more concerned with other things'. Giving Mr Rosen's particular focus with helping the client getting through the proceeding, I think Mr Ackman's judgment on the question of the client's actual capacity to instruct is more likely to be objective.

741 Returning now to the course of events, Paul said he was quite sick on 10 September 2004. Paul said he spoke to Dr Velakoulis twice that day. Paul said he was suicidal. Dr Velakoulis's evidence was that he spoke with Mr Goddard that day, which Mr Goddard did not dispute. Mr Goddard must have known that Paul was quite sick on this day. Mr Ackman was of that view.

742 Monday 13 September 2004 was the day of the adjournment application. I have set out what occurred in the factual part of the judgment.

743 There was a long conference on Tuesday 14 September 2004. Mr Harvey, who was an impressive and impartial witness, volunteered important evidence about Paul's condition at that conference. I have already referred to that evidence. In summary, Mr Harvey said Paul 'wasn't participating' and did not seem able to. The picture he painted was of a man who was present in body (although 'off on the side') but not in mind. The picture he painted is very similar to the findings I made about Paul's state of mind on the day the case was settled - 16 September 2004.

744 Wednesday 15 September 2004 was the day Mr Ackman and Mr Rosen sought the ruling from the Ethics Committee. I have dealt with this already. The evidence shows Mr Ackman had continuing concerns at this time. That brings me to 16 September 2004.

745 I have set out the evidence of the key witnesses with respect of what happened on this day and have carefully considered that evidence. Understandably after the time which has elapsed, the witnesses gave differing accounts of the sequence of events. The transcript of the proceeding before the trial judges provides a reliable contemporaneous record of some of the events which happened, such as the standing down at about 10.00 am, the announcement of the likely settlement at about 12.00 noon and the making of the settled orders at about 5.30 pm. However, it is what happened in between those times which are important.

746 I reject Paul's evidence that Mr Ferguson's report was not ready on this day. I accept the evidence of Mr Goddard, Mr Ferguson and Mr Rosen that it was. Mr Ackman told Watt J at the commencement of the hearing at about 10.00 am that Mr Ferguson had completed his report. I put Paul's denial of this fact down to his confused state of mind on the day.

747 Given the state of the evidence, I am unable to determine with any reasonable confidence how long Paul's family were present on the day. Paul, Arno and Norbert gave a plausible account of what happened which pushes the departure of the family into the late afternoon. Mr Goddard and Mr Rosen gave an equally plausible account which has the family leaving before lunchtime. That account is not supported by the independent evidence of Mrs Plumridge (Lianne's mother), which has the family still at court at about 1.45 pm, or the evidence Mr Ferguson. No particular version of what occurred is necessarily inconsistent with the transcript record but neither is any one version completely internally consistent. I could not resolve the many inconsistencies in this body of evidence without making quite unwarranted findings about the strength of any one body of evidence as against another or about the credibility and reliability of one witness as against another. In the end, however, I think it is not the precise sequence of events which occurred which is important but the evidence of Paul's state of mind during the course of the day.

748 On the whole of the evidence I have come to the conclusion that Paul lacked the mental capacity to give instructions for the whole of the day. He did not have the soundness of mind which was required for him to have a general understanding of what the consequences of settling the proceeding would be. He was not able to comprehend the legal advice which he was being given, seek the legal advice which he needed and give instructions to his legal advisors reflecting his own informed decision about what should be done in his best interests.

749 In reaching that conclusion, I have taken into account the medical evidence of Paul's mental illness, especially that of Dr Velakoulis, which I have set out. In the days running up to 16 September 2004, Paul was exhibiting impaired decision-making by reasons of his ill health. This was impacting seriously on his capacity to give instructions and participate in the proceeding. There is evidence of that in the testimony of Paul, Arno, Norbert, Dr Velakoulis, the request for the ruling from the Ethics Committee and Mr Ackman's memorandum of 23 September 2004. On Mr Harvey's evidence, Paul was not participating in the meeting on 14 September 2004. Mr Harvey was concerned he was not getting instructions from Paul. By 16 September 2004, Paul's condition had worsened considerably.

750 I do not accept the evidence of Mr Goddard and Mr Rosen that Paul wanted to settle on that day. I find he did not want to settle and settled only because of his disturbed state of mind. I do not accept the submissions for Goddard Elliott that Paul had good reasons to settle. The reasons to settle were greatly outweighed by the reasons not to settle. On no reasonable view of his prospects was the settlement in his best interests. If he had been thinking with full mental capacity he would have gone to trial rather than accept his wife's offer.

751 On the evidence I review in the loss and damage part of this judgment, the wife's offer was grossly inadequate and well outside the reasonable range. By 16 September 2004, Paul's case was ready to run. Mr Ferguson's report was complete and able to be filed. The issues had been clarified. Arno and Norbert were available and willing to give evidence, despite the possibility of a tax investigation. A taxation expert, Mr Harvey, had at long last been engaged and was ready to give evidence in support of Paul's case on the principal taxation issues. There were risks in the litigation and the case had not been properly prepared by Goddard Elliott. Despite those risks and that want of preparation, Paul had little to lose and everything to gain by going to trial.

752 Goddard Elliott's submission that Paul had good reason to settle was based mainly on the likely attack on his credit, the risk of an order for indemnity costs, the disputed liability and valuation evidence and the likelihood of a tax audit. I have analysed each of these points in detail in other parts of this judgment. On that analysis, I do not accept the submission. There would have been an attack on Paul's credit, but the outcome of the case was never likely to turn on that. There was a risk of a partial indemnity costs order, at most. The probability was Paul would have succeeded with at least two contingent liabilities - the $41,000 capital gains tax and the $659,058 taxation on the Protoline money. He would likely have won the business valuation issues. Paul and his family were willing to risk a tax investigation. The risk of the worst-case outcome happening was not great. The strong probabilities were of an outcome much better than the wife was offering.

753 I infer Mr Ackman and Mr Rosen knew the settlement could not be supported on the grounds of Paul's prospects of success. It could only be supported on that ground if the likely outcome was assessed as being the worst-case one. Paul had much better prospects of success than that. It was for this reason that his two counsel did not recommend the settlement. They left the decision up to Paul. They should have known Paul did not have the mental capacity to make that decision. Mr Goddard actually advised Paul to settle. He should have known Paul did not have the mental capacity to consider that advice and give instructions to settle. When lacking that capacity, the three lawyers allowed him to make a decision which was grossly not in his best interest.

754 I find that, after the settlement, Mr Rosen and Mr Ackman asked Mr Ferguson to provide a reworked analysis of the pool of assets and liabilities against the worse-case scenario, which Mr Ferguson did. I infer they knew the settlement could only be justified if viewed in that light and they wanted to ensure it could be so viewed. Mr Goddard was not involved in this request and Mr Ferguson's recasting of the figures came as a surprise to him.

755 There is a large body of evidence on Paul's side of the case that he was subjected to improper pressure to settle by his lawyers. Mr Goddard and Mr Rosen have denied subjecting him to improper pressure. Mr Ackman did not give evidence. Having regard to his known views and seeking a ruling from the Ethics Committee, as well as his memorandum of 23 September 2004, I would not draw an inference that his evidence would not have assisted Goddard Elliott's case on this issue. I have set out the other evidence on this subject at some length.

756 I am not persuaded Paul was coerced into settling by duress or improper pressure imposed by his lawyers. As the authorities establish, solicitors and counsel are entitled to impose considerable pressure on their client where this is necessary in the client's best interests. It may be that, when giving settlement advice to Paul and his family, robust language was used by the lawyers. That is understandable and sometimes required in giving direct settlement advice to a client who is reluctant to make a difficult decision. On the evidence I am not persuaded according to the civil standard of proof that what Paul's lawyers did amounted to coercion. In my view, the nature of the problem was entirely different.

757 While the pressure applied did not amount to coercion, Paul did not have the mental capacity to deal with it rationally. Not that he had a general incapacity to participate in legal proceedings. If the proceeding in the Family Court had been conducted differently, he may well have been able to participate in it properly. But his case had been badly prepared. It had to be adjourned as a result. The impact of the failed adjournment application on him would have been considerable. It was a short adjournment and Paul's lawyers were trying hard to fill the preparatory gaps. The evidence was coming together only at the last minute. There was an enormous build-up of pressure, much more than in regular litigation. He was subjected to considerable and sustainable pressure to settle, in the lead-up to the adjourned hearing, in the days following and especially on 16 September. In their settlement advice, Paul's lawyers highlighted every risk to the maximum. Dr Velakoulis's advice to take account of Paul's mental health in the conduct of the proceeding was not heeded. It is hard to imagine a worse setting in which to obtain instructions from a man who had been diagnosed as mentally ill. I find that, on 16 September 2004, Paul was not in a fit mental state to give instructions to settle the case and his lawyers should have appreciated that. If Paul had been in a sound mental state, he would not have settled on the wife's terms; he would have gone to trial.

758 I accept Paul's evidence that he was suicidal on that day and contemplated throwing himself off the balcony of the foyer of the court. That would probably have caused his death. Paul was interrupted by Mr Goddard at Norbert's request, which may have saved his life. I could not find anybody else (including Mr Goddard) knew Paul was thinking of doing this. But all three of the lawyers knew that Paul was mentally ill. Mr Goddard was personally concerned he might commit suicide as a result of the case. Although the lawyers did not realise what Paul was contemplating, that he had come close to suicide confirms in my mind how seriously impaired his mental state on the day was.

759 On the probabilities, I find Arno, Sofie and Norbert were called to court before Paul had signed the settlement authority and Paul signed that authority after they had left. That accords with the evidence of Paul and his family, Mr Goddard and Mr Ferguson (who said the case was not settled when he left court at lunchtime). I do not accept Mr Rosen's evidence on this subject. It is not consistent with the other evidence. I am unable to find what the family were told by Mr Goddard, Mr Ackman and Mr Rosen. There was some engagement between the lawyers and the family, who expressed concern about Paul's condition. The family were told something about the issues in the case and the pros and cons of settling on the wife's terms. There was discussion about a possible tax investigation. Arno and Norbert (and later Sofie) made clear they supported Paul in going ahead with the case. They were willing to undergo a tax investigation if that is what resulted from their evidence. Beyond that, I cannot make findings about what was said and occurred. The evidence is in hopeless dispute. There is too much scope for misunderstanding and misinterpretation on all sides, especially given the long passage of time.

760 Paul gave evidence at length about his mental state on the day. I have set it out. His evidence was compelling and not damaged by cross-examination. He said he was very sick, mentally ill and in no state to be giving instructions to lawyers and making settlement decisions. Norbert gave important oral evidence as to Paul's condition on the day. This evidence too was compelling and not damaged by cross-examination. He painted a picture of Paul as a man who was physically and mentally detached, grievously ill and in no fit mental state to be giving instructions. The court also has the undisputed medical evidence of Paul's mental ill-health and of him going into a psychiatric hospital two weeks after the settlement. Mr Harvey's evidence (as an independent witness) of Paul's demeanour a few days earlier tends to support Paul's case.

761 All of this was disputed as exaggerated by Mr Goddard (who said Paul only 'struggled' and was merely 'distressed') and as false by Mr Rosen (who was confident Paul was 'coping well'). Goddard Elliott did not call Mr Ackman as a witness. I do draw an inference that Mr Ackman's evidence would not have supported Goddard Elliott's case on this fundamental point. I do not find the evidence of Paul's mental state on the day to be exaggerated or false.

762 The actual circumstances in which Paul signed the authority to settle are not clear but do not suggest Paul was in a sound state of mind when he did so. Accepting the stresses and time pressures which are involved in preparing settlement documents, the authority was prepared by a strange process indeed. It was Mr Goddard who began writing the authority out. For unexplained reasons, Mr Ackman took over and wrote the middle part. At this point in the document, there are numbers and other entries which have been crossed out or overwritten which no one on Goddard Elliott's side could explain. Then it was amended and ended in Paul's handwriting. Paul and Mr Rosen have described how Paul crossed out certain words and wrote in other words on the second page. I do not accept Paul's evidence that what he there wrote was dictated to him, for that was not supported by any other evidence and denied by Mr Goddard and Mr Rosen. However, by the description Paul gave in evidence and which I accept, as well as Mr Rosen's description which I also accept, Paul was not in control of his mental faculties at that time, certainly not as necessary for effective participation in and settlement of legal proceedings. Paul was not in a sound state of mind when he wrote words in and signed the authority and gave instructions agreeing to the settlement. The lawyers should have realised that, called the negotiations to a halt and told the other side and then the trial judge that their client could not go on. I have no doubt the judge would have managed the situation as his duty required.

763 Goddard Elliott pointed to the departure of Arno, Sofie and Norbert as a reason to reject their and Paul's evidence as to his state of mind. Why would they leave him alone at court if he was in such a poor state, was the rhetorical question. There are three answers to this question.

764 The first answer is that Paul was being represented by a solicitor and senior and junior counsel whose responsibility it was to act in his best interests. The Family Court was not the family's domain; it was the lawyers' domain. Secondly, as Norbert deposed, Mr Goddard was acting not just as Paul's solicitor but also as his friend. Norbert thought Mr Goddard would look after Paul. The last answer is that Paul insisted that his mother be taken home because she was exhausted.

765 After Paul signed the settlement authority, the minutes of consent orders and child support agreement were prepared. That took some time. When the documents were brought to court, Paul was taken through them by Mr Goddard. Goddard Elliott submits with some force that Paul must have been of sound mind because he participated in this process. Having considered the evidence, I reject this submission.

766 The die was cast when Paul signed the settlement authority. There was no turning back from there. He did not have the mental capacity to recover control of the course of events. In considering the minutes and agreement, he was calmer but continuing alone the same path. Having agreed to the settlement, the pressure on him was relieved somewhat. There is evidence of a similar partial recovery of his faculties on previous days when the pressure to settle was taken off. Paul did talk with Mr Goddard about each clause of the documents, one by one, as that was what his state of mind permitted. He did make sensible suggestions about and offered some rational resistance to certain clauses. He dug in over the final indignity of the 'extra bite' ($7,000) taken by the wife. He was able to speak with Mr Ferguson about whether the Protoline taxation reserve could be used to pay the wife. But all this was in the context of the final settlement, which he lacked the mental capacity both to enter and to undo.

767 Paul drove Mr Goddard home that night, as he had driven him to court that morning. There is disputed evidence about what was said which I cannot resolve because it is oath against oath. Goddard Elliott invited me to infer that Paul would not have driven Mr Goddard home if he was upset about the settlement. I reject that invitation. Paul was passively going through the ordinary motions and driving Mr Goddard home fell into that category. Given his state of mind and relationship with Mr Goddard, it is what I would have expected him to do. Of more assistance to Goddard Elliott's case would have been a refusal on the part of Paul to drive Mr Goddard home. That would have been a rational thing to do in the circumstances.

768 In summary, I find Goddard Elliott was negligent in taking and acting on instructions from Paul to settle the case when he did not have the mental capacity to give those instructions, which Goddard Elliott should have known.

769 On the findings, Goddard Elliott was negligent (breached its duty of care) towards Paul in failing to have expert valuation and taxation evidence ready for the commencement of the hearing, to prepare answering affidavits in relation to the question of costs, to prepare any affidavit or other materials in relation to the amount spent by the husband on the maintenance and conservation of the matrimonial assets (the preparation negligence) and in taking and acting on instructions from Paul to settle the case when it should have known he did not have the mental capacity to give those instructions (the capacity negligence).

770 Goddard Elliott submits it is not liable for any loss or damage which was caused by its negligence towards Paul. It relies on two principles of law: (1) it is an abuse of process to challenge in collateral proceedings the correctness of an existing judicial determination; and, (2) advocates are immune from suit in respect of court-related work. These two principles are separate in that they supply a free-standing defence against liability for the negligence which has been found; they are related in that the public policy in the finality of judicial determinations is the fundamental rationale of both.

771 In England, advocates' immunity was abolished by the House of Lords in Arthur JS Hall & Co v Simons.[162] Before that, the immunity[163] sat side-by-side with the abuse of process[164] principle. In Australia, advocates' immunity was retained by the High Court in Giannarelli v Wraith[165] and D'Orta-Ekenaike v Victoria Legal Aid.[166] As the immunity formerly did in England, it here sits side-by-side with the abuse of process principle, which was recognised in Rogers v The Queen.[167]

772 In both Giannarelli and D'Orta-Ekenaike, extensive reference was made to the public interest in the finality of judicial determinations. Having regard to the importance of finality to both the abuse of process principle and advocates' immunity, it is necessary to determine the order in which the two are to be applied. The same issue arose in the Court of Appeal in Arthur JS Hall. Lord Bingham of Cornhill CJ, Morritt and Walker LJJ applied the abuse of process principle first:

It seems to us that in the light of the Hunter case[168] ... the first question to be asked on any application to strike out or dismiss a claim for damages against lawyers based on their allegedly negligent conduct of earlier proceedings is whether the claim represents an abusive collateral challenge to an earlier decision of the court. If the claim does represent such a collateral challenge it should be dismissed or struck out unless, on the facts of the particular case, there are grounds for not following that course.[169]

773 I rejected Paul's statutory claim based on misleading and deceptive conduct. In case it goes further, I will determine the application of the abuse of process principle and the immunity to that claim, on which I received competing submissions.

774 Here is the abuse or process principle as stated in D'Orta-Ekenaike by Gleeson CJ, Gummow, Hayne and Heydon JJ: [170]

The circumstances in which proceedings might be classified as an abuse of process have been described in various ways. In Hunter v Chief Constable of the West Midlands Police,[171] to which extensive reference was made in the speeches in Arthur JS Hall v Simons, Lord Diplock spoke[172] of abuse of process as a misuse of a court's procedure which would 'be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people'. In Rogers v The Queen,[173] Mason CJ observed of Lord Diplock's speech that, with what had been said in this Court,[174] it indicated:

'that there are two aspects to abuse of process: first, the aspect of vexation, oppression and unfairness to the other party to the litigation and, secondly, the fact that the matter complained of will bring the administration of justice into disrepute.'

775 In Hunter, a judge in a criminal trial decided confessions had been voluntarily given by six accused who were then convicted of criminal charges. Their subsequent civil action against the police for assault was struck out as an abuse of process. The House of Lords dismissed the appeal. Lord Diplock said the case exemplified the kind of abuse of process in which the second proceeding had been commenced

for the purpose of mounting a collateral attack upon a final decision against the intending plaintiff which has been made by another court of competent jurisdiction in previous proceedings in which the intending plaintiff had a full opportunity of contesting the decision in the court by which it was made.[175]

776 Arthur JS Hall is an important case for present purposes. The judgment of the Court of Appeal contains a considered analysis of the abuse of process principle enunciated in Hunter in the context of cases like the one which is before me. In three of the four cases under appeal in Arthur JS Hall, negligence was alleged against lawyers in matrimonial cases by their former clients in circumstances where consent orders were made after a settlement. In each case it was alleged that, by reason of the lawyers' negligence, the clients obtained far less under the consent orders than they were entitled to. The clients sued their lawyers for the lost opportunity of obtaining a better result.

777 In interlocutory proceedings at first instance, the lawyers succeeded in having the claims struck out. One issue in the appeal was whether the claims were an abuse of process on the ground that they represented a collateral attack on the primary judgments. This is the principle applied by Lord Bingham of Cornhill CJ, Morritt and Walker LJJ:

In deciding whether, in any given case, the later proceedings constitute an abusive collateral challenge to the earlier judgment of the court it is always necessary to consider (a) the nature and effect of the earlier judgment, (b) the nature and basis of the claim made in the later proceedings, and (c) any grounds relied on to justify the collateral challenge (if it is found to be such).[176]

Applying that principle, the court found none of the cases to be an abuse of process. I will take one case as an example. In that case, the court held:

In accordance with the principles discussed earlier in this judgment, we start with the question whether this action is an abuse of process on the collateral attack principle. In our view it clearly is not, because the alleged breaches of duty (which it has to be said are credible allegations), if established, prevented the plaintiff having a reasonable opportunity of appreciating that there were very much better terms available either on settlement or on a full hearing. It can properly be alleged that if they had briefed competent counsel, taken account of relevant authorities and investigated the colleague's position, an entirely different and more advantageous settlement would have been likely.[177]

Their Lordships so held, despite the decisions in Kelley v Corston[178] and Biggar v McLeod[179] on which Goddard Elliott relied in this case. In those cases, it was respectively held that the abuse of process principle and advocates' immunity applied to particular cases which had been settled.

778 In the House of Lords, besides abolishing advocates immunity, the decision of the Court of Appeal was affirmed. Of abuse of process, Lord Steyn said: 'the principle underlying the Hunter case must be maintained as a matter of high public policy'.[180] His Lordship went on[181] to approve the statement of Sir Thomas Bingham MR in Smith v Linskills[182] that Hunter did not 'lay down an inflexible rule to be applied willy-nilly to all cases which might arguably be said to be within it'. Lord Hoffmann, after analysing the authorities, including Hunter, said: 'not all relitigation of the same issue will be manifestly unfair to a party or bring the administration of justice into disrepute'.[183] His Lordship went on to say this of a case like the one before me:

On the other hand, in civil (including matrimonial) cases, it will seldom be possible to say that an action for negligence against a legal adviser or representative would bring the administration of justice into dispute. Whether the original decision was right or wrong is usually a matter of concern only to the parties and has no wider implications. There is no public interest objection to a subsequent finding that, but for the negligence of his lawyers, the losing party would have won.[184]

Lord Hobhouse emphasised that 'collateral attack' was a 'distinct concept' which 'only comes into the picture when it discloses an abuse of process' and 'challenging a previous decision does not necessarily connote an abuse of process'.[185]

779 If Hunter and Arthur JS Hall represented the law in Australia on collateral attack, I would hold that the plaintiff's claim in the present case was not an abuse of process. The central question would be whether it was contrary to the public interest for the claim to be allowed. The judge in the property settlement proceeding in the Family Court made orders before the trial in accordance with the settlement but after approving the orders as just and equitable. The parties to the case were Paul and his wife Lianne. The settlement and the orders resulted from the negligent acceptance of instructions by Paul's solicitor (and barristers) when they should have known he lacked the mental capacity to give instructions. By that negligence, Paul was denied a reasonable opportunity of appreciating there were very much better terms available either on settlement or on a full hearing. The effective parties to the present case are Paul and his former solicitors. It is a civil proceeding in which the focus is on the negligence of the solicitors in taking the instructions and the loss of his opportunity to obtain the better result which was more likely. The correctness of the decision of the trial judge in making the consent orders is not under challenge or in issue. As was held in like cases in both the Court of Appeal and the House of Lords in Arthur JS Hall, on those facts I would not hold it to be contrary to the public interest for the case to proceed.

780 I do not think Hunter and Arthur JS Hall do represent the law in Australia on collateral attack. As I read Rogers, Giannarelli and D'Orta-Ekenaike, in the application of the abuse of process principle the High Court has placed great emphasis on the finality of court orders, with fatal consequences for the plaintiff's claim in the present case.

781 In Rogers,[186] Mason CJ, Deane and Gaudron JJ (Brennan and McHugh JJ dissenting) held it was an abuse of process for the prosecution to re-tender in a subsequent trial evidence which had been rejected in an earlier trial. Deane and Gaudron JJ (Mason CJ agreeing) referred to the fundamental principle

which is embodied in the Latin maxim res judicata pro veritate accipitur. That maxim gives expression to a rule of Roman law which has since been recognized as part of our common law. It expresses the need for decisions of the courts, unless set aside or quashed, to be accepted as incontrovertibly correct.[187]

As an example of the application of this principle, their Honours referred[188] to Hunter. But it is not the analysis in Hunter which has been influential but their Honours' insistence that court decisions 'be accepted as incontrovertibly correct'.

782 In the context of advocates' immunity, there is a detailed discussion of the importance of the finality of court decisions to the maintenance of public confidence in the legal system in the several judgments in Giannarelli and D'Orta-Ekenaike. Nothing was said in the judgments actually disproving Hunter or the subsequent application of the principles enunciated in that case by the Court of Appeal and the House of Lords in Arthur JS Hall. Indeed, as we have seen, in D'Orta-Ekenaike, Gleeson CJ, Gummow, Hayne and Heydon JJ mentioned the speech of Lord Diplock in Hunter with approval.[189] What I must note, however, is the emphatic manner in which the court in Giannarelli and D'Orta-Ekenaike treated finality as the critical consideration in determining what was in the public interest. While these decisions concerned advocates' immunity and not the abuse of process principle, I think they must be taken into account in determining the proper scope and application of the latter, for the public interest in the finality of court decisions is the common underpinning of both.

783 In Giannarelli, Mason CJ said[190] the very type of claim which Paul has made in the present case - 'but for the negligence of counsel, [the client] would have obtained a more favourable outcome'[191] - should not be allowed because it represented a collateral attack on the court's initial decision:

If the plaintiff were to succeed, the resolution of this issue by a different court and on materials which might well differ from those presented in the initial litigation, due to lapse of time or other reasons, would undermine the status of the initial decision. Yet an appeal against that decision might not succeed with the result that it would stand, though its status would be tarnished by the outcome of the collateral proceedings.[192]

On this point, Brennan J agreed with Mason CJ.[193] Making the same point, Wilson J said:

If the negligence action succeeds, then the original decision, notwithstanding that it may have been affirmed on appeal, is necessarily tarnished by the later inconsistent decision. Yet nothing can correct the record or interfere with the original judgment. Furthermore, the result will have come about without the successful party to the original action being a party to the negligence action, which will fall to be determined in his or her absence. These situations clearly have a capacity to bring the administration of justice into disrepute.[194]

784 In D'Orta-Ekenaike, Gleeson CJ, Gummow, Hayne and Heydon JJ emphasised the connection between the principal rationale of the immunity (finality) and the judicial process as an aspect of government.[196] Their Honours held: a 'central and pervading tenet of the judicial system is that controversies, once resolved, are not to be reopened except in a few, narrowly defined, circumstances'.[197] I can see nothing in the judgment to suggest the present kind of case would fall into the narrow exceptional category. Indeed, their Honours refused to abolish the immunity because it would undermine the principle of finality. In that connection, they cited[198] with approval that statement of Deane and Gaudron JJ in Rogers that, in the public interest, court decisions must 'be accepted as incontrovertibly correct'.[199] In the view of Gleeson CJ, Gummow, Hayne and Heydon JJ, a party could not, consistently with that principle, successfully sue their lawyer for negligence in subsequent proceedings:

In cases where a client sues an advocate, the client will always have been a party to the proceeding the result in which is challenged. If effect is to be given to the principle that decisions of the courts, unless set aside or quashed, are to be accepted as incontrovertibly correct, it must be applied at least to the parties to the proceeding in which the decision is given. The final outcome of the proceeding, whether 'civil' or 'criminal' or a hybrid proceeding, must be incontrovertible by the parties to it.[200]

The truly distinguishing feature of legal practice is that it results in enforceable judgments. Those judgments may be called into question on appeal, including by attacks on the quality of legal representation provided. However, it is inimical to the legal process and the administration of justice, that matters be re-litigated for a collateral purpose or that judgments be fundamentally called into question in ways which cannot result in their amendment.[201]

785 Although these statements in Giannarelli and D'Orta-Ekenaike were made in the context of the immunity, they are statements of general application on the particular importance which is attached by the High Court to the principle of finality. The analysis in both cases drew on the judgment of Deane and Gaudron JJ in Rogers, which was an abuse of process case. In the absence of any further consideration by the High Court of the abuse of process principle and advocates' immunity, I think I must take into account these general statements when deciding whether the plaintiff's claim in the present case is an abuse of process. That was the approach adopted by McMurdo P, Keane JA and Wilson J in Lewis v Hillhouse[202] (a case involving a lawyer acting contrary to instructions) and Emerton J in Walsh v Croucher.[203]

786 Having regard to those general statements, I cannot reconcile the approach which was stated and adopted in the United Kingdom in Hunter and Arthur JS Hall on the scope and application of the abuse of process principle with the importance which was afforded by the High Court in Rogers, Giannarelli and D'Orta-Ekenaike to finality. I think the abuse of process principle in Australia permits less reference to broader public interest considerations than the principle in the United Kingdom. Here finality as explained in these cases by the High Court is afforded very substantial weight indeed.

787 It was submitted for Paul the application of the abuse of process principle should take account of the fact that there had been no final determination of the proceeding in the Family Court because the orders were by consent. In Goddard Elliott's submission, this made no different because the court finally determined the issue in the proceeding by the orders and only after being satisfied they were just and equitable.

788 This aspect of the operation of the abuse of process principle must be resolved on the same basis. In determining whether a proceeding was an abuse of process, the more flexible principles in the United Kingdom permit examination of the nature of the court's determination. Applying that approach in cases very like the present, the Court of Appeal held in Arthur JS Hall that the plaintiffs' negligence actions were not an abuse of process even though the matrimonial court had made approved orders. The decision of that court was affirmed by the House of Lords. In my view, that is not the law here.

789 In Rogers, Giannarelli and D'Orta-Ekenaike, the High Court held that final orders of a court must be treated as incontrovertibly correct by each party to the proceeding. As I conclude in relation to the immunity, it may be doubted whether a consent order lacking court approval on the merits has the quality of finality which is necessary for this purpose. But here the trial judge approved the consent orders as just and equitable, which places them in the final category. Under the current law which has been stated in authorities binding me, Paul's negligence and other causes of action implicitly call those orders into question and are an abuse of process.

790 The common law immunity of suit for advocates is ancient.[204] It has been abolished in the United Kingdom,[205] New Zealand[206] and Canada[207] never had it. In Australia, by authority of the High Court which binds me, it has been retained.[208]