Nash v Stewart

Supreme Court of NSW|2010-08-31|Before: Barrett J

HEARING DATE(S) : 26/05/10, 27/05/10, 28/05/10, 09/07/10

JURISDICTION : Equity Division Corporations List

DECISION : Proceedings dismissed with costs.

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Brunninghausen v Glavanics [1999] NSWCA 199: (1999) 46 NSWLR 538 Crawley v Short [2009] NSWCA 410; (2009) 262 ALR 654 CASES CITED : Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 84 ALJR 446 Pegela Pty Ltd v Oates [2010] NSWCA 186 Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; 217 CLR 315 United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1

Gregory Dennis Nash - First Plaintiff Gregory Dennis Nash as representative of Newstart Superannuatiion Fund - Second Plaintiff PARTIES : John Thomas Stewart - First Defendant John Frederick Lord - Second Defendant Rohan McCoy as trustee of the STO - Fifth Defendant J & L MarinePty Ltd as trustee of the Lord Superannuation Fund - Sixth Defendant

COUNSEL : Mr G D McDonald - Plaintiffs Mr DH Murr SC/Mr C G Carroll - First, Second, Fifth and Sixth Defendants

SOLICITORS : Jade Lawyers - Plaintiffs Holman Webb - First, Second, Fifth and Sixth Defendants

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2008/278695 GREGORY DENNIS NASH & ANOR v JOHN THOMAS STEWART & 3 ORS JUDGMENT

Parties 1 The first plaintiff, Mr Nash, was, at all material times, a solicitor holding a practising certificate. He was admitted to practice in 1975. 2 Mr Nash knew and had had a professional association over the years with Mr Stewart and Mr Lord. Mr Stewart was involved in the debt collection and mercantile agency business. Mr Nash had acted as his solicitor or the solicitor for his businesses on many previous occasions. Mr Lord was an insolvency practitioner practising in partnership with others in the firm PKF. Mr Stewart and Mr Lord are the first and second defendants. 3 There are three other parties. They are superannuation funds associated with Mr Nash, Mr Stewart and Mr Lord. The superannuation fund trustees are the second plaintiff and the fifth and sixth defendants respectively (there are no longer third and fourth defendants). The pleaded case 4 It is important to pay attention at the outset to Mr Nash's pleaded case (advanced also by his superannuation fund). It is articulated in the second amended statement of claim filed on 9 September 2009. 5 Mr Nash pleads in paragraph 9 an agreement made in or about December 2002 or January 2003 by himself, Mr Stewart and Mr Lord "to act jointly for the purpose of conducting a debt recovery business to be conducted by them under a name or style of 'Premium Collections'". The second amended statement of claim then says in paragraph 10: "It was an expressed term of the agreement referred to in paragraph 9 above that: (a) A corporation would be established or acquired. (b) That the corporation would be named "Premium Collections Pty Limited". (c) There would be two classes of shares, namely, ordinary shares and A-Class shares. (d) The A-Class shares in the corporation would be non-voting, non-participating in a winding up of the corporation but would otherwise rank equally for dividend with the ordinary shares issued in the company. (e) The Plaintiff would be allotted ten percent of the ordinary shares of Premium Collections Pty Limited. (f) J & L Marine Pty Limited in its said trustee capacity would allotted [sic] ten percent of the ordinary shares of Premium Collections Pty Limited representative of the interest of the Second Defendant. (g) The First Defendant would be allotted Sixty percent of the ordinary shares of Premium Collections Pty Limited at the expiration of any restraint period in relation to his former employment with The Collection House Limited. (h) 20,000 A-Class shares would be issued to members of the staff employed by the corporation to be established. (i) The initial directors of the corporation to be established would be the Plaintiff and the Second Defendant. (j) Upon the expiration of any restraint of trade period relating to the conduct of activities by the First Defendant in favour of The Collection House Limited, the First Defendant would be appointed a director and managing director of the corporation to be established on a salary package of $250,000.00 per annum. (k) The corporation to be established would carry on business as a mercantile agent and debt recovery agent for creditor companies and in particular for the New South Wales Nominal Insurer and/or insurance companies acting as agents for that body. (l) The First Plaintiff would be retained as the sole and exclusive solicitor for the corporation to be established to represent the interests of that entity and its clients in connection with the debt recovery business conducted by the corporation to be established and in so doing The First Plaintiff would devise and implement systems to and would undertake the necessary work on behalf of the corporation to be established and its clients for reward and be entitled to earn remuneration and profits in his own right by reason of such work. (m) The Second Defendant would undertake all insolvency referrals, subject to there being no conflict of interest or otherwise being precluded from doing so, arising from the business activities of the corporation to be established and would be entitled to earn profits from that work in his own right. (n) The First Defendant would be entitled to income by way of salary and other rewards from the corporation to be established including sixty percent of any dividend issued Premium Collections Pty Limited. (o) The initial capital of the corporation to be established would be provided by way of loans from the Plaintiff and the Second Defendant in the amount of $60,000.00 repayable on a date 12 months following upon the date of the making of the loan which would be in about February 2004." 6 At trial, Mr Nash did not press the words "would devise and implement systems to and" in paragraph 10(l). 7 Paragraph 11 of the second amended statement of claim details things said to have been done pursuant to and in accordance with the agreement. These include formation of a company called "Premium Collections Pty Limited", the constitution of its board of directors, the making of loans to it and the issue of shares by it. Each of the three individuals became a director of Premium Collections (the appointment of Mr Stewart was delayed because of connections he still had with a like business). Mr Stewart's superannuation fund had a majority shareholding, the superannuation funds of Mr Nash and Mr Lord each had smaller shareholdings and each of the individuals or his superannuation fund lent money to Premium Collections. In addition, Premium Collections commenced business as a debt collector and mercantile agent. Its clients consisted mainly of workers compensation insurance companies seeking to recover unpaid premiums. Mr Nash was, he says, "retained by Premium Collections Pty Limited as legal practitioner for its clients in relation to all of its trading activities". Mr Lord accepted liquidator appointments in cases in which Premium Collections, on behalf of its clients, caused companies to go into liquidation. 8 Paragraph 13 of the second amended statement of claim is in these terms: "In and about the performance and carrying into effect of the terms of the agreement referred to in paragraphs 9 and 10 above each of the Plaintiff, the First Defendant and the Second Defendant were in a relationship of trust and confidence giving rise to respectively in favour of each of them a fiduciary duty owed as between each other as set out following: (a) Not to depart from the respective arrangements and undertakings on the part of each of them under the terms of the agreement. (b) Not to unfairly terminate the retainer of the Plaintiff as legal practitioner retained by Premium Collections Pty Limited. (c) Not to utilise the funds and other assets of Premium Collections Pty Limited otherwise than for the purposes of Premium Collections Pty Limited and for the benefit of its members. (d) Not to act in their capacity as directors of Premium Collections Pty Limited and in any manner to depart from the terms and conditions of the agreement between them. (e) Not to redirect or appropriate any profit of or revenue flow or asset of Premium Collections Pty Limited for a purpose other than as agreed between each of them. (f) Not to use any of the property of Premium Collections Pty Limited for any purposes other than with disclosure and approval of the Plaintiff as a party to the agreement between them and as director of Premium Collections Pty Limited. (g) To repay to the First Plaintiff and the Second Plaintiff their loans to Premium Collections Pty Limited as a first priority and Parri Passu to each of them. (h) To pay to the First Plaintiff and the Second Plaintiff their professional fees due but unpaid by Premium Collections Pty Limited or its clients as a first priority and Parri Passu to each of them." 9 Several actions of Mr Stewart and Mr Lord (both directly and through their superannuation funds) are then said to have breached "their respective duties and promises referred to in paragraph 9 and 13 above". The actions in question are described in paragraph 14 and consist of: (a) causing Premium Collections to lend money to a company called "Premium Advisory Pty Limited"; (b) in or about February 2008, causing or permitting Premium Collections "to retain the services of Premium Advisory Pty Limited as legal practitioner retained for the purposes of carrying out legal services for Premium Collections Pty Limited without the approval or knowledge of" Mr Nash; (c) in or about January 2008, causing or permitting Premium Collections to terminate the retainer of Mr Nash in relation to the provision of legal services to Premium Collections and its clients; (d) from about January 2008, causing Premium Collections to engage the legal services of Premium Advisory; (e) in or about June 2007, causing or permitting a loan to be made by Premium Collections to Premium Advisory without the knowledge, approval or consent of Mr Nash when they knew or ought to have known that the purpose of the loan was to finance the conduct of the legal business of Premium Advisory in competition with Mr Nash in respect of the provision of services to Premium Collections; (f) causing or permitting loans to be made by Premium Collections to Mr Stewart in the sum of about $600,000.00; (g) causing or permitting Premium Collections to make loans of about $350,000.00 to Bungarra Tol Pty Ltd; (h) causing Premium Collections to expend about $100,000.00 in most of the years in which it traded to finance the interest of Mr Stewart in motor racing; (i) causing or permitting Premium Collections not to pay to Mr Nash moneys due to him in respect of the provision of legal services provided by him to Premium Collections. The defence 10 The defendants, by their defence: (a) deny any agreement "to act jointly" as between Mr Nash, Mr Stewart and Mr Lord; (b) say that, in or about late 2002, it was proposed between Mr Stewart and Mr Lord to form a debt collection business and to establish a company through which the debt collection business would be considered; (c) say that it was proposed that Mr Nash be retained as the solicitor in connection with the business and that he was so retained; (d) accept that most of the things Mr Nash describes in his paragraph 11 as having been done were done; (e) deny the breaches of contract and fiduciary duty alleged by Mr Nash. 11 As to the last-mentioned matter, the defendants admit that Premium Collections lent money to Premium Advisory, that the retainer for Mr Nash to provide legal services was terminated in late 2007 or early 2008, that Premium Advisory was retained by Premium Collections after February 2008 to conduct legal work and that Premium Collections made loans to Mr Stewart and Bungarra Tol Pty Ltd. The defendants deny expenditure by Premium Collections to finance any interest of Mr Stewart in motor racing. They further say that the retainer of Premium Advisory to provide legal services to Premium Collections and its clients did not require Mr Nash's consent; also that moneys due to Mr Nash by Premium Collections were tendered in full by means of six cheques drawn in the period November 2007 to January 2008 for a total of $207,215.24 but that, in March 2008, Mr Nash asked that the cheques be stopped and that a bank cheque be issued in the sum of $189,715.24, which request, as to both its aspects, was met by Premium Collections. The defendants further say that, in the period February to April 2008, Mr Nash did not comply with requests by Premium Collections to hand over files. 12 The position of the defendants, briefly stated, is that: (a) there was a contract among Mr Nash, Mr Stewart and Mr Lord; (b) they fully performed the contract; (c) Mr Nash was retained to provide legal services and the retainer was terminated against the wishes of Mr Nash; (d) the termination of Mr Nash's retainer was justified by his conduct; and (e) they owed no fiduciary duties to Mr Nash. Uncontentious matters 13 The evidence makes it clear that Mr Nash, Mr Stewart and Mr Lord pursued a plan under which each of them would, for his own benefit, bring expertise to a debt collection and debt recovery business. Mr Stewart had expertise in sourcing debt collection work and in client relations. Mr Lord was an experienced liquidator. Mr Nash was an experienced solicitor. With a clientele consisting largely of workers compensation insurers seeking to recover unpaid premiums, the business would need to be able to provide its clients with the services of a solicitor for debt recovery litigation and the services of a liquidator willing to consent to appointment as such in matters in which debt collecting litigation took the form of an application to the court for winding up in insolvency. 14 In 2002, Mr Stewart approached Mr Lord and Mr Nash. He had it in mind to establish a new business. He was himself, at that point, subject to a restraint of trade obligation that precluded his own involvement. It is agreed that Premium Collections was formed on 4 February 2003 and that both Mr Nash and Mr Lord put in loan capital soon afterwards to enable it to start business. Mr Lord was a director at inception and his superannuation fund took up the two issued shares. Mr Nash became a director at a later point (in either 2003 or 2004). In early 2005, when he became free from his contractual restraint, Mr Stewart became the managing director and dominant shareholder of Premium Collections. At that point, each of Mr Nash, Mr Stewart and Mr Lord held shares in Premium Collections through a superannuation fund. Mr Stewart, as I have said, was the majority shareholder. 15 Mr Nash provided legal services from the outset. He was based in Premium Collections' office (although in a segregated part of the premises) and received secretarial and other assistance from Premium Collections' staff. He became solicitor on the record for Premium Collections' clients in proceedings he commenced for those clients after demands by Premium Collections for payment produced no result. Mr Nash was not the solicitor for Premium Collections: the solicitor-client relationship was between him and each particular Premium Collections client. 16 Transition from demands by Premium Collections on behalf of its clients to legal proceedings commenced by Mr Nash as solicitor for those clients occurred as part of a debt collection system offered by Premium Collections to its clients and operated by Premium Collections for those clients. There was no formal commissioning of Mr Nash to act for a particular client in particular proceedings. His involvement was arranged by Premium Collections when a particular debt recovery attempt reached a point where legal proceedings were appropriate. From that point, however, Mr Nash had direct contact with the client, albeit often through Premium Collections' email system and in circumstances where incoming mail passed through the hands of Premium Collections staff and was sometimes dealt with by them if Mr Nash's direct involvement was not necessary. 17 The arrangement was one in which Mr Nash incurred professional obligations and duties direct to the plaintiffs he represented but provided his services to them in accordance with a separate contract which, on the case he seeks to make, was a contract with the defendants. The fiduciary duty claim 18 It is convenient to address at once Mr Nash's allegation that he was owed fiduciary duties by Mr Stewart and Mr Lord. 19 The submissions made on Mr Nash's behalf were replete with references to the three individuals' "joint venture", the concept being that each had something to contribute to the successful pursuit of a venture and that they came together in order that their respective contributions might be pooled for their common advantage. It is from that characterisation - and from the close analogy between "joint venture" and partnership noticed in United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 - that Mr Nash sought to extract the proposition that fiduciary duties were owed to him by Mr Stewart and Mr Lord. 20 Central to this characterisation is the notion that the three individuals were associated together for a common end and that their relationship was based on a mutual confidence that they would engage in the particular activity for the joint advantage only. This is an adaptation of words used by Mason J, Brennan J and Deane J in the United Dominions case (at 12 - 13). But as their Honours observed (at 10), there is a distinction between a joint venture in this sense and "a simple contractual relationship", albeit a distinction that "may on occasion be blurred". 21 Mr Nash pleads a contract in paragraph 9 of the second amended statement of claim. In paragraph 10, he sets out the terms of the contract. He then says in paragraph 13 that "a relationship of trust and confidence" existed between the three individuals "[i]n and about the performance and carrying into effect of the terms of" the pleaded contract, "giving rise to" a "fiduciary duty" the content of which is then pleaded; and in paragraph 14 that certain actions amounted to breach by Mr Stewart and Mr Lord of "their respective duties and promises referred to in paragraph 9 and 13 above". The terms of the alleged contract and the content of the alleged "fiduciary duty" do not coincide, but the actions described in paragraph 14 are said to amount to breaches of both the contract and the fiduciary duty. 22 There thus arises for consideration a question about co-existence of contractual and fiduciary duties or perhaps more accurately about the capacity of a contract to provide the foundation for a fiduciary relationship. In Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 (at 97), Mason J said "In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction." 23 Hospital Products was a case in which a limited fiduciary obligation was found to co-exist with contractual obligations. The source of it was the overseas company's having entrusted its Australian distributor with the protection, promotion and custodianship of its product goodwill in Australia. The matter was explained by Mason J in this way (at 101): "U.S.S.C., by entrusting H.P.I. with a responsibility for protecting and promoting the market for U.S.S.C.'s products in Australia, effectively constituted H.P.I. the custodian of its product goodwill in this country. Its responsibility in procuring orders, making sales and effecting deliveries of U.S.S.C.'s products in Australia armed H.P.I. with a power and discretion to affect U.S.S.C.'s product goodwill. And in exercising this responsibility H.P.I. had a special opportunity of acting to the detriment of U.S.S.C. which was, accordingly, vulnerable to the abuse by H.P.I. of its position." 24 As French CJ, Gummow J, Hayne J, Heydon J and Kiefel J recently pointed out in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 84 ALJR 446 (at [93]), the finding of fiduciary duty in Hospital Products came from the circumstance that the overseas party was "a remote principal lacking the capacity to observe what was happening half the world away and in a situation where the Australian distributor was the only person in touch with the Australian market and thus positioned so as to enrich itself at the overseas principal's expense". This, their Honours said, created the principal's "vulnerability to the distributor's abuse of its position". 25 Vulnerability of some kind, coupled with reliance, is thus identified as the source of fiduciary duty. In relation to the particular case before it, the High Court said in John Alexander's Clubs Pty Ltd (at [83]): "The only vulnerability of the Club was that which any contracting party has to breach by another. The only reliance was that which any contracting party has on performance by another. If JACS committed any breach of contract, it was quite open about it. If the Club could have established that JACS was in breach of contract, it had an ample array of contractual remedies to protect itself. It chose not to do so. It spoke of the difficulty of a social club giving an undertaking as to damages, and of the inutility of damages to a social club which wishes to continue its past activities in a new guise on the same site. It also said that monetary remedies against impecunious companies like JACS and Poplar were worthless. These factors do not justify converting the contractual relationship between JACS and the Club into a fiduciary relationship." 26 In the present case also the existence of the pleaded contract is not, of itself, sufficient to permit a finding of fiduciary duty. Mr Nash's claims based on breach of fiduciary duty can be sustained only if the facts disclose some vulnerability on his part and related reliance by him warranted by circumstances existing over and above that pleaded contract. He must be seen to be "specially disadvantaged, vulnerable or in need of the protection of equity from the [other party's] misuse of a superior position": Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; 217 CLR 315 at [112]. He must show himself to be in a position akin to that of a partner whose credit can be pledged by any other partner in the ordinary course of the partnership business and whose relationship with his fellows is based on mutual trust and confidence; or a party to a joint venture in which the participants are committed to pursue the particular activity for their joint advantage only. 27 The case Mr Nash has presented does not establish any such vulnerability on his part. When approached about becoming part of the new venture, he was an experienced solicitor who had been in practice for many years. The idea outlined to him was one that involved each of the three parties bringing his own skills to bear for his own benefit, in a context where all were to become directors and (through related entities) shareholders of a company to be formed. Mr Stewart was to be the major shareholder and the managing director. His position of greater influence and majority financial participation was thus acknowledged from the outset. He was the person who had the relevant business expertise and marketplace knowledge and the debt collection business was in substance his. Mr Lord was to make himself available to accept liquidator appointments as a result of proceedings brought by clients of the company but on the basis of retaining for himself (or, more accurately, no doubt, for his firm) the remuneration he received from such appointments. Mr Nash was to make himself available to accept appointment as the solicitor for clients of the company wishing to bring recovery proceedings in court and likewise was to retain for himself fees charged for the services he provided as solicitor. Clients of the debt collection company were not obliged to use the services of Mr Nash. It was open to them to use any solicitor of their choosing. As a matter of convenience, however, they almost always retained Mr Nash because the system operated by the company made it easy to do so. 28 Neither Mr Lord nor Mr Nash was tied exclusively to Premium Collections in the sense of lacking freedom to act for clients other than that company and its clients. Indeed, Mr Lord and his firm, as a leading insolvency practice, had numerous other clients. And it was open to Mr Nash to take on other work if he chose to do so. There was, in that sense, freedom of action and independence. 29 The fiduciary obligations Mr Nash postulates are obligations of Mr Stewart and Mr Lord owed by them to Mr Nash. But Mr Nash has shown no basis for any expectation that either of them would subordinate his own interests to those of Mr Nash. The arrangement among the three was exclusively contractual in nature, supplemented by sub-relationships existing within and through the company of which the three men were directors and which was owned by their superannuation funds. None of the individuals stood in a relationship of vulnerability and reliance towards either of the others. 30 I therefore approach the case on the footing that any relief to which Mr Nash ultimately shows himself to be entitled will be relief for breach of contract by Mr Stewart or Mr Lord or both of them. In saying that, I note that Premium Collections is not a party to the proceedings and that any allegation there may be that Mr Stewart or Mr Lord breached some obligation owed to that company, whether contractual, tortious, fiduciary or statutory, cannot ground any entitlement to relief on Mr Nash's part and is therefore irrelevant to the case before me. In addition, of course, the positions of Mr Stewart and Mr Lord as directors of Premium Collections did not entail fiduciary duties on their part owed to Mr Nash (either as a co-director or as a shareholder of that company), absent some special knowledge on their part and reliance by Mr Nash on them to use it for his benefit: Brunninghausen v Glavanics [1999] NSWCA 199: (1999) 46 NSWLR 538; Crawley v Short [2009] NSWCA 410; (2009) 262 ALR 654. There is no postulated basis for a finding that Mr Stewart and Mr Lord (or either of them) possessed any such special knowledge warranting reliance by Mr Nash as to its use. The contract claims otherwise than for termination 31 Mr Nash's principal claim is that Premium Collections' termination of his retainer as the solicitor to service its clients was a breach of the contract he had with Mr Stewart and Mr Lord. He makes other claims based on the pleaded contract but I do not consider these to be maintainable. I refer to the breach of contract claims at items (a), (e), (f), (g), (h) and (i) at paragraph [9] above. 32 The position in relation to those matters is, in my judgment, that the three individuals agreed to co-operate together in relation to a new business conducted through a company (ultimately, Premium Collections) and to adopt certain roles within that company (as directors and shareholders) on the footing that their rights and obligations, after establishment, would be those arising from the new structure and the roles they adopted within it. 33 To the extent that there were to be decisions about Premium Collections' business directions, the investments it undertook and the transactions it engaged in, those decisions were to be made according to the corporate processes and procedures applicable to Premium Collections. Mr Nash's ability (and right) to influence such decisions were those commensurate with his position as one of three directors and a minority shareholder. 34 Mr Nash says that the lending of money by Premium Collections to Premium Advisory, Mr Stewart and Bungarra Tol Pty Ltd contravened the constitution of Premium Collections and involved breach of duties owed by directors of Premium Collections. Let it be assumed, without deciding, that that is so. The consequence is that Premium Collections has an action against the directors who breached their duties or are otherwise implicated in the wrongdoing. It does not follow that Mr Nash personally has any breach of contract claim against either or both of Mr Stewart and Mr Lord. 35 The express contractual terms pleaded by Mr Nash (see paragraph [5] above) do not include any term forbidding the loans that were in due course made by Premium Collections, whether by way of outright prohibition or in the form of a requirement for Mr Nash's prior consent. The express terms required the establishment of the company that in due course became Premium Collections, for the issue of shares on a stated basis, for the provision of the initial capital, for the constitution of the board of directors and for the company to retain Mr Nash and Mr Lord respectively. Mr Nash does not put forward any basis for finding an implied term forbidding the loans in question. This reinforces the conclusion that the matter of loans by Premium Collections and deployment of its funds was left to be dealt with within the confines of the company structure and in accordance with ordinary legal principles of corporate governance unaffected by any contractual overlay in the nature of an umbrella shareholders agreement. The contract claim for termination - identifying the relevant term 36 The real focus must therefore be upon Mr Nash's claim for damages for breach of contract, as against Mr Stewart and Mr Lord, arising from termination of his retainer as solicitor. The express terms pleaded (see paragraph [5] above) say nothing about the duration of Mr Nash's retainer or the circumstances in which either side might terminate it. Nor is any implied term identified by the pleaded case. There can, however, be no doubt that some term on that subject is to be implied. It simply could not be accepted that there could be no termination as against Mr Nash if, for example, he absented himself permanently or ceased to hold the necessary solicitor's practising certificate and was thereby disabled from performing as required. 37 Since the contract, of its nature, included some implied term regarding termination, the task is to identify that term. Mr Nash contended in submissions that there was an implied term allowing termination against him only if he consented to the termination or Premium Collections was floated on the stock exchange. Mr Stewart and Mr Lord maintain that that there was an implied term allowing termination against Mr Nash if he repeatedly failed to provide legal services with the requisite degree of skill and care - something that Mr Nash tended to accept in closing written submissions, at least to the extent of an acknowledgement that "there were implied terms of the arrangement in respect of which he supplied legal services to the company and especially its and his clients in terms of attention and competence". 38 Reference was made in submissions to the normal conditions for the implication of terms. These are stated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 as follows:

". . . for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract." 39 This approach is appropriate for a contract in writing apparently complete on its face. As Allsop P pointed out in Pegela Pty Ltd v Oates [2010] NSWCA 186 (at [14] - [16]), however, the task is somewhat different in a case such as the present where the contract is informal: "14. In circumstances of an informal contract where the parties have not sought to spell out the full terms of their contract, the appropriate approach to imputing or implying a term is as described by Deane J in Hawkins v Clayton [1988] HCA 15; 64 CLR 539 at 573 (approved in Byrne [ie, Byrne v Australian Airlines Ltd [1995] HCA 24; 185 CLR 410] at 442): "if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case." Deane J went on to say that this was subject to implication by mercantile usage, professional practice or past course of dealing between the parties. 15. The above approach has also been approved in the High Court in Breen v Williams [1996] HCA 57; 186 CLR 71 at 90-91 by Dawson and Toohey JJ, (where their Honours also noted if a term were obvious, no question of implication will arise because it will have been already established as a term by inference) and at 123-124 by Gummow J; in Moneywood Pty Ltd v Salamon Nominees Pty Ltd [2001] HCA 2; 202 CLR 351 at 374 [80] by Gummow J; and in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) [2000] HCA 25; 202 CLR 588 at 610 [46] by Gaudron, McHugh, Gummow and Hayne JJ. 16. Thus, one must approach the evidence recognising that the task is to ascertain what the parties agreed were the terms of the contract: expressed, inferred and imputed or implied." 40 The term for which Mr Nash contends - in essence, that his ongoing retainer could be terminated only with his consent or if Premium Collections were floated on the stock exchange - is not required to ensure the reasonable or effective operation of the contract in the circumstances to which it applied. Mr Nash's willingness and ability to render legal services efficiently and effectively was fundamental to the parties' agreement: if, according to the hypothetical example I have given, he did not renew his practising certificate or was deprived of it or absented himself permanently, it would be so obvious that it went without saying that there was no longer any requirement that he be recognised and retained as the "sole and exclusive solicitor" in connection with Premium Collections' debt recovery business, or at all. In the same way, Mr Nash's ability and willingness to render legal services to a reasonable standard of care and skill must be regarded as fundamental to the parties' agreement: if he showed himself unable or unwilling to provide legal services with the requisite degree of skill and care or lost the ability to do so, it would go without saying and be obvious that there was no longer any requirement that he be recognised and retained as the "sole and exclusive solicitor" in connection with Premium Collections' debt recovery business, or at all. 41 It must therefore be accepted that it was necessary for the reasonable and effective operation of the contract for it to be construed as requiring that Mr Nash should remain ready, able and willing to render legal services to a reasonable standard of skill and care and that he should actually do so; also that, if he failed to render legal services to a reasonable standard of skill and care, his retainer might be terminated. There was an implied term accordingly. 42 Implicit in what I have just said is the proposition that it was Mr Nash personally who was to perform - or, at least, supervise and be responsible for - the relevant legal work. There was a suggestion in submissions made on behalf of Mr Nash that he was entitled, as it were, to remain in the contractual relationship (and to be paid) even if he no longer actively participated as a solicitor and that, in that event, it was open to the other contracting parties to employ some other solicitor and to set off against payments to Mr Nash payments they made to the other solicitor. I do not accept that characterisation. There is nothing in the evidence to support it. There are references to discussion of the possibility that Mr Nash might obtain the services of an assistant solicitor (indeed, at one point he was encouraged to do so to cope with an increasing workload) but that is quite a different proposition from Mr Nash's ceasing to provide services and ceasing to be responsible for the services provided. That was never contemplated. He was brought in at the outset because the other parties (in particular, Mr Stewart) knew him and had a favourable view of his professional capabilities including, one may infer, his supervisory capabilities. Allegations of breach 43 The defendants contend that, in late 2007 and early 2008, Mr Nash repeatedly failed to provide legal services with the requisite degree of skill and care and that termination of his retainer in January 2008 was therefore consistent with the implied term and did not entail breach of contract. 44 At the time of separation, a number of professional shortcomings were alleged against Mr Nash. By the end of the trial, the position taken by the defendants was that Mr Nash had been derelict in what were regarded as serious respects in four particular matters and that this, coupled with shortcomings in personal behaviour impacting upon his ability to perform satisfactorily, justified termination of his retainer. 45 It will be necessary to consider separately the four particular client matters upon which the defendants rely. First, however, attention will be given to the issues of personal behaviour. Issues of personal behaviour 46 In late 2007, Mr Nash was drinking alcohol heavily. Problem drinking seems to have begun in early 2006. Dr Cordaro, his regular treating doctor, began treating him for depression and alcohol abuse in January of that year. In March 2006, Mr Nash said to a psychiatrist to whom he had been referred that he was drinking more than half a bottle of vodka each day. If the bottle were a standard 700ml bottle, this would represent 350mls or 11.66 standard drinks. Mr Nash said in the witness box that his alcohol consumption at the time of the trial was six standard drinks per day. 47 Mr Nash also accepted in the witness box that he had been a user of cocaine but said that he had stopped some years earlier. The psychiatrist's report of March 2006 referred to use of cocaine and ecstasy although "not particularly frequently" and "not . . . at all for six to eight weeks". Mr Nash said that this was an inaccurate recording of what he had told the psychiatrist, namely, that he had stopped using the drugs in question at a much earlier time. 48 Mr Nash was admitted to hospital in the early hours of the morning of 31 January 2008. He was brought in by police, handcuffed. Notes of a social worker who saw Mr Nash on that occasion refer to Mr Nash's daughter having spoken of his increasingly erratic behaviour and "suspected mixed drug use", including "cocaine use". The daughter also reported consumption of four litres of vodka per week (spread evenly over seven days, this would be 571ml or about 19 standard drinks per day). The same social worker recorded on 5 February 2008 that Mr Nash "states uses cocaine once every 3 months" and "admits to alcoholism". 49 The hospital admission followed complaints by neighbours of Mr Nash that he had been "running through courtyard, yelling and banging on doors" (these words appear in the hospital records). Mr Nash lived alone in a home unit and was found lying in the stairwell. He told police who attended that he could not leave the unit as he could not leave his wife alone (he had been divorced and had lived apart from his wife for a considerable time). The initial observations at the hospital included pressured, rapid and tangential speech, no meaningful answers to most questions, laughing often and inappropriately, grandiose delusions, auditory and visual hallucinations (seeing and hearing dogs and cats) and "thinks in Cessnock". 50 Mr Nash was diagnosed with acute psychosis. He was transferred to a mental health facility where he remained for several days until released by order of a magistrate made on 8 February 2008. 51 Dr Cordaro, Mr Nash's general practitioner, attributes the events leading to the hospitalisation to a blow on the head suffered by Mr Nash when he fell as a result of postural hypotension (a condition that causes black outs immediately one stands up from a sitting position). How this would have caused him to be found in the stairwell of the unit block is not explained. Dr Allnutt, a psychiatrist, said that delirium can be caused by head injury but that severe symptoms of the kind Mr Nash had were usually associated with severe head injury and loss of consciousness for hours. He assessed the clinical information as consistent with delirium and associated psychotic and mood symptoms. 52 Both doctors agreed that deteriorating mental state indicated an underlying mental condition independent of head injury and that use of substances, in particular, stimulants, could indicate drug-induced psychosis. 53 I accept the defendants' submission that, on the evidence, it is more likely that Mr Nash's breakdown was not (or not wholly) attributable to a head injury and that it was the consequence of a long decline in mental condition associated with alcohol and drug abuse. A diagnosis of postural hypotension had been made at the Emergency Department of St Vincent's Hospital where Mr Nash presented himself at 4.10am on 29 October 2007 after a short loss of consciousness while getting up to go to the toilet; but he had been advised that such episodes could be avoided by standing up in stages (he was also advised to cut down on his drinking and to take more fluids). 54 The four particular episodes to be discussed presently occurred in the period from about November 2007 to January 2008. Mr Stewart, Mr Lord and employees of Premium Collections had no direct knowledge then of the circumstances that culminated in Mr Nash's hospitalisation in the early hours of 31 January 2008. But they were aware of aspects of Mr Nash's behaviour which is explicable by reference to the condition that later led to his hospitalisation. 55 At some time probably in 2007, Premium Collections staff members dubbed Mr Nash "First I've heard of it Greg". It was, it seems, commonplace for him to deny knowledge of matters of which others believed him to be already aware. This is consistent with impaired memory which is in turn consistent with the condition which resulted in his hospitalisation. 56 A factor that might also have contributed to Mr Nash's lack of knowledge of particular matters is that, for a period of more than a year or so up to about November 2007, he was coming into the Premium Collections office for only one or two days a week. Mr Nash's practice was to work from home and to attend the office at the request of Ms Vinoles of Premium Collections to sign documents as needed. Ms Vinoles' evidence is that Mr Nash's attendance became unreliable from about September 2006 and that he often did not attend when expected, with the result that documents awaiting his attention sometimes had to be taken to his home by Mr Stewart. Ms Vinoles testified that this happened on at least twelve occasions. 57 From early 2007, Ms Vinoles lost confidence in Mr Nash's ability to carry out his work properly. She complained to Mr Stewart whose reply was, in effect, "Greg is a mate". She then began to do herself things that Mr Nash would normally have done as debt recovery matters approached a hearing. She communicated with defendants' solicitors direct in an attempt to obtain settlement rather than asking Mr Nash to do so. 58 Ms Vinoles complained about Mr Nash's appearance, noting that during 2007 and early 2008 he was often unshaven and dirty when he attended the office; also inappropriately dressed "for the beach or in army combat attire or a police SWAT outfit with trousers tucked into high black laced boots". Ms Vinoles was embarrassed when, during a visit to the office by four women from QBE, an important client, Mr Nash arrived dressed for the beach. 59 Both Ms Vinoles and Mr Stewart gave evidence of a client entertainment function in November 2007 at which all men present except Mr Nash wore suits and ties. He wore his police tactical response outfit and was heard to say, among other things: "John Stewart can't be trusted in any way." 60 Ms Vinoles and Mr Stewart also refer in their evidence to odd behaviour of Mr Nash at the office during the later part of 2007. Ms Vinoles saw him walk into a wall, apparently unintentionally. She also refers to an occasion on which, upon leaving the office, he had to be helped down steps because he said he could not manage them himself. Mr Stewart referred to an occasion on which Mr Nash, after a meeting in the office, placed a chair in front of the door, thus blocking his exit from the meeting room, and then made unsuccessful attempts to open the door until realising that the chair was in his way. 61 Odd behaviour on Mr Nash's part had exhibited itself at an earlier stage, particularly in September 2006. Mr Stewart gave evidence of an occasion on a Thursday in that month (the Thursday immediately before the AFL Grand Final) on which Mr Nash telephoned him at home during the evening. He was complaining about aspects of his relationship with the business and people associated with it. His speech was slurred and his language abusive. Mr Stewart was entertaining dinner guests and cut the conversation short. 62 Mr Douglass, then a senior employee of Premium Collections, deposed to receiving a telephone call from Mr Nash at about 9.00pm on that Thursday when the following conversation occurred: "GN: 'I am going to have it out with John Stewart. Did you know he slept with my former girlfriend?' Me: 'No. When did this occur?' GN: 'About five years ago. I'm going to sort this out with John. I need to know if you are going to get in my way or are you going to stand out of my way' Me: 'Greg, don't be silly' GN: 'No, I really need to know this because I have to make arrangements' Me: 'Well, I'm not about to fight you on John Stewart's behalf. But I'm not going to allow anyone to come into the office and start throwing punches'" 63 Mr Douglass noticed that Mr Nash was constantly repeating himself and that his speech was slurred. 64 Mr Stewart was informed by others associated with the business that Mr Nash had telephoned them during the Thursday night and early on the Friday morning. When Mr Stewart went to the office the next Tuesday, he found that a message had been left by Mr Nash on the office answering machine early on the Friday morning. He described it as incomprehensible. Mr Stewart taxed Mr Nash with these matters. Mr Nash's response was initially belligerent but he then broke down in tears and the following exchange occurred, according to Mr Stewart's uncontested account: "Stewart: Mate, you don't remember doing this, do you? Nash: John, I not only don't remember that [sic; scil: "but"] I am really frightened about the fact that I have massive junks [sic; scil: "chunks"] of time missing and I don't know what's wrong." 65 It is against that general background that the particular instances of allegedly unsatisfactory performance by Mr Nash need to be considered. The first specific incident 66 Mr Nash became the solicitor for Cambridge Integrated Services in winding up proceedings commenced against FING (AFS) Pty Ltd ("FING"), a subsidiary of ING Australia. 67 After the originating process and supporting affidavits had been served on FING in November 2007, a lawyer employed by that company contacted Mr Nash by telephone, having taken up direct with WorkCover the point that FING had not employed staff since 2006 and should have been charged workers compensation premiums. In a letter to Mr Nash written after the telephone conversation, the FING lawyer referred to the contact with WorkCover and said: "I also confirm your earlier representation that the 12 December return date will be stood over to the New Year to enable discussions to be finalised." 68 On 12 December 2007, however, the applicant for winding up, represented by Mr Nash, moved the court for a winding up order and such an order was made. The general counsel of ING wrote to Mr Nash on 14 December 2007 complaining in very strong terms. After referring to the letter of 28 November 2007 and the agreement that the matter would be stood over until the New Year, the general counsel said: "No communication has since been received from you indicating that: you disagreed with the contents of that letter; or you intended to proceed on your application to appoint a liquidator. When Ms Griffin of our office attempted to speak with you yesterday following the appointment, you were again unavailable. A courtesy call from your secretary, Kamila, indicated that she had left urgent messages at both your home and mobile numbers. We are yet to receive any response to those messages. Your failure to comply with the undertaking given on 28 November 2007 is in clear breach of your professional conduct obligations. In particular, we refer you to Rule 26 of the Professional Conduct and Practice Rules 1995. We request that you immediately file an application to set aside the appointment of the liquidator and notify us that this has been done by 3pm this afternoon. Any costs associated with such application will be borne by you. If such an application is not filed within the above timeframe, we will file an application ourselves and seek indemnity costs against you and your client. We will attach to the application an Affidavit setting out your undertaking, our written confirmation of your undertaking, and your failure to comply with it. The action you have taken will, unless remedied, cause significant damage to the reputations both of FING and INGA. We put you on notice that our clients reserve their rights to seek from you any losses flowing from your conduct. Unless you take the above action to have the liquidator's appointment set aside we also intend to report your conduct to the Legal Services Commissioner." 69 Mr Nash did not reply to either the letter of 28 November 2007 or the letter of 14 December 2007. Nor, as the latter states, did he make contact by telephone after messages had been left. 70 In his affidavit, Mr Nash said that he "did not recall" agreeing to stand the matter over. The affidavit said nothing about the letters of 28 November 2007 and 14 December 2007; and thus did not deny receipt of them. In cross-examination, however, Mr Nash took a quite different line. After he had been taken to the letter of 14 December 2007, the cross-examination proceeded as follows: "Q. What was your response to that letter? A. I have never received it. I have never given an undertaking to another solicitor in my life that I have not complied with to the letter. You will note she suggested they report me to the Legal Services Commission; that never happened. I did not receive this letter and I categorically deny agreeing to stand the matter over.

In fact, in one matter of Adams, a bankruptcy I did that because I thought it was a wise commercial move for the client. I was roundly scolded for it and I wasn't going to do it again. I have never given an undertaking to another lawyer. My word, my honour is my honour. I don't give my word to people and break it.

Q. That's exactly what you did, I suggest to you? A. Well, you may suggest away, but I do not.

Q. You are denying this now with much more vehemence than did you in your affidavit? A. Well, I am here.

Q. In your affidavit all you say: "I did not recall agreeing to standing the matter over by consent."? A. Is that right, which means I didn't do it.

Q. No, sorry it does not mean you did not do it. You say you do not recall? A. You can't recall doing something you did not do.

Q. That's true. You may not recall something you did do, is that right? A. That's true.

Q. All you are saying in your affidavit is you don't recall it? A. I meant it hadn't happened.

Q. Why didn't you say it hadn't happened? A. Because it hadn't happened.

Q. Just answer why didn't you say it hadn't happened? A. Which I - I don't recall. That's my answer. That to me says I did not do it. I have never given an undertaking to another lawyer or indeed another self-represented litigant which I have not received when they received an affidavit of debt, which has always represented to me final instructions to proceed to wind up a company." 71 At a later point, Mr Nash suggested that the letter from the ING general counsel had been intercepted in the Premium Collections office before it reached him. The cross-examination continued: "Q. Let me just run through the situation as it appeared to you at the time you prepared and swore your affidavit in response to this allegation. One, you were being given, it was being alleged against you had given an undertaking in a serious matter which you had breached? A. Yes.

Q. That was an affront to you both professionally and personally? A. Yes.

Q. Two, the letter in which it is alleged it was conveyed to you that this undertaking had been given, that was a letter this you had never received, is that a fair? A. That's a fair summary, yes.

Q. Does that not suggest to you that the appropriate thing for you to have put in your affidavit would have been one, I didn't give the undertaking. Two, I never break my undertakings and had I given to a sender I'd adhere to this. Three, I did not ever receive that letter. A. What I did say -

Q. We know what you did say. Isn't that the appropriate thing to say? A. It is an appropriate thing to say.

Q. Let me suggest to you what is not an appropriate thing to say. Let me suggest it is certainly not an appropriate thing in these circumstances to say I do not recall agreeing to stand that matter over by consent. Let me suggest if circumstances are as I have outlined them to you that is a most inappropriate thing to have said? A. No, I don't agree." 72 Having said forcefully in cross-examination that he did not receive the ING general counsel's letter, Mr Nash fell back in final written submissions (paragraph 99) to the position that he "did not recall giving such undertaking nor receiving any confirmatory correspondence about it". 73 Given the contemporaneous documents in the form of the two ING letters, there is ample basis for a finding that Mr Nash gave the undertaking to have the winding up application stood over. Then, I am satisfied, he simply forgot that he had done so. His protestations in cross-examination about never having breached an undertaking were a reflection of his appreciation of the seriousness of the matter. His theory that the general counsel's letter had been intercepted was a rationalisation to mask the reality of his having forgotten. 74 Mr Nash had admitted to Mr Stewart in late 2006 that he suffered lapses in memory (see paragraph [64] above). Mr Stewart also gave evidence of Mr Nash being referred to by Premium Collections staff members as "First I've heard of it Greg". As I have mentioned already, this meant that "First I've heard of it" was a regular response made by Mr Nash to matters raised with him. 75 The FING episode occurred about six weeks before Mr Nash's hospitalisation on 31 January 2008. It is reasonable to infer (and I do infer) that the difficulties of perception that culminated in the events that led, in an immediate sense, to the hospital admission were at work in mid-December 2007. 76 I am thus satisfied that Mr Nash gave the undertaking to have the winding up application adjourned, forgot that he had done so and then proceeded to breach the undertaking; and that this was an aspect of the course of behaviour that culminated in his hospitalisation some six weeks after the hearing. 77 The ING general counsel's letter referred to unsuccessful attempts to contact Mr Nash by telephone, to messages having been left and to complete lack of response. Mr Nash did not say that he had made any response. Mr Nash did not say that he had made any response or attempted to do so. This is another indicator of his having operated in an unprofessional way. 78 The FING incident was mishandled by Mr Nash. He dishonoured an undertaking because he forgot that he had given it. This, as well as his failure to respond to urgent calls, was a product of the compromised functioning that led to his hospitalisation on 31 January 2008. The second specific incident 79 It was the practice of Mr Nash to commence all Local Court matters in the Local Court at North Sydney. He took that course in an action brought for Gallagher Bassett against Jacqueline Calore. 80 The defendant, in accordance with established procedure, made application for transfer of the matter to the Local Court at Tamworth and that application was granted in the ordinary course and without a hearing. Premium Collections' record system shows receipt of the defendant's notice of motion in that respect on 4 October 2007, the transfer order on 19 October 2007, confirmation of the transfer by the Tamworth court on 15 October 2007 and notice of a pre-trial review on 1 November 2007. There is a note in relation to each of the first, second and fourth that the document (or a copy) was given to Mr Nash. 81 The pre-trial review in Tamworth was fixed for 12 December 2007. There was no appearance for the plaintiff on that occasion the proceedings were struck out. 82 Mr Nash said in his affidavit that he was under a misapprehension that the pre-trial review was to take place at the North Sydney Court and that, by the time he realised his mistake, it was too late to arrange representation in Tamworth. 83 A different version emerged in Mr Nash's cross-examination. He said that he did not recall the notice of transfer from the North Sydney court but did recall receiving a notice from the Tamworth court "basically the day before the matter was for mention". This is inconsistent with the internal records already mentioned which show receipt of the notice of pre-trial review from Tamworth on 1 November 2007 with a notation "Original to Greg Nash". 84 Again Mr Nash suggested that documents may have been withheld from him. 85 At all events, having become aware "basically the day before" of the impending pre-trial review (on his revised explanation), Mr Nash, on his account, went to the Law Society website to locate a Tamworth solicitor to mention the matter for him but "was unable to do so". The cross-examination continued: "HIS HONOUR

Q. What, you couldn't find anyone on the website? A. I found one and I rang a number, or three. I mean there's not a large number of solicitors but they were all else wise tied up.

Q. Did you ring the Court? A. No I didn't. I didn't think.

Q. Why didn't you do that? A. I didn't think to do that.

Q. Mr Nash, what does it tell you about your practice at the time that you didn't think to do that? A. That was something that may well have been a good idea to do. I just didn't do it.

Q. But Mr Nash listen, this wasn't a good idea. This wasn't some stroke genius that was needed. This is elementary stuff that if something is listed in a court and you can't get there and you can't arrange for representation it's elementary stuff if you contact the Court and try to explain the situation to some responsible officer of the Court. Don't you agree with that? A. Yes, that's not unusual.

Q. What does it say about your performance at the time that you didn't carry out that elementary task? A. It says in that matter perhaps I made an error." 86 This passage is significant. Mr Nash did, as he said, make an error. It was an error inconsistent with the exercise of care and skill to a reasonable standard. The third specific incident 87 Mr Nash instituted Supreme Court proceedings on behalf of QBE against The Bridal Factory Pty Ltd. The proceedings were defended and were, in Mr Stewart's words, "the longest running defended matter that Collections had been involved with to that time". QBE was an important client, although the relationship was uncertain because it had given business to a rival collection firm. 88 The responsible officer at QBE was Mr Dunn. The Supreme Court hearing was scheduled for Tuesday, 29 January 2008. 89 Mr Nash did not contact Mr Dunn in the lead-up to the hearing date. On Tuesday 22 January 2008, Mr Dunn telephoned Mr Douglass of Premium Collections complaining that Mr Nash had not returned calls after messages had been left. From Tuesday 22 to Friday 25 January 2008, Mr Douglass did not see Mr Nash in the office. Mr Douglass emailed Mr Nash on Friday 25 January 2008 saying that Mr Dunn was trying to contact him, wanted confirmation that the hearing was proceeding as scheduled and wanted to discuss arrangements to travel to Sydney (Mr Dunn was based in Lismore) and to confer with counsel briefed in the matter. 90 On the day of the hearing, Mr Douglass told Mr Dunn that he had not heard from Mr Nash despite having left messages. Mr Nash did not attend the hearing or any conference with counsel. Mr Dunn had to instruct counsel direct. 91 Mr Nash emailed Mr Douglass on Saturday 26 January 2008, saying he had been "in contact with Ray [Dunn] all thru Thursday and most of Thursday [sic]" and that they had exchanged contact details "so we could talk over the weekend". This is inconsistent with what Mr Dunn told Mr Douglass on Tuesday 29 January 2008. He said that he had not heard from Mr Nash. 92 Mr Nash's affidavit evidence is that he could not attend court on 29 January 2008 because of sudden and violent diarrhoea as he was leaving home. He found it necessary to remain at home. He said he was "too embarrassed" to tell Mr Dunn of this but had told the barrister. 93 It was submitted on behalf of the defendants that Mr Nash's evidence in this respect should not be accepted for several reasons: (a) Mr Nash did not obtain an affidavit from the barrister even though one was, he said, "obtainable"; (b) Mr Nash telephoned Mr Douglass on Wednesday 30 January 2008 (that is, after the hearing date) saying that he had had an abseiling accident on Sunday 27 January 2008 and was drowsy from morphine (although Mr Nash denies this conversation, it is very unlikely indeed that Mr Douglass would have invented it, given its particular content); (c) the hospital notes made at the time of Mr Nash's admission in the early hours of Thursday 31 January 2008 make no reference to sudden and debilitating diarrhoea less than two days earlier; and (d) it cannot be accepted that a solicitor seeking to explain his absence to a client would be "too embarrassed" to say that he had suddenly been struck down by diarrhoea (or, if he found the nature of the complaint somehow embarrassing, simply an immobilising illness). 94 I accept this submission. Mr Nash attempted to blame his absence on 29 January 2008 on sudden diarrhoea after earlier referring to an abseiling accident when the true position was that, in the early hours of 31 January 2008 he was admitted to hospital with acute psychosis which, on my earlier finding, was the consequence of a long decline in a mental condition associated with alcohol and drug abuse. It is reasonable to infer that the condition that exhibited itself some 36 or so hours later in the behaviour that resulted in hospitalisation early on the morning of 31 January 2008 was active on the morning of Tuesday 29 January 2008 and that it was mental impairment of that kind that caused Mr Nash to be out of contact with Mr Douglass, Mr Dunn and the barrister at the time when his attendance and attention were required in the interests of both QBE and Premium Collections. 95 Again, Mr Nash failed to exercise care and skill to a reasonable standard. The fourth specific incident 96 Mr Nash acted for a Premium Collections client called Gallagher Bassett in Local Court proceedings against Carandang Holdings. 97 On 26 November 2007, the court ordered that the plaintiff reply to the defendant's request for particulars within 21 days. There is evidence that Mr Douglass asked Mr Nash to deal with this and followed up the request on 27 November 2007. 98 On 21 December 2007, the matter was listed for hearing on 23 June 2008. A direction was made for the exchange of witness statements two weeks before the hearing. It appears that Gallagher Basset's witness statement was not delivered until the day before the hearing. 99 The matter came before the Local Court for hearing on 23 June 2008 by which time, of course, Mr Nash's retainer had been terminated and he no longer had responsibility. Counsel who appeared on that occasion furnished a written report which read, in part, as follows: "The defendant objected to the filing of the witness statement of Mr Ian Swinnerton, dated 23 June 2008, on he basis that it was only served on the defendant this morning. I submitted that although the plaintiff did not dispute that there had been late service, there was no prejudice to the defendant as all the documents annexed to the witness statement were already in the possession of the defendant. The defendant applied for the statement of claim to be struck out on the basis of the non-compliance with the court's order on 26 November 2007 for the Plaintiff to reply to the Defendant's request for particulars in letter dated 26 October 2007 within 21 days. I submitted that the Plaintiff had now complied with the order having responded to the request for particulars on 19 June 2007. I also submitted that the reason for the delay was due to a change in solicitors for the Plaintiff and difficulty in obtaining the relevant documents. I submitted that the Plaintiff had only received a copy of the letter of particulars on 18 June 2008 from the Defendant's solicitors. I submitted that again, the request for particulars was misguided and that the defendant had copies of all the documents sought and knowledge of all the information sought in the letter. The Madame Assessor noted my submissions but said that as the Defendant did not agree it was the correct party or that it had the documents. The Madame Assessor held that the plaintiff had failed to file and serve its documents in accordance with the court order and noted that the reply to the request for particulars was six months late. The Madame Assessor indicated that she was of the view that the plaintiff did not have a sufficient excuse for its non-compliance. The Madame Assessor indicated that she intended to strike out the statement of claim for non-compliance with court order. The Madame Assessor made the following orders: 1. The statement of claim be struck out. 2. The plaintiff to pay the Defendant's costs in the sum of $455.40 within 28 days."

(The reference here to "19 June 2007" obviously should be a reference to "19 June 2008".) 100 In his oral evidence (but not in his affidavit), Mr Nash said that he supplied the particulars as required, shortly before the directions hearing on 21 December 2007. I quote from his cross-examination: "Q. You agree with the proposition that this was one where the Court had given a direction on 26 November 2007 that the plaintiff provide particulars to the defendant within 21 days. A. Yes, that's true.

Q. You agree with the proposition you did not comply with that direction? A. No, I supplied the particulars but not within the 21 days, and I supplied them shortly before 21st of the 12th as you can see the hearing date there on the court book, page 277. I remember this gentlemen because of his difficult and unusual name.

Q. Are you pointing to a document evidencing the fact you supplied the particulars on a particular date? A. I supplied those particulars.

Q. Can I just put the question again? A. No, there is not a document here in this file.

Q. It is only your uncorroborated testimony that you supplied these particulars, is that correct? A. Yes.

Q. Tell us then what you say you did? A. I supplied the particulars, but I think they arrived shortly before the review on 26 November. And again I - it is my, I wrote on 11 September asking for these details. The matter was adjourned to the 26th. I had this recall again mainly because of the gentleman's name I supplied the particulars shortly before a date and because of that it was adjourned because he hadn't had sufficient time to consider the particulars. He went back to the Court. The proceedings were listed for hearing on 23 June 2008. Each party was required to provide statements by 9 June. That was notified to the client on the 21st of the 12th and had the statement which required to be exchanged apparently from - if we read further to the report of the solicitor was September late." 101 Mr Nash was then shown the barrister's report and, in particular, to the reference to the barrister's having made a submission based on the proposition that the required particulars were provided on 19 June 2008. The cross-examination continued: "Q. In relation to that, do you adhere to your evidence you supplied the particulars in late 2007? A. Yes I'm - yes, I'm almost positive that - yes, I - again, in the context of the number of matters, but because of the gentleman's name I do recall supplying particulars which, the details of which I received late. And I am sure it is in this matter that the solicitor didn't have time to form an opinion on, and therefore I agreed to an adjournment from which the matter was set for hearing with the exchange of witness statement to be done by 9 June. If you look at the second paragraph of that report those witness statements was dated 23 June 2008; therefore, the solicitor that was handling the matter since I left in, at the end of January did not comply with the orders to exchange witness statements by 9 June until 23 June, which was the day of hearing.

Q. Mr Nash, according to the third paragraph of this letter the defendants applied for the Statement of Claim to be struck out on the basis of non-compliance with the Court's order on 26 November 2007 for the plaintiff to comply to the defendants' request for particulars, in a letter dated 6 October 2007, within 21 days not because of non-compliance with service of the - A. - to the service, filing of witness statements I have no knowledge. I wasn't there. It is my memory and it is only my memory what I said occurred occurred. I may, I may be wrong. I may be wrong, but I did recall in one of these matters, and I am sure it is the one with this man with the difficult to pronounce name, I did supply the particulars, but they, shortly before a mention date on account of which they quite properly said: Listen, I am not able to consider these and get proper instructions. I want to adjourn the matter for a month, and I consented to that." 102 And later: "Q. Mr Nash, is there any sensible conclusion to be drawn other than that you, at the time when it was your responsibility to do so, did not supply those particulars and your failure to supply those particulars led to this Statement of Claim being struck out? A. Reading this email, yes, that's a proper conclusion.

Q. It is only sensible conclusion to draw? A. Yes, it is.

Q. You are not able to produce a single document to contradict that interpretation? A. No, no. When I received this affidavit, what happened my files - I was locked out of my office. My files were in the possession of the defendants for some three months before. They were then taken to storage where the defendants also had a key and they sent me a key. I then removed then from that storage into my garage after about a month so I wasn't paying the fees which I had all along. I looked to find all of these files, couldn't find them, took the view they had been retained to run the matters with. … Q. Can I just before I proceed, do you agree that if the allegations against you are correct that is extremely serious negligence on your part? A. I rested with the fact that the witness statements were to be supplied.

Q. If what is alleged against you is true it is extremely serious negligence on your part, isn't it? A. That I failed to comply with the - that I failed at all to supply the particulars, yes that would be a serious assertion.

Q. It that is the case particularly serious consequences because it led to the case being struck out? A. That's the conclusion to be drawn from the letter.

Q. It is only reasonable conclusion? A. Indeed it is, yes." 103 It follows that Mr Nash's failure to supply particulars, at a time when he was in charge, was the factor that led to the claim being struck out. That was a serious dereliction on his part involving failure to exercise skill and care to a reasonable standard. Conclusions 104 In each of the four particular matters, Mr Nash did not render legal services to a reasonable standard of skill and care. Mr Nash's specific failings in those respects occurred in a context in which, in the latter part of 2007 and early 2008, he was unreliable in his attendance at the Premium Collections office, demonstrated forgetfulness ("First I've heard of it Greg"), confusion, physical clumsiness and somewhat bizarre behaviour in his dress and deportment (particularly at the client function where he made disparaging comments about Mr Stewart). 105 Those with whom he was working did not know, in late 2007 and early 2008, that Mr Nash was inhibited in his performance by the problem that exhibited itself in a pronounced way in the episode of the night of 30 January 2008 that culminated in Mr Nash's admission to hospital in the early hours of 31 January 2008, his transfer to a mental health facility and his remaining hospitalised until 8 February 2008. There was, at that point, a clear diagnosis which, in retrospect, explained the unsatisfactory conduct of the preceding weeks, including that involved in the four particular matters but extending also to the more general aspects of behaviour just mentioned. 106 Mr Nash failed, in those four matters, to render legal services to a reasonable standard of skill and care because he was, at the time, affected by a mental condition brought on by alcohol and drugs that seriously compromised his ability to function effectively and efficiently. 107 Because, in late 2007 and early 2008, Mr Nash did not remain able to render legal services to a reasonable standard of skill and care and, on the four occasions mentioned, failed to do so, the termination of his retainer to provide legal services to Premium Collections' clients was consistent with and justified by the implied contractual term referred to at paragraph [41] above. The contention at paragraph [43] above is correct and justified. 108 This, coupled with the conclusion first, that Mr Nash was not the beneficiary of any fiduciary duty and, second, that the specific breach of contract claims at paragraph [31] above are not maintainable, means that Mr Nash's claims fail in their entirety. It must be acknowledged that Mr Nash had earlier performed satisfactorily in a great number of matters over a long period; however, that does not change the result in these proceedings. 109 The proceedings are dismissed with costs. **********

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Judgment (45 paragraphs)

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Cases Cited (18)