Owens v Galvin [2013] VCC 22

3 This proceeding was originally against both Mr James and Mr Galvin for their respective failures to adequately advise the plaintiff. On 5 December 2012, His Honour Judge Misso ordered that the proceeding against the first defendant (James) be dismissed, confirmed the trial date of 7 December 2012, and ordered that the matters alleged in paragraphs 1 to 17 of the statement of claim, and of the second defendant's (Galvin's)[2] amended defence, be tried before any other question in this proceeding.

4 The plaintiff's case was opened on the basis that several pleaded allegations were abandoned[3]. After amendment, the allegations pursued were that the defendant failed to advise, or "properly" advise the plaintiff, in particular in advice given 27 September 2005, of two specific available courses:

(i) That she could make another post-bankruptcy composition proposal after the first one was defeated; and

(ii) That to achieve an annulment under s 153A she could herself engage a financier to access equity in property owned (or controlled) by her, and then negotiate with the Trustee to have her creditors paid out. [4]

5 Paragraphs 1 to 17 of the pleadings relate to the alleged scope and breaches of duty of care (of both defendants), and the order directing trial initially of only those issues was clearly intended to leave issues of quantum (and causation of quantum) to a subsequent hearing. However, during final addresses it emerged that some issues which had been assumed by the plaintiff's counsel and by me to be issues to be decided in this part of the trial were not included in those paragraphs. Given the scope of the evidence over five days of hearing, this seemed to me a difficult and wasteful artificiality to impose in this case, and subsequently both parties through their counsel agreed that in addition to the matters against the second defendant contained in paragraphs 1 to 17 of their pleadings, I should also decide two questions of causation relating to liability, specifically[5]:**

"(a) If Mr Galvin had advised Ms Owens that she could make a further composition proposal, would Ms Owens have acted on that advice and approached her Trustee in bankruptcy so as to put a further composition proposal to her creditors?

(b) If Mr Galvin had advised Ms Owens that she could, herself, engage with potential financiers to access the equity in the properties she owned (or could control) and then negotiate with the Trustee and the financier to utilise such funds to pay out creditors and have her bankruptcy annulled, would Ms Owens have acted on that advice and engaged with a potential financier(s) to access the equity in the properties she owned (or could control) and negotiated with the Trustee and the financier to utilise such funds to pay out creditors to have her bankruptcy annulled?"

**6 There is no dispute that Mr Galvin was retained to act for Ms Owens as her barrister and as such owed to her a duty of care - to exercise reasonable care, skill and diligence - nor that his retainer included an implied term to that effect [6]. It is not disputed that Mr Galvin did not advise Ms Owens of the specific options that it is now alleged he ought to have done[7].

(a) whether the scope of the defendant's duty of care and retainer included a duty to advise her:

(i) that she could make a further composition proposal after the first composition proposal was rejected; or

(ii) that she could herself attempt to arrange finance, and could utilise equity in the properties registered in her name, then approach the Trustee for his agreement to such an arrangement, to pay out her creditors and have the bankruptcy annulled; and

(b) if advised of the options set out under (a), whether she would have acted differently and pursued either or both of those options.

**8 Three witnesses gave oral evidence, and a large number of documents was tendered, as set out in the attached schedule of exhibits.

9 The plaintiff gave oral evidence and was cross-examined in some detail. Her credibility and reliability as a witness are strongly disputed by the defence.

10 Ms Owens has been litigating the events of her bankruptcy for the last seven years. My impression from her own evidence, and from the documentation tendered, including decisions in the Federal Magistrates' Court and Federal Court, is that throughout all of the events she has had the attitude that a number of people other than herself were to blame for her bankruptcy and its duration. I infer that it is likely that she has been heavily focused on some aspects of the events to the exclusion of others.

11 I have also taken into account in assessing her credibility and reliability as a witness that she was suffering from depression and taking medication for it at the time of the relevant events, and at the time of the hearing before me. Although ultimately there was no medical evidence as to this condition or its likely effects on her, I have taken into account from general knowledge and experience hearing cases, that people suffering depression can experience lethargy, and difficulties in concentration and memory, and that medications for such conditions may also contribute to concentration or memory problems.

12 The need to give evidence in court over many hours (notwithstanding breaks), can put further strain on concentration and memory, and I did think that that was affecting the plaintiff's evidence at times. However, although her manner was at times subdued, she managed to answer argumentatively at other times.

13 Specific attack on her credibility is made on several grounds. First, she claimed to have no memory of a number of conversations by telephone or in Mr Galvin's chambers, and also of some correspondence. As I said during the hearing, I find unsurprising that any witness cannot remember specifics of the timing of when certain things were said, or content of particular conversations that occurred some seven years ago. However, she claims memory of certain parts of conversations that she does not otherwise recall. As the matters she claims to remember are critical to her cause of action, the selectivity of her memory does cause me to question the reliability of some of her evidence on those matters.

14 It was also my impression that Ms Owens was at times deliberately evasive in answering, and adopted the approach of only giving a substantive answer when she saw it as furthering her case.

15 The defendant points to her evidence about several aspects of events, especially some where she changed ground but sought to justify doing so. Of the specific attacks on her credit the one of most significance in my view was in relation to her evidence about whether she controlled her daughters' actions in relation to the properties. She was inconsistent in her evidence on this issue, in particular as to being confident that she could assert her solvency or arrange finance using the equity in the four properties, yet insisting that it was not her decision but her daughters' in 2006 to dispute that the properties were hers beneficially, in the Federal Magistrates' Court. I found her credibility very doubtful on this issue, and am doubtful about what otherwise might have been a satisfactory explanation for her change of approach in late 2005 of being desperate to find a way out of her bankruptcy, the original application to set it aside and the composition proposal having failed. Indeed, her actions had carried this inconsistency over many years, in that she had treated the four properties as her own since December 2000, used them as security for borrowings, including a facility arranged in a period before her bankruptcy with the ANZ Bank, with some $350,000 still available as at May 2005, and asserted that she was solvent in reliance on the equity in the properties being hers beneficially. She then spent years running litigation to assert that the properties had not been beneficially owned by her since December 2000.

16 A further area of her inconsistent assertions about the properties and her control over them as assets is contained in her evidence about the placing of 24 Hill Street, Hawthorn with a real estate agent to sell, while it was vested in her Trustee in bankruptcy. She acted as if the decisions about its sale were hers,[8] including apparently ultimately removing it from the estate agent, but still maintained that she believed she could not herself enter financial arrangements to deal with the properties .

17 Ultimately, I had sufficient doubt as to the reliability of much of Ms Owens' evidence that, where her memory differs from what is reflected in contemporaneous documents which otherwise appear reliable, I have given her version less weight than that reflected in the documents.

18 The other witness called for the plaintiff was Mr Robert Campbell, a licensed finance broker, real estate agent and a qualified financial planner, whose company acted for Ms Owens in 2010 to assist her to obtain finance to enable the paying out of her bankruptcy. He describes his or his company's role as providing facilitation between a lender and an applicant [client] to get that person's application into a position where the lender will accept the application and settle the loan[9].

19 I heard his evidence subject to an objection by the defendant as to its relevance, and also as to the inadmissibility of an aspect of it foreshadowed as expert evidence.

20 As Mr Campbell gave his evidence it emerged that he had not personally communicated with either of Ms Owens' trustees in bankruptcy[10], that his company had liaised with her solicitors (ML Law) to do that, he did not have the file in court to refresh his memory of any detail including the eventual lender's name, and he did not describe many specifics of the processes or arrangements by which finance was actually arranged for her in 2010. He did not describe her assets or how he was able to access the equity in them to obtain such finance, other than to say that the financier which eventually provided the facility for approximately $1.5 or $1.6million had insisted on deeds of arrangement from trustees in bankruptcy, and a mortgage over 78 Wattle Road as security.

21 He said that he specialized in "non-performing lending", which he distinguished from "mums' and dads' loans"[11] and even then hers was a "complex transaction"[12], and took 10 months to obtain approval from a lender. An initial lender was negotiating lending without requiring discharge of her bankruptcy, but after three months declined the loan due to issues with interest rates and repayments, and the second lender insisted upon more security and deeds of arrangement with bankruptcy trustees.

22 Ultimately his evidence seemed to me to come down to his being able to say that he has experience in acting on occasions for clients who are bankrupt and are seeking to arrange finance to pay out their bankruptcies, that there are private financiers prepared to lend funds in such circumstances, and that his company acted for Ms Owens in this way in 2010. He also said that there were financiers willing to enter such arrangements in 2005 and 2006. He did not specifically say, as had been foreshadowed, that it was likely that Ms Owens would have been able to obtain such an arrangement if she had attempted it earlier than she did.

23 As ultimately Mr Campbell did not give a substantive opinion (except to the extent that the plaintiff's case was complex in the range of those he handles), the question of its admissibility as expert evidence does not really fall to be decided. The objection taken by the defendant in that context was that he was not an independent expert, having benefited from the fee charged by his company for its services to Ms Owens. That may well have reduced the weight of any such opinion from him, but the more critical question would have been whether Mr Campbell was qualified in a recognised relevant area of expertise to give the opinion, whether his opinion was based wholly or substantially on such expertise, and whether its basis is explained in a manner which discloses the reasoning sufficiently for the court to assess as to its reliability and whether it was convincing[13].

24 To the extent that his evidence is of his own observations and knowledge gained through operating in the finance broking field for many years, he can say that there have been since 2000 some private lenders prepared to lend finance to a person subject to a sequestration order to enable the bankruptcy to be paid out. That is not expert opinion but his own observations in a specialised field. The question is whether it is relevant to any issue in this case. It seems to me that that information has some marginal relevance to whether the scope of the defendant's duty of care extended to advising that she could engage in trying to negotiate finance to pay out her bankruptcy. It goes to show that there were such arrangements available, and therefore enabled a possible option rather than a merely theoretical option for ending a bankruptcy. However, it does not in my view make more likely that such an arrangement was commonly known to barristers in the insolvency field, nor that they could reasonably be expected to advise clients about such an option.

25 For these reasons I have not excluded Mr Campbell's evidence as to the existence of such arrangements as at 2005 and 2006.

26 Mr Galvin gave evidence and was cross-examined. He admitted to little direct memory of the specifics of his dealings with Ms Owens, which is understandable, not only because they happened some seven years earlier, but also because he was not alerted to any dissatisfaction she had with his services or any likely dispute about them until more than five years after they ceased. He did, however, have contemporaneous diary notes, as well as advices and other documentation he had drawn, and used those to refresh his memory.

27 Overall, I found his evidence credible, and likely to be reliable as it was supported by his notes, advices and other contemporaneous documentation, such as solicitors' letters at the time. There is one issue, to which I shall refer later, on which I did not accept his evidence, but I regarded that more as his opinion and not as undermining his overall credibility or reliability as a witness.

28 This case now centres on whether Mr Galvin gave adequate advice to Ms Owens on or about 27 September 2005, but it is necessary to examine events preceding and following that advice, including previous advice to her, to give proper context to his actual advice on that date.**

Findings as to relevant background facts, and Mr Galvin's involvement

**29 In 1994 Ms Owens arranged for the creation of a family trust in favour of her daughters and any future children of theirs. A discretionary trust called "the Richardson Trust" was established, with the settlement sum of $25, a solicitor friend, Ms Pauline Baxter, appointed trustee, and the beneficiaries being her daughters[14].

30 By December 2000 the plaintiff was registered proprietor of four residential properties, including her home at 78 Wattle Road, Hawthorn, as well as 24 Hill Street, Hawthorn, and 94 and 235 Richardson Street, Middle Park ("the four properties").

31 By a document dated 20 December 2000 entitled "Declaration of Trust"[15], Ms Owens purported to transfer her beneficial interest in all property owned by her, including 78 Wattle Road, Hawthorn, to "the beneficiary". The document then declares that she ("the Trustee") holds the trust estate for the benefit of the Richardson Trust and its beneficiaries. The effect of this document was critical throughout the events of the plaintiff's bankruptcy, and was the subject of subsequent proceedings in the Federal Magistrates' Court and Federal Court[16], where it was held that the document did not effect the transfer of the beneficial ownership of the four properties away from Ms Owens, and that they remained available to the Trustee of her estate to realise in payment of her creditors.

32 The timing of the creation of the document was also queried in those proceedings, but it is unnecessary for me to decide those issues. What is relevant to the present proceeding is the plaintiff's attitude towards and use of that document during the events of 2005 and since, first, to the plaintiff's credibility, but also to the issue of her likely behaviour had she been given the advice which she claims ought to have been given to her by Mr Galvin.

33 In the months leading up to May 2005, Ms Owens had been pressed for payment by a number of creditors, many of whom were barristers seeking fees owing to them as a result of being briefed through her solicitor's practice. Other creditors were four former clients against whom she had issued proceedings to recover outstanding costs. There was also a small number of persons claiming to be creditors arising out of earlier insolvency problems in approximately 2001 and 2003.

34 In November 2004 a bankruptcy petition had been issued against Ms Owens by a barrister claiming his fees. He was paid, but another creditor substituted. She had had other lawyers advising and acting for her, and another barrister, however on 10 May 2005, on a return of the matter in the Federal Magistrates Court, there was no appearance by her or on her behalf, and a sequestration order was made against her estate unopposed. She blames others for this, having expected there to be an adjournment obtained.

35 David Lofthouse was appointed Trustee of her estate in bankruptcy.

36 By 16 May 2005, Hutchinson Legal were solicitors acting for her and they engaged Mr Michael Galvin, a barrister specialising in insolvency law, to prepare an application to have the sequestration order set aside. As a result of conversations and briefing material provided during the following week, Mr Galvin recommended that the application to the Federal Magistrates' Court be broadened to not only apply to set aside the sequestration order on the basis that it was made in her absence, but also that the bankruptcy be annulled under s153B of the Bankruptcy Act 1966 on the basis that her estate was not insolvent. A Notice of Motion to that effect was filed in the Federal Magistrates' Court on 24 May 2005, returnable 6 June 2005.

37 Mr Galvin gave evidence of a 29 minute telephone conference he had with Ms Owens on 25 May 2005, from a contemporaneous note[17], which I accept. Although she disclaimed memory of that conversation, nothing substantive turns on what was said in it.

38 From early in Mr Galvin's involvement, Ms Owens emphasised to him that she sought to end her bankruptcy in the most timely and least costly way, and in a manner which would restore her assets to her, and enable her to pursue her claims for unpaid fees against four former clients. The latter depended upon either convincing the Trustee to elect to proceed with them, or upon having the bankruptcy set aside or annulled to enable her to reinstate or revive them[18].

39 As at the time May/June 2005, the estimated the net value of the four properties was approximately $3million. The total of claims she had outstanding against former clients Garms, Plowman, and Holmes was approximately $552,000 according to her evidence, or $325,000 according to the Trustee. Her other assets were no more than approximately $50,000.

40 As to her liabilities[19], the total of creditors' claims admitted to vote at the September creditors' meeting was $405,943, of which she disputed a very substantial proportion, and total of creditors not admitted at the meeting (including the substantial balance of the Plowman claim was approximately $515,000).[20]

41 On 6 June Mr Galvin appeared for Ms Owens on the application to set aside the sequestration order or annul the bankruptcy. He sought an adjournment due to a late affidavit from the trustee, which was ultimately granted to 17 June 2005, but it was apparent that there would be vigorous opposition from creditors represented by counsel at the hearing.

42 Immediately following the hearing, a conference was held in Mr Galvin's chambers with Ms Owens and one instructing solicitor present, and another by telephone. The critical issue of whether the four properties were part of her estate (ie the effect if any of the declaration of trust document) was discussed, and the implications of her asserting beneficial ownership of them which she would need to do to argue solvency. Despite Ms Owens' resistance due to cost, and on an ultimatum from the then instructing solicitors, Mr Galvin was asked to prepare a "brief preliminary opinion" on the issue of the effectiveness of the so-called Declaration of Trust.[21] In that advice[22], Mr Galvin outlined the difficulty for the plaintiff were she to rely on her ownership of the properties as proof of her solvency, but later to assert that she was not beneficial owner of the properties but had effectively transferred them into her family trust. He set out arguments as to why it might be an effective Declaration of Trust, but that it was also arguable that the document had purported to transfer the properties to the family trust but, because transfers were never completed, that intention had not been affected. The advice makes clear that the issue was by no means certain, but expresses a preference for the view that she had made a Declaration of Trust which would have been effective to transfer the beneficial interest in the land to the trust (paragraphs 17 and 18 of advice). The memorandum also makes clear that Ms Owens acknowledged that she had, in fact, been treating the properties as her own, and had previously received legal advice to the effect that the document executed on 20 December 2000 was not effective.

43 Ms Owens agrees that by 6 June 2005 she knew, from legal advice from her earlier solicitors and/or from conferring with Mr Galvin, that the ways of ending her bankruptcy were -

(i) Setting aside the order due to it being made in her absence;

(ii) Annulment by the court under s 153B of the Act on the basis that she was solvent;

(iii) Annulment by the court under s 153A of the Act by payment of creditors;

(iv) Entering a post-bankruptcy composition with creditors under s 73 of the Act.

44 On 17 June 2005, Mr Galvin represented Ms Owens' at the first full hearing day of her application in the Federal Magistrates' Court, during which she was very extensively and vigorously cross-examined by counsel for creditors. As a result of that day of hearing, it became apparent to her and to her lawyers that the hearing was likely to take considerably longer than expected and therefore be more protracted and costly. This was of great difficulty for Ms Owens, who could not afford to fund ongoing representation. By the time the hearing next resumed, Hutchinson Legal had ceased to act, apparently due to remuneration issues.

45 Mr James commenced to act by 30 June 2005, and Mr Galvin continued, formally instructed by him, but having greater expertise in the insolvency field than Mr James.

46 On 1 July 2005 the proceeding in the Federal Magistrates' Court continued, with the whole day spent in further cross-examination of the plaintiff. At the end of that day Mr Galvin says, and I accept, that a number of facts had emerged during cross-examination of Ms Owens of which he was not previously aware, and which caused him to believe, and to advise the plaintiff, considerably decreased her prospects of succeeding in the application. Although the plaintiff denies that he told her that she was likely to lose, or unlikely to succeed, she says that she herself was reluctant to continue with that application as it was clearly going to take much longer and be more costly than anticipated. Alternative options were regarded by both as preferable.

47 Mr Galvin advised Ms Owens that he considered that a better option for her would be a post-bankruptcy composition proposal, by which a proposal to pay out creditors (and the trustee's fees and expenses) would be put to a creditors' meeting and, if passed, would achieve annulment of the bankruptcy.[23]

48 Ms Owens agreed and gave instructions that she wished to embark on a composition proposal to achieve annulment of her bankruptcy. The application in the FMA was to be adjourned to enable that to occur.

49 Mr Galvin was then asked by Ms Owens to provide another memorandum of advice in relation to the effectiveness of the Declaration of Trust, this time in a form to be provided by her to the Trustee[24]. Despite suggestions put to the plaintiff in cross-examination, I do not interpret the facsimile making this request as asking Mr Galvin to change his opinion, but rather to put it into a form which did not contain information over which she might wish to retain privilege. That is because it says that she has told the trustee of his advice that she had probably gifted the property to the trust. Mr Galvin said that in addition to the fax there was a telephone conversation and his memory is that he was asked to set out only one interpretation of the Declaration of Trust document, being the other one from his preliminary view[25]. The memorandum he produced[26] does seem to me to reach the alternative conclusion compared with his earlier one - that being that the document dated 20 December 2000, on its plain reading, seems to be an intention to transfer the properties to the Trustee of the family Trust rather than to be a Declaration of Trust, and the former was incomplete and therefore ineffective. Although Mr Galvin did not acknowledge in evidence that the second memorandum reflects a change of opinion from his first, that would be relevant only to his credibility as a witness and not any substantive issue, and it did not lead me to doubt his credibility or reliability as a witness generally.

50 At about the same time, Ms Owens asked Mr Galvin to draft a proposal for composition under s73 of the Bankruptcy Act, based on the terms she provided to him[27], essentially proposing to pay all proper creditors 100% of all monies due within 120 days of acceptance of the compromise, using funds from the existing draw down facility with the ANZ Bank, or alternatively from a sale of 24 Hill St, Hawthorn. Mr Galvin drafted that proposal[28] and returned it on 15 July 2005.

51 Over the next two months, Ms Owens personally engaged in negotiations with the Trustee or the Trustee's representative, which varied the proposal from Mr Galvin's draft. Mr Galvin was not consulted on those changes, nor informed of them in any manner.

52 The proposal for composition in the form put to creditors at the creditors' meeting on 15 September 2005, was, in essence, that within 120 days of the bankruptcy Trustee having adjudicated upon proofs of debt, those claims admitted to proof by the bankruptcy Trustee would be paid in full, including any interest due on them, as would be the remuneration expenses and costs of the bankruptcy Trustee, the remuneration expenses and costs of the composition Trustee, and amounts due in respect of petitioning creditors' taxed costs. The proposal also included that Ms Owens would execute in favour of the composition Trustee mortgages in registrable forms against the four properties. Further, an acknowledgment was obtained from the plaintiff's daughters, as the beneficiaries of the Richardson Trust, that to the extent that the properties were beneficially owned by them under that trust, they would not assert priority against the creditors under the composition proposal.

53 The Trustee supported the proposal at the Meeting. Mr Galvin was not asked to be present, but Ms Owens was present with Mr James, her then solicitor. As well as the Trustees' representatives, a number of creditors were represented by proxy, the majority of barristers being represented by a solicitor, and one of the former clients, Mr Plowman, was present and held proxies for others including the largest single creditor, Ms Garms (or her company). The meeting voted against acceptance of the composition.

54 Within a day of the result of the creditors' meeting, Ms Owens telephoned Mr Galvin and informed him that the composition proposal had been rejected and that she sought his further advice. She says she asked him "what was the best way out"[29]. Mr Galvin does not recall being asked that question. I accept that she did ask that, whether or not in those precise words. She saw him in conference on 27 September 2005. As at that date, there were no Minutes of the creditors' meeting yet produced.[30] Mr Galvin produced a memorandum summarising what had been discussed.[31]

55 It is in respect of the advice given orally and in writing on 27 September that the critical allegations are made, namely that he failed to advise that her options included:

(a) that she could approach the Trustee with a second composition proposal; or

(b) could herself attempt to raise finance to pay out all her creditors, which would require the Trustee's ultimate agreement and co-operation, but not rely on the Trustee to realise her assets, whether by sale or borrowings, in order to pay out creditors.

56 Mr Galvin did not advise Ms Owens of either of those options on 27 September or at any other time. What he did advise her was that she would need to decide whether to pursue the adjourned application in the FMC, which he assessed was likely to run for about three more days, which would be costly to her, and which she risked losing. She acknowledged reluctance at the time to pursue that application. Mr Galvin advised on the option of seeking an annulment under s 153A of the Act by having the bankruptcy trustee proceed to realise assets and pay out creditors, which would entitle her to challenge under s 178 any decisions by the trustee if he accepted creditors' claims which she disputed. This course had the advantage compared with the composition proposal of not requiring the approval of any of her creditors, and he pointed that out to her.

57 On 19 October 2005 the plaintiff instructed Mr Galvin by telephone that she was not able to fund the existing Federal Court proceeding further, and her preference was to discontinue that proceeding and to pay out the bankruptcy during which she would dispute proofs of debt in bankruptcy.

58 On 24 October 2005 Mr Galvin appeared in the Federal Court on her behalf before Phipps FM and was granted leave for the plaintiff to discontinue the proceeding. Consequential costs orders were made against her. That was the last effective involvement of Mr Galvin in the plaintiff's affairs, although there was some subsequent contact in none of which she was critical of him.**

Relevant events following end of Mr Galvin's retainer

**59 In the following months the plaintiff decided to change her approach and to dispute that the four properties formed part of her estate available to be used in her bankruptcy. Proceedings were issued in the Federal Magistrates Court, in which she joined her daughters in asserting that the four properties had been effectively transferred to the Richardson Trust and were not part of her bankrupt estate. That argument was lost, including on appeal, with orders confirming that the properties were still beneficially owned by her and were available to her Trustee from which to pay creditors. Apparently she applied for special leave to appeal that decision to the High Court, but failed.

60 In 2009 the plaintiff retained new solicitors, MW Legal. She says that it Innes Cull at that firm who first told her that she could herself attempt to raise finance to pay out her bankruptcy, and who referred her to a finance broker, Mr Campbell, to assist her in that process.

61 In the meantime, a further application was made in the Federal Magistrates' Court, heard by Burckhardt FM in September 2009, seeking inquiry under s 179 into decisions made by the bankruptcy Trustee to admit certain creditors' claims. That application was also dismissed.[32]

62 In October 2010, using finance obtained with the assistance of a finance broker retained by her, and by agreement with the Trustee[33], an annulment under s153A of the Bankruptcy Act was obtained. The amount required to pay out creditors and the Trustee for his own fees and his legal costs exceeded $1.5 million.**

Did the scope of the duty of care include to advise the plaintiff that she could make a second composition proposal?

**63 There is no dispute that the standard of care expected of the defendant as a barrister was that of a person providing professional services, being "that of the ordinary skilled person exercising and professing to have that special skill"[34], and that the test for whether there was a breach of that standard is whether there was advice, act or omission in the course of his professional work which "no member of the profession [barrister] who was reasonably well-informed and competent would have given, or done or omitted to do".[35]

64 The standard of care expected of a barrister professing expertise in a specific area of law will be assessed by reference to members of the profession having that expertise, but there is still said to be only one standard of care which is no higher than the ordinary skilled barrister exercising and professing to that special expertise.[36]

65 These and further principles relevant were set out in Goddard Elliott (a firm) v Fritsch & Ors [2012] VSC 87 at paras [405] - [419].

66 Of further particular relevance in this case is that what is required in the performance of a lawyer's duty depends on the scope of the retainer, and the circumstances of the case. While the content of the duty is not rigidly confined to the strict terms of the retainer, if there is a limited retainer that will be reflected in the scope of what is reasonably required to fulfil the retainer. The content of the duty also takes into account attributes of the client including state of knowledge, ability to understand advice, dependence and any special vulnerability, and the extent to which those are known to the lawyer.[37]

67 Applying these principles, I take into account the following fact:

• Mr Galvin professed particular skill and experience in insolvency law, and the standard of care to be expected of him was that of the ordinary skilled barrister exercising and professing to that specialty area of practice.

• Although a qualified and experienced solicitor, Ms Owens had practised mainly although not exclusively in family law, and did not have the specialised knowledge and experience of insolvency law which Mr Galvin had, being the expertise she sought from him.

• Ms Owens was nevertheless aware of many of the issues arising under insolvency law, having not only practised as a solicitor for some decades, but having had personal interface with this field in 2000, when a pre-bankruptcy composition had been an option for her, and under a creditors' examination in 2003.

• She probably did not know that it would be open to her to make a second composition proposal.

• There had been constraints on the extent of Mr Galvin's retainer since he was first retained. Ms Owens had made clear to him and to solicitors that she had limited ability to pay their fees, and wanted to limit what they did accordingly. She had resisted retaining Mr Galvin to provide a comprehensive advice about the effectiveness of the Declaration of Trust document. She had drafted or redrafted some documents (Affidavits) herself. She had undertaken negotiations with the Trustee's office herself between mid-July and mid-September in relation to the terms of the composition proposal.

• Although it is accepted that Mr Galvin was aware that she had a history of suffering from depression, she had not told him that she could not understand his advice, or was not capable of undertaking correspondence or negotiations with the Trustee herself.

• At no stage had Mr Galvin been retained to give broad and comprehensive advice as to every possible option for ending her bankruptcy. On the contrary, it was only as events developed, and in particular as her prospects of succeeding were looking unfavourable (in the Federal Magistrates court) or were defeated (rejection of composition proposal by creditors' meeting of 15 September) that she would extend Mr Galvin's retainer by asking for more advice.

• She had made clear that she was very strongly opposed to paying the claims of certain creditors, and in particular of barristers Dunn and Coleman, and former clients Garms, Plowman and Holmes. Mr Galvin described her as "adamant" that they should not be paid, she gave the same impression whenever they were mentioned in during her evidence, and I note that even as late as 2009 and when she had lost a succession of cases in relation to her bankruptcy, she made a further court application to review the Trustee's decisions to admit these claims.

• After the creditors meeting rejected the composition proposal, she contacted Mr Galvin, told him that had occurred, and asked for his advice on "what was the best way out", which I take to be of the bankruptcy. On her own version the word "best" is used, implicitly acknowledging that she was not retaining him to advise on every conceivable possibility.

68 Mr Galvin's responds to the allegation that he did not advise her of the possibility of a further composition proposal by agreeing that he did not tell her but saying that she did not specifically ask him. I do not regard the latter as obviating his duty to advise, as the retainer, although limited, clearly extended beyond answering only specific questions, and he clearly understood it to do so, and had volunteered alternative options at several appropriate stages, including when advising an additional basis for the first application to set aside the bankruptcy. He himself said that in advising clients he assumes that they do not know the details he believes he should tell or explain, and embarks on them until stopped.

69 He did not have the minutes of the meeting of creditors, and had limited knowledge of what the exact terms of the proposal as defeated had been, and only her description of why it did not pass, namely that Garms - or Plowman and Garms - had voted against it.

70 The question is whether the making of a further composition proposal was an option that an ordinarily skilled barrister in this field would have advised was possible to a client in Ms Owens circumstances. I am not satisfied that it was. I am satisfied that it would not have been reasonably expected of a barrister in the insolvency field exercising due skill and care to advise a client with priorities of minimising costs and delay and of preserving certain potential claims and disputes, by including options that had no reasonable prospects of succeeding, and in particular when better options to achieve her goals were available.

71 I am not satisfied that the scope of Mr Galvin's duty to advise Ms Owens as at 27 September 2005 included the need to advise her on all theoretical options even if they had minimal chance of achieving her goal. On the contrary, she had made clear that she did not to want to waste time or costs, and at the same time that she did not want to compromise on certain issues including the disputing of some substantial creditors' claims. As the proposal that had been defeated involved paying 100 per cent of creditors' claims adjudicated as payable by the Trustee, together with interest, the only conceivable composition which might improve that proposal for creditors was of paying all claims, at least from creditors represented at the meeting, and foregoing her right and wish to dispute some.

72 I consider that to expect him to advise her of this option in all of the circumstances would have been against the tenor of the type of advice she had said that she wanted, and also would not have been of the quality of professional advice that Mr Galvin had in fact been giving to her. The options he in fact advised her of on 27 September 2005 were much more likely to achieve what she said her goals were, of obtaining annulment of the bankruptcy as quickly as possible (at further expense in Trustee's fees but not in her own or the trustee's court costs), while retaining the ability to challenge any decisions made by the trustee which she disputed (although that would necessitate more costs).**

If advised by the defendant of the possibility of a further compromise proposal, would the plaintiff have made one?

**73 Even if the plaintiff had been advised that a second composition proposal was possible, I am not satisfied that she is likely to have made one. On the contrary, and even though the onus is on the plaintiff to prove that she probably would have done so, I am satisfied that she was not likely to have made a further one.

74 As already discussed, to make a meaningful second compromise proposal she would have needed to make the offer more favourable to creditors. Apart from reducing the 120 day time for payment, and there being no apparent way of funds being raised or assets realised in much less than that period, the only apparent way of improving the offer was to remove the condition that creditors' claims would need to be proved to the Trustee.

75 To withdraw that condition would necessarily have meant withdrawing her opposition to payment in full of the amounts claimed by the barristers, Dunn and Coleman, as well as the claims of her former clients Garms, Plowman and Holmes. Leaving aside other claims of about $400,000, mentioned in the Minutes of the creditors' meeting in the report of the Trustee[38] and not admitted to vote at the meeting, I am satisfied that notwithstanding her expressed wish to bring the bankruptcy to an end as soon as possible, Ms Owens was not prepared to forego her arguments as to why the claims of the two barristers or those former clients should not be paid in full. That is bolstered by her requests for confirmation at several stages, including in making the first composition proposal, that there was still a possibility of challenging decisions by the Trustee, including acceptance of certain claims. To give meaning to a compromise proposal that would go beyond that which she had made and which had been rejected, she would have needed to forego ability to make such challenges.

76 I am satisfied that it is most unlikely that Ms Owens, as at late 2005 or during 2006, would have been willing to offer to pay all of the claims of all of the creditors who had lodged claims with her Trustee and therefore, even if Mr Galvin had advised that a further composition proposal was available to her, she would not have taken that option.**

Did the duty of care include advising that she could personally attempt to raise finance to pay out creditors with the agreement of the Trustee?

**77 The same principles as set out in paragraphs 64-67 above apply to consideration of whether the duty of care of the defendant including advising of this option as a course of action.

78 It is common ground that the duty of the barrister in such circumstances would not have included to give the plaintiff financial advice.

79 The plaintiff's case on this issue is put that the defendant's duty of care included the need to advise as at 27 September 2005 that an option, or possible means of annulling the bankruptcy, was to herself engage directly in trying to raise finance to pay out the bankruptcy. It is not put that that duty extended to specifically advising her that she could go to a finance broker, nor in suggesting any person in that field.

80 There was no independent expert evidence presented by either party as to whether barristers professing expertise in the field of insolvency would be reasonably expected to know of this option or to give advice that it was a possible means of obtaining annulment of a bankruptcy. It is not necessary for there to be any expert evidence for a court to decide on this issue, but as the field of insolvency law is quite specialised and is outside the usual range of cases coming before judges of the County Court, it might well have been of assistance to me in this case.

81 I must therefore decide on the evidence relevant to this issue whether the standard of care expected of a barrister of ordinary skill and professing expertise in the field of bankruptcy or insolvency law would have advised a client in Ms Owens circumstances of the possibility of approaching a financier independently of the Trustee.

82 The plaintiff says, and I accept, that as at 2005 she did not know that there were financiers who would lend funds to bankrupt persons to enable them to pay out their bankruptcies, nor that it was possible for her to approach such lenders herself and then present a finance proposal to the Trustee for agreement.

83 She also says, and I find harder to accept as truthful, that she did not think of this because she believed that she could not negotiate to utilise equity in the properties that had vested in her Trustee in bankruptcy. Such belief had not stopped her from appointing a real estate agent to sell the Hill Street property, and then to cancel that engagement some months later, both actions not through the Trustee in bankruptcy.

84 Ms Owens says that it was in 2009 when she found a new solicitor, Innes Cull at the firm of MW Law, who was prepared to act for her, and who first advised her that there was "a mechanism available" to procure finance to pay out all amounts still owing under the bankruptcy by securing those funds by mortgage over the Wattle Road property[39]. This was done by MW Law referring her to Robert Campbell who located a lender prepared to lend sufficient funds on that basis.

85 From this evidence, I am asked to infer that it would not only have been known as an option to obtain an annulment under s153A to barristers specialising or professing particular expertise in the insolvency field, but would be reasonably expected to have been presented by such barristers to their clients in the position of Ms Owens at least as her circumstances stood after her composition proposal had failed.

86 There is no evidence from that solicitor as to when or why that advice was given, nor as to whether that solicitor regards it as part of the normal part of that firm's practice as solicitors, or as an adjunct to the legal practice by providing recommended contacts for other professional services. That role is sometimes undertaken by solicitors, but I apply my own knowledge of practices and rules of practice at the Victorian Bar that it would not be expected as part of professional advice from barristers.

87 I cannot speculate on what that solicitor's evidence on this issue would have been, but I do note that prior to any dealings with a finance broker coming to fruition, that firm of solicitors is shown on the record as acting for the plaintiff in yet another application in the Federal Magistrates' Court to challenge the Trustee's actions, the decision refusing that application being delivered on 26 October 2009 after a hearing on 8 September 2009.[40] This was an application under s179 of the Bankruptcy Act for an inquiry into the conduct of the bankruptcy trustee and, in particular, to review his decisions to admit the creditors, Dunn, Coleman, White, Holmes and Plowman. I infer from the timing of that application being after she had retained MW Law that the option of accessing finance independently to pay out the bankruptcy under s153A was not the first option for Ms Owens even after she had learnt of it.

88 No expert evidence was called by either party as to the appropriateness of providing the advice or whether it would normally fall within the scope of what a barrister specialising in insolvency law would be expected to advise a client in a similar position to that of Ms Owens.

89 There is the evidence, however, of the second defendant himself whose expertise in the field is not disputed by the plaintiff and, indeed, was the reason she sought his advice and his curriculum vitae was tendered to prove that experience and expertise.[41]

90 Mr Galvin gave evidence that as at 2005 he had never heard of the ability of a bankrupt to organise his or her own financier and then proceed to obtain the Trustee's agreement to proceed with paying out creditors and achieving an annulment pursuant to s153A. He said he was not aware that the plaintiff had achieved annulment of her bankruptcy in that manner until this proceeding.

91 I accept his evidence that he had not heard of this occurring at the time it was alleged he breached his duty by not advising the plaintiff of this option. While that does not determine the case, I consider it relevant, not only to why he did not so advise, but as evidence that it was not a practice of which a skilled practitioner in the field would necessarily have known, let alone felt incumbent to advise the client. It is certainly not of an independent expert, but is relevant as reflecting the lack of knowledge of this option by someone specialising in that field.

92 The case is not put that the advice from Mr Galvin ought to have included referral to a finance adviser and I am satisfied that the scope of his duty did not extend to advising her to engage a finance broker.

93 The plaintiff bears the onus of proving that the scope of Mr Galvin's duty extended to advising in this manner. Given the limitations on his retainer, the very fine line as to whether this would have been financial advice rather than legal advice, and the lack of evidence from anyone practising in the insolvency field that this was an option about which it was reasonable to advise clients at that time, I am not satisfied that it was to be expected of Mr Galvin exercising the reasonable skill and care of a practitioner in his field of expertise at that time. In my view the prism of hindsight could be the only basis for such a finding, and its source, namely the plaintiff herself and her finance broker, Mr Campbell, are not nearly sufficiently reliable in this context for such a positive finding to be made. This is despite the cogent efforts of Mr Isles to bring me to carefully consider this issue.**

If advised that she could seek finance directly herself, would the plaintiff have proceeded in that manner?

**94 Ms Owens said in evidence that if she had been told of this option, she would have done it. She also said that she would have made a second composition proposal if advised of that option, and "would have done both to cover myself in both ways". She said that she could have done both notwithstanding that there was set in motion a claim by her daughters' solicitors to assert that her Trustee in bankruptcy had no right to utilize the properties because they belonged to the Richardson Trust. She says to this that her children would have co-operated in any way possible to enable her to get out of that situation[42].

95 Even if I were to accept that she genuinely believes that she would have done this, it is said with much hindsight, and her actual actions before and after, as well as correspondence and affidavits, are inconsistent with it being likely that she would have taken that course.

96 Both of the options she claims she would have taken involved paying out her bankruptcy, including creditors and the Trustee's fees and expenses. She chose shortly after cessation of Mr Galvin's retainer to take a diametrically opposed approach, of challenging the trustee's actions and in particular asserting that the properties were not part of her estate. As opposed to using best endeavours and whatever was required to pay out creditors and the bankruptcy as soon as possible, as was implicit in her undertaking either of the options she says she would have done, she undertook protracted litigation.

97 She said in evidence that her reason for taking that approach was that she was not offered the options she now complains of in this proceeding, and was desperate and without the money to take court actions. I do not accept that as a reliable or credible explanation in the context of the total history of the events of her bankruptcy, and is not consistent with even her own evidence that she was advised by Mr Galvin on the more straightforward option of co-operating with the Trustee to have assets in her bankrupt Estate realised and used to pay out creditors, to obtain an annulment under s 153 A, and I accept from Mr Galvin's evidence, diary notes and memorandum, that she told him she had decided to follow that course. This was not the only option he discussed with her even at that stage, as he discussed the merits and disadvantages of continuing the application under s 153B.

98 The option advised by Mr Galvin had the advantage of circumventing the need for agreement of any creditors, let alone Ms Garms, who alone had a claim for more than 25 per cent of the total creditors and therefore could alone defeat any further composition proposal. It also had the advantage of preserving her right to challenge decisions of the trustee under s 178 if certain creditors were admitted by the Trustee. Notwithstanding the result of the eventual challenge that occurred, had there not been the course taken by Ms Owens of deciding to assert the effectiveness of a Trust over the property and denying the four properties from being available to pay creditors, any application by her under s 178 was not necessarily doomed to the same fate, especially if it came after a period of her co-operating with the trustee to facilitate the paying out of creditors she did not challenge.

99 Finally, I regard as inconsistent with her having been likely to try to access finance soon after finding out about it, if so advised by Mr Galvin, the fact that even after learning of this option from MW Law in 2009, she pursued further court action against the trustee before paying out the bankruptcy to obtain the annulment.

100 For these reasons, I am not satisfied that the defendant's duty of care to the plaintiff included the need to advise her of the option of a second composition proposal or of approaching financiers directly to raise funds to pay out her bankruptcy. Further, even if she had been advised by Mr Galvin of these options, I am not satisfied on the balance of probabilities that she was likely to have taken either option in the short-term. Accordingly her proceeding against the second defendant, Mr Galvin, will be dismissed.

Unsworn copy of affidavit of Plaintiff dated 18 May 2005

Copy of Memorandum of advice of second Defendant dated 9 June 2005

Outline of Contentions on behalf of Trustee dated 16 June 2005

Transcript of proceeding in Federal Magistrates' Court of Australia hearing on 17 June 2005

Facsimile to Grant Hutchinson and Michael Galvin dated 19 June 2005

Copy of Memorandum of advice of second defendant dated 13 July 2005

Letter to Plaintiff from Bevan-Rhys James dated 30 June 2005

Copy of Proposal for composition signed by Plaintiff dated 15 July 2005

Copy of Affidavit of Plaintiff affirmed 19 August 2005

Unsigned copy of agreement by Georgia McDougal and Claire McDougal as beneficiaries of Richardson Trust

Copy of letter dated 5 September 2005 from Trustee to Creditors attaching Notice of Meeting of Creditors and supporting documents

Facsimile from Plaintiff to Michael Carrafa at CJL dated 14 September 2005

Memorandum of advice of second defendant dated 27 September 2005

Letter from Plaintiff to CJL Partners dated 29 September 2005

Letter to Plaintiff from David James Lofthouse dated 14 October 2005

Decision of Weinberg J, Federal Court, 12 December 2007

Copy of memorandum of second defendant dated 15 July 2005 with enclosed Draft Proposal of Composition

Copy of affidavit of David James Lofthouse sworn 16 June 2005 in Federal Magistrates' Court proceedings

Affidavit of Plaintiff in Federal Court Proceedings made 1 June 2009

Copy of deed of Release and Indemnity between Plaintiff and David James Lofthouse signed by the Plaintiff dated 2010

Respondent's outline of argument prepared by Second Defendant dated 1 July 2005

Letter from Plaintiff to Hutchinson Legal dated 19 May 2005

Email to Plaintiff from Bill Rosick dated 27 May 2005 11.19 am

Letter from Plaintiff to Hutchinson Legal sent by facsimile dated 24 June 2005

Facsimile from Hutchinson Legal to Plaintiff dated 27 June 2005

Letter from Bevan-Rhys James from Plaintiff dated 5 July 2005

Facsimile from Plaintiff to Second Defendant dated 10 July 2005

Facsimile from Plaintiff to Second Defendant dated 14 July 2005

Letter from Plaintiff to David James Lofthouse dated 1 September 2005

Letter from Plaintiff to CJL Partners dated 19 September 2005

Letter from Plaintiff to CJL partners dated 26 September 2005

Letter to Plaintiff from CJL Partners dated 3 October 2005

Letter to Plaintiff from Bevan-Rhys James dated 12 October 2005

Letter from Plaintiff to Aitken Walker & Strachan dated 17 November 2005

Handwritten note of Second Defendant dated 16 May 2005

Handwritten note of Second Defendant dated 18 May 2005

Handwritten note of Second Defendant dated 19 May 2005

Handwritten note of Second Defendant dated 25 May 2005

Handwritten note of Second Defendant dated 6 June 2005

Second Defendant's spreadsheet recording time, work done and charges for Plaintiff

[2] I shall refer to Mr Galvin as "the defendant" as he is the only defendant against whom the proceeding is still on foot.

[4] T 16, l 12- 31, Amendments to particulars under paragraph 17, made with leave on 7/12/12

[5] Joint Memorandum of Counsel dated 20 December 2012

[6] The plaintiff's right to sue directly in contract was not challenged by the second defendant. Although he was formally retained through instructing solicitors, he had a fees agreement with the plaintiff. As the key issues of fact in this case are the same under either cause of action, I have assumed the necessary contractual basis without deciding it.

[7] Being those set out in paragraph 4 of this decision

[8] Exhibit 15 - Trustee says she placed it with real estate agent herself; said she intended to sell it (T199 l 6) but said she was unable to sell it because the trustee in bankruptcy had control (T199 ).

[10] I was informed that she had a second bankruptcy in 2010.

[13] Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305 at ; _Baulch v Lyndoch Warrnambool & Anor [_2008] VSC 420 at [14]

[14] (and by 2005 Ms Owens herself was also a beneficiary)

[16] 30/8/07 decision by McInnis, FM - Exhibit 19; 12/12/07 decision by Weinberg J - Exhibit 20

[18] S 60 Bankruptcy Act 1966

[19] Outstanding amounts under mortgages already taken into account in net values of properties.

[20] Exhibit 15 - claims excluded on legal advice - $384,000; balance of Mr Plowman's claim $176,635- $41,617.

[23] S 73 Bankruptcy Act 1966

[30] Exhibit 15 - Minutes of Meeting - dated 28 September 2005

[34] Rogers v Whitaker [1992] HCA 58; (1992) 175 CLR 479 at 487; Heydon v NRMA (2000) 51 NSWLR1.

[35] Saif Ali v Sydney Mitchell & Co [1980] AC 198 at 218 (H of L)

[36] Walmsley & ors Professional Liability in Australia [4.280]; Heydon op cit at [146],[362]; Goddard Elliott (a firm) v Fritsch & Ors [2012] VSC 87 at paras [417],[418]

[37] Goddard Elliott (a firm) v Fritsch & Ors [2012] VSC 87 at paras [405] - [419]

[40] Decision of Burchardt FM, Exhibit 23