The short facts, by way of background, were that the Partnership operated from 1 July 2010 until the Partnership was dissolved on or about 21 April 2016, pursuant to orders of the Court. The background to that dissolution was, as stated, that, on 23 December 2015, the plaintiff suffered two strokes and was hospitalised.
On 15 February 2016, Mr Milevski wrote to Mr Paltos regarding the Partnership and, the next day, namely, on 16 February 2016, Bartier Perry commenced acting for the plaintiff.
It should be noted, at this point, that Bartier Perry became aware of the strokes when they were first engaged on 16 February 2016 and, indeed, before that date, and that the plaintiff suffered many symptoms as a consequence of those strokes.
On approximately 29 February 2016, there was a formal retainer from the plaintiff to Bartier Perry, which described the services to be provided by Bartier Perry as including "advising [the plaintiff] with regard to [his] Partnership in Paltos Milevski and in relation to the demands being made by [his] partner" (hereinafter, referred to as "the Retainer").
Sometime prior to 18 April 2016, Bartier Perry advised Mr Paltos that Mr Milevski could terminate the Partnership and suggested that Mr Paltos try to sell 20% of the partnership to Mr Milevski or dissolve the partnership, himself.
On 18 April 2016, Mr Milevski commenced proceedings in the New South Wales Supreme Court against the plaintiff, seeking dissolution of the Partnership. On the same date, 18 April 2016, Bartier Perry ceased to act for the plaintiff.
On 21 April 2016, the Court made orders, by consent, granting the relief sought by Mr Milevski, including that the Partnership be dissolved and receivers be appointed.
On 17 August 2016, the plaintiff lodged a Notice of Intention to Engage in Legal Practice with the Law Society of New South Wales under the name Paltos Family Lawyers Pty Ltd and in December 2016, the plaintiff returned to practise as a solicitor.
There are a number of obvious issues in the proceedings. One of those issues is what were the terms of the Retainer of the defendant, which goes to the question of the duty of care and the contractual terms upon which the defendant was engaged, and what work or advice was required as a consequence thereof.
Over and above those issues, the plaintiff alleges that, for the purpose of one or other of the three Partnership Documents, executed at the time that the Partnership was established, he was totally and permanently disabled, or suffering "TPD" (to be explained later in these reasons), and was not advised of his rights under the Put and Call Option Agreement arising from that circumstance. Involved in that question is the issue, on which the parties are in dispute, as to whether, in accordance with those Partnership Documents, Mr Paltos was, in fact, totally and permanently disabled, as understood in the Partnership Documents, and, whether or not, in that situation, Bartier Perry owed the plaintiff a duty of care to advise him of his rights under the Put and Call Option Agreement, arising from total and permanent disability or his medical issues.
Lastly, if liability be shown, did the plaintiff suffer loss and damage as a result of the breach of the duty of care that has been alleged and, if so, what is the quantum of damage. Involved in that latter aspect is an issue associated with contributory negligence.
Further, the Court was informed that proceedings were to be heard, raising some of these issues, in the Equity Division, being proceedings between Mr Paltos and Mr Milevski. The Court was informed that those proceedings, including an application for an account, were due to be heard to finality in August 2019. They have not yet been finalised, although some of these issues are better determined as between the partners, binding on them, than against the plaintiff and defendant herein.
The plaintiff pleads causes of action in breach of the Retainer (contract); professional negligence (breach of duty of care); and compensation under the Australian Consumer Law [1] (hereinafter "the ACL"). The first two causes of action are governed by the Civil Liability Act 2002 (NSW) (hereinafter "the CL Act").
The contraventions of the ACL that are said to give rise to the payment of compensation are contraventions of s 18 (misleading or deceptive conduct) and s 21 (unconscionable conduct in connection with goods or services, not confined to the unwritten law).
The claim for breach of the Retainer depends on the extent of the Retainer and its requirements and alleges that "the defendant did not exercise reasonable care, skill and diligence in advising and acting for the plaintiff in respect of the Retainer and its subject matter and thereby breached the Retainer." The provisions of s 5O of the CL Act govern the determination of that which amounts to reasonable care.
[2]
Partnership Documents
As earlier stated there are three documents that have been described, in these reasons for judgment, as the Partnership Documents. On 11 February 2016, Christopher Hugh McCaffrey, at the relevant time a Consultant to the defendant and an employed solicitor, organised a conference. The conference took place on 15 February 2016 at the plaintiff's residence. Those in attendance were the plaintiff, Mr McCaffrey and John Howell, an accountant from McBurney & Partners, who, it was said, could provide assistance to the plaintiff.
At the conference on 15 February 2016, Mr McCaffrey recalls that the plaintiff informed him of certain facts, in the following terms:
"I had a stroke two days before Christmas and I have not worked since."
"I am having trouble with the junior partner of my practice and I think that he is trying to push me out."
"I've been drawing more than my share from the partnership but the junior partner was aware of this and has not taken issue until now."
On 16 February 2016, at 10:57 AM, Mr McCaffrey sent an email to Mr Howell referring to the conference with the plaintiff on the previous day and attached a copy of the "Partnership Agreement". The attachment was a copy of a document provided to Mr McCaffrey by the plaintiff and was, in fact, the Put and Call Option Agreement.
Later on 16 February 2016, Mr McCaffrey enquired of the plaintiff as to whether there was any "more formal partnership agreement". On 17 February 2016, the plaintiff sent an email to Mr McCaffrey, which forwarded an email from Adam Crowley and attached two additional partnership documents, being the Heads of Agreement and the Partnership Terms. As a consequence, on and from 17 February 2016, the defendant had in its possession the three documents which are said to describe the entirety of the partnership arrangements between the plaintiff and Mr Milevski.
There are two fundamental aspects to which the Court must refer, before dealing with the evidence and facts deriving therefrom in these proceedings.
Those issues are the provisions of the CL Act, the provisions of the ACL and the three Partnership Documents. Because the Partnership Documents must each be read as a whole in their commercial context and are central to the issues between the parties in these proceedings and the rights of the plaintiff upon which it is said the defendant ought to have advised, it is necessary to recite a greater extract of those documents than might otherwise have been appropriate or, at least, to summarise them. Nevertheless, I start with the legislative background.
[3]
The Civil Liability Act
The CL Act applies to any claim for damages for harm resulting from negligence, whether or not the claim rests in tort, contract or otherwise. [2] "Damages" is defined [3] to include, subject to some currently irrelevant exemptions, any form of monetary compensation.
Further, "negligence" is defined [4] as any failure to exercise reasonable care and skill; "harm" is defined [5] to include economic loss; while "non-economic loss" is defined [6] to mean, essentially, loss other than economic loss, including pain and suffering. The CL Act applies to a cause of action based on the failure to exercise reasonable care and skill under a contract, including a retainer for services of a solicitor.
It is necessary then to deal with the general principles included in Pt 1A of the CL Act. By operation of s 5B, a defendant is not negligent in failing to take precautions against a risk unless the risk was foreseeable (i.e. the risk was such that the person knew or ought to have known of it); was not insignificant; and, in the circumstances, was a step that a reasonable person in the position of the defendant would have taken. [7]
Further, in determining whether a reasonable person would have taken those steps, one assesses, amongst other things, the probability that the harm would occur if the steps were not taken; the likely seriousness of the harm if it were to occur; the burden of taking the steps; and the social utility of the activity that creates the risk of harm. [8]
The foregoing provisions of s 5B of the CL Act are recited, more as a matter of abundant caution and not because they are directly relevant to the issues between the parties. The principles applied under s 5B of the CL Act determine what is not negligent; not what is negligent.
Further, in these proceedings, the parties only indirectly referred to precautions that ought to have been taken. Rather, the claim rests upon the proposition that the terms of the Retainer required advice on the rights that the plaintiff possessed as a result of the Partnership Documents, including the rights that would flow from TPD or total and permanent disablement, which advice was not given.
The provisions of s 5D of the CL Act require that the alleged "negligence" (a term here used to include the allegation that there was a failure to exercise proper care and skill under the Retainer) caused the harm that is alleged. The plaintiff must prove that the lack of care and skill was a necessary condition of the occurrence of the harm and that it is appropriate for the scope of the defendant's liability to extend to the harm so caused. At all times, the plaintiff bears the onus of proving, on the balance of probabilities, the facts that would satisfy the Court that the failure to provide appropriate care and skill in the advice, if there were such a failure, caused the harm. [9]
[4]
The Australian Consumer Law
As earlier stated, one of the causes of action pursued by the plaintiff in these proceedings rests upon the provisions of the ACL. It is necessary to recite the provisions upon which the plaintiff relies, which are ss 18 and 21 and which are in the following terms:
"18 Misleading or deceptive conduct
(1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."
"21 Unconscionable conduct in connection with goods or services
(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person; or
(b) the acquisition or possible acquisition of goods or services from a person;
engage in conduct that is, in all the circumstances, unconscionable.
…
(3) For the purpose of determining whether a person has contravened subsection (1):
(a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(4) It is the intention of the Parliament that:
(a) this section is not limited by the unwritten law relating to unconscionable conduct; and
(b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and
(c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of:
(i) the terms of the contract; and
(ii) the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract."
Essentially, the plaintiff's cause of action under s 18 of the ACL relies on the advice given being misleading or deceptive, in that it did not advise adequately, or at all, on the available remedy if the plaintiff were suffering TPD or a total and permanent disablement under the Put and Call Option Agreement. Alternatively, it relies upon the omission of advice on that issue as being misleading or deceptive.
The reliance on s 21 of the ACL is unusual. Essentially, the plaintiff submits, that, knowing of the plaintiff's disability or special disadvantage as a result of the plaintiff's strokes, the defendant unconscionably failed to advise, as the plaintiff claims the defendant should have.
[5]
The Partnership Documents
The foregoing discussion of principles deals with the legislative causes of action and, in relation to the CL Act, restrictions on or legislation governing the claim in tort and contract. However, at the heart of the proceedings is that which was contained in the Partnership Documents and the scope of the Retainer of the defendant. It is necessary to deal with the terms of the three documents that are said to give rise to the Partnership Agreement.
The first document with which the Court will deal is the document entitled "Heads of Agreement". The Heads of Agreement, so-called, consists of seven paragraphs and was executed on 29 June 2010. It is in the following terms:
"Heads of Agreement
DATED: 29 June 2010
PARTIES
(a) Dennis Paltos, Solicitor of 16/347 Victoria Place, Drummoyne NSW 2047
(b) Peter Milevski, Solicitor of 146 Windsor Street, Paddington NSW 2021
THE AGREEMENT
Dennis Paltos offers to Peter Milevski the opportunity to exercise 3 (three) call options to acquire up to a 30% interest in a partnership to be formed on 1 July 2010 between them as follows:
1 On 1 July 2010 a ten percent (10%) interest for a consideration of $77,394 (or such other amount as is agreed) due and payable on that date if exercised to Dennis Paltos.
2 On 1 July 2010 a loan to Dennis Paltos of $154,786 (or 2/3 of such other amount as is agreed) carrying a return by way of a profit share from the Paltos & Co practice over and above a notional salary of $150,000 comprising 30% of the net profit after both his and Dennis Paltos' notional salary which includes a return of 10% on (a) above.
3 On 1 July 2011 a further ten percent (10%) interest for a consideration of $77,394 (or 1/3 of such other amount as is agreed) due and payable on that date by reducing the loan owing by Dennis Paltos to Peter Milevski from $154,786 to $77,392 (or 1/3 of such other amount as is agreed) with the remainder subject to the same terms as (b) above.
4. On 1 July 2012 a further ten percent (10%) interest for a consideration of $77,392 (or 1/3 of such other amount as is agreed) due and payable on that date by reducing the loan owing by Dennis Paltos to Peter Milevski from $77,392 (or 1/3 of such other amount as is agreed) to zero.
5. Concurrent with the signing of this document the parties will enter into a Deed referred to as a 'Put/Call Option Document' as well as agreed terms on which the new partnership will be conducted.
6. From 1 July 2010 and assuming steps (1) to (5) are carried out by the Parties to this document, Peter Milevski will be entitled to receive:
6.1. A 'notional salary' of $150,000 drawn down in monthly amounts from which he is responsible for his superannuation and any taxes payable (deferred to April / May 2012 if a Tax Agent is used).
6.2. An additional draw of up to 30% of the Practice Net Profit from time to time after agreement with Dennis Paltos based on the estimated net profit for the year to date net of the notional salaries of the Partners.
7 From 1 July 2010 and assuming steps (1) to (6) are carried out by the Parties to this document, Dennis Paltos will be entitled to receive:
7.1. A 'notional salary' of $215,000 drawn down in monthly amounts from which he is responsible for his superannuation and any taxes payable.
7.2. An additional draw of up to 70% of the Practice Net Profit from time to time after agreement with Peter Milevski based on the estimated net profit for the year to date net of the notional salaries of the partners.
DATED: 29 June 2010
EXECUTED AS A DEED: …"
[6]
Principles on the construction of the agreements
It is now trite that the construction of a contract is an objective process in which the Court seeks to construe the terms of the contract to determine the intention of the parties. The intention of the parties is determined from the written terms of their bargain and not by any expression of subjective opinion. [26] The objective approach, to which the Court referred above, has, on a number of occasions, been re-affirmed by the High Court, [27] and the Court has observed:
"[35] … this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'." (References omitted.)
Further, the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [28] succinctly reaffirmed the process:
"[40] This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction." (References omitted.)
[7]
Evidence
The parties filed a Joint Memorandum of Agreed Facts and Issues in Dispute ("Agreed Facts"), which is extracted below. Further evidence was adduced by Affidavit with cross-examination available to the parties.
"Joint Memorandum of Agreed Facts and Issues in Dispute
1. Agreed Facts
1.1. The plaintiff, Dennis Paltos (Dennis) was admitted as a solicitor of the Supreme Court of New South Wales on 11 May 1979 and specialised in family law.
1.2. Dennis and Peter Milevski (Peter) conducted a family law practice (the Partnership) from 1 July 2010 under various names and styles.
1.3. The defendant law firm, Bartier Perry Pty Limited (Bartier Perry), was engaged by Dennis on or about 16 February 2016 to act on Dennis' behalf in relation to a dispute with Peter. Christopher Hugh McCaffrey (the Solicitor) was a solicitor employed by Bartier Perry having over 40 years' experience in commercial law and specialising in commercial agreements.
1.4. When the Partnership was established, Dennis and Peter entered into three documents all dated 29 June 2010 (the Partnership Documents) as follows:
1.4.1. Heads of Agreement;
1.4.2. Deed of Partnership; and
1.4.3. Put and Call Option (PCO).
1.5. From 1 July 2010 Dennis held a 70% interest in the Partnership and Peter held a 30% interest in the Partnership.
1.6. The PCO granted each partner (Dennis and Peter) an option (the Option) to require the other partner to purchase the business of the Partnership if, relevantly, conditions (such as total and permanent disablement of the partner exercising the option) were met. The Option could only be exercised under the PCO within the 'Option Exercise Period'.
1.7. On 23 December 2015, Dennis suffered a left middle cerebral artery stroke and a right posterior cerebral artery stroke (the Strokes) for which he was hospitalised. Dennis suffered executive impairments as a result of the Strokes, including memory problems and perseveration.
1.8. On 15 February 2016 Peter wrote to Dennis regarding the Partnership.
1.9. On or about 16 February 2016, Bartier Perry (by the Solicitor) commenced acting for Dennis. A formal written retainer (the Retainer) was entered into by Dennis and Bartier Perry on or about 29 February 2016. The Retainer relevantly stated that the following work was to be undertaken:
'advising you with regard to your partnership in Paltos Milevksi and in relation to the demands being made by your partner [Peter]'
1.10. It was an implied term of the Retainer that Bartier Perry would exercise reasonable care and skill in performing the Retainer. Further, Bartier Perry owed Dennis a duty of care to use reasonable care, skill and diligence in the provision of the legal services provided by Bartier Perry to Dennis pursuant to the Retainer.
1.11. From at least 16 February 2016 Bartier Perry (by the Solicitor) was aware of the Strokes and that Dennis suffered a number of symptoms arising from the Strokes.
1.12. Bartier Perry was provided with a letter from Dr George Lianos dated 24 February 2016.
1.13. Dennis provided the PCO to Bartier Perry prior to 16 February 2016 and the rest of the Partnership Documents to Bartier Perry on 17 February 2016.
1.14. Bartier Perry advised Dennis, inter alia, that Peter could seek to terminate the Partnership and that Dennis should adopt a strategy to try and sell 20% of the Partnership from his 70% share to Peter or otherwise dissolve the Partnership at 30 June 2018 (Advice).
1.15. Bartier Perry was aware from at least 14 March 2016 that Peter had registered:
1.15.1. Peev Holdings Pty Limited ACN 611 099 980 (Peev) with Peter its sole director, secretary and member; and
1.15.2. Milevski Family Lawyers Pty Limited ACN 611 104 753 with Milevski its sole director and secretary and Peev its sole member.
1.16. On 18 April 2016 Peter commenced Supreme Court proceedings against Dennis seeking the dissolution of the Partnership. On 18 April 2016 ex parte orders were made that the summons be returnable on 21 April 2016.
1.17. On 18 April 2016 Bartier Perry ceased to act for Dennis.
1.18. By email sent at 6.02pm on 20 April 2016 Dennis directly engaged Michael Lowenstein of counsel to appear on Dennis' behalf at the return of Peter's summons.
1.19. At the hearing on 21 April 2016 orders were made granting the relief sought by Peter including an order relevantly, that the Partnership be dissolved and receivers and managers be appointed.
1.20. Bartier Perry did not provide Dennis with the advice referred to at [29] of the further amended statement of claim (Statement of Claim) or undertake or attempt to undertake the calculation referred to at [30] of the Statement of Claim.
1.21. Dennis did not exercise the Option.
1.22. On or about 17 August 2016, Dennis lodged a Notice of Intention to Engage in Legal Practice form with the Law Society of New South Wales under the name Paltos Family Lawyers Pty Limited.
1.23. By at least December 2016, Dennis had returned to practice as a solicitor.
2. Issues in Dispute
2.1. What were the terms of the Retainer?
2.2. [Not agreed by plaintiff where underlined]: What was the meaning and effect of the Option, specifically:
2.2.1. What are the requirements for being 'totally and permanently disabled'?
2.2.2 Was the Option able to be exercised after the Partnership had been wound up?
2.2.3. Was there an implied term of the kind alleged by the plaintiff?
2.2.4 Was the option or the implied term engaged if the Partnership was wound up, or about to be wound up, for reasons that were unrelated to disablement, specifically a breakdown in the partners' relationship and/or misconduct or alleged misconduct by Dennis? [Plaintiff contends that it is not pleaded and not adequate particulars of misconduct have been provided].
2.2.5. If the alleged implied term exists, was engaged and was breached by Peter, does that breach sound in damages (given that, if so, Dennis still has that cause of action against Peter)? [Plaintiff contends that it is not pleaded].
2.3 Was Dennis 'totally and permanently disabled' for the purposes of the Option?
2.4. Would Dennis have been entitled to exercise the Option during the Option Exercise Period as defined in the PCO?
2.5. Did Dennis return to work in his usual occupation at any time prior to the:
2.5.1. Expiry of the Option Exercise Period? or
2.5.2. Termination of the Retainer?
2.6. Did the Option contain an implied term as pleaded at 11A of the Statement of Claim?
2.7. Did Bartier Perry have a duty of care, in contract or in tort (Duties), to advise Dennis of the Option including Dennis' right to exercise the Option?
2.8. Did Bartier Perry breach the Duties owed to Dennis by:
2.8.1. Providing the Advice to Dennis; or
2.8.2. Not providing to Dennis the advice set out at [29] of the Statement of Claim or undertaking or attempting to undertake the calculation referred to at [30] of the Statement of Claim?
2.9. Did Dennis suffer loss and damage as a result of the breach of the Duties by Bartier Perry? If so, what is the quantum of the loss and damage?
2.10. If the existence of the Option had been brought to the Court's attention on 21 April 2016, would this have prevented the dissolution of the Partnership and appointment of receivers?
2.11. Is Bartier Perry entitled to rely on (or has Bartier Perry established) the pleaded matters in answer to the whole of the Statement of Claim, as to which Bartier Perry asserts that:
2.11.1. Section 5O of the Civil Liability Act 2002 (NSW) applies;
2.11.2. Alternatively, Dennis has failed to demonstrate that had he received the advice at [29] of the Statement of Claim:
(a) he would have instructed Bartier Perry to exercise the Option on the basis that he was totally and permanently disabled;
(b) Bartier Perry would have been able to follow such instructions having regard to instructions from Dennis that he wanted to return to work;
(c) he would have been in a better position having regard to all the circumstances including, amongst other things, the plaintiff's express instructions which accepted he misconducted himself;
such that he suffered loss and damage by reason of the alleged breaches by Bartier Perry.
2.11.3. Alternatively, Dennis caused or contributed to his own loss and damage because he failed to:
(a) Inform Bartier Perry of his belief and intention not to return to work;
(b) Take reasonable steps to protect his own interests;
(c) Use his skills as a solicitor to read and understand the PCO or seek advice in relation to the Option.
2.11.4. Dennis' claim is an apportionable claim pursuant to Part IV of the Civil Liability Act 2002 (NSW) and, if so should be:
(a) apportioned between:
(i) Dennis on the basis he contributed to his own loss;
(ii) Michael Lowenstein of counsel who appeared in Court on behalf of Dennis on 21 April 2016;
(iii) Other unspecified parties from whom Dennis is alleged to have sought and obtained legal advice; and
(b) limited, having regard to Bartier Perry's responsibility in comparison to any other concurrent wrongdoer pursuant to section 35 of the Civil Liability Act 2002 (NSW).
2.11.5. Bartier Perry is immune from suit on the grounds that:
(a) The conduct alleged amounts to conduct of a case in Court by Bartier Perry and work done out of Court affecting the conduct of a case in Court;
(b) There was an intimate connection between the conduct alleged and the conduct of a case in Court; and/or
(c) There was a functional connection between the conduct alleged and the determination of the case by the Court.
2.12. Is there an implied representation in the provision to Dennis of the Advice, that there was no information known to Bartier Perry which a reasonable client in Dennis' position would expect to be disclosed but which was not disclosed?
2.13. If so, is such implied representation misleading or deceptive, likely to mislead or deceive and / or made in contravention of section 21 of the Australian Consumer Law (ACL)?
2.14. Did Dennis suffer loss or damage as a consequence of the contravention of the ACL, and if so, in what amount?"
[8]
The construction of the Partnership Documents
The Partnership Documents have been described and, in the case of the Heads of Agreement and the Partnership Terms, have been extracted in full. The length of the Put and Call Option Agreement militated against its recitation in these reasons, but, in every sense, the Put and Call Option Agreement is the most important Agreement in terms of the issues between the parties.
While the terms of the contract that deal with the grant and exercise of options have not been summarised in any length, in many respects the definitions and the preconditions to the grant or exercise of those options are far more important than the terms themselves. Nevertheless, that which is relevant to the issues in the proceedings will be summarised and/or quoted when relevant.
On one view, the Put and Call Option Agreement is a collateral contract to the Partnership Terms and to the Heads of Agreement. However, it would be misleading to take the view that the Put and Call Option Agreement is in any way subsidiary to the other two agreements. Rather, the three agreements make up the terms under which each of the plaintiff and Mr Milevski entered into the Partnership.
Clause 5 of the Heads of Agreement expressly refers to the "put/call option document", which can only be a reference to the Put and Call Option Agreement. Each of the agreements was executed at about the same time and, it seems, by counterpart.
As is clear from the Heads of Agreement, that document deals with the mechanism by which Mr Milevski was to purchase 30% of the interest in the Partnership. It refers to the timing of the payments; the salary drawdown during the time that the equity is being purchased and thereafter; and, as earlier stated, the concurrency of the Put and Call Option Agreement. Beyond that, as already noted, it is only necessary to reiterate that Mr Milevski purchased 30% of the Partnership and was, thereafter, a 30% interest holder in the continuing Partnership, at least until orders of the Court dissolved the Partnership in 2016.
The document described as the Deed of Agreement of Partnership Terms ("the Partnership Terms"), also extracted in full earlier in these reasons, is, similarly, not directly relevant to the allegations of "negligence" that are before the Court. Nevertheless, the document is part of the three documents that were executed at about the same time and is directly relevant to two issues of some note. Firstly, the overdrawing by the plaintiff of partnership earnings. Secondly, the provisions in clause 6 of the Partnership Terms, which provide mutual first rights of offer in the event that either partner desires to sell all or part of his Partnership interest and a "guideline" as to the manner in which fair market value shall be determined, without additional value for the obtaining of majority interest or diminished value on account of a continuing or existing minority interest.
[9]
Implied term
Having dealt with the degree to which it should have been obvious to anyone that the plaintiff was suffering a disability and the extent of that disability, whether or not the extent was known, and one of the constructions of the Put and Call Option Agreement, it is necessary to deal with the claim that there is an implied term in the, or attached to, the Partnership Documents. I comment that the parties have seemed to me like the proverbial ships in the night. Each of them is dealing with a slightly different point.
The plaintiff, in his Further Amended Statement of Claim, claims that:
"[11A] It was an implied term of the Put and Call Option that in the event of the TPD of an Owner or Incoming Partner when there is no Insurance Policy in place, the Owner or Incoming Partner that has not suffered the TPD will not take any steps that would disentitle the Owner or Incoming Partner that has suffered the TPD from exercising the Put Option during the Put Option Period (the implied term)."
The defendant denies the claim in the paragraph. The Defendant's Written Outline of Closing Submissions at [64] submits that the plaintiff contends for a particular implied term, worded in the manner described in the Further Amended Statement of Claim at [11A]. That is not my understanding of the claim.
Rather, the claim in [11A] of the Further Amended Statement of Claim is that there was, arising from the need to give efficacy to clauses 3.1 and 5.1 of the Put and Call Option Agreement and the defined term "TPD" in clause 1.1 of that agreement, an implied term to the effect of that described in [11A]. The precise wording of the pleaded implied term is not to the point. Nevertheless, the Court is required to determine whether there is a clause to that effect.
The particulars of the claim rely upon the necessity to give efficacy to clauses 3.1 and 5.1 of the Put and Call Option Agreement, as well as the definition of "TPD". These reasons have not previously recited the terms of clauses 3.1 or 5.1. The definition of TPD has been recited and the effect of clauses 3.1 and 5.1 has been summarised.
Clause 8.2(a) of the Put and Call Option Agreement provides that, with the exception of documents otherwise referred to in the agreement itself, the agreement contains "the entire understanding between the parties in relation to the subject matter" and there "are non [sic] express or implied conditions, warranties, promises, representations or obligations, written or oral in relation to this" agreement other than those expressly stated in it or necessarily implied by law. Leaving aside for present purposes the repetition of the exception to those matters expressly stated, the clause is, again, not well drafted. I do not here refer to the use of the term "non", which I assume should read "no", as I treat that as a typographical error.
[10]
Total and permanent disablement
The Court has already dealt, at some length, with the medical evidence relating to the capacity of the plaintiff. It has also remarked on its assessment of the plaintiff during the course of the proceedings before the Court. Further, the Court has identified one of the available constructions of the Put and Call Option Agreement and, in particular, the commencement of the Option Exercise Period, the Trigger Event and the meaning of TPD.
The circumstances of these proceedings are that the plaintiff did not have an Insurance Policy and, therefore, that part of the definition, found in paragraph (b) of TPD, applies to the plaintiff, as do the other provisions relating to an Exiting Partner, who does not have an Insurance Policy. The term used is total and permanent disablement; not total and permanent incapacity.
In the same way as the remainder of the Agreement, the construction of the term "total and permanent disablement" must derive from the words of the Agreement or Agreements, construed in a manner already described. It is "total and permanent disablement" in the context of the relationship between these parties that the Court must examine.
As a consequence, prior judgments on the meaning of the term total and permanent disablement, and, even more so, prior judgments on the meaning of the term "total and permanent incapacity" are of some, but not binding, authority. It should also be noted that the term used is "permanent"; not "indefinite".
I have been referred by the parties to Sutton on Insurance Law, [84] which has an informative discussion on the issue of TPD in life insurance policies. [85] The learned authors refer to the prescribed contract providing insurance cover in respect of the insured for "total disablement … from carrying out all the normal duties of his or her usual occupation". In this instance, it refers to disablement from disease, but similar provisions relate to accidental injury. [86]
Of interest is that the term "occupation" has been defined by the courts in relation to such insurance policies. [87] It is said to be a concept wider than "employment" and wider than "job"; it means usual vocation, business, trade or calling.
The term utilised in the definition of TPD in the Put and Call Option Agreement, comparable to the immediately foregoing, is the term "their usual working activities in their usual occupation". Otherwise, the term used is "death or total and permanent disablement". By comparison, in the definition of "Option Exercise Period", the term used is "their usual working activities", with no reference to occupation.
[11]
Requirement to Advise on the Put and Call Option Agreement
The Court has thus far dealt with the terms of the Retainer; the obvious degree of illness of the plaintiff; the meaning of TPD and whether it is the same as or different from "total and permanent disablement"; the terms of the Partnership Documents; and the principles for the construction of documents of this kind. One of the crucial issues between the parties is whether the defendant was required to advise on the operation of the Put and Call Option Agreement.
In some respects, that issue has been put too widely and too generally by each of the parties. In fact, on the evidence before the Court, the defendant did advise on the Put and Call Option Agreement. There is some evidentiary dispute, or, more accurately, there may be some evidentiary dispute, between the plaintiff and the defendant as to the nature of that advice.
The defendant maintains [95] that the Retainer required the defendant to advise the plaintiff "with regard to his Partnership in Paltos Milevski and in relation to the demands being made by his partner". There is an evidentiary issue, which in my view is of little moment, as to whether the advice was given that the Put and Call Option Agreement did not apply to Mr Paltos (simpliciter) or whether the advice was in the form of "the Put and Call Option Agreement did not apply to Mr Paltos at the time [or yet]". Being, the defendant submits, a reference to the requirement to meet the six-month time limit. Any more detailed advice was, on my findings, not given. The reconstruction of the defendant through Mr McCaffrey as to reasons it did not apply was not based on any note or reliable recollection.
There is no controversy that the defendant advised the plaintiff that the plaintiff's partner, Mr Milevski, could terminate the Partnership and suggested to the plaintiff that he try to sell 20% of his Partnership, thereby rendering the two partners equal partners in the Partnership. Further, at one stage, to which reference has been made earlier in these reasons, the issue was raised by the defendant, through Mr McCaffrey, that the plaintiff may wish to dissolve the Partnership himself.
There is also little or no doubt that, from time to time, and sometimes forcefully, the plaintiff expressed the view that he wanted to return to the Partnership and not give up practise as a solicitor. That instruction gives rise to a different consideration with which the Court will deal next in these reasons.
[12]
Misleading or Deceptive Conduct
As noted earlier, the defendant advised the plaintiff that the Put and Call Option Agreement did not apply to him at that time (or yet), seemingly, I infer, as a result of the requirement for six months to have elapsed, during which the plaintiff was unable to undertake his usual activities in his usual occupation in the Partnership. Nevertheless, the Put and Call Option Agreement applied to the plaintiff, but the plaintiff was not yet suffering TPD.
At the time that such advice was given, given the instructions that had been received from the plaintiff, the defendant was not in a position to be able to advance to Mr Milevski that the plaintiff had a total and permanent disablement and, therefore, the double stroke on 23 December 2015, could not, at that stage, have been acted upon as a "Trigger Event". Nevertheless, the advice that was provided, when it was provided, was misleading or deceptive, in that on and after 23 December 2015, there had, on one view of the proper construction of the Deed, been a "Trigger Event" and an Option Notice could have been served.
It was misleading to advise that the Put and Call Option Agreement "did not apply" or "did not apply yet" (or give that impression) to the plaintiff. The difficulty is that the defendant in advising that a Trigger Event had occurred would have faced "front on" the stated desire of the plaintiff to return to work.
The plaintiff relies upon the omission to advise on or after 13 April 2016, by which time, the defendant was in a position of knowing that the double strokes of 23 December 2015 had occasioned disablement and the plaintiff desired the sale of his Partnership Interest. It is necessary, as the Court has already mentioned, in dealing with whether the failure to advise was misleading or deceptive, to examine the whole of the conduct of the defendant.
It is not clear from any of the material before the Court that the plaintiff was relying upon or acting upon the advice that the Put and Call Option Agreement did not apply to him at that time.
Of course, the content of that advice did not make clear to the plaintiff that the Put and Call Option Agreement did not apply to him because he had not suffered, on his instructions, total and permanent disablement. Rather, if the defendant had advised on the reasons at all, the defendant had advised that it was the inability to satisfy the required six-month time period that disentitled the plaintiff from any rights under the Put and Call Option Agreement.
[13]
Conclusion on liability
At the outset of these reasons, the Court remarked that each of the Partnership Documents was not well drafted. Further, to have a serious business relationship between two partners in a law firm governed by ill-drafted documents makes it difficult when that relationship breaks down.
There can be little or no doubt that the plaintiff suffered significant disablement as a result of his two strokes on 23 December 2015. So much is conceded in the notes taken by the defendant or its agents. Notwithstanding that disablement, the plaintiff insisted that he desired to return to his practice in the Partnership. Ultimately, he acted upon his desire to continue to practise law, even though he could not successfully run a practice at that later time.
As a consequence of those instructions, the task of the solicitor was difficult. It may well have been that the plaintiff was under a formal disability or incapacity, such that a tutor should have been appointed. That is not an issue that has been agitated in these proceedings, but the documentation, at least as between Mr McCaffrey and Mr Howell and Mr Creais was that, at least in relation to his financial affairs, that issue should have been contemplated.
It is bewildering that an accountant would consider it necessary to advise on the appointment of a financial tutor, but the solicitors acting for him did not give that issue consideration in relation to his capacity to give instructions. I accept that, given the plaintiff's significant experience as a solicitor, he could, whatever be his lack of insight and disablement, give some impression of a capacity to understand legal issues, based upon his experience in handling them. Nevertheless, it should have been, and in my view was, obvious to the defendant that the plaintiff had significant disablement issues.
Nevertheless, it cannot be negligent for the defendant, in those circumstances, to have acted on the instructions of the plaintiff that he wished to return to the Partnership and, as a consequence, not to rely upon any total and permanent disablement. The fiduciary duties to a client with disability are not uncomplicated. [106]
The defendant was not dealing with an uneducated client of low-average intelligence and education. It was dealing with a person with whom the solicitor with carriage of the matter had had a long association and he would have been, at least initially, aware of his capacity. However, that capacity also would have been obviously affected by the double strokes. [107]
[14]
Damages
The defendant seeks to rely on three issues on the question of damages. First, it raises concurrent wrongdoer, being counsel briefed directly to appear at the proceedings in Equity in 2016. Counsel, Mr Loewenstein, was briefed at 6:02 PM on 20 April 2016 to appear before the Court, as otherwise constituted, on 21 April 2016.
It is not clear with what material Mr Loewenstein was briefed, but he was not briefed with the Put and Call Option Agreement. There are three reasons that he is not a joint wrongdoer. First, the advice (assuming there was some, at least oral advice) has not been shown to be negligent or in breach of contract. Secondly, the Consent Orders issued by the Court dissolved the Partnership. The dissolution of the Partnership, or consent thereto, did not cause damage to the Plaintiff. Thirdly, the immunity of counsel in such a circumstance is beyond question. It would be odd if, notwithstanding immunity, counsel could be a joint tortfeasor or joint wrongdoer (i.e. in contract), even though unable to be the subject of suit. It is unnecessary to decide the last issue, relating to whether a person under immunity can be a joint wrongdoer, because no concurrent wrongdoing can arise as a result of the other two aspects.
The defendant relies on other unidentified persons, from whom, it submits, [142] the plaintiff received advice and they were, as a consequence, joint wrongdoers. The defendant submits that the conduct of these unidentified persons should reduce the damages awarded to be paid by the defendant. I am unaware of any such advice.
Further, there is no suggestion that such persons, if any, were under any contractual or proximate relationship such as to make any advice that may have been lacking in due care and skill (assuming the existence of such a duty) actionable or place them in the position of a "wrongdoer", joint or otherwise. This claim is rejected.
Secondly, the defendant raises, as a reason for reducing or eliminating the damages against it, the contributory negligence of the plaintiff. [143] The issue of contributory negligence does not depend on the defendant's perception of the plaintiff's capacity. The evidence at the hearing discloses that the plaintiff had significantly impaired executive functioning and could not make complex decisions or decide on tactics.
Further, the plaintiff engaged the defendant to provide the advice on matters which he felt he could not handle himself. The test for contributory negligence is the same, the necessary damages being made, as that for primary liability. [144]
[15]
Endnotes
Sch 2 of the Competition and Consumer Act 2010 (Cth).
Section 5A of the CL Act.
Section 3 of the CL Act.
Section 5 of the CL Act.
Ibid.
Section 3 of the CL Act.
Section 5B(1) of the CL Act.
Section 5B(2) of the CL Act.
Section 5E of the CL Act.
Section 5O of the CL Act.
Blomley v Ryan (1956) 99 CLR 362; [1956] HCA 81; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 461 and 474; [1983] HCA 14.
Hurley v McDonald's Australia Ltd [1999] FCA 1728.
(2019) 93 ALJR 743; [2019] HCA 18.
Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65.
Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45; [2000] HCA 12 at [105]; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; [1982] HCA 44; Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60.
(1982) 149 CLR 191 at 198.
Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202-203; [1982] FCA 136, cited with approval in the plurality judgment of Campbell v Backoffıce Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25.
Taco Company of Australia Inc, supra, per Deane and Fitzgerald JJ.
Clause 8.1 of the Put and Call Option Agreement.
Clause 8.2 of the Put and Call Option Agreement.
Clauses 8.3, 8.4 of the Put and Call Option Agreement.
Clauses 8.5 - 8.7, 8.10 of the Put and Call Option Agreement.
Clause 9 of the Put and Call Option Agreement.
Clause 8.13 of the Put and Call Option Agreement.
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 351; [1982] HCA 24 per Mason J (with whom Stephen and Wilson JJ agreed); Hospital Products Limited v United States Surgical Corporation and Others (1984) 156 CLR 41 at 62; [1984] HCA 64; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179; [2004] HCA 52; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37.
164 CLR 539; [1988] HCA 15
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26
Hospital Products Limited v United States Surgical Corporation and Others (1984) 156 CLR 41; [1984] HCA 64
Hurley v McDonald's Australia Ltd [1999] FCA 1728
In the Estate of A.P. Kearney [1937] 44 WN(NSW) 117
Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
Keddie v Stacks/Goudkamp Pty Ltd (2012) 293 ALR 764; [2012] NSWCA 254
Kendirjian v Lepore (2017) 259 CLR 275; [2017] HCA 13
Kekatos v Sanson & Anor [2009] NSWCA 171
Koompahtoo Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61
Law Society of Singapore v Uthayasurian Sidambaram (2009) 4 SLR 674; [2009] SGHC 184
Laybutt v Amoco Australia Ltd (1974) 132 CLR 57; [1974] HCA 49
Luckin v Hamyln (1869) 21 LT 366
Mabbett v Josef and Sons Contracting Pty Ltd [2006] NSWSC 1452
Mackay v Dick (1881) 6 AC 251
Malec v J C Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20
Mannigel v Aitken (1985) 9 FCR 1
May v Mijatovic (2002) 26 WAR 95; [2002] WASC 151
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
Murdoch v British-Israel World Federation (New Zealand) Inc [1942] NZLR 600
Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; [1982] HCA 44
Pease v Courtney [1904] 2 Ch 503
Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45
Qantas Airways Ltd v Cameron, Leonie (1996) FCR 246; [1996] FCA 349
R v Barclay (1882) 8 QBD 486
R v Gray; Ex parte Marsh (1981) 157 CLR 351; [1985] HCA 67
R v Oakes [1959] 2 QB 350
Re Bradbury, Needham v Reekie [1950] 2 All ER 1150; [1951] 1 TLR 130
Re Glyn, Public Trustee v Attorney General [1950] 66 TLR(Pt. 2) 510
Re Scowcroft [1898] 2 Ch 638
Re The Licensing Ordinance (1968) 13 FLR 143
Riley v Pickersgill [2004] UKPC 14; [2004] 4 LRC 471
Roads and Traffic Authority of NSW v Dederer (2007) 234 CLR 330; [2007] HCA 42
Samper v Hade (1889) 6 WN (NSW) 77
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; [1979] HCA 51
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4
Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359; [1931] HCA 21
State of New South Wales v Shaw (2015) 97 NSWLR 169; [2015] NSWCA 97
Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; [1982] FCA 136
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632
Trust Co of Australia v Perpetual Trustees WA Ltd (1997) 42 NSWLR 237
Ward v Metlife Insurance Ltd [2012] WADC 166
Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65
Texts Cited: Enright & Merkin, Sutton on Insurance Law, 4th ed (2014)
PLG Brereton, "Acting for the Incapable - A Delicate Balance" (2012) 35 Australian Bar Review 244
Category: Principal judgment
Parties: Dennis Paltos (Plaintiff)
Bartier Perry Pty Ltd (ACN 124 690 053) (Defendant)
Representation: Counsel:
C Freeman (Plaintiff)
J Emmett / H Grace (Defendant)
Most relevantly, particular limitations are placed upon the standard of care for professionals. In this case, it is alleged that, as a solicitor, under the terms of the Retainer, the defendant did not act with due care and did not exercise professional skill. As a consequence, there are particular provisions that deal with liability arising from such an allegation.
In short, a professional does not incur liability in tort or contract for a failure to exercise reasonable care and skill in the provision of the defendant's professional service, if the defendant establishes that it acted in a manner that was, at the time, widely accepted by peer professionals. [10] There is no evidence in these proceedings that a peer professional would not advise on the right to claim for TPD or total and permanent disability, if there were such a right, or whether such advice was required under the terms of the Retainer.
As a consequence, it seems that the terms of s 5O of the CL Act have little or no work to do. It falls to the Court to determine whether, on the terms of the Retainer, there was a requirement to advise on the rights for TPD or total and permanent disablement, in the circumstances with which the defendant was dealing.
Ordinarily, unconscionability or unconscionable conduct is used in circumstances where there is a special disadvantage, known to the other contracting party, and the other contracting party takes advantage of that circumstance. It is not absolutely clear, how it can be said the defendant took advantage of the special disability suffered by the plaintiff.
Unconscionability occurs in circumstances where one party to a transaction is at a special disadvantage in dealing with the other party because of illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affecting her or his ability to protect her or his own interests and the other party unconscientiously takes advantage of the opportunity thus placed in her, his or its hands. [11]
The foregoing very brief and overarching definition of unconscionability is not intended to be a codification of that which may be able to be remedied by equity, or under the statute, but it is clear, on the authorities, that for there to be unconscionability there must be more than "unfairness". Moreover, in this case, the plaintiff is seeking to use unconscionability not to undo an unconscientious advantage that had been taken by the defendant (or to obtain damages as a result thereof) but, rather, to impose upon the defendant a higher duty of care as a result of the statutory prescription. There may well have been, as a result of the injuries to the plaintiff, a duty of care to advise in a manner that took into account the "special disadvantage", but, there is a real issue as to whether such a duty of care amounts to a cause of action for unconscionable conduct.
It is, of course, unnecessary for the party acting unconscionably to have caused the special disadvantage of which it takes unconscientious advantage. It is sufficient for the stronger party to have been aware of the special disadvantage and to have taken unfair advantage of it.
In order for conduct to be "unconscionable", it is, at least, required that the person alleging unconscionability show, on the balance of probabilities, that the impugned conduct had shown "no regard for conscience"; and that the conduct was inconsistent with that which is right or reasonable, [12] which, as a consequence, imports a pejorative moral judgement. [13]
Ordinarily, unconscionability requires more than negligence. It requires moral fault or responsibility. However, the limits of unconscionability have not been codified or described. This is almost axiomatic as each set of facts will be unique, or at least particular.
Recently, the High Court commented on the purported extension of unconscionability arising from a number of statutory enactments, each of which is said not to be limited by the unwritten law relating to unconscionable conduct. In Australian Securities and Investments Commission v Kobelt, [14] the High Court considered the term "unconscionability" as part of the provisions of the Australian Securities and Investments Commission Act 2001 (Cth). The plurality judgment discussed the issue of unconscionability as did Gageler J in his reasons for judgment as part of the majority. At [88], Gageler J said:
"[88] The Commonwealth Parliament's appropriation in s 12CB of the terminology of courts administering equity in the expression of the normative standard which the section prescribes serves to signify the gravity of the conduct necessary to be found by a court in order to be satisfied of a breach of that standard. 'Unconscionability', as has been long and well understood, 'is not a slight matter, and behaviour is only unconscionable where there is some real and substantial ground based on conscience for preventing a person from relying on what are, in terms of the general law, that person's legal rights'." (Citations omitted.)
The notion that unconscionability may be used, as the plaintiff seeks to use it here, is, on one view, axiomatically outside the purview of the provisions of s 21 of the ACL.
The foregoing does not detract from the claim for misleading or deceptive conduct. Nor does it affect the capacity of the plaintiff to claim under a cause of action in negligence or breach of contract.
I turn then to the provisions proscribing misleading or deceptive conduct, being the terms of s 18 of the ACL, recited above. The words of the section ought not be given a gloss, but applied in their ordinary and natural meaning and given their wide import.
The statutory provision, the progenitor of which is s 52 of the Trade Practices Act 1974 (Cth), is not based upon any previously applicable cause of action in common law or equity. It is not identical, or even similar, to the torts of deceit or passing off, although there are some aspects, particularly of the tort of deceit, which may be used helpfully in understanding particular conduct.
The provisions of s 18 of the ACL do not, of themselves, create liability. It prohibits conduct, in trade and commerce, and a contravention of that prohibition gives rise to damages, pursuant to other provisions of the statute.
The conduct that has been prescribed by s 18 of the ACL includes conduct that is "likely to mislead or deceive". Hereinafter, to the extent that the Court refers to "misleading or deceptive", it is intended that the term include conduct that is "likely to mislead or deceive", unless obviously used otherwise, either expressly or by implication.
Conduct that may be misleading or deceptive includes all conduct and, in particular, includes the making of a representation or statement, which is misleading or deceptive (or, as earlier stated, likely to mislead or deceive).
In order for a plaintiff to succeed in a claim for damages arising from a contravention of s 18 of the ACL, the plaintiff is required to satisfy the court that the conduct, which is said to be misleading or deceptive, led to the making of a decision or led to consequential conduct by or on behalf of the plaintiff that caused the damage. In this sense, the ordinary principles of causation apply to a cause of action for contravention of s 18 of the ACL.
Because of the use of the term "likely to mislead or to deceive", the latter comment should be qualified by making clear that all that is required is for the plaintiff to satisfy the court that there is or was a real and not remote chance or possibility of being misled or deceived. It is not necessary to show that the possibility is more probable than not.
The section requires an objective assessment of the conduct and is not concerned with the subjective belief induced by the conduct. Nevertheless, the effect needs to be one that will affect, more probably than not, the mind of the person who is purportedly misled or deceived. The court must determine whether that person has suffered damage as a consequence of misleading or deceptive conduct or was likely to be misled or deceived by that conduct.
Conversely, the court is not concerned with an intention by the defendant to mislead or to deceive. Except where the conduct involves the mere passing of information, without endorsement, and the passing of the information is disclosed at the time, the intention of the person who is said to have misled or deceived the plaintiff, in this case the defendant, is irrelevant. Regardless of intention, a contravention may have occurred. [15]
It is also necessary to point out that it is the whole of the conduct of the defendant that must be examined in order to determine whether particular words or acts are, in the context of the whole conduct, misleading or deceptive. In that sense, even words that are technically accurate, or literally true, may be misleading or deceptive, if the statement conveys a meaning that is false.
The last mentioned aspect is a particularly important principle, when one is dealing with the current proceedings, because, in part at least, the claim of the plaintiff is based upon an omission to advise or a failure to advise properly. Further, where one is dealing with conduct that comes no higher than being likely to mislead or deceive, there may be real issues with damages ever being caused by such conduct, because it has not, in fact, misled or deceived.
However, the Court looks at the whole of the conduct said to be provided purportedly in satisfaction of duties established by the Retainer and determines whether that advice was misleading or deceptive, because, on the claim of the plaintiff, it omitted advice as to the rights of the plaintiff under the Put and Call Option Agreement.
In this context, assuming and accepting, for present purposes that the provision of advice from a solicitor is conduct in trade and commerce, the court asks itself the question whether the omission, or the totality of the advice, led to an objectively-determined misleading of the plaintiff to whom the advice was provided and to whom the representation was made.
Notwithstanding the foregoing analysis relating to the requirement to make an objective analysis, the fact, if it be the fact, that the recipient of this statement or the person to whom the representation was made, was, in truth, misled is relevant evidence in the proceedings. For obvious reasons, as earlier adumbrated, if the person was not misled or deceived, then there would be no cause of action in damages, because the representation would not have caused whatever damage may have occurred.
Even though that which is represented is an opinion, it may amount to misleading or deceptive conduct. This occurs, at least, where, even if genuinely held, the opinion lacked any or any adequate or rational foundation, or omitted to advise on a salient factor which qualifies the advice otherwise provided.
Apart from the exception in those two kinds of examples, a representation of an opinion, or the expression of an opinion, will not be actionable on the basis that it is incorrect. The expression of an opinion, genuinely held, will not be misleading or deceptive conduct, if it is a representation only that the opinion is genuinely held. However, ordinarily, an expression of opinion by an expert, as in this case, imports that the opinion has a rational basis and is an opinion open on all of the facts known to the professional.
Ultimately, in applying the provisions of s 18 of the ACL, the Court is required to examine whether the evidence establishes that the pleaded representations or conduct of the defendant that form the basis of the cause of action were misleading or deceptive. [16]
In Parkdale Custom Built Furniture, Gibbs CJ, referring to the use of the term "misleading or deceptive", said the following at [8]:
"[8] The words of s. 52 require the Court to consider the nature of the conduct of the corporation against which proceedings are brought and to decide whether that conduct was, within the meaning of that section, misleading or deceptive or likely to mislead or deceive. Those words are on any view tautologous. One meaning which the words 'mislead' and 'deceive' share in common is 'to lead into error'. If the word 'deceptive' in s. 52 stood alone, it would be a question whether it was used in a bad sense, with a connotation of craft or overreaching, but 'misleading' carries no such flavour, and the use of that word appears to render 'deceptive' redundant." [17]
The contravening conduct or allegedly contravening conduct, said to be misleading or deceptive in contravention of s 18 of the ACL, must induce error and must involve the target of the misrepresentation or deception labouring under some erroneous assumption. [18]
As earlier stated, evidence that someone has been misled is not conclusive of the fact. Nevertheless, evidence that the plaintiff has been misled is admissible and, subject to the conduct being tested against ordinary or reasonable persons in the position of the plaintiff, may be persuasive. In that situation, it is necessary to enquire how and why the misconception, upon which the plaintiff has acted, has arisen. [19]
The Court has set out the whole of the Heads of Agreement, because it, to some extent, sets the context for that which is relevant in the other two documents; and it is brief. Of greatest relevance in the Heads of Agreement is the description of the offer from the plaintiff to his business partner, Peter Milevski, of the opportunity to exercise three call options to acquire up to a 30% interest in the Partnership. Those call options were to be exercised on 1 July 2010, with a collateral loan; a further 10% on 1 July 2011; and, finally, the third 10% on 1 July 2012. They were exercised.
Further, by [5] of the Heads of Agreement, there is reference to the existence or creation of agreed terms on which the new Partnership will be conducted and, most importantly, the entry into a collateral "Deed" referred to as the "Put/Call Option Document".
The second document to which the Court refers is a document entitled "Deed of Agreement of Partnership Terms" (also referred to herein as "the Partnership Terms"), also said to have been executed on 29 June 2010. The Partnership Terms consist of 10 paragraphs, the most relevant of which are [6] and [8]. Notwithstanding the most relevant aspects being the two nominated paragraphs, the Court, also in part due to the brevity of the document, will set out the entirety of the Partnership Terms, which is in the following terms:
"Deed of Agreement of Partnership Terms
DATED: 29 June 2010
PARTIES
(a) Dennis Paltos, Solicitor of 16/347 Victoria Place, Drummoyne NSW 2047
(b) Peter Milevski. Solicitor of 146 Windsor Street, Paddington NSW 2021
THE AGREEMENT
1. Drawings, salaries, superannuation and other benefits to be paid to partners and staff to be agreed by unanimous vote.
2. Cheque signatories to the bank account to be agreed.
3. Borrowings in the name of the Partners for the practice are to be approved by both partners and personal guarantees are to be offered as security in proportion to the partners' equity interests in the practice.
4. Major acquisitions of fixed assets, lease Improvements or equipment whether owned or financed exceeding $10,000 per item or contract requires the unanimous agreement of the partners.
5. Voting on the entry or exit of partners or prospective partners is to be by unanimous vote including the sale or merger of the practice.
6. Peter Milevski has first right of offer in the event Dennis Paltos (or his heirs) wants to sell all or part of his partnership interest and Dennis Paltos has first right of offer in the event Peter Milevski (or his heirs) wants to sell all or part of his partnership interest. The fair market value of the partnership (including goodwill if any) shall be determined by a competent valuer and the pro-rata interest of the partner shall be determined without allowing for a discount for minority interest nor a premium for control.
7. Partner meetings are to be held monthly shortly after the completion by the bookkeeper of the previous month's results.
8. Each Partner covenants that he will endeavour to faithfully account for all fees earned on behalf of the partnership and not change any partnership assets without the consent of the other partner. In the event a partner wants to exit the partnership he will agree to enter into a reasonable non-compete or restraint of trade agreement mutually acceptable to both parties.
9. Related party transactions such as premises rent/leases, loans and motor vehicle costs are to be agreed by both partners.
10. The Partners agree with each other that they will not, except as required by law at any time divulge to any person any trade secret, financial or business practice or other information concerning the affairs of the Practice, any of its dealings, transactions or affairs.
DATED: 29 June 2010
EXECUTED AS A DEED: …"
The obvious reference to the relevance of [6] of the Partnership Terms is the seeming first right of refusal or first right of offer in the circumstance that either one of the Partners desires to sell their interest in the Partnership. That paragraph also embodies, albeit in very general terms, the basis upon which the market value of the Partnership shall be ascertained.
Paragraph [8] refers to the duty by each Partner faithfully to account for all fees earned on behalf of the Partnership and not to encumber partnership assets without the consent of the other Partner. Further, as can be seen from [8] above, there is another reference to the possibility of a Partner seeking to exit the Partnership, in which case there will be "a reasonable non-compete or restraint of trade agreement mutually acceptable to both parties" upon which the exiting Partner will agree. There is no definition of what is "reasonable" and the content of the paragraph, on one view, seems to indicate an agreement to make a subsequent agreement, if and when the situation may arise.
Lastly, the Court turns to the Put and Call Option Agreement also executed on 29 June 2010. This is the most substantial agreement. There are a number of Recitals, including a recital that the Owner, defined in the document as Dennis Paltos, the same Mr Paltos as is the plaintiff in these proceedings, is prepared to sell to the Incoming Partner (defined as Peter Milevski) an interest in the practice previously operated solely by Mr Paltos, including the goodwill of the practice but excluding practice debts. Recital C summarises an effect of the Heads of Agreement and is in the following terms:
"C By this Deed the Owner is prepared to sell to the Incoming Partner an interest in the Paltos & Co practice assets including the goodwill of the practice but excluding practice debts as specified in Annexure 'A' to this Deed. The interest to be sold by the Owner to the incoming Partner is to occur in three stages as follows:
a) a 10% interest of the whole on 1 July 2010 for a consideration of $77,394 (or such other amount as is agreed);
b) a further 10% interest of the whole on 1 July 2011 for a consideration of $77,393 (or such other amount as is agreed);
c) a further 10% interest of the whole on 1 July 2012 for a consideration of $77,393 (or such other amount as is agreed)."
Recital D refers to the Owner and Incoming Partner granting "Call Options" to each other after 1 July 2010 and "Put Options" to effect the purchase and sale of the practice interests, subject to the terms and conditions set out in the Put and Call Option Agreement. Unlike the other two Partnership Documents, the Put and Call Option Agreement is described in the document itself as "the Deed".
Recital D is in the following terms:
"D By this Deed the Owner and incoming Partner grant Call Options to each other after 1 July 2010 and are granted Put Options by each other in order to effect the purchase and sale of the practice interests subject to the terms and conditions set out in this Deed."
In the body of the document, under the heading "General Terms Definitions and Interpretation", there are a number of definitions. Some of those definitions are crucial in the determination of the issues between the parties. I do not recite each of the definitions, even though almost all of them are relevant. However, the most relevant definitions are set out below:
"'Call Option' means the option granted under clause 2.1 of this Deed by an Exiting Owner to an Ongoing Owner which may be exercised by an Ongoing Owner and by which, upon its exercise and subject to the terms of this Deed, the Exiting Owner is obliged to sell and the Ongoing Owner is obliged to purchase the Business Interests of the Exiting Owner."
"'Completion Date' means the later of:
a) The date that is 30 days after the date on which the respective Call Option or Put Option is exercised; or
b) Such other date as the parties unanimously agree to be the date on which the transfer of Business Interests as contemplated by this Deed is completed."
"'Exiting Owner' means the Owner or Incoming Partner who has exercised either a Put Option granted to him under the terms of this Deed or has been served with an Option Notice exercising a Call Option granted by him under this Deed."
"'Market Value' means the amount calculated in accordance with Schedule C and where there is a dispute as to the application of this formula then the Market Value is the value of the Business interests as determined by an accountant appointed by the President of the Institute of Chartered Accountants for New South Wales and:
a) they are to be instructed to value the Business Interests using the formula set out in Schedule C;
b) no discount or uplift Is to be applied merely because:
i) the number of Business Interests being transferred is a minority holding or is a majority holding or is neither a minority holding nor a majority holding; or
ii) the Business Interests being transferred are not being transferred with all of the other Business Interests; and
c) their decision is that of an expert not an arbitrator and their valuation is binding on the parties."
"'Ongoing Owner' means an Owner or Incoming Partner who has exercised a Call Option granted to them by an Exiting Owner under this Deed or has been served with an Option Notice exercising a Put Option granted by them under this Deed and includes a person who has had rights to acquire Business Interests from an Exiting Owner as contemplated by this Deed assigned to them in accordance with clause 2.5."
"'Option Exercise Period' means the 30th day after the following days:
a) in the event of the death of an Owner or Incoming Partner - the date of death;
b) in the event of the TPD of an Owner or Incoming Partner - the date that the TPD event (as defined in the Insurance Policy) occurred or, if there is no such Insurance Policy in place, the date on which the Principal has not been able to carry out their usual working activities for a period of six consecutive months."
"'Option Notice' means written notice of an Owner's or incoming Partner's exercise of the Call Option or Put Option granted to them under this Deed being in the form or in similar form to that set out in Schedule B."
"'Purchase Price' means in relation to Business Interests that are transferred in accordance with this Deed, the amount calculated in accordance with the following formula:
[A% x B] - C
Where
A = the percentage that the Business Interests held by the Exiting Owner bears to the total of all business interests of that class;
B = the Market Value of all Business Interests;
C = the amount of the sum insured received by the Related Insurance Owner of the Insurance Policy (if any) in respect of the Owner or Incoming Partner who suffered the Trigger Event,
provided that, if the application of this formula equals zero or a negative number then the Purchase Price is $1.00."
"'Put Option' means the option granted under clause 2.2 of this Deed by an Ongoing Owner to an Exiting Owner which may be exercised by an Exiting Owner and by which, upon its exercise and subject to the terms of this Deed, the Ongoing Owner is obliged to purchase and the Exiting Owner is obliged to sell the Business Interests of the Exiting Owner."
"'TPD' means total and permanent disablement of an Owner or Incoming Partner and:
a) If there is an Insurance Policy In place in respect of an Owner or Incoming Partner, TPD has the meaning given in that Insurance Policy;
b) If there is no Insurance Policy in place in respect of an Owner or Incoming Partner, TPD means the existence of circumstances where, because of injury or illness, the Owner or Incoming Partner has not been able to carry out their usual working activities in their usual occupation for a period of six consecutive months." (Emphasis added in this definition.)
Clause 2 of the Put and Call Option Agreement deals with the grant of options and clause 3 with the exercise of options.
Essentially, clause 2 deals with the grant of Call Options and the grant of Put Options and the definition of proportionate interests. Each of the Put and Call Options are granted subject to the occurrence of the Trigger Event, which is also a defined term and is defined as meaning "the death or total and permanent disablement of an Owner or Incoming Partner".
One of the issues in these proceedings is whether the term "total and permanent disablement" is synonymous with the term "TPD" and, whether, the term "total and permanent disablement" includes the definition in paragraph (b) of the definition of TPD. The term "total and permanent disablement" is not expressly defined in the Deed.
Clause 3 of the Put and Call Option Agreement deals with the exercise of options and, most relevantly, requires the options, granted under clause 2 of the Deed, to be the subject of an Option Notice on the other Owner and Incoming Partner within the Option Exercise Period, which, from the above definitions, is, relevantly, "the 30th day after the date that the TPD event occurred", or, in the case of the non-existence of an Insurance Policy (which is the circumstance in these proceedings), "the date on which the principal has not been able to carry out their usual working activities for a period of six consecutive months".
Assuming, for present purposes, that a Put Option or Call Option is exercised within the Option Exercise Period, the Exiting Owner is bound to sell and the Ongoing Owner is bound to purchase the Exiting Owner's Business Interests in accordance with the terms provided in clause 5 of the Deed, which includes the calculation to which reference is made in the definition of Purchase Price, above.
Most relevantly, by clause 5.1(c), the Put and Call Option Agreement provides that the "completion of the sale and purchase of the Business Interest must take place on or before the Completion Date at such place as the Owner who first exercises the Call Option or Put Option specifies in the Option Notice". Clause 5.1(e) provides that "an Owner or Incoming Partner who has suffered TPD is prohibited from holding any office or any other management role in any Business Entity and must resign from holding any such offices or roles within seven (7) days of the Trigger Event being determined as having occurred".
Clause 6 deals with mutual guarantees and indemnities and, while relevant in general, does not directly impact upon the issues between the parties. Similarly, clause 7 of the Put and Call Option Agreement deals with termination and provides that the "Deed can be terminated only by the unanimous written consent of all parties".
There is a provision [20] that the governing law will be "the law of the Jurisdiction and the Commonwealth of Australia", the "Jurisdiction" having been defined as New South Wales. There are also provisions [21] dealing with the proposition that the Deed is the entire Agreement. Other clauses [22] deal with the severability of any invalid, void or unenforceable provision and the binding effect of the other or remaining provisions.
The remaining provisions of the Put and Call Option Agreement deal with amendment; assignment; how notices can be delivered; the execution of the document in counterparts; and the like. [23] There is also a provision for dispute resolution, [24] which, in relation to the Partnership dispute between the plaintiff herein and Mr Milevski, does not seem to have operated or been effective.
Lastly, there is a provision [25] that deals with any inconsistency between a provision of the Deed, clearly a reference to the Put and Call Option Agreement, and any other "constituent document of the Business Entity" (including, somewhat unusually, the company constitution), which, if there be such an inconsistency, then the provisions of the Deed will prevail. There is a Schedule B to the Put and Call Option Agreement, which deals with the form of the Option Notice and a Schedule C which deals with the calculation of market value. For present purposes, it is unnecessary to recite or summarise any of those schedules.
The Court, as presently constituted, will apply the objective approach to ascertaining the intention of the parties, but it must also bear in mind the commercial purpose of the Agreement and seek to achieve that purpose. Before analysing the effect of the Agreement on the issues between the parties, it is necessary to deal with the evidence before the Court.
Apart from the Agreed Facts, as earlier stated, Affidavits were read, in respect of some of which there was cross-examination. Before dealing with the evidence of the plaintiff, it is appropriate to summarise the medical evidence and psychological evidence relating to the effect of the strokes and the plaintiff's consequential capacity to work.
As is agreed and recited above, the plaintiff suffered two strokes on or about 23 December 2015. [29] For present purposes, that statement is sufficient as to the physical cause of any effect on the plaintiff.
By Report dated 9 April 2018, Dr George Lianos, Consultant Psychiatrist and Psychotherapist, expressed his views on the effect of the strokes on the plaintiff.
The Report not only expresses conclusions but also relates facts as Dr Lianos observed them. First, Dr Lianos expresses the surprise that he experienced on hearing the plaintiff's voice over the phone on 10 February 2016. He recalls that the plaintiff's voice was "weak, slow and barely audible". The plaintiff was "unable to articulate words clearly, stuttering and unable to find words. His speech felt difficult, laboured and he quickly became exhausted".
As a consequence of Dr Lianos' view that Mr Paltos, the plaintiff, was not in a position to be able to visit Dr Lianos in his rooms, Dr Lianos attended on him at the plaintiff's residence. He described his physical appearance as an "emaciated, stooped, shuffling man who was dressed in pyjamas and appeared to barely have the strength to walk back to the lounge room of his apartment where we sat and spoke for about an hour. He appeared to be a shadow of his former self. He was clearly extremely unwell."
Dr Lianos observed that the plaintiff's "speech was soft, slow, laboured and exhausting. He was apologetic as he stumbled to articulate his chosen words and embarrassed and perplexed as to why he was unable to find the words that he was looking for." Dr Lianos described the plaintiff as anxious and frustrated by the limitations which were patent and that anxiety and frustration precipitated a further deterioration in the quality of his speech. This, in turn, "made him more anxious".
According to Dr Lianos, the plaintiff was not able to maintain the logical flow of the conversation, forgetting what he was saying and asking Dr Lianos to remind him where he was up to. Dr Lianos administered a formal standard memory test sentence. The plaintiff was unable to complete the test and said he was "too exhausted to try".
Apparently, the plaintiff appeared concerned that the stroke would be the ruin of him and he was concerned as to what would happen to his practice, his business partner and his financial future as, in the explanation given to Dr Lianos, the plaintiff did not have income protection insurance.
After suggesting a slower approach in order to ensure a better psychological outcome, which focused on rehabilitation, Dr Lianos noted, in his Report, that the plaintiff referred on a number of occasions to "wanting to get better and to return to work", to which Dr Lianos suggested, in that session, that such an eventuality was not going to happen, in the immediate future, and that such an eventuality was not the "primary goal given the cognitive, emotional and behavioural limitations that [the plaintiff's] stroke had caused and that it would take some time to find out how much of his brain function would return".
During the course of the visit, the plaintiff asked Dr Lianos to explain from what deficits the plaintiff was suffering to which Dr Lianos replied "problems with the (sic) speech, attention, concentration and memory" and suggested that they "focus on his neurological rehabilitation and worry about the other stuff later on". Anti-depressants and anti-anxiety medication were prescribed, in part, to allow the plaintiff to sleep well and as a preventative for depression.
The following passage in the Report is, in my view, important and I extract it:
"I remember thinking to myself that 'here we go again … Dennis is focusing on the positive stuff of returning to work and solving the problems and he's got no idea of what is going on.' He was behaving as if this was a minor hiccup and he would be returning to work pretty quickly! I also thought that it was going to be challenging to help him deal with the reality of his limitations.
My previous experiences with Mr Paltos had allowed me to fully grasp the tenacity of his character - the determination that he always expressed in digging himself out of a hole. He was always doggedly determined to the point of defiance.
I warned him on many subsequent occasions that we had to be careful not to presume the certainty of an outcome before we had developed an adequate understanding of the nature and extent of each problem that confronted him, so that we could help him in the best possible way. Although he appeared to understand what I was saying he always reverted to a more 'optimistic' outlook that things were more likely to happen sooner rather than later.
I allowed him this latitude in order to maintain his hopeful outlook. My clinical experience has been that if people lose hope in the circumstances that Mr Paltos found himself in, recoveries were always more emotionally painful, complicated and prolonged.
As the corroborating evidence of his three neuro-psychometric assessments emerged it became easier to help him deal with his obvious limitations.
His response to the first assessment was to presume that it was wrong. As more of his cognitive functions returned and the evidence of his dysfunctions mounted he slowly accepted that he would not be able to return to solo private practice. He became aware that he could not rely on his own memory in the way that he had previously done so and that he could not manage to run an office by himself. He realised that he would require external assistance to prompt him on those occasions when his memory failed him."
Dr Lianos referred to the extent of the plaintiff's deficits and that they had been well documented in the medical Report of Dr Laurie Miller of 13 April 2016; the Report of Dr Nora Breen of 12 August 2016; and the Medical Report of Dr Nora Breen of 25 January 2017.
The whole of the Report of Dr Lianos is informative and accords with the observations the Court has made of Mr Paltos in the witness box. It is appropriate that I recite the conclusions. Taking into account the activities that were said to have been those of the plaintiff's usual occupation as a family lawyer, Dr Lianos expressed the opinion that he was not, for at least six consecutive months commencing 23 December 2015, able to carry out his usual working activities in his usual occupation. Dr Lianos then details his own observations and recites the reported observations and conclusions of Dr Miller, in the Report, to which earlier reference has been made, and which corroborated his view of the plaintiff's capacity.
Further, in answer to the question as to when, if at all, the plaintiff was able to carry out his usual working activities in his usual occupation as a family lawyer, Dr Lianos expressed the view that the plaintiff, at least as at 9 April 2018, "has been and is currently unable 'to carry out his usual working activities in his usual occupation as a family lawyer (as identified in 5.1 to 5.9 of the above Annexure A)'."
Dr Lianos then recites his own observations which include, at [5] on p 5 of the Report, that the plaintiff "appears to be significantly better than he was", but "he still remains unaware of the extent of his deficits. In the example given above the fact that he became aware of something after the event is not the same as being able to access what he requires in a timely manner. This may impose significant limitations in his communication with others and advocacy in court." Dr Lianos, once more, recites Dr Miller's observations and conclusions supporting that opinion.
Those observations included the fact that even the assessment of Dr Miller was kept to a minimum because Dr Miller considered that the plaintiff was having "significant difficulty and was becoming more distressed". Reference was also made by Dr Lianos to the Report of Dr Breen of 12 August 2016 and the Medical Report of Dr Breen of 25 January 2017.
Dr Lianos gave an answer to a question as to symptoms the plaintiff presented with, which would alert a layperson that Mr Paltos was not in a position to carry out his usual working activities in his usual occupation, but the Court is not prepared to accept that Dr Lianos has any special knowledge of what laypeople would notice. Nevertheless, the Court accepts the expression of opinion that the plaintiff "was not his normal self, … was seriously ill, … had lost a significant amount of weight, … appeared emaciated, … had difficulty walking, … spoke softly and in a laboured manner, … had difficulty finding his words, … repeated himself, … [and] he was insistent on returning to work".
The Court also accepts the expressed view of Dr Lianos that "anyone that had known Mr Paltos before his cerebral vascular incident would have easily recognised that he was a shadow of his former self, mouthing words of great intent that correlated poorly with his physical and cognitive status".
Dr Lianos noted the improvement in the plaintiff between 18 April 2016 and December 2016, but noted that he remained as ill as described in the Reports of Dr Breen of 12 August 2016 and 25 January 2017. The plaintiff apparently presented better in terms of his physical appearance, but retained significant cognitive impairments some of which, according to Dr Lianos, may not have been easily detected by a layperson.
The plaintiff's physical improvements were greater than for his cognitive functioning. Dr Lianos also described the plaintiff as a person who "still had significant difficulties finding and articulating his words and that this was causing him severe irritation and frustration".
Further, the Report of Dr Lianos noted that the "longer [persons] interacted with [the plaintiff] the more likely they were to observe that he would ask questions like 'where was I?' when he lost track of his own thinking." Dr Lianos expressed the view that Mr Paltos was observably incapacitated, at least to some extent. The Report notes:
"It is my opinion that anyone who met Mr Paltos for the very first time when seeking family law advice would immediately register that something was wrong and feel concerned about his capacities. They may have noticed that he was unusually irritated and frustrated. Many people would have been 'put off' by his presentation.
…
There has been very little change in Mr Paltos' presentation since December 16."
Dr Lianos compiled a supplementary Report dated 13 May 2019, in which he expressed the opinion that in the 12 months since his first Report, based on the history available to him and the observations he has made of the plaintiff, the plaintiff's condition has not changed or has changed very little. He also expressed the opinion that "the permanency of his deficits are (sic) now evident".
Additional to that which he noted in his earlier Report, Dr Lianos observed, in the period since the last report, the following phenomena:
"(i) a slow, unsteady, shuffling gait with a tendency to stumble and trip over when presented with uneven surfaces;
(ii) increased difficulty finding his words and stuttering;
(iii) high levels of baseline anxiety with a tendency to get overwhelmed, paralysed and then slip into hopelessness;
(iv) losing his train of thought, recognising that he has lost his train of thought and then becoming irritated and frustrated which further decreases his ability to find his words and stuttering that further disrupts the flow of his thinking;
(v) difficulty evaluating, ranking, sequencing and prioritising between competing tasks;
(vi) emotional lability, where the manifestation of his emotions move quickly from optimism to irritation, frustration, anger, despair, resignation and back to optimism very quickly;
(vii) difficulty recognising how other people perceive him and his limited ability;
(viii) difficulty in recognising how this relates to his ability to find appropriate work. He will agree with me when I reference others' perceptions of him and will understand the causal connection between his presentation and the absence of work in the moment. However he cannot retain this awareness in an ongoing way so that it moderates his optimism about the future;
(ix) feeling isolated, alone, not sort (sic) out and actively avoided by the majority of his former colleagues; and
(x) feeling that he is no longer well-regarded professionally or seen as capable by his former colleagues."
There are answers to further questions that are provided by Dr Lianos in his second report, but they do not require recitation and essentially confirm the substance of his earlier opinions.
Dr Lianos' evidence in cross-examination was consistent with the opinion expressed in his reports. In answer to a question as to whether the plaintiff "didn't accept that he might never return to work", Dr Lianos testified that the plaintiff was not "in a position to be able to understand what was going on. So to ask someone to accept something that they can't, sort of, contemplate is not what I was considering at that stage of the game".
Further, it was put to Dr Lianos that he, Dr Lianos, was not saying that the plaintiff was unfit to practise, to which proposition Dr Lianos was emphatically opposed [30] and responded as follows: "I think I've been saying that he's unfit to practise". Dr Lianos was then asked: "You say he is unfit for practice?" to which Dr Lianos said, quite emphatically, "Yeah".
When asked to comment on the opinion expressed by Dr Miller that Mr Paltos was not ready to return to work, Dr Lianos expressed the view that, at least as at 13 April 2016, it was an appropriate observation and an appropriate conclusion to contemplate that Mr Paltos may be ready sometime in the future to return to work. [31] The same comment is made of the similar expressions in Dr Breen's Report, but Dr Lianos suggested that the idea of Mr Paltos returning to work was "aspirational". [32]
Dr Lianos, in answer to a question from the Court, was asked about his observations as to executive functioning and how that compared with his understanding of the psychometric testing. Dr Lianos' evidence was to the following effect:
"Your honour, it's one of the beautiful things is that you will, sort of, you see these things in clinical practice and you want to substantiate it, you know, in a variety of ways and that's what the psychometrics do. So it was obvious that Mr Paltos could not retain a focus, could not retain the continuity of something, he would lose kind of like his way, he couldn't begin something and get to the end." [33]
While the answer just recited was in the past tense, Dr Lianos made it clear that as at mid-2019, this was a continuing aspect of Mr Paltos' condition. Executive functioning, as the witness explained it, includes making "judgement calls" and "identifying what the problem is, devising a strategy, being able to implement the strategy, correct the strategy if it goes off track and come to a conclusion that's sort of reasonable". [34]
Despite the passing suggestion during the course of cross-examination of Dr Lianos as to bias, I accept the evidence of Dr Lianos as to the condition of the plaintiff and I do so for a number of fundamental reasons. First, it is a professional opinion expressed by the plaintiff's treating psychiatrist. Secondly, I do not accept, either on the basis of the reports that have been tendered or on the basis of the demeanour and answers to oral questions, that Dr Lianos is in any way lacking in objectivity as to his assessment of the plaintiff. Thirdly, the opinion expressed by Dr Lianos is consistent with the psychometric testing and opinions expressed by other relevant experts. Fourthly, and, on one view, most importantly, the view expressed by Dr Lianos accords with the assessment the Court made of Mr Paltos in the witness box. Finally, no other medical evidence is adduced to suggest that Dr Lianos' view should be qualified.
The evidence of Mr Paltos was, at least in chief, in the form of an Affidavit. There are, in a case such as this, some disadvantages in the process of adducing evidence by Affidavit. Nevertheless, the plaintiff was observed in cross-examination over an extended period.
During the course of his examination, it was obvious that Mr Paltos had difficulties in the witness box. He was slow; softly spoken; if it be different, displayed weakness or fragility; and he slurred his words, albeit in some cases only slightly. Indeed, that which excited the questions from the Court of Dr Lianos about executive functioning was the impression gained from observing the plaintiff in the witness box that he lacked the capacity to strategise; and lacked pellucidity.
On 5 April 2016, [35] Mr Paltos sent an email to Chris McCaffrey and John Howell, the full content of which was:
"Chris/John
I excuse proffered is not unacceptable is rubbish. I can to see the results the month of March. We have Jan and February.
Please discuss."
There is a point at which typographical error or shorthand language cannot explain gibberish. The content of the email is gibberish. In some respects, if not many respects, the transcript does not reflect fully the lack of cohesion in the answers that were given. It also does not reflect the time taken by Mr Paltos to understand the question and formulate and deliver an answer to it.
Notwithstanding the foregoing, and despite evidence that there had been improvement from the time of the strokes in late 2015 and the date of the first Report of Dr Lianos, I have inferred little improvement from the date of the first Report until the middle of last year and I accept that any substantial improvement occurred in the 12 months following the occurrence of the strokes. [36]
The oral evidence was limited and the cross-examination well-directed. Evidence was adduced from an accountant (Mr Duggan) and the defendant adduced evidence from Mr McCaffrey. There were also a significant number of documents.
Mr McCaffrey's evidence in chief was largely by Affidavit. Significant aspects of the Affidavit relate to the recounting or reconstruction of meetings and conversations arising from file notes and other documentation. I do not use the word reconstruction pejoratively. As would be expected of any legal practitioner with a busy practice, the notes were important in recalling the events.
There are some aspects which, apart from the documents, need noting. First, I do not consider any of the witnesses to be untruthful, in the strict sense of that term. Secondly, as earlier stated, I consider that the plaintiff was under some difficulty in understanding and expressing his evidence. He slurred his words more as the cross-examination continued and as it became later in the afternoon.
Mr McCaffrey's evidence was, as stated, in my view, truthful, in that he believed that which he said. His answers were guarded and careful.
Mr McCaffrey had known the plaintiff since the 1980s and had interacted with him on both a professional and social basis since that time.
Notwithstanding Mr McCaffrey's assertion that the plaintiff remained "forthright" in his character and "very actively involved" in the issues upon which Mr McCaffrey was advising, it cannot have been lost on Mr McCaffrey that the plaintiff's physical and mental condition had deteriorated significantly. On the basis of the expert evidence before me, it would have been impossible for any person not to have noticed such a dramatic change in affect.
In taking the view just expressed, I am not qualifying the view that Mr McCaffrey was not untruthful. However, his reconstruction and memory of events seems to reflect an unconscious but understandable bias that assumes he would not have acted unfairly toward the plaintiff. That bias has, in my view, led Mr McCaffrey to reconstruct events, subconsciously, in his own favour. Ultimately, very little turns on the reliability or credit of either the plaintiff or Mr McCaffrey.
Mr McCaffrey was first consulted by the plaintiff otherwise than in a professional capacity and he was asked to assist, it seems, by recommending an accountant who could assist the plaintiff, because his usual accountant would have a conflict as a result of also being the accountant for the Partnership. Mr McCaffrey has no recollection as to whether the information that was provided to him in relation to those matters occurred in one or more conversations or precisely when in mid-February they occurred.
I accept that probably as of 15 February, when Mr McCaffrey conferred with the plaintiff at his house with Mr Howell, and certainly no later than 16 February 2016, there was a professional relationship between the plaintiff and the defendant. Mr Howell was an accountant with McBurney & Partners. Nothing turns on whether the relationship commenced on 15 or 16 February.
According to Mr McCaffrey he was contacted by the plaintiff on or about 5 February 2016 [37] and asked "to provide him with assistance with issues regarding his Partnership". On 8 February 2016, the Partnership's Accountant, Adam Crowley, proposed arrangements for the resolution of issues between the Partners which included a transfer by the plaintiff of a 20% interest in the Partnership for approximately $364,000 to Mr Milevski, thereby resulting in a Partnership in which neither Partner held a majority interest.
The proposal also suggested that neither Partner would, in the future, draw in excess of their profit share for the relevant period, to be reviewed every three months by the Partners. Further, Mr Crowley suggested that, should the plaintiff not be able to return to work, Mr Milevski would have the option to acquire his remaining 50% equity in the Partnership, on a calculation that is to be agreed as to the market value. The market value calculated by Mr Crowley was the market value calculated pursuant Schedule C of the Put and Call Option Agreement, the calculations for which constitute the last page of the Proposal.
As already noted, the plaintiff's request to Mr McCaffrey for assistance with an accountant arises as a result of the fact that Mr Crowley, who had been the long-term and continuing Accountant for the Partnership, and before that for Mr Paltos, was, necessarily, conflicted. On 11 February 2016, Mr McCaffrey emailed Mr Howell in which email Mr McCaffrey set out the issues as he understood them, in the following terms:
"1. He [the plaintiff] is 64, and had a debilitating stroke just before Christmas.
2. He is the 70% owner of the successful family law practice, Paltos Milevski. Peter Milevski holds the remaining 30%.
3. Over the past few years he has, with Milevski's knowledge, been drawing out more than 70% of the firm's profits. Why Milevski did not object is unclear. Dennis believes the over distribution to him could be as high as $400,000. Milevski is now demanding refund of the over distribution.
4. Since the stroke, Dennis has been unable to return to the office, and in that period he has not been taking drawings. His doctor informs him that he should be able to return to work in due course.
5. Milevski is now demanding that Dennis handover his 70% of the partnership, and become a salaried employee.
6. The office space from which the practice operates at 370 Pitt Street is owned by Dennis (or his entity), and is leased to the Partnership. There are various mortgages and bank facilities floating around. I do not have any figures.
7. The accountants acting who have acted for Dennis and the Practice for many years are RSM (formerly "Bird Cameron"), but he believes they now have a conflict of interest.
8. Dennis is presently not prepared to hand over his interest in the practice.
9. He is conscious of the fact that in his presently debilitated state he is not able to think clearly about his financial affairs. He needs clarity in this regard, so he can negotiate matters with Milevski. In fact, from my observation of Dennis, I would say that there is no way he could presently himself negotiate with Milevski: this will either have to be postponed to a later date, or someone else will have to negotiate on Dennis's behalf.
10. He needs to have someone look at all the figures, and advise him as to his present financial situation.
11. I am not presently acting for him; I have merely been called in as a friend." [38]
The contact with Mr Howell was communicated to the plaintiff on the same day. As can be seen from the foregoing extract, the email of 16 February 2016 is plainly the basis upon which Mr McCaffrey "recalls" the conversations between the plaintiff and Mr McCaffrey in early February 2016. As earlier stated, on 15 February 2016, Mr McCaffrey and Mr Howell attended a conference at the plaintiff's house.
At least from 16 February 2016, the defendant acted for the plaintiff. At that time, no litigation was in contemplation, it seems, by either the plaintiff or the defendant, or, on the information before the Court, by Mr Milevski. Nevertheless, there had been an aggressive letter from Mr Milevski asking his partner, the plaintiff, what his intentions were concerning his return to the office to work.
On 16 February 2016, Mr McCaffrey supplied Mr Howell with the Put and Call Option Agreement, which, apparently, was obtained initially from the plaintiff. It seems that the plaintiff either did not have or could not locate the other two Partnership Documents.
On 16 February 2016, Mr McCaffrey requested any other documents making up the partnership agreement and, as a result of that request, the plaintiff forwarded to Mr McCaffrey and Mr Howell the two additional Partnership Documents, which, in turn, he had received from Mr Crowley. [39] There is also correspondence dealing with a calculation of the partnership shares to which it is, at this stage, unnecessary to refer.
As earlier stated, the plaintiff engaged Mr McCaffrey in the morning of 16 February 2016 in a telephone conversation, which was confirmed in an email from Mr McCaffrey to Mr Howell of that date. [40] Further, Mr McCaffrey, on behalf of the defendant, sent a further email to Mr Howell on 17 February 2016 at about 7:17 AM. That further email contained the subject line "partnership 160545", which number was the file number allocated by the defendant to the Paltos matter.
Notwithstanding the engagement to which the email of 17 February 2016 refers, the formalisation of the arrangement occurred by an engagement letter of 29 February 2016. [41] The terms of the engagement letter referred to a request by the plaintiff for the defendant to do the following work:
"Advising [the defendant] with regard to [his] partnership in Paltos Milevski and in relation to the demands being made by [his] partner". [42]
The plaintiff, in his Further Amended Statement of Claim, refers to the Retainer being one to advise him in relation to:
"(i) The partnership dispute;
(ii) The terms of the Partnership Documentation; and
(iii) All other matters arising out of sub-paragraph [i] and [ii], including to protect the plaintiff's rights under the Partnership Documentation."
In answer to the claim as to the terms of the Retainer, the defendant relies on the terms of the engagement letter of 29 February 2016 to which early reference has been made. It is difficult to contemplate that it would be possible to advise with regard to the Partnership in Paltos Milevski and the demands being made by Mr Milevski on Mr Paltos, without understanding and advising on the rights under the Partnership Documentation and the plaintiff's capacity under the Partnership Documentation to protect his rights from any attack or demands by his Partner.
As such, the distinction, if there be one, between the terms of the engagement document of 29 February and the Retainer to advise, which the plaintiff claims in his Further Amended Statement of Claim were to be the subject of advice, is barely significant.
The advice received in respect of the Partnership Documents was cursory. Mr McCaffrey asserts at [54] of his Affidavit sworn 7 June 2018 that he has no "specific recollection of discussing the option agreement with the plaintiff in my telephone conversations with him on 24 February 2016". Nevertheless, as a result of file notes dated 23 February and 24 February 2016, neither of which refers expressly to any of the Partnership Documentation or any advice on it, Mr McCaffrey says that he may have done so.
Further, Mr McCaffrey says he has a recollection of briefly discussing the exercise of the option on two occasions in February or March 2016. That recollection is to the effect that the Put Options do not help the plaintiff "at present because there is a six-month requirement in relation to your disability but we might be able to get some assistance from looking at the issue of whether Milevski validly exercised his options to acquire the 30%".
Other than that advice, the only advice the plaintiff received in relation to the Partnership Documents or Agreements was in response to an enquiry from him on 22 March 2017. In an email sent at 2:43 PM, the plaintiff enquires of Mr McCaffrey:
"Can you please let me know of your recollection concerning the Put & Call Option and why Milevski asserted that it was not relevant the position we were taking [sic].
It seems to have fallen off the radar as an issue, but I may be wrong."
In answer to that enquiry at 3:10 PM on the same date, 22 March 2017, Mr McCaffrey replies in the following terms:
"My recollection is that the Put & Call Option Agreement related only to 30% of your 100% interest in the practice.
The transfer contemplated in the Agreement had long since been effected, and Milevski had duly acquired the subject 30% of the practice.
It seems unclear that the Agreement was intended to cover any more than the stated 30%, although some comfort may be gleaned from the unfortunate drafting of the definition of Business Interests.
If, however, the agreement was intend [sic] to cover, and does cover, only the stated 30%, it was by last year a dead letter, Milevski having acquired his 30%."
The foregoing response by Mr McCaffrey is plainly wrong. The advice from Mr McCaffrey seems to relate to the Heads of Agreement, recited above. That Agreement allowed for the purchase of 10% of the interest in the Partnership to be purchased on 1 July 2010, a further 10% on 1 July 2011 and the remaining 10%, to a total of 30%, to be purchased by Mr Milevski, and to be purchased on 1 July 2012. [43] It has nothing to do with the Put and Call Option Agreement about which the plaintiff was enquiring.
The foregoing does not equate to a finding that no advice was provided. Only that the advice that was provided did not refer to, analyse or advise on the Partnership Documents.
It is unnecessary to deal with all of the evidence in its minutiae. Nevertheless, it is necessary to deal with a number of fundamental issues that pervade the whole of the proceedings.
First, notwithstanding the sworn evidence of Mr McCaffrey, I do not accept that the plaintiff, Mr Paltos, was able to engage meaningfully in the process by which the tactics associated with the partnership dispute were decided. As earlier stated, the evidence of Dr Lianos is compelling as to the incapacity of the plaintiff to undertake executive functioning, which he defined in a manner that would include participation in the strategic decision-making required in relation to the Partnership dispute.
Further, the evidence of the file notes and correspondence in the possession of Mr McCaffrey, written by Mr McCaffrey and/or sent by Mr McCaffrey, corroborates the inability of Mr Paltos to undertake strategic thinking and deal with stressful situations. Time and again, Mr McCaffrey asserts, either in his notes or emails to Mr Howell, that Mr Paltos is incapable of engaging in mediation; undertaking litigation; dealing with Mr Milevski; and such matters.
On 23 February 2016, Mr McCaffrey created a handwritten note relating to the conference between Mr Paltos, Mr Howell and himself. In the course of that note, Mr McCaffrey states that Mr Paltos is "at risk of another stroke if under pressure - per the doctor" and, further, that Mr Paltos is "in no position to talk; he is trying to stabilise medical condition et cetera". [44]
On the same day, namely, 23 February 2016, Mr McCaffrey refers in a memo to a telephone call to the legal representatives of Mr Milevski in which he makes clear that Mr Paltos, while improving, would suffer speech impairment if under pressure. He also refers in that memo to mediation possibilities.
On the same day, a further note deals with factors that include the plaintiff's "present incapacity - likely to continue partially for indefinite period" and asks himself "is there permanent disablement of [the plaintiff] for the purposes of P & C O A - six consec months; option period: 30 days" and concludes with the question asked again of himself: "what to advise as to [the plaintiff's] return to work?". [45] It is not suggested that these questions were raised with the plaintiff.
On 24 February 2016, Dr Lianos wrote to Mr McCaffrey. That letter includes the following:
"I've seen Mr Paltos on two occasions on the 10th and 23rd of February 2016.
My assessment of his current psychological state is that Mr Paltos was experiencing severe anxiety regarding the general state of affairs in his practice following his stroke and that this most recent additional pressure has aggravated his anxiety and sent him into a state of despair.
It is my opinion that Mr Paltos is medically unfit to participate in any definitive discussions around how to move forward in resolving matters with his partner and his practice. His anxiety disrupts his capacity to concentrate and causes him early fatigue. He can only concentrate for short periods of time at this point in his recovery.
Mr Paltos requires all his energies to continue his rehabilitation and I would suggest that he would not be medically fit to engage in such negotiations in the next four weeks.
It is my further opinion that any attempts to force, threaten or demand that Mr Paltos participate in such a process would be intimidating, coercive and exploitative of his current vulnerabilities and would exacerbate his current psychological distress with an increased risk of further cerebral-vascular accidents."
The reference in the foregoing extract to "this most recent additional pressure" refers to certain claims made by Mr Milevski through external solicitors, which would require Mr Paltos to participate in an externally mediated process, and which required an answer within 48 hours. [46]
The Court has already noted the comments relating to Mr Paltos' speech when under pressure which is the subject of reference arising from the meeting on 15 February 2016. There are various references by Mr McCaffrey in his notes to the symptoms and illness suffered by the plaintiff.
A reference is made in the note of 24 February 2016 [47] as to the chance that the plaintiff "will not be covered" by Professional Indemnity Insurance because of the brain injury. On the same date, he refers to conduct not occurring because he "cannot risk impairing [the plaintiff's] recovery", relating to the mediation attendance, to which reference has already been made.
On 25 February 2016, Mr McCaffrey notes, [48] in considering the negotiations and the issues arising at the time, that the plaintiff's ability to return to work was a pressure point in the dispute and he asks himself whether the plaintiff had loss of income insurance cover.
On the same date, in an email to Mr Paltos, Mr McCaffrey seems to relay the question from Mr Milevski's camp as to a query about Mr Paltos' health which "causes them to query when and if he will be able to resume normal practice". [49]
References to "Dennis's" health occur in Mr McCaffrey's notes of 26 February 2016 [50] ; 29 February 2016 [51] ; and 29 February 2016 [52] . In an email of 14 March 2016, Mr McCaffrey forwards an email from the solicitors for Mr Milevski to Mr Howell and Mr David Creais, who is a litigation partner in the defendant that provided some advice during the course of the engagement of the defendant. The email to Mr Howell and Mr Creais includes the following comment:
"… Dennis called me, saying that he felt quite spent after the session which the two of you had earlier. I told him of the email which had just come in; he asked me not to send it on to him for the present, as he felt it might make him feel even worse this afternoon.
I did however tell him about the 'juvenile' reference. His response was that his conversation with Crowley was not to request Milevski to call him, but to have Crowley enquire whether Milevski was prepared to talk to him.
Dennis did emphasise again that he did not think he could cope with being involved in a mediation, but that it might be of value if we could represent him et cetera."
The note referred to in the above extract related to a letter forwarded from Mr Harris, the solicitor for Mr Milevski, with whom Mr McCaffrey had spoken earlier in the day. A note, typed by Mr McCaffrey, of that conversation also refers to the earlier conference between Messrs McCaffrey, the plaintiff, Mr Howell, and Mr Creais in which the letter from Dr Lianos of 24 February 2016 is referred to and in which the plaintiff reiterated that he was not up to attending mediation. It also referred to the comments that Dr Lianos had made about his psychological and physical condition in the letter to Mr McCaffrey of 24 February 2016. The note refers to "ecological", but it is accepted that the reference should have been to "psychological". [53]
On 15 March 2016, Mr McCaffrey sends to the plaintiff a draft response to Mr Harris' email of 14 March 2016, which includes a reference to the plaintiff's inability, on health grounds, to attend mediation. The note to the plaintiff, following the draft letter, refers to the fact that the plaintiff was at "rehab this afternoon". [54]
Further, at 5:25 PM that day, namely, 15 March 2016, Mr McCaffrey emailed Mr Harris relating to Mr Harris' enquiry as to the need for Mr Milevski to be "regularly informed" about Mr Paltos' health. Mr McCaffrey replies:
"Your client may assume that, as soon as Dennis has a clear picture of when he will be able to resume full or partial practice, then (assuming the partnership has not been terminated) he will not be backward in informing Peter accordingly.
Dennis hopes to be able to resume part-time practice during April, consistent with his need to attend rehabilitation twice a week for the few weeks thereafter. This is something which Peter and Dennis could discuss at the meeting between them, which I refer to in the following paragraph." [55]
On 16 March 2016, a handwritten file note prepared by Mr McCaffrey refers to Mr Milevski wanting an 80:20 split after Mr Milevski has been paid a base salary of one third of the fees generated. Mr McCaffrey furthers notes that Mr Harris referred to the mechanism formula for changes in equity under the Partnership Documents and that Mr Milevski does not believe the goodwill is worth what Mr Paltos says it is.
In the course of the note, there is also a reference to the necessity to keep the negotiations open, seemingly, because of the inability of the plaintiff to engage in the mediation that was otherwise sought. Mr McCaffrey's file note of 17 March 2016 refers (at point 3 in the numbered list) to one of the "basic factors" being "Dennis' health".
There are continuing references in notes and correspondence to the plaintiff's poor health; his inability to attend mediation; his inability to undertake pressure; and the various symptoms that flow from his original strokes.
On 13 April 2016, a further Report was compiled by Dr Laurie Miller, Neuropsychologist. It involves a report on the clinical interview and cognitive assessment of the plaintiff. It recites his history and some obvious inconsistency with that history. That Report described: notable problems with Mr Paltos' language production; some difficulties, occasionally, in fully comprehending instructions; a good capacity to give his own history; and the effect of stress on his performance.
The Report also notes the following:
"The assessment was kept to a minimum because I found that Mr Paltos was having significant difficulty and was becoming more distressed. In addition to the problems noted above, the test results indicated marked impairment in anterograde memory (for both visual and verbal material). In other words, he had a lot of difficulty learning new information such as people's names, simple drawings or pictures of objects (even when given repeated exposures).
However, it is important to note that some aspects of Mr Paltos' memory seemed intact. As mentioned above, there were no clear signs of retrograde memory loss. Also, he was very well oriented to date and he could name current political figures. He had trouble naming the hospital, but knew its location …
…
On a mood inventory, Mr Paltos' responses indicated symptoms of mild stress and anxiety, but no significant depression. To me, this seemed an underestimate of his current mood issues.
Opinion: I do not feel that Mr Paltos is ready to return to work. Although he has made significant gains over the past four months, he is still having problems with language production and memory. In my opinion, the level of his deficits would make it extremely difficult for him to practice law competently at this stage."
While the Report of Dr Breen, to which the Court has earlier referred, was not compiled until August 2016, Mr Paltos did not deteriorate between April and August 2016. In her Report, as earlier emphasised, she referred to Mr Paltos having "severe executive impairments" and not being ready to return to work.
Following the Report of Dr Miller, Mr McCaffrey, in an email, noted that it was impossible to negotiate matters in a manner that would be fair to Mr Paltos. By this time, Mr Paltos had indicated that he was prepared to give up his full interest in the Partnership. [56]
On 13 April 2016, Mr Milevski wrote directly to Mr Paltos asking Mr Paltos to move on the proposition that was being discussed and to reach agreement without delay. Mr Paltos replied with a proposal that Mr Milevski purchase Mr Paltos' equity, being 70% of the Partnership; that Mr Paltos remain a non-equity partner; and that the firm retains its name and does not relocate. [57]
On 14 April 2016, Mr McCaffrey wrote to Mr Harris referring to Mr Paltos' deteriorating health condition over the past 24 hours, which was preventing Mr McCaffrey from obtaining detailed instructions, particularly upon the 32 items that had been sent to Mr McCaffrey.
Nevertheless, Mr McCaffrey restates that Mr Paltos was agreeable in principle to the transfer of his interests to Mr Milevski, by whatever mechanism, and that his current condition prohibited him from getting back to work as soon as he had expected. Mr McCaffrey also questioned the extreme haste with which Mr Milevski apparently wanted the matter resolved. [58] Fifteen minutes later, Mr McCaffrey confirms with Mr Paltos the terms of his email to Mr Harris and suggests that the other side would see the claim of deteriorating health as a pretext for delay.
On 15 April 2016, Mr Howell emailed Mr Paltos, with a copy to Mr McCaffrey, raising the possibility of appointing a financial guardian because of Mr Paltos' health.
There can be little doubt that the contemporaneous notes and correspondence corroborates the view of Dr Lianos, Dr Breen and Dr Miller. Mr Paltos' executive functioning was significantly impaired. He was visibly and obviously impaired.
I accept unreservedly the opinion of Dr Lianos as to the condition of Mr Paltos and, particularly given Mr Paltos' evidence in the proceedings, the Court accepts that Mr Paltos could not conduct a practice as a solicitor, without significant and overriding assistance from solicitors who would need to undertake the executive functioning that would otherwise be required of a solicitor in practice and, in particular, a partner in a firm practising in family law and in litigation (to the extent that those two may be different).
Further, the Court finds that Mr McCaffrey knew that Mr Paltos was significantly impaired in his capacity to make decisions and that it was unlikely, at any time in the foreseeable future, for Mr Paltos to recover to a point where he could undertake a practice as a partner in the kind of firm just described. Moreover, if, notwithstanding the foregoing, Mr McCaffrey, in truth, and without the unconscious bias that I have held has given rise to the reconstructions to which he attests, did not know of that disability, he should have.
Further, notwithstanding that the plaintiff conferred with the defendant's litigation partner, Mr Creais, Mr Creais was not called to give evidence as to his view of the capacity of the plaintiff or his total and permanent disablement. I infer that Mr Creais' evidence would not assist the defendant's case.
Notwithstanding the foregoing finding, it does not, without more, result in the plaintiff succeeding in his claim against the defendant. Far more is required, including an analysis of the Partnership Documents and their construction; the existence of any implied term; and the issue of causation, if necessary on the basis of the findings already made. Then, and only then, is it possible for the Court to determine whether damages have been caused by the conduct of the defendant and whether the defendant's conduct was "negligent", using that term both in the sense of professional negligence in the claim in tort and the duties arising under contract.
I then turn to the Put and Call Option Agreement. It has been summarised, in some detail, earlier in these reasons for judgment. It is an agreement between the plaintiff and Mr Milevski and its recitals refer to the fact that the plaintiff was, at the time, the sole proprietor of the firm and Mr Milevski was both desirous of becoming an equity partner and "by this Deed" the owner is prepared to sell to the Incoming Partner an interest in the firm. In fact, the sale of the interest in the firm was effected, not by the Put and Call Option Agreement, but by the Heads of Agreement, to which earlier reference has been made.
The agreements do not bear the hallmark of an independent legal mind having been applied to the terms upon which the parties would enter this relationship. One of the major benefits of an independent legal practitioner dealing with contracts is that issues that may be assumed or taken for granted are dealt with appropriately in the documents, which, as a result, can be more easily construed.
There are two fundamental issues associated with the terms of the Put and Call Option Agreement. The first is whether there is an implied term and, if so, its content; the second major issue is the proper interpretation of "TPD" and whether it is a term different from "total and permanent disablement" and, in any event, the meaning in the context of these agreements of the term "total and permanent disablement".
I reiterate that the Put and Call Option Agreement must be read as a whole. In this case, because of the obvious scheme into which the Put and Call Option Agreement fits, all three of the agreements should be read together and, to the extent possible, interpreted on a basis that achieves harmonious goals and overcomes inconsistency.
The definition of TPD is recited earlier in these reasons for judgment. The definition utilises the term "means" (either expressly or in a cognate form thereof) in three places, which, usually, but not always, determines an exhaustive definition, rather than an inclusive definition, which, somewhat obviously, would ordinarily use the term "includes". [59] However, the High Court in R v Gray; Ex parte Marsh, cited in footnote 59, was dealing with a definitions section that also contained definitions that utilised the term "includes", which were, plainly, non-exhaustive. [60]
I accept that the definition of "TPD" is exclusive and can only mean that which is contained in the definition. However, the term "means" is used three times in the definition, if one includes its cognate forms.
Whether the definition of TPD is inclusive or exclusive/exhaustive does not seem crucial. The difficulty in its construction arises from the manner in which the definition is expressed.
The defendant submits that there are, relevantly, two conditions to be satisfied for the term TPD to apply, if there is no Insurance Policy in place in respect of an Owner. First, there must be total and permanent disablement of an Owner or Incoming Partner. Secondly, and in addition to the total and permanent disablement, there must, relevantly, be a circumstance in which the "Owner or Incoming Partner has not been able to carry out the usual working activities in their usual occupation for a period of six consecutive months". I reject that submission.
The term TPD refers in paragraph (a) to the meaning that TPD is given in an Insurance Policy, where such Insurance Policy is in place in respect of "an Owner or Incoming Partner". As a matter of abundant caution, I point out that the reference to "an Owner or Incoming Partner" should be construed as the Owner or Incoming Partner, who claims total and permanent disablement, although the use of the indefinite article does not assist.
The other complication is that, seemingly inconsistently, in some provisions the term "death or total and permanent disablement" is used and not the term "TPD". Thus, for example, in the definition of Trigger Event, the term used is "total and permanent disablement".
The consequence of the acceptance of the defendant's submission would be that a partner who is defined by an Insurance Policy as TPD, but is not totally and permanently disabled would not be TPD, under the terms of the Put and Call Option Agreement. Further, a partner who was, without an Insurance Policy, unable to carry out his usual working activities in his usual occupation for a period of six consecutive months, but was not totally and permanently disabled, would also not be TPD, within the meaning of the Put and Call Option Agreement.
There are some fundamental issues with the manner in which, on the submission of the defendant, TPD would apply and the consequences of the submission by the defendant as to the proper interpretation of TPD. Ordinarily, where a document utilises the term "and", it is used in a cumulative sense, requiring the satisfaction of all that is joined together by way of condition or precondition. In that manner, it is used in contradistinction to the use of the term "or". The defendant relies upon that ordinary usage.
However, that ordinary construction is not universal and has never universally been used in that way. Often, for example in testamentary dispositions, it is used in a manner which is substitutional. The particular use of it in the definition of TPD must be taken from the context itself.
Paragraph (a) concludes, after the expression of the precondition for its application, that "TPD has the meaning given in that Insurance Policy" (emphasis added). Paragraph (b), after the precondition for its operation, refers to "TPD means the existence of circumstances where … the Owner or Incoming Partner has not been able to carry out the usual working activities et cetera" (emphasis added).
As a matter of logic or mathematics, the world consists of X and not X. The Owner or Incoming Partner either has, or does not have, an Insurance Policy. There are no other possibilities.
Thus paragraphs (a) and (b) together make up the whole class of Owners and Incoming Partners. There could be no Owner or Incoming Partner that is someone who is in a class, other than having or not having a relevant Insurance Policy.
If the class of all Owners and Incoming Partners is described by the combination of paragraphs (a) and (b), but the terms are not conjunctive or cumulative in effect, then the words "means total and permanent disablement of an Owner or Incoming Partner" may be otiose. However, if they are cumulative, then the terms "means" and "has the meaning given" must involve a different construction from the use of the term "means" in the opening words of the definition.
In other words, if there is no Insurance Policy, does TPD mean, relevantly, total and permanent disablement and also an incapacity to carry out the usual working activities for a period of six consecutive months, or does it mean "the existence of circumstances" where those duties have not been able to be carried out for that period? This inconsistency is most obvious from the repetition of the term "TPD" in the definition itself.
Notwithstanding that the whole class of Owners or Incoming Partners are included in the combination of paragraphs (a) and (b); there is a circumstance that may not be covered by those paragraphs. The Owner or Incoming Partner could have an Insurance Policy that does not define "TPD".
Further, returning to the whole definition, the word "and" may be read disjunctively, as is often the case in determining whether a bequest is for a charitable purpose. [61] Further, the term "and" has been given a severing effect. [62] Further again, there is authority for the proposition that the term "and" can be read as "but". [63] The term "and" can have the effect of the term "or". [64] Nevertheless, in modern terminology, the notion that "and" can sometimes mean "or" has been disavowed. [65]
As earlier stated, clause 2 of the Put and Call Option Agreement grants a call option to each other Owner or Incoming Partner to purchase the Business Interests of that Owner. [66] Further, the Put and Call Option Agreement grants a put option that would require the other Owner or Incoming Partner to purchase the Business Interests of that other partner. [67]
Each of the put and call options are granted by the Deed and may be exercised subject to the occurrence of a Trigger Event in respect of the Owner or Incoming Partner. [68] Presumably, the Trigger Event must be relevant to the Owner or Incoming Partner exercising the call or put option, respectively. But, as earlier stated, the Trigger Event, leaving aside death, is "total and permanent disablement"; it is not expressed as "TPD".
Clause 3 of the Put and Call Option Agreement, headed "Exercise of Otpions (sic)" provides that the options granted under clause 2 are exercisable by the Owner and Incoming Partner (presumably "and" there means "or") serving an Option Notice on the other Owners and Incoming Partners within the Option Exercise Period. Again, the "and" where last used must mean "or". [69]
Further, if the put option or call option is not exercised within that Option Exercise Period, or within such agreed extended period, then the put option or call option lapses. [70] However, once the put option or call option is exercised, the Exiting Owner is bound to sell and the Ongoing Owner is bound to purchase in accordance with the terms of the agreement. [71]
The term "Option Exercise Period" is defined to mean, relevantly, where an Insurance Policy exists, the 30th day after the date specified as the TPD event in the Insurance Policy; and, in any other case, the date on which the partner "has not been able to carry out [his] usual working activities for a period of six consecutive months". Again, there is a lacuna, in that there may be an Insurance Policy that does not define the term "TPD event".
Depending upon the circumstances of any particular partner, the difference in definitions of TPD and "total and permanent disablement" may give rise to significant variations in the period. On one view, which seems preferable, the term "TPD event" is an error and should refer to "Trigger Event". But, in my view, it makes no difference to the ultimate outcome.
If one were to use the example of a person, not necessarily dissimilar to that situation in which the plaintiff may be, where an event occurs that is not known to be one that causes "total and permanent disablement", real issues arise. In this hypothetical, if, four months after an injury, during which time no work has been performed, a Partner is given a prognosis that equates with "total and permanent disablement" as of the date of the injury, from when does the Option Exercise Period run and when was the Trigger Event. If, as the defendant submits, the meaning of total and permanent disablement is different to TPD, then the Trigger Event would be found to have occurred retrospectively.
If the injury that is ultimately diagnosed as one that causes total and permanent disablement occurred in December, then the Option Exercise Period means "the 30th day after the six months" during which usual working activities were unable to be performed. But when does the Option Exercise Period commence? The Trigger Event, presumably, may mean the event in December or it may (albeit not on the construction proposed by the defendant) mean the date upon which the relevant partner is diagnosed with the injury or condition and the prognosis is one of "total and permanent disablement".
If that latter interpretation is the case, the 30th day after the six months may be before the Trigger Event. And, alternatively, if the Trigger Event is not at the point in time when the prognosis is for total and permanent disablement, then the Owner with the disablement may never know whether the call option or put option is exercisable. [72]
As earlier stated, there is no definition of the term "total and permanent disablement". In my view, the term is not a term of art. It must take its meaning from the context of the agreement. Further, there are two additional constructions each of which is preferable to that proposed by the defendant.
The agreement is a commercial arrangement between two solicitors, as a result of which each will be the partner of the other and the Put and Call Option Agreement is intended, in the case of total and permanent disablement, to provide a mechanism by which one of the partners may retire and the other partner can and must take over the interest in the partnership of the retiring partner.
Earlier in these reasons for judgment, I refer to the provisions of clause 5.1(e) of the Put and Call Option Agreement. There are a number of relevant and interesting aspects to this provision. First, it refers to an Owner who has suffered TPD, not "total and permanent disablement".
Secondly, it requires the Owner to resign from holding any offices or roles within seven days of the Trigger Event, being determined as having occurred. The Trigger Event, as noted above, occurs at total and permanent disablement. But TPD does not occur, at least on the submission of the defendant, where there is no Insurance Policy, until six months has elapsed from what might otherwise be the Trigger Event.
Thus, clause 5.1(e), which only applies to a partner who has suffered TPD, operates to require conduct within 7 days of the Trigger Event, which occurs a significant time before TPD occurs. In other words, if the construction urged by the defendant is accepted, the provisions of clause 5.1(e) can never be implemented except "retrospectively".
Further, clause 8 of the Partnership Terms requires a partner wanting to exit the Partnership to agree to enter into a reasonable non-compete or restraint of trade agreement. Leaving aside whether such a provision can be binding in the absence of the terms of such a restraint, it applies at least to a partner wishing to exit as a result of a Trigger Event.
The terms of clause 5.1(e) seem, partially, to satisfy the requirement to execute a restraint of trade in that the terms of clause 5.1(e) disentitle an Exiting Partner from being a partner, director or manager in any other Business Entity, seemingly including another firm of solicitors. But the term "Business Entity" is defined in the Deed as the Partnership. I conclude, comforted by the use of the term "any", that "Business Entity", where used in clause 5.1(e), does not have its defined meaning.
All the foregoing difficulties arise as a result of the conjunctive use of the word "and" in the definition of TPD. As already indicated, the definition of the term "TPD" is internally inconsistent, if the word "and" at the end of the preamble is used to accumulate further conditions on the meaning of the term "TPD".
There are two other available constructions. First, the term "and", being the last word in the preamble to the definition of "TPD" may be used to mean "but", in which case, TPD can be satisfied either by the satisfaction of paragraphs (a) or (b) of the TPD definition, being the meaning in an existing Insurance Policy or by an inability to carry out usual working activities in the usual occupation for a period of six consecutive months, or by the partner suffering total and permanent disablement, as construed for the purposes of the Deed.
Alternatively, and it may not result in a different outcome, the preamble to the definition of "TPD" is intended to express a synonymy between "TPD" and "total and permanent disablement". Ordinarily, unless expressly defined, a term such as "total and permanent disablement" would not be defined in this way.
Unlike in mathematics in utilising the expressions of addition, multiplication and equality, English is not ordinarily commutative when it utilises the term "means". In other words, the English language is not ordinarily capable of being reversed either side of the term "means". The definition of "TPD" is not, ordinarily, also the definition of "total and permanent disablement", but some circumstance that is more easily or readily identified, e.g. inability to work for a specified period.
However poorly the agreements have been drafted, it is not the function of the Court to re-write the agreement between the parties. Apart from the objective and purposive construction to which reference has already been made, there are other principles that may be applied.
One of those principles is that the whole of the document, or as much of it as possible, is to be construed in a way that renders it operational. In other words, a construction ought not to be adopted which renders clauses of the contracts otiose or meaningless, assuming there is an alternative available construction on the objective assessment of the words used in the agreements.
As stated, the expression "total and permanent disablement" is not defined. And it may have been used differently in the Deed from the defined term "TPD".
I reiterate that TPD is used, within the content of the definition of "TPD", when it refers in paragraphs (a) and (b) to TPD "having a meaning" or "means" then setting out a different expression than "total and permanent disablement". Yet the term "total and permanent disablement" is not repeated in those paragraphs.
On the other hand, to construe the word "and", being the last word in the preamble to the definition of TPD, as having an effect the same as or similar to the word "but", would avoid much of the inconsistency to which reference has been made and would certainly avoid the internal inconsistency in the definition itself. In that way, the word "means", where first utilised in the definition of "TPD", is used to denote that "TPD" can be satisfied either by total and permanent disablement or by the satisfaction of either (a) or (b) of the definition. That is a construction that, in my view, could properly apply, but it is not my preferred construction.
Utilising that construction, TPD occurs in one of two alternative circumstances: first, if there be a relevant Insurance Policy, where that defines the occurrence of total and permanent disablement or TPD; or, where no such relevant Insurance Policy exists, then at the point in time when the Outgoing Partner has been incapable of undertaking usual activities for a period of six consecutive months. Alternatively, it can be satisfied by an occurrence, which is a total and permanent disablement. As stated, notwithstanding that I consider this a construction that is available and reasonable; this is not my preferred construction.
Under the foregoing construction, the Trigger Event occurs when the event that causes the disablement occurs and the 30 day Option Exercise Period concludes, relevantly, 30 days after the end of the six months, where there is no Insurance Policy. There would still be difficulties, but the overall provisions of each of the contracts are then workable.
Moreover, such a definition of TPD and its applicability to circumstances of disablement mean that the provision or necessity for a restraint of trade or non-competition provision is effective and the terms of clause 5.1(e) of the Put and Call Option Agreement are necessary. In those circumstances, seven days from when the "Trigger Event being determined as having occurred" is seven days from the strokes or, if it is not known that they caused total and permanent disablement, seven days from the date when this was said to commence. Nevertheless, there could still be retrospective operation, which is a difficulty, and points to why I prefer the alternative with which I deal later in these reasons.
There is one issue to which I should return, dealt with previously in these reasons at [215], being the operation of clause 2.4 of the Put and Call Option Agreement. Clause 2.1 grants the option "subject to clause 2.4". The subjection follows the plainly conjunctive "and", which means that the subjection governs the grant of the call option to which clause 2.1 then refers.
The provisions of clause 2.2 are, the necessary changes being made, in identical terms, except that it applies to the put option. The provisions of clause 2.4 make clear that the Put and Call Options are granted "subject to the occurrence of the Trigger Event".
On my preferred construction, the Trigger Event occurs at the end of six months of disablement. On the only other reasonable construction, it occurs, relevantly, at the happening of the injury that causes disablement. If, as I hold, the Trigger Event occurs at the conclusion of the six-month period, and the grant of the option, as distinct from its exercise, requires the Trigger Event, then the Put and Call Option Agreement would have little use, unless there were an implied term to the effect of that pleaded. Further, if the subjection operated in any other more fundamental way, it would not be a "subjection" but a negation of the grant of the option.
In my view, the subjection to clause 2.4 and the terms of clause 2.4, read with the other provisions, operates so that the Put and Call Option Agreement grants the options, but makes it clear that the exercise of the options is conditioned on the occurrence of a Trigger Event. If that were not the case, the effect of the implied term would prevent any steps to negative the benefit of the options granted (for the reasons elaborated upon in the next section).
An interesting aspect of the clause is that it refers to express or implied conditions, but not "terms". "Terms" are usually different from "conditions"; [73] the difference referring to their essential nature. It also refers to express or implied "obligations", which must, in the circumstances, refer to obligations to be implied. Yet the clause itself is unclear. Why would the clause refer to "conditions", if terms and conditions were included in the term "obligations"?
By clause 5 of the Heads of Agreement, the parties have agreed that the Heads of Agreement is signed concurrently with the Put and Call Option Agreement and the Partnership Terms. Yet, the Put and Call Option Agreement, by Recital C, refers to the Owner being prepared to sell the Incoming Partner an interest in the Partnership "by this Deed" and not in accordance with the Heads of Agreement or the Partnership Terms. It is as if the recitals to the Put and Call Option Agreement were intended to be recitals for each or all of the three Partnership Documents. There are no recitals to either the Heads of Agreement or the Partnership Terms.
Nevertheless, the parties have agreed, in the Heads of Agreement, that the three documents are signed "concurrently". It may well be that the Put and Call Option Agreement was executed first. That is not made clear. As earlier stated, the agreements need to be treated as one scheme. Further, the provisions of clause 8.12(b) of the Put and Call Option Agreement expressly provide that the parties "must do all things and sign all documents necessary to give effect to the provisions of this Deed".
If, as claimed in the particulars to [11A] of the Further Amended Statement of Claim, a term in or to the effect of that described were necessary to render clauses 3.1 and 5.1 efficacious, then the implication of a clause to that effect is an implication expressly contemplated by the provisions of clause 8.12(b) and would be one of the exceptions contemplated in the provisions of clause 8.2(a) of the Put and Call Option Agreement.
Certainly, to the extent that a clause to that effect is needed to render clauses 3.1 and 5.1 efficacious, it is contemplated by the provisions to which reference has already been made.
The defendant submits that the particulars to [11A] establish that the plaintiff asserts that such a term is to be implied in fact. It seems that this submission arises from the view taken by the defendant that the terms of [11A] of the Further Amended Statement of Claim set out the wording of the term, rather than its effect. Nothing in the particulars refers to an implication of fact, as distinct from an implication of law.
The law already implies an obligation on the parties to the Put and Call Option Agreement to do all things necessary so that each other party has the benefit of the terms of the agreement. [74] In Peters WA Ltd v Petersville Ltd, the plurality [75] said:
"The law already implies an obligation by the respondents to do all such things as are necessary on their part to enable Peters WA to have the benefit of those licensing arrangements. It is not now necessary to consider the basis of the implication. The law also implies a negative covenant not to hinder or prevent the fulfilment of the purpose of the express promises made in Art 5." [76] (Citations omitted.)
One of the citations omitted from the foregoing extract is Shepherd v Felt & Textiles of Australia Ltd. [77] In Shepherd v Felt & Textiles of Australia, the High Court made clear that a contract "inevitably imported a tacit condition that [one party] should perform the services faithfully which he contracted to give the [other party], and should not endeavour to impede or defeat the respondent" in achieving the purpose of the contract.
The whole purpose of the Put and Call Option Agreement was to allow a party, who was totally and permanently disabled, to realise the value of their interest in the Partnership by utilising a put option that would require the other Partner or Partners to purchase the Outgoing Partner's interest in the partnership at the value calculated in accordance with the agreement.
The proposition, claimed in [11A] of the Further Amended Statement of Claim is simply that: if the Put Option is exercised, and has not lapsed, requiring the Ongoing Owner to purchase the interest in the Partnership, that obligation is not capable of being defeated by the dissolution of the Partnership or any other step that would disentitle the Exiting Owner, who has the right to exercise the put option, from benefiting from the terms of the Put and Call Option Agreement. That is precisely the point, cited with approval in Peters (WA) v Petersville, from Shepherd v Felt & Textiles of Australia Ltd.
Moreover, the fact that the courts are slow to imply a term [78] does not detract from the implications to which the High Court referred in Peters, supra, and St Martins Investments, supra and Shepherd v Felt & Textiles of Australia Ltd, supra.
The defendant relies, in relation to the implication of a term of good faith on the judgments of the High Court in Byrne v Australian Airlines Ltd [79] and, Commonwealth Bank of Australia v Barker [80] , but care must be taken in the application of comments in those judgments. Each relates to contracts of employment, which have, perhaps unfairly, been treated in a very different class.
Even so, as the Court of Appeal made clear in State of New South Wales v Shaw, [81] the implication of an obligation of good faith is not precluded by either of the High Court judgments to which the defendant refers. It is unnecessary to take the discussion further than to say, were it necessary, I would take the view that there was an obligation of good faith, being an implication into this, a commercial contract, of a term requiring the exercise of good faith in the performance of the contract. [82]
The submission of the defendant that it is conceivable that the remaining partner may have allowed for the dissolution of the Partnership during the Option Exercise Period does not assist. There may be very good reason why the Ongoing Owner may not wish the Partnership to continue and not purchase the Exiting Owner's share, but that is not what the parties agreed. The parties agreed that once the Option Notice is served, the Ongoing Owner is required to purchase the interest of the Exiting Owner in accordance with the Agreement. Further, with only two owners, the Partnership could never continue after the retirement or death of one of them.
The Option Notice is the written notice of the exiting partner's exercise of the Put Option granted to them under the Put and Call Option Agreement. Because of the poor drafting of the Put and Call Option Agreement, the term "Option Exercise Period" is defined as meaning "the 30th day" after the six-month period. But the proper interpretation of the Put and Call Option Agreement is that the Option Exercise Period ends on the 30th day after the event described.
The question then arises as to when does the Option Exercise Period commence? The answer is that it commences on the date that the Trigger Event occurs. So much is clear from the terms of clause 2 and clause 3 of the Put and Call Option Agreement.
Clause 2.2 of the Put and Call Option Agreement grants to a putative Exiting Owner the capacity to require other Owners and Incoming Partners to purchase the Business Interests of that Exiting Owner. The capacity to insist on that requirement is subject to the occurrence of the Trigger Event. [83]
Clause 3.1 provides the mechanism by which the Exiting Owner requires the other Owners to purchase the interests, being the serving of an Option Notice. Clause 3.2 of the Put and Call Option Agreement provides that it lapses "if the put option …. is not exercised within the Option Exercise Period", which means that the Option Exercise Period must have commenced before the Put Option is exercised and end after the Put Option is exercised. Thus, where there is no Insurance Policy, the Option Exercise Period must commence on the date of the Trigger Event and end on the 30th day after the six-month period to which the Option Exercise Period definition refers.
As a consequence of that construction, assuming for present purposes that the Court were to adopt the construction earlier outlined (not being its preferred construction), the Option Notice could have been served on and from 23 December 2015, assuming, for present purposes, that on that date the plaintiff was suffering from a total and permanent disablement. Further, assuming there was no Insurance Policy, the Option Exercise Period would have concluded no earlier than 23 July 2016, being 30 days after the period of six months when the plaintiff was unable to carry out his usual working activities (see further on this in what follows).
There is no doubt that engagement in the practice of a solicitor is an "occupation". Ordinarily a position or job is the aggregation of duties that constitute the position or job. [88] The "aggregation of duties", to which the Federal Court referred in the decisions cited at footnote 88, is not dissimilar in concept to the term "usual working activities", which is used in the Put and Call Option Agreement. But the term is different from the term "job" and is more confined than the term "occupation".
Thus, it is possible for a person to be able to perform work as a "solicitor", being an occupation, but not be able to perform the usual working activities of that person, when in that occupation.
As earlier stated, there is a distinction between the adverb "permanently" and the expression "for the foreseeable future". The term utilised in the Put and Call Option Agreement is "permanent disablement". It excludes a temporary disablement. [89]
There are two matters to note. First, this is an agreement between partners and relates to the sale and purchase of the interests in the Partnership or firm, being the equity in the Partnership. Secondly, there are requirements under these agreements to reach agreement as to non-competition, to which earlier reference has been made, [90] and a prohibition from holding any office or any other management role in any business entity, and the Exiting Owner must resign from holding any such offices or roles within seven days of the Trigger Event being determined. [91]
The provisions of clause 5.1(e) of the Put and Call Option Agreement, in particular, make it clear that the total and permanent disablement or the TPD (whichever is operative) does not need to be so severe that the Exiting Owner could not manage a business or hold office in a business. If the Exiting Owner was incapable of holding any such office or management role, the terms of clause 5.1(e) of the Put and Call Option Agreement would be wholly unnecessary.
Thus, the term "total and permanent disablement", used in the Put and Call Option Agreement, refers to a total and permanent inability to carry out the usual working activities as a Partner in the firm and, more generally, in a solicitor's practice of any size or complexity.
Dr Lianos testified that Mr Paltos was unable to engage in the practice of a family lawyer. The accepted evidence of Dr Lianos was that he was aware of the requirements of a practice as a family lawyer.
Further, Dr Lianos was provided with a list of the plaintiff's "usual working activities as a family lawyer" which included: written communication with clients, other lawyers and the Court; verbal communication with clients, other lawyers and the Court; advocacy (including during the course of a mediation) of the clients' instructions or position before a Judge of the Family Court; preparation of court documents, written advices and correspondence; analysis of information, documents, instructions, legislation and legal precedent; synthesis of law and facts; legal reasoning and advice; management and supervision of junior legal staff; and management and supervision of administration staff and the practice. [92]
Notwithstanding the description of the activities as those of a "family lawyer", the foregoing reference, to management and supervision of junior legal staff and management and supervision of administration staff and the practice, seem more apposite to a senior position in a family law firm and, I assume, as a Partner. To be fair, the words of introduction to the list, as indicated, refer to the activities as the plaintiff's usual working activities as a family lawyer and, it seems, included the plaintiff's usual working activities as a partner in a family law firm. The foregoing is not a criticism.
On the construction I take of the Put and Call Option Agreement, it is the plaintiff's usual working activities as a Partner in the firm that is the measure by which the determination of "total and permanent disablement" is to be measured, whether that term is different or the same as "TPD".
There can be little doubt that, on the evidence before the Court, and the view the Court takes of the performance of Mr Paltos in the witness box, the plaintiff is and was at all relevant times totally disabled from performing executive functions that are required of a senior family lawyer or any other kind of senior lawyer and totally disabled from being a Partner in a law firm.
Further, as at the period January to April 2016, the plaintiff was totally disabled from performing work as a Partner in the firm. He did not perform work as a Partner in the Partnership during that period.
Was the disablement permanent? On the evidence of Dr Lianos, it was and is. On the observations of the Court of the plaintiff, it is. Against those findings, the defendant submits that the evidence of work undertaken by the plaintiff thereafter negates any conclusion that the disablement was either total or permanent or both.
The term "total disablement" does not require that the plaintiff is unable to do anything. Short of death or a vegetating state, every person is able to do something. It may be confined to exercising the mind. It may be confined to writing, by copying other persons' work.
The phrase total disablement does not require utter or complete incapacity. In the context of the Put and Call Option Agreement, it requires a total inability to perform the functions of a partner of the firm. That is the reason there is a reference to the "usual working activities" in a number of the definitions or clauses.
Further, the term "permanent disablement" means a disablement that is not "temporary". It does not include disablement that is "indefinite", but from which the sufferer is likely to recover. It does include a disablement that is current and, on the balance of probabilities, from which the Exiting Owner will not recover.
Before the Court there is material that includes the continued admission of the plaintiff as a solicitor and his exemption from Continuing Professional Development ("CPD") requirements for a period during which he was ill. [93]
On 27 May 2016, he was exempted from the satisfaction of any further CPD requirement, following an application of the same date. The application of that date recounts the double stroke on 23 December 2015; the plaintiff's admission to hospital; his continuing attendance at hospital for therapy as a day patient; the fact that he had not resumed work since his stroke; and that he had not met the requirements for CPD. Nevertheless, the exemption was granted.
The plaintiff published a website in relation to a firm, entitled "Paltos Family Lawyers" after the dissolution of the Partnership. If the website is any guide, it has no landline, but a mobile phone number and an email address.
Following the exemption from further CPD points in 2016, the plaintiff attended lectures in 2017, the attendance at which satisfied the CPD requirements for continued registration. There is no evidence before the Court to suggest that the Law Society has examined the plaintiff as to his capacity to practise with an unrestricted practising certificate or, indeed, the extent to which any of the information disseminated in the lectures, which the plaintiff attended, was understood or retained.
Further, there is evidence of the plaintiff seeing some clients (or at least a client) in the period following 1 June 2016, being a note from the plaintiff's accountant that refers to the plaintiff's "first client in new business …". [94]
The material before the Court makes clear that the activities, undertaken by the plaintiff in this period and beyond, were activities that could only be undertaken with significant physical and mental assistance from other solicitors. While the aspirational view of the plaintiff that he would not wish to give up practice may, from a psychological perspective, be admirable, it does not qualify the conclusion, otherwise reached, that the plaintiff is totally and permanently disabled from practising in a manner that included his usual working activities in his occupation.
I have no hesitation in finding that the plaintiff is, within the meaning of the term in the Put and Call Option Agreement, an Owner that is suffering a total and permanent disablement and was such an Owner during the period 23 December 2015 to 31 July 2016. Further, that total and permanent disablement continued beyond that date and continued up to and including the date of the hearing, from which, on the balance of probabilities, the plaintiff will not recover.
As earlier stated, the plaintiff retained the defendant on 16 February 2016. By 17 February 2016, there had been formal conferences and communication. The defendant was aware of the double stroke suffered by the plaintiff and could not have been unaware of the disability under which the plaintiff was operating. The formal Retainer was not executed until 29 February 2016. It retained (as did the earlier conversations on 16 February 2016) the defendant to advise the plaintiff, as aforesaid.
It is difficult to envisage a situation where a solicitor can advise that the Put and Call Option Agreement did not, or did not yet, apply to the plaintiff, without construing the Put and Call Option Agreement. Further, it is impossible to understand how the defendant could advise on the appropriate means for the plaintiff to terminate the Partnership, without construing and understanding each of the Partnership Documents.
There can be little doubt that Mr McCaffrey was sent the Put and Call Option Agreement on 16 February 2016 and, in turn, read it. Indeed, Mr McCaffrey enquired, on that date, whether there were any more formal partnership agreements, so he must have read the Put and Call Option Agreement.
The other two additional Partnership Documents, as earlier mentioned, were sent to Mr McCaffrey on 17 February 2016. While Mr McCaffrey attests to the fact that he recollects that he advised to the effect that the Put Options do not help the plaintiff "at present because there is a six-month requirement in relation to your disability", [96] that conversation or advice is not, in those terms, accepted. But little turns on it. That which was put to the plaintiff, at one stage of cross-examination, was that the words "yet" or "at this time" were used and that the plaintiff was aware that there was a six-month period to which the Put and Call Option Agreement referred.
Earlier in these reasons for judgment, I referred to the communication between the plaintiff and Mr McCaffrey in March 2017, from which it is clear that Mr McCaffrey totally confused the operation of the Put and Call Option Agreement and the operation of the Heads of Agreement, notwithstanding that the Put and Call Option Agreement does recite the timetable for the purchase of the initial 30% of the interest in the practice to which the parties agreed under the Heads of Agreement. However, that communication was in 2017 and, assuming, as I do, that Mr McCaffrey has a relatively busy practice, it would not be surprising that 12 months after the events he would confuse the documents.
On 23 February 2016, as noted earlier in these reasons, the defendant, through Mr McCaffrey, noted the plaintiff's present incapacity which, in the view of the defendant, was "likely to continue partially for indefinite period" and noted or asked whether there was "permanent disablement of the plaintiff for the purposes of the P&COA". It then refers, albeit in abbreviations, to the six-month period; the option period; and then the 30 days. It cannot be the situation, given the content of that note, that Mr McCaffrey (and necessarily the defendant) did not read and seek to construe the Put and Call Option Agreement. What the defendant did not do was formally construe the Put and Call Option Agreement and it did not advise the plaintiff of any such construction.
Moreover, as already stated, on 24 February 2016, Dr Lianos wrote to Mr McCaffrey following an appointment with the plaintiff on the day earlier. He informed Mr McCaffrey that the plaintiff is "medically unfit to participate in any definitive discussions around how to move forward in resolving matters with his partner and his practice". Dr Lianos informs Mr McCaffrey that the plaintiff's anxiety interferes with his capacity to concentrate; causes him early fatigue; allows him to concentrate for only short periods of time; and that he was not medically fit to engage in negotiations or mediation.
An overwhelming aspect of the condition suffered by the plaintiff was that he had little or no insight into his capacity. On 13 April 2016, Mr McCaffrey obtained the report of Dr Laurie Miller, to which earlier reference has been made. There are extracts of that report earlier in these reasons.
Following receipt of the report, Mr McCaffrey made it clear, in an email, that it was "impossible to negotiate matters in a manner that was fair to [the plaintiff]", because of his illness. At this point, the plaintiff had indicated to Mr McCaffrey that he was prepared to give up his full interest in the Partnership. Mr McCaffrey referred to the deterioration in the plaintiff's health in the 24 hours before 14 April 2016, and reported that deterioration to the solicitors for Mr Milevski.
By 14 April 2016, four fundamental things were obvious: (1) the plaintiff was prepared to give up the whole of his interest in the Partnership; (2) the plaintiff had previously had no insight into the degree to which he was disabled; (3) the plaintiff was suffering from a condition that prevented him from working and was getting worse; and (4) the defendant had not advised the plaintiff on the issues arising under the Put and Call Option Agreement.
On 15 April 2016, as also noted earlier, the plaintiff's accountant wrote to the plaintiff and Mr McCaffrey suggesting that, as a result of the plaintiff's poor health, the question arose as to whether they should appoint a financial guardian. Plainly, on the objective evidence available at the time, the plaintiff was incapable of dealing with his financial affairs and, one infers, making important decisions on his legal rights.
Regardless of whether or not one takes the view expressed by the Court as to the construction of TPD, or as to the construction of total and permanent disablement, at least as at 14 April 2016, and in my view, on the basis of the evidence in this case, well before that time, Mr McCaffrey was and, if not should have been, aware that there was at least an arguable, if not overwhelming, view that the plaintiff was totally and permanently disabled within the meaning of the Put and Call Option Agreement.
Even a cursory reading of the Put and Call Option Agreement would reveal that the Trigger Event occurs at the total and permanent disablement of an Owner. Further, and also obvious from a cursory reading of the Put and Call Option Agreement, from the time or date that total and permanent disablement occurs until 30 days after a partner who has suffered a total and permanent disablement has been unable for six consecutive months to undertake his usual activities in his usual occupation, there was a requirement to exercise the put option by serving an Option Notice. Otherwise the option would lapse.
If, even arguably, the date on which total and permanent disablement occurred was 23 December 2015, the time by which the Option Notice needed to be served was, approximately, 23 July 2016, being 30 days after the 6 month period. It was already 14 April 2016. Yet, no advice was given as to the effect of the Put and Call Option Agreement; the capacity, if the plaintiff were totally and permanently disabled, to serve an Option Notice; and the effect of the service of that Option Notice.
The defendant relies on the repeated comments by the plaintiff that he was wishing to return to work. [97] Further, the plaintiff relies on comments such as the fact that the plaintiff's capacity had diminished but was improving. [98]
But the plaintiff's lack of insight into his capacity must have been obvious and, on the evidence before the Court, was obvious. Further, whether or not the plaintiff had insight and whether or not Mr McCaffrey was entitled or required to go behind the plaintiff's statements as to his not wanting to give up the Partnership, as at 13 April 2016, at the latest, Mr McCaffrey and the defendant were aware that Mr Paltos was willing to give up his entire interest in the Partnership and was suffering a total and permanent disablement, or was aware of the facts that, if the defendant's mind considered those facts, would inevitably, or more likely than not, lead to that conclusion.
The foregoing does not answer the question as to whether it was necessary for Mr McCaffrey, and thereby the defendant, to advise their client, the plaintiff, of his rights under the Put and Call Option Agreement and the steps, if any, that could or should be taken in order to take advantage of the Put and Call Option Agreement rights.
As earlier stated, the plaintiff said, continually, that he was, once well, going to return to work. Plainly, at the time that those statements were made, the plaintiff was not well enough to return to work. As a consequence, the plaintiff's comments to that effect could be reasonably accepted only on the basis of a statement of intention, subject to an improvement in health.
I reiterate that as at 11 February 2016, Mr McCaffrey wrote to Mr Howell confirming that the plaintiff was not presently prepared to hand over his interest in the practice, but, in the course of which, Mr McCaffrey reiterated that the plaintiff was "conscious of the fact that in his presently debilitated state he is not able to think clearly about his financial affairs. He needs clarity in this regard, so he can negotiate matters with Milevski. In fact, from my [McCaffrey's] observation of Dennis, I would say that there is no way he could presently himself negotiate with Milevski; this will either have to be postponed to a later date, or someone else will have to negotiate on Dennis's behalf."
Moreover, Mr McCaffrey asked the question as to whether each of the three tranches of 10% interest, referred to in the Heads of Agreement, had been transferred and the amounts paid by Mr Milevski. During the course of the time that Mr McCaffrey was acting for the plaintiff, he continued to suggest that it was necessary to "buy time" and there are, from time to time, references to a six-month period.
It is inconceivable that a solicitor asked to advise on the Partnership dispute would not seek to construe the Put and Call Option Agreement, which formed part of the obligations and rights of each of the partners.
Since it was essentially monetary issues that were driving the attitude of Mr Milevski and the attitude of the plaintiff, the exercise of the Option as a result of what was claimed to be total and permanent disablement would have had two major effects: first, if it were ultimately successful, it would have resolved the financial issues faced by the plaintiff; secondly, even if it were ultimately unsuccessful, it would cause Mr Milevski to realise that the ousting of the plaintiff was potentially an expensive exercise. In and of itself, that second aspect would be enough to delay the resolution of the matters.
As at 7 April 2016, Mr McCaffrey was still expressing astonishment that the plaintiff could not see the problems with him returning to the office.
As is trite, the relationship between solicitor and client is a fiduciary relationship under which the solicitor must act for the benefit of the client on matters within the scope of the relationship. These reasons for judgment are neither a necessary nor appropriate place to discuss fully the nature of the fiduciary relationship. It is, however, a relationship involving the highest duty of care.
Ordinarily, a solicitor is required to abide by the instructions of her or his client and is not under a duty to ensure a particular result. [99] The function of a solicitor is to exercise reasonable care. [100] It is not the function of a solicitor to ensure that the client acts in her or his best interest; only to advise as to what is in the client's best interest. [101] Lastly, a solicitor is required to use all reasonably available legal means consistent with the retainer to advance the client's interests as the client perceives them. If the client perceives them differently from the lawyer, it is not, ordinarily, the function of the solicitor to go behind the client's perception.
The solicitor must, in following the client's instructions, inform the client of the risks and drawbacks of the proposed course of conduct and, to the extent one is available, of a better course of action. [102] In Banque Bruxelles Lambert SA, supra, Lord Hoffman said:
"a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. …
The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong."
With great respect to Lord Hoffman, the foregoing should not be taken as support for the proposition that all wrong advice is actionable. Lord Hoffman is there saying that the legal practitioner is responsible only for the consequences caused by the information being wrong and negligent. Further, and most appropriate in the circumstances before the Court in these proceedings, it is the duty of the legal practitioner to inform and to advise in a fashion that is capable of being understood and acted upon by the client, but the practitioner cannot do more than explain it in terms the client reasonably appears to be able to understand and, further, cannot force that advice on the client. [103] Moreover, if, having given that advice, the client instructs the solicitor to proceed with an inadvisable course of action, the solicitor is not responsible in law for the loss suffered by the client. [104]
Notwithstanding the foregoing, the legal practitioner's position, and in particular the fiduciary nature of the obligations, generally results in an obligation to assist clients in defining the objectives of any representation or course of conduct and defining the client's best interests. [105]
On one view of the material before the Court, the defendant, through Mr McCaffrey, had been informed by the client, the plaintiff, of his continuing strident desire to return to his practice. However, that instruction was delivered in circumstances where the defendant, again through Mr McCaffrey, was aware of the significant limitations in executive functioning and the limitations in capacity of the plaintiff in determining what was in his best interests.
In my view, even though it was not an optimal approach, given the particular disabilities suffered by the plaintiff, it was not negligent for Mr McCaffrey as a solicitor to follow those instructions. In that finding, I take account of each of the foregoing duties and also the terms of s 5O of the Civil Liability Act, to which reference has been made.
However, all of that altered on or about 13 April 2016, which alteration was confirmed in the following two days. As at 13 April 2016, the client had, on the contemporaneous notes, deteriorated significantly, and had indicated that he was now prepared to give up all of his interest in the practice.
As at 13 or 14 April 2016 at least, the defendant, through Mr McCaffrey, was under an obligation to advise the plaintiff of his rights under the Put and Call Option Agreement and the process that was required to institute that procedure. The procedure was not complicated. All that was required was for an Option Notice to be served on Mr Milevski, at the appropriate time.
As at 13 and 14 April 2016, the plaintiff's health was significantly worse; his instructions were to transfer his 70% interest in the Partnership to Mr Milevski; and he was facing the dissolution of the Partnership. The defendant was not retained in the litigation and did not appear in the litigation between the plaintiff and Mr Milevski.
While I would consider that a prudent solicitor would have advised the plaintiff fully on his rights under the Put and Call Option Agreement from the very outset of the relationship, I have found that, while ever the instructions were that the plaintiff was to return to his practice, it was not negligent or a breach of duty for the defendant not to advise on those issues at that point in time. However, once those instructions changed in the manner that they did, at least as early as 13 and 14 April 2016, that situation altered dramatically.
Further, given that it was necessary for the defendant to have construed the Put and Call Option Agreement from the very earliest time that the relationship between the plaintiff and the defendant arose, that information should have been readily available and acted upon immediately. Not to do so was to fail to provide information upon which the plaintiff could decide the course of action he could have taken. Further, put in other terms, the defendant's obligation was to assist the plaintiff in defining the most beneficial means of achieving the objective that, by 13 and 14 April 2016, the plaintiff had decided upon.
As at 13 and 14 April 2016, the defendant should have advised the plaintiff that he had available the serving of an Option Notice, either immediately or shortly, under the Put and Call Option Agreement, the effect of which would have been to require Mr Milevski to purchase his shares at the Completion Date, which, if the Option Notice were to have been served on 14 April 2016 (or 15 April 2016), would have been, in accordance with the earlier described construction of the Deed, on 16 May 2016 and, otherwise, by 22 July 2016.
Notwithstanding the foregoing, it is accepted, looking at all of the evidence, that the defendant engaged in misleading or deceptive conduct in failing to advise, at least, on 13, 14 or 15 April 2016 that steps could be taken under the Put and Call Option Agreement. Looking at all of the conduct of the defendant, it does seem that the omission was misleading or deceptive and I so conclude. It was misleading or deceptive, because the entirety of the conduct misled the plaintiff into an understanding that there was nothing in the Deed that he could utilise to his advantage in the dispute with Mr Milevski.
Notwithstanding the obvious effect of the strokes, it does not seem that the defendant advised the plaintiff that he would be or could be considered to be suffering from a total and permanent disablement and the rights that flowed from such a classification. If, as is suggested in a number of the file notes, the major concern of the plaintiff was his financial predicament, then that would have been significantly ameliorated by recourse to the mechanism available under the Put and Call Option Agreement to require the Ongoing Owner to purchase his Business Interests.
A solicitor's function is not simply to follow a client's instructions. The solicitor must ensure that the client has been sufficiently warned of the risks inherent in proceeding as instructed and the other options that are available to the client, which may result in a far more beneficial outcome. [108]
As pointed out by Deane J in Hawkins v Clayton, [109] the relationship of solicitor and client, being a relationship of proximity, ordinarily involves a combination of those elements. Further, as Deane J pointed out, it will often give rise to a duty of care on the part of the solicitor that requires the taking of positive steps, beyond the specifically agreed professional task or function, to avoid a real and foreseeable risk of economic loss being sustained by the client. [110]
The Preferred Construction and Liability
As earlier stated, I have come to the conclusion that TPD, relevantly means "the existence of circumstances where, because of injury or illness, the [plaintiff] has not been able to carry out [his] usual working activities in [his]] usual occupation for a period of six consecutive months". This accords precisely, subject to the changing personal pronoun and description of the plaintiff, with the definition of TPD in the Put and Call Option Agreement, where there is no Insurance Policy, as is the case with the plaintiff.
The Trigger Event means the total and permanent disablement of the plaintiff and is so defined. On one view, at least, "total and permanent disablement" where used in "Trigger Event" means the same as "TPD". This is a construction opposed by the defendant, but I disagree with the defendant that "total and permanent disablement" does not equate to "TPD".
My preferred construction, notwithstanding that it is an unusual manner of defining it, is that "means", where first used in the definition of "TPD", is used to signify "stands for" and the definition creates a synonymy between TPD and total and permanent disablement. Alternatively, the earlier outlined construction would apply. In that preferred sense, the term "total and permanent disablement", where used in the Deed has the meaning ascribed by paragraphs (a) and (b) of the definition of "TPD" and the terms are synonymous. I now develop the reason for that preference.
At least on 14 April 2016, the stroke had occurred and was known. The Trigger Event cannot occur after the six-month period, because it would then cause an inconsistency with the meaning and operation of the Option Exercise Period, the time at which Option Notice is to be given, and the Completion Date.
Thus, properly construed, the Put and Call Option Agreement fixes either on an event that has caused total and permanent disablement, when that event occurred, or the day when the six-month period concludes. As earlier explained, the Option Exercise Period runs from the Trigger Event until the 30th day after the six-month period, to which reference has already been made. The Option Notice is capable of being served at any time during the Option Exercise Period and, once served, requires completion of the sale and purchase 30 days from the date of the service of the Option Notice, assuming a Trigger Event had occurred.
As a consequence, if the Trigger Event occurred on 23 December 2015, then service of an Option Notice was available and in accordance with the plaintiff's instructions on 13, 14, and 15 April 2016. It was also available probably over the weekend of 16 and 17 April 2016 and on 18, 19 and 20 April 2016. Each of those days would have been before the proceedings in the Equity Division, to which earlier reference has been made.
On the other hand, if the preferred construction of the Deed is utilised, then the Trigger Event would have occurred on 23 June 2016 and the Option Notice could have been served between 23 June 2016 and, approximately, 22 July 2016.
Further, once the deterioration in the condition of the plaintiff had manifested and the plaintiff's instructions altered so as to seek an objective of the sale of the entirety of his interest in the Partnership, it was negligent for the defendant not to advise, particularly given the imminence of the proceedings taken by Mr Milevski, that the plaintiff could serve an Option Notice and thereby obtain a sale price of his interest on the previously agreed calculation.
The fact, if it were the fact, that, as the defendant submits, an Ongoing Partner might not want to continue the partnership is interesting, but irrelevant. The Partners had agreed on the basis on which, if there were the appropriate conditions, an Exiting Owner, who had suffered TPD, was to be compensated. This is not an implied term; it is an express term of the agreement and the fundamental purpose of the agreement.
The question that then arises is what effect the non-service of the Option Notice had on the rights of the plaintiff. Plainly, the Put Option was granted on 29 June 2010 and provided for the service of the Option Notice, whereupon the rights of the plaintiff would have included the ability to insist on Mr Milevski purchasing his interests at the agreed calculation and, in my view, would have survived any dissolution of the Partnership.
However, the Option Notice was not served and, it would seem, that right has now been lost. Under the Put & Call Option Agreement, because the Option Notice was not served within the Option Exercise Period, the right has lapsed. [111]
Given the predominant concern of the plaintiff as to money and the desire, as from 13 April 2016, to have Mr Milevski purchase the entirety of the plaintiff's interest in the Partnership, the Court accepts as accurate the evidence of the plaintiff that, if he had been advised of the ability to take advantage of the Put Option, he would have done so. [112]
As a consequence, the negligence of the defendant has caused the plaintiff loss and damage. That damage is the amount calculated by reference to the Put and Call Option Agreement calculation and, in particular, Schedule C thereto. That amount was calculated by Mr Duggan, chartered accountant, who was the only expert witness to give evidence of the amount which the calculation would derive.
The foregoing conclusion on liability does not depend on which of the two available definitions of Trigger Event are utilised, but does depend on the meaning of "total and permanent disablement" where used in that definition. The term "total and permanent disablement" is not itself defined.
If, contrary to the construction I have previously explained, the definition of TPD, by using the expression "means total and permanent disablement", is intended also to define or determine the circumstances when "total and permanent disablement" occurs, then slightly different consequences arise. It is appropriate, given the position of the parties, to address those different consequences.
If the intention of the parties to the Put and Call Option Agreement, derived objectively, was that "TPD" and "total and permanent disablement" were to be used interchangeably (hitherto referred to as my preferred view), then the Trigger Event would occur, relevantly, at the conclusion of the six-month period during which the Partner was unable "to carry out [his] usual working activities in [his] occupation". If that were so, then the "Option Exercise Period" would commence at the conclusion of the 6 month period and end on the "the 30th day" thereafter. This is the main reason that I prefer this construction. It avoids all of the inconsistencies that otherwise arise and would prevent the occurrence of retrospective operation of the Trigger Event or clause 5.1(e) of the Deed.
As stated, such a construction would overcome all of the inconsistencies associated with a construction based on the submission of the defendant and also the few inconsistencies or difficulties associated with the earlier explained construction. The only difficulty is that it would be utilising the definition of TPD to define the term "total and permanent disablement" in a manner that was unorthodox.
The consequences, in terms of the advice, or omission of advice, would be different, but not in a manner that avoided negligent conduct or causation. As already stated, the advice, provided by the defendant to the plaintiff, concerning the operation of the Put and Call Option Agreement, was cursory.
The evidence of correspondence and file notes discloses the accuracy of the testimony of the plaintiff that the defendant did not relevantly or adequately advise the plaintiff:
"72. At no time did Chris, David or anyone else from Bartier Perry advise me:
a. About the Put and Call Option, specifically the effect of clause 5.1 and 5.2 of the Put and Call Option.
b. That if I exercised my rights under clause 5.1 of the Put and Call Option Peter would be obliged to purchase my 70% share of the Partnership at the price determined using the formula in clause 5.1 of the Put and Call Option (the Formula).
c. That the effect of clause 5.2 of the Put and Call Option was that if I exercised it Peter would be obliged as soon as reasonably practicable after the Completion Date (as defined in the Put and Call Option) to do all things and sign all documents necessary to release any guarantees or persona! covenants given to me regarding debts of the Partnership.
d. That I had a legal basis to stop Peter from terminating or dissolving the Partnership.
e. That I could apply for an injunction seeking orders restraining Peter from:
i. dissolving or trying to dissolve the Partnership; and
ii. appointing a receiver.
f. That I should take steps to preserve my rights under clauses 5.1 and 5.2 of the Put and Call Option.
g. Of any strategy using the Put and Call Option to stop Peter from dissolving or trying to dissolve the Partnership or appointing a receiver.
h. That the Court should be provided \with a copy of the Put and Call Option.
i. That the Court should be informed that clauses 5.1 and 5.2 of the Put and Call Option should be taken into account in considering whether the Partnership be dissolved or a receiver appointed to the Partnership.
j. That the monies payable by Peter under the Formula should be calculated immediately either by Bartier Perry or an accountant.
k. That Bartier Perry had calculated or sought to calculate the monies payable by Peter under the Formula.
l. That the Put and Call Option would lapse on the 30th day after the date on which I had not been able to carry out my usual working activities for a period of six consecutive months,
m. Of the fact that 1 could, or should, exercise my rights under the Put and Call Option."
I continue to accept that if the plaintiff were to have been aware of those matters, which he was not, he would have exercised the Put Option by serving, at the appropriate time, an Option Notice. The appropriate time, in this alternative preferred construction, was between 23 June 2016 and 22 July 2016 (or, perhaps as a result of the weekend 25 July 2016).
First, it is necessary to note that the cursory advice that the Put and Call Option Agreement "did not apply yet [or at that time]" would not, on this alternative construction, be wrong (except if one uses "apply" in a technical sense). Technically, the Agreement "applied", the Option had been granted, but its exercise had not been triggered. Nothing turns on that aspect.
Further, the Option Notice could not have been served, on this alternative preferred construction, until 23 June 2016, a time after the Retainer had been terminated [113] and after the Partnership had been dissolved. [114]
In those circumstances, taking the conduct overall, the advice that the Put and Call Option Agreement "did not apply yet or at this stage" was accurate until 23 June 2016, again assuming "apply" referred to the capacity to exercise the Option. However, the failure to provide advice on the construction of the Put and Call Option Agreement and the manner and timing of its exercise was negligent and in breach of the Retainer.
Further, an issue arises as to how the duties to which the High Court referred [115] operate in those circumstances. The law, as earlier stated by reference to Shepherd v Felt & Textiles, cited with approval in Peters (WA) v Petersville, implies a negative covenant not to hinder or prevent the fulfilment of the purposes of the express promises in the Agreement.
I have already expressed the view that the purpose of the Put and Call Option Agreement is to ensure that there is a definite basis upon which the death or disablement of a partner is compensated. To allow the dissolution of the Partnership to frustrate that purpose would be to render the Put and Call Option Agreement incapable of enforcement.
If the Trigger Event occurs, relevantly, after the 6 month period, a partner, who suffered, by injury or illness, an horrific brain injury and/or was placed in a vegetative state, could have the benefits of the Put and Call Option Agreement rendered unenforceable by the simple device of terminating the Partnership during the 6 month period. Indeed, if a Partner died, that would terminate the Partnership [116] , but the Executor would still be able to serve an Option Notice and take the benefit of the Agreement. Thus, the parties to the Agreement contemplated that the Option Notice could be served after the termination of the Partnership. [117]
The Put Option was granted by clause 2.2 on 29 June 2010 and was possessed by the plaintiff at all times between 29 June 2010 and 22 July 2016 (and probably until 25 July 2016). It was granted "subject to the occurrence of the Trigger Event", but that simply disentitled the grantee from exercising the Option prior to the Trigger Event occurring; it did not negate the grant itself.
The option possessed by the plaintiff or another partner does not lapse on the death of the partner. [118] Nor would it lapse on the termination of the Partnership by other means. The Option is granted for consideration and, even if the consideration failed, was granted by Deed.
As a consequence, on the proper, whether or not it was the preferred, construction of the Put and Call Option Agreement, the Option subsisted beyond the termination of the Partnership and the Option Notice could have been served between 23 June 2016 and, at least, 22 July 2016. It was not.
An Option Notice was not served at all. I accept that if the plaintiff were to have known of his capacity to serve the Option Notice, he would have done so. As earlier stated, the Option lapsed on or about 22 July 2016.
Notwithstanding that the earlier advice, to the effect that the Put and Call Option Agreement did not yet apply, was not, at one level, wrong, it was misleading or deceptive. The overall conduct was misleading or deceptive (or likely to mislead or deceive) because it represented to the plaintiff that he could do nothing to gain for himself the benefit of the Option. Further, for not dissimilar reasons, the failure to advise the plaintiff of his capacity to exercise the Put Option was negligent and a breach of the duty in contract arising from the Retainer, being the duty to exercise reasonable care and skill in advising the plaintiff, by informing him of that ability. [119]
I have dealt already with the duty and, under the rubric of "negligence", with the breach of the contractual duty to exercise reasonable care and skill, including the need to assist the plaintiff in setting the objectives. I adhere to the view expressed in the earlier analysis that the failure to do so prior to 13 April 2016 probably delayed the plaintiff's recognition of the need to exercise the Option. However, after 13 and 14 April 2016, the failure to advise on the course open to the plaintiff manifestly breaches the contractual duties and is actionable in tort and in contract.
Moreover, in this construction, I would hold that an implied term of the kind otherwise addressed earlier is also to be inferred. As a consequence, even though the Option would have been exercisable after the dissolution of the Partnership, the implied term would prevent steps being taken to negate the benefit of the Option, until it had otherwise lapsed. As earlier stated, the Option lapsed on or about 22 July 2016 and thereafter such steps would have been available and effective.
I turn then to the issues identified by the parties in their Agreed Facts. In my view, all or most of those issues have been answered, but I will make those answers express. I deal seriatim with the Issues in Dispute in the Joint Memorandum.
The terms of the Retainer [120] as described in the formal document of 29 February 2016 are set out at [145] above. They are the terms of the Retainer. However, in my view, there is no significant or substantial difference in effect between that which was required in "advising… with regards to [the] partnership" [121] and advising the plaintiff on: the Partnership dispute; the terms of the Partnership Documentation; and other matters arising therefrom which would protect the plaintiff's rights. [122]
My preferred view [123] is that, in order to be suffering total and permanent disablement, relevantly, the plaintiff was required to be unable to undertake his usual activities in his usual occupation as a Partner in the Partnership for a period of six months. However, if my preferred view were incorrect, then the measure of total and permanent disablement was still the usual activities of the plaintiff as a Partner in the Partnership and that disablement had to be non-temporary, being an inability from which the plaintiff was not expected to recover, and which did not allow him to undertake his usual activities as a Partner.
The Option [124] was able to be exercised after the Partnership had been dissolved but not after the Option had lapsed on or about 22 July 2016. Further, the "implied term" disentitled Mr Milevski from taking any steps that negatived the benefit for which the Partners had contracted.
There was an implied term [125] to the effect of that claimed by the plaintiff, as addressed earlier in these reasons and which derives from the principles described by the High Court in Shepherd and Peters (WA).
The Court is unaware of the nature of any allegation of misconduct that is raised by the question in the Joint Memorandum at 2.2.4. It is not pleaded. However, the plaintiff's overdrawing, which, on the evidence before the Court, was known to Mr Milevski, was a breach of the terms of the Partnership Documents. [126] The overdrawing was known and recorded and, as a result, they do not represent a misappropriation but, rather, a debt owed to the Partnership, for which Mr Milevski could sue. [127] If the amount overdrawn would otherwise be profit, Mr Milevski would be entitled to 30% of the amount overdrawn. Whether or not profit, these actions would not be considered misconduct and, in these proceedings, there is no allegation of misconduct. The Court is of the view that the breakdown in the partners' relationship (expressed, not surprisingly, in terms familiar to family lawyers, by the plaintiff) came as a result of the communication, or lack thereof, after the strokes on 23 December 2015 and the attitude thereto of Mr Milevski.
An implied term exists, as previously described. The Option was exercisable after the dissolution of the Partnership, but the Option lapsed on or about 22 July 2016, without ever being exercised [128] . As a consequence, the dissolution of the Partnership (or application therefor) was not, itself, a breach and damages for the non-payment of the Option cannot, on the evidence before the Court in these proceedings, run against Mr Milevski. They do run against the defendant herein for the reasons already adumbrated.
The defendant was suffering a total and permanent disablement for the purposes of the Put and Call Option Agreement [129] , and could have exercised the Option [130] either between 23 June 2016 and about 22 July 2016 (my preferred view) or, otherwise, as early as 13 April 2016, which would then need to be completed by 30 days after the Option Notice was served.
The plaintiff did not return to work, of any kind, during the Option Exercise Period. Nor, did he return prior to the termination of the Retainer. [131]
The question raised in the Joint Memorandum at [2.6] is the same as that posed in [2.2.3] and has already been answered expressly and otherwise in the body of these reasons.
The duty of care [132] of the defendant has already been described and, relevantly, included a duty to advise on the Option. The defendant did advise on the Option in a manner that was misleading or deceptive and in breach of its contractual duties and also renders it liable in tort. [133]
Apart from quantum, with which I will deal later in these reasons, the plaintiff suffered loss as a result of the defendant's misleading or deceptive conduct and the defendant's breach of duties in contract and tort. [134]
The question in [2.10] of the Joint Memorandum does not, on the preferred view of the Court, require an answer. Whether or not the dissolution of the Partnership occurred, the Option was an accrued right, not personal to the grantee, and survived any dissolution. The dissolution, or the possibility of an adjournment, while rendering the circumstances more complicated does not affect, on that preferred view, damage to the plaintiff. Notwithstanding the foregoing, were the Court in the Equity proceedings to have known of the Put and Call Option Agreement, which it did not, it is most likely that an adjournment would have been granted and the Partnership not formally dissolved until after 22 July 2016.
Section 5O of the CL Act operates of its own force. Any professional defendant is "entitled to rely on it". [135] However, the burden of proof under s 5O of the CL Act is on the party relying upon it. No evidence has been adduced by the defendant on peer professional opinion. I infer that any such evidence would not have assisted the defendant's case. [136] The defendant has not established sufficient facts that would be necessary to establish a defence under s 5O of the CL Act.
In answer to the poorly framed question in the Joint Memorandum at [2.11.2], the answer, again, is that the defendant is capable of relying on it. However, the uncontested evidence was that, at least by 13 April 2016, at which time the Retainer was still in existence, the plaintiff would have given those instructions. [137] The foregoing takes account of the alteration to instructions consequent upon the occurrences on 13 April 2016. The defendant was able to rely on such new instructions, because of the views it had itself expressed and the medical evidence available to it.
As to Joint Memorandum at [2.11.2(c)], the Court does not consider that the plaintiff would have been in a better position by not exercising the Option. The defendant has certainly not established such a proposition. Moreover, the view now expressed does not depend on the burden of proof. Further, the evidence before the Court establishes, on the balance of probabilities that the plaintiff would have been better off if he were to have exercised the Option. Moreover, while the defendant had the capacity to rely on the matters in [2.11.2] of the Joint Memorandum, the findings of the Court on the facts to which they refer are against a case that is based on such matters.
The issue of contributory negligence and concurrent wrongdoers is dealt with later in these reasons, but the damages payable to the plaintiff are not to be reduced on such account. [138]
The conduct of the defendant alleged in these proceedings relates to a failure to advise adequately or not to advise at all. It also relates to misleading or deceptive advice or representations. The defendant was not briefed to advise on the conduct of any litigation, except cursorily and at a time when the negligence and misleading or deceptive conduct had already occurred. It is the advice, or failure to advise adequately, on the rights under the Partnership Documents, when giving advice on the plaintiff's Partnership and the protection of his position against the then non-litigious demands of Mr Milevski that gives rise to liability and that conduct had little or nothing to do with litigation. The only connection of the work of the defendant and litigation is historical. The defendant was not briefed in the litigation or to advise on it. [139]
As already explained, on the Court's preferred view, the dissolution [140] of the Partnership which was the subject of the litigation, late in the duration of the Retainer, had no effect on the plaintiff's protection under the Option. The advice on the litigation by counsel briefed to appear was irrelevant to this cause of action and not negligent. Further any advice from the defendant to the plaintiff that the Put and Call Option Agreement could not be used to obtain an adjournment was, on the balance of probabilities, wrong, but was immaterial. It is not the advice of the defendant relating to the proceedings before the Equity Division that is in issue. The evidence before the Court discloses that counsel in the Equity proceedings was not briefed with the Put and Call Option Agreement.
Although worded inaccurately so that an answer to the direct questions [141] asked may itself mislead, the Court answers those questions in reverse order. The advice was misleading or deceptive. It was so characterised because it represented that the plaintiff had no capacity to take advantage of the Option, because "it did not apply to him yet [or at this time]".
The defendant had available to it the Put and Call Option Agreement. On any reasonable and available understanding of the law on the survival of Options, expressed, as in this Agreement, to survive, inter alia, death, the Options would and could be utilised, regardless of the dissolution of the Partnership. Such a protection or right of the plaintiff in his Partnership was fundamental to the task of advising the plaintiff. The defendant did not so advise and misled or deceived the plaintiff that there were no rights of which he could avail himself, once the Partnership had been dissolved. He suffered loss as a result of the misleading or deceptive conduct.
The plaintiff attests to the fact that he was unaware of the matters which were necessary to exercise his own skill as a solicitor, were he capable of doing so. Given his disability, he cannot be expected to have exercised his own skill or be expected to interpret the Partnership Documents. There is no contributory negligence reducing the damages to be awarded.
Some comment must be made on the choices of the defendant in his litigation. The defendant was on notice of the evidence of Drs Lianos, Breen and Miller and another medical practitioner. Yet the defendant chose not to adduce any medical evidence. I infer that such evidence would not have assisted the defendant's case and more readily accept the medical evidence adduced by the plaintiff.
Further, the defendant was on notice as to the evidence of Mr Duggan and cross-examined seeking to cast doubt on its accuracy. I have no doubt that Mr Duggan's calculations are correct. They are certainly correct on the balance of probabilities. I also infer that evidence from any other accountant would not have assisted the defendant's case, as it chose not to adduce any such evidence.
Further again, notwithstanding the burden of proof being on the defendant under s 5O of the CL Act, no evidence of peer professional opinion as to the appropriateness of the advice, or lack thereof, of the defendant, was adduced by it. Once more, I infer that such evidence would not have assisted the defendant's case and draw comfort for the view that the advice should have been given in the terms addressed earlier in these reasons. Lastly, in this vein, the defendant, as already noted, did not call Mr Creais, its litigation partner, who conferred with and assisted in advising, the plaintiff. Again I draw the inference that his evidence would not have assisted the defendant's case, but it makes little difference.
The Report of Ms Conoulty [145] was commissioned by the plaintiff in his proceedings against Mr Milevski. It deals with the value of the Partnership and other such issues, otherwise than as required under the Put and Call Option Agreement, which is now irrelevant in these proceedings. It does not deal with the calculation of the sale or purchase price under the Put and Call Option Agreement. While the defendant adduces it and seeks to rely on it, it does not deal with the calculation of damages arising from the plaintiff not exercising the Option. That failure to exercise was the direct result of the advice, or lack thereof, of the defendant.
Notwithstanding a valiant attempt by the defendant to suggest double counting in the calculations of Mr Duggan, I reject that suggestion and accept the evidence of Mr Duggan. I shall direct the plaintiff to submit a minute of the order, reflecting the damage calculated by Mr Duggan and to which I refer hereafter.
As stated earlier in these reasons, an account was to have been ordered by the Court in the proceedings between the plaintiff and Mr Milevski. Those proceedings were due to be heard in August 2019. Mr Duggan calculates the value of the Partnership on the basis prescribed by the Put and Call Option Agreement as $2,016,724 and the purchase price of Mr Paltos' interests as 70% of that amount, being $1,411,707.
The defendant submits that from that would necessarily be deducted the amount of overdrawing. The amount of overdrawing is not ascertained precisely on the evidence in the proceedings. It could be as low as $215,000 or as high as $514,000. [146] Mr Paltos suggested early in the dealings with the defendant that it could be as high as $400,000.
On the balance of probabilities, I conclude that the amount owing in overdrawing by the plaintiff was and is $373,809.79, [147] being the amount overdrawn by the plaintiff at 31 March 2016. No further drawings occurred, although the plaintiff would have otherwise been entitled to drawings from 1 April 2016 until 22 July 2016, which would amount to approximately 3 months at $215,000 per year, being $53,750, plus 70% of whatever profit then accrued. However, the Partnership was dissolved on 21 April 2016, so no allowance for allowed drawings by Mr Paltos should be made for any period after 31 March 2016.
For obvious reasons, the amount of damage ultimately suffered by the plaintiff as a result of the negligence of the defendant is affected by the amount that would be and may yet be awarded or ordered to be paid as a result of that account in the dispute between the plaintiff and Mr Milevski. On one view, the amount of damage could be greater, but I discount that possibility as not one that is greater than ephemeral and ought not to be an allowed factor, even on the basis of uncertainty. [148] The Court, as presently constituted, was desirous of having the result of the Equity Division proceedings before issuing any orders. The existence of those proceedings complicates the ascertainment of damage and loss which the defendant should be required to pay.
At this point in time, those proceedings have not been heard or concluded. The Court is unaware as to the reason for that. The difficulty with awarding all of the damages as indicated above is that it would allow the plaintiff to receive, on one view, at least in part, twice the damage (being the value of the Option and the goodwill, if any, of the Practice).
If the Court were to order that the plaintiff have his damages reduced in these proceedings by $373,809 and also be required to pay that amount (or have it set off) in the Partnership Equity Proceedings, that would be double-counting against the plaintiff. Having said that, it seems that the damage caused by the conduct of the defendant is the whole of the Option value of $1,411,707 and that which it is necessary for the plaintiff to repay is a matter, then, between him and Mr Milevski and should not be deducted.
Further, in addition to the foregoing amount, the terms of Clause 5.2 of the Put and Call Option Agreement require that at the exercise of the Option, the amount of the guarantee was also to be released. That amount is most probably $634,638.96, which must also be compensated. It is impossible, in the absence of evidence, to determine this amount.
It was submitted, by the plaintiff, that the difficulty associated with double counting the damage could be overcome by an undertaking that the plaintiff repay the defendant any amount received as a consequence of the proceedings in Equity. The difficulty with that course, left to its own devices, is that it deprives the plaintiff of any incentive to proceed with the litigation, or defend the litigation, in the Equity Division. Further, the repayment should not be confined to any award, but to any amount calculated to be the value of the plaintiff's interest in the Partnership, less any amount allowed for the value of the guarantee.
This was one of the reasons that I had hoped that the Equity Division proceedings would have concluded by the time it was necessary to publish these reasons. Such an event was not to be.
In the circumstances, an undertaking of the kind submitted must be provided before any damages will be ordered. The foregoing undertaking must be to the effect that any amount received by or payable to Mr Paltos, as a result of the Equity proceedings involving him and Mr Milevski, must be paid to the defendant in these proceedings.
Further, the Court requires an undertaking that the defendant in these proceedings will have all rights of subrogation to the rights and remedies belonging to the plaintiff in relation to the proceedings against Mr Milevski. An undertaking that the plaintiff will consent to such subrogation, if the defendant so requests it, will be required before any order for damages issues.
A subrogation to which the last-mentioned undertaking refers need not be formal, but must allow the defendant in these proceedings (or its insurer, if nominated by the defendant) to exercise the plaintiff's rights and remedies and to conduct the litigation that is otherwise before the Equity Division.
The overdrawing is not to be deducted from the damage payable as a result of these proceedings. That overdrawing will, presumably, if owed, be the subject of orders in the Equity Proceedings. Were I to deduct that estimated amount from the damage payable here, the plaintiff would be required to pay that amount twice.
Further, the plaintiff has lost his indemnity from debts that accrued after his Option would otherwise have been exercised. However, the Partnership dissolved on 21 April 2016 and any debts of the Partnership were therefore attributable to the period during which the plaintiff was a Partner. No indemnity is required from the defendant to replace that to which the plaintiff would have been entitled as a result of the exercise of the Put Option.
Pre-judgment interest shall be calculated from 22 July 2016 at the same rate as prescribed for post-judgment interest. Further, the defendant shall pay the plaintiff's costs of and incidental to the proceedings. Any party may apply for any special or different order as to costs within seven (7) days and any response thereto may be filed and served within a further seven (7) days. Any such application must be served and may be lodged directly with my Associate.
I direct that the plaintiff file, within seven (7) days of the publication of these reasons for judgment, a minute of the order reflecting these reasons for judgment, including the undertakings. Any objection to the form of that order may be able to be taken within a further seven (7) days. The form of the order will be decided on the papers and each of the documents may be lodged directly with my Associate.
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7, per French CJ, Hayne, Crennan and Kiefel JJ.
(2004) 219 CLR 165; [2004] HCA 52, per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ.
Agreed Facts at [1.7].
Tcpt 22 May 2019 p 264.
Tcpt 22 May 2019 p 266-267.
Tcpt 22 May 2019 p 267.
Tcpt 22 May 2019 p 274.
Tcpt 22 May 2019 p 275.
Exhibit DB1 p 373.
Tcpt p 270 l 24-35.
Affidavit of C McCaffrey sworn 7 June 2018.
Exhibit DB1, p 139.
Exhibit DB1, p 155.
Exhibit DB1, p 142.
Exhibit DB1, p 212.
Exhibit DB1, p 213 and 215, referring to the covering letter and the first page of the formal disclosure.
See para [1], [2], [3] and [4] of the Heads of Agreement dated 29 June 2010.
Exhibit DB1, p 181 and Affidavit of Mr McCaffrey sworn 7 June 2018 at [38].
Exhibit DB1, p 183-184.
Exhibit DB1, p 184B.
Exhibit DB1, p 185.
Exhibit DB1, p 201.
Exhibit DB1, p 197.
Exhibit DB1, p 203.
Exhibit DB1, p 206, which states that Mr Paltos "cannot presently go back to work".
Exhibit DB1, p 226.
Exhibit DB1, p 311-312.
Exhibit DB1, p 320-321.
Exhibit DB1, p 322-323.
Exhibit PBA, p 268 and 269.
Exhibit DB1, p 436.
Exhibit DB1, p 441.
See R v Gray; Ex parte Marsh (1981) 157 CLR 351; [1985] HCA 67.
See R v Gray at CLR 364, [18], per Gibbs CJ with whom, on this particular issue, each of the other judges of the Court agreed.
Re Scowcroft [1898] 2 Ch 638; Re Glyn, Public Trustee v Attorney General [1950] 66 TLR(Pt. 2) 510; Re Bradbury, Needham v Reekie [1950] 2 All ER 1150; [1951] 1 TLR 130.
Pease v Courtney [1904] 2 Ch 503 at 508.
R v Barclay (1882) 8 QBD 486, per Coleridge CJ, dealing with an interpretation of the Public Health Act 1875, s 211.
Attorney-General for New Zealand v Brown (1917) AC 393; Murdoch v British-Israel World Federation (New Zealand) Inc [1942] NZLR 600; R v Oakes [1959] 2 QB 350.
Re The Licensing Ordinance (1968) 13 FLR 143 at 146-147, per Blackburn J.
Clause 2.1 of the Put and Call Option Agreement.
Clause 2.2 of the Put and Call Option Agreement.
Clause 2.4 of the Put and Call Option Agreement.
Clause 3.1 of the Put and Call Option Agreement.
Clause 3.2 of the Put and Call Option Agreement.
Clause 3.3 of the Put and Call Option Agreement.
Clause 2.4 of the Put and Call Option Agreement.
Koompahtoo Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 at [47]; Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632; Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.
Butt v McDonald (1896) 7 QLJ 68 at 70-71; cited with authority in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607 and see the discussion of Mason J at 607-608; [1979] HCA 51 at [26] and following; Mackay v Dick (1881) 6 AC 251 at 263; Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45 at [36]; Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17.
Per Gleeson CJ, Gummow, Kirby and Hayne JJ.
Peters (WA) Ltd v Petersville Ltd opcit at [36].
(1931) 45 CLR 359 at 378 per Dixon J; [1931] HCA 21.
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24.
(1995) 185 CLR 410; [1995] HCA 24.
(2014) 253 CLR 169; [2014] HCA 32.
(2015) 97 NSWLR 169; [2015] NSWCA 97.
Overlook Management BV v Foxtel Management Pty Ltd, supra; Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187; Peters (WA) Ltd v Petersville Ltd, supra.
Clause 2.4 of the Put and Call Option Agreement.
Enright & Merkin, Sutton on Insurance Law, 4th ed (2014).
Ibid, p 577 and following.
Ibid, p 578.
Ward v Metlife Insurance Ltd [2012] WADC 166 at [295]-[302]. See also Luckin v Hamyln (1869) 21 LT 366 at 366 per Martin B.
Hawkins v Commonwealth Bank of Australia (1996) 66 IR 322 at 337, per Moore J; Hawkins v Commonwealth Bank of Australia (No 2) (1996) 70 IR 213 at 226, Full Court of the Federal Court of Australia; Finance Sector Union of Australia v Commonwealth Bank of Australia [2001] FCA 1613, per Moore J, at [68].
Chammas v Harwood Nominees Pty Ltd (1993) 7 ANZ Insurance Cases 61-175; Cullinane v Mercer Benefit Nominees Ltd (2006) 152 FCR 1; [2006] FCAFC 82 at [84].
Partnership Terms at [8].
Put and Call Option Agreement, clause 5.1(e), to which earlier reference has been made.
Ex D, Annexure A at [5].
Exhibit 4.
Exhibit 5, entry 28/06/2016.
Defendant's Outline of Closing Submissions at [27]-[30].
See [150], supra.
See Tcpt p 103, l 21-23, 25-27, 29-30, amongst many others.
See Exhibit DB1 at 183; Tcpt p 110, l 3-5; Tcpt p 122, l 27-30; and Tcpt p 127, l 46-48, amongst other references.
Kekatos v Sanson & Anor [2009] NSWCA 171.
Roads and Traffic Authority of NSW v Dederer (2007) 234 CLR 330 at 345, 348, 408 and 415; [2007] HCA 42.
Kekatos, op cit, at [20].
Samper v Hade (1889) 6 WN (NSW) 77, per Darley CJ; Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 at 214; [1996] 3 WLR 87, approved by McLelland CJ in Eq in Trust Co of Australia v Perpetual Trustees WA Ltd (1997) 42 NSWLR 237 at 248-249.
Keddie v Stacks/Goudkamp Pty Ltd (2012) 293 ALR 764; [2012] NSWCA 254 at [152].
Dew v Richardson [1999] QSC 192 at [42].
Law Society of Singapore v Uthayasurian Sidambaram (2009) 4 SLR 674; [2009] SGHC 184 at [60].
See the extra-curial article by Brereton JA, PLG Brereton, "Acting for the Incapable - A Delicate Balance" (2012) 35 Australian Bar Review 244.
Contrast Mabbett v Josef and Sons Contracting Pty Ltd [2006] NSWSC 1452.
May v Mijatovic (2002) 26 WAR 95; [2002] WASC 151; see also the discussion in Riley v Pickersgill [2004] UKPC 14; [2004] 4 LRC 471.
Hawkins v Clayton (1988) 164 CLR 539 at 579; [1988] HCA 15.
Ibid.
Clause 3.2 of the Put and Call Option Agreement.
Affidavit, Dennis Paltos, sworn 13 April 2018, at [73], [74] and [76].
18 April 2016.
21 April 2016.
Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45; Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359; [1931] HCA 21.
A partnership at common law is dissolved on the death of a partner and, in the absence of express agreement to the contrary, on the retirement of any partner. See also s 33 of the Partnership Act 1892. See also Mannigel v Aitken (1985) 9 FCR 1.
See also the terms of Clause 8.4 of the Put and Call Option Agreement.
Carter v Hyde (1923) 33 CLR 115 at 121; [1923] HCA 36 (per Knox CJ), 132 (Per Higgins J), and for different reasons at [125] (per Isaacs J); Laybutt v Amoco Australia Ltd (1974) 132 CLR 57; [1974] HCA 49 at [70]-[71] (per Gibbs J).
The existence of that duty is not in issue: Further Amended Statement of Claim at [21] and Defence at [21].
Issue in Joint Memorandum at [2.1]
Exhibit DDB1 pp 213 and 215.
Further Amended Statement of Claim at [18] and [19].
Joint Memorandum at [2.2.1]
Joint Memorandum at [2.2.2]
Joint Memorandum at [2.2.3]
Heads of Agreement at Clause 7, together with Partnership Terms at Clause 1, 3 and 8.
See, for example, In the Estate of A.P. Kearney [1937] 44 WN(NSW) 117 at [118].
Joint Memorandum at [2.2.5]
Joint Memorandum at [2.3].
Joint Memorandum at [2.4].
Joint Memorandum at [2.5].
Joint Memorandum at [2.7]
Joint Memorandum at [2.8].
Joint Memorandum at [2.9]
Joint Memorandum at [2.11.1].
Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8.
Affidavit of Dennis Paltos 13 April 2018 at [72]-[75].
Joint Memorandum at [2.11.4].
Attwells v Jackson Lalic Lawyers Pty Ltd (2016) 259 CLR 1; [2016] HCA 16; Kendirjian v Lepore (2017) 259 CLR 275; [2017] HCA 13.
Joint Memorandum at [2.11.5]
Joint Memorandum at [2.12], [2.13] and [2.14].
Joint Memorandum at [2.11.4(iii)].
Joint Memorandum at [2.11.3].
Civil Liability Act, s 5R and s 5S.
Exhibit PB1, p 974 and following.
Exhibit PB1, p 597.
Exhibit PB1, p 613.
Malec v J C Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4.
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Decision last updated: 09 June 2020