RYBAK v SENNEH PTY LTD

ON APPEAL - whether duty arose for solicitor to notify client of policy before actual knowledge of cover by contractor's policy.

CONTRACT. basis and scope of solicitor's duty - retainer.

1. On question of basis and scope of the solicitor's duty in the circumstances: the solicitor's obligations to the developers arose from both the contractual retainer and the general law by reason of the relationship between them over and above the contractual relationship: Hawkins v Clayton (1988) 164 CLR 539 applied; Cousins v Cousins, CA 18 December 1990, unreported, Kirby P, Priestley and Meagher JJA referred to.

2. On the facts found by the trial judge, no duty of care arose obliging the solicitor to notify his client of its position in regard to insurance cover: the contractual relations between the parties did not directly raise any such obligation nor did the general non-contractual relationship. In the circumstances the solicitor was not liable: Carradine Properties Ltd v DJ Freeman and Co (English Court of Appeal) (1982) 126 Sol Jnl 157 referred to.

Appeal upheld, judgment below set aside and judgment entered for the appellant. Costs should be borne by the respondents.

Priestley JA Senneh Pty Ltd (Senneh) brought District Court proceedings against Mr T Rybak which were decided in Senneh's favour on 13 September 1993. Mr Rybak had from December 1989 until May 1990 been Senneh's solicitor in connection with proceedings brought against it in the Supreme Court. In the District Court proceedings Senneh claimed recovery from Mr Rybak of certain fees paid to him during his retainer by it.

The recovery claim was based on the allegation that but for negligence by Mr Rybak the amount claimed would never have been incurred by Senneh or would have been recoverable by Senneh from an insurance company.

Mr Rybak made a cross-claim against Mr and Mrs Symonds, the directors of Senneh, on the basis that any liability of his to Senneh was the fault of the instructions Mr and Mrs Symonds had given him on behalf of Senneh.

His Honour Judge Mahoney QC found that Senneh had proved its claim, in part, against Mr Rybak and gave judgment for Senneh for $32,272.36, made up of $22,010 for recovery of costs and of the balance for interest. Mr Rybak's cross-claim was dismissed.

Mr Rybak appealed to this court against Senneh's judgment against him. He did not appeal against the dismissal of his cross-claim.

There had been a number of disputed issues of fact in the trial. These issues were decided by the judge. The nature of the fact finding militated against any challenge to the factual findings on appeal and none was made. The appeal was argued on the basis of undisputed facts and those found by the judge. These were as follows.

In 1985-1986 Senneh constructed a building in Elizabeth Bay.

The foundation work for the building was done by a sub-contractor, Shoring Services Pty Ltd (Shoring).

Late in 1989 neighbouring land owners commenced proceedings against Senneh in the Construction List of the Common Law Division of the Supreme Court. The plaintiff's statement of claim in these proceedings alleged that Senneh had carried out extensive excavation and building works on its land which had wrongfully deprived the plaintiff's land of lateral support.

The Construction List proceedings were listed for directions on 15 December 1989.

On 14 December 1989 Mr G Symonds telephoned Mr Rybak, told him he had just been served with a summons for the next day which related to a development at Elizabeth Bay and that the claim was for damage to the property next door. He asked Mr Rybak whether he could handle it. Mr Rybak said he could. Mahoney DCJ accepted Mr Rybak's evidence of what then happened: "T said, 'Do you have any sort of insurance to cover you for this claim?' He said, 'No.' I said to him, 'Are you certain you have no insurance?' He said, 'Definitely no insurance'."

At the time Mr Rybak believed and it was the case that Mr and Mrs Symonds were successful and experienced property developers.

On 15 December 1989 Mr Rybak appeared at the directions hearing in the Construction List. Directions were given that Senneh file its defence by 5 January 1990, and its evidence by 2 February 1990.

After the directions hearing Mr Rybak prepared and filed a defence and various cross claims including one against Shoring. He briefed counsel.

On 31 January 1990 a great many papers which had been held in the files of Mr Dascalu, Senneh's architect in the 1985 construction project, were handed to Mr Rybak.

The Dascalu papers included what later became Exhibit D, a letter dated 10 April 1985 from a firm of insurance brokers, addressed to Mr Dascalu, which, omitting formal parts, said:

We act as insurance brokers for the above company and have been requested to write confirming details of public liability and workers compensation insurance policies.

Cover with an indemnity of $1,000,000 is issued by American International Underwriters (Australia) Pty Ltd and is current until the 28th February 1986. Policy extends to indemnify unnamed principals and in addition includes liability arising out of removal and weakening of supports together with vibration.

Policy issued under the terms of the New South Wales Workers Compensation Act by the Government Insurance Office of New South Wales under their policy no W237191SH current until 30th June 1985."

Also included in the Dascalu papers was a letter dated 15 April 1985 from Mr Dascalu to Senneh, which later became Exhibit 1, enclosing a copy of the broker's letter of 10 April 1985 (Ex D) and adding:

"T shall receive further advice and details re: a Contractor's All Risk policy in addition to the policies mentioned in the letter, and will advise you.

Meanwhile I suggest that your insurance brokers check these policies and advise the desirability of additional policies by your company. I await your early advice."

Also included in the Dascalu papers was the lump sum contract between Senneh and Shoring pursuant to which Shoring constructed the building in Elizabeth Bay. A term of this contract (part of cl21(a)) was the following stipulation:

"(A) The Builder shall in the joint names of himself and the Proprietor (hereinafter referred to as 'the insured') for their respective rights, interests and liabilities effect insurance under a Contractor's All Risks Insurance Policy which shall cover:

(i) the whole of the Works together with all associated temporary works and including material incorporated or to be incorporated therein the property of the insured or for which they are responsible and whilst on or adjacent to the site of the Works in respect of loss, destruction or damage of or to the property insured arising from any cause whatsoever for not less than the full amount of the Contract Sum plus an amount of not less than that stated in the Appendix to these Conditions to provide for additional costs of demolition and of removal of debris plus the percentage stated in the said Appendix to cover the fees of Architects, Engineers, Quantity Surveyors and Consultants; and

(ii) liability to the public for an amount not less than that stated in the Appendix to these Conditions in respect of accidents arising out of or in the course of or caused by the execution of the Works in the event of:

(1) death of or bodily injury (including illness) to any person not being a person who at the time of the accident is engaged in or upon the service of the insured under a contract of service or apprenticeship, and

(2) damage to property not belonging to nor held in trust by nor in the custody or control of the insured, all the foregoing being subject to such exclusions, conditions and excesses as shall be agreed by the insured. "

In the boxes of documents handed to Mr Rybak on 31 January 1990 were bundles of invoices. Exhibit D was among these. Mr Rybak did not see Exhibit D until shortly before transmitting a fax of it to Mrs Symonds on 1 May 1990.

Shoring's insurer, American Home Assurance Company was then notified of the proceedings against Senneh and took over their conduct on Senneh's behalf. In acknowledging its obligation to indemnify Senneh it stipulated that it should not be liable to reimburse Senneh for the costs of Mr Rybak's representation from December 1989 to May 1990.

The facts thus stated were those upon which the trial judge reasoned to the conclusion that Mr Rybak was liable to Senneh. Some of the factual findings were made on the balance of probabilities, after markedly different evidence had been given about them by Mr or Mrs Symonds on the one side and Mr Rybak on the other. I have not attempted to give any details of the differing versions, because this court must consider the appeal on the basis of the facts as found. There are however two matters which I think it relevant to mention.

One is that a principal issue at the trial was whether or not Mr Symonds told Mr Rybak in December 1989 that Senneh was covered by insurance. Mr Symonds said that he had told Mr Rybak of that fact. Mr Rybak's denial of that allegation was supported by contemporary diary notes and the probabilities. Had Mr Symonds' version been accepted, it seems highly likely that Senneh's case would have succeeded in a way probably immune to any possibility of appeal. It appears from the appeal papers that the parties regarded this as the principal issue between them upon which the decision in the case was likely to depend. Counsel, being the same counsel as at the trial, told this court, however, that in the course of argument at the trial Mahoney DCJ made clear he was considering the possibility that even if he found the issue in question in favour of Mr Rybak, it might still be open for him to find Mr Rybak liable to Senneh. The parties were thus made aware, in due time, of the possibility of the case being decided along the lines upon which the judge subsequently decided it.

The other point to mention about the fact finding is that the trial judge paid some attention to a statement made by Mr Rybak in Exhibit B2. This was an account rendered by Mr Rybak to Senneh dated 9 March 1990 which summarised what he had done since his previous account of 16 January 1990 relating to the proceedings in the Construction List in which matters he included "closely perusing all documents produced by Sorin Dascalu". Mr Rybak was cross examined on this with a view to showing that he must have read Exhibit D at least before 9 March. He denied this. The trial judge referred to the relevant part of Exhibit B2 in his reasons in a way suggesting he may have been thinking of finding as a fact that Mr Rybak had read Exhibit D before March 9. However he did not make that finding and it is quite clear that he decided the case on the footing of facts 5 and 13 above. (Incidentally, Exhibit B2 refers to 5640 photocopies, which indicates the Dascalu papers were very voluminous.) Having mentioned Exhibit B2 the trial judge contented himself with saying that on balance he found that Mr Rybak "had the means of knowing about the availability of insurance indemnity cover, in the form of Exhibits D, F or H, as and from 31 January 1990". (Exhibits F and H were copies of Exhibit D and added no significance to the facts found by the trial judge.)

It was on the last quoted finding that Mahoney DCJ based the reasoning leading him to conclude that Mr Rybak was liable.

The critical step in that reasoning was that once Mr Rybak "had the means of knowing about the availability of insurance cover in favour of Senneh then he must be taken to have become obliged to proceed directly to arrange for the transfer of the conduct of the Senneh defence to the solicitors for the insurer. Any further costs beyond a reasonable amount for implementing that transfer should not have been charged to Senneh."

In this court the principal submission for the appellant solicitor was that there was no proper basis upon which the trial judge could find that the mere fact that the solicitor had in his possession the means of knowing of the insurance cover in favour of Senneh meant he thereby became obliged immediately to arrange for

the transfer of the conduct of the Construction List proceedings to the solicitors for the insurer. (If any such obligation did arise, I would think it would be more accurately expressed as an obligation upon the solicitor to notify his client of the position and of the advisability of immediately notifying the insurer of the claim against Senneh. However, even stated this way, if the obligation did arise, then the judge would have been correct in finding liability against Mr Rybak.)

An important element of the submission for the appellant was that whether or not the relevant obligation arose had to be considered in light of the judge's finding of fact that the solicitor, although in the trial judge's view, "he had the means of knowing," did not in fact know until shortly before he transmitted the fax of Exhibit D to Mrs Symonds on 1 May 1990 "about the availability of insurance cover in favour of Senneh".

Counsel for the appellant in elaborating his basic submission and counsel for the respondent in arguing against it, explored in some detail the basis and scope of the solicitor's duty in the circumstances. These arguments centred on the High Court's decision in Hawkins v Clayton (1988) 164 CLR 539.

There is no doubt that Hawkins established that the solicitor's obligations to Senneh arose both from the contractual retainer of the solicitor and also from the general law by reason of the relationship between them, over and above their contractual relationship. I attempted to summarise the position resulting from the High Court decision in Cousins v Cousins (Court of Appeal, 18 December 1990, unreported, Kirby P, Priestley and Meagher JJA) as follows:

"Deane J in Hawkins stated the position in terms of a general rule, but neither Brennan J nor Gaudron J, the other members of the majority, (Mason CJ and Wilson J having dissented) appear to have fully agreed with him. Brennan J stated the specific duty that arose on the circumstances of that case, without stating the position for solicitors generally. In Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642, Kirby P adopted what had been said by Deane J in Hawkins, but Hope AJA, who agreed with the result reached by Kirby P, confined himself to a more particular approach. Mahoney JA, who dissented, dealt with the matter in a way which did not require him to state a general formula. Thus this court has not yet committed itself to adoption of the views of Deane J.

Notwithstanding that the view of Deane J was not in a formal sense part of the ratio decidendi of Hawkins, it seems to me to be very much in accordance with the trend of development in the law of negligence in the High Court in recent years, and I will assume for the purposes of the present case that it accurately states the law for Australia. What Deane J said was:

'The relationship of solicitor and client is... a relationship of proximity which ordinarily involved the combination of those elements with respect to foreseeable loss which may be caused to the client by the performance of professional work. It is a relationship of proximity of a kind which may well give rise to a duty of care on the part of the solicitor which 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. Whether the solicitor-client relationship does give rise to a duty of care requiring the taking of such positive steps will depend upon the nature of the particular professional task or function which is involved and the circumstances of the case.' (at 579)" (at 12-13 of my opinion)

I am not aware of any subsequent decision requiring me to modify the view there expressed. It still seems to me appropriate to deal with cases such as the present on the assumption that what Deane J said should be followed by this

court. Indeed, in view of the actual result in Hawkins, it seems to me to be very difficult to find any reason for questioning the correctness of the last sentence in the passage from Deane J's reasons above set out.

Applying the law thus stated to the facts found by the trial judge in the present case, it does not seem to me that the relations between the parties and the circumstances of the case gave rise to a duty of care obliging the solicitor to notify his client of its position in regard to its insurance cover before he had actual knowledge of the availability of that cover. Important elements in my conclusion are that the contractual relation between the parties did not directly raise any such obligation, and, so far as any obligation arising from the general law non contractual relationship is concerned Mr Symonds twice made an unequivocal statement to Mr Rybak (as found by the trial judge) that Senneh had no insurance cover, in circumstances where Mr Rybak was justified in thinking that Mr Symonds was in a position to know what he was talking about. The situation seems to me to exclude the arising of any duty upon Mr Rybak to look further into the question of what the position would be if Senneh were insured, at least until such time as he had some reason to think that what he had been told by Mr Symonds was wrong. On the facts (again as found by the trial judge) he had no such reason until shortly before the fax of Exhibit D was transmitted on 1 May 1990. (When this finding is looked at in light of the evidence concerning it, it seems probable that by "shortly before" the trial judge meant a matter of hours rather than any longer period.)

Put briefly, on the basis of the facts on which this court is required to decide this appeal, Mr Rybak's obligation upon being retained for Senneh was to exercise all reasonable skill and care in and about Senneh's defence of the proceedings in the Construction List. This included doing everything reasonably necessary in regard to possible cross claims in those proceedings. Because of Mr Symonds' statements about non insurance, which Mr Rybak had no reason to question, it was no part of his duty, contractual or otherwise, to incur costs chargeable against Senneh in considering non existent (on the basis of what he had been told) possibilities of insurance cover. Nothing happened to change that situation until shortly before the fax of 1 May 1990. It is common ground that Mr Rybak then immediately notified Senneh.

In these circumstances I do not think that Mr Rybak was subject before that time to any duty as alleged by Senneh. I therefore think Mr Rybak should have been found not to be liable to Senneh.

The case is very similar in some ways to Carradine Properties Ltd v DJ Freeman and Co, decided by the English Court of Appeal (Lord Denning MR, Eveleigh and Donaldson LJJ on 18 February 1982 and never, so far as I know, fully reported.)! In that case a company engaged a demolition contractor to work on a property it owned. The contractor caused damage. A neighbour commenced proceedings against the company for the damage. The company itself had an insurance policy covering the damage. By a director, whom the court treated as experienced, the company retained solicitors itself to defend the neighbour's claim. The director did not inform them of the policy. The solicitors settled the neighbour's claim against the owner and cross claimed against the demolition contractor who proved to be a man of straw and himself uninsured. Two years

1. Different parts of the reasons have been published in different reports: (1982) 126 Sol Jnl 157; 5 Construction Law Journal 267; (1985) 1 PN 41, but so far as counsel were able to inform the court the reasons of all three judges have never been published in full in hard copy.

later the company realised it had been covered at the time and sought to claim upon its insurer who declined any liability because of the delay in the making of the claim. The company then brought proceedings against its solicitors on the basis that they should have asked about its insurance cover. The company failed at first instance and in the Court of Appeal. Donaldson LJ said:2 "A solicitor's duty to his client is to exercise all reasonable skill and care in and about his client's business. In deciding what he should do and what advice he should tender the scope of his retainer is undoubtedly important, but it is not decisive. If a solicitor is instructed to prepare all the documentation needed for the sale or purchase of a house, it is no part of his duty to pursue a claim by the client for unfair dismissal. But if he finds unusual covenants or planning restrictions, it may indeed be his duty to warn of the risks and dangers of buying the house at all, notwithstanding that the client has made up his mind and is not seeking advice about that. I say only that this may be his duty, because the precise scope of that duty will depend inter alia upon the extent to which the client appears to need advice. An inexperienced client will need and will be entitled to expect the solicitor to take a much broader view of the scope of his retainer and of is duties than will be the case with an inexperienced client.

On the facts of this case no-one would dream of spending any time pursuing the demolition contractor, and still less the insurance broker, if he himself had a public liability policy. The very fact that the solicitors were asked to pursue the contractor and the broker and to deal with the claim by Trumans implied that Carradines had no such cover. Of course the solicitors had to take account of Carradines' experience. If the client had been a factory worker or student, it might merely have been that he was ignorant of how he should proceed and the nature of the cover that he had under a policy if he had one. In such a case the solicitor would indeed have been bound to ask his client whether he did not have some relevant insurance. But Carradines were very far from being in that category. The Managing Director, Mr Bailey junior, was no tiro. His father, a highly experienced business man, was also a director, and it was Carradines who were the clients, not Mr Bailey junior. The business of the company was buying and selling properties and in some cases demolishing those properties.

Where somebody claims damages for negligence, it is for the person claiming the damages to make good his case. In this instance it is for Carradines to point to something which should have alerted the solicitors to the fact that Carradines had indeed got public liability cover or should have led the solicitors to enquire as to the existence or non-existence of any such cover. This Carradines have wholly and completely failed to do. In the circumstances of this case the plain inference from Carradines' conduct was that they were uninsured. I can see no other inference that any reasonable solicitor could have drawn. In fact of course Mr Bailey junior now tells us that he had forgotten, notwithstanding that he had been dealing with the policies only a few weeks before. But the solicitors were not to know this or even to suspect it."

The reasoning of Donaldson LJ (and of the other members of the Court of Appeal) seems to me to be fully consistent with the majority decision in Hawkins, although there was not in the English case the same detailed

2. Modern technology has enabled the court to obtain what appears to be the full text of the decision from an apparently reliable data base, and because of the appositeness of Donaldson LJ's reasons (and their comparative succinctness) it seems useful to reproduce them virtually in full.

consideration of the underlying theoretical position. The same general line of reasoning is at work in Donaldson LJ's reasons as leads me to my conclusion in the present case, which seems to me to be stronger from the solicitor's point of view than was the solicitor's position in the English case.

Counsel for the respondent sought to rely on another somewhat similar case from England, Crossan v Ward Bracewell and Co (1989) 5 PN 103, a decision of Kennedy J in the Queens Bench Division, where an insured lost his cover through failure to notify the insurer, and obtained damages from a solicitor who had not advised him to notify the insurer. However, that case was decided on the basis that the solicitor both ought to have been and was in fact aware that the client was insured, critical differences from the present case. Crossan does not in my opinion provide any support for the respondent here.

I should also add that counsel for Senneh, in seeking to support the decision below, pointed out that in addition to Exhibit D and Exhibit 1 the papers handed to the solicitor included the contract between Shoring and Senneh, which it was said, ought itself to have alerted Mr Rybak to the presence of a real possibility of insurance. Simply as a matter of fact, I do not agree with this submission in light of Mr Symonds' answers to Mr Rybak having made it quite clear there was no question of insurance in the case. Nothing in the contract between Shoring and Senneh was necessarily inconsistent with that statement. Mr Rybak had no reason to be looking at the contract for the purpose of considering insurance possibilities nor to consider whether the relevant clause might be an indication that what Mr Symonds had told him was possibly incorrect.

In my opinion the appeal should be upheld, the judgment below set aside and judgment entered for Mr Rybak whose costs, both of the trial and in this court, should be borne by Senneh.

Beazley JA I agree with the reasons of Priestley JA and the orders proposed by him.

Brownie AJA I concur with the reasons and orders of Priestley JA.

Appeal upheld, judgment below set aside and judgment entered for the appellant. Costs should be borne by the respondents.

Counsel for the appellant: BR McClintock Solicitors for the appellant: Minter Ellison Morris and Fletcher Counsel for the respondent: JB Maston