Court of Appeal (WA)|2000-10-30|Before: Malcolm CJ

Smith & Anor v McCusker Qc & Anor [2000] WASCA 320 (30 October 2000)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : SMITH & ANOR -v- McCUSKER QC & ANOR [2000] WASCA 320

Practice and procedure - Pleadings - Amendment - Appeal against refusal of leave to file amended writ and statement of claim - Appellants in person - Action against legal practitioners as instructing solicitor and senior counsel - Indication by Master that proposed substituted statement of claim should not be allowed to stand - Indication that matter could be disposed of by filing substituted statement of claim and entering judgment for respondents - Adjournment granted to allow appellants to file further material - Further material considered - Judgment entered for respondents dismissing action - Whether pleadings disclosed cause or causes of action

Appeal and new trial - Appeal - Appeal against refusal of leave to file amended writ and substituted statement of claim and entry of judgment dismissing action against respondent legal practitioners - Whether proposed substituted statement of claim disclosed a cause of action

Equity - Fiduciary obligations - Whether respondent legal practitioners constructive trustees of appellants' cause of action against bank - Whether first respondent trustee of information concerning appellants' affairs - Whether pleading disclosed any breach of such trust as to entitle appellants to relief

Torts - Negligence - Pleadings - Particulars - Whether statement of claim disclosed a cause of action in negligence against first respondent - Duties of legal practitioner - Assuming allegations to be true six of numerous particulars disclosed a cause of action

Torts - Negligence - Pleadings - Causation - Whether facts pleaded regarding alleged negligent opinion by first respondent caused loss by Legal Aid Commission terminating grant of legal aid so that appellants lost opportunity for a trial of action against bank

Torts - Negligence - Legal Practitioners - Pleading - Whether matters pleaded disclosed unreasonable delay by first respondent causing the appellants' loss

Limitation of actions - Torts - Negligence - Legal opinion - Writ issued 11 days prior to expiration of limitation period - Claim for damages for negligence in giving legal opinion in 1989 - Whether claim for fraud by way of amendment on 15 April 1997 based on conflict of interest inconsistent with claim for negligence and would delay fair trial - Alternative claim for fraudulent misrepresentation statute barred by Limitation Act 1935 s 38(1)(c)(vi)

Torts - Defamation - Cause of action pleaded by proposed amendment to statement of claim statute barred by Limitation Act 1935 s 38(1)(c)(vi)

Torts - Negligence - Pleading - Facts pleaded did not disclose a cause of action in negligence against the second respondent - Not material that any liability of respondents arose concurrently in contract and in tort

Appeal allowed as against the first respondent to the extent indicated by the answers to the questions formulated for the purposes of the appeal

First Respondent (First Defendant) : Mr C L Zelestis QC & Mr N K Stewart

Second Respondent (Second Defendant) : Mr C L Zelestis QC & Mr N K Stewart

First Respondent (First Defendant) : Pullinger Stewart

Second Respondent (Second Defendant) : Pullinger Stewart

Day v Williams Hill (Park Lane) Ltd [1949] 1 KB 632

1 MALCOLM CJ: In my opinion this appeal should be allowed as against the first respondent, but only to the extent indicated by the answers to the questions formulated for the purposes of the appeal. The appeal as against the second respondent should be dismissed. I have reached these conclusions for the reasons to be published by Templeman J.

2 It is regretted that there has been some delay in the publication of the reasons for judgment in this case, but this is a matter which has proved difficult to deal with because the appellants are unrepresented and the materials involved are extremely voluminous. These difficulties have been compounded by my own absence from the Court to sit in Sydney in May 2000 and being absent overseas on long service leave and to attend conferences in the period from June to September, compounded by the absence of Templeman J who has been and is still absent on leave.

3 By way of summary and for ease of reference I set out below the Questions which were formulated and the answers to them which represent the unanimous views of the Court.

(1) Did the first and second respondents, by accepting the appellants' instructions on 28 August 1986 and 10 May 1985 respectively, become constructive trustees of the grant of legal aid and the appellants' cause of action against the R & I Bank and (in the case of the first respondent) the knowledge and information which he had or had access to concerning the appellants' affairs?

This question arises under paras 1.11, 2.1.17, 3.2, 6.2, 7.2, 16.1 and 16.2.

(2) If a constructive trust existed as alleged in the paragraphs referred to above, does para 16 disclose:

(2) that the appellants are entitled to the relief claimed in para 16.4?

Do the facts and matters set out in para 9 and in the particulars running from para 9.3.1.1 (appeal book page 60) to 9.3.20.4 (appeal book page 81) disclose a cause of action in negligence against the first respondent?

Answer: "Yes, to the extent indicated by Templeman J in the summary at p 40 - p 41, par 160 of his Honour's reasons".

4 In this context the view expressed by Deane J in Hawkins v Clayton (1988) 164 CLR 539 at 578, 583 - 585 was followed in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642. It was also held in Hawkins v Clayton that in the case of a solicitor liability lay only in tort rather than concurrently in contract and in tort. In Henderson v Merrett Syndicate Limited [1994] UKHL 5; [1995] 2 AC 145 the House of Lords declined to follow Hawkins v Clayton in that respect. In Astley v Antitrust Ltd [1999] HCA 6; (1999) 73 ALJR 403 the High Court decided to follow the decision in Henderson v Merrett Syndicate Limited in preference to the judgment of Deane J. Consequently, the liability of a solicitor remains a concurrent liability in contract and in tort.

Do the facts and matters set out in par 10 disclose that the allegedly negligent opinion provided by the first respondent caused the appellants to suffer loss by causing the Legal Aid Commission to terminate the grant of legal aid in reliance on the opinion so that the appellants lost the opportunity of having a trial of their action against the R & I Bank?

Do the facts and matters set out in par 11 disclose:

(1) that the first respondent delayed unreasonably in delivering his opinion; and

(2) if so, that the appellants thereby suffered loss?

Are the appellants entitled to prosecute a cause of action against the first respondent based on a conflict of interest when such claim was made for the first time on 15 April 1997 in an application to amend the writ?

Subject to Question 5, do the facts and matters set out in para 12 disclose:

(1) that the first respondent was in a position of conflict when he accepted the appellant's retainer;

(2) if so, that he failed to disclose the existence of that conflict to the appellants; and

(3) if so, that the appellants thereby suffered loss?

Subject to Question 5, if the first respondent accepted the appellants' retainer without disclosing that he was in a position of conflict as alleged in para 12, does para 13 disclose:

(1) that the first respondent was thereafter under a duty to disclose to the appellants any facts and matters within his knowledge which were relevant to the appellants' relationship or dealings with any entity in respect of which the conflict existed; and

(2) if so, did he fail to make such disclosures to the appellants; and

(3) if so, that the appellants thereby suffered loss?

Subject to Question 5, if the first respondent was in a position of conflict as alleged in para 12, does para 14 disclose:

(1) that the first respondent preferred the interests of the persons or entities in respect of which the conflict existed; and

(2) if so, that the appellants thereby suffered loss?

Are the appellants entitled to pursue a claim against the first respondent in respect of an alleged fraudulent misrepresentation notwithstanding that such claim was made for the first time on 15 April 1997 in an application to amend the writ?

Subject to Question 9, do the facts and matters set out in para 15 disclose:

(1) that the first respondent represented to the appellants that he was not in a position of conflict; and

(2) if so, that the appellants were induced thereby to retain the first respondent as their counsel; and

(3) if so, that the said representation was false; and

(4) if so, that it was made fraudulently; and

(5) if so, that the appellants are entitled to any of the relief claimed in para 15.9?

Do the facts and matters set out in para 17 permit the appellants to pursue a defamation claim against the first respondent notwithstanding that such claim was made for the first time on 15 April 1997 in an application to amend the writ?

Subject to Question 11, do the facts and matters set out in para 17 disclose a cause of action in defamation against the first respondent?

Do the facts and matters set out in para 18 disclose a cause of action in negligence against the second respondent: and if so, are the appellants entitled to claim damages in respect of any of the matters set out in para 18.7?

Are the appellants entitled to prosecute a claim against the second respondent in respect of breach of fiduciary duty notwithstanding that the claim was made for the first time on 15 April 1997 in an application to amend the writ?

Subject to Question 14, do the facts and matters set out in para 19 disclose a cause of action for breach of fiduciary duty against the second respondent; and if so, are the appellants entitled to claim damages in respect of any of the matters set out in para 19.3?

If any of the questions set out above are answered favourably to the appellants, was the Master wrong to refuse leave to the appellants to file the proposed Substituted Statement of Claim having regard to matters including case management principles, delay in the prosecution of the action and prejudice to the respondents?

5 OWEN J: I have read the reasons to be published by Templeman J. I agree with them and his Honour's conclusions. I have nothing further to add.

6 James Garnett Smith and his wife Elizabeth Anne Smith ("the Smiths") appeal against a decision of Master Sanderson who, on 5 September 1997, refused them leave to file a proposed amended writ and substituted statement of claim in an action they had commenced in March 1995. The defendants, who are the present respondents, were the Smiths' legal representatives in a previous action which they had brought against the Rural & Industries Bank of Western Australia ("the R & I Bank", or "the Bank").

7 The Smiths commenced the present action and have prosecuted it without the benefit of legal representation. All the work has been done by Mrs Smith who appeared in person before the learned Master as she did before this Court.

8 The gravamen of the Smiths' claim in the present action is that Mr John Gilmour QC, who was then their solicitor, and Mr Malcolm James McCusker QC, who was their leading counsel, were negligent in the conduct of their action against the R & I Bank, with the result that legal aid funding was withdrawn, so that the action could not be pursued.

9 Further, the Smiths contend that Mr McCusker was in a position of conflict, being a director of the Town & Country Building Society ("Town & Country") which refinanced the borrowings the Smiths had made from the R & I Bank. It was Town & Country as mortgagee which ultimately sought and obtained possession of the property which had been given as security for those original borrowings.

10 The writ in the present action was issued on 13 March 1995, but was not served until 30 January 1996. The Smiths served their original statement of claim on 22 February 1996. That pleading was subsequently struck out by order of Acting Master Chapman. However, the learned Acting Master gave leave to the Smiths to serve a substituted statement of claim.

11 On 31 January 1997, after several interlocutory applications and extensions of time, the Smiths served a minute of proposed substituted statement of claim. This pleading raised issues of defamation, fraud, fraudulent misrepresentation and breach of fiduciary duty. The pleading was revised further. On 15 April 1997, the Smiths filed a notice of motion for leave to file the proposed amended writ and proposed substituted statement of claim. That was the document considered by Master Sanderson. He said of it:

"...it is clear that it cannot be allowed to stand. It offends almost all principles of pleading. It is argumentative, it includes matters of evidence and it would undoubtedly delay a fair trial of the action."

12 The learned Master then went on to consider the options open to him. The first was to refuse leave to allow the minute of proposed substituted statement of claim to stand, but to give the Smiths a further opportunity to produce an acceptable pleading. The learned Master decided against that course. He took the view that the difficulties inherent in drafting a statement of claim were such that the Smiths, as litigants in person, could not be expected to achieve that result.

13 The second alternative was to allow the matter to proceed without pleadings. As the learned Master pointed out, that is an unusual step which is justified in special circumstances when the issues between the parties may be identified easily. However, the learned Master considered that this was not such a case and that it would be manifestly unfair to the respondents to proceed without pleadings.

14 The third alternative was to refuse to allow the Smiths to file the proposed pleading, and to enter judgment for the respondents.

15 The learned Master said that, having informed Mrs Smith that he was minded to take that course, she asked for time to file further material. The learned Master said:

"I had in mind she would file short, succinct submissions highlighting the strength of her case. What I received was five volumes of submissions running to over 570 pages. It is clear Mrs Smith put enormous effort into the submissions and the evidence which accompanied them. In deference to her position I have read everything she has submitted. But I have come to the conclusion that it would be pointless to allow this litigation to continue."

16 The learned Master went on to say that he had then read a copy of the opinion written by Mr McCusker, which is at the heart of the case the Smiths wish to bring against him. The learned Master said he found it difficult to see how the opinion was wrong, but that in any event it was necessary for the Smiths to establish not only that the opinion was wrong, but that it was prepared negligently. The learned Master said he was unable to see any hope of the Smiths establishing that to have been the case.

17 The learned Master then went on to consider whether, in the exercise of his discretion, he should allow the Smiths to file a further statement of claim. He decided it would be inappropriate to do so. He took into account his view that not only was the action unlikely to succeed, but that even if it did succeed, it would still be a very difficult task for the Smiths to prove their damages.

18 Ultimately, the learned Master came to the following conclusion:

"Extending to the [Smiths] every consideration and mindful always of the right of any citizen to pursue claims in this Court for damage they have suffered as a consequence of the wrongful acts of others, I cannot see this action should be allowed to proceed. I am not satisfied there is any basis for allowing the [Smiths] the opportunity to submit a further substituted statement of claim."

The learned Master accordingly dismissed the action and entered judgment for the respondents. He ordered the Smiths to pay the costs of the application and the costs of the action.

19 It is against that decision that the Smiths now appeal. Although, strictly, this is a pleading summons in which evidence would not normally be considered, the appeal book consists of nearly 1,000 pages of evidence in five volumes. In addition, counsel for the respondents provided the court with copies of Mr McCusker's opinion dated 21 March 1989 which contains 47 pages. As I have noted, a copy of the opinion had been provided to the learned Master, but it had not been included in the appeal books. I shall refer below to an issue which arose in relation to the opinion.

20 The appeal came on before the Full Court in September 1998. On that occasion, directions were given for the matter to be managed by a single Judge so as to facilitate the substantive hearing. I was the nominated Judge.

21 On 1 December 1998, sitting in chambers, and with the co-operation and consent of the parties, I settled a series of questions for the Full Court. The questions were directed to the minute of proposed substituted statement of claim dated 15 April 1997 and were intended to be considered in lieu of the issues raised by the Notice of Appeal.

22 I gave the parties leave to file submissions directed to the questions. On behalf of the appellants, Mrs Smith produced a substantial document in which she set out her arguments supported by references to authority. The respondents filed an outline of submissions.

23 The appeal came on before the Full Court on 24 and 25 May 1999. Mrs Smith again appeared in person. She did not complete her submissions by the end of the time allotted. However, the Court gave her leave to file further written submissions, should she wish to do so, by 25 June 1999.

24 Mrs Smith did not file any further submissions by 25 June. Instead, she sought an extension of time of six weeks due to her ill-health and her difficulty in grappling with the complexity of the issues.

25 Having been appointed by the Full Court to manage the appeal, I heard Mrs Smith's application on 16 August. Over opposition, I granted the extension of time. I did so on the basis that in the overall scheme of things a further six weeks would not make a great deal of difference.

26 Mrs Smith then contended that the opinion which had been provided to the Full Court as being a copy of the opinion provided by Mr McCusker to the Legal Aid Commission was not in fact that opinion. Mrs Smith said there were three documents:

1. an unsigned draft opinion which Mr McCusker had given her for consideration and comment;

2. the signed opinion which he had sent to the Legal Aid Commission; and

3. the document provided to the learned Master and to the Full Court, which was a hybrid.

Mrs Smith said she had only just realised that the Court had been provided with a hybrid document. She said all but the last two pages were from the unsigned draft opinion and that the final two pages were from the signed opinion. She said that Mr McCusker had revised his draft in a way which was much less favourable to her and her husband before submitting it to the Legal Aid Commission.

27 Leading counsel for the respondents took issue with these assertions. He said, on instructions, that the copy opinion which he had handed to the Full Court had been obtained from Mrs Smith herself in response to a request from his instructing solicitors to provide a copy.

28 Counsel said that Mr McCusker had only a copy of his unsigned draft.

29 I concluded that the possibility existed of an error having been made in the offices of counsel's instructing solicitors. I therefore gave leave to Mrs Smith to file an affidavit setting out her contentions and to the respondents to file affidavits in answer as they might be advised.

30 I told the parties that although it was within my power to allow an extension of time for filing submissions, I could not commit the Full Court to receiving further evidence. My objective in permitting affidavits to be filed was to clarify the position if possible and if not, to set the scene for any further applications to the Full Court.

31 On 30 August 1999, Mrs Smith filed an affidavit in which she deposed to various matters relating to Mr McCusker's opinion. She filed a further short affidavit on 31 August, to remedy some typographical errors and some omissions from the earlier affidavit.

32 The affidavits set out the Smiths' views about a number of matters. The evidence relevant to this issue may be summarised as follows:

1. On or about 21 March 1989, Mr McCusker gave Mrs Smith an unsigned opinion of 46 pages, on which he sought comments.

2. On about 28 March 1989, Mr McCusker sent to the Legal Aid Commission an opinion which differed in some respects from the unsigned version.

3. The changes reflected a less favourable opinion about the Smiths' credibility.

4. The copy opinion which was handed to the Court on the hearing of this appeal was the draft of 21 March 1989, in which the last two pages had been replaced by the two last pages of the opinion given to the Legal Aid Commission.

33 In response to Mrs Smith's affidavits, the respondents filed an affidavit sworn by their solicitor, Mr Neil Kevin Stewart. Mr Stewart deposed to the fact that when he took instructions about the original statement of claim, he was not provided with a copy of Mr McCusker's opinion. Mr Stewart therefore served on the Smiths a notice to produce, inter alia, the opinion on which they relied. In response to that notice, Mr Stewart said he received a copy of an opinion of 47 pages, signed by Mr McCusker and dated 21 March 1989. Mr Stewart then said that he obtained recently from the Legal Aid Commission a copy of the opinion on its files. The Commission had previously been unwilling to provide a copy.

34 It is clear from a comparison of the various documents that the opinion handed to the Court on 24 May 1999 (which is the same as the opinion before the learned Master) consists of the first 45 pages of the draft opinion, to which the final two pages of the final opinion, given the Legal Aid Commission, have been added. That appears to explain the duplication of the penultimate paragraphs of the conclusion to the opinion.

35 Having regard to the explanation given by Mr Stewart about the way in which the copy opinions came into his possession, I have no reason to doubt that Mrs Smith was the source of the document which was provided to the Master and this Court.

36 It is not necessary now to investigate how that came about. It is common ground that there were two opinions: and that the Court has a hybrid. It is Mrs Smith's contention that the Court should base its judgment on the version of the opinion which Mr McCusker provided to the Legal Aid Commission. I agree. Although the learned Master had a different version, I do not think the differences are relevant for present purposes. That is because the changes made to the draft opinion largely mirror the substitution of objective comments about the Smiths' credibility for subjective expressions of opinion by Mr McCusker. Although the final opinion undoubtedly creates a less favourable impression of the Smiths, the changes do not, in my view, have any impact on the allegations of negligence in the preparation of the opinion. And it is only in relation to those allegations that the opinion itself is relevant.

37 On 16 August 1999, I allowed Mrs Smith a further extension of six weeks in which to file submissions, a period which expired on 27 September. I emphasised that this would be a final extension. In fact, 27 September was a public holiday. It was therefore appropriate for submissions to be filed on 28 September, which they were. They were supplemented by further submissions filed on 1 October. Although out of time, no objection has been taken to these submissions, which I would allow. However, on 30 September, the Smiths purported to serve on the respondents' solicitors a document entitled "Amended Submissions of the appellants ....". These submissions were directed to the questions for the Full Court which I had settled in December 1998.

38 In a subsequent letter to the Court, the respondents' solicitors complained about the Smiths' conduct in serving the amended submissions, without being authorised to do so. The objection is well-founded, but I do not think anything turns on the amendments.

39 Essentially, the question for this Court is whether the learned Master was right in his conclusion that the proposed substituted statement of claim ("the statement of claim"), prepared by the Smiths and dated 15 April 1997, did not disclose a cause of action.

40 Against that background, I turn to a consideration of the questions for the Full Court.

This question arises under paras 1.11, 2.1.17, 3.2, 6.2, 7.2, 16.1 and 16.2.

(2) If a constructive trust existed as alleged in the paragraphs referred to above, does para 16 disclose:

(2) that the appellants are entitled to the relief claimed in para 16.4?

41 The Smiths contend that as from the respective dates on which Mr Gilmour and Mr McCusker were instructed, they each became the trustee of a constructive trust, the property of which was the Smiths' grant of legal aid to enable them to pursue the action against the R & I Bank. The subject matter of the constructive trust is said to include the grant of legal aid, the Smiths' chose in action against the R & I Bank, and "all the knowledge and information" which the respective respondents had, or had access to, about the Smiths' financial and legal matters.

42 In my view, there is no legal basis for the Smiths' contention. It is true that their claim against the R & I Bank was a chose in action. It is also true that the information about their affairs was confidential to the respondents. However, neither of those species of property was ever vested in the respondents so as to make them trustees. The respondents were professional advisers who owed duties of care and fiduciary duties to the Smiths. But that does not result in their being trustees of the relevant property.

43 For the same reason, the respondents were not trustees of the grant of legal aid. That grant was made to, or in favour of, the Smiths. It was never vested in the respondents, who had only a contractual right to be paid a proper remuneration for the services which they provided to the Smiths. It is true, as Mrs Smith submitted, that the conduct of their case was entrusted to the respondents. One of the complaints made against Mr McCusker is that he delayed inordinately in delivering his opinion. Mrs Smith submitted that one of the consequences of that delay was that the Legal Aid Commission declined to proceed further with the action. Thus, Mrs Smith said, Mr McCusker had the power to prevent the appellants from proceeding with the action. Accepting that to be true, for the purposes of the argument, it makes no difference. As the High Court pointed out in Guimelli v Guimelli [1999] HCA 10; (1999) 73 ALJR 547 at 548 - 9:

"The term 'constructive trust' is used in various senses when identifying a remedy provided by a court of equity. The trust institution usually involves both the holding of property by the trustee and the personal liability to account in a suit for breach of trust for the discharge of the trustee's duties. However, some constructive trusts create or recognise no proprietary interest. Rather there is the imposition of a personal liability to account in the same manner as that of an express trustee. An example of a constructive trust in this sense is the imposition of personal liability upon one 'who dishonestly procures or assists in a breach of trust or fiduciary obligation' by a trustee or other fiduciary."

44 In the present case, as I have explained, neither of the respondents had any property vested in them. The case does not, therefore, fall within the first category identified by the High Court. And since there is no question of any breach of trust or fiduciary obligation by persons other than the respondents, the second category is equally inappropriate, there is no basis for the imposition of a personal liability to account.

45 It is submitted by Mrs Smith in her written submissions (page 3, par 5 and par 6) that the respondents held the grant of legal aid upon trust. That is not so, because the respondents did not become the recipient of trust moneys. As I have stated above, they enjoyed a contractual right to be paid for their services. In any event, what is complained of is not misuse of money but the quality of the work carried out by the respondents and the advice which they gave. The answer to Question 1(1) is "No". It follows that it is not necessary to answer Question 1(2). Thus, the essential question is whether the respondents were negligent. That is the subject of Question 2.

46 Paragraph 9 of the statement of claim is as follows:

"1. [Mr McCusker] negligently asserted errors of fact in his opinion

2. As a consequence of the errors of fact its premises and conclusions were flawed

3. [Mr McCusker] negligently failed to address the true issues in his opinion."

47 Then there follows some 22 pages of detailed allegations under the heading "Particulars".

48 It will be convenient to deal with this allegation by reference to the individual paragraphs, or groups of paragraphs where one group deals with a specific matter.

49 In so doing, it will be necessary to refer to materials other than the statement of claim. This is because the statement of claim contains references to external documents which are therefore incorporated in it. These include Mr McCusker's opinion, the proof of evidence prepared for him by Mrs Smith, the pleadings in the Smiths' action against the R & I Bank and opinions prepared by Mr B W Rowland QC (as he then was). Before his appointment to the Supreme Court, Mr Rowland acted as counsel for the Smiths in their action against the Bank.

50 Before embarking on an analysis of the statement of claim, it is necessary to know what Mr McCusker was instructed to do. It is pleaded in par 4.1.1 that the grant of legal aid was for a "full opinion from senior counsel on the merits of Supreme Court action against the R & I Bank, together with opinion on quantum." The text of the letter of instruction is set out in full in par 4.1.2. It referred to the legal aid certificate and continued:

"We shall be obliged if you will give us your opinion in that regard."

51 It is then alleged, in par 6.1, that as a consequence of accepting his retainer, Mr McCusker:

"had a duty to exercise all due professional care, skill and diligence as a solicitor in relation to [the Smiths] said business and affairs...."

On the basis that the "said business and affairs" is limited to the Smiths' action against the Bank, that is, I think, a fair statement of Mr McCusker's duty.

52 The pleading does not set out the standard implicit in the expression "due professional care". However, as a matter of law (which was not required to be pleaded) the following statement is applicable:

"When a client retains a firm that professes to be specially experienced in a discrete branch of the law that client is entitled to expect that the standard of care with which his retainer will be performed is consistent with the expertise that the firm has or professes to have.": Yates Property Corporation v Boland (1998) 157 ALR 38 per Drummond, Sundberg and Finklestein JJ at 50.

Further, as Deane J said in Hawkins v Clayton (1988) 164 CLR 539 at 579, the relationship of solicitor and client:

"... 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."

It is relevant also that the Smiths were inexperienced in legal matters. As Donaldson LJ said in Carradine Properties Ltd v D J Freeman & Co (1982) 126 SJ 157:

"An inexperienced client will need and be entitled to expect a solicitor to take a much broader view of the scope of his retainer and his duties than will be the case with an experienced client."

That statement, which was approved by the Court of Appeal in National Home Loans Corp Pty Ltd v Giffen Couch & Archer [1998] 1 WLR 207, has been applied in Australia : Austrust Pty Ltd v Astley [1993] SASC 3969; (1993) 60 SASR 354.

53 Although Mr McCusker was in fact instructed as counsel, I do not think anything turns on that distinction for present purposes. Mr McCusker is, and was in 1986, an eminent Queen's Counsel, who specialised in litigation. The Smiths were therefore entitled to expect that he would bring a high degree of expertise to bear on their case.

54 For the purposes of a pleading summons such as this, I would accept that, at least, Mr McCusker's retainer would have required him to carry out the following tasks:

* familiarise himself fully with the Smiths' case against the Bank;

* review the pleadings in the action against the Bank

* advise whether any amendments were necessary or desirable to those pleadings;

* provide a full opinion on the quantum of damages the Smiths might recover if successful in the action;

55 In order to understand the allegations pleaded in par 9 of the statement of claim, it is necessary to summarise the Smiths' claim against the Bank. It will be convenient to base this summary on the further amended statement of claim in that action. It is dated 6 June 1985. It is a document which is referred to in Mr McCusker's opinion and may therefore be taken as having been incorporated in it, and therefore, into the statement of claim.

56 In 1977, the Smiths, who had been sharefarming on a conditional purchase property at Borden, Western Australia, wanted to expand their operations. They sought financial assistance from the R & I Bank's Ongerup branch, where they dealt with Mr Richard Danks, the Manager. They told him their requirements and provided information about their farming activities. He said the Bank would provide them with financial assistance and advice. As a result, it is said, the Smiths were advised to withdraw their business from the National Bank, with which they had banked for many years, but which was unwilling to assist to the extent they required.

57 In about April 1977, the R & I Bank produced a cash flow budget for the Smiths. It showed the income they could expect in the following 12 months, and the expenditure necessary to generate that income. At about that time, the Smiths alleged it was agreed that the Bank would advance $7,000 to them for a period of three years, to enable them to pay the deposit on a tractor; it would provide them with an overdraft facility to enable them to farm in accordance with the budget, and that it would thereafter continue to finance their reasonable farming commitments. The Smiths alleged that they entered into the financial arrangements in reliance on representations made to them by the Bank. It is contended that the representations became terms of the respective financial agreements.

58 The Smiths then said that they commenced to farm in accordance with the budget, but found it to be "completely unrealistic and .... incapable of being implemented ....". In the result, their budget deficit increased from its opening limit of $2,000 in March 1977 to $15,373 in March 1978.

59 It is then contended that the Bank failed or refused to provide an overdraft facility which would have enabled the Smiths to carry on "economically practical farming operations for the year commencing April 1977" and failed to provide a sufficient facility "to enable them to continue their expanded farming operations in an economically practical manner in the ensuing years".

60 There is an additional claim that the Bank owed the Smiths a duty of care because it knew they were relying on the cash flow budget and the representations about the provision of financial assistance. It is then said that the Bank was negligent because it failed to use reasonable skill and care in the preparation of the cash flow budget.

61 The Smiths claimed to have suffered loss and damage both as a result of the breach of contract and negligence. However, no figure was placed on the damages claimed. It was said only that the Smiths had lost income they would otherwise have earned and had incurred an overdraft which they had no prospects of repaying.

62 There is then a claim arising from the Smiths' agreement not to deal with Western Livestock Ltd ("Western Livestock") as a result of the Bank's intervention. The Smiths said that in September 1978 they had agreed with Western Livestock that it would provide finance to enable them to deal with it in buying and selling pigs. They had agreed to obtain further finance from Western Livestock, up to a maximum of $3,000, subject to granting it a bill of sale over their livestock.

63 The Smiths then said that they were advised by Mr Danks not to deal with Western Livestock and that instead, the Bank would provide finance and a new cash flow budget which would take into account nine outstanding cheques drawn by the Smiths on the Bank, which the Bank agreed to honour. Mr Danks is said to have told the Smiths that although the budget would require head office approval, they could operate on the increased overdraft forthwith. The Smiths said that in reliance on these representations, which were contractual in nature, they withdrew from the arrangements with Western Livestock and presented the outstanding cheques for payment.

64 The Bank then produced a cash flow budget which made no provision for the nine cheques. It was said also that the Bank then repudiated its agreement to provide overdraft facilities, with the result that the Smiths suffered loss. Again, no figures were provided. It was said only that the Smiths had lost the ability to earn an income. It is then said that the Bank acted negligently, because Mr Danks should have known that the new budget did not take the nine outstanding cheques into account and should have known that the proposed arrangements would require head office approval, which was apparently not given. In 1979, the Smiths were granted legal aid to prosecute an action against the Bank. They instructed solicitors who retained Mr Rowland. He settled a statement of claim in an action which was commenced in August 1982.

65 In March 1983, the Smiths borrowed $135,000 from Town & Country in order to discharge their indebtedness to the R & I Bank and their creditors, and to enable them to continue their farming operations. Town & Country became the mortgagee of the Smiths' property (which was registered in Mr Smith's name).

66 On 10 May 1985, the Smiths instructed the firm of solicitors Gilmour Richardson to act for them against the Bank. Mr Gilmour had the conduct of the action. On 23 May 1985, the Smiths were granted legal aid in the terms referred to above for "a full opinion" on the merits of the action and on the quantum of damages. On 28 August 1986, Mr Gilmour retained Mr McCusker to provide that opinion.

67 Against that background, I turn to the various allegations of negligence pleaded against Mr McCusker. In considering whether they disclose a cause of action, I apply the principles summarised in Seaman on Civil Procedure, par 20.19.6_._ They include the following:

* all the facts alleged in the statement of claim must be accepted as true;

* great care must be taken to ensure that a plaintiff is not improperly deprived of the opportunity for the trial of his case; and

* as a general rule, a plaintiff is entitled as of right to have his case heard, to have the facts found, and then to argue questions of law on the facts as found.

68 It is said that Mr McCusker referred to Mr Rowland's opinions by wrong names. However, Mrs Smith accepted in the course of argument that he had not done so (Ts 155-6). The essence of the complaint is that because of the way in which Mr McCusker referred to Mr Rowland's opinion and quoted selectively from it, he:

"... put a doubt in the minds of the readers of his opinion as to Mr Rowland's positive conclusions on the likelihood of success of the R & I action and the substantial damage Mr Rowland thought would be recoverable in the event of the said success."

69 In order to understand this claim, it is necessary to have regard to the way in which Mr Rowland delivered his various opinions.

70 On 21 July 1980, Mr Rowland prepared a short memorandum (AB 5/788) in which he said he had been asked whether the Smiths had a maintainable action against the R & I Bank. After referring briefly to the issues, Mr Rowland said he was not able to make an assessment on the facts presently at his disposal as to whether a claim would lie. He said it would be necessary to obtain a detailed proof from the Smiths as to the precise conversation that had occurred when the cashflow was being discussed and in particular, about who supplied the relevant information. He concluded:

"It seems to me quite clear that a cause of action can exist but I am by no means convinced that the factual situation as indicated to me would give rise to a cause of action."

71 Then, on 20 May 1981, Mr Rowland delivered an opinion in which he referred to his previous memorandum. He acknowledged that the matter was "not easy". However, he went on to say that:

"On the basis that the overall evidence of Mr and Mrs Smith is accepted, then I believe that they can establish both a breach of promissory conditions and also negligence against the Bank's officers. I have reached this conclusion despite the fact that I am still of the view that Mr and Mrs Smith will not escape criticism in the way that they acted. I appreciate and accept that they had no prior experience in budgetary aspects of farming, but their completely uncritical approach to the budget or their failure to attempt to understand it from the beginning is again something that will, I am sure, be the subject of adverse comment."

72 He went on to express his belief that the Bank had not met its obligations under the relevant contracts and that the Bank Manager "has not exercised the skill that one could ordinarily expect from such officers".

73 Mr Rowland then went on to address the "real difficulty in this matter" which related to the proof of damage. After considering some of the issues, Mr Rowland said:

"In the result, it seems to me that the Smiths have reasonable prospects of succeeding on the question of liability but I have doubts as to their ability to prove a general loss arising from the breaches and negligent advice, and in my view they will not be able to show a causal connection between the Bank's breaches and any individual particular items of damage that might otherwise have been available to them."

74 On 16 September 1981, Mr Rowland wrote to his instructing solicitors. He said he had been given further information by Mrs Smith relating to the question of damages, and that she had prepared various calculations "based generally on what might have been the situation". Mr Rowland said he was not convinced this was a correct approach. He suggested an alternative. He went on:

"I repeat my earlier advice. That is, that if the evidence of Mr and Mrs Smith is accepted, then I believe that they can establish liability against the Bank. I also believe that they are entitled to damages which will have to be assessed in the way I have indicated or in some other general way. This will not be easy but there is no question that the loss suffered by the Smiths is real and it is not inconsiderable. It will involve a deal of evidence to establish the loss and it will also, in my view, involve the obtaining of expert evidence, preferably from a farm management consultant who can no doubt produce some projections that will help quantify the loss."

75 Mr Rowland went on to say that in his view the action against the Bank was justified.

76 The Smiths complain that Mr McCusker failed to quote this passage, which was favourable to them. They complain also that in par 3 of his opinion, Mr McCusker misquoted from Mr Rowland's opinion of 20 May 1981. The quote attributed to Mr Rowland is that:

"On balance I believe the Smiths can succeed on liability but I suspect that they will have difficulty in proving damage."

77 Although this is a misquotation, I do not think it to be of any consequence because it conveys the same impression.

78 It is clear from Mr Rowland's opinions that he had reservations about the Smiths' case on liability and damages. Mr McCusker's opinion was that the case was "most unlikely to succeed": see p 42. Whether or not Mr McCusker was negligent in preparing that opinion is a matter which is addressed in other parts of par 9.

79 It is alleged that Mr McCusker referred, incorrectly, to the farming property being owned by "the Smiths", not by Mr Smith. It is then said that Mr McCusker failed to take into account that Mrs Smith had given personal guarantees to the Bank, and that he did not, therefore, consider whether the Bank Manager owed her a separate duty of care.

80 Accepting that there was an error in the reference to ownership, I do not think it relevant for present purposes. It had nothing to do with the case as pleaded. The case was that the Bank gave negligent advice and failed to advance money, in breach of an agreement to do so. As Mrs Smith pointed out, the Bank did not enforce her personal guarantee, because Town & Country discharged the debt to the Bank. (Ts 176)

81 The allegation here is similar, namely that Mr McCusker mistakenly referred to the Smiths' farm being developed with sharefarming and other general income, when in fact, Mrs Smith's pension and the income from pigs was used.

82 Thus, it is said that Mr McCusker failed to appreciate that Mrs Smith had a separate interest in the property, and was owed a separate duty of care. It is said also that the existing pig operation was capable, with appropriate finance, of generating an immediate and substantial income. The general allegation is that:

"As a consequence of his failure to familiarise himself with those facts [Mr McCusker] also failed to address the legal issues consequent upon them in his opinion."

83 Mrs Smith contends that Mr McCusker had a general duty to safeguard the Smiths' interests. That is true, as I have already noted, but the points raised in this section of the pleading are peripheral only. The general allegation about a failure to address legal issues is dealt with later in the pleading.

84 The gravamen of the pleaded complaint is that Mr McCusker failed to familiarise himself with Mr Smith's success in establishing the piggery:

"... and as a consequence failed to address the legal issues relating to the nature of [Mr Smith's] success and the cash flow budget and banking advice provided by the R & I Bank manager."

85 An allegation that a barrister has failed to familiarise himself with a relevant part of his instructions clearly has the potential to found an allegation of negligence. The "legal issues" referred to in the present context are, I think, no more than reliance. They are raised specifically at a later point in the pleading. The allegations in this section of the pleading seem to me to be superfluous.

86 These paragraphs set out some factual errors said to have been made by Mr McCusker and an allegation that he failed to familiarise himself with the history of the Smiths' dealings with the National Bank. It is said, in substance, that the magnitude of the inducements offered by the R & I Bank should have been viewed against that background, and the consequential loss of opportunity. As Mrs Smith put it in argument:

"... we would say that what Mr McCusker failed to bring out was the inducement to leave the National bank when we actually had good relations with them and a real prospect of not getting into the difficulty we got into with the R & I Bank". (Ts 187)

87 Construing this part of the statement of claim in that way, I am not persuaded that it discloses any basis for a finding of negligence against Mr McCusker. The Smiths' case is that they were induced to leave the National Bank. There is no doubt that they did so. These allegations are therefore another aspect of the reliance issue, which is dealt with elsewhere.

88 These paragraphs relate to the Smiths' pig farming operations. They contain an allegation that Mr McCusker failed to understand that the Smiths had already established a substantial piggery on the property.

89 This is, I think, a misunderstanding. Mr McCusker said in his opinion (par 9) that Mr Danks was told of the Smiths' plan to increase the piggery from 50 to 150 sows over the next three to four years. Mr McCusker was therefore aware of the pre-existing piggery.

90 It is then said that Mr McCusker failed to familiarise himself with the Smiths' "financial and development position" relating to the piggery, and that he failed to address "in an informed manner" the relevance of various aspects of the piggery on the merits of the action against the Bank.

91 The pleading continues with an allegation that Mr McCusker:

"... missed the point entirely that [the Smiths] had already, with little finance, developed and established quite a large piggery and were well on the way to being self sufficient when the loan from the R & I cut across their progress...."

92 Two points emerge from these allegations. First, it might seem surprising for the Smiths to allege that the bank loan "cut across their progress", when they had been to the Bank in order to obtain financial assistance. The point here, I think, is that the Smiths did not just want a loan. They also wanted advice about the viability of their proposed operations, in respect of which they sought finance. They did not want to borrow money on a basis which would result in their becoming hopelessly indebted to the Bank. As Mrs Smith put it in the proof of evidence she gave to Mr McCusker, at their interview with Mr Danks, she and Mr Smith:

"... went to great lengths to get our point across that 'it was no use going into debt beyond what we were able to pay back' ...."

93 Secondly, is the point that the Smiths had already achieved a measure of success in their farming operations. They could have continued to develop those operations without assistance, albeit more slowly. By entering into onerous financial obligations, they put their existing enterprise at risk.

94 The pleading goes on to refer to par (b) on p 39 of Mr McCusker's opinion in which it is said that he failed to impress on the minds of the readers that the Smiths had already been successful, before obtaining the loan. Instead, it is alleged, Mr McCusker questioned Mr Smith's farming record and his ability to farm.

95 That complaint is not entirely justified, in my view. What Mr McCusker said was that:

"The Bank would no doubt seek to establish, by reference to poor performance over the years, that Mr Smith simply lacked sufficient ability to successfully carry through the programme envisaged by the cash flow budgets which underlie the calculation of damages."

96 It is therefore clear that the "poor performance over the years" is not a reference to pre-loan performance, but to a failure to perform in accordance with the budgets. To that extent, the complaint is unjustified. However, I think it unreasonable to criticise Mr Smith for failing to perform in accordance with the budgets, having regard to the contention that the budgets were unworkable.

Smith & Anor v McCusker Qc & Anor [2000] WASCA 320

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (383 paragraphs)

Smith & Anor v McCusker Qc & Anor [2000] WASCA 320 (30 October 2000)

Parties

Cases Cited (7)