Procedure - Tasmania - Practice under Rules of Court - Amendments - Amendment of statement of claim - Whether reasonable cause of action disclosed - Whether pleading embarrassing.

Supreme Court Rules 2000 (Tas), r227, r258, r259 and r427.

Judgment Number: [2004] TASSC 1

1 The plaintiff, Mr Spaulding, has sued the Law Society of Tasmania ("the Law Society") for damages for financial loss arising out of the handling by the Law Society of a complaint of professional misconduct which Mr Spaulding made against a firm of legal practitioners and a member of that firm on about 11 September 1992. The writ was endorsed with a statement of claim. That statement of claim was amended and on 1 September 2003 the amended statement of claim was struck out with Mr Spaulding having liberty to file and serve a further statement of claim. A further statement of claim was filed and in respect of that document on 6 October 2003 the following orders were made by consent:

"1 Unless amended following an application filed and served by 5 pm on Tuesday, 21 October 2003, the statement of claim is struck out.

2 Upon the filing of an affidavit verifying that as at 5 pm on Tuesday, 21 October 2003, the plaintiff has not filed and served an application for leave to amend the statement of claim judgment is to be entered for the defendant against the plaintiff with costs including any reserved costs."

The time for making the amendment application was extended and on 10 November 2003 a document entitled "Amended Statement of Claim" was filed and treated by the parties as an application to amend. It is with this application that the Court is now concerned. The amendment was opposed on grounds that no reasonable cause of action had been disclosed and that the proposed pleading was embarrassing.

2 Mr Spaulding is self-represented. The proposed pleading is Mr Spaulding's fourth attempt at pleading his claim. Understandably Mr Spaulding has gone to considerable effort to fully set out the grounds of his action. The proposed statement of claim runs to 22 pages and comprises 152 paragraphs. The document contains unnecessary information; argument; opinion and conclusions drawn from unstated facts. It does not comply with r227 which requires a pleading to be as brief as the nature of the case allows and to contain only a statement of the material facts on which the party relies. Under r258 and r259 the Court has a discretion to strike out a pleading which may tend to prejudice or delay the fair trial of the proceeding or which fails to disclose a reasonable cause of action. Under r427 the Court has a discretion to grant leave to a party to amend a pleading: "The function of pleadings is to state with sufficient clarity the case that must be met": Banque Commerciale (SA) (In Liq) v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 at 286. In considering a defective pleading the Court will take into account whether the defects are of substance and whether notwithstanding the deficiencies the fundamental function of pleadings is served: Queensland v Pioneer Concrete (Qld) Pty Ltd [1999] FCA 499; (1999) ATPR 41-691 at 42-828. If the facts alleged, even if proven, would not afford any chance of the Court granting relief no cause of action will have been disclosed and no purpose would be served in allowing the pleading. An amendment which is futile because it is obviously bad in law will not be allowed: Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 456. If the facts alleged are set out in prolix, confusing or ambiguous terms or in material respects are mere conclusions drawn from unstated facts the fair and efficient conduct of the action may be placed in jeopardy. Such pleadings are embarrassing and it should generally be expected that they will not be permitted to stand.

3 In general terms, the following allegations are discernible from the proposed statement of claim. Whilst Mr Spaulding was a client of a firm of legal practitioners, the practitioner at the firm having carriage of Mr Spaulding's work entered into contracts with him concerning land and provided legal services in respect of those transactions and other matters affecting Mr Spaulding. The practitioner performed the work in a grossly negligent fashion; acted in conflict situations; failed to advise Mr Spaulding to obtain independent legal advice; acted fraudulently and acted in breach of fiduciary duty. In other words there was professional misconduct. This caused Mr Spaulding to suffer financial detriment. In 1990 Mr Spaulding and his wife became bankrupt and were not discharged from bankruptcy until 1996. On or about 11 September 1992 Mr Spaulding complained about the firm and the practitioner to the Law Society. The Law Society obtained a response to the allegations from the practitioner and referred the complaint and the response to independent legal counsel in early 1993. In early 1994 counsel reported that there was "no substantial basis for any of the accusations made by Mr Spaulding". This conclusion was reached because of bias; because Mr Spaulding was not given an opportunity to put his allegations on oath; because Mr Spaulding was not furnished with the documents relied upon by counsel; because Mr Spaulding was not invited to present evidence in response to the practitioner's answer to the allegations and because counsel applied the criminal rather than the civil standard of proof in his analysis. The conclusion was against the weight of the evidence and only reached after inordinate delay. If disciplinary proceedings had been promptly and successfully taken against the practitioner Mr Spaulding's Trustee in Bankruptcy would thereafter have successfully sued the practitioner and recovered sufficient funds for the bankruptcy to be discharged early.

4 A number of the duties alleged to be owed by the Law Society seem to assume that the Law Society was empowered to discipline the practitioner. Set out below are parts of pars120 and 150 of the proposed statement of claim:

"120 The defendant owed a duty of care to the plaintiff to:

... (B) exercise disciplinary powers (C) hear allegations of complaint from clients ... (F) make findings as a result (G) impose a penalty upon the legal practitioner including a fine, suspension from practice or strike their name from the roll of practitioners ...

150 ... The defendant failed the plaintiff and the Tasmanian government by not finding ... guilty in 1994 of professional misconduct, ..."

5 These alleged duties and consequently the claimed breach are not capable of being sustained in light of the statutory framework which applied at the time under the Law Society Act 1962 ("the Act"). Under the Act an independent tribunal known as "the disciplinary committee" whose members were appointed by the Supreme Court of Tasmania was continued with that tribunal having power on application to hear and determine matters pertaining to the professional conduct of legal practitioners and to make orders for the striking off suspension or fining of practitioners. Under the Act these powers were solely within the province of the disciplinary committee and the Court. The Law Society, of course, could institute and prosecute disciplinary proceedings before the disciplinary committee or the Court and to that end rules made under the Act conferred upon the council of the Law Society an investigative power. In particular, r7(1) of the Rules of Practice 1977 provided:

"The council, acting on its own motion or on a written complaint lodged with it by a person, may require a practitioner to furnish the council with a full and accurate account, in writing, of his conduct in relation to any matter relating to his practice within such time as the council may fix."

6 Counsel for the Law Society, Mr O'Farrell, submitted that Mr Spaulding's case, howsoever framed, is hopeless because all the Law Society was doing as a statutory regulatory body was exercising its power to investigate with a view to deciding whether or not it would institute disciplinary proceedings. Disciplinary proceedings, at least at the time, when compensation orders were not available, could not be brought to obtain redress for wrongs, but were only brought for the protection of the public: Weaver v Law Society of New South Wales [1979] HCA 35; (1979) 142 CLR 201 at 207. It was submitted that in such circumstances the causes of action which Mr Spaulding attempts to put forward, namely, negligence and breach of statutory duty are unsustainable.

7 Because of the submission that no cause of action is available to the plaintiff, although this is an amendment application, it is fair that I should deal with the matter as if an application had been made to strike out a statement of claim duly delivered.

8 The claimed causes of action are for breach of statutory duty and negligence. I am conscious that determining the question now as to whether the causes of action are available will be to determine the matter before Mr Spaulding has had the benefit of the discovery procedures available in the Court and before all of the facts have been canvassed at trial. I adopt the approach of Lord Browne-Wilkinson in X (minors)v Bedfordshire County Council (1995) 3 All ER 353 where he said at 373:

"Actions can only be struck out under RSC Ord 18, r19 where it is clear and obvious that in law the claim cannot succeed. Where the law is not settled but is in a state of development (as in the present cases) it is normally inappropriate to decide novel questions on hypothetical facts. But I agree with Sir Thomas Bingham MR ([1994] [1995] UKHL 9; 4 All ER 640 at 649[1995] UKHL 9; , [1994] 3 WLR 853 at 865) that there is nothing inappropriate in deciding on these applications whether the statues in question confer private law rights of action for damages: the answer to that question depends upon the construction of the statutes alone.

Much more difficult is the question whether it is appropriate to decide the question whether there is a common law duty of care in these cases. There may be cases (and in my view the child abuse cases fall into this category) where it is evident that, whatever the facts, no common law duty of care can exist. But in other cases the relevant facts are not known at this stage. For example, in considering the question whether or not a discretionary decision is justiciable, the answer will often depend on the exact nature of the decision taken and the factors relevant to it. Evidence as to those matters can only come from the defendants and is not presently before the court. I again agree with Sir Thomas Bingham MR that if, on the facts alleged in the statement of claim, it is not possible to give a certain answer whether in law the claim is maintainable, then it is not appropriate to strike out the claim at a preliminary stage but the matter must go to trial when the relevant facts will be discovered."

9 A cause of action in negligence will exist where there is a breach of a duty of care with resultant damage. If there is no duty of care pursuit of the action is futile. Mr O'Farrell was unable to refer to any case concerning whether a private cause of action sounding in damages is available for an alleged negligent investigation by a Law Society of a complaint. He put his argument on the basis that this case was analogous to cases where courts have held that no duty of care exists.

10 In Jovanovic v Law Society of Tasmania & Ors (No 2) [2003] TASSC 65, Cox CJ said at par121 and following:

"121 The claims in negligence and breach of statutory duty against ASIC, a corporation with statutory functions and obligations, must first pass the test of the existence of a duty of care to the plaintiff. As Kirby J said in Graham Barclay Oysters Pty Ltd & Anor v Ryan & Ors [2002] HCA 54; (2002) 194 ALR 337 at 393, referring to the intermediate appeal court's analysis of the previous decisions on the duty of care in the exercise of statutory powers:

`Only one unarguable principle emerges from the earlier decisions, reflected in the Federal Court's analysis. It is the self-evident one that any duty of a public authority at common law must be compatible with the legislative powers conferred, and duties imposed, on that authority. It must conform to the apparent purpose of the legislature relating to the authority carrying out its duties according to statute.'

122 The second named defendant was established as a body corporate by the Australian Securities and Investment Commission Act 1989, s7. At all relevant times the aims of that Act and of the Australian Securities and Investment Commission Act 2001 which replaced it were set out in s1(2) which provided that:

`1(2) In performing its functions and exercising its powers, the Commission must strive:

(a) to maintain, facilitate, and improve, the performance of companies, and of the securities markets and futures markets, in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy; and

(b) to maintain the confidence of investors in the securities markets and futures markets by ensuring adequate protection for such investors; and

(g) to take whatever action it can take, and is necessary, in order to enforce and give effect to national scheme laws.'

123 At all material times ASIC has had extensive powers of investigation where it has reason to suspect that there may have been committed a contravention of a law of the Commonwealth or of a State or Territory, being a contravention that:

(i) concerns the management or affairs of a body corporate or managed investment scheme;

(ii) involves fraud or dishonesty and relates to a body corporate or managed investment scheme, or to securities or future contracts ...

The plaintiff's complaints under par311 of the amended statement of claim against ASIC and its officers or agents involve allegations of negligence in the conduct of its investigations into DIT. Indeed the initial allegation is of negligence in undertaking an investigation and it is said that the consequence of that investigation was a run on DIT's funds. Quite clearly the undertaking of an investigation by ASIC, having regard to its statutory responsibilities, could not constitute a breach of a duty of care to anyone, let alone to the plaintiff. As the Court said in Sullivan v Moody (2001) 207 CLR 562 at 582:

`The circumstance that a defendant owes a duty of care to a third party, or is subject to statutory obligations which constrain the manner in which powers or discretions may be exercised, does not of itself rule out the possibility that a duty of care is owed to a plaintiff. People may be subject to a number of duties, at least provided they are not irreconcilable. A medical practitioner who examines, and reports upon the condition of, an individual, might owe a duty of care to more than one person. But if a suggested duty of care would give rise to inconsistent obligations, that would ordinarily be a reason for denying that the duty exists. Similarly, when public authorities, or their officers, are charged with the responsibility of conducting investigations, or exercising powers, in the public interest, or in the interests of a specified class of persons, the law would not ordinarily subject them to a duty to have regard to the interests of another class of persons where that would impose upon them conflicting claims or obligations.'

In my view there is neither a duty of care on the part of ASIC to the plaintiff in respect of the institution or conduct of its investigation, nor any fact pleaded from which a breach of duty could be established. See also Yuen Kun Yeu v Attorney General Hong Kong [1988] AC 175.

11 The Law Society investigates complaints and has a discretion to commence disciplinary proceedings against practitioners. It acts, not to determine individual rights and liabilities, but for the protection of the public against the misconduct of practitioners. The Society's power derives from statute. At the time of Mr Spaulding's complaint in 1992 the Act provided by s11 that the Society in general meeting could make by-laws, inter alia, for defining the objects of the Law Society and the regulation and good government of the Law Society and of the members and affairs thereof. By-law 3 included the following objects:

"to do all such things as are incidental or conducive to the attainment of the above objects ...".

12 It would be incompatible with the object of protecting the public by suppressing dishonourable conduct and practices if, for example, investigations were to be conducted with the risk that a practitioner unsuccessfully prosecuted as a result of a negligent investigation should have a remedy against the investigator in damages. Similarly, it would not be compatible with the efficient undertaking of its general functions if the Law Society owed a private duty of care to a complainant. Where a practitioner acts negligently; breaches of fiduciary duty or commits an act of fraud and a client suffers damage the client can be expected to have a remedy against the practitioner directly without the intervention or assistance of the Law Society. It is possible to decide that there was no duty of care without a trial and simply on the basis of the nature of the allegations in the proposed statement of claim. Mr Spaulding put forward no reason and I can think of no reason why ASIC should not have a duty of care in investigating for the protection of the public allegations of corporate misconduct whilst the Law Society should be subject to negligence claims in its investigation for the protection of the public of allegations of professional misconduct. Both authorities have a regulatory function conferred by statute with an investigating and prosecuting power with an object of protecting the public. Accordingly I accept Mr O'Farrell's submission based on the analogy with ASIC that no duty of care existed so as to afford to Mr Spaulding a cause of action in negligence against the Law Society.

13 So far as the claim for breach of statutory duty is concerned a number of allegations have been made to the effect that the procedure adopted by the Law Society was not consistent with the statutory scheme. For example, it is alleged that the Society did not comply with a requirement imposed by By-law 48 that complaints be verified by statutory declaration. A private cause of action for breach of statutory duty will not exist unless an intent to confer private rights can be discerned from the statute: X (minors) v Bedfordshire County Council (supra). Mr Spaulding referred to nothing in the legislation to support the existence of such an intent and having carefully examined the legislation, I am unable to find anything to support a construction conferring a private remedy for breach. The power of the Law Society to investigate and prosecute disciplinary matters exists for the protection of the public and not for the protection of a limited class of individuals. In most cases where a person suffers harm as a result of the misconduct of a legal practitioner remedies will exist against the practitioner independently of the statute. In any event, the taking of disciplinary proceedings is not within the exclusive province of the Law Society. Proceedings before the disciplinary tribunal or the Court can be taken by an aggrieved individual. There is no basis for a construction of the Act which would allow an individual to recover damages for breach.

14 The Society not having a duty of care to Mr Spaulding and the Act not conferring any private law cause of action, Mr Spaulding's claims in negligence and breach of statutory duty are futile because they are obviously bad in law. The proposed amended statement of claim cannot be allowed.

15 I also agree with Mr O'Farrell's submission that the statement of claim should not be allowed as it is embarrassing in the sense that it has a tendency to prejudice or delay the fair trial of the proceeding. So that an opponent can know the case which he is required to answer and can clearly state which aspects of the case he wishes to put in issue a statement of claim must contain a summary of all the material facts including the facts alleged that link the damage or loss to the conduct the subject of the complaint: H 1976 Nominees Pty Ltd v Galli [1979] FCA 74; (1979) 30 ALR 181 at 186 and Bond Corporation Pty Ltd v Theiss Contractors Pty Ltd [1987] FCA 84; (1987) 14 FCR 215 at 222. In essence, Mr Spaulding complains that a competent investigation and thereafter prosecution of his complaint would have resulted in adverse findings against the legal practitioner and as a consequence Mr Spaulding's Trustee in Bankruptcy, fortified by the findings, would have sued the legal practitioner and recovered sufficient funds to justify an early discharge of the bankruptcy. The proposed statement of claim includes the following as to loss:

By reason of the defendant's gross negligence gross incompetence and breach of statutory duty by failing to exercise its statutory powers in a proper and appropriate manner, the plaintiff has suffered loss and damages as a result.

123 In 1990 the plaintiff and his wife were made bankrupt by way of a creditors petition and expected to be discharged from bankruptcy within three years. The plaintiff made a formal complaint to his trustee in bankruptcy in relation to the way and manner Mr ... practitioner conducted the affairs of the plaintiff and his wife between 1986 to 1990, was the primary and possibly sole reason for the Plaintiff and his wife's financial demise and eventual bankruptcy. The plaintiffs trustee in bankruptcy, because of Mr ... response to the plaintiff's allegations, believed Mr ... version of events as against those of the plaintiff. The plaintiff and his wife had to serve three more years in bankruptcy till 1996 before being discharged.

124 A finding of professional misconduct in 1994 or as early as 1993 would have prompted Bankruptcy on behalf of the plaintiffs and his wife's main creditors the ANZ Bank, Westpac Bank and the Taxation Department plus other small creditors to sue ... and ... to recover their money, some $350,000 and any other monies that the plaintiff and his wife were entitled to arising out of Mr ... professional misconduct.

125 But for the gross negligence and gross incompetence of Mr ... and the defendant in finding Mr ... not guilty of unprofessional conduct or professional misconduct in 1994 the Official Receiver lost that opportunity to recover by way of litigation compensation in relation to fiduciary breaches by ... and ..., and loss arising out of negligence and breach of contract."

16 The facts to be relied upon in support of the pleaded conclusions are not set out. For example, the proposed statement of claim does not set out facts showing that a quantification of a claim against the legal practitioner if sued would or may have been of a sufficient sum to fully pay out the creditors in the bankruptcy or at least a sufficient sum to justify early discharge from bankruptcy.

17 The application for leave to amend the statement of claim is dismissed. I will hear the parties as to the application filed by the Law Society on 20 August 2003 seeking certain relief including "That judgment be entered, with costs, for the defendant".