LIMITATION OF ACTIONS – LIMITATION OF PARTICULAR ACTIONS –
SIMPLE CONTRACTS, QUASI-CONTRACTS AND TORTS – ACCRUAL
OF CAUSE OF ACTION
AND WHEN TIME BEGINS TO RUN – TORTS – ACTIONS AGAINST SOLICITORS
Source
Original judgment source is linked above.
Catchwords
LIMITATION OF ACTIONS – LIMITATION OF PARTICULAR ACTIONS –SIMPLE CONTRACTS, QUASI-CONTRACTS AND TORTS – ACCRUALOF CAUSE OF ACTIONAND WHEN TIME BEGINS TO RUN – TORTS – ACTIONS AGAINST SOLICITORS– where the defendant actedfor the former trustee (‘Marks’)of a trust (‘KJM Trust’) on the purchase of a residential unit– wherethe unit was purchased using the funds of a company(‘Ashala’) of which Marks was the sole director and shareholder,andwhose shares were held on trust for a beneficiary (‘Featherstone’)of the KJM Trust – where Ashala leased commercialpremises from
Featherstone – where Ashala had not paid rent under its lease or lodged
tax returns in two years before its funds
were used to purchase the unit –
where a liquidator appointed to Ashala later brought proceedings against
Featherstone (who
had replaced Marks as trustee of the KJM Trust) alleging that
the payment of Ashala’s funds to purchase the unit was an uncommercial
transaction under the Corporations Act 2001 (Cth) – where judgment
was given in favour of the liquidator and Featherstone was ordered to transfer
the unit to Ashala –
where Featherstone unsuccessfully appealed that
judgment – where the current trustee of the KJM Trust alleged that the
defendant
was negligent in failing to attend to the preparation and lodging of
Ashala’s tax returns, in advising on the purchase of the
unit and in
relation to a later audit by the ATO – where the claimed loss comprised
legal costs incurred by Featherstone in
defending the liquidator’s
proceeding and the value of the unit – where the defendant alleged that
the cause of action
was time barred because Featherstone incurred the legal
costs more than six years before the proceeding was commenced – where
the
plaintiff contended that the cause of action did not accrue until the appeal of
the judgment in favour of the liquidator was
dismissed – whether the cause
of action was time barred
Limitations of Actions Act 1974 (Qld), s 10.
Ashala Model Agency Pty Ltd (in liq) v Featherstone [2017] 2 Qd
R 1
[2016] QSC 121, cited
Ashala Model Agency Pty Ltd (in liq) v
Featherstone (No 2) [2016] QSC 300, cited
Australian Executor Trustees
(SA) Ltd v Kerr [2021] NSWCA 5, cited
Badenach v Calvert (2016)
257 CLR 440
[2016] HCA 18, cited
Briginshaw v Briginshaw (1938) 60
CLR 336
[1938] HCA 34, cited
Commonwealth v Cornwell (2007) 229 CLR
519
[2007] HCA 16, cited
Dominic v Riz [2009] NSWCA 216,
cited
Featherstone v Ashala Model Agency Pty Ltd (in liq) [2018] 3 Qd
R 147
[2017] QCA
260, cited
GLJ v Trustees of Roman Catholic Church for Diocese of
Lismore (2023) 280 CLR 442
[2023] HCA 32, cited
Gorczynski v W &
FT Osmo Pty Ltd (2010) 77 NSWLR 62
[2010] NSWCA 163,
followed
Guirguis Pty Ltd v Michel’s Patisserie System Pty Ltd
Jadwan Pty Ltd v Rae & Partners (A Firm) [2020] FCAFC 62,
cited
Jones v Dunkel (1959) 101 CLR 298
[1959] HCA 8,
cited
Segal (t/a Segal Litton & Chilton) v Fleming [2002] NSWCA
262, cited
Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642,
cited
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
[1992] HCA 55, cited
Watson v Foxman [1995] NSWCA 497
(1995) 49 NSWLR 315,
cited
Winnote Pty Ltd (in liq) v Page (2006) 68 NSWLR 531
[2006]
NSWCA 287, cited
Judgment (112 paragraphs)
[1]
LIMITATION OF ACTIONS - LIMITATION OF PARTICULAR ACTIONS - SIMPLE CONTRACTS, QUASI-CONTRACTS AND TORTS - ACCRUAL OF CAUSE OF ACTION AND WHEN TIME BEGINS TO RUN - TORTS - ACTIONS AGAINST SOLICITORS - where the defendant acted for the former trustee ('Marks') of a trust ('KJM Trust') on the purchase of a residential unit - where the unit was purchased using the funds of a company ('Ashala') of which Marks was the sole director and shareholder, and whose shares were held on trust for a beneficiary ('Featherstone') of the KJM Trust - where Ashala leased commercial premises from Featherstone - where Ashala had not paid rent under its lease or lodged tax returns in two years before its funds were used to purchase the unit - where a liquidator appointed to Ashala later brought proceedings against Featherstone (who had replaced Marks as trustee of the KJM Trust) alleging that the payment of Ashala's funds to purchase the unit was an uncommercial transaction under the Corporations Act 2001 (Cth) - where judgment was given in favour of the liquidator and Featherstone was ordered to transfer the unit to Ashala - where Featherstone unsuccessfully appealed that judgment - where the current trustee of the KJM Trust alleged that the defendant was negligent in failing to attend to the preparation and lodging of Ashala's tax returns, in advising on the purchase of the unit and in relation to a later audit by the ATO - where the claimed loss comprised legal costs incurred by Featherstone in defending the liquidator's proceeding and the value of the unit - where the defendant alleged that the cause of action was time barred because Featherstone incurred the legal costs more than six years before the proceeding was commenced - where the plaintiff contended that the cause of action did not accrue until the appeal of the judgment in favour of the liquidator was dismissed - whether the cause of action was time barred
[1] The plaintiff (Mr Surman) brings this claim as trustee of the KJM Family Trust (KJM Trust). The KJM Trust was established in mid-2007 with Kristy Marks (Ms Marks) as its trustee and Darrell Featherstone (Mr Featherstone) and members of his family as beneficiaries. Ms Marks remained the trustee of the KJM Trust until 6 April 2011, when Mr Featherstone replaced her as trustee.
[2] Ms Marks was also, relevantly, the sole shareholder of a company called Ashala Modelling Agency Pty Ltd (Ashala) and, until 23 February 2007, the sole director of that company.
[3] The defendant (Gateway) was a firm of solicitors. Philip Leach was a principal of Gateway throughout the period which is the subject of Mr Surman's claims. Gateway's practice was conducted as a partnership between Mr Leach and Andrew Brown until October 2008, when Mr Brown retired from the partnership due to the onset of Alzheimer's disease. Mr Leach then conducted Gateway's practice in his own right as a sole practitioner until he ceased legal practice in July 2011.
[4] It is common ground that Gateway performed work involving Ashala and the KJM Trust:
[23]
(a) In mid-2005, Mr Leach drafted a deed by which Mr Featherstone "agreed to indemnify ... [Ashala] against all costs, claims and expenses that [Ashala] may be subject to" (Deed of Indemnity).
(b) In July 2007, Mr Leach prepared the documents which established the KJM Trust.
(c) In August 2007, Mr Leach acted on behalf of Ms Marks on her purchase, as trustee of the KJM Trust, of a residential unit located in Alice Street, Brisbane (the Alice Street unit). As described more fully below, the funds used to purchase the Alice Street unit were paid from Ashala's bank account.
[24]
[5] Gateway also accepts that, in 2009, Mr Leach provided advice to Mr Featherstone in respect of an audit by the Australian Taxation Office (ATO) of the tax affairs of Mr Featherstone, Mr Featherstone's daughter (Morgan) and Ms Marks.
[6] In 2012, a liquidator was appointed to Ashala. The liquidator brought proceedings against Mr Featherstone (who had by that time replaced Ms Marks as trustee of the KJM Trust) alleging that the payment of Ashala's funds to purchase the Alice Street unit was voidable as an uncommercial transaction. At the conclusion of those proceedings, Mr Featherstone was ordered to transfer the Alice Street unit to Ashala. Mr Surman alleges that if Gateway had given proper advice, Mr Featherstone, as trustee of the KJM Trust, could have avoided the cost of defending proceedings brought by the liquidator of Ashala and the loss of the Alice Street unit.
[7] Mr Surman claims that Gateway acted negligently in three respects:
[25]
(a) in failing to properly attend to the preparation and lodging of Ashala's tax returns;
(b) in advising Ms Marks, as trustee of the KJM Trust, in relation to the purchase of the Alice Street unit; and
(c) in advising Ms Marks, as trustee of the KJM Trust, with respect to the ATO audit.
[26]
[8] In defending Mr Surman's claims, Gateway submits that any cause of action in negligence is statute barred. Further, Gateway denies that it was engaged to prepare and lodge Ashala's tax returns. It disputes the scope of its retainer in relation to the purchase of the Alice Street unit. It also disputes the scope of the retainer to provide advice with respect to the ATO audit. Finally, it submits that the evidence adduced by Mr Surman is not sufficient to establish a breach of any duty it owed to the trustee of the KJM Trust, or that any breach of duty caused the loss claimed by Mr Surman.
[9] In that context, the issues for determination are:
[27]
(a) Is the claim statute-barred?
(b) If the claim is not statute-barred:
(i) Was Gateway retained to prepare and lodge Ashala's tax returns?
(ii) What was the scope of the retainer concerning the purchase of the Alice Street unit?
(iii) What was the scope of the retainer concerning the ATO audit?
(iv) Having regard to the scope of those retainers, did Gateway breach its duty of care?
(v) Were the losses claimed by Mr Surman caused by a breach of Gateway's duty of care?
[28]
[10] From about September 2002 to May 2005, Mr Featherstone operated a model agency business from premises in Albert Street, Brisbane (the Albert Street premises). Ms Marks worked in Mr Featherstone's business from around the beginning of 2004.
[11] Mr Featherstone's evidence was that, by 2005, he had decided to sell his model agency business to pursue another business venture. His attempts to sell were not successful. He contemplated discontinuing the model agency business and leasing out the Albert Street premises. He was concerned, however, that the fit-out he had installed to accommodate the model agency business would be removed if he leased the premises on the open market. In those circumstances, Ms Marks approached him about running her own model agency business from the Albert Street premises. Mr Featherstone deposed that Ms Marks wished to incorporate a new company to run her business. Ashala was incorporated for that purpose. Mr Featherstone deposed that he and Ms Marks agreed she would hold all the shares in Ashala on trust for him. He explained this was to protect his financial interest in the Albert Street premises and allow him to quickly reclaim possession of those premises if Ms Marks' business was unsuccessful. In return, Mr Featherstone would provide the Deed of Indemnity in favour of Ashala.
[12] On 1 July 2005, Mr Featherstone agreed in writing to lease the Albert Street premises to Ashala for a term of three years. The agreed rent was $166,050 per annum, payable yearly in advance. Mr Featherstone executed the Deed of Indemnity in favour of Ashala on the same date.
[13] For two years after the lease of the Albert Street premises, Mr Featherstone did not request that Ashala pay the annual rent and no rent was paid. This position changed when Mr Featherstone decided to purchase the Alice Street unit. Mr Featherstone deposed that, after taking advice from Gateway, he and Ms Marks agreed at a meeting on 4 August 2007,[1] that Ashala would pay $460,000 as rent under the lease for the Albert Street premises. That amount would then be used to pay the purchase price for the Alice Street unit to be held by Ms Marks as trustee of the KJM Trust.
[14] The purchase of the Alice Street unit settled on 21 August 2007.
[15] Ashala had ceased trading by the end of 2007. Mr Featherstone attributes this to the impact of the Global Financial Crisis. The company was deregistered by the Australian Securities and Investment Commission () on 12 October 2008.
[29]
[19] An action in negligence (which is not an action in respect of personal injury) within 6 years from the date on which the cause of action arose.[4] Mr Surman commenced this proceeding on 24 April 2023. Accordingly, any negligence action that accrued before 24 April 2017 would be statute-barred.
[20] To show the existence of a completely constituted cause of action in negligence, a plaintiff must be able to show that a duty of care was owed to it by the defendant, the defendant breached that duty of care, and that breach of duty caused damage to the plaintiff. Accordingly, in the ordinary case, it is at the time that a plaintiff sustains damage that the cause of action arises for limitation purposes.[5]
[21] Where there is a claim for economic loss the cause of action does not arise until the plaintiff suffers actual damage; prospective loss is not sufficient.[6] A plaintiff who is exposed to a contingent loss or liability sustains no actual damage until the contingency is fulfilled.[7] However, once a plaintiff suffers actual damage then the cause of action accrues and time will commence to run under the relevant limitation period regardless of whether the plaintiff discovers, or could on reasonable inquiry have discovered, that such damage had been sustained.[8] Time will run even if, at the time the plaintiff first suffers actual damage, it would be difficult to assess the extent of that damage;[9] and even though substantial loss occurs at a later point in time as a consequence of the same breach.[10]
[22] A defendant bears the onus of establishing that actual and measurable loss first occurred before a date six years prior to the commencement of the proceeding.[11] However, the fact that a breach has caused actual loss of a measurable kind can sometimes be self-evident or clear beyond argument.[12]
[23] In this proceeding, Mr Surman pleads three breaches of duty by Gateway:
[30]
(a) failing to prepare tax returns and annual returns for Ashala and failing to lodge such returns with the ATO and ASIC;
(b) failing to exercise reasonable care and skill in advising Ms Marks about risks associated with using Ashala's funds to purchase the Alice Street unit;
(c) failing to exercise reasonable care and skill in advising Ms Marks in relation to the ATO audit and, more specifically, in failing to advise Ms Marks that she should re-register Ashala and cause it to pay its outstanding tax liabilities, rather than following the ATO's suggestion that she or Mr Featherstone should personally pay the tax liabilities of associated entities, including the outstanding tax liability of Ashala.
[31]
[24] Although three breaches are pleaded, Mr Surman only pleads that the third breach caused the trustee of the KJM Trust to suffer loss and damage.[13]
[25] The loss pleaded by Mr Surman includes legal costs and expenses in the amount of $158,351.85. He pleads that the trustee of the KJM Trust incurred and paid those costs in defending proceedings brought by the liquidator of Ashala. The further and better particulars of the statement of claim state that these costs comprised the following payments:
[32]
(a) $2,200.00 paid to Mr Dietz of Counsel;
(b) $815.10 paid to Stockley Furlong Lawyers;
(c) $42,570.14 paid to HWL Ebsworth Lawyers;
(d) $35,000 paid as security for costs of the appeal against the judgment of Jackson J ordering the transfer of the Alice Street unit to Ashala;
(e) $24,821.35 paid to Lillas Loel Lawyers;
(f) $53,000 paid to Irish Bentley Lawyers.
[33]
[26] The evidence establishes that Mr Featherstone, as trustee of the KJM Trust:
[34]
(a) incurred the obligation to pay costs to his own legal representatives on the following dates:
(i) 11 October 2012, in respect of the payment referred to at [25](a) above;
(ii) 16 October 2012, in respect of the payment referred to at [25](b) above;
(iii) between 30 November 2015 and about June 2016, in respect of the payments referred to at [25](c[14] above;14
(iv) between 12 April 2016 and 30 March 2017 in respect if the payments referred to at [25](e) above;
(b) was ordered to pay the amount of $35,000.00 as security for costs of his appeal against the judgment of Jackson J, referred to at [25](d) above, in three tranches as follows:
(i) $15,000 on or before 19 August 2016;
(ii) $10,000 on or before 9 September 2016;
(iii) $10,000 on or before 7 October 2016;
(c) on 16 December 2016, was ordered by Jackson J to pay the liquidator's costs of the proceeding against him.[15]
[35]
[27] Mr Surman did not suggest that Mr Featherstone had not paid the costs invoiced by his own legal representatives. To the contrary, trust account statements issued by Mr Featherstone's solicitors establish the fact of payment of most of those costs. Where the fact of payment was not proved directly by the documentary evidence, I infer that Mr Featherstone paid those costs in satisfaction of the payment obligation he incurred.
[28] The $35,000.00 that Mr Featherstone paid as security for costs for his appeal was subsequently paid out to the liquidator after the appeal was dismissed.
[29] As to the liquidator's costs that Jackson J ordered Mr Featherstone to pay, the evidence included two tax invoices issued by Ashala to Mr Featherstone on 13 November 2018, for a total sum of $53,000.00 which included the notation "Payment of agreed legal costs". During cross-examination, Mr Featherstone accepted that those documents evidenced the payments made to satisfy the costs order made by Jackson J.[16]
[30] Gateway submits that this evidence of Mr Featherstone having incurred and paid substantial legal costs before 24 April 2017 compels the conclusion that any cause of action against it in negligence is statute barred.
[31] In support of that submission, Gateway relies on the decision of the New South Wales Court of Appeal in Gorczynski v W & F T Osmo Pty Ltd.[17] That case involved the appeal of a decision to refuse leave to a plaintiff to commence proceedings against an insurer in respect of loss suffered by reason of the negligence of a firm of engineers. The plaintiff claimed that the engineers owed him a duty of care when providing certificates to the local council. The certificates concerned construction works undertaken on a building on a neighbouring property which was attached to a building on the plaintiff's property.
[32] The loss the plaintiff sought to claim was constituted by costs he incurred in commencing and prosecuting proceedings against his neighbours and the council for the purpose of obtaining an order that the building work, the subject of the certificates, be demolished. The plaintiff incurred some of those legal costs more than six years before he commenced his claim. One of the grounds the insurer relied on to oppose the grant of leave for the plaintiff to proceed directly against it was that the plaintiff's claim against the engineers was statute barred.
[36]
The duty and standard of care imposed on solicitors
[37]
[38] Solicitors owe a duty of care to their clients to have and to exercise a degree of skill and care that is to be expected of persons professing and practicing in their area of expertise. The standard of care is the standard appropriate to a member of the profession with the relevant specialist skills.[19]
[39] The limits on a solicitor's duty to advise has been the subject of differing analysis in the authorities over time. It was once thought that the duty to advise was limited by the terms of the retainer from the client. The solicitor was said to have no obligation to give advice going beyond the specifically agreed task or function he or she had been retained to perform. Later decisions held that what was described as a "penumbral" duty to advise might exist in relation to matters that were not directly within the ambit of the retainer from the client.[20] Since that time the existence of such a "penumbral" duty has been doubted.[21] Nevertheless, courts continue to recognise the possibility that a solicitor's performance of his or her retainer, and what he or she learns during the performance of that retainer, may require that the solicitor not only undertake the specific function specified in the retainer but also provide advice about risks which have come to the attention of the solicitor.[22] What reasonable care requires a solicitor to do in performing his or her retainer must be determined based on facts of the particular case.[23]
[38]
[40] Mr Featherstone and Mr Leach have given conflicting accounts of the relevant instructions.
[41] In Watson v Foxman,[24] McLelland CJ in Eq observed that it was a matter of experience that memory of what was said in a conversation is fallible for a variety of reasons. The degree of fallibility ordinarily increases with the passage of time, "particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as consciousness consideration of what should have been said or could have been said."
[42] It is for this reason that courts endeavour to test the veracity of a witness' testimony by reference to objective facts proved independently of that testimony, particularly by reference to contemporaneous documents. Consideration should be given to a witness' motives, the apparent logic of events and the overall probabilities.[25]
[43] In GLJ v Trustees of the Roman Catholic Church for the Diocese of Lismore,[26] Kiefel CJ, Gageler and Jagot JJ stated:
[39]
"A court is not bound to accept uncontradicted evidence. Uncontradicted evidence may not be accepted for any number of reasons including its inherent implausibility, its objective likelihood given other evidence, or the trier of fact simply not reaching the state of 'actual persuasion' which is required before a fact may be found. ..."
[40]
before extracting the statement by Dixon CJ in Jones v Dunkel,[27] that the law:
[41]
"does not authorise a court to choose between guesses, where the possibilities are not unlimited, on the ground that one guess seems more likely than another or the others. The facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied."
[42]
[44] Their Honours' reference to the state of "actual persuasion" was a reference to the adoption by Dixon J (as his Honour then was) of Professor Wigmore's statement defining the civil standard of proof in Briginshaw v Briginshaw,[28] including the statement that:
[43]
"... when the law requires proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality."
[44]
[45] This means that each element of a cause of action must be proved to the reasonable satisfaction of the court, with the court feeling an actual persuasion of its occurrence or existence.[29]
[45]
Was Gateway retained to prepare and lodge Ashala's tax returns?
[46]
[46] There is no dispute that, in the period Mr Brown carried on the legal practice of Gateway in partnership with Mr Leach, Mr Brown also carried on practice as a registered tax agent.
[47] Mr Surman alleges that, by an oral agreement made on or about 1 July 2005, Gateway (by Mr Brown and Mr Leach) agreed to act as solicitors for Ashala. The particulars of that allegation state that Ms Marks requested that Gateway undertake all taxation compliance tasks on behalf of Ashala, including preparing and filing its tax returns with the ATO; and that Gateway (by Mr Brown) agreed to perform that work for Ashala. As already noted, Gateway denies that it was engaged to perform this work.
[47]
[48] Mr Brown did not give evidence. As explained above, it is common ground that Mr Brown retired from practice in October 2008 due to the onset of Alzheimer's disease.[30]
[49] Ms Marks also did not give evidence. Mr Surman's written opening statement stated that he would call Ms Marks to give evidence in support of his claims. However, when the trial commenced, he explained that he could not afford to pay her travel and accommodation costs. Those costs might have been avoided if Mr Surman had applied for leave for Ms Marks to give evidence by telephone or audio-visual link. Mr Surman (who represented himself with the assistance of Mr Featherstone) did not apply for such leave.
[50] Accordingly, there was no evidence led from either of the persons alleged by Mr Surman to have formed the agreement that Gateway would prepare and lodge Ashala's tax returns. There was also no documentary evidence of the existence or terms of the alleged retainer.
[51] Such evidence as there was concerning this aspect of Mr Surman's claim came from Mr Featherstone and Mr Leach.
[52] Mr Featherstone deposed that he was present at a meeting held at Gateway's offices in approximately June 2005 between Ms Marks (on behalf of Ashala) and both Mr Leach and Mr Brown. He stated that Mr Brown agreed that Gateway would undertake all taxation compliance tasks Ashala was required to complete, including the preparation and lodging of tax returns.
[53] Mr Featherstone further deposed that Ms Marks asked him to speak to Gateway on her behalf many times during the 2005/06 and 2006/07 financial years, including about a tax return for the 2005/06 financial year that was due to be lodged by February 2007. He deposed in general terms to having attempted to speak to Mr Brown on several occasions about Ms Marks' concerns, but that Mr Brown rarely returned telephone calls. He stated that when he was able to speak to Mr Brown, he was told that everything was under control and given excuses as to why the matter in issue had not been completed. He deposed that he did not consider the issues raised by Ms Marks to be his problem, so he did not pay too much attention to them. That is consistent with his statement during cross-examination, that:[31]
[48]
"... in relation to things like tax returns, owing, or whatever, it - it's just something I didn't want to turn - turn my mind to. I - I presumed that it would get done at a certain point, but it wasn't my responsibility, and I wasn't concerned about it."
[49]
[54] Finally, Mr Featherstone deposed that, during a meeting between himself, Ms Marks and Mr Leach on 3 June 2007, Mr Leach telephoned Mr Brown in Mr Featherstone's presence. During that telephone call Mr Brown advised that he had completed Ashala's tax return for the 2005/06 financial year and would soon lodge that return with the ATO.
[55] Mr Leach deposed that Mr Brown generally performed simple tax returns for individual clients. He stated that he has no recollection of Gateway being retained to perform taxation compliance tasks on behalf of Mr Featherstone, Ms Marks or Ashala. He also has no recollection of being telephoned by Mr Featherstone or Ms Marks regarding outstanding tax compliance tasks.
[56] In his written closing submissions, Mr Surman also placed significant emphasis on an email which Mr Leach sent to his professional indemnity insurer, Lexon, on 15 February 2017 concerning Mr Featherstone's appeal from the decision of Jackson J. In that email, Mr Leach stated:
[50]
"... at the time of this matter taking place my then firm's insurance policy was held for the benefit of myself and Andrew Brown. Both of us were involved in this matter."
[51]
[57] Mr Leach sent that email after he had received a copy of a letter which Lexon had sent to Mr Leach's bankruptcy trustee, advising that Lexon had received a demand from Mr Featherstone and asking whether the bankruptcy trustee would proceed to notify a claim for indemnity under the insurance policy in respect of that demand.
[58] When Mr Leach was taken to the email in cross-examination, the following exchange occurred:
[52]
"Okay. Thank you. So it appears that Mr - based on that [email], it appears that Mr Brown was involved in this matter and you may have forgotten; is that possible?---Mr Brown was a partner of mine in that law firm from February 1998 through to October 2008, so yes."
[53]
[59] Mr Surman also gave evidence that he and Mr Featherstone met Mr Leach at Gateway's offices in about August 2009. Mr Surman recalled that meeting occurred straight after Mr Surman had been interviewed by the ATO during the audit of Mr Featherstone and Ms Marks. Mr Surman's evidence about what occurred at that meeting generally concerned discussion about the ATO audit (addressed below). However, Mr Surman also stated that he recalled Mr Leach saying at the meeting that Mr Brown was no longer working with Mr Leach because of illness, and that Mr Brown had caused all the ATO problems by not lodging Ashala's tax return.
[54]
[60] The evidence of Mr Featherstone and Mr Leach might be reconciled on the basis that the agreement was reached at a meeting in about June 2005, as Mr Featherstone deposed to, but Mr Leach no longer has any memory of that meeting. I am not persuaded, however, that is a sufficient reason to accept Mr Featherstone's evidence about the formation of the alleged retainer in the absence of evidence from Ms Marks, or from any contemporaneous documents, which corroborates Mr Featherstone's account.
[61] It is surprising that Mr Featherstone can recall a discussion between Ms Marks and Mr Brown more than 20 years ago concerning Ashala's tax affairs, particularly when he says that subject was not a matter of concern to him at the time.
[62] It is also relevant that Mr Featherstone deposed to having expended more than $760,000 in relation to the Alice Street unit and to having "absolutely nothing to show for it" after the transfer to Ashala pursuant to the judgment of Jackson J. By this proceeding, Mr Surman seeks to recover part of that lost expenditure from Gateway. Given the effect which Ashala's failure to comply with its tax obligations (and Mr Featherstone's knowledge of that state of affairs) had on the company's solvency and on the resulting decision of Jackson J to order the transfer of the Alice Street unit to Ashala,[32] and the unsuccessful appeal from that decision,[33] it is now plainly in Mr Featherstone's interests to attribute blame for the lack of attention to Ashala's tax affairs to Mr Brown and Gateway.
[63] As to Mr Leach's email to his professional indemnity insurer, Mr Surman submits that the only reason that Mr Leach would tell the professional indemnity insurer that Mr Brown was "involved in this matter" was because Mr Brown was involved in Ashala's tax affairs (it being common ground that Mr Brown had left the firm before the ATO audit commenced). That is, Mr Surman relies upon the email as an admission by Mr Leach that Gateway (by Mr Brown) had been engaged to perform the work necessary to ensure that Ashala complied with its obligations.
[64] I do not accept that the email should be read in that way. I consider that the "involvement" Mr Leach was referring to was Mr Brown's potential exposure, by reason of his position as a partner in Gateway, to liability in respect of the demand Mr Featherstone had sent to Lexon. That reading is consistent with the reference in the email to the insurance policy being held for Mr Brown's benefit as well as Mr Leach. It is also consistent with Mr Leach's reference to Mr Brown's position as a partner in Gateway when he was asked about the email in cross-examination. I do not accept that Mr Leach's statement in the email to Lexon corroborates Mr Featherstone's account of the formation of the alleged retainer.
[55]
What was the scope of Gateway's retainer with respect to the purchase of the Alice Street unit?
[56]
[67] Mr Featherstone deposed that, on 3 June 2007, Mr Leach agreed on behalf of Gateway, to act for Mr Featherstone and Ms Marks in their personal capacities and in relation to their involvement with the KJM Trust. Mr Featherstone stated that he asked Mr Leach to advise as to any issues that might adversely affect the proposed purchase of the Alice Street unit so that he could consider any exposure to risk and then take all necessary steps to ensure the unit was protected. He deposed that Mr Leach advised that the Alice Street unit should be purchased through a discretionary trust and that this trust should remain separate from any business activity.
[68] Most relevantly, Mr Featherstone deposed that he specifically asked Mr Leach to advise about any adverse issues that might affect the proposed acquisition of the Alice Street unit where funds from Ashala's account would be used for the purchase, representing payment of the rent Ashala owed, but had not paid, under its lease of the Albert Street premises.
[69] Mr Featherstone deposed that after the discussion on 3 June 2007, he instructed Mr Leach to prepare documents to establish what became the KJM Trust and undertake the conveyance of the Alice Street unit to Ms Marks as trustee of that trust. Mr Leach subsequently performed the work required to establish the KJM Trust with Ms Marks as trustee and acted on the conveyance of the Alice Street unit.
[70] Mr Leach deposed that he was engaged by Mr Featherstone in July 2007 to establish the KJM Trust with Ms Marks as trustee. He was informed that the reason for establishing the KJM Trust was that Mr Featherstone wished to purchase the Alice Street unit for his own use, but did not want his name to appear on any public registers, including the Titles Office, as the owner of any assets. Mr Leach stated that Mr Featherstone also instructed him to act on the conveyance of the Alice Street unit.
[71] Mr Leach said that he could not recall being asked by Mr Featherstone to provide advice on any issues that may adversely affect the Alice Street unit, or of any steps that might be taken to protect the unit, other than to use the discretionary trust structure. He deposed that he was not informed by Mr Featherstone, or Ms Marks, (and that he otherwise had no other reason during the course of the conveyance to put him on inquiry) that Ashala was funding the purchase of the Alice Street unit; about any consequences as to Ashala's insolvency, or that Ashala had failed to pay tax in the years preceding the purchase of the Alice Street unit.
[57]
[74] Mr Surman submits that, in seeking to resolve the conflicting evidence given by Mr Featherstone and Mr Leach, I should be satisfied that Mr Featherstone gave the instructions as described at [67] and [68] above. He submits that Mr Featherstone's account of his instructions is more probable than Mr Leach's account because it is objectively likely that, in circumstances where (on Mr Surman's case) Gateway had failed to properly attend to the preparation and lodgement of Ashala's tax returns, Mr Featherstone would consider it appropriate to inform Mr Leach of the source of the payment to purchase the Alice Street unit.
[75] There are two difficulties with that submission. First, as set out above, I am not satisfied that Gateway was retained to prepare and lodge Ashala's tax returns. Absent such a retainer, there would be no reason for Mr Featherstone to expect that Mr Leach was aware that Ashala had outstanding tax liabilities. Secondly, the submission does not sit comfortably with Mr Featherstone's evidence in cross-examination that he knew, after the Alice Street unit was purchased, the funds in Ashala's bank account were reduced to approximately $3,000, and that Ashala had unpaid tax liabilities for 2005 and 2006. Mr Featherstone said that this "wasn't a big deal"[34] at the time. This description of the non-payment of Ashala's tax liabilities as "not a big deal" undermines the submission that this circumstance would have caused him to tell Mr Leach that Ashala's funds were being used to purchase the Alice Street unit.
[76] Against Mr Surman's argument, Gateway submits that there are good reasons why Mr Featherstone would not have told Mr Leach that he intended to use Ashala's funds to purchase the Alice Street unit. In cross-examination, Mr Featherstone accepted that when he entered into the lease of the Albert Street premises to Ashala and the Deed of Indemnity, he appreciated that the rent due under the lease to Ashala was covered by the Deed of Indemnity.[35] Gateway submits this demonstrates that, considered objectively, Mr Featherstone was prepared to breach the indemnity he provided to Ashala by taking its funds for his personal benefit in circumstances where there is no evidence of any other source of funds available to purchase the Alice Street unit.
[58]
What was the scope of the retainer with respect to the ATO audit?
[59]
[80] Mr Featherstone's evidence on this issue was as follows:
[60]
(a) On 18 August 2009, the ATO contacted him by telephone and informed him that an audit had been commenced against him and all entities associated with him, including the KJM Trust and Ashala. The ATO recommended that he seek legal advice and then confirm whether he would be prepared to be formally interviewed by the ATO. The ATO told him that, as part of any interview, he would be requested to provide the details of the purchase of the Alice Street unit, where the funds used to purchase the Alice Street unit came from and an explanation of the circumstances of the purchase.
(b) He attended Gateway's offices on 19 August 2009 and met with Mr Leach, together with Ms Marks. Mr Leach advised him (and Ms Marks) that they should comply with any lawful direction given by the ATO in relation to the audit.
(c) He then attended the ATO office at Mt Gravatt on the afternoon of 19 August 2009 where the ATO provided him with a confirmation of audit letter. He informed a taxation officer named Siobhan Heilbronn that both he and Ms Marks agreed to be formally interviewed. Those interviews were conducted on several occasions over the following two weeks.
(d) During the ATO interviews Ms Heilbronn requested an explanation as to why Ashala had not complied with its tax obligations, as well as confirmation of the source of funds used to purchase the Alice Street unit. In response, he explained that Ashala's non-compliance was the result of Mr Brown failing to lodge tax returns on time but confirmed to Ms Heilbronn that he would ensure tax returns were finalised and that any amount Ashala owed to the ATO would be immediately paid. He told Ms Heilbronn that the funds used to purchase the Alice Street unit had come from Ashala's bank account.
(e) During an interview on 3 September 2009, Ms Heilbronn informed him that although the ATO had power to apply to a court to reregister Ashala, the ATO preferred not to do so. Ms Heilbronn stated that the audit would be satisfactorily finalised if outstanding personal income tax returns for him, Ms Marks and Morgan were lodged with the ATO, and tax paid in accordance with the ATO's assessment of those returns, based on all net income earned by any entities associated with him and Ms Marks (including Ashala). Ms Heilbronn recommended that he and Ms Marks seek further legal advice before agreeing to the ATO's proposal.
[61]
Featherstone: Are you positive that lodging these returns in our personal names and paying the amounts will definitely ensure that the unit is protected?
[62]
Leach: Definitely. The ATO won't come after you once you have paid the money because you have fully cooperated. If there is ever any problem in the future, you could just subpoena the officer you dealt with to get the full story out. There's nothing to worry about.
[63]
Featherstone: Are you positive that we shouldn't get Ashala Model Agency Pty Ltd re-registered and pay the money through the company?
[64]
Leach: Definitely not. That could just irritate them and make this situation worse. Everyone is being nice and getting along at the moment so keep it that way. Just make sure you pay the money owing on the tax returns straight away.
[65]
(l) The tax returns were lodged and the ATO issued notices of assessment. He paid the tax assessed on those returns. The ATO then provided a letter to him, and to Ms Marks, stating that the audit had been finalised and no further action would be taken.
[66]
(a) In mid to late 2009, Mr Featherstone informed him that the ATO was auditing the personal tax affairs of Mr Featherstone, Ms Marks and Morgan. Mr Featherstone told him that Mr Featherstone, Ms Marks and Morgan had not filed tax returns or paid tax for a number of years.
(b) Mr Featherstone said the ATO had proposed that if Mr Featherstone, Ms Marks and Morgan remitted tax in certain amounts (which he could no longer recall) then as far as the ATO was concerned that would settle the debts owed by them personally and entities associated with them that the ATO had investigated. The ATO did not want the natural persons involved in the audit to reregister entities that had been deregistered for the purpose of making separate remittances on behalf of those deregistered entities.
(c) To the best of his recollection, Mr Featherstone did not mention Ashala specifically. Mr Featherstone did not inform him (and he was not otherwise aware) that Ashala had been deregistered. Mr Featherstone did not specifically mention the Alice Street unit or a need to "protect" that unit. He was aware that other real property assets were held by trusts associated with Mr Featherstone.
(d) Mr Featherstone did not inform him then (or at any time) that Ashala's funds had been used to purchase the Alice Street unit. The settlement proceeds were drawn by bank cheque. He only became aware later, from the decisions of Jackson J and the Court of Appeal in the liquidator's proceeding, that Mr Featherstone or Ms Marks had caused Ashala to pay the purchase price.
(e) He advised Mr Featherstone that if the ATO had established that Mr Featherstone, Ms Marks and Morgan owed tax, on a personal basis, in the amounts raised by the ATO in the audit interviews then, unless there was some basis to challenge that, the necessary personal returns would need to be lodged and paid as soon as possible.
(f) He told Mr Featherstone that if the ATO had advised that lodging of returns and remittance of tax by the audited individuals would satisfy the ATO and no further action would be taken, then it was a sensible and practical position to take to follow their advice.
(g) Mr Featherstone subsequently presented him with the Confirmation Letter to sign. He no longer recalled signing the Confirmation Letter but accepted that it appears to bear his signature.
[67]
[82] Mr Surman's evidence challenged Mr Leach's assertion that he only became aware that the Alice Street unit had been purchased with Ashala's funds from the judgments handed down in the liquidator's proceeding. Mr Surman stated that Mr Featherstone and Mr Leach discussed that matter at the meeting at Gateway's offices after he had been interviewed by the ATO (see [59] above), and that he had "heard them discuss it many, many times since and prior to the Court of Appeal finding." Mr Surman stated that he had attended many meetings with Mr Leach and Mr Featherstone regarding various court proceedings over a five-year period before the Court of Appeal decision was handed down. He said the following issues were always raised and discussed at those meetings:
[68]
(a) The Alice Street unit had been lost due to Mr Leach telling Mr Featherstone to pay the money to the ATO in the way it was paid rather than having them reregister Ashala. Mr Leach would always state that he should have made the ATO reregister Ashala.
(b) ATO officers cannot be subpoenaed to give evidence. Mr Leach would always state that if he had been aware of that then he would have insisted that Ashala be reregistered.
[69]
[83] The Confirmation Letter which Mr Featherstone prepared for Mr Leach to sign was in the following terms:
[70]
"I refer to our previous conversations in relation to an audit being conducted by the Australian Taxation Office on myself and Kristy Marks.
[71]
I confirm your advice to me that, rather than re-registering various companies, that Kristy and I are to lodge our outstanding personal tax returns and pay any tax taking into account the tax obligations of all entities to the satisfaction of the Australian Taxation Office.
[72]
By following the above you confirm that it will satisfy any money owing to the Australian Taxation Office by either of us personally or any companies referred to through the audit which will in turn protect any assets Kristy and I may own in either our own names or on behalf of any Trusts.
[73]
By counter-signing this letter you agree that you confirm the contents of this letter as your advice to me."
[74]
[84] From the accounts of Mr Featherstone and Mr Leach, and the terms of the Confirmation Letter, I am satisfied of the following facts:
[75]
(a) Mr Featherstone informed Mr Leach of the ATO proposal to finalise the audit - namely that tax found to be owing would be paid through the lodgement of personal tax returns and remittance of tax in accordance with those returns, with the ATO not requiring associated companies which had been deregistered to be reregistered to remit outstanding tax;
(b) Mr Featherstone sought confirmation from Mr Leach that compliance with the ATO proposal would satisfy the tax obligations of himself and Ms Marks and any associated companies referred to by the ATO during the audit and protect assets which he or Ms Marks might own personally or on trust;
(c) Mr Leach provided advice which caused Mr Featherstone to follow the course proposed by the ATO including, as stated in the Confirmation Letter, by confirming that acting in accordance with the ATO proposal would satisfy the relevant tax obligations and protect any assets held by Mr Featherstone or Ms Marks.
[76]
[85] The critical difference between the accounts of Mr Featherstone and Mr Leach is whether Mr Featherstone mentioned matters which would have raised the need for Mr Leach to warn Mr Featherstone of the risk that compliance with the ATO proposal might not avoid the events which transpired. That is, whether Mr Leach became subject to a duty to warn Mr Featherstone that, even if Mr Featherstone paid the tax in the amount and manner sought by the ATO following the audit: the ATO might subsequently alter its stated position that such payment would satisfy the outstanding tax liabilities of deregistered companies such as Ashala; that Ashala might be reregistered and a liquidator might be appointed to it; that a liquidator might successfully challenge the payment of Ashala's funds to purchase the Alice Street unit; that the trustee of the KJM Trust might be ordered to transfer the Alice Street unit to a liquidator of Ashala.
[86] To be subject to a duty to provide such a warning, Mr Leach would have had to have known or been informed of the following matters when Mr Featherstone sought advice on the ATO proposal:
[77]
(a) Ashala was one of the deregistered companies that the ATO had referred to or investigated during the audit;
(b) prior to its deregistration, Ashala owed outstanding tax obligations to the ATO;
(c) the trustee of the KJM Trust had used Ashala's funds to purchase the Alice Street unit;
(d) as a consequence of using Ashala's funds to purchase the Alice Street unit, Ashala was unable to pay its outstanding tax obligations and became (or at the least was at risk of becoming) insolvent.
[78]
[87] As with Mr Featherstone's account of his instructions to Mr Leach in June 2007 when the Alice Street unit was purchased (see [78]-[79] above), I am not persuaded that Mr Featherstone's account is an accurate description of what he said to Mr Leach when he sought advice on the ATO proposal. In particular, I do not accept that Mr Leach told Mr Featherstone that the Alice Street unit "would be safe" if he paid tax assessed on the proposed individual tax returns (see [80](j) above) or that the two of them had a conversation to the effect set out at [80](k) above. Given the events which transpired in the years after the ATO audit leading to the loss of the Alice Street unit, Mr Featherstone's account of that conversation strikes me as entirely self-serving.
[88] I am not persuaded that Mr Featherstone raised with Mr Leach the need to ensure that the Alice Street unit was protected, as distinct from a more general concern about protecting unspecified assets. If protecting the Alice Street unit was Mr Featherstone's primary concern, and he specifically raised that concern with Mr Leach, I would expect him to have recorded that in the Confirmation Letter. He did not do so. The language used in the Confirmation Letter reflects only a general concern to protect "any" (unspecified) assets that either Mr Featherstone or Ms Marks "may" own, in either of their personal capacities or as trustees. That general reference does not support Mr Featherstone's evidence that he sought Mr Leach's advice about protecting the Alice Street unit specifically.
[89] The words used in the Confirmation Letter also do not support Mr Featherstone's assertion that he asked Mr Leach whether Ashala (specifically) should be reregistered. In the Confirmation Letter, Mr Featherstone talked in general terms about "re-registering various companies", and about compliance with the ATO proposal satisfying any money owed to the ATO by "any companies referred to through the audit". Again, if Mr Featherstone had asked Mr Leach whether Ashala should be reregistered (whether because its funds were used to purchase the Alice Street unit or the fact that it did not pay tax before it was deregistered) I would expect Mr Featherstone to have referred to the company specifically in the Confirmation Letter.
[79]
Did Gateway breach its duty of care to the trustee of the KJM Trust?
[80]
[92] As I would not have been satisfied that Gateway was retained to prepare and lodge tax returns for Ashala, it follows that I would also not have been satisfied that Gateway breached any duty of care in that respect.
[93] As I would not have been satisfied that Gateway's retainer in respect of the Alice Street unit extended beyond establishing the KJM Trust and acting for Ms Marks as trustee of that trust on the purchase of the Alice Street unit, it follows that I also would not have been satisfied that Gateway breached its duty of care by failing to provide advice about risks associated with using Ashala's funds to purchase the Alice Street unit.
[94] As I would not have been satisfied that Gateway's duty to take reasonable care in advising about the ATO proposal required it to warn about a risk that compliance with that proposal might still see the trustee of the KJM Trust lose the Alice Street unit, it follows that I would also not have been satisfied that Gateway breached any duty of care by failing to advise that (contrary to the ATO proposal) Ashala should be reregistered, lodge its own tax returns and pay its outstanding tax obligations.
[81]
Were the losses claimed by Mr Surman caused by a breach of Gateway's duty of care?
[82]
[95] Given the conclusions I would have reached on the questions of duty of care and breach as explained above, it further follows that if I had not found that Mr Surman's claim is statute barred, I would not have been satisfied that any breach of duty by Gateway caused the loss claimed by Mr Surman.
[83]
[96] For the reasons set out at [19]-[36] above, Mr Surman's claim is statute barred and must be dismissed.
[97] I will hear the parties as to costs.
[84]
[1] Mr Featherstone did not explain in his evidence why Ms Marks would make such an agreement on behalf of Ashala at a time when (as admitted on the pleadings) she was no longer a director of the company. By 4 August 2007, the sole director of Ashala was a Mr Mal Marshall. Mr Featherstone did not mention Mr Marshall in his evidence.
[12]Winnote, 542 [59] citing Wardley, 528 and D W Moore & Co Ltd v Ferrier[1988] 1 WLR 267, 279.
[94]
[13] Statement of claim filed 24 April 2023 (Court document 1), paragraphs 19 and 20.
[95]
[14] The copy of the second page of the Trust Account Statement evidencing these payments obscures the date the final payment was made, however, the statement records the closing balance of the trust account as at 30 June 2016 as nil.
[96]
[15]Ashala Model Agency Pty Ltd (in liq) v Featherstone (No 2)[2016] QSC 300.
[30] When Mr Leach was cross-examined, he said he understood that Mr Brown had since passed away although there was no direct evidence of that fact.
[110]
[32]Ashala Model Agency Pty Ltd (in liq) v Featherstone[2016] QSC 121; [2017] 2 Qd R 1, 10 [58], 11-16 [78]-[105], 31-32 [177]-[180].
[111]
[33]Featherstone v Ashala Model Agency Pty Ltd (in liq)[2017] QCA 260; [2018] 3 Qd R 147, 156 [24], 167 [76], 170 [88]-[90], 172 [96], 176-177 [129]-[132].
[112]
[37] The contents of the Confirmation Letter are set out below.
Parties
Applicant/Plaintiff:
Surman
Respondent/Defendant:
Gateway Lawyers
Legislation Cited (1)
Actions Act 1974
Cases Cited (13)
(2016) 257 CLR 440
(1938) 60 CLR 336
(2007) 229 CLR 519
(2023) 280 CLR 442
(2010) 77 NSWLR 62
(1988) 164 CLR 539
(2000) 51 NSWLR 1
(2004) 217 CLR 640
(1959) 101 CLR 298
(1989) 18 NSWLR 642
(1992) 175 CLR 514
(1995) 49 NSWLR 315
(2006) 68 NSWLR 531
ASIC
[16] As already observed, the ATO audit commenced in 2009.
[17] On 24 July 2012, by orders of this court, Ashala was reinstated and put into liquidation. The liquidator brought proceedings in this court against Mr Featherstone as trustee of the KJM Trust.[2] As noted above, in 2016, at the conclusion of those proceedings, Jackson J held that Ashala's payment of the purchase price for the Alice Street unit was an uncommercial transaction. His Honour made orders which required that Mr Featherstone, as trustee of the KJM Trust, transfer the Alice Street unit to Ashala.
[18] Mr Featherstone appealed the judgment of Jackson J. That judgment, including the order that Mr Featherstone transfer the Alice Street unit to Ashala, was stayed pending the determination of the appeal. The appeal was dismissed on 3 November 2017.[3] Following that dismissal, Mr Featherstone transferred the Alice Street unit to Ashala pursuant to the orders made by Jackson J.
[33] At trial and on appeal, the plaintiff argued that the characterisation of a liability to pay legal costs in a litigious matter as "a loss" was contingent upon the making of orders for the recovery of costs. On that argument, no actual loss was sustained by reason of the client's liability to pay his or her solicitor's costs where the payment of such costs was potentially contingent upon the making of costs orders in the client's favour. Tobias JA (with whom Giles and McColl JJA agreed) rejected that argument.[18] His Honour held that the questions whether the plaintiff obtained a costs order in his favour, and was able to recover costs from third parties, went only to the ultimate quantification of the plaintiff's loss. It did not alter the fact that the plaintiff sustained a measurable loss by incurring the obligation to pay his legal costs and paying those costs. In circumstances where the plaintiff had first incurred such costs more than six years before he filed his claim against the engineers, that claim was statute barred.
[34] In response to Gateway's assertion that the claim against it is statute barred, Mr Surman relies on the fact that Mr Featherstone appealed the judgment of Jackson J and was granted a stay of that judgment pending the determination of the appeal. He submits that the granting of the stay "eliminated" any cause of action held by the trustee of the KJM Trust until the Court of Appeal delivered its judgment on 3 November 2017. On that basis, the limitation period did not expire until 3 November 2023; after he had commenced this proceeding. Mr Surman submits that no cause of action arose in respect of the legal costs Mr Featherstone incurred in defending the proceeding brought by the liquidator of Ashala until the appeal of Jackson J's judgment had been determined. That is because the costs relate to the alleged negligence of Gateway, which could not be established until the Court of Appeal's decision was handed down.
[35] I do not accept Mr Surman's submissions. As explained at [20] above, to succeed in his negligence claim, Mr Surman would be required to establish that Gateway owed a duty of care to the trustee of the KJM Trust, that it breached this duty, and that the trustee suffered actual damage because of the breach. Proof of the elements of the cause of action was not contingent on the decision of the Court of Appeal. As regards the claim to recover legal costs, a successful outcome on appeal would not have meant that Mr Featherstone suffered no loss by reason of the third alleged breach of duty by Gateway. The making of costs orders in Mr Featherstone's favour following a successful appeal would have changed the ultimate quantification of the loss, but, consistently with the reasoning in Gorczynski (which I agree with), it would not alter the fact that the trustee suffered loss when those legal costs were incurred and paid.
[36] I am satisfied on the evidence that Mr Featherstone (as trustee of the KJM Trust) incurred and paid legal costs before 24 April 2017. I am further satisfied that by incurring the obligation to pay, and in fact paying, those legal costs, Mr Featherstone sustained a measurable loss. Mr Surman now seeks to recover that loss from Gateway. In circumstances where Mr Featherstone first incurred such legal costs more than six years before this proceeding was commenced, Mr Surman's claim is statute barred. Accordingly, the claim must be dismissed.
[37] In case I am wrong in concluding that the cause of action is statute barred, I have addressed the remaining issues below. Before doing so, I set out some general principles concerning, firstly, the duty and standard of care imposed by law on solicitors, and secondly, the application of the civil standard of proof in cases where there is conflicting evidence.
[65] I also do not accept Mr Surman's evidence that, in a meeting where the ATO audit was discussed, Mr Leach said that Mr Brown had caused all the ATO problems by not lodging Ashala's tax return. I consider that evidence to be inherently implausible. If it were true, Mr Leach must have made the statement knowing that it would expose him to potential liability (as Mr Brown's partner) for a failure by Gateway to properly attend to Ashala's tax affairs. There is no reason to think Mr Leach would act in that way. Furthermore, I can see no logical reason why Mr Leach would have thought that the cause of Mr Featherstone's problems with the ATO was Ashala not having lodged a tax return. Documents concerning the ATO audit show that Mr Featherstone had not lodged an income tax return for the financial years from 2000/01 to 2007/08. A letter the ATO sent to Mr Featherstone confirmed that the ATO would be auditing his income tax return for the 2008/09 financial year and investigating whether he was required to lodge returns for the prior years. That letter stated that the ATO may require access to financial records of entities associated with Mr Featherstone. However, Mr Featherstone would not have appeared as a director or shareholder in a company search for Ashala. There is no reason to think that, when the ATO commenced the audit, it was aware that Mr Featherstone was associated with Ashala. Plainly, the cause of Mr Featherstone's problem with the ATO was his own failure to comply with his personal tax obligations. Mr Leach had no reason to attribute those problems to anything that Mr Brown had done or failed to do.
[66] Ultimately, if I had not found that Mr Surman's claim is statute barred, I would not have reached the state of actual persuasion required to make a finding that Ms Marks engaged Gateway to prepare and lodge Ashala's tax returns.
[72] Mr Leach deposed that his usual practice when advising clients at that time was to consider risks a client might be exposed to by entering into transactions, provided he was instructed with facts which gave rise to a basis to identify such risks. He stated that if he had been informed of Ashala's involvement in the purchase of the Alice Street unit he would have considered the need to advise Mr Featherstone about any risks which might arise from that transaction, including that Mr Featherstone and Ms Marks might be exposed to taxation risks due to what he described as "Division 7A loans" from companies to their shareholders or associated entities. He deposed that he would have recommended that Mr Featherstone obtain advice from a tax accountant.
[73] When cross-examined, Mr Leach maintained that he had no recollection of Mr Featherstone mentioning Ashala, telling him that the Alice Street unit had been purchased by funds obtained from Ashala, or saying that the Alice Street unit had to be protected at all costs.
[77] I accept Gateway's submission that Mr Featherstone is unlikely to have sought advice from Mr Leach about the consequences of him breaching the Deed of Indemnity he gave in favour of Ashala. I do not accept Mr Featherstone's evidence that he understood the Deed of Indemnity only operated if Ashala could not afford to pay the rent under the lease of the Albert Street premises.[36] That evidence is inconsistent with the broad words used in the Deed of Indemnity.
[78] Furthermore, bearing in mind the fallibility of memory, where there are no contemporaneous documents recording the matters discussed between Mr Featherstone and Mr Leach in June 2007, I am not persuaded that Mr Featherstone's account is an accurate description of what he said to Mr Leach concerning the purchase of the Alice Street unit.
[79] Ultimately, if I had not found that Mr Surman's claim is statute barred, I would not have reached the state of actual persuasion required to make a finding that Mr Leach was given instructions in the terms deposed to by Mr Featherstone, as described at [67] and [68] above. I would not have been satisfied that Gateway's retainer in respect of the Alice Street unit extended beyond establishing the KJM Trust and acting for Ms Marks as trustee of that trust on the purchase of the Alice Street unit. I would not have been satisfied that, in performing that retainer, Mr Leach became aware of facts that required him to also provide advice about risks associated with using Ashala's funds to purchase the Alice Street unit.
(f) He and Ms Marks then met with Mr Leach at Gateway's offices. He informed Mr Leach about what had transpired in the ATO interviews, including him having told the ATO that Ashala's funds were used to purchase the Alice Street unit. He told Mr Leach that the ATO preferred not to reregister Ashala and that the matter would be resolved if he, Ms Marks and Morgan lodged tax returns which included any amount that Ashala would have owed to the ATO. He requested Mr Leach's advice concerning both his personal position as well as his interest in the KJM Trust. Ms Marks also requested Mr Leach's advice concerning both her personal position and her position as trustee of the KJM Trust.
(g) Mr Leach advised him and Ms Marks that they should immediately comply with the ATO's proposal, and provide the proposed personal tax returns for himself, Ms Marks and Morgan to Mr Leach so that he could review those returns and provide further advice.
(h) Because he was concerned about the Alice Street unit being protected, he typed up a letter and returned to Mr Leach's office to have him sign (Confirmation Letter).[37]
(i) On about 2 November 2009, he provided the proposed personal tax returns for the 2005/06 and 2006/07 financial years for himself, Ms Marks and Morgan to Mr Leach together with covering letters which stated that the income recorded in each tax return had been earned from Ashala. He asked Mr Leach to review the proposed tax returns, the covering letters and bank statements for Ashala for the 2005/06 and 2006/07 financial years and advise whether the proposed tax returns and covering letters would meet the requirements of the ATO proposal to finalise the audit.
(j) Mr Leach advised him and Ms Marks that the proposed tax returns and the covering letters would meet the requirements of the ATO proposal. Mr Leach said that Gateway would forward the tax returns and letters to the ATO immediately and, provided the assessed tax was paid immediately, that would finalise the matter and "the unit would be safe".
(k) He recalls that he and Mr Leach had a conversation on that occasion to the following effect:
(h) He has no recollection of Mr Featherstone having provided him with proposed tax returns, or Ashala's bank statements, and being asked to advise on risks arising from those documents. He does not think he was instructed to give such advice, or that he gave such advice, because it raised issues outside his area of expertise. His general practice in such situations was to refer such requests to a specialist. Further, it was his usual practice to confirm oral advice in writing.
(i) He has no recollection of having a conversation with Mr Featherstone to the effect set out at [85](k) above. He did not discuss protecting the Alice Street unit specifically or re-registering any specific entity with Mr Featherstone.
[90] Mr Surman's evidence does not provide any significant support for Mr Featherstone's account of his discussions with Mr Leach. Mr Surman's reference to particular matters having been discussed between Mr Featherstone and Mr Leach many times over a period of years up to the conclusion of the liquidator's proceeding (see [82] above) raises significant doubts as to the accuracy of Mr Surman's memory of what was discussed at the time Mr Featherstone sought advice on the ATO proposal. There is at least a significant possibility (and to my mind a likelihood) that, over time, Mr Surman has come to believe that matters which might have been discussed with Mr Leach in the period after Ashala was reregistered and the liquidator brought his proceeding were discussed much earlier. Consequently, I have real doubt as to whether Mr Surman has accurately recalled the events that occurred and the matters that were discussed at the relevant time.
[91] Ultimately, if I had not found that Mr Surman's claim is statute barred, I would not have reached the state of actual persuasion required to make a finding that, when Mr Featherstone sought advice on the ATO proposal, Mr Leach knew or was informed about the following matters described in [86] above. Consequently, I would not have reached the state of actual persuasion required to find that Gateway's duty to take reasonable care in advising about the ATO proposal required it to identify and warn about a risk that compliance with that proposal might still see the trustee of the KJM Trust lose the Alice Street unit.