Application of Doolan

[2023] NSWSC 320

Supreme Court

New South Wales

Medium Neutral Citation:

Application of Doolan [2023] NSWSC 320

Hearing dates:

24 March 2023, Further evidence received 30 March 2023

Date of orders:

5 April 2023

Decision date:

05 April 2023

Jurisdiction:

Equity

Before:

Meek J

Decision:

Order that the plaintiffs would be justified in distributing the entirety of the estate of the late John Barkus without retaining any amount by way of provision or security notwithstanding the potential contingent liability arising from the deceased’s legal practice or a claim for which his estate may become liable

Catchwords:

JUDICIAL ADVICE — Application for judicial advice pursuant to s 63 of the Trustee Act 1925 (NSW) (Trustee Act) — Executors of the estate of deceased legal practitioner seek advice as to whether they are justified in distributing the entirety of the deceased’s estate without retaining any further security notwithstanding the potential contingent liability arising from the deceased’s legal practice or a claim for which his estate may become liable — No known claims but facts including a limited 5 year period pre November 2007 during which deceased’s firm did not apply for exemption from or participate in Professional Standards Schemes and potential issues arising from the deceased’s discrete area of practice relating to family law financial agreements are said to give rise to a risk of claims on the estate — Counsel’s Opinion expresses concern that advertising of claims pursuant to s 92 Probate and Administration Act 1898 (NSW) (PA Act) provides insufficient protection to allow a distribution — Opportunity given to plaintiffs to adduce further evidence bearing upon risks — On facts ultimately disclosed or assumed the risk of a claim is remote

SUCCESSION — Executors and administrators (LPRs) — discussion of LPRs’ obligations regarding payment of debts and contingent debts and compromising claims — Discussion of judicial advice and partial administration cases dealing with contingent liabilities

SUCCESSION — Executors and administrators — Distribution of estate — Discussion of protective options available to LPRs to distribute the estate in light of potential contingent liabilities — Protective options include indemnity, retention of a fund, insurance, partial administration orders, advertising and judicial advice

SUCCESSION — Executors and administrators — Protection afforded by advertising claims — Discussion of the purpose of advertising and procedures for advertising — Discussion of what constitutes notice of claim — Whether constructive notice is notice — The law in New South Wales is not clear as to what if any form or degree of constructive notice might preclude reliance upon s 92(2) PA Act

JUDICIAL ADVICE — Distinction between statutory jurisdiction and inherent equitable jurisdiction — Practice and procedure in judicial advice proceedings — Discussion of purposes served by the jurisdiction — Discussion of status of facts stated and consideration by LPRs of adducing additional evidence in face of limited or unknown facts bearing upon issue for determination

ORDERS — Discussion regarding disclosure obligations on ex parte applications

JUDICIAL ADVICE — Protection afforded pursuant to s 63(2) Trustee Act — Discussion regarding differences between statutory jurisdiction and inherent equitable jurisdiction — Protection afforded to trustees/LPRs under s 63(2) is qualified by a proviso that focuses attention on the state of mind of a trustee/LPR — Protection is seemingly afforded by s 63(2) to a LPR who seeks judicial advice pursuant to s 63, notwithstanding some form of innocent misrepresentation or innocent omission of the facts

STATUTORY CONSTRUCTION — Consideration of principles regarding statutory construction — What is material to disclose to a Court depends upon the precise nature and content of any applicable statutory regime — Maxim noscitur a sociis explained

LEGAL PRACTITIONERS — Professional Indemnity Insurance — Operation of Professional Standards Schemes — Limitation of liability — Consequences of nonparticipation

Legislation Cited:

Civil Procedure Act2005 (NSW)

Civil Procedure Rules 1998 (UK)

Family Law Act1975 (Cth)

Family Law Amendment Act 2000 (Cth)

Federal Justice System Amendment (Efficiency Measures) Act(No 1) 2009 (Cth)

Law of Property Amendment Act 1860, 23 & 24 Vict, c 38

Law of Property and Trustees Relief Amendment Act 1859, 22 & 23 Vict, c 35

Probate Actof 1890 Amendment Act 1893 (NSW)

Probate and Administration Act 1898 (NSW)

Professional Standards Act 1994 (NSW)

Rules of the Supreme Court 1965 (UK)

Rules of the Supreme Court 1883 (UK)

Succession Act2006 (NSW)

Supreme Court Act1970 (NSW)

Supreme Court Rules 1970 (NSW)

Trust Property Act 1862 (NSW)

Trustee Act1893, 56 & 57 Vict, c 53

Trustee Act 1898 (NSW)

Trustee Act1925 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)

Wills Probate and Administration Act 1898 (NSW)

Cases Cited:

Ah Toy v Registrar of Companies (Northern Territory) (1986) 10 FCR 356

Al Dakhili v Al Kheurallah [2023] NSWSC 47

Alsop Wilkinson (a firm) v Neary [1995] 1 All ER 431

Application by Marilyn Joy Cottee [2003] NSWSC 47

Application of Macedonian Orthodox Community Church St Petka Inc (No 2) (2005) 63 NSWLR 441; [2005] NSWSC 558

Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247

Application of Perpetual Trustee Company Ltd [2003] NSWSC 1185

Application of the NSW Trustee and Guardian; Estate of SGB [2015] NSWSC 398

Application of Valda Ann Haberfield [2014] NSWSC 1421

Australian Karting Association Ltd v Karting (New South Wales) Incorporated [2022] NSWCA 188

Australian Legion of Ex-Servicemen & Women [2021] NSWSC 149

Baden v Société Générale pour Favoriser le Developpement du Commerce et de l'Industrieen France [1993] 1 WLR 509

Barnes v Addy (1874) LR 9 Ch App 244

Barr v Rockman [2017] VSC 581

Black v Black (2008) 38 Fam LR 503

Bullas v Public Trustee [1981] 1 NSWLR 641

Cassaniti v Ball as liquidator of RCG CBD Pty Limited (in liq) [2022] NSWCA 161

Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952

Chelsea Waterworks v Cowper (1795) 1 Esp 275; 170 ER 355

Cody v JH Nelson Pty Ltd (1947) 74 CLR 629; [1947] HCA 17

Commercial Banking Co of Sydney Ltd v RH Brown & Co (1972) 126 CLR 337; [1972] HCA 24

Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455; [1969] HCA 47

Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8

Coshott v Parker (2019) 268 FCR 288; [2019] FCAFC 14

Deputy Commissioner of Taxation v Dick [2007] NSWCA 190; (2007) 242 ALR 152

Edwards v Attorney-General (2004) 60 NSWLR 667; [2004] NSWCA 272

English v Stewart [2022] NSWSC 268

Estate L H Hall [1999] NSWSC 1297

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2003) 230 CLR 89; [2007] HCA 22

Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (2017) 94 NSWLR 606; [2017] NSWCA 53

Fletcher v Stevenson (1844) 3 Hare 360; 67 ER 420

Garrard(t/as Arthur Anderson & Co) v Email Furniture Pty Ltd (1993) 32 NSWLR 662

Gonzales v Claridades (2003) 58 NSWLR 188; [2003] NSWSC 508

Gonzales v Claridades (2003) 58 NSWLR 211; [2003] NSWCA 227

Guardian Trust and Executors Co of New Zealand Ltd v Public Trustee of New Zealand [1942] AC 115

Hackett (a pseudonym) v Secretary, Department of Communities and Justice [2020] NSWCA 83

Harrison v Mills [1976] 1 NSWLR 42

Hawkins v Clayton (1988) 164 CLR 539; [1988] HCA 15

In re Beddoe; Downes v Cottam [1893] 1 Ch 547

In re Blake; Jones v Blake (1885) 29 Ch D 913

In re Griffin (deceased) [1940] NZLR 174

In re Grose, deceased [1949] SASR 55

In re Kay; Mosley v Kay [1897] 2 Ch 518

In re Long (deceased) [1951] NZLR 661

In re Tankard; Tankard v Midland Bank Executor and Trustee Co Ltd [1942] Ch 69

In the Will of Walker (1943) 43 SR (NSW) 305

Ingrey v King [2015] EWHC 2137 (Ch); [2016] WTLR 131

International Finance Trust Co Ltd v NSW Crime Commission (2009) 240 CLR 319; [2009] HCA 49

Jervis v Wolferstan (1874) LR 18 Eq 18

Khoury v Zambena Pty Ltd (1997) 23 ACSR 344

Lend Lease Real Estate Investments Ltd v GPT RE Ltd [2006] NSWCA 207

Ludwig v Public Trustee (2006) 68 NSWLR 69; [2006] NSWSC 890

Ludwig v The Public Trustee [2008] NSWCA 115

Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42

Macrae v Walsh (1927) 27 SR (NSW) 290

Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198

Marley v Rawlings [2015] AC 129; [2014] UKSC 2

McDonald v Horn [1995] 1 All ER 961

McGrath v Troy (as administratrix of the estate of the late Wade) [2010] NSWSC 1470

McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623

MCP Pension Trustees Ltd v AON Pension Trustees Ltd [2009] EWHC 1351 (Ch); [2010] 1 All ER (Comm) 323

MCP Pension Trustees Ltd v AON Pension Trustees Ltd [2010] EWCA Civ 377; [2011] 1 All ER (Comm) 228

Midgley v Midgley [1893] 3 Ch 282

Mills v Mills [2018] NSWSC 363

Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541; [2018] HCA 30

Ministry of Health v Simpson [1951] AC 251

Murakami v Murakami [2005] NSWSC 953

National Trustees Company of Australasia Limited v General Finance Company of Australasia Limited [1905] AC 373

National Westminster Bank Plc v Lucas [2014] EWCA Civ 1632

National Westminster Bank plc v Lucas [2014] EWHC 653 (Ch); [2014] BPIR 551

Newton v Sherry (1876) 1 CPD 246

Nowell v Palmer (1993) 32 NSWLR 574

Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; [1912] HCA 9

Perpetual Trustee Co Ltd v Attorney General (NSW) [2018] NSWSC 1456; (2018) 17 ASTLR 126

Perpetual Trustee Co v Watson (No 2) (1927) 28 SR (NSW) 43

Professional Trustees v Infant Prospective Beneficiary [2007] EWHC 1922 (Ch); [2007] WTLR 1631

Re Estate of the late Chow Cho-Poon; Application for Judicial Advice [2013] NSWSC 844; (2013) 10 ASTLR 251

Re Evans (deceased); Evans v Westcombe [1999] 2 All ER 777

Re Investa Properties Limited [2001] NSWSC 1089; 187 ALR 462

Re K (deceased) [2007] EWHC 622 (Ch); (2007) 9 ITELR 759

Re Land Credit Company of Ireland; Markwell’s Case (1872) 21 WR 135

Re Mayes; Application by O'Reilly [2015] VSC 708; (2015) 15 ASTLR 376

Re PILT Nominees Pty Ltd – Londish v Seller [2011] NSWSC 74

Re Rosewood Research Pty Ltd (No.2) [2014] NSWSC 1226

Re Yorke (deceased); Stone v Chataway [1997] All ER 907

Rosenbaum v Baidarman (No 2) [2021] NSWSC 574

R v Regos (1947) 74 CLR 613; [1947] HCA 19

Ryan v The Public Trustee of Queensland [1998] 1 Qd R 679

Scottish Equitable Life Assurance Society v Beatty [1889] 29 LR Ir 290

Simpson v Trust Company Fiduciary Services Limited [2009] NSWSC 912

Taylor v Taylor (1870) LR 10 Eq 477

Thomas A Edison Ltd v Bullock (1912) 15 CLR 679; [1912] HCA 72

Thompson v Gamble; Gamble v Thompson [2010] NSWSC 878

Todd Hadley Pty Ltd v Lake Maintenance (NSW) Pty Ltd (No 2) [2020] NSWCA 81

Wang v Cai (No 2) [2021] NSWSC 1268

Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; [1992] HCA 55

Wilcox v Poole [1974] 2 NSWLR 693

Wittaker v Kershaw (No 2) (1890) 45 ChD 320

Wood v Weightman (1872) LR 13 Eq 434

Zhang v ROC Services (NSW) Pty Ltd (2016) 93 NSWLR 561; [2016] NSWCA 370

Texts Cited:

Australian Accounting Standards Board, Accounting Standard AASB 137: Provisions, Contingent Liabilities and Contingent Assets

Dal Pont, GE, Law of Executors and Administrators (2022, LexisNexis)

Encyclopaedic Australian Legal Dictionary (LexisNexis)

Ford and Lee: The Law of Trusts (Thomson Reuters)

Geddes, Robert, Charles Roland and Paul Studdert, Wills, Probate Administration Law in New South Wales (1st ed, 1996, LBC Information Services)

Handler, Les & Richard Neal, Mason and Handler Succession Law and Practice New South Wales (LexisNexis)

Herzfeld, Perry and Thomas Prince, Interpretation (2nd ed, 2020, Thomson Reuters)

Heydon, JD and MJ Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis)

Janes, Stephen, David Liebhold and Paul Studdert, Wills, Probate and Administration Law in New South Wales (2nd ed, 2020, Thomson Reuters)

Learmonth, Alexander, Williams, Mortimer & Sunnucks - Executors, Administrators and Probate (21st ed, 2018, Thomson Reuters)

Lindsay J, “An Application for Judicial Advice: Text, Context and Functional Purpose” (Paper), The Blue Mountains Law Society Succession Law Conference, 18 November 2021

Macquarie Dictionary, online ed

Nevill, AG and AW Ashe, Equity Proceedings with Precedents (NSW) (1981, Butterworths)

Nicholas, HS and HE Harrington, Trustee Acts of New South Wales (1st ed, 1926, Butterworth & Co (Australia Ltd))

Nicholas, HS and JD Evans, The Trustee Acts of New South Wales (2nd ed, 1939, Butterworth & Co (Australia Ltd))

Practice Direction 64B (UK)

Professional Standards Bill 2004 (NSW)

Williams, Sydney and Frank Guthrie-Smith, Daniell’s Chancery Practice (8th ed, 1914, Stevens & Sons Ltd)

Young, Peter, Clyde Croft and Megan Smith, On Equity (2009, Thomson Reuters)

Category:

Principal judgment

Parties:

Paul Andrew Doolan in his capacity as an Executor of the Estate of the late John Andrew Barkus (First Plaintiff)
Victoria Anne Ball in her capacity as an Executor of the Estate of the late John Andrew Barkus (Second Plaintiff)

Representation:

Counsel:
C Birch SC (Plaintiffs)

Solicitors:
MJM Lawyers (Plaintiffs)

File Number(s):

2022/329703

JUDGMENT

1. HIS HONOUR: The application before the Court is a request for judicial advice by the two executors of the Estate of the late John Andrew Barkus (“the deceased”) regarding distribution of the deceased’s estate.

2. The first plaintiff (“Mr Doolan”) is a legal colleague of the deceased who knew the deceased from about February 1998 until his death, and the second plaintiff (“Ms Ball”) is the deceased’s surviving wife.

3. The deceased lived together with Frances Mary Edwards (Ms Edwards) as a couple from May 1998. They married in November 1999 and separated in June 2005. Ms Edwards is the mother of two of the deceased’s children namely Isabella and Bridget. The deceased is survived by Ms Ball and his four children who are all adults: Isabella and Bridget and, in addition, James and Edward.

4. The deceased died on 25 August 2020 leaving a Will dated 28 June 2018 (Will) and a Codicil dated 31 March 2020 (Codicil). Probate was granted to the plaintiffs being the named executors on 1 February 2021.

5. For convenience, where I refer to the Will of the deceased it is the Will that is probated including the Codicil.

An important issue

6. The application to the Court is for judicial advice pursuant to s 63 Trustee Act1925 (NSW) (Trustee Act). The advice sought is whether the executors would be justified in distributing the entirety of the deceased’s estate without retaining any further security notwithstanding any potential contingent liability arising from the deceased’s legal practice or a claim for which his estate may become liable. The particular concern that such a liability might arise is linked to the risk that potentially the deceased might have acted negligently in advising or acting for clients in the course of his legal practice giving rise to a damages claim or suit against the estate (contingent liability concern): Statement of Facts (SF) at [27].

7. The Opinion provided by Dr Birch dated 14 November 2022 (Opinion) provides a degree more elaboration to the context to the above-mentioned question. He indicates that he is asked to advise (Opinion at [10]):

1. first, whether a notice published by the executors pursuant to s 92 Probate and Administration Act 1898 (NSW) (PA Act) will protect the executors against any claim against them personally as opposed to a claim restricted only to the assets of the deceased’s estate arising from the contingent liability concern; and

2. secondly, whether, in the event that he (Dr Birch SC) considers there to be doubts about the extent of protection that the notice pursuant to s 92 PA Act provides, the executors would be justified in seeking judicial advice for the direction of the Court prior to distributing the estate.

8. Dr Birch SC’s opinion is that he considered there is a significant doubt as to whether the notice published pursuant to s 92 PA Act does protect the executors from all possible claims relating to the deceased’s legal practice and that, in those circumstances, they are justified in applying for judicial advice or direction of the Court prior to distributing the estate: Opinion at [11].

9. Dr Birch SC’s submissions proceeded on the basis that advice pursuant to s 63 Trustee Act would afford the executors protection from personal liability in a way in which they would not be protected if they had knowledge of circumstances that might give rise to the contingent liability concern and distributed pursuant to s 92 PA Act: Submissions at [15]-[16].

10. I leave to one side, for the moment, actual knowledge of any claim.

11. In their essence, Dr Birch SC’s submissions draw a distinction between the type of notice or knowledge that might enliven protection under one statutory provision but not be enough to enliven protection under another statutory provision.

12. Understanding what notice or conduct triggers protection is important.

13. Protection afforded by a s 92 publication is predicated on the executor or administrator not having “notice of the claim at the time of the distribution”: s 92(2) PA Act.

14. Protection afforded by s 63 advice is predicated on the executor not being “guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction” of the Court: s 63(2) Trustee Act.

15. There are no express provisions in either s 92 PA Act or s 63 Trustee Act which detail in the former case what amounts to notice and in the latter case (leaving aside cases of fraud or wilful concealment) what amounts to misrepresentation.

16. The provisions beg the question as to what for the purposes of:

1. s 92 PA Act amounts to “notice” of a claim; and

2. s 63(2) Trustee Act amounts to “misrepresentation” in the obtaining of the advice.

17. I address this below, as these matters bear upon the question of whether it is appropriate for the Court to give advice pursuant to s 63 Trustee Act if there is another form of statutory provision which provides them protection in distributing the estate and the extent of such protection.

18. For the reasons outlined below, I have determined that it is appropriate to give advice essentially in the terms that the plaintiffs seek.

19. The plaintiff’s legal representatives Dr Birch SC and Ms Money provided helpful assistance to the Court.

Will and estate

Estate

20. The deceased left an estate which according to the inventory of property totalled approximately $6,679,770.

21. By far the largest asset of the estate is the proceeds of a binding death benefit nomination of the deceased’s superannuation fund.

22. The assets also included a debt owed to the deceased in the sum of $850,000 by Ms Ball, shares in two private companies, relatively small amounts in two bank accounts, a car and various personal chattels. The estate has a number of liabilities for legal costs. The proceeds of the death benefit and the debt owing to the deceased have been collected and paid into an estate bank account.

23. One of the private companies, Quida Pty Ltd (Quida), was trustee for the superannuation fund.

Will and family provision claim

24. The deceased by his Will:

1. Gave to his four children the choice of artworks;

2. To Mr Doolan an amount of money calculated by reference to a formula in lieu of commission;

3. To James and Edward shares in Quida as tenants-in-common equally;

4. To Ms Ball various forms of digital property and chattels of a personal nature.

25. The deceased directed his executors to pay all his debts funeral and testamentary expenses and any applicable duties and, after transferring the chattels and gifts as identified above, provided for the executors to hold the balance of his estate (residuary estate) to be transferred as to 32% to each of James and Edward and 18% to each of the trustees of testamentary trusts established for Bridget and Isabella.

25. Each of Bridget and Isabella under provisions of the Will were nominated as being primary beneficiaries of their respective testamentary discretionary trusts.

26. Subsequent to the deceased’s death, Bridget and Isabella brought family provision claims pursuant to the provisions of Ch 3 of the Succession Act2006 (NSW) (Succession Act) which claims were resolved by consent and orders relevantly made on 15 February 2022 which had the effect of providing to them, in lieu of the provision given to them under the Will, lump sums which equate to 18% each of the residuary estate.

Distributable estate

28. The deceased’s motor vehicle has been transferred to Ms Ball. However, other than that, no other assets of the estate have been distributed.

29. Presently, the distributable estate is in the order of $6,601,195.

30. The executors published a notice of intended distribution on 26 July 2021.

Contingent liabilities

31. The framing of the specific question on which the plaintiffs seek advice is, as noted above, by reference to what I have described as the contingent liability concern.

32. The executors wish to make a distribution of the entirety of the estate without retaining any such further security in respect of such contingent liability concern.

33. The Macquarie Dictionary, online ed defines “contingent liability” as being an obligation, associated with a past transaction, which will occur in the future only if some particular event occurs.

34. There are various descriptions of “contingent liability” for different purposes under the law: see e.g. Australian Karting Association Ltd v Karting (New South Wales) Incorporated [2022] NSWCA 188 (Australian Karting) at [66] referencing comments of Kitto J (Barwick CJ agreeing) in Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455 at 459; [1969] HCA 47 citing English authority in the context of defining a “contingent creditor”. In Australian Karting, Gleeson JA (Meagher JA and Simpson AJA agreeing) described a “contingent liability” as “a liability that may or may not arise, depending on the occurrence (or non-occurrence) of a certain event” and contrasted that with a “prospective liability” which is “an obligation to pay a sum of money which is not immediately payable, but which will certainly become due in the future either on some date which has already been determined or on some date determinable by reference to future events” citing Edwards v Attorney-General (2004) 60 NSWLR 667; [2004] NSWCA 272 at [59] per Young CJ in Eq (as his Honour then was).

35. For the purposes of financial statements, accounting standards provide for specific definitions of contingent liabilities: e.g. Australian Accounting Standards Board, Accounting Standard AASB 137: Provisions, Contingent Liabilities and Contingent Assets at [10].

36. The above Macquarie Dictionary, online ed description is apt for the purposes of this case.

Evidence and representation

37. The summons filed on 3 November 2022 seeks the opinion, advice or direction of the Court pursuant to s 63 Trustee Act based on facts set out in the SF filed on 21 November 2022 and Exhibit SOF-1 to the SF (Exhibit SOF-1) as supplemented by affidavits of Ms Ball affirmed 16 November 2022 and Mr Doolan affirmed 17 November 2022 (Doolan November Affidavit).

38. Exhibit SOF-1 relevantly attaches the Opinion, a copy of the grant of probate attaching the Will and inventory of property, a copy of the Court orders in relation to the claims of each of Bridget and Isabella, a deed of retirement (between the deceased, Mr Doolan and other members of the partnership Barkus Edwards Doolan dated 24 March 2009) and details of the Firm’s professional indemnity insurance policies for the years 2008/2009, 2014/2015 and 2022/2023.

39. None of the deceased’s children (all of whom are adults) have been named as defendants in the proceedings. Nonetheless, the interests of James and Edward have been represented by Ben Dornan, solicitor (Mr Dornan), and the interests of Bridget and Isabella represented by Andrew Thorpe, solicitor (Mr Thorpe).

40. Both of those solicitors have been provided with relevant materials in respect of the application and each of Mr Dornan and Mr Thorpe attended on the hearing in an observing capacity.

41. On 24 March 2023, the matter was listed before me for hearing of the application.

42. I raised with Dr Birch SC that one way of attempting to assess the possibility of risks of a claim was for the executors to consider placing before the Court evidence bearing upon whether:

1. there were any drafting issues raised by Courts consequent upon legislation dealing with financial agreements;

2. the deceased had a set of basic precedents used as a starting point for drafting prenuptial or cohabitation agreements for clients;

3. whether any such precedents reflected any of the issues that were raised by Courts and whether the precedents were revised at any time, and if they were revised, whether they were revised because of issues that were being raised: T 8-10.

43. Further, I noted sometimes specific audits can be conducted which identify potentially commercial risk areas which might give rise to a loss.

44. Within those specific areas, there are techniques of statistical audit sampling involving a sampling approach where the auditor utilizes statistical methods such as random sampling to select items to be checked or verified or judgement-based auditing where the samples chosen are not based upon statistical analysis (such as random selection) but rather chosen based on the auditor’s judgment by dint of experience (commercial, legal or otherwise) and common sense.

45. In non-statistical audit sampling, the auditors may choose to select items based on criteria such as a minimum value threshold or a particular subject matter.

46. The extent of the risk of the contingent liability concern raised is difficult to establish by evidence. Having regard to the difficulties I gave the plaintiffs an opportunity to consider whether further evidence might be adduced to address the risks that might arise from the deceased’s practice. Specifically, I made the following orders. The Court:

1. directs that any further material, whether it be by affidavit or otherwise, be provided by 2pm on Thursday, 30 March 2023; and

2. lists the matter for further hearing at 10am Friday, 31 March 2023 before Meek J, noting that the determination of whether the further hearing will be required will be assessed after 2pm on Thursday, 30 March 2023.

47. On 30 March 2023, helpfully, the plaintiffs’ solicitor provided my associate with two further affidavits being an affidavit of Mr Doolan affirmed 29 March 2023 (Doolan March Affidavit) and an affidavit of Ms Edwards sworn 30 March 2023, which provided further facts bearing upon the contingent liability concern.

Deceased’s legal practice

48. The deceased practised as a solicitor principally in the area of family law.

49. Mr Doolan worked with the deceased in a professional capacity from about April 1998 until 30 June 2015.

50. Initially, during the period from September 1999 to March 2009, the deceased and Mr Doolan were equity partners of a firm initially known as Barkus Pearson and then as Barkus Edwards Doolan. Thereafter, the deceased was a salaried partner in the firm known initially as Barkus Doolan Kelly and then Barkus Doolan until he ceased practice as at 30 June 2015. It is convenient to describe the various partnerships and firms as simply “the Firm”.

51. Whilst the deceased was a salaried partner, he was responsible with all the other partners for debts and liabilities of the Firm. He was entitled to indemnity from the equity partners such that if a claim was made against him, to the extent that the equity partners could satisfy any claim, he had such indemnity.

52. The deceased and the Firm when practising in the area of family law were involved in advising upon the drafting and procuring the execution of a substantial number of property settlements after separation between married or de facto couples and financial agreements prior to or during a marriage or cohabitation and before separation colloquially known as prenuptial or cohabitation agreements (financial agreements).

53. The clientele of the Firm relevantly included high-net-wealth individuals.

54. Indeed, it appears the deceased practised exclusively in the area of family law and during the time that he was an equity partner of the Firm he regularly acted on behalf of high-net-worth individuals and sometimes their related entities.

Professional indemnity insurance

55. The SF and the Doolan November Affidavit set out details of the professional indemnity insurance held by the firms of which the deceased was a member relevantly from 1999/2000 up to and including the time of the deceased’s retirement and, additionally, details from that time until the present.

56. For reasons which are not entirely clear, no application for registration of participation in or exemption from the NSW Professional Standards Scheme (PS Scheme) was made for each scheme year from 2001-2002 up to and including the 2005-2006 scheme year (22 November 2001 to 21 November 2006) during which time the deceased was an equity partner of the Firm.

57. Neither of the plaintiffs are aware of any claim or notice of claim against the Firm that relates to any period that the deceased was an equity partner.

58. Mr Doolan has given evidence that considering the long period of time that the deceased was a practising solicitor of the Firm that to conduct a detailed audit of the files he and the Firm had worked on and to assess the potential risk that a claim might be made against him or the Firm would be a difficult, time-consuming and costly process. He further notes that some of the files of the Firm from that period have been destroyed.

59. Mr Doolan indicates that even if such an audit were conducted it is difficult to calculate or quantify with any degree of precision or any certainty the real probability of a claim being made against the deceased’s estate [arising out of his practice] as a solicitor and at least for that reason an audit has not been conducted.

60. Although there are no particular details as to the reasons for nonparticipation in the PS Scheme for the above-mentioned five-year period, the evidence reveals that in the 2000-2001 scheme year, an application for exemption for that year was received by The Law Society of New South Wales (Law Society) and no application for registration of participation in or exemption from the PS Scheme was received in the subsequent years until an application for registration of participation in the PS Scheme was received for the scheme year commencing from 22 November 2006.

61. The professional indemnity insurance policy for the (current) Firm records that Lawcover Insurance Pty Ltd (Lawcover) insures a person who was a principal or employee of the law practice as well as the estate of such person: clause 2 (a)&(d).

PS Scheme

62. The application to the Court referred to the existence of PS Schemes and the fact that the Firm was not registered, and did not participate, in the PS Scheme for the period from 22 November 2001 to 21 November 2006.

63. In understanding the risks that are said to give rise to the application for advice it is of some relevance to briefly address the PS Scheme operation and provisions. Legislation regarding the PS Scheme and other details of the PS Scheme’s operation are publicly available and accessible. I note the following basic details.

64. The PS Scheme of the Law Society is a legal instrument established under the Professional Standards Act 1994 (NSW) (Professional Standards Act) and approved by the Professional Standards Council: s 7(3) Professional Standards Act.

65. The first Scheme of the Law Society became operative from 1996.

66. In a document titled “Professional Standards Scheme: Improving standards. Reducing Risk” stated to be current as at August 2022, the Law Society summarises the operation of the PS Scheme as follows:

How does the Scheme operate?

In principle, if proceedings are brought against a Scheme participant relating to occupational liability for damages arising from a single cause of action, and the Scheme participant is able to show that:

a) they are a Member of the Law Society and participant in the Scheme at the time the cause of action arose; and

b) they have the requisite professional indemnity insurance (PII) cover insuring against occupational liability to which the cause of action relates; and

c) The amount payable under the insurance policy is no less than the amount of the relevant liability cap specified in the Scheme,

the Court, in awarding damages, will limit those damages to the relevant liability cap specified in the Scheme.

Scheme 2000-2005

67. The relevant PS Scheme which covers the period from 22 November 2001 to 21 November 2006 is one that was operative from 22 November 2000 to 21 November 2005 (Scheme 2000-2005). While PS Scheme 2000-2005 as originally approved by the Professional Standards Council was due to cease operation on 21 November 2005, the operative period of this scheme was extended for one year beyond its original term by the responsible Minister pursuant to s 32(2) Professional Standards Act. The PS Scheme documents are available to be downloaded from the Professional Standards Council website from the page titled “Current Scheme Documents”.

68. The preamble to Scheme 2000-2005 provided, inter alia, that:

NATURE OF LIABILITY TO BE LIMITED

The liability limited by the scheme includes, to the extent permitted by the Act, all civil liability arising (in tort, contract or otherwise) directly or vicariously from anything done or omitted by a member of the Law Society or to any person to whom the scheme applies in acting in the performance of his or her occupation.

The scheme does not apply to liability for damages arising from any matter to which the Act does not apply, including, but not limited to, liability for damages arising from death or personal injury to a person, a breach of trust, fraud or dishonesty.

STANDARDS OF INSURANCE

Under the scheme, the person must have the benefit of insurance to an amount at least equal to the amount of the limitation of liability applying to that person at the relevant time which insurance complies with standards set from time to time by the Law Society in accordance with section 27 of the Professional Standards Act. In addition, the person must have sufficient assets to cover any claim made up to the amount of the uninsured deductible on the insurance.

Who is a member of the scheme?

69. The persons to whom the scheme applied are described at clause 2:

2 Persons to Whom the Scheme Applies

2.1 The Scheme applies to the class of persons as defined in clauses 2.2 and persons defined in clause 2.3 of the scheme.

2.2 All members of the Law Society who hold a current practising certificate issued by the Law Society who have not been exempted under clause 2.4 of the scheme, and who have the benefit of an insurance policy under which the amount payable in respect of occupational liability is not less than the maximum amount of liability applicable to that person at the relevant time which insurance complies with standards set from time to time by the Law Society in accordance with section 27 of the Act.

2.3 Persons to whom the scheme applies by virtue of sections 18, 19 and 20 of the Act.

2.4 A person may, on application by a person, be exempted from the scheme by the Law Society Council. This clause does not apply to other persons as defined in clause 2.3 of the scheme.

70. As of 12 January 2002, clause 2.2 as extracted above was amended in a manner which does not bear upon the relevant issue at hand. Subsequently, commencing on 11 July 2015, clause 2 was substantially amended. This latter amended form of clause 2 provided that:

2. “Persons to Whom the Scheme Applies (Members and Other Persons)

2.1 The scheme applies to Solicitor Members as defined in clause 2.2 and Other Persons as defined in clause 2.3 of the scheme. The scheme also applies to persons who were Solicitor Members and Other Persons so defined as set out in clause 2.4.

2.2 All Solicitor Members of the Law Society who hold a current practising certificate issued by the Law Society who have not been exempted under clause 2.5 of the scheme, and who have the benefit of an insurance policy under which the amount payable in respect of occupational liability is not less than the maximum amount of liability applicable to that person at the relevant time which insurance complies with standards set from time to time by the Law Society in accordance with section 27 of the Act.

2.3 Persons to whom the scheme applies by virtue of sections 18, 19, 20 and 20A of the Act.

2.4 Persons who were Solicitor Members or Other Persons as defined in clauses 2.2 and 2.3 for civil liability arising from their acts, errors or omissions occurring during the period in which they were Solicitor Members or Other Persons and to whom the Scheme applied at the relevant time.

2.5 A person may, on application, be exempted from the Scheme by the Law Society. This clause does not apply to Other Persons as defined in clause 2.3 of the Scheme.”

71. As between 15 September 2000 and 14 November 2004, ss 18, 19 and 20 of the Professional Standards Act (adverted to in clause 2.3 above) stipulated that:

18   Partners of persons to whom a scheme applies

(1) If a scheme applies to a person, the scheme also applies to each partner of the person.

(2) However, if a partner of a person is entitled to be a member of the same occupational association as the person but is not a member, the scheme does not apply to the partner.

19   Employees of persons to whom a scheme applies

(1) If a scheme applies to a person, the scheme also applies to each employee of the person.

(2) However, if an employee of a person is entitled to be a member of the same occupational association as the person but is not a member, the scheme does not apply to the employee.

20   Other persons to whom a scheme applies

If persons are prescribed by the regulations for the purposes of section 29 (4) as being associated with persons to whom a scheme applies, the scheme also applies to the prescribed persons.

72. Section 18 was amended (commencing on 15 November 2004) to extend the coverage of the provision to apply to “officers” (being officers of a body corporate if a scheme applied to a body corporate) as well as partners.

73. A new provision, s 20A (adverted to by the amended form of clause 2 above), was added into the Professional Standards Act and commenced operation on 15 November 2004. Section 20A says:

20A   Extension of liability limitation to other persons to whom scheme applies

(1) A limitation that applies under this Act to the occupational liability of a person as a member of an occupational association in respect of a cause of action (the principal cause of action) also applies, in respect of the principal cause of action and any related cause of action, to the liability of any other person to whom the scheme concerned applies as a partner, officer, employee or associate of the member (whether or not the other person’s liability is an occupational liability).

Note—

Sections 18–20 provide for a scheme to apply to a partner, officer, employee or associate of a member of an occupational association to whom the scheme applies.

(2) A related cause of action is a cause of action in respect of civil liability of the other person arising (in tort, contract or otherwise) directly or vicariously from anything done or omitted by that person that caused or contributed to the loss or damage with which the principal cause of action is concerned and that resulted from the same or substantially the same event as that from which the principal cause of action arose.

(3) A reference in this section to a person who is a partner, officer, employee or associate of a member of an occupational association is a reference to a person who was such a partner, officer, employee or associate at the time of the event that gave rise to the principal cause of action.

(4) A reference in this section to a limitation on liability that applies to a person as a member of an occupational association includes a reference to a limitation on liability that would apply to the person if a cause of action relating to the liability were brought against the person.

(5) In this section:

associate of a person means someone who is associated with the person pursuant to the regulations under section 29 (4) (b).

officer:

(a) in relation to a body corporate that is a corporation within the meaning of the Corporations Act 2001 of the Commonwealth, has the same meaning as in that Act, and

(b) in relation to a body corporate that is not a corporation within the meaning of that Act, means any person (by whatever name called) who is concerned in or takes part in the management of the body corporate.

74. Additionally, s 17 deals with exemptions and persons to whom the scheme applies:

17   Persons to whom scheme applies

(1)  A scheme may provide that it applies to all persons within an occupational association or to a specified class or classes of persons within an occupational association.

(2)  A scheme may provide that the occupational association concerned may, on application by a person, exempt the person from the scheme.

(3)  A scheme ceases to apply to a person exempted from the scheme as referred to in subsection (2) on and from the date on which the exemption is granted or on and from a later date specified in the exemption.

(4) Subsection (2) does not apply to a person to whom a scheme applies by virtue of section 18, 19 or 20.

75. The term “occupational association” is defined in s 4 as:

… a body corporate:

(a)  which represents the interests of persons who are members of the same occupational group, and

(b)  the membership of which is limited principally to members of that occupational group.

Application

76. The Law Society is an occupational association. Accordingly, taken at face value, the effect of the PS Scheme and the Professional Standards Act is that the PS Scheme applied to:

1. all members of the Law Society who held a current practising certificate issued by the Law Society who had not been exempted and who satisfied the indemnity insurance requirements: Scheme 2000-2005 clause 2.2; and

2. partners and employees (and, from 15 November 2004, officers) of persons (or body corporates) to whom the PS Scheme applied unless those partners or employees (or officers) were entitled to be a member of the Law Society but were not members: ss 18 and 19 of the Professional Standards Act.

77. The effect, prima facie, of these provisions is that the coverage of the PS Scheme extended to all members of the Law Society (who met the indemnity insurance requirements) except those who had been exempted. On one reading, this would mean that the PS Scheme applied to even those persons who had not applied for registration of participation in the scheme (and, therefore, who had not paid the relevant annual fee for participation).

78. However, the position was and is not as simple as that. The practical reality of the matter is that a member of the Law Society must, each PS Scheme year, lodge an application for registration of participation or exemption. At least in recent times (and presumably, similarly, for the scheme years 2001-2006), in practice the application form would be completed by a “Scheme Co-ordinator” (who is a principal of the relevant law practice) authorised to make an application for participation or exemption on behalf of the law practice. The form would particularise (in a schedule) the names and details of the law practice’s legal practitioners on whose behalf the application for registration of participation or exemption was being made. Further, an application for registration of participation in the scheme would entail payment of an associated annual fee for that PS Scheme year.

79. Pursuant to these applications, the Law Society has and continues to maintain a register recording whether a law practice has registered to participate in or be exempt from the relevant PS Scheme corresponding to a particular PS Scheme year.

80. Indeed, the Second Reading speeches for the Professional Standards Bill 2004 (NSW) envisage that a register of members of a PS scheme would be kept by each occupational association (in this case the Law Society):

It will be left up to each professional body to determine whether it will participate, and to seek a specific scheme for its members. The consequences of membership of the scheme, including greater professional control through self-regulation, will make participation attractive to many professional organisations. Those professions that elect to participate may either cover all members or provide that the scheme only applies to certain members, such as those with an unrestricted right to practise. In either case it will be necessary for the professional body to keep a register of persons who are part of the scheme: New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 22 September 1994 at 3635-3636 (Christopher Hartcher, Minister for the Environment) (emphasis added).

81. Therefore, in addition to the requirements of Scheme 2000-2005 clause 2.2, in order for a member of the Law Society such as Mr Doolan to have qualified as a member of the scheme, the law practice at which he was employed (Barkus Edwards Doolan) would likely have needed to have applied for registration of participation in the scheme (and have paid the relevant fee).

82. Having now established the mechanism for determining which members of the Law Society are participants in the PS Scheme, I turn now to examining the benefits conferred by participation, and, correspondingly, the consequences of non-participation in the PS scheme.

Limitation of Liability

83. The limitation of liability conferred by Scheme 2000-2005 is circumscribed by clause 3.1:

3 Limitation of Liability

3.1 A person to whom the scheme applies is not liable in damages above the maximum amount of liability applicable to the person within the class of persons specified in the scheme in relation to a cause of action relating to occupational liability where the person is able to satisfy the court that the person has the benefit of an insurance policy or policies insuring the person against that occupational liability and under which the amount payable in respect of the occupational liability relating to that cause of action is not less than the maximum amount of liability specified in the scheme in relation to the person at the time at which the act or omission giving rise to the cause of action occurred.

3.2 The maximum amount of liability of a person is the amount specified in clause 3.3 of the scheme.

3.3 Classes of Persons/Maximum Amount of Liability

…

84. Clause 3.3 contained a table which specified different classes of persons and the maximum amount of liability for each class of person depending on the number of legal principals in a particular legal practice. For example, the maximum amount of liability for persons in a legal practice having 4 principals was $2 million.

85. Commencing on 11 July 2005, clause 3 was amended to insert a new clause 3.4 as follows:

3.4 The Law Society may from time to time, in its discretion, on application by a Solicitor Member or law practice on behalf of Solicitor Members to whom the Scheme applies, specify in relation to that person a higher maximum amount of liability than would otherwise apply under the Scheme, either in all cases or in any specified case or class of case.

3.4.1 In respect of a cause of action founded on an act or omission to which, and occurring during the period in which, a higher maximum amount of liability may apply under clause 3.4, such higher maximum amount of liability will continue to apply notwithstanding any termination or revocation of that higher maximum amount of liability, or further exercise of discretion by the Law Society under clause 3.4.

3.4.2 The Law Society shall maintain a register ("Register") of all exercises of discretion by it under clause 3.4 and 3.4.6.

3.4.3 Promptly after the exercise of a discretion by it under clause 3.4 or 3.4.6, the Law Society shall enter into the Register particulars of:-

(α) the name and address, or such other particulars as are sufficient to identify the Solicitor Member or law practice on behalf of Solicitor Members to whom the exercise of the discretion is to apply;

(b) the case or cases, or class of case or cases, to which the exercise of the discretion is to apply;

(c) the effective date from which the exercise of the discretion is to apply, which effective date cannot be prior to the actual date of exercise of the discretion (in respect of the exercise of a discretion under clause 3.4), or the expiry of the period of notice under clause 3.4.6 (in respect of the exercise of a discretion under clause 3.4.6); and

(d) the effective date upon which the exercise of the discretion will expire (if the exercise of the discretion is not to be continuing for the duration of the Scheme or until a contrary discretion under clause 3.4 or 3.4.6 is exercise by the Law Society).

3.4.4 The Law Society shall make available for examination by any interested person, on written application and on reasonable notice a copy of the Register.

3.4.5 The Law Society shall forward to the Professional Standards Council:

(α) promptly after making any entry in the Register, details of that entry; and

(b) promptly after each of 30 June, 30 September, 31 December and 31 March each year, a complete copy of the Register endorsed by a proper officer of the Law Society that the content of the Register is true and correct.

3.4.6 The Law Society may from time to time, and in any event at least once in each financial year shall, review the Register and the continuing application of its discretion in the terms of the entries in the Register having regard to any relevant material circumstances of which the Law Society is aware, with discretion to the Law Society to revoke any prior exercise of discretion by it under clause 3.4 on giving not less than 90 days notice in writing to the applicant upon whose application the discretion was previously exercised (or such lesser period of notice to which the Solicitor Member may agree in writing).

3.4.7 3.4.7 [sic] Any exercise of discretionary authority by the Law Society under clause 3.4 shall be exercised subject to the reservation of the discretion conferred on the Law Society under clause 3.4.6.

Consequences of non-participation

86. The PS Scheme, therefore, is an important mechanism which places a cap on the liability arising in tort, contract or otherwise (with some important exclusions) from the acts or omissions of a member of the Law Society who is a participant in the PS scheme for the relevant scheme year.

87. A natural consequence of a failure to make an application for registration of participation in, or exemption from, the PS Scheme, therefore, is that the non-participant law practice would not receive the benefit of the cap or limitation on liability arising out of claims against members of its law practice.

88. For the purposes of considering the plaintiffs’ application for judicial advice, the Opinion proceeded on the basis that the deceased was not protected by the limitation of liability by a PS Scheme for the scheme years 2001-2002, 2002-2003, 2003-2004, 2004-2005 and 2005-2006: Opinion at [25].

89. I will proceed on the basis that the deceased’s estate would not have the benefit of the cap on liability for claims for liability arising out of the deceased’s acts or omissions across those PS Scheme years.

Stated Facts

90. I have already addressed details regarding the deceased’s Will, probate, state of distribution, net distributable estate and publication of the s 92 notice.

91. The facts relied upon in respect of the deceased’s legal practice and professional indemnity insurance are in summary as follows: SF [16]-[26], Submissions at [21]:

1. the deceased practised as a solicitor principally in the area of family law;

2. the deceased was an equity partner from 1 September 1993 to 31 March 2009 of the Firm and thereafter a fixed draw/“salaried” partner from 1 April 2009 to 30 June 2015;

3. whilst the deceased was a salaried partner, he was responsible, with all other partners, for the debts and liabilities of the Firm partnership though he was entitled to indemnity from the equity partners such that if a claim was made against him, to the extent that the equity partners could satisfy the claim he has the benefit of that indemnity;

4. the Firm and the deceased in the area of family law were involved in advising upon, drafting and procuring the execution of a substantial number of financial agreements often between parties of significant net worth;

5. the Firm was not registered in and did not participate in the PS Scheme for the period from 22 November 2001 to 21 November 2006;

6. the deceased held professional indemnity insurance during the time of his practice as a solicitor;

7. the Firm since the 2006/2007 practice year was registered in or otherwise participated in the PS Schemes;

8. the PS Schemes have caps on claims against solicitors (including the deceased) which caps are and have been always below the limit of indemnity under the claims-based policy for the years that the PS Schemes applied;

9. the limits of liability imposed by the PS Schemes are governed by the PS Scheme in operation for the relevant practice year in which the negligent acts occurred;

10. the limits of indemnity for insurance are covered by the limit of indemnity under the claims-based policy at the date that the claim is made;

11. professional indemnity insurance is claims-based and is available to the executors if a claim is now made, except perhaps with the qualification of possible “substantial” claims in the case of high-net-worth clients;

12. there is present cover likely available in the order of a maximum limit of indemnity of $20M;

13. the executors do not have PS Scheme protection capping liability in relation to conduct of the deceased in which a claim is based where the conduct occurred prior to the 2005/2006 scheme year;

14. existence of insurance cover into the future depends (at least) upon (a) the preparedness of an insurer to accept liability for indemnity when a claim is made, and (b) the maintenance by Lawcover in the NSW Law Society of a PS Scheme to provide run-off cover; and

15. the executors have no current notice of any actual claim made against the deceased.

92. The context relied upon (Submissions at [21]) is as follows:

1. there is a six-year limitation period for actions in negligence;

2. actions for negligence against a solicitor may not expire until many years, potentially even decades after ceasing practice; and

3. as a matter of commonsense the likelihood of claims diminishes as time progresses particularly where a period in excess of a 6 year limitation period (now 8 years) has expired.

Further facts

93. The Doolan March Affidavit reveals the following further facts:

1. The Firm utilised primarily paper-based files until in or about 2019 when there was a transition to primarily electronic files.

2. Non-active paper files are stored offsite from the firm’s premises and there has been some degree of file destruction for files aged beyond seven years. There are currently approximately 5,800 boxes of files in offsite storage holding approximately 11,000 files. An archive list gives details of the name of clients but not the subject matters of the files.

3. The Firm’s file opening system did not always identify matters by reference to a description of financial agreement work. Nonetheless, there are some files where some clients are identifiable from the subject matter as relating to a financial agreement and other files in which having regard to the client in question Mr Doolan is personally aware that the file involved a financial agreement.

4. Without examination of files, it is not known as to whether even if a file was opened, any financial agreement was drafted or, if drafted, signed by the parties. Further, there may be instances where some agreements on the generic subject of family law were drafted or advised upon rather than in respect of financial agreements.

5. For the period between 2002 and 2009:

1. the Firm opened the total number of 3,382 files and the deceased was listed as the “matter acting” person for 587 of those files; and

2. the Firm’s practice manager, from her inspection and analysis of the firm’s accounting software, indicates that five files were opened by the Firm having a subject matter description of “Domestic Relationship Agreement” and 24 files having a description styled “Pre-Nup” with those files being less than 5% of the total files opened by the deceased.

6. The Firm undertook work in the drafting and advising of financial agreements and:

1. in the early 2000s about 3 to 5 financial agreements were drafted in each of the first few years;

2. from about 2004 to roughly 2012 the number of financial agreements drafted was about 6 to 12 per year; and

3. in or about 2012 the Firm largely stopped advising on and preparing financial agreements for about a decade before recommencing it on a limited basis in about the last 12 months.

7. During the period from 2000 to 2012, the total number of matters in respect of which financial agreements were advised upon by the lawyers across the Firm was probably between about 100 and 130 albeit that not every one of those matters resulted in a complete and signed agreement.

8. There is no simple means by which all of the Firm’s files that relate to financial agreements can be identified.

9. The Firm developed a precedent bank of financial agreements which were constantly refined by the Firm by a variety of means including comments or amendments proposed by lawyers including lawyers acting for other parties, perusing agreements drafted by other firms, receiving advice from Senior Counsel, reviewing caselaw and statutory amendments.

10. Whilst precedents were used and refined any financial agreements used by the Firm were moulded as a matter of drafting to the individual circumstances of any given client.

11. Notwithstanding that refinement of precedents occurred by reviewing caselaw and statutory amendment, Mr Doolan is not aware of any particular caselaw developments or statutory amendments that would cause any particular or special concern that any financial agreement drafted by the Firm would be invalid for any particular reason.

12. The deceased was a very experienced and diligent solicitor with a great level of attention to detail and he kept abreast of statutory and caselaw changes regularly.

13. Financial agreements drafted by the deceased were regularly and almost invariably peer reviewed internally by another partner of the Firm and were settled by Senior Counsel experienced in family law at the highest level and or by commercial lawyers or in-house counsel for the clients.

14. Mr Doolan is only aware both personally and from records available to him of one instance where a notification was given by the Firm to Lawcover foreshadowing a potential damages claim for professional negligence about a financial agreement. An expert opinion prepared by a senior barrister engaged by Lawcover expressed the opinion that there was no negligence by the deceased or the Firm which opinion was shared with the potential claimant’s lawyers and the claimant did not ultimately institute proceedings.

15. There have been several other (albeit relatively minor as to quantum) notifications given to Lawcover by the Firm over the last two decades of practice of potential claims not related to family law agreements and none of those notifications related to work conducted by the deceased.

16. In November 2021, a former client of the deceased contacted the Firm seeking copies of an agreement prepared by the deceased in 2009. The file was able to be sourced although the Firm was unable to locate a signed certificate of independent legal advice given by the deceased. The basis for the request is not known and Mr Doolan is not aware of any subsequent queries raised by that former client nor notified of any potential claim.

94. The affidavit of Ms Edwards sworn 30 March 2023 reveals the following further facts:

1. Ms Edwards worked with the deceased at the predecessor of the Firm from January 1985 and became a partner in about 1997 retiring from the Firm partnership on 31 March 2009.

2. The deceased specialised only in family law and did not practice in other areas. He was an accredited specialist in family law having achieved his accreditation in the first year that it was offered by the Law Society in the early 1990s.

3. During the period that Ms Edwards was a partner of the Firm there were no claims made under the Firm’s Lawcover policy

4. When the legislative amendments regarding financial agreements were enacted in December 2000, the Firm did not immediately start doing work in that area but did subsequently accept instructions to advise on and/or draft financial agreements.

5. Work in relation to financial agreements was not a major or substantial part of the Firm’s practice during the time that Ms Edwards was a partner. She estimated (without the benefit of access to documentation) that it comprised no more than approximately 2.5% to 5% of the Firm’s cases per annum on average.

6. The deceased and other partners of the Firm held the view that the law in relation to financial agreements was complex and they kept abreast of changes including by attending seminars as part of their continuing legal education.

7. The Firm has a comprehensive set of precedents including precedents for financial agreements and letters of advice enabling them to give certificates required where they were advising on financial agreements.

8. The financial agreement precedents and letters of advice were lengthy and comprehensive. The precedents were updated frequently as the law changed and the agreements and letters of advice were adapted to suit the particular facts of each matter.

9. At some point prior to Ms Edwards’ retirement from the Firm in March 2009, by reason of legislative changes the partners of the Firm decided to implement and in fact implemented a policy not to advise on financial agreements due to the heightened risks associated with them for practitioners.

95. In light of the further evidence of Mr Doolan, I take it that Ms Edwards’ reference to the Firm implementing a policy not to advise on financial agreements appears to have been implemented in or about 2011 or 2012 at least for the following decade.

Counsel’s opinion

Basis for possibility of any contingent or potential claims against the estate

96. Dr Birch SC’s opinion addressed family law legislative provisions in caselaw regarding financial agreements.

97. Relevantly commencing on 27 December 2000, provisions of the Family Law Amendment Act 2000 (Cth) (assented to on 29 November 2000) introduced the concept of financial agreements to family law. The amendments provided for pre-nuptial agreements where parties could make binding agreements prior to a marriage as to the division of property in the event that they separated. Prior to this amendment, there was provision for such agreements in regard to de facto relationships under some State laws.

98. The legislation was initially highly prescriptive as to the form and manner in which the agreements were to be made including requiring parties to be given independent legal advice and for such advice to be certified.

99. In 2008, the Full Court of the Family Court of Australia held that strict compliance with the statutory requirements was necessary if the financial agreement was to be binding: Black v Black (2008) 38 Fam LR 503 at 511-512 per Faulks DCJ, Kay and Penny JJ.

100. Although there was no evidence to this effect, the Opinion anecdotally referred to a prevailing view of family law practitioners at the time that there was likely to be a very substantial number of agreements that would prove unenforceable which would likely result in a substantial number of negligence claims against solicitors.

101. There was a legislative response to the Full Court decision and, on 4 January 2010, the Federal Justice System Amendment (Efficiency Measures) Act(No 1) 2009 (Cth) commenced, which retrospectively changed the requirements to make a financial agreement binding and, in particular, required strict compliance with the requirements of s 90G Family Law Act1975 (Cth).

102. Apart from the potential for a solicitor to incur liability through failure to produce a binding financial agreement, the Opinion referred to complications arising from applicable limitation principles.

103. In particular, it was noted that an action in tort against a negligent solicitor does not crystallise until a loss is suffered citing Hawkins v Clayton (1988) 164 CLR 539; [1988] HCA 15. It was further noted that in certain circumstances a loss is not suffered even though a transaction may have been legally defective unless a claim or demand is made citing Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; [1992] HCA 55.

104. In determining whether a loss is suffered one must determine with some precision the nature of the interest that the transaction is intended to protect. Thus, for example, where a valuer negligently values a security for a mortgage, the interest is ensuring the debt may be paid from the security and a loss is suffered where there is default and sale of the property. In such circumstances, it is not necessary to wait to see whether the mortgage debt may ultimately be paid under the personal covenants pursuant to the mortgage: see Todd Hadley Pty Ltd v Lake Maintenance (NSW) Pty Ltd (No 2) [2020] NSWCA 81.

105. Because any defects in relation to financial agreements will only [or I infer perhaps usually] crystallise in a loss giving rise to a claim if and when the relevant marriage breaks down, it was submitted that there is almost no outer limit on when a claim may be made against the deceased’s estate which would still be within the relevant limitation period.

Risk of the contingent liability concern materialising

106. Dr Birch SC described the risk of the contingent liability concern as being the risk that the deceased might have been negligent in the preparation of a prenuptial agreement and that a loss had crystallised within the last six years in consequence of a party to such agreement making a claim consequent upon dissolution of a marriage: Opinion at [22].

107. Apart from the possibility of a claim against the deceased’s estate in negligence in relation to the drafting of any financial agreements, the extent of the estate’s liability would also depend upon the limits on such liability imposed by the PS Schemes if applicable at the relevant times and the availability of professional indemnity insurance: Opinion at [24].

108. The application has proceeded on the basis that professional indemnity insurance is generally a claims-based indemnity and unless circumstances had been notified in a previous year it is the policy of the year in which the claim is made that responds to the claim, not the policy of the year in which the work was done that gives rise to the claim: Opinion at [26].

109. The present Firm policy gives coverage to a solicitor who was a principal or employee of the Firm and extends to a prior practice of which the existing practice is held by Lawcover to be a successor firm: Opinion at [27].

110. Thus, to the extent that there is presently in existence a successor firm to the Firm for which the deceased worked as a solicitor, that policy would respond to a claim made against the estate of the deceased for any negligent conduct by him at the Firm: Opinion at [28].

111. Further, there is a PS Scheme in place whereby the Law Society and Lawcover arrange cover for solicitors who are no longer practising or the estates of such solicitors where there is no successor firm: Opinion at [29].

112. Accordingly, whilst it is expected that there will be insurance cover for the deceased’s estate in regard to claims alleging negligence by him during his years of legal practice in New South Wales, the cover will be up to the limits of the relevant indemnity: Opinion at [30].

113. However, in relation to the period at least between 22 November 2001 and 21 November 2006, with respect to any claim made against the deceased’s estate arising from conduct by the deceased during that period there is no limit on the liability of the deceased or the Firm: Opinion at [31].

114. The current Firm policy has an upper limit per claim of $2 million with a top up endorsement to the policy providing for a maximum amount of indemnity of $20 million. There are certain exceptions to that indemnity where the insured was or reasonably should have been aware of the claim prior to the period of insurance or the claim relates to or arises out of any fact or circumstance prior to the period of insurance specified in which the insured was aware or should reasonably have been aware of circumstances which might give rise to a claim: Opinion at [32].

115. It appears that the PS Scheme which operates where there is no successor firm may provide cover up to the extent of a previous top-up endorsement although there appear to be difficulties in how that would operate in circumstances where a top-up is optional and what is being provided is indemnity in lieu of insurance held by firm where there is no firm holding insurance: Opinion at [33].

116. Dr Birch SC concluded that there is at least a possibility of a contingent claim against the deceased’s estate arising from his legal practice which, if there was such a claim, would most probably arise from his conduct in regard to advising upon and facilitating the execution of financial agreements by clients: Opinion at [34].

Protection afforded by s 92 PA Act

117. Dr Birch SC addressed the extent of protection afforded by s 92 PA Act.

118. In discussing the scope of protection afforded by s 92(2) PA Act, Dr Birch SC indicates that there are a number of decisions in which the Court has given advice to executors in circumstances where there was fear of a future claim and where the claimant had not come forward or been identified at the date of the advice. He submitted that those cases did not discuss in detail whether or not s 92(2) (or the English equivalent) would have given protection but appeared to assume that it is at least doubtful that it would: Submissions at [17].

119. Dr Birch SC observed that the terms of s 92(2) PA Act appear on a superficial reading to suggest a high level of protection to executors who distribute assets after the publication of the relevant notice. However, he noted that that protection does not extend to an executor or administrator who has notice of a claim at the time of distribution: Opinion [36].

120. Dr Birch SC is of the opinion that whilst executors with actual notice of a claim (in context, a claim of a liability) may deal with that by way of the provisions of s 93 PA Act, where the claim is merely contingent or potential, the matter is far less clear: Opinion [36].

121. Dr Birch SC made reference to the fact that a number of dicta in English and Australian authorities suggest that despite the apparently clear terms of s 92(2) PA Act, it may not protect against a number of potential contingent claims. He observed that the difficulties of similarly worded English provisions were summarised by Lindsay J in Re Yorke (deceased); Stone v Chataway [1997] All ER 907 (Re Yorke), referring to the considerable doubts existing about the full extent of protection afforded by the English provision for contingent claims: Opinion [37].

122. The Opinion then made reference to and commented on the decision of Slattery J in Thompson v Gamble; Gamble v Thompson [2010] NSWSC 878 (Thompson v Gamble): Opinion [38]-[39].

123. The Opinion stated that Slattery J considered that similar doubts existed about the protection afforded to executors in New South Wales under s 92(2) PA Act: Opinion at [38].

124. I pause to observe that I do not think it is correct to say that Slattery J expressed similar doubts. His Honour did not consider the terms of s 92 PA Act in the reasons for judgment. His Honour briefly made reference to there being evidence in relation to the advertising of the trustees' intention to distribute under s 60 Trustee Act, but without making any comments regarding the extent of protection afforded by s 60 Trustee Act: at [45].

125. The Opinion states that there is a dearth of authority, or textbook commentary on the extent and nature of what constitutes notice for the purpose of s 92 PA Act: at [41]. That proposition is at least self-evidently qualified by the fact that there are clearly authorities dealing with actual notice.

126. The Opinion addresses the more vexed question of what beyond actual notice constitutes notice for the purpose of s 92 PA Act.

127. Dr Birch SC made reference to the taxonomy of knowledge discussed by Peter Gibson J in Baden v Société Générale pour Favoriser le Developpement du Commerce et de l'Industrie en France [1992] 4 All ER 161 (also reported at [1993] 1 WLR 509) (Baden): Opinion at [42].

128. The five Baden categories of knowledge specified by Peter Gibson J are actual knowledge (category (i)), wilfully shutting one’s eyes to the obvious (category (ii)); wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make (category (iii)); knowledge of circumstances which would indicate the facts to an honest and reasonable man (category (iv)); and knowledge of circumstances which would put an honest and reasonable man on inquiry (category (v)): Baden at [1993] 1 WLR 509 at 575-576, 582.

129. Dr Birch SC suggested that it is doubtful that the concept of notice for the purposes of s 92 PA Act would be viewed by the Court through the prism of the five Baden categories. He opined that nonetheless, whilst those categories have been criticised as overly analytical and praised as useful by different Courts at different times, they provide a useful means of attempting to grapple with the concept of notice where little guidance is otherwise available: Opinion at [42], [45].

130. Whilst I accept that there is no clear authority in New South Wales as to what form or degree of constructive notice might preclude reliance upon s 92(2) PA Act, there is some discussion of the issue in the United Kingdom, to which I will refer below.

131. There is no suggestion that the plaintiffs have any actual knowledge of the claim against the estate of the deceased that would give rise to contingent liability arising from acts or omissions by the deceased and the conduct of his legal practice. Nor is there any suggestion that the plaintiffs have wilfully and/or recklessly failed to make such inquiries as to any such contingent liability concern.

132. The arena of risk addressed by the Opinion is whether, assuming the Baden categories of knowledge were to be somehow analogously applied as being categories of notice, the plaintiffs might have constructive notice which might preclude reliance upon the s 92(2) PA Act notice of distribution, and so not be protected against liability in the face of distribution of the entirety of the estate. In particular, Dr Birch SC entertained the possibility that:

1. notice of circumstances which would indicate the facts to an honest and reasonable person that a claim of a contingent liability existed and would be made might be thought to potentially constitute a form of notice;

2. but notice of circumstances which would put an honest and reasonable person on inquiry that a claim of a contingent liability existed and would be made would more doubtfully be considered to be a form of constructive notice for the purposes of s 92(2) PA Act: Opinion at [43]-[44].

133. Dr Birch SC acknowledged that it may be hard to determine the exact scope of the concept of notice as used in s 92(2), particularly in the context of a type of ex parte application without a contradictor: Submissions at [19].

134. Ultimately, Dr Birch SC did not submit what view the Court ought to take regarding what constitutes “notice of a claim” for the purposes of s 92(2). In essence, he noted that the cases permit a conclusion that there may be “notice of a claim” for the purposes of s 92(2) where the executors are aware of the potential nature of a possible claim, although not aware of any specific claimant or not aware as to whether any specific claim will in fact ever crystallise: Submission at [19].

135. That submission is in essence a step away from a type of constructive notice to a more generalised awareness of possibilities.

136. The Opinion states that in neither Re Yorke nor Thompson v Gamble was there any specific insured claimant identified who could have a contingent claim as distinct from a potential class of persons who could possibly make a claim against the deceased’s estate in the future: Opinion at [46]. That is correct. The Opinion further states that that must have been treated as sufficient as to preclude reliance by the executors upon the protections provided by s 92(2) PA Act: Opinion at [46]. For the reasons I have indicated, I do not accept that as being the case. Slattery J in Thompson v Gamble did not address the extent of the protections provided by s 92(2) PA Act, nor (subject to a general comment on advertising to which I will refer) did Lindsay J in Re Yorke expressly address the statutory United Kingdom equivalent to s 92(2) PA Act.

Judicial advice

137. Dr Birch SC is of the opinion that:

1. by reason of the deceased’s engagement in practice in the area of family law in respect of advising in relation to financial agreements and there being a period between 22 November 2001 to 21 November 2006 for which the deceased’s estate has no PS Scheme cap protection from liability, there is a possibility of a claim for damages for negligence against the estate and, accordingly, it is not reasonable for the executors to simply hope no claim will be made against them: Opinion at [49], [51]; and

2. if a fund were to be set aside or retained by the executors there are obvious difficulties in determining what if any amount should be retained and for what period of time: Opinion at [55].

Position of Mr Doolan

138. The Opinion addressed a contention in a letter dated 11 August 2022 from Mr Thorpe to the effect that Mr Doolan, who is presently a partner in the successor Firm would have an interest in ensuring that in the event of a claim being made against his current Firm, it would be in Mr Doolan’s interests to see the largest sum retained in the estate to contribute to a claim that might be made: Opinion at [56].

139. Dr Birch SC is of the opinion that the possible conflict did not disable Mr Doolan from seeking judicial advice for various reasons including the fact that he does not seek to retain any portion of the estate but rather to distribute it in its entirety and that no form of security is being sought by the plaintiffs as executors: Opinion at [57]-[59]. I agree. I do not consider that Mr Doolan is disabled from seeking judicial advice and, whilst Dr Birch SC referred to several other considerations regarding this issue in the Opinion, I do not consider it is necessary to address those matters.

Issues

140. Having regard to the issue that I have identified at the commencement of these reasons for judgement, I will outline the law in relation to the obligation of executors with respect to ascertainment and payment of debts or liabilities of a deceased and, in particular, contingent liabilities and what protective options are available to executors with respect to distribution of the deceased’s estate in light of such risks.

141. The particular issues that arise are:

1. What is the likelihood of the risk of the contingent liability concern arising?

2. What enquiries have the executors made in respect of risk of the contingent liability concern and what knowledge do the executors have of such risks?

3. What advice should be given to the executors?

What are the LPRs obligations regarding payment of debts and contingent liabilities?

142. In New South Wales, a grant of probate to an executor is based on a sworn representation (by oath or affirmation) in an affidavit that the executor if granted probate will administer the estate according to law: Uniform Civil Procedure Rules 2005 (NSW) (UCPR) Form 118 at [9(a)].

390. The deceased had been a “name” at Lloyd’s of London Insurance Market from 1983 until his death in 1991.

391. There was evidence from the chairman of Lloyd’s Underwriting Agents Association explaining that each individual member of a syndicate (“names” such as the deceased) agrees to assume a proportion of the risks underwritten by that syndicate. The liability of an individual for that agreed part is unlimited, but there is no liability on the individual for the failure of any fellow member of the syndicate to bear that other’s proportion: at 911.

392. Relevantly, on becoming a name at Lloyd’s each individual signs a general undertaking to the effect that he and his personal representative shall be bound by the rules of Lloyd’s. Whilst each syndicate in a sense was an annual venture, the syndicates were accounted under a three-year accounting system in which the syndicate’s profit or loss was calculated only at the end of the three years. At the end of that period, there were likely to be unsettled claims and the possibility of future ones. In order to achieve finality in respect of any accounting period there was a system called “reinsurance to close”: at 911. The nature of the reinsurance system and reinsurance methods was described by Lindsay J in the judgment.

393. In the period 1988 to 1992, Lloyd’s suffered enormous losses. A reinsurance group Equitas was formed into which all liabilities for 1992 and earlier years were to be reinsured. The deceased’s estate had acquired the benefit of reinsurance into Equitas in respect of every possible Lloyd’s risk to which it would or might otherwise be vulnerable: at 913. However, as Lindsay J noted, reinsurance is only as good as the relationship between the funds available or to become available to the reinsurer and the claims it has to meet: at 913.

394. The reasons for judgment detail certain of the risks facing the estate in respect of claims based on detailed evidence: at 914-916.

395. Lindsay J held that, on the facts of the particular case, the executors could distribute without retaining out of the estate a fund or any particular security beyond the personal security of the recipients in support of an indemnity from the beneficiaries to the executors should it transpire that they had been overpaid by reason of there being emerging debts in respect of the deceased’s “open years” which were unsatisfied by the Equitas arrangements: at 922-923.

1999 – Estate Hall

398. In Estate Hall, the deceased was also a name of Lloyd’s. The executors wished to finalise the administration of the estate and to distribute it to the relevant beneficiaries but were concerned because of the existence of possible contingent claims against the estate arising out of the deceased’s underwriting activities and their consequent risk of personal liability. The executors believed that the interests of any claimant against the estate had been reasonably secured by virtue of reinsurance arrangements made for names through the Equitas group (as was the case in Re Yorke) but nonetheless sought advice regarding distribution.

399. Austin J accepted and adopted the reasoning and conclusion of Lindsay J in Re Yorke.

400. The particular issue in Estate Hall was the question as to whether there was sufficient evidence adduced on the application to enable his Honour to apply the principle in Re Yorke: at [9]. There was no direct evidence adduced as to the general contractual position of Lloyd’s names and the overall arrangements which were negotiated with the Equitas Group. However, his Honour considered that he was able to rely upon the details which emerged in the reasons for judgment in Re Yorke: at [9]-[10].

401. That was not the only issue regarding evidence. When the matter initially came before Austin J, there was no evidence that the relevant insurance premium had been paid and, whilst financial statements for the Equitas Group for the relevant 1999 year were put in evidence, his Honour found it difficult to relate those statements to the financial picture described by Lindsay J in Re Yorke. Given the (then) recent turbulence in the financial performance of reinsurance companies his Honour was concerned there was no evidence updating the financial position of the Equitas Group after March 1999. His Honour adjourned the hearing to give the executors the opportunity to obtain and adduce further evidence: at [12].

402. Subsequently, additional evidence was adduced – including of financial statements and a letter from Jardine (Lloyd’s Underwriting Agents) Ltd, the members’ agent for the deceased – more particularly addressing the deceased’s “Finality Statement” and the arrangements regarding Equitas. On the basis of the additional evidence, his Honour concluded that the Equitas reinsurance arrangements were in full force and effect with respect to the deceased’s estate and provided reasonable protection to the estate with respect to any contingent liability of his as a name: at [18].

403. His Honour proceeded to make an order similar to the order made by Lindsay J in Re Yorke in respect of the matter.

404. The extent to which Austin J could rely upon the decision in Re Yorke regarding the contractual position of Lloyd’s names and the overall arrangements negotiated with the Equitas Group was, however, limited. His Honour referred to a number of findings of Lindsay J in Re Yorke which were critical to his Lordship’s decision. Those matters on which there would need to be specific evidence were:

1. the current financial statements for the Equitas Group;

2. whether there was any syndicate in which the deceased participated which had been left outside the Equitas arrangement;

3. that the Equitas reinsurance arrangements, so far as they affected the deceased, were still in force; and

4. that the two Equitas companies which had been granted authorisation to operate as reinsurers still had the benefit of that authorisation and that there was no basis for apprehending that it would be withdrawn: at [11].

2007 – Re K

405. Re K (which I have referred to above) addressed a slightly different issue to a contingent liability. It involved a series of disputed and stale claims against the estate. Arnold QC in principle indicated that in such a case a similar approach should be adopted: at [24].

406. Arnold QC noted that whilst the Court will be sympathetic both to the desire of administrators to be immunised from personal liability and to the desire of beneficiaries not be kept out of their inheritance longer than is necessary, the Court should consider whether any, and if so what, protection should be afforded to the potential creditors: at [24].

407. Arnold QC endorsed the notion that the Court should take a practical view. It may be that in an appropriate case it is concluded that no protection beyond the personal liability of the beneficiaries is needed. Even if the Court concluded that a greater degree of protection is required, it is not necessarily bound to protect the potential creditors in respect of the full value of their claims: at [24].

2010 – Thompson v Gamble

408. In Thompson v Gamble, the deceased was also a name at Lloyd’s. He left a substantial estate with a net distributable value in excess of $5.6 million. There were several applications before the Court. One related to a family provision claim. The second related to advice sought by trustees pursuant to s 63 Trustee Act as to whether they were at liberty to distribute the deceased’s estate without making any retention or security on account of the estate’s contingent liabilities for the deceased’s role as a name at Lloyd’s. Slattery J referred at length to the decision of Lindsay J in Re Yorke: at [15]-[16].

409. His Honour explained the particular dilemma of the “stark choice” faced by executors between retaining the entire estate indefinitely which would be unfair to the beneficiaries or distributing on the basis the creditors have no right to expect the trustees to make such an indefinite retention when the creditors have protection which has been assessed to be commercially appropriate: at [19].

410. His Honour considered the possibility of a future claim by a Lloyd’s policyholder in a relevant syndicate year against the deceased’s estate was so remote as to not prevent a distribution: at [19].

411. In Thompson v Gamble, Slattery J, after outlining the evidence, referred, in particular, to the above-mentioned factors identified by Austin J and focussed on three of those four factors: at [29]-[30]. His Honour found that those factors were relevantly established on the evidence: at [30]. His Honour also referred to the fact that the evidence established that the executors had advertised an intention to distribute pursuant to the provisions of s 60 Trustee Act and that no notice of any other liability had been given to the trustees: at [45].

412. Although there was a remote possibility that, in the event that the overall reinsurance arrangements failed, a further claim may be made against the estate, Slattery J was satisfied in light of the assessments of the position that Lindsay J had made in 1997 and Austin J in 1999, and, on the basis of events since that time, that the possibility was sufficiently remote that it should not prevent the trustees from distributing the whole estate and, accordingly, gave advice to that effect pursuant to s 63: at [47].

2015 – Ingrey v King

413. In Ingrey v King [2015] EWHC 2137 (Ch); [2016] WTLR 131 (Ingrey v King), the deceased entered into three film partnership investment schemes with a view to those schemes being tax efficient and operating to mitigate his income tax liability: at [5]. However, as a result of litigation a serious question arose in relation to the effectiveness of those schemes. The nature of the various liabilities was described in the judgment. Apart from one of the partnerships, certain loans were not due to be repaid or at least fully repaid for a period of at least six years. There were also potential liabilities in respect of historic tax as well as tax upon future income from the partnerships: at [5]-[7], [13], [15].

414. Judge Walden-Smith (sitting as a judge of the High Court) stated that what the Court has to do in circumstances such as addressing possibilities of contingent debt is to seek to achieve a fair balance between the beneficiaries, who would otherwise be kept out of the benefit they are entitled to as a result of liabilities not being quantified or quantifiable, which liabilities may nonetheless not come to anything as against the risk of there being further creditors finding debts met, and the Court has to look at the reasonable probability of future demands against the estate: at [12].

2017 – Barr v Rockman

415. In Barr v Rockman [2017] VSC 581 (Barr), there was an application to the Court for directions by the (remaining) executors of an estate. The nature of their concern related to a potential contingent liability arising out of a motor vehicle accident where a tenant of a property owned by the trustee of the deceased’s family trust suffered serious but not critical injuries. The trustee held certain insurance cover which was detailed in the reasons for judgment. There was a risk that the accident might give rise to a contingent liability to the estate as the deceased had managed the property and the tenant personally (with some assistance from her daughter and a bookkeeper) in circumstances where the deceased had indemnified the director of the trustee: at [24].

416. McMillan J noted that there was a risk that the accident may give rise to a contingent liability to the family trust: at [25].

417. Her Honour observed that, generally, where trustees know of or reasonably anticipate an outstanding claim, a sufficient sum must be retained to satisfy the claim before distribution of trust assets: at [31].

418. Detailed evidence in respect of the potential contingent claim was adduced: at [34].

419. Her Honour concluded that the possibility of a future claim was so remote as to not prevent the final distribution of the estate and the trust: at [34].

420. The particular considerations that supported that conclusion included (1) the fact that the tenant had received compensation for the injuries sustained; (2) the description of events prima facie did not establish negligence in failing to repair the driveway before the accident or were not otherwise causal of the accident; (3) the two insurers were notified of the accident and the policies covered a liability for personal injury up to $30 million in total, providing reasonable protection to the estate, the trust and to contingent creditors; and (4) that the executors of the estate and trust had advertised their intentions to distribute and no notice had been given to them of any other liabilities: at [35].

421. In Barr, McMillan J referred to the decision of Slattery J in Thompson v Gamble and summarised by reference to his Honour’s decision factors that should be taken into account in relation to advice regarding distribution in the face of a potential contingent liability as including:

1. the risk of a possible claim being made in the future by a creditor;

2. whether protection could be achieved by the taking out of adequate insurance that has been assessed as commercially appropriate to cover the contingency; and

3. whether the trustee has advertised the intention to distribute the estate: at [33].

Issue 1: What is the likelihood of potentially negligent conduct and risk of the contingent liability concern being realised?

Submissions

422. No particular submissions were put regarding the likelihood of the deceased during the course of his practice having engaged in potentially negligent conduct.

423. Dr Birch SC expressed the opinion that:

1. it was difficult to identify with any precision any particular matter in which the deceased acted that might give rise to a claim;

2. it would be extremely burdensome to the estate to make any form of audit of the deceased’s files, assuming a substantial number can be found to add any level of precision to the estimate of risk; and

3. it was nonetheless not likely that a claim would eventuate against the plaintiffs as executors: Opinion at [54].

424. Based on the SF, Dr Birch SC submitted that:

1. there is a real chance albeit unlikely that a claim could be made against the deceased’s estate for damages arising out of the deceased’s conduct of his practice as a solicitor: Submissions at [12];

2. in the deceased’s case the nature of his practice in family law, in drafting and securing execution of financial agreements, carried a special risk that action could be taken against him if such financial agreements failed to achieve their intended effect in consequence of any negligent conduct by him: Submissions at [12]; and

3. the basis for the submission of a “special risk” is not that the deceased was more prone than any other solicitor to professional negligence but, rather, that financial agreements in family law have proved a fertile ground for claims against solicitors: Submissions at [13].

Discussion

425. The submission of there being a real chance albeit unlikely that a claim could be made against the estate begs a number of questions.

426. There is no evidence or proved factual basis for concluding that the deceased acted negligently.

427. On the initial hearing of the application, I raised with Dr Birch SC the fact that there was no particular evidence regarding the number of matters in which the deceased acted, nor detail about claims made or circumstances that might give rise to a claim.

428. In the absence of any such evidence, the most that can be said is that simply by dint of human experience it is conceivably possible that in one or more of the matters that the deceased was involved in during the course of his practice as a solicitor that he acted or failed to act in such a way as to give rise to potential negligent conduct.

429. One possibility is to provide the Court with some information in relation to the number of matters in respect of which the deceased acted regarding financial agreements and some information in relation to the claims history of the deceased.

430. That has some limitations which are inherent in any legal proceedings with the nature of any form of “tendency evidence”. The fact that any deceased legal practitioner has had many claims made against him does not necessarily mean that such deceased was prone to acting negligently.

431. On the other hand, the fact that the deceased has had no claims does not necessarily mean that the deceased was exemplary in practice.

432. However, there are some possible ways that the matter might be considered without necessarily “looking for a fight” or “boxing at shadows”.

433. The premise on which the application is made is based on the fact that the most likely area of potential risk of the deceased’s practice arose out of advising in relation to prenuptial or cohabitation agreements.

434. The Opinion referred to legislative and caselaw provisions bearing upon this.

435. Following my discussion with Dr Birch SC regarding searches that might be carried out the plaintiffs, as noted above, availed themselves of the opportunity of providing further factual material supplementing the material in the SF and initial affidavits.

436. Whilst it is not the role of the Court on a judicial advice application to make any specific finding or determination in respect of whether the deceased during the course of his practice engaged in potentially negligent conduct, the further factual material has assisted the Court in making a determination as to whether the executors would be justified in distributing the entirety of the net estate.

437. The following factors combine to provide a sound basis for thinking that it is not likely and indeed remote that the deceased engaged in negligent conduct such that the contingent liability concern might be realised. Namely:

1. some clarity (albeit not complete precision) has been given to the number of matters that the firm and indeed the deceased acted upon relating to financial agreements;

2. the deceased was a careful and meticulous lawyer;

3. the precedents that the deceased used, to the extent that the plaintiffs are aware, did not exhibit any issues that had been raised by cases dealing with financial agreement legislative provisions;

4. the financial agreement precedents were constantly revised by reference to considered input from a number of different sources; and

5. the deceased has no history of any claims being made against him and the only potential claim notified did not reveal any negligent conduct and was not ultimately pursued.

Issue 2: What executors’ enquiries have been made and what is the executors’ knowledge of the risk of the contingent liability concern?

Submissions

438. Dr Birch SC submits that if a claim would be made against the estate and crystallised in a verdict, it could be a claim of a sort of which it could be said that the executors had notice at the time of distribution and hence would not be protected by publication of the notice pursuant to s 92 PA Act: Submissions at [14].

439. That submission was put on the basis that the executors are not presently aware of any specific claim (Submissions at [15], [21(ii)]) but there is a possibility that they might have knowledge of circumstances that might give rise to a claim): Submissions at [15].

Discussion

440. It is clear that the executors have no actual knowledge of a claim.

441. The supplementary evidence adduced by the plaintiffs suggests to me that it is possible that the executors would be able to identify and potentially examine a number of files in which the deceased drafted and/or advised upon financial agreements.

442. However, the further evidence adduced by the plaintiffs shows that a type of audit process such as I postulated in discussion with Dr Birch SC would at best produce only qualified answers because there may be a number of files that are not actually able to be identified because of descriptions of the files and there may be some files which have been destroyed and others which even if the files were obtained and examined might not provide clarity as to whether drafts of agreements were ever finalised or signed.

What (if any) advice should be given to the executors?

Submissions

443. Dr Birch SC submits that the executors are concerned that if they distribute the whole of the estate and were to be served with a claim for damages they could be exposed to legal liability: Submissions at [10].

444. The provisions of s 63 Trustee Act contemplate that the way that an executor obtains advice and is protected is by the provision of either evidence or other material placed before the Court referable to a “statement” of facts: s 63(3).

445. Ultimately, the statement relied upon by the executors included some facts in the sense of providing some clarity of numbers of files in which the deceased and the firm acted and advised in relation to financial agreements, some details bearing upon the deceased’s claim history on the one hand and a number of possibilities on the other.

446. Dr Birch SC submitted (Submissions at [22]) that the matters relevant to whether a fund to cover claims should be retained and the size of any such fund were:

1. the indefinite time horizon within which a claim might arise;

2. the impracticability of measuring the real likelihood of a future claim;

3. the deprivation of the beneficiaries of the benefit of their inheritance during such time horizon; and

4. the retention of a small portion of the estate would be relatively immaterial to covering claims within the existing cover threshold but on the other hand the size of the estate would only add a limited additional layer of indemnity of about 30% of the existing cover (to large claims beyond the threshold).

447. Dr Birch SC submitted that the above factors were sufficient to enable the Court to advise the executors they would be justified in distributing the whole of the estate after payment of those debts and expenses of which the executors are presently aware: Submissions at [23].

Discussion

448. The inherent uncertainty of a matter in the administration of a trust might in some cases mean that a question is not ripe for determination. Nonetheless, uncertainty per se does not preclude a LPR from availing itself of the advice procedure. Indeed, the legislative scheme is such that it is desirable that trustees in doubt as to a course of action should not proceed with it and seek relief under s 85 afterwards, but rather seek s 63 advice first: Macedonian Church Case at [36]; Mills v Mills [2018] NSWSC 363 at [22] per Sackar J.

449. Senior counsel is of the opinion, which I accept, that there is at least a possibility of a contingent claim against the deceased’s estate arising from his legal practice which, if there was such a claim, would most probably arise from his conduct in regard to advising upon and facilitating the execution of financial agreements by clients: Opinion at [34].

450. The question arises as to whether the plaintiffs might have notice of any claim having advertised pursuant to s 92 PA Act.

451. Specifically, the issue is whether for the purposes of s 92(2) PA Act the plaintiffs might have notice of circumstances which would:

1. indicate the facts to an honest and reasonable executor that a claim of a contingent liability existed and would be made; or

2. put an honest and reasonable executor on inquiry that a claim of a contingent liability existed and would be made: Opinion at [43]-[44].

452. The Opinion acknowledges that the plaintiffs are in a position where they know that there is at least a possibility that previous clients of the deceased my find themselves in the situation where a financial agreement, prepared on their behalf by the deceased, is found to be unenforceable and a claim is consequently made against the estate: Opinion at [47].

453. Further, Dr Birch SC is of the opinion that it is at least arguable that a Court might find such a potential contingent claim is one of a sort of which the plaintiffs as executors presently have sufficient knowledge such that they are not protected by publication of the s 92(2) PA Act notice: Opinion at [47]. Subject to what I note below, I accept that proposition.

454. The issue in relation to advertising is essentially twofold.

455. First, there is the conundrum that even if one admits the possibility of s 92(2) PA Act not protecting a LPR in respect of some form of constructive notice, the law (in New South Wales) is not clear as to what form or degree of constructive notice might preclude reliance upon s 92(2).

456. Secondly, the comments of Lindsay J in Re Yorke point up the fact that there are some types of contingent claims for which an advertising procedure as a means of protecting LPRs is not entirely apt because such advertising might not also give fair notice to potential claimants and a reasonable opportunity to bring forward their claims.

457. In relation to the seeking of judicial advice, the Opinion addresses some remarks to whether the possibility of a claim being made against the deceased is greater than the possibility of a claim against the deceased’s estate considered by Slattery J in Thompson v Gamble: Opinion at [48].

458. I doubt the utility of comparison of possibilities. However, I do agree that the uncertainty regarding the possibility of claims made by potential former clients of the deceased provides the basis for the Court to consider whether or not to give the advice sought.

459. Dr Birch SC is of the opinion that it is not likely that the sort of claim that he has described will eventuate against the plaintiffs as executors: Opinion at [54].

460. It seems to me that the possibility of a claim being made by a client against the deceased’s estate in respect of negligence arising out of the deceased’s legal practice and, in particular, that part of the deceased’s practice involving work in relation to financial agreements which would not be covered by a cap on professional indemnity insurance is remote.

461. In particular, I note:

1. the Firm and the deceased undertook a very small percentage of work with respect to advising in relation to financial agreements;

2. the deceased was a capable, careful and meticulous lawyer who with other partners of the firm took steps to mitigate risks arising out of advising in relation to financial agreements;

3. the plaintiffs as executors have no notice of any actual claim in respect of conduct by the deceased in respect of his legal practice;

4. there is nothing about the deceased’s claim history which suggests that any claim against the deceased is likely;

5. the period for which there is no indemnity cap was at least 15 years ago;

6. there is doubt as to the extent of protection afforded to the plaintiffs as executors consequent upon the advertising of the notice of distribution pursuant to s 92 PA Act specifically as to whether protection is afforded from notice of circumstances which would (a) indicate the facts to an honest and reasonable executor that a claim of a contingent liability existed and would be made; or (b) put an honest and reasonable executor on inquiry that a claim of a contingent liability existed and would be made; and

7. if a fund were to be set aside or retained by the executors there are obvious difficulties in determining what if any amount should be retained and for what period of time.

462. In light of the above it seems to me that it is appropriate to enable beneficiaries to have early enjoyment of property to which they will, as a matter of practical certainty, ultimately become entitled and accordingly to give to the plaintiffs the advice that the plaintiffs seek.

Conclusion

463. I make the following orders:

1. the Court advises and directs pursuant to s 63 Trustee Act that the plaintiffs would be justified in distributing the entirety of the estate of the late John Barkus, without retaining any amount by way of provision or security notwithstanding the potential contingent liability arising from the deceased’s legal practice or a claim for which his estate may become liable; and

2. the Court orders that the plaintiffs’ costs of and incidental to the application for judicial advice, calculated on the indemnity basis, be paid out of the estate.

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Decision last updated: 06 April 2023