Badenach & Anor v Calvert

[2015] HCATrans 279

[2015] HCATrans 279

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Hobart   No H9 of 2015

B e t w e e n -

ROBERT BADENACH

First Applicant

MURDOCH CLARKE SOLICITORS (A FIRM)

Second Applicant

and

ROGER WAYNE CALVERT

Respondent

Application for special leave to appeal

KIEFEL J
KEANE J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO MELBOURNE

ON MONDAY, 26 OCTOBER 2015, AT 10.12 AM

Copyright in the High Court of Australia

MR J. RUSKIN, QC:   If the Court pleases, I appear with my learned friend, MR S.B. McELWAINE, SC, for the applicants.  (instructed by Shaun McElwaine Barrister & Solicitor)

MR K.N. WILSON, QC:   If the Court pleases, I appear for the respondent.  (instructed by Shine Lawyers)

KIEFEL J:   Yes, Mr Ruskin.

MR RUSKIN:   If the Court pleases, the matters of general importance which we submit justify special leave in this case concern two aspects:  first, whether the scope of the duty of care which is owed by a solicitor to a non‑client beneficiary should be extended beyond the duty found in Hill v Van Erp in the circumstances found by the Full Court, and the second is whether, in a claim for damages governed by section 13 of the Civil Liability Act, causation can be satisfied, not by reference to the balance of probabilities but by reference to a doctrine of loss of chance or loss of opportunity.  In essence, in that respect, we submit that the Full Court impermissibly, we say, with respect, merged the test of causation with the test for measure of damage.

So if we could seek to develop those aspects in short compass.  First, we say the Full Court extended the scope of the duty to the beneficiary well beyond that found in Hill v Van Erp which was a duty to give effect to testamentary intention in the context of compliance with formalities to an area which involved advice with respect to rearrangement of assets inter vivos. 

That this was an extension is recognised in the case itself.  Chief Justice Blow at first instant recognised that at paragraphs 8 and 17, and Justice Porter in the Full Court at 50 and some of the other cases – and we just mention Vagg at 52 recognises that - in the context of Vagg, which was a case about not complying in a certain way, the duty had been extended.

The second aspect is that in formulating the duty as it did, we submit that the formulation of that duty is inconsistent with one of the central foundations of Hill because the Full Court imposed a duty to the beneficiary which gave rise to conflict or potential conflict with the duty to the testator client. 

Our submissions point to where the judges in various ways underpin the duty found in Van Erp on the basis that the duty there was available because the interests were, to use Chief Justice Brennan’s word, “coincident”.  Here, the duties are not coincident; the interests are not coincident because in advising the testator with respect to the rearrangement potential of his assets the advice must comprehend advice which would not be in the interests of the beneficiary.

KEANE J:   Mr Ruskin, could I just ask you about that?  Was there evidence that for the testator to rearrange his assets he would have been put to expense to do that?

MR RUSKIN:   I understand there was some evidence about stamp duty and about GST, but in terms of fees of solicitor I do not think there was evidence of that, but it would be assumed when one traces this through that he would need to be consulted, of course, and the beneficiary would need to get advice about what the consequences of joint tenancy would be, that the survivor gets the lot and it might not be him, for example.  That aside, it was probably assumed but there was no direct evidence.

KEANE J:   Certainly there was no assumption that the solicitor would have done whatever work was necessary for free?

MR RUSKIN:   That is so, your Honour.  When one looks at the dot points that Chief Justice Blow put at 23 in the judgment – if the Court would be kind enough to look at that for a moment – it just gives one the start of the argument about how the conflict might arise.  So there are about – at least some of the dot points that expose the possibility of conflict, take the first one:

In the situation . . . there would be nothing wrong with the solicitor explaining to the testator that a court would consider he had a moral obligation to provide for his daughter.

The Court will see that at 23.  Well, just starting there, once he goes down that track he is not, we would submit, in practical terms just limited to talking about options.  He might need to explore that.  He might need to say you really do have an obligation to your daughter and here are ways of fixing it cannot be in the economic interests of the beneficiary. 

One of the points in Hill v Van Erp that Justice Dawson made was that in postulating the duty to the beneficiary you are acting to advance the economic interests of the beneficiary in Hill because you are validating a will from which he gets an economic interest.  Now, here, how could it be in his economic interests to settle with the daughter?  It is not.  How can it be – take the third dot point - in the interests of the beneficiary, to:

advise the testator to make provision for his daughter.

Take the last three:

recommend one option, but should explain all –

disguises the fact that in practical terms solicitors will “weight”, if I can use that expression, certain options and may well say this is the way you might well think you should do.  You must make the decision, testator, but really, in practical terms, this is what you really ought to do.  He sometimes advised clients not to give their assets away in haste.  The last one:

If advising as to the creation of joint tenancies, he would advise as to the risk of the younger co‑owner unexpectedly predeceasing –

Now, we say that in all those circumstances, when you sit down with the testator you will inevitably be pressed, and you should not be, to give advice which, if you were just acting for the beneficiary, would not be in that beneficiary’s interests.  That conflict was at the heart of the argument against the duty, but we respectfully submit the Court of Appeal did not deal with it. 

The Court of Appeal – and the best one finds in this context is paragraphs 78 to 81 of Justice Porter and 152 of Justice Estcourt.  If we just spend a moment at 78 of Justice Porter.  It is simply put that there is not a conflict and the analysis is not an analysis of conflict.  It just talks of what the cases say and it has just concluded that there is no conflict, but there is no analysis.  The same applies with Justice Estcourt.  Justice Tennent did not deal with the matter.

Now, the third point, if we might make it, that underpinned Hill v Van Erp was the concept of control.  Justice Gaudron at 198 and Justice Gummow at 234 of Hill talked of the concept of control as justifying the duty the solicitor owes to the beneficiary and it makes logical sense, with respect, because in validating the will, getting the witnesses right, that is something over which the expert solicitor has complete control.  But the solicitor in this case cannot control the advancement of the economic interests of the beneficiary, not one bit.  He can talk to the testator but the ultimate decision belongs to the testator.  So that we say here the element of control is entirely lacking when it was entirely present in the case of Hill v Van Erp.

The fourth point we wish to make is that there has never been a case in Australia which has extended the duty to a non‑client beneficiary in respect to advice about rearranging your assets inter vivos.  The nearest you get is cases such as Smeaton in other States which imposed the duty - but it might depend on breach in terms of facts – on the solicitor to get the will signed in time.  If you have someone who has only got a few weeks to live you had better get over there and do the will, and if you do not do it the beneficiary might lose a benefit.  But there is full control by the solicitor if there is no breach, namely get out there and do the will, and there is no conflict.  The interests of testator and beneficiary in that case are coincident.

The fifth point is we submit that the duty found by the Full Court is incoherent and inconsistent with established duties of a solicitor which is twofold:  (a) you cannot become involved in a conflict or a potential conflict of interest.  You cannot give advice with one hand behind your back worried that if you press advice too much one way the other person to whom you owe a duty might be disadvantaged.  The second is that you need to comply with your obligations of legal professional privilege and it is very easy to understand that if you get to the stage, and we submit in our next point, you must, where you deal with a beneficiary, how do you do that without disclosing what your client, the testator, wants to do.  You need to say well, my client has in mind, and I have given you advice about joint tenancy, do you wish to go on with that yourself?  One can see examples of how legal professional privilege can be breached.

We make a second point that if a solicitor had to defend himself from the case of not complying with his duty because he did not tell the testator, now dead, enough how does he do that?  How does he tell the court that he told the testator all these things without breaching the privilege that he had in the advice he gave the testator.

The sixth point is that in practice, if you have a duty to advise which is a duty owed to the beneficiary, it is in practical terms inconceivable you should not deal with the beneficiary.  In part of the cross‑examination of the expert, you can see how this happened.  If the testator says well, let us go the joint tenancy way, how do you deal with the beneficiary?  Surely, the solicitor cannot just send out a transfer and say sign it because how does the beneficiary know the consequences of that, the consequences being that he could drop dead tomorrow, be hit by a car, and matters of that kind. 

The solicitor really is obliged to get into the question of what the risks are to the beneficiary in order to effectuate what the testator might want to do, but then the beneficiary might say I do not want to do it that way, so that you have a double problem of not being able to properly advise either because they may not agree.

The seventh point is that although the respondent has disclaimed that the applicants had to have regard to the economic interests of the beneficiary, clearly on this duty the applicants had to do so.  You cannot have a duty of care to someone without the obligation to advance their economic interests and, indeed, the whole claim is for the loss of the economic advantage you otherwise would have had.  I referred the Court to Hill v Van Erp, Justice Dawson’s judgment at 187.

KIEFEL J:   Mr Ruskin, at paragraph 6 of the respondent’s argument it is said that the applicant has apparently abandoned its argument “that no duty of care arose, for public policy reasons” which I take to be related to the notion that there was a duty to advise how to overcome the Testator’s Family Maintenance Act.  Is it correct that the applicant has abandoned that argument?

MR RUSKIN:   Well, we do not press that argument because we were confronted by the case of Barnes.  Barnes is the case in which it was said that it is proper to – a deed by which the TFM obligations are dealt with, you have a deed which avoids the consequences of that, that is not against public policy.  Now, whether, in the context of a duty that entirely is happy, we are not entirely sure.  So without entirely abandoning it, we understand the force of an argument that says in another context the High Court has said a deed is valid even though it bypasses this concept.  A duty of care may be a different thing, so that is how we would seek to answer that.

Your Honours, the final point relates to causation.  In Tabet v Gett, your Honour Justice Kiefel at about paragraph 136, looked at the notion – following Sellars – it is a two‑stage process.  The traditional test of causation is on the balance of probabilities and thereafter the measure of damage can be by reference to Malec and all those other considerations.  Just by reference to the solicitor negligence cases, you can tell that is so.  The solicitor does not issue in time but he certainly has, on the probabilities, the right to issue within time.  Whether he ever would have won the case and what his damages were, that is to be done by reference to loss of opportunity.

So in failing to deal correctly, with respect, with causation, we say the Court needs to be concerned, especially when it is underpinned by section 13 of the Act which talks of the need to have breach as the condition for the damage.  The Court has looked at this, particularly in Adeels, where you have to show on the balance of probabilities, not by just some chance.  So for all those reasons, we submit that this is a case in which it is appropriate to give special leave.

KIEFEL J:   Yes, thank you, Mr Ruskin.  Yes, Mr Wilson.

MR WILSON:   Your Honours, the first and second special leave questions, as they have been formulated by the applicants, concern the content of the duty of care.  That a duty of care was owed by a solicitor to a beneficiary is plainly established by the decision of this Court in Hill v Van Erp.  That duty is one to take reasonable care to ensure that the testamentary intentions of the testator can be given effect.  As we have said in our written outline, that is quintessentially a factual inquiry as to what amounts to reasonable care in a particular case.

KIEFEL J:   But what is really put against you is that the Full Court has rather extended the notion of duty in Hill v Van Erp.

MR WILSON:   What the Full Court has done, with respect, is to identify that in this case what the solicitor did or did not do did not fulfil his duty to exercise reasonable care, that is to exercise reasonable care there was a duty to make inquiry and a duty to give advice, both of which were accepted also by the trial judge at paragraphs 9 and 25 of the reasons of the Chief Justice.  The facts of this case were not commonplace.

KEANE J:   Mr Wilson, the duty to give advice – I am just trying to get that a little bit more concrete as to its content.  In this case a major aspect of the loss with which your client is concerned is the cost of the TFM litigation, is it not?

MR WILSON:   Yes.

KEANE J:   So the solicitor has the duty to give advice – I am just trying to get a handle on the content of that – would that advice consist of advice to the effect that well, you have an estranged child who has a claim that may well succeed under the TFM legislation and, if it does, the likelihood is that the costs of that claim would be borne by the estate and so you should consider making a gift that would look to forestall the prospects of a TFM claim?  Would the advice extend that far?  Would the obligation to advise extend that far?

MR WILSON:   Up until the last point that your Honour just made.

KEANE J:   Yes.

MR WILSON:   Could I just go back one step?

KEANE J:   Sure.

MR WILSON:   The duty is to make inquiry – do you have any children?  If the answer to that question is yes, it is self‑evident from the instructions that the solicitor has been given that that child is not to be left anything under the will.  Then there is a duty to advise the testator that there is this piece of legislation and its effect is such and such.  Then, to answer your Honour’s last point, it is not to say, to give that specific advice, these are your options.  The testator may say “Thank you, I didn’t realise that.  I’ll leave $100,000 to my daughter”, or the testator may say, “How do I get around that?”  That, with respect, leads to the next part of the assessment of the chance of what has been lost.

KEANE J:   Just staying with the content of this duty for a moment, if the testator says “I want advice as to how I can get around that”, we have a situation where we know as a fact from what has happened that a court has decided, applying the principles that govern the application of the TFM legislation, that a wise and just testator would have left the daughter $200,000.

MR WILSON:   Yes.

KEANE J:   So the content of the duty that you are propounding would involve advice as to how the client could avoid being a wise and just testator.

MR WILSON:   That runs directly to the point that Justice Kiefel raised with my learned friend.

KEANE J:   Not quite, because that is not what was at issue in Barnes.  This is really a question, not of public policy as to whether the legislation can be avoided, but it is a question of coherence in the law in relation to the obligation to advise that you are propounding against, apparently successfully, against the solicitor, that the solicitor has an obligation to assume a role of advising the testator as to how he or she may avoid being a wise and just testator.

MR WILSON:   The solicitor’s duty is first to give the client the options.  If the client then seeks specific advice as to how to order his affairs to achieve a certain result, then it is the solicitor’s obligation to give that advice.  But that is a number of steps down the track.

KEANE J:   Yes, it is, but if one does not think about those steps, one sees the issue in perhaps certainly a simpler light, but perhaps an unduly simplistic light given that we are talking about obligations on a solicitor here to actually take steps to advise the client as to how the client goes about leaving the estate. 

Now, one aspect Mr Ruskin has touched on is that - one aspect of the content of the duty that is propounded here is that the solicitor should have given the client advice as to the possibility of diminishing the estate by gifts inter vivos or by arrangements converting tenancies in common into joint tenancies.  One can say that in the abstract, but in the real world the client is going to say “and will this work, will this succeed?”  Does the answering of that question require the solicitor to make a prediction as to whether or not the alternative measures will succeed and if he gets that wrong is he negligent?

MR WILSON:   On the facts of this case, if the two principal assets of the estate were converted to joint tenancies from tenancies in common it would undoubtedly have succeeded.

KEANE J:   What about what seems to be something that one can assume, that that would have been done, that transaction would have been effected at the expense of the testator?

MR WILSON:   Yes, there was no evidence about that. 

KEANE J:   It was not going to happen for free, was it?

MR WILSON:   No, but that is part of the advice that the solicitor should be giving, that is here is an option.  If you take up that option it will cost X but it will have the effect of Y.  It is up to you as the testator to decide whether you want to avail yourself of that option.  But here the testator was deprived of any of that.

KEANE J:   I suppose this question goes more to the question of causation than content of the duty, but in terms of causation, we have a situation where the two pieces of real property were held by your client and the testator as tenants in common.  That reflects a decision that the survivor not take, by the right of survivorship, at the time of the acquisition.

MR WILSON:   The reason I am hesitant in saying yes to that, that is a reasonable inference but there was no evidence about why they put it in that way.

KEANE J:   That is certainly the effect of what they did.

MR WILSON:   Exactly.

KEANE J:   Presumably it was done meaning or intending that that result accrue.  So far as the question of causation is concerned, it would be necessary for the solicitor to give advice – for that advice to be accepted, it would have the effect of altering the position that the testator had brought about at the time the properties were acquired.

MR WILSON:   Against the factual background that the properties had been acquired years before and at the time the testator went to see the solicitor he knew he was about to die and gave instructions that he wanted all of his property to go to his business partner and the son of his life partner.

Just on that point that your Honour Justice Kiefel raised with our learned friend, as we apprehend from the outline and from the draft notice of appeal, there is no challenge to the rejection of the argument that the owing of a duty in the factual circumstances of this case could or would be contrary to public policy.

KEANE J:   Is there not a difficulty, is there not at least an element of discomfort in going beyond what the Court said in Hill v Van Erp, in going beyond giving effect to what were plainly the intentions of the testator to make the solicitor duty bound to advise the testator of the possibility of avoiding what would otherwise be ultimately a legal obligation on the estate and the prospects that those measures would succeed?

MR WILSON:   Once one accepts that a testator is free to deal with his estate as he wishes during his life and is free to, subject to the overriding nature of the legislation, leave his estate as he wishes there is no difficulty with that at all.  That is, the solicitor only has to give advice.  The solicitor does not have to compel the client to act in a particular way.  The complaint that is made here is that the client was simply given no opportunity to act differently.

KIEFEL J:   In any event, perhaps, the way in which the parties approached the issue may not foreclose the Court considering policy issues in determining the content of the duty.

MR WILSON:   Quite.  The applicants complain that the duty is one that has not been applied in any other case.  We say that it is necessary to look at the duty as formulated in cases such as Hill v Van Erp and then look at the way in which that duty has been applied to the facts of other cases.  There are a number of cases – which is not quite but almost the other side of the coin in this case, the joint tenancy cases where solicitors who are instructed by a client who says “I want to leave my interest in this property to beneficiary A”, having held the property as a joint tenant, where the solicitor has been held liable for failing to give advice that if the property is held in that way this is the consequence and in failing to give advice as to this is how you can take steps to achieve your testamentary intention. 

So that is no different in principle to what has occurred in this case, that is, the solicitor giving advice as to the existence of and effect of the testator’s family maintenance legislation, the consequences of that and the steps that can be taken to deal with that.

KIEFEL J:   There is a distinction, though, is there not, Mr Wilson, about what advice a solicitor should have given a client, that is in the duty owed to the client, and the particular situation here which is the duty owed to a beneficiary?

MR WILSON:   I am sorry, I do not ‑ ‑ ‑

KIEFEL J:   Well, there is a distinction between good practice and the advice that would normally be given to a client and the question of what is the content of the duty owed to a beneficiary.  They are quite distinct questions.  I mean, one might inform the other, but the first‑mentioned question of the duty owed to the client does not answer the duty owed to the beneficiary.

MR WILSON:   We respectfully submit in response, and this feeds into an argument that our learned friend made, that the duties are the same and must be the same.  The duty to the client is to take reasonable care to give effect to testamentary intentions.  That is the same duty that is owed to the beneficiary.  The arguments that are put up against that about conflict and privilege and the like do not arise.  The duties must be the same. 

It is not said on behalf of the respondent that you, the solicitor, owed a duty to advise us separately or you owed a duty to give effect to our economic interests in preference to those of the testator.  What we say is that you owed a duty both to the testator and to us to give advice at all, and to give proper advice to the client, the testator, about these various matters. 

Had you done so, as the Full Court found, the testator would have had an opportunity of acting differently but it is yet to be determined by the Court in this case by assessment of that chance whether the Court accepts that the testator would have left money to the daughter, would have taken the chance and left the will as it were, or would have gone on and taken steps to effect joint tenancies.  But in terms of the duty question, we say that the duties are the same.

Could I deal briefly, in the time that is left to me, with the causation issue?  The Full Court did not, as our learned friends submit, conflate the causation issue with the assessment of damages point.  Both Justice Porter and Justice Estcourt followed the two‑step approach, that is, on the balance of probabilities, has the respondent proved that it suffered loss by reason of the solicitor’s negligence?  Answer, yes.  Question two:  what is the value of that loss – yet to be determined.

Our learned friends say, and I just wanted to refer briefly to Justice Porter’s judgment, that neither sections 13 or 14 received attention in the Full Court.  His Honour, particularly at paragraph 95 expressly addressed section 13 of the Civil Liability Act and made the point, in the second sentence – if your Honours can refer to paragraph 95:

the respondents did not argue otherwise in the event that matters reached this point.

For completeness, Justice Estcourt at paragraphs 134 and 141 performed the same exercise. 

KEANE J:   It is put in an odd way, though, is it not?  His Honour says:

The inference that he would have done so, when informed of the reason, is one reasonably and readily drawn.  Accordingly, there was more than a negligible chance that the appellant would have avoided the detriment –

In the first sentence it looks like he is drawing an inference on the balance of probabilities and then he is saying that that is actually more than a negligible chance rather than more likely than not that the measure would have been adopted.  It seems that – well, it is not clear that they made a finding that it is more probable than not that the testator would have taken the measures which would have diminished the estate so that the TFM legislation could not bite.

MR WILSON:   No, they do not go that far, your Honour.  What they say is it is proved on the balance of probabilities that the testator has suffered the loss of the chance of acting differently - that is he has suffered some loss which is more than speculative on the balance of probabilities.  How he would have acted is a matter to be considered in the assessment of the chance.

KEANE J:   On any view, that is certainly an issue different from and beyond that which was decided in Hill v Van Erp.

MR WILSON:   Yes, that is a separate causation issue, but as we have said in our outline, that has been decided by a number of cases in this Court, from Sellars through to Tabet v Gett.  Our learned friend referred to her Honour the presiding Judge’s judgment in Tabet v Gett at paragraph 124.  Her Honour referred to Sellars and in these types of cases the fact that the loss of the chance has commercial value.  Here, a finding on balance, the first stage of the inquiry, is that the testator suffered that loss.  The second stage of that inquiry is a matter yet to be determined.  I notice my time is up.

KIEFEL J:   Thank you.  Anything in reply, Mr Ruskin?

MR RUSKIN:   Yes.  May we say two things?  First, with respect to the coherence in the law, the TFM legislation being morally underpinned on the one hand and the solicitor being able to give an option to ignore that, we would seek the opportunity to advance that, not as a public policy argument in the air, but as going to whether the duty really in practice could work. 

In order to do that, could we have leave to add a ground of appeal which looks at the coherence in the law in the context of the duty of care relative to the testator family maintenance legislation, if it is not covered already by an argument that the duty of care should not have been open?

KIEFEL J:   Well, you are foreshadowing that if leave were granted we would amend your notice of appeal in that regard?

MR RUSKIN:   Yes, if special leave were granted, we would seek the opportunity, with the Court’s permission, to do that so as to make that clear.  The second matter is that the practical effect of the duty must be for the solicitor to engage with the beneficiary because otherwise the beneficiary’s interest may not be advanced.  One can imagine that if he is not told about survivorship he could die and get nothing, nor could his beneficiaries get anything so there would be a whole lot of persons not well served by this duty unless the solicitor had the obligation to engage with the beneficiary.  That is why we say that the conflict works badly even if he only advises the testator and it works worse if he has to advise the beneficiary as well.  Those are the matters in reply, if the Court pleases.

KIEFEL J:   Yes, thank you.  There will be a grant of special leave in this matter.  We note that the applicant will be amending its notice of appeal to conform to the arguments addressed today.  Would the matter require more than half a day, Mr Ruskin?

MR RUSKIN:   We would respectfully ask for a day because of the causation and the other aspects.

KIEFEL J:   I see, yes.  Do you agree with that, Mr Wilson?

MR WILSON:   Yes, it certainly might take more than a day.

KIEFEL J:   Thank you.  The Court will now adjourn until 10.15 on Tuesday, 3 November in Canberra.

AT 10.54 AM THE MATTER WAS ADJOURNED