Clarke, Re B.F Sheehy, Ex Parte P.

RESTRICTED DISTRIBUTION

IN THE FDERAL COURT OF AUSTRALIA

)

GENERAL DIVISION

)	QLD PET BN1160 of 1985

BANKRUPTCY DISTRICT

OF THE SOUTHERN )

DISTRICT OF THE STATE OF OUEENSLtAND

)

RE:	BARRYMORE FRANCIS CLARKE and MARJORIE CLARKE

EX PARTE: THE ABOVENAMD and

PETER SHEEHY

SPENDER J.

BP.1SBANE

22 MAY 1986

REASONS FOR JUDGMENT

E; February

1985, Peter Sheehy, a solicitor of the

Supreme Court of Queensland, obtalned a final ~udgment agslnst Barrymore Francls Clarke and Mar~orle Clarke ("the appllcants") In the Supreme Court of Queensland for one thousand S I X hundred

and flfty-one dollars and flfty cents

($1,651.501. On 7 June

1585, the Deputy Registrar issued

a Bankruptcy Notice based on

that ~udqment directed to the applicants, and on

17 July 1985,

before the expiration of the time flxed for compliance

m t h the

requirements of the Bankruptcy Notice, the appllcants flled with the Registrar an affidavit of the k m d referred to in s.41(7) of

the Bankruptcy Act

1966 ("the Act"), directed to satlsfying the

Court

of the existence of

a counter-claim, set-off or cross

demand as is referred to In s.41(g) of the Act.

The claim asserted by the applicants, conformably with the requirements of s.4O(l)(g) of the Act, exceeds the amount of

the judgment debt on whlch the Bankruptcy Notice

1 s founded.

The

claim of

the

applicsnts

against

the

respondent

for damages for professional negligence

and/or breach

contract said to arlse out of the negligent manner in which he performed his duties as solicitor for the applicants In Action

No.2205 of

1982 In the Supreme Court of Queensland between the

appllcants as First Plalntlffs and

B. & M. Clarke Enterprlses

Pty.Ltd.,

Second

Plalntiff,

and

Japan

Machlnes

(Australia)

Pty.Ltd.

8 s Flrst Clefendant and Clticorp Australia Limlted

Second Defendant.

Mr.

Sheehy

had

acted

for

the

appllcmts In

the

preparatlon for trlal and In lnstructlng counsel on

the trlal.

The actlon was trled

Mr. Justlce G.N. Wllliams wlthout a jury

cn 2 6 ,

2 7 , 28, ?.S

and 30 September and

3 and

4 O-tober, 1984 .

Senior and

~ u n l ~ r

counsel 2ppeared for both the plalntlffs and

the defendants. O n 4 October 1984, the matter was settled.

On 5	February 1985, the applicants applled l n the same

actlon, 2205 of 1982,

before Willlams

J. for certain orders

including an order that, amongst others,

Mr.

Sheehy and the

counsel who appeared for the appllcants at the trial be added as

defendants In those proceedings. Williams J. dlsmissed the

3 .

application, ordered the plalntlff to pay the taxed costs

of,

inter alia,

Mr. Sheehy and those costs were taxed in the sum of

$1,651.50 and constitute the amount in the Bankruptcy Notice.

It is common ground that the nature of the appllcants'

claim meets the description contained in s.rlO(l)(g) of the Act,

namely it is a counter-clalm, set-off or cross demand equal to or

exceedinq the amount of the

~udgment

debt, and one

which could

not have been set up In the actlon

or proceedlng m

whlch the

~udgment

was obtalned.

The sole questlon for determinatlon

is whether the Court

1 s

eatlefled

that

the

pplicants

have

the

requisite

counter-claim, set-off or cross demand. The appl

c ant

acknowledge that they must satlsfy the Court that they have a

Frlma facie case In the sense of satlsfying the Court that they

have a fair chance

of success:

Re Brlnk; Ex parte Commerrlal

Bankmq Company of Svdney

Lmlted (1980) 30 A . L . R .

433 at 438-9,

where

Lockhart J refers

Ebert

v . 'Jnion Trustee Co.

Australia Ltd.

(1960) i00 C.L.R. 346 and the observatlons

Dixon C . J . ,

McTlernan and Wlndeyer

SS. at 350: see also

2e Gould;

Ex	parte Skinner ( 1 9 8 3 ) 7 2 F.L.R.393.

The Court therefore has to make a factual assessment

the performance of the respondent in connectlon with his retalner

as solicltor for the applicants.

The lltigatlon was

of a complex, commercial kind and

involved the supply of a sophlstlcated machine by Japan Machines

(Australia)

Pty.Limited

for

use

the

applicants

the

sheetmetal

business.

was

alleged

that

thls

machlne

and

assoclated equipment were defectlve and, as

a consequence of

those

defects,

the

present

applicants

incurred

signlficant

losses. Citlcorp was involved in the leaslng of the machinery.

Mr. Sheehy

was

aid

have

failed

exerclse

reasonable

care

and

sklll

relation

hls

retalner

sollcltor for the	applicants In the Supreme Court	action, In that
he allegedly:-

!S!

dld not obtain

full and proper discovery of

the defendants,

In that some cateqorles of

dccuments were dl-covered very late In

the

proceedings and others were not dlscovered

at all;

(b!

fslled to obtaln full and proper InsFectlon

and testlng of the machlne

the

subject of

the action, in particular, such parts

of the

defectlve

machine

whlch

remained

I n

the

possession of the defendants for some perlod

urlor to the time of the trlal;

Failed to obtaln statements from relevant

wltnesses;

falled fully to instruct counsel;

falled to promptly tax orders for costs

obtamed In favour of the plaintlffs In the

actlon;

termmated hls

retainer

act

the

defendants’ behalf without glving them the

tlme or the opportunity to seek alternative

leqal representation; and

failed

give

proper

advice

the

plalntiffs

that

action

and

stood

allowing the plalntiffs to settle the action

on disadvantageous terms

, placing them in

position where they were obliged

to settle

the

claim

terms whlch otherwlse they

would not have

accepted.

These broad allegations were particularised and Mr.

Sheehy was cross-examined	by counsel for the applicants before
me.

Mr. Sheehy

commenced to act

solicitor

for

the

applicants in January

1983 in respect of this litigation.

took over as their solicitor from Messrs. Clayton & Company. Mr. Sheehy, was a sole practitioner with no employed solicitors or

legal staff.

He anticipated that the trial would occupy some

three months. The applicants assert that the dimensions of the litigation were simply beyond his resources and capacity, which

resulted in the failure adequately to prepare and

failure

properly

instruct.

It was

asserted

that

thls

lack

competence

was

evldenced

the

xtensive

and

numerous

conferences held by him particularly with junior counsel.

accept that

such conferences occurred, but

it seems to me that

thls does not advance the case for the applicants. Whether or

not such conferences were more numerous

or extensive than would

normally be the case, they had the consequence that counsel was

intimately concerned

with the preparation for trial on a very

extensive scale in the months preceding the trial. This fact

makes

difficult

that

the

Preparation

the

applicants’ case for trial was professionally negligent.

About six to eight weeks before the trial commenced, it

was set down for hearing. Mr. Pincus Q.C.,

as he then was, had

been engaged as senior counsel for the plalntiffs at that stage.

When the proposed dates for trial were indicated at the callover,

Mr.

Pincus indicated that

he would be unavailable for those

dates. After consultations between

Mr. Sheehy, the applicants and

junior counsel, the offered dates were nonetheless retained. Mr Boyce Q.C. was retained as senior counsel either on the day of the callover or on the following day. I do not accept that there

was anything wayward, let alone negligent, in that aspect	of the
handling of litigation.

On the weekend following

the first five days

of hearing

of the trial, Mr.

Sheehy, after conferences on that weekend with

the applicants, Indicated that ethically

could go no further

in the matter for the applicants. This cruclal turn	of	events
arose in this way:

Approximately a

week before the trlal there had been

payment into court.

Mr. Sheehy, on

the advice of counsel and

after conferences wlth the accountant, reached the conclusion

that the loss

of profits and

loss of goodwill claimed would be

difficult to prove at

the

level contained orlglnally in the

accountant‘s report, taking Into account that there

was

the

liability to pay the balance of the lease repayments to Citicorp.

The view he reached, considering the amount paid into Court

(which had,

up until that stage, been rejected), the offer by the

defendants to forego the balance of the lease repayments, and the

costs of the trial estimated at that stage to take ten weeks, was

that there was “no chance, even

if we had won

loo%, at coming out

ahead at the end of it.“ Mr. Clarke, according to Mr. Sheehy, instructed him to go on with the trial anyway. Mr. Clarke told

him that at the end

of the trial, “I won’t be able to pay anyone;

I am bankrupt now.

‘I

The applicants were advised in conference with senior

and junior counsel and

Mr.

Sheehy, on the Saturday after the

first five days

of the trial, that neither counsel nor solicitor

could ethically continue with the trial f o r	the sole purpose of
running up costs against the other side.

The advice to settle on the terms offered

was rejected.

As a consequence, senior counsel, on the resumption	of the
hearing, told his Honour:-

"I	have to indicate to your Honour that very

shortly

the

l gal

representatlves

the

plaintiffs will at that stage have

further

lnstructions

the

matter

and

wlll

have

withdraw from the case. When that situatlon is

reached, I am instructed that

Mr. .S

Mrs. Clarke

would wish to continue

the case on their

own

behalf and that

Mr. Clarke would wish to conduct

the case

on behalf of the plaintiff company, of

which he and his wife are the only directors."

The learned

trial

judge

then

made

anumber

observations and continued:-

"...it does appear to me that the parties may see

this as an opportune

time

give

some

consideration to a resolution of the matters in

dispute wlthout the necessity of there being a

determination by the court."

After referring to the magnitude of this litigation and the

factual complexity associated with

it, his Honour commented:-

“I	certainly have not formed any definite views

and, of course, it would be improper for me to do

so having regard to the fact that

so little of the

totality of available evidence is yet before the

Court.

However, two observations may be of some

assistance to the parties if they see

fit to enter

into meaningful discussions:

firstly,

it would

appear that

there

were, at least prima

facie, a

larger number of problems

with this machine in its

early days than one would ordinarily expect with a

machine

this

nature. The fact

that some

modifications were made after delivery to the

plaintiff may be indicative of the fact that there

were some problems associated with it which ought

not to have been there. On the other side of the

coin, the mere fact that such problems did in fact

exist does not necessarily entitle the plaintiff

to recover substantial damages. The question of

damages must be proved and

I would merely make the

observation that cross-examination

on the schedule

of partlculars to date would at least make It

difficult, if not impossible, for the Court in the

absence of further particular evidence, none of

which has been opened, to come to the conclusion

that speciflc loss was occasioned by the plaintiff

firm in respect of partlcular machine fault

breakdown. It seems to me that they are the sorts of questlons which in the long run must make this litlgation unpredictable ...”

Then, after an adjournment and later in the afternoon

of that

day, Mr.

Jackson Q.C., as he was then, who had acted as senior

counsel

for

the

defendants,

indicated

that

the

parties

had

reached agreement and asked for an order by consent that the

terms of settlement be filed and not published	or communicated to
any person.

It is unnecessary to refer in detail

the material

contained

the

affidavits

filed

support

the

41(71

affidavit and in reply to it, or to make detailed reference to

the oral evidence led before me.

The

detailed

criticisms

the

handling

this

litigation in respect of what was done, the manner in which it

was done, and what was said not to have been done, led counsel

for the applicants	to summarise the basis of the applicants' case
in this way:-

"...it is not for

you to make a

final determination

in this case, it is only whether we have made out

a prima facie case

and,

in my submission, your

Honour could infer

from the evidence which has

come here that

a sole practitloner undertook a

major case when

he ought realistically to have

said back in January

1983 when Mr. Clarke came in,

'Mr. Clarke, I would love to do

your case, but

am a sole practitioner.

This is a

case going for

- it is going to go for weeks.

just have not

got the time and I have not got the facillties to

handle your case.

You

have really got to go to

someone who is more able to

do justice to your

case.'

He did not do that, and, In my submission,

he should have, and his whole handling and lack of

attention

detall

after

that

time

resulted

because he was trylng to

do too many things,

trying to stretch himself

far too thinly, and that

cannot be a

responsible and dlligent discharge of

a retainer to approach litigation

of this slze in

that way.

My conclusions can be shortly stated.

First, I

am not satisfied that the applicants have

fair

chance"

establishing

departure

from

proper,

professional standards on the part of Mr. Sheehy in the course of

this

litigation.

Secondly,

and

crucially,

there

on this

material no basis for concluding

that, if any such breach were to

have been established,

a s

a consequence of such breach, the

applicants are worse off by

an amount which equals

or exceeds the

judgment debt

on which the Bankruptcy Notice is founded.

It is necessary for the applicants to establish a prima

facie case that, but for

Mr. Sheehy's negligence, they would have

recovered more than they did

in fact. Even if breach of duty be

10.

assumed, the material simply does establish a prima facie case

for that conclusion.

I am left

with the clear impression that

Mr. Sheehy

addressed a most difficult piece

of litigation properly; that the

assistance of counsel was sought and relied on more extensively

than usual; and that the preparation

for and conduct of the

trial, including the central question of damage, at all relevant

times occurred	with the direct involvement	of competent and
senior counsel.

There is a tendency for disappolnted litlgants to view

litlgation with the perfect vision that hindsight gives. I am not satlsfied that the applicants have a counter-claim, set-off

or cross demand as	is referred to In s.41(7) and 41(l)(g) of the
Act.

There is one final matter.

The amount claimed under the

Bankruptcy Notice is $1,651.50. The evidence before me disclosed

that Mr.

Sheehy has

issued a Supreme Court Writ for

an amount

in the order of $32,000.00, which

is said to be the balance of

professional costs due to him while

he acted for the applicants.

It was submitted on hls

behalf that it was necessary

for the

applicants to establish that they had a counter-claim, set-off

cross demand that was equal to

or greater than the amount of the

judgment debt on which the Bankruptcy Notice was founded and the

amount claimed in the writ for professional costs payable to	Mr.
Sheehy .

11.

In my opinion, this submission is not correct. What the

Act requires is that the debtors establish that they have a

counter-claim, set-off

cross demand equal to

r exceeding the

amount of the judgment debt, which is the amount claimed in the

Bankruptcy Notice. It is not necessary, in my opinion, for

something in the nature of an audit to be conducted on a series

claims and cross claims

and, as a

result of adding and

subtracting these various claims, to derive

a net result greater

than the amount claimed in the Bankruptcy Notice before the

requirements of s.41(7) of the Act are met.

It is sufficient if

there is

a counter-claim, set-off or cross demand greater than

the judgment debt claimed in

a Bankruptcy Notice.

I will hear from the parties

to the appropriate

orders I should make in the light of that conclusion.

[1986] FCA 197

22 May 1986