Despot v Registrar General of New South Wales and Ors

[2014] HCATrans 77

[2014] HCATrans 077

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S196 of 2013

B e t w e e n -

RANKO DESPOT

Applicant

and

REGISTRAR GENERAL OF NEW SOUTH WALES

First Respondent

ROY MAALOUF

Second Respondent

STELLI PTY LIMITED ACN 131 045 693

Third Respondent

WESTPAC BANKING CORPORATION ACN 007 457 141

Fourth Respondent

DOMINIC CARBONE

Fifth Respondent

JOYCE AZZI

Sixth Respondent

SKY CONSTRUCTIONS PTY LIMITED

Seventh Respondent

Application for special leave to appeal

KIEFEL J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 APRIL 2014, AT 10.17 AM

Copyright in the High Court of Australia

____________________

MR G.O’L. REYNOLDS, SC:   May it please the Court, I appear for the applicant with my learned friends, MR J.C. HEWITT and MS J.E. CURTIN.  (instructed by Pamela J Enright Solicitor)

MR B.J. GROSS QC:   May it please the Court, I appear with MR D.J. WILLIAMS for the third and sixth respondents.  (instructed by Kheir & Associates Lawyers)

MR S.C. IPP:   May it please the Court, I appear for the fourth respondent.  (instructed by Henry Davis York Lawyers)

MR J.C. KELLY, SC:   I appear for the fifth respondent, if it please your Honours.  (instructed by Colin Biggers & Paisley Solicitors)

KIEFEL J:   Thank you.  There has been no appearance filed for the second and seventh respondents.  Yes, Mr Reynolds.

MR REYNOLDS:   If the Court pleases, we submit there are two special leave issues.  The first involves a negligence case against the solicitor, which we submit raises an important question of principle about duty of care where the defendant is the solicitor and the plaintiff is a third party, that is, someone who is not the client.  The second issue arises on the specific performance case and we submit that it is a visitation case or, in the words of the Judiciary Act, a case where the interests of the administration of justice in this particular case warrant a grant of leave.

GAGELER J:   That is a difficulty for you, is it not, given that the order that you now seek from this Court is different from the order that you sought below?

MR REYNOLDS:   I will be coming to that, your Honour, and that will be the focus of my submissions on that point, which I deal with in detail.  I would prefer to deal with the negligence case first, which is an independent grant of leave, but in answer to your Honour’s question, that is front and centre of my submissions on specific performance and I will be addressing that in detail.

KIEFEL J:   But the negligence case has assumed a new aspect of – it has been elevated to a higher importance by your most recent ‑ ‑ ‑

MR REYNOLDS:   I would not quite put it that way.  We submit that the recent submissions filed are useful because they telescope the area of dispute.  The point we were making in our written submissions is that the characterisation by the Court of Appeal of this case purely as an advice case was not correct and your Honours will have seen from my learned friend Mr Kelly’s submissions that he does not really take up the cudgels on that point, nor does he make any real point about breach of duty.  He says that the problem from my client is a very narrow point about duty of care, to which I will come in a moment.

So far as the issue of law is concerned, we submit that the principles to be applied in relation to a third party case in solicitor’s negligence, or purely economic loss, are an important issue.  Can I attempt to demonstrate that very briefly by reference first of all to an authority in our authorities folder – No 7 - of Queensland Art Gallery where Justice Pincus, having reviewed the leading decision of this Court on point of Hill v Van Erp, said at paragraph 30, about halfway down, that there were differences of approach among the majority judges in Hill v Van Erp.  Justices Dawson and Toohey mentioned proximity, Justice Brennan of course did not rely on that, Justice Gaudron talked about control and, again, Justice Dawson talked about responsibility and reliance.  I might add Justice Gummow was different still, and he says at paragraph [31]:

It is not possible to extract from the reasons given in Hill v Van Erp a rule of principle adopted by the majority of judges, which may be applied in solving the, no doubt increasingly common, problem of the liability of professional people -

to third parties.  So that is where I start in terms of this being an important question.

KIEFEL J:   This duty that you are speaking of now, is that the duty that was pleaded, because I had understood the Court of Appeal to say that they really did not have to deal with the question in great detail because what was raised was a matter different from that which had been pleaded.

MR REYNOLDS:   Well, that is the second part of my argument.  If your Honours are with me on the issue of the importance of this issue as a matter of law, I will not go any further, but that is the other issue I do need to address.

KIEFEL J:   Well, I would have thought you would need to address it at the outset.  Was it not pleaded that the nature of the duty owed was as if your client was the client of the solicitor, rather than that which is owed to a third party by reason of the carrying out of instructions owed to the client in fact?

MR REYNOLDS:   Well, your Honour, we do not accept what my learned friend, Mr Kelly, says in his submissions on that issue.  Can I first say that the Court of Appeal’s focus was on whether this was an advice case.  Now, that issue appears – that is at paragraph 94, they characterise the case.  We went through that in great deal in our written submissions, the supplementary ones, and they make it clear that the case was not that narrow and my learned friend does not really pick up the cudgels on that point.

What he does point to is the previous paragraph, that is paragraph 93 in the Court of Appeal’s reasons, and he tries to make everything hang at that point, and the reasoning there is the Court of Appeal say in effect in the first part of the paragraph this is the way the case was put at trial and it is now being put differently because - and they quote from the written submissions - “the duty” – and this is the top of page 172:

was to ensure that Mr Despot “was not harmed by Mr Carbone not properly performing his duties” to Mr Maalouf.

KIEFEL J:   But what the Court of Appeal is saying in paragraph 94 is that even if you look at the question of third party – a duty owed to a third party – it would still depend upon the terms and conditions of the retainer to the true client, and they were not the subject of evidence.

MR REYNOLDS:   Well, your Honour, we say that the case that we wish to put to this Court is identical with that put below, or put another way, the case we wish to put is that in the first part of paragraph 93, and that is that my client was the true client, he was the principal and, alternatively, he was owed a duty of care as the principal.  Now, that means, of course, that Mr Maalouf was the client or the main client.  So that is the argument.  We submit that this ‑ ‑ ‑

GAGELER J:   Well, that is really then not a third party duty case.

MR REYNOLDS:   Although I submit that it is, because the expression, “true client” means the actual client is Mr Maalouf, but the “true client” as it were is the person behind him – and I appreciate, your Honour, there may be an argument that this may slide on the axis of whether ‑ ‑ ‑

KIEFEL J:   Seems to be.

MR REYNOLDS:   ‑ ‑ ‑ of whether my client is the solicitor’s client.  It may slide back over that issue, but that is not the way it is put correctly at the beginning of paragraph 93 and that is, if we look at about a few lines down, that Mr Carbone owed him a duty of care as his client, Mr Maalouf’s principal – that is the case at first instance according to Justice Meagher.

GAGELER J:   Is that the case you now want to put?

MR REYNOLDS:   Absolutely.  Regardless of how one can try and confine the case put in the Court of Appeal, and we dispute the characterisations, but that is the case we now want to put which involves either just straight up that my client is a third party, he is not the client or, using the words of paragraph 93, that the true client is my client even though the actual client is Mr Maalouf.  So it is still a third party case, although one can see how there may end up being an argument in this Court that when you analyse it out, that even though the solicitor is dealing with Mr Maalouf, the actual client is my client.  I accept that, and that of course does not involve any great special leave question.  The special leave question is if it is a third party case, but my point is ‑ ‑ ‑

GAGELER J:   I just do not see a third party case in the opening words of paragraph 93.

MR REYNOLDS:   Well, it is lower down, where his Honour says:

Alternatively . . . it was said that Mr Carbone owed him a duty of care as his client Mr Maalouf’s principal.

So, his client, that is the solicitor’s client, is Mr Maalouf in the way it is put.  We pleaded – this was the case that was pleaded at trial, is that Mr Maalouf is the client, the actual client.

KIEFEL J:   Mr Maalouf is the agent in that term, is it not, the agent for Mr Despot.

MR REYNOLDS:   Well, I have said that, your Honour Justice Gageler, one can see an argument that ultimately that would be the characterisation this Court might give to the facts, and that characterisation necessarily means this is not a third party case.  But the point I am making is that we are running a third party case.  It may be that ultimately this Court does not accept that characterisation, but that is the case I wish to run and that is the case that was run at first instance.  That raises a special leave point, and that is how we put it.  It cannot be said that that is an argument on the facts and on the detail which is untenable.

So we submit the way the Court of Appeal characterised this as an advice case is not correct for the reasons we have put in our written submissions.  So far as this focus – this is at the end of paragraph 93 - is concerned, top of page 172, the duty of care:

was to ensure that Mr Despot “was not harmed by Mr Carbone not properly performing his duties” to Mr Maalouf.

We say that is not precisely how we put the case or how it was put below, but it is very close to it because, in a situation like this, the duties to both Mr Maalouf and to my client would be, we submit, relevantly co‑extensive and concurrent, particularly on the issue of the direction given as to the payment of funds so that the performance of the solicitor’s duties to Mr Maalouf would be the same relevantly as the performance of his duties for us, and if they were not, then the case below was that he needed to cease to act.

The other thing is that my learned friend Mr Kelly’s submissions – his supplementary written submissions at paragraph 5, unfairly – this is the beginning of his quote from paragraph 81 - cut off the opening words of paragraph 81 which, if your Honours go to tab 21 of the materials annexed to the submissions, on the second page you see paragraph 81 “Having regard to those circumstances” and then go back to the previous page, there are about 10 circumstances referred to.  The case was not put that narrowly. 

I return to the basic point we make which is that this case was put as a third party case at first instance.  I wish to rerun that case as it was put at first instance and we submit that it is not open to my learned friend, Mr Kelly, to say this cannot be a good vehicle to get at the point of third party duties because it is so clear that the relevant client was Mr Despot that that issue of law does not arise.  We agree there may be a bit of argument on that point, but we have run this below as a third party case and there is room for argument on the facts as to that issue. 

The important point is that the Court of Appeal never determined this question of duty of care on the merits.  It was all determined on pleading and Suttor v Gundowda points.  The reasoning of the primary judge on duty of care was, we submit, clearly upset by the reasoning of the Court of Appeal, in short, that the primary judge held at paragraph 301 that the trial judge – I withdraw that – that the donee of the power of attorney was not acting for the donor, but whereas the Court of Appeal held that the donee was acting for the donor.

GAGELER J:   So you do not put this aspect of the application, as I understand it, as a visitation case.  You put this as an important question for ‑ ‑ ‑

MR REYNOLDS:   I also put it as a visitation case, but I am realistic about my client’s prospects on running two visitation points.  There is a visitation aspect and that is that his case, as he ran it at first instance, has not been assessed according to law because the Court of Appeal did not deal with it on its merits and the primary judge’s reasoning was clearly imploded by the Court of Appeal.  That leaves him with a case which he put at first instance that has never been determined.

Now, we would submit that even if it was – the facts were as your Honour Justice Gageler put it to me, this was a case which was powerful on breach of duty.  The solicitor, frankly, really messed up here in a major, major way, and even if your Honours were to find that the relevant client is my client, then the other point I would make on visitation is that makes it a stronger case on the interests of justice because there is no legal argument available to my learned friend, Mr Kelly, to upset any duty of care.  So, your Honour, I do put it as visitation, but as I say, I am trying to put it also as a point of law.

Now, I do need to deal with the question your Honour Justice Gageler asked me earlier on, and I have about five minutes to do it, on specific performance, where we were, again, cut out of our argument on a pleading point.  Let me try and put that as quickly and clearly as I can because one has to understand how this issue arose at first instance and particularly what happened with some new evidence between the trial and the Court of Appeal. 

Before the primary judge, Mr Despot pointed to three amounts he said were unpaid:  91,000, 464,000 and 480,000.  The 91,000 was clearly unpaid.  The other two amounts of $400,000 were paid to Sky, but my client said they were not paid with his authority.  So the basic point was, do not order specific performance against me, because I have not been paid.  That was his point.

The trial judge – and there was no argument about conditional relief, or anything like that – my client ran a very simple case.  No specific performance, sir, I have not been paid.  The primary judge found that as to the two amounts of $400,000 he had been paid pursuant to a doctrine of ostensible authority, which I will deal with at the end of this segment, which we say was clearly wrong.  He said, however, as to the $91,000, well, that was unpaid, I agree, and I will make that a condition of the order.  Now, no one asked him to do that.  We were not heard on that, nor was Mr Gross.  That is what he did.

Importantly, at this stage, Stelli, the company, was not on the register.  What happened was there was fresh evidence on the appeal.  What happened in the meantime was that despite the fact that the $91,000 had still not been paid, Stelli, we submit, improperly, got itself onto the register and also its mortgagee, a bank, also got onto the title and the mortgage exceeded the value of the property. 

Now, as a practical matter, and that was put before the Court of Appeal as fresh evidence, so they were in effect a trial court.  That causes a problem for Mr Despot if he were to go back to his argument below that he wanted the order for specific performance rescinded, because he would get the property back, but he would get it subject to two people on the register, including a bank which had security for more than the value of the property. 

So what did he do in the Court of Appeal?  Well, he said really two things.  He said if you are going to order conditions, as the trial judge did, the conditions should be the payment of the two amounts of $400,000.  He also relied on a case of Turner v Bladin, which is in our authorities at tab 6.  At page 472 of the report, at about point 6, it is noted that the court making a decree should “mould its decree” and do such things as are necessary – and these are the important words:

to carry into effect all the promises of both parties –

So, when you come under the bread and butter law we say you come under the supervision of the court.  When an order for specific performance has to be made it is important that all the obligations be fulfilled.  So he said either rely on Turner v Bladin or these extra conditions.  I want the other two amounts of $400,000 and here is my argument on ostensible authority.  Now, we submit that was a clearly correct position to take and if I may respectfully say so this is just orthodox law, particularly with this fresh evidence that was put before the court. 

The Court of Appeal’s approach was to down my client on this for three reasons, first of all to say, well, you cannot change tack in the Court of Appeal and having said below no order for specific performance, you cannot then upset the conditions.  Well, we submit that where you are putting the same argument factually, that is, you have not been paid you are quite entitled to do that.  Second of all, it ignores the fresh evidence I just went through, which made it, in effect, highly undesirable for my client to attempt to rescind the specific performance order and, thirdly, my client was never heard on conditional relief below and he is entitled in the Court of Appeal on an appeal by way of rehearing to say the judge’s exercise of discretion miscarried.  It should have had these extra conditions. 

Finally, of course, there is the Turner v Bladin point about the continuing supervision of the court and as I say, this was a court relevantly at first instance with this new evidence, so that just does not run.  Secondly, the Court of Appeal said there was prejudice to Stelli because they could have adduced evidence below on the issue of apparent authority. 

Well, this is dealt with in the written submissions and we say, with respect, that there is no force in this reasoning at all.  First of all, it was Stelli that pleaded ostensible authority right at the end of the case and if their evidence on this point was bad, then that is their problem.  Second of all, the primary judge managed to determine the issue of ostensible authority without any problem.  Thirdly, there is no suggestion by Stelli that they have some extra evidence on ostensible authority.  There just is not any.  What could it be when my client had no idea that this exercise of power of sale was being exercised, nor did my learned friend, Mr Gross, run this point in the Court of Appeal. 

The third argument is dealt with at paragraph 81 of the Court of Appeal and we have dealt with that in paragraphs 40 and 41 of our submissions and we submit it is completely unsustainable.  Now, that leaves only one final matter that I need to deal with which is the issue of why was the primary judge wrong about ostensible authority.

KIEFEL J:   You should deal with it shortly, your time has expired.

MR REYNOLDS:   The short point is it is clear, and there is no special leave point in this, that if the only authority relied upon is a power of attorney and it is agreed that did not give actual authority, then the cases all say ostensible authority will not go any wider than the actual authority.  Therefore, if there was no actual authority here, because there was a conferral of benefits on third parties and a conferral of benefit by the donee for his own benefit, then it would mean that ostensible authority would not exist, just as actual authority did not.  Now, that is an orthodox point of law ‑ ‑ ‑

GAGELER J:   This was a general power of attorney, was it?

MR REYNOLDS:   Yes, yes, it was.  But that is the point and, we submit, and we have put this in our submissions and Mr Gross has not responded to it.  If the Court pleases, those are my submissions.

KIEFEL J:   The question of principle as to the negligence of the fifth respondent sought to be raised was not pleaded.  It was rejected by the Court of Appeal as a proper ground for that reason.  The application otherwise raises no question of principle.  Further, it is in other respects inconsistent with the case as pleaded and upon which orders were made.  Special leave is refused with costs.

AT 10.40 AM THE MATTER WAS CONCLUDED