DJZ Constructions Pty Ltd v Paul Pritchard trading as Pritchard Law Group - [2010] NSWSC 1024

No judgment structure available for this case.

CITATION: DJZ Constructions Pty Ltd v Paul Pritchard trading as Pritchard Law Group and Ors [2010] NSWSC 1024

HEARING DATE(S): 10 March 2009, 11 March 2009, 12 March 2009, 13 March 2009, 29 April 2010, 30 April 2010, 3 May 2010, 4 May 2010, 5 May 2010, 7 May 2010, 10 May 2010, 11 May 2010

JUDGMENT DATE :
10 September 2010

JUDGMENT OF: Schmidt J

CATCHWORDS: PROFESSIONS AND TRADES - lawyers - duties and liabilities - whether negligence in advising client in relation to guarantee in deed under which interest in real estate business acquired - in relation to terms of second deed settling certain disputes - in relation to agreement selling interest in business - nature of duty of care - duty of care owed - negligence established in part - questions of credit - advocate's immunity - section 5O of the Civil Liability Act 2002 - causal connection - inherent risk and contributory negligence - s 5I and s 5R of the Civil Liability Act 2002 - contributory negligence established - cross claim - concurrent wrongdoers - negligence established - were damages established - claimed damages established in part - TORTS - negligence - general matters - lawyers negligence - damages - EVIDENCE - admissibility and relevancy - witness not available for cross examination - s 135 of the Evidence Act 1995 - statements received - admissions - s 87 of the Evidence Act 1995 - admissions not established

LEGISLATION CITED: Evidence Act 1995
Civil Liability Act 2002
Law Reform (Miscellaneous Provision) Act 1946
Trade Practice Act 1974 (Cth)

CATEGORY: Principal judgment

CASES CITED: Attard v James Legal Pty Limited [2009] NSWSC 811
Bennett v Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408
Capebay Holdings Pty Ltd v Sands [2002] WASC 287; [2003] ANZ ConvR 170
Capital Brake Service Pty Limited v Meagher & 8 Ors t/as Sparke Helmore [2003] NSWCA 225
David v David [2009] NSWCA 8
Dean v Allin & Watts [2001] 1 Lloyd's Rep 249
D’Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1
Dobler v Halverson [2007] NSWCA 335; (2007) 70 NSWLR 151
Fox v Everingham and Anor (1983) 50 ALR 337
Giannarelli v Wraith [1988] HCA 52; (1988) 165 CLR 543
Hawkins v Clayton [1988] HCA 15; 164 CLR 539; Waimond Pty Ltd v Byrne, Heydon v NRMA Limited (1989) 18 NSWLR 642
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (no 4) [2006] NSWSC 90
James & Ors v Surf Road Nominees Pty Ltd & Ors [2004] NSWCA 475
Lucantonio v Kleinet [2009] NSWSC 853
Macindoe and Anor v Parbery (1994) Aust Torts Reports 81-290 at 61,534
Murphy v Miller [1998] NSWCA 150
Nikolaou v Papsavas Phillips & Co [1984] HCA 11; (1989) 166 CLR 394
Ordukaya v Hicks [2000] NSWCA 180
Pegrum and Pegrum v Fatharly [1996] 14 WAR 92
Podrebersek v Australian Iron & Steel Pty Ltd [1985] HCA 34; (1985) 54 ALR 529
Rogers v Whitaker [1992] HCA 58; (1992) 175 CLR 479
Surf Road Nominees Pty Ltd & Ors v Tass James & Ors [2004] NSWSC 61
Surf Road Nominees Pty Limited & Ors v Tass James & Ors [2004] NSWSC 223
Stringer v Flehr & Walker [2003] QSC 370; (2003) Aust Tort Reports 81-718
Tabet v Gett [2010] HCA 12; (2010) 265 ALR 227
Teachers Health Investments Pty Ltd v Julian [2001] NSWSC 231; ANZ ConvR 449
Unity Insurance v Rocco Pezzano [1998] HCA 38; (1988) 192 CLR 603
Watson v Foxman (1995) 49 NSWLR 315
WCW Pty Ltd v Bolster & Company [1993] FCA 2
Wilkinson v Daley [2004] NSWCA 331
Windy Construction UK Limited v Poole [1984] 2 Lloyds Rep 499 at 506-7
Woolcock Street Investments Pty Limited v CDG Pty Limited [2004] HCA 16; (2004) 216 CLR 515
Young v Commissioner of Taxation [2010] NSWSC 288

PARTIES: DJZ Constructions Pty Ltd - Plaintiff
Paul Pritchard t/as Pritchard Law Group - First Defendant/Cross Claimant
Joseph John Gilles - Second Defendant/First Cross Defendant
Gregory George Eliades - Third Defendant/Second Cross Defendant
David McGovern SC - Fourth Defendant/Third Cross Defendant

FILE NUMBER(S): SC 2005/269375

COUNSEL: Mr C Birch SC with Mr M Cleary - Plaintiff
Mr A McInerney with Mr P Livingston - First Defendant/Cross Claimant
Ms KJ Williams - Second and Third Defendants/First and Second Cross Defendants
Mr Gibb SC - Fourth Defendant/Third Cross Defendant

SOLICITORS: Pryor Tzannes & Wallis - Plaintiff
Yeldham Price O'Brien Lusk - First Defendant/Cross Claimant
Sparke Helmore - Second and Third Defendants/First and Second Cross Defendants
McCabe Terrill Lawyers - Fourth Defendant/Third Cross Defendant

128

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
PROFESSIONAL NEGLIGENCE LIST

SCHMIDT J

FRIDAY, 10 SEPTEMBER 2010

2005/269375 DJZ CONSTRUCTIONS PTY LTD v PAUL PRITCHARD TRADING AS PRITCHARD LAW GROUP AND ORS

JUDGMENT

1 HER HONOUR: These proceedings were commenced in June 2005. An amended statement of claim was filed in February 2006 and a defence in May 2006.

2 The plaintiff, DJZ Constructions Pty Ltd ('DJZ'), claimed damages for breach of retainer and/or negligence on the part of the defendant, Paul Pritchard trading as Pritchard Law Group, DJZ’s former solicitor. Two areas of complaint were advanced. The first in relation to advice given by Mr Pritchard in 1999 about the terms of a July 1999 deed, under which DJZ invested in a real estate business, known as Chris Burke Real Estate, by acquiring units in a unit trust known as the Surf Road Unit Trust (‘SRUT’).

3 The second complaint, advanced in the alternative, concerns guarantees given under the 1999 deed and advice given by Mr Pritchard as to the basis upon which the plaintiff settled certain disputes with the ultimate purchasers of the real estate business and related entities, pursuant to a deed dated 1 February 2001 and later sold its interest in the business, under a sale agreement dated 5 November 2003 and their impact upon those guarantees.

4 These proceedings followed what had transpired in other proceedings earlier brought in this Court in August 2001 by DJZ, amongst other plaintiffs, in which they sought to enforce guarantees provided in the 1999 deed. Those proceedings were decided in favour of the plaintiffs by Einstein J (see Surf Road Nominees Pty Ltd & Ors v Tass James & Ors [2004] NSWSC 61 and Surf Road Nominees Pty Limited & Ors v Tass James & Ors [2004] NSWSC 223). There was, however, a successful appeal brought by certain of the defendants, decided in James & Ors v Surf Road Nominees Pty Ltd & Ors [2004] NSWCA 475.

5 DJZ’s original complaint in these proceedings was that it was as the result of Mr Pritchard’s negligence in advising in relation to the 2001 deed and/or on the terms of the 5 November 2003 sale agreement, that it lost the appeal and thereby, the opportunity to sue Mr and Mrs James, (both defendants in the Supreme Court proceedings), on the guarantees given under the 1999 deed. Those rights had been compromised in the 2001 deed and the sale agreement.

The joinder of other parties

6 There was an unsuccessful mediation between the parties and on 3 March 2009 a motion was filed by the plaintiff, seeking leave to file a further amended statement of claim. On the first day of the hearing, 10 March 2009, after discussions between the parties, it appeared that further amendments were necessary to the pleadings, which they continued to discuss as the hearing proceeded. Those amendments were finally not pursued and, there being no objection, leave to proceed on the further amended summons was given. The hearing was later adjourned as the result of consequences which flowed when the defence to the amended statement of claim was filed.

7 Mr Palmieri was then giving his evidence. The defence raised certain allegations against the solicitors who practice in partnership as Giles Payne & Co ('Giles Payne') and Mr McGovern SC. They were then representing DJZ in these proceedings. The result of this development was that initially Mr McGovern and later Giles Payne ceased acting for DJZ and the proceedings were adjourned, so that new representation could be obtained by DJZ.

8 A cross claim was later brought by Mr Pritchard against Giles Payne and Mr McGovern under s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946. They were also eventually joined as defendants, but it was made clear for DJZ that its case was that the primary cause of its loss was Mr Pritchard; that he is liable for the whole of that loss; and that DJZ was entitled to recover from him. Giles Payne and Mr McGovern were only joined as defendants to the extent that Mr Pritchard established that they were co-wrongdoers. DJZ did not assert that they were.

The Issues

9 As finally identified by the parties, they were:

1 July 1999 Deed

1. Was Mr Pritchard retained by DJZ prior to late June 1999 to advise it upon a proposed acquisition of an interest in the Chris Bourke & Co real estate business by way of a unit trust.

2. Did Mr James agree with Mr Palmieri that there would be a guaranteed return to Mr Palmieri’s company of $2,200.00 per month from the unit trust and that this would be guaranteed by Mr and Mrs James and Mr and Mrs Christian.

3. Did Mr Palmieri instruct Mr Pritchard to ensure that the alleged return of $2,200.00 per month from the unit trust would be guaranteed by Mr and Mrs James and Mr and Mrs Christian and that this guarantee be included in the 1 July 1999 Deed.

4. Was there any departure by Mr Pritchard from competent professional practice in respect of the 1 July 1999 Deed.

5. Did Mr Pritchard fail to advise Mr Palmieri that the documentation for DJZ’s acquisition of an interest in the unit trust did not contain an obligation on the trustee to pay $2,200.00 per month or that such return was not guaranteed by Mr and Mrs James and Mr and Mrs Christian.

6. If so, did this amount to a breach of retainer or negligence on the part of Mr Pritchard.

7. Did Mr Palmieri believe, at the time he signed the 1 July 1999 Deed and/or invested capital of $700,000.00 and further payments as pleaded, that the documentation imposed a legal obligation upon the trustee to make a payment of $2,200.00 per month from the unit trust and that this obligation was guaranteed by Mr and Mrs James and Mr and Mrs Christian.

8. Was it the case that Mr Palmieri would not have entered into the transaction and invested his initial capital of $700,000.00 and further payments as pleaded, if he had not believed that the documentation imposed a legal obligation upon the trustee to make a payment of $2,200.00 per month from the unit trust and that this obligation was guaranteed by Mr and Mrs James and Mr and Mrs Christian.

9. If Mr Pritchard was in breach of his retainer or was negligent, whether this breach caused DJZ any loss.

10. If yes, was the loss suffered by DJZ in consequence of the breach the $700,000.00 initially invested in the unit trust, and further sums contributed as pleaded.

February 2001 Deed

a. DJZ; or

b. all the directors of Surf Road Nominees.

12. Was there any departure by Mr Pritchard from competent professional practice in respect of the February 2001 Deed.

13. Did Mr Pritchard fail to advise DJZ that the February 2001 Deed could bring about a release of the James’ from their guarantee contained in clause 5 of the July 1999 Deed.

14. If so, did this amount to a breach of retainer or negligence on the part of Mr Pritchard.

15. Is Mr Pritchard protected from any liability by reason of the advocate’s immunity at common law.

16. Has DJZ suffered any loss as a consequence of the February 2001 Deed operating to release the James’ from their guarantee contained in clause 5 of the 1 July 1999 Deed.

17. If Mr Pritchard was in breach of any duties to DJZ, was the breach by Mr Pritchard the cause of DJZ’s loss?

7 August 2003 Deed and 5 November 2003 Sale Agreement

18. Was there any departure by Mr Pritchard from competent professional practice in respect of the 7 August 2003 Deed or the November 2003 Sale Agreement.

19. Did Mr Pritchard fail to advise DJZ that the 7 August 2003 Deed or the November 2003 Agreement for Sale could bring about a release of the James’ from their guarantee contained in clause 5 of the 1 July 1999 Deed.

20. If so, did this amount to a breach of retainer or negligence on the part of Mr Pritchard.

21. Is Mr Pritchard protected from any liability by reason of the advocate’s immunity at common law.

22. Has DJZ suffered any loss as a consequence of either the 7 August 2003 Deed or the November 2003 Agreement for Sale operating to release the James’ from their guarantee contained in clause 5 of the 1 July 1999 Deed.

23. Was any loss of DJZ suffered not by reason of either the 7 August 2003 Deed or the November 2003 Agreement for Sale, but rather by reason of the February 2001 Deed.

24. If Mr Pritchard was in breach of his duties to DJZ, was the breach by Mr Pritchard the cause of DJZ’s loss?

General issues in relation to loss

a. its own legal costs in Equity Division Proceedings 50108/01 or the appeal from those proceedings; or

b. the legal costs of Mr & Mrs James as a result of the Court of Appeal decision;

or were those amounts paid by other companies controlled by Mr Palmieri in circumstances where those other companies have no legally enforceable right of recovery in respect of such payment from DJZ.

26. If DJZ has suffered any loss as a consequence of any breach of retainer or negligence by Mr Pritchard, has DJZ proved the quantum of that loss.

27. If any loss was suffered by DJZ by reason of any breach of retainer or negligence, should any damages be reduced by reason of DJZ’s contributory negligence.

28. would enforcement against Mrs James be fruitful.

29. To the extent recovery of costs depends upon establishing the result of assessment, should the determination be referred out.

Cross-Claim against Gilles Payne

a. prospective claims by the Palmieri interests against the James interests;

b. Equity Division Proceedings 50108/01;

c. the 1 February 2001 Deed;

d. the 7 August 2003 Deed; and

e. the 5 November 2003 Sale Agreement.

a. failing to advise or warn DJZ or Mr Palmieri of the effect of DJZ’s entry into the 1 February 2001 Deed, as found by the Court of Appeal, namely that it operated to discharge the James interests from any liability they may otherwise have had under the 1 July 1999 Deed;

b. failing to advise or warn DJZ that, by entering into the February 2001 Deed, DJZ lost the opportunity to maintain a cause of action against Mr or Mrs James under the 1 July 1999 Deed;

c. failing to advise or warn DJZ that clause 2.7 of the 7 August 2003 Deed would operate to release Mr and Mrs James from any liability they may otherwise have under the 1 July 1999 Deed and that DJZ, by agreeing to clause 2.7, would lose the opportunity to maintain a cause of action against Mr and Mrs James in respect of such liability;

i. (by reason of clause 25) operate to release Mr and Mrs James from any liability they may otherwise have under the 1 July 1999 Deed;

ii. amount to a breach of the implied covenant to maintain security under the 1 July 1999 Deed and therefore discharge Mr and Mrs James from any liability they may otherwise have under the 1 July 1999 Deed; or

iii. iii. cause DJZ to lose the opportunity of maintaining a cause of action, or otherwise impair any right of recovery, against Mr and Mrs James for any liability they may otherwise have under the 1 July 1999 Deed;

e. failing to advise DJZ as to an alternative form of agreement to the 5 November 2003 Sale Agreement that would have avoided the consequence of Mr and Mrs James being released or discharged from any obligation under the 1 July 1999 Deed.

32. There is no dispute that Gilles Payne did not give the advice or warnings referred to in paragraph 31 above.

i. on the basis that the plaintiffs’ claims in those proceedings were reasonably arguable; and/or

b. if so, whether that amounted to a breach of retainer and/or duty of care by Gilles Payne.

34. Are Gilles Payne liable, by way of contribution or indemnity, for any part of any damages for which Mr Pritchard may be found liable to DJZ.

35. For what proportion of any such damages should Gilles Payne be liable.

Cross-Claim against Mr McGovern SC

a. prospective claims by the Palmieri interests against the James interests;

b. Equity Division Proceedings 50108/01; and

a. fail to advise or warn DJZ or Mr Palmieri of the effect of DJZ’s entry into the 1 February 2001 Deed, as found by the Court of Appeal, namely that it operated to discharge the James interests from any liability they may otherwise have had under the 1 July 1999 Deed;

b. give advice to Mr Palmieri and DJZ which encouraged DJZ to pursue, and not to settle, Equity Division Proceedings 50108/01 and did Mr McGovern SC do so without giving any advice as to any risk in respect of the 1 February 2001 Deed.

38. Is Mr McGovern SC liable, by way of contribution or indemnity, for any part of any damages for which Mr Pritchard may be found liable to DJZ.

Evidentiary rulings

Statements

10 During the course of the hearing, I admitted statements made by Mr Osterberg and Mr Christian to Giles Payne, over objections advanced for Mr Pritchard. The issue arose after Mr McGovern’s brief was tendered for Mr Pritchard, apart from these statements. They had been taken in 2003 by Giles Payne and Mr Christian's statement was later provided to Mr Pritchard, when advice was given in relation to the bringing of a misrepresentation claim against Mr James. Mr Pritchard briefed counsel appearing for DJZ, Mr Alexis SC, with the statements other than that of Mr Osterberg and also used them when instructing another solicitor to advise on the possibility of a misleading and deceptive conduct claim being advanced in the proceedings then on foot before Einstein J.

11 Neither Mr Christian nor Mr Osterberg were called to give evidence. Mr Osterberg was clearly available and there was no suggestion that Mr Christian was not.

12 The objection taken for Mr Pritchard was that it would be unfairly prejudicial to admit the statements, because there was no opportunity to cross examine Mr Osterberg and Mr Christian and accordingly, they should be excluded under s 135 of the Evidence Act 1995, or admitted only for a limited basis, that is, other than as evidence of truth. Their admission was pressed on the basis that it would be unfair to permit Mr Pritchard to rely on the brief provided to Mr McGovern in his case, absent the statements which formed a part of the brief.

13 It is settled that ‘unfair prejudice’ in s 135 of the Evidence Act means a risk that evidence will be misused in some way. That was not a possibility in this case. The lack of any opportunity to cross examine had to be weighed in the balancing exercise which the section requires, but was not decisive of the question of whether the statements should be admitted. (See for example Ordukaya v Hicks [2000] NSWCA 180 at [35] - [ 40].) I came to the conclusion that in this case this difficulty was one which went to the weight to be given to the statements, once received, rather than to their admissibility.

14 In reaching that conclusion, I took into account that there would be no opportunity to cross examine Mr Osterberg or Mr Christian; that Mr McGovern had been briefed with the statements; that Mr Pritchard had himself later been provided with Mr Christian's statements during the proceedings before Einstein J in 2003, when consideration was being given to amending the pleadings in those proceedings to bring claims for misleading and deceptive conduct; that Mr Pritchard had himself relied on Mr Christian's statements when seeking further advice on whether a misleading and deceptive conduct case could then be brought; and that in advancing his cross claim Mr Pritchard sought to rely on what Mr McGovern had been briefed with, but sought to deny Mr McGovern and Giles Payne the opportunity to rely on those statements, in defending the case brought against them.

15 I came to the view that all of those factors balanced in favour of the statements being received.

Admission

16 An affidavit sworn by Mr Denis Fitzpatrick a solicitor employed by Mr Pritchard at the time of the hearing before Einstein J, was sought to be tendered for Mr Palmieri. In that affidavit he deposed to the value of certain property owned by Mrs James. Annexed to the affidavit was a valuation of the property prepared by a valuer. The tender was objected to on the basis that it was inadmissible hearsay and that the valuer had not complied with the requirements of Schedule 7 of the Evidence Act.

17 The basis of the tender was said to be s 87(1)(b) of the Evidence Act which provides:

87 Admissions made with authority

(b) when the representation was made, the person was an employee of the party, or had authority otherwise to act for the party, and the representation related to a matter within the scope of the person’s employment or authority, or

18 What was in issue was whether what Mr Fitzpatrick had said in the affidavit was an admission which fell within the section. ‘Admission’ is defined in the dictionary to the Act as:

"admission means a previous representation that is:

(a) made by a person who is or becomes a party to a proceeding (including a defendant in a criminal proceeding), and

19 ‘Previous representation’ is defined in the Dictionary to the Act as:

"

previous representation

20 Clause 6 of Part 2 of the Dictionary, provides:

Representations in documents

For the purposes of this Act, a representation contained in a document is taken to have been made by a person if:

(a) the document was written, made or otherwise produced by the person, or

(b) the representation was recognised by the person as his or her representation by signing, initialling or otherwise marking the document."

21 It was argued that the affidavit fell within the section as an admission, Mr Fitzpatrick having been Mr Pritchard’s employee at the time the admission was made and the admission relating to a matter within the scope of his employment.

22 For Mr Pritchard it was argued that the valuation was not an admission made within the scope of Mr Fitzpatrick’s employment. Employed solicitors did not value property. The representation made in Mr Fitzpatrick’s affidavit was that a particular valuation had been provided to DJZ by a valuer, in terms annexed to the affidavit. Mr Fitzpatrick did not himself make representations as to value.

23 I take the view that the representation sought to be relied on is not an admission falling within s 87.

24 The opinions expressed by the valuer in the valuation annexed to the affidavit were not representations made by Mr Fitzpatrick. By his affidavit he did not recognise the representation as his. That was no doubt because valuation of property did not fall within the scope of Mr Fitzpatrick’s employment. He was an employed solicitor acting for DJZ in the Supreme Court proceedings. He was DJZ’s agent in those proceedings. It was within the scope of his employment to swear an affidavit attesting to the fact that a valuation had been obtained by DJZ, which valued the property at a particular price. It was not within the scope of his employment himself to make representations as to what the value of the property was. His were representations about the existence of opinions reached by the valuer, not about the value of the property itself.

25 Nor was a representation that such opinions existed, representations adverse to Mr Pritchard’s interests in these proceedings.

26 The valuation was not made or produced by Mr Fitzpatrick. Noting its existence and what it provided, cannot amount to Mr Fitzpatrick recognising the valuation and the opinions there expressed as his, so that it became an admission on which DJZ could rely in these proceedings, against Mr Pritchard’s interests, to establish the value of the property in question.

27 Even if the representations did fall within s 87, I am satisfied that in the circumstances they had to be excluded under s 135. (See Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (no 4) [2006] NSWSC 90 at [28]). Justice would not permit the value of the properties in question being so established. These were valuations obtained by DJZ itself in circumstances where the requirements of schedule 7 had not been complied with. That is not a reliable way of establishing value. Even if the evidence were not excluded on that basis, the valuation could be given but little weight.

The factual circumstances

28 Mr Palmieri was a director of DJZ and its controlling mind. He is a property developer who conducts his business activities through various corporate entities, including DJZ. He has long been a client of Mr Pritchard and also of an accountant Mr Osterberg, who have advised and acted for his companies on various business matters for many years, in Mr Pritchard’s case since the early 1980s. Mr Osterberg also acted in relation to the venture here in issue. He was an obvious, available witness to be called in DJZ’s case, but he was not called. No explanation for his absence was given. Mr Palmieri had also long known Mr James, the promoter of the real estate venture in which DJZ invested in 1999. Mr Palmieri was involved in a number of business ventures with Mr James and entities associated with him, before DJZ entered into the real estate venture. Some $840,000 was finally invested to acquire DJZ’s interest in that venture.

29 The circumstances which ultimately resulted in these proceedings being brought are exceedingly complicated. They are conveniently summarised, in part, in the judgment of Beazley J in the Court of Appeal’s judgment. Her Honour said:

Factual overview

6 The background to this matter is complicated and is set out in detail at [14] in the trial judge’s reasons. The facts relevant to the issues on the appeal may be considered more briefly. Mr. James and Mr. Christian were real estate agents who, in about 1990, formed a company, James Christian Pty. Limited (James Christian) which carried on business as Raine & Horne Caringbah.

7 In late 1996, James Christian Pty. Limited, purchased a small real estate agency, I.G. Martyn Real Estate Pty. Limited (I.G. Martyn), borrowing approximately $1 million from Macquarie Bank to fund the purchase. In 1999, Messrs. James and Christian decided to purchase a large real estate agency in Cronulla known as Chris Burke & Co. Pty. Limited (Chris Burke & Co) for $1.7 million. At that time, James Christian was still indebted to Macquarie Bank for the moneys borrowed in 1996 to purchase I.G Martyn.

8 As Messrs. James and Christian were unable to finance the proposed purchase of Chris Burke & Co, they decided to seek the interest of other investors in the proposal. Three investors were attracted: Mr. Palmieri, Mr. Mortimer and Mr. Wilson. These persons and/or their companies are referred to as the investors. An agreement was reached, whereby, through their various corporate entities, the investors would join with Messrs. James and Christian (who, with the investors, will be called the venture parties) to purchase the business of Chris Burke & Co through a new corporate vehicle, Surf Road Nominees. This will be referred to as the new venture. Messrs. James and Christian were to contribute the assets of James Christian which, in essence, comprised the rent roll of I.G. Martyn, to the new venture. The investors were to contribute cash in amounts proportionate to the asset contribution of Messrs. James and Christian.

9 The legal structure of the new venture was somewhat complicated. In addition to the new company Surf Road Nominees, in which the venture parties held shares, a unit trust, the Surf Road Unit Trust, was established, Surf Road Nominees being the trustee. The venture parties also held units in the Surf Road Unit Trust.

10 Surf Road Nominees acquired all the shares in Chris Burke & Co, which remained the operating company conducting the real estate businesses. Surf Road Nominees also held all the shares in I.G. Martyn. The intention was that any profits in Chris Burke & Co were to be funnelled into Surf Road Nominees and thence into the Surf Road Unit Trust for distribution.

11 This exercise required that the business of I.G. Martyn be valued so as to determine the amount of cash contribution required by the investors. The existing debt of James Christian to Macquarie Bank was quarantined from the valuation exercise.

12 The financial arrangements between James Christian, I.G. Martyn and the Macquarie Bank were also restructured. Under the new arrangements, I.G. Martyn took over responsibility for the $1 million debt owed by James Christian by way of a fully drawn advance facility granted on 25 June 1999 for the amount of the debt. The terms of the fully drawn advance required the payment of monthly instalments and the repayment of the outstanding balance on 30 June 2002. The advance was secured by fixed and floating charges over the assets of I.G. Martyn; James Christian and Surf Road Nominees in its own capacity and in its capacity as trustee for the Surf Road Unit Trust; and Chris Burke & Co in its own capacity and in its capacity as trustee for the Burke Unit Trust. In addition, personal guarantees were given by the James and the Christians and Deeds of Covenant and Indemnities entered into with the Surf Road Unit Trust and the Burke Unit Trust.

13 Thirty-six units were issued in the Surf Road Unit Trust, valued at $110,000.00 per unit. That amount represented the amount to be contributed by the venture parties in cash or kind in accordance with their unit entitlements. The initial unit holdings, after one rearrangement not relevant for present purposes, were:

(i) New South Head Road Nominees Pty. Limited (New South Head Road Nominees) as trustee for the J. James Trust (Mrs. James’ trust) – 13 units.

(ii) Cottenham Nominees Pty. Limited (Cottenham) as trustee for the M & K Christian Family Trust – 13 units.

(iii) DJZ Constructions Pty. Limited (DJZ) – a Palmieri interest – 7 units.

(iv) WIT Investments Pty. Limited (WIT) - a Wilson interest – 1 unit.

15 The investors held A Class units which entitled them to preferential distributions from the Trust.

16 At the time that the new venture was established, a Deed of Guarantee, dated 1 July 1999, was entered into between the parties. As already mentioned, the principal issue on the appeal is whether Mrs. James remains liable under the Deed of Guarantee.

17 Difficulties soon arose in the management of the business and Messrs. James and Christian were accused of fraud and misappropriation. Mr. James was dismissed as manager of Surf Road Nominees. In February 2001 the Christians and their family company, Cottenham, entered into a Deed (the February 2001 Deed) whereby any liability they might have under the Deed of Guarantee was varied. It appears that immediately prior to that agreement being entered into, Mortimer transferred its 2 units in the Trust: one to DJZ to hold as trustee for Silvano Sicuro (Sicuro) and the other to Cottenham. Sicuro had been brought in as a financial adviser when Palmieri, Wilson and Mortimer became concerned about the conduct of the business affairs of Surf Road Nominees. It was his investigations into the business’ financial affairs that led to Mr. James’ dismissal.

18 The February 2001 Deed was entered into with Surf Road Nominees, Chris Burke & Co, I.G. Martyn, WIT and Wilson, and DJZ and Palmieri. The absence of the Mortimer interest is explained by the transfer of its shares and units. The Deed recited that allegations of fraud and misappropriation had been made against Messrs. James and Christian and that it would be in the best interests of the parties and the Surf Road Unit Trust if Mr. Christian was given a release in relation to the allegations against him. The Deed also recited that the investors were entitled to exercise their power of sale under cl.8 of the Deed of Guarantee over the New South Head Road Nominees and Cottenham units in the Trust.

19 It should be noted however that at that time the investors had not given a Notice of Default under the Deed of Guarantee to New South Head Road Nominees or Cottenham. That was not given until 4 May 2001 and was addressed to both.

(i) Surf Road Nominees claimed that the James and New South Head Road Nominees were liable to Surf Road Nominees as trustee for the Surf Road Unit Trust for the Macquarie Bank debt of $1 million – see cl.5(1)(a) of the Deed of Guarantee;

(ii) WIT and DJZ claimed that the James and New South Head Road Nominees were liable to WIT and DJZ for the preferential distributions – see cl.5(1)(b) of the Deed of Guarantee

21 The monthly payments on the Macquarie Bank debt were not being met and the advance was not repaid in accordance with the provisions of the draw down facility. On 22 October 2002 the investors exercised the power of sale in respect of the New South Head Road Nominees units. In December 2002, Surf Road Nominees sold the rent roll of Chris Burke & Co and on 28 February 2003 it discharged the Macquarie Bank debt. The loss and damage thereby suffered by the investors from the failure to repay the Macquarie Bank debt crystallised at that time in the sum of approximately $1 million.

22 Subsequently, on 5 November 2003, the Christians and Cottenham entered into another agreement (the 5 November 2003 Agreement) whereby Cottenham purchased the remaining real estate business of Chris Burke & Co. Under cl.25 of the agreement, the Christians and Cottenham were given a “release” of any liability they might have to the investors to Surf Road Nominees and to others who were parties to the 5 November 2003 Agreement or referred to in it.

30 The evidence in these proceedings showed that Mr Palmieri had been discussing the possibility of investing in the real estate business with Mr James for some time before approaching Mr Pritchard. He initially took advice from Mr Osterberg, who counselled him against the investment.

31 Mr Osterberg accompanied Mr Palmieri and Mr Pritchard to two meetings with Mr James and Mr Christian and other investors, where a presentation about the proposed venture was made by Mr Goman, an accountant of BDO Nelson Parkhill. Mr Palmieri believed that before or at the first meeting, Mr James gave him a draft of the 1999 deed. Mr Palmieri could not recollect any detail of what was discussed at this meeting, only that there was a general conversation about the proposed venture. Mr Pritchard recollected discussion of distributions and how A class shareholders such as Mr Palmieri were to receive dividends in preference to ordinary unit holders, to offset the repayment of their existing debts. He understood that Mr Osterberg was then advising Mr Palmieri on financial matters. He did not discuss the financial aspects of the transaction with Mr Palmieri, but appreciated the legal complexity of what was being proposed.

32 The second meeting at BDO Nelson Parkhill took place some time in June 1999. It was also attended by Mr Christian and other investors, Mr Wilson, Mr Mortimer and by Mr Dennis Bowles, a solicitor acting for Mr James and Mr Christian. It was Mr Bowles who had drafted the 1999 deed. Documents were provided at these meetings dealing with structure, unit price and projected cash flows.

33 The evidence showed that at the time of this meeting, Mr Palmieri had already decided to proceed with the investment. Mr Pritchard then had no formal instructions to act in relation to the venture. He had long acted for Mr Palmieri and had agreed to attend these meetings when approached by Mr Palmieri, even though he had not been instructed to act. His evidence was that he was conscious that Mr Palmieri would need legal advice about the venture, but he did not assume that it would be he who would be instructed. Nevertheless, he considered the concept which was being advanced at the meetings.

34 Shortly afterwards Mr Pritchard was instructed to act in relation to the loan which was taken out in order to fund DJZ’s participation in the venture. Later he was also instructed to act in respect of the venture itself. There was no costs agreement, but eventually Mr Pritchard charged for his attendance at the earlier meetings.

35 On 30 June, Mr Pritchard attended to the settlement, when DJZ’s investment in the venture was paid. The venture commenced on 1 July 1999, before the 1999 deed was executed by anyone. The investors did not execute the deed until late 1999 or early 2000.

36 Before that execution Mr Pritchard was involved in a due diligence exercise, undertaken after he was provided with the deed which had been executed by the James and Christian interests in August. He reported to the investors on that exercise, by letter of 23 November 1999, when he also forwarded the executed deed for their execution, providing an explanation of what it provided for. In that correspondence the advice which Mr Pritchard gave was inconsistent with the guarantee which Mr Palmieri claims he had instructed should be provided in the 1999 deed.

37 It was Mr Palmieri's evidence that his reading, understanding and speaking of English was at that time limited and that it was his practice to have Mr Pritchard explain letters and documents to him. He did not, however, recall then discussing the 23 November letter, or the deed, or any other document relevant to the transaction with Mr Pritchard. Indeed, he claimed that he did not read Mr Pritchard’s letter of advice and that Mr Pritchard never contacted him, or explained this advice or the deed to him, even though he was aware of his limited command of English.

38 By this time the real estate business was being conducted on a basis quite inconsistent with the claimed guarantee. DJZ was not receiving any dividends. Mr Palmieri apparently first pursued his concern about the failure to pay dividends in September 1999 with Mr Osterberg, but not with Mr Pritchard. The first payment was not made until December. The deed was executed in late 1999 and early 2000.

39 Mr Palmieri and the other investors raised no concern with Mr Pritchard about his November letter, or about the failure of the business to provide the returns it was here claimed they had been promised and were to be guaranteed in the deed. The investors all executed the deed without complaint or question, even though the returns which Mr Palmieri and Mr Wilson claim had been guaranteed and which they had instructed Mr Pritchard to ensure were secured by the deed, were not being delivered.

40 A dispute arose about the management of the real estate business in late 2000, or early 2001. Mr Pritchard was then instructed to advise Mr Palmieri and other directors, when Mr James’ misappropriation came to light. He acted in relation to the February 2001 deed, which was prepared by Pryor Tzannes and Wallis, who were acting for the Christian interests. Mr Pritchard also later acted for the investors in the proceedings brought in the Supreme Court, as well as in relation to an August 2003 deed and the November 2003 sale of the business to the Christians.

41 Mr Palmieri, or entities associated with him, made a payment of $200,000 in 2002, in order that Macquarie Bank would not close the real estate business and call in its loan, as well as loaning the business other monies, in an endeavour to keep it afloat.

42 It was in January 2002 that Mr Palmieri instructed Giles Payne to advise about a possible misrepresentation case, at a meeting with Mr Gilles at which Mr Osterberg was present. Mr Palmieri instructed that he been promised returns of $2,200 per unit per month as a return on his investment, which he was not receiving. Giles Payne initially advised in relation to whether Mr Palmieri had a claim against Mr James for misleading and deceptive conduct in relation to the real estate venture the subject of the Supreme Court litigation. It was also instructed in relation to a joint venture agreement between one of Mr Palmieri’s other entities, Palmieri’s Developments Pty Ltd, Mr James and James Christian Pty Limited.

43 In order to give advice Giles Payne obtained from Mr Pritchard copies of various documents, including the 1999 deed, an unexecuted, undated and incomplete version of the 2001 deed, which was understood however to have been entered by the parties, as well as pleadings and other documents in the Supreme Court proceedings. In December 2003, Mr McGovern was briefed with six volumes of documents to advise DJZ on bringing the misrepresentation claim and, if it were thought that there were reasonable prospects of success, drafting the necessary originating process.

44 Mr Palmieri pursued this advice because he had come to have a concern that Mr James, with whom he had an interest in certain property, (‘the joint venture property’), might seek to use that interest to further settlement negotiations in the ongoing Supreme Court proceedings. Mr Palmieri sought to preclude this possibility eventuating. He wanted to ensure that the other investors such as Mr Wilson, also plaintiffs in those proceedings, would not gain an interest in the joint venture property. Thus he sought independent advice from Giles Payne and Mr McGovern, as to other claims which might be pursued against Mr James.

45 Consideration was given by Giles Payne and Mr McGovern as to whether a misrepresentation claim could be pursued; whether it could be pursued separately to the Supreme Court proceedings, or whether that might involve an abuse of process; whether there was a conflict between Mr Palmieri’s interests and those of other investors; and whether DJZ should be separately represented in the ongoing Supreme Court proceedings. Mr Palmieri was advised in a conference with Mr McGovern and his solicitors in March 2003, that the misrepresentation claim should be brought in the Supreme Court proceedings.

46 While Mr Gilles denied this, the evidence, including that given by Ms Becker, a solicitor employed by Giles Payne, also advising Mr Palmieri, as well as correspondence which Giles Payne sent Mr Palmieri, showed that Mr Palmieri then instructed Giles Payne to separately represent DJZ in the Supreme Court proceedings, in accordance with Mr McGovern’s advice. Steps were taken by Giles Payne to act on these instructions, including obtaining a copy of pleadings and other documents filed in the Supreme Court proceedings; and seeking further advice from Mr McGovern.

47 Amongst other things, by letter of 15 April 2003, Mr McGovern advised that:

"... the present Supreme Court proceedings, relying as they do upon the deed of 1 July 1999, offer the most reasonable prospect of being able to secure the reasonably arguable claims of Surf Road Nominees Pty Ltd and the investors."

48 After further consideration and advice from Mr McGovern, it was later decided that DJZ would not be separately represented in the Supreme Court proceedings, but that Giles Payne would keep a watching brief on the proceedings; it would continue to advise Mr Palmieri as the need arose; and would be ready to step in, if his interests required separate representation in the proceedings. That never eventuated. Advice was also given that a misrepresentation claim required further work to be undertaken, in order to determine the true value of the units acquired, by way of comparison to what had been represented by Mr James. This was discussed with Mr Palmieri at a meeting on 24 April with Mr Gilles and Ms Becker, attended by Mr Osterberg. That work was not pursued.

49 Offers of settlement of the Supreme Court proceedings, made on a walk away basis, were rejected by Mr Palmieri, despite advice from Mr Alexis that they should be accepted. Mr Palmieri was concerned about Mr James’ interests in the joint venture properties and wanted to ensure that any settlement be on the basis that Mr James gave up that interest. He also wanted to ensure that the other investors did not gain an interest in those properties, as the result of any settlement.

50 Mr Palmieri took other steps to ensure that he gained control over the conduct of the 2003 proceedings, in which Mr Pritchard and Mr Alexis continued to act.

51 In October 2003, Mr Pritchard acted on the sale of the real estate business to the Christian interests. Mr Palmieri initially approached Giles Payne to act on this transaction, but the firm declined the instructions, given the state of the relevant documentation. The vendor was Chris Burke & Co Pty Limited. Mr Palmieri then instructed Mr Pritchard.

52 The purchasers were represented by Dibbs Barker Gosling, who prepared the sale agreement. It was Mr Pritchard’s written advice that this transaction was being pursued with such haste that there were commercial risks being taken, in not tying up a number of identified ‘loose ends’, before settlement. The potential results were identified to include ongoing dispute and financial loss. Mr Palmieri gave written acknowledgement on behalf of Chris Burke & Co Pty Limited and himself, of the advice given that the transaction should not be settled unless ‘all documentation to reduce liability on your part is in place’. There was no advice given that the terms of the proposed sale agreement would jeopardise DJZ’s further pursuit of the Supreme Court proceedings.

53 Even though it had declined to act on the sale, Giles Payne continued to advise on matters which Mr Palmieri raised with them from time to time about the Supreme Court proceedings, including in relation to whether or not the 2003 proceedings should be settled, as Mr Alexis again advised in December 2003.

54 By this time the James’ interests had become aware of the 2003 sale agreement and had amended their defence to rely on that agreement and the 2001 deed. Mr Alexis advised DJZ that the matter should be settled and that it potentially had a claim against Mr Pritchard in relation to the sale agreement and should seek independent advice as to its position. Mr Palmieri sought Giles Payne's advice. The views which Giles Payne took differed to the advice given by Mr Alexis. Mr Palmieri decided to proceed.

55 Mr Palmieri was then also given advice by Mr Pritchard and Mr Alexis about a misleading and deceptive conduct claim being pursued in the Supreme Court proceedings, which were then part heard, a possibility raised by Mr Fizpatrick. They were provided with the statements Mr Palmieri, Mr Wilson, and Mr Christian had given Giles Payne. Mr Alexis advised against such a claim being pursued. That advice was accepted.

56 The hearing concluded with DJZ succeeding before Einstein J. Mr James went into bankruptcy and Mrs James and other defendants appealed the decision. That appeal did not touch on orders made against Mr James. Further proceedings were then commenced in the Supreme Court by the James’ interests, in relation to the joint venture property.

57 After the Court of Appeal gave its judgment, upholding Mrs James’ appeal, Mr Palmieri's interests entered into a settlement in relation to the first instance proceedings, (the orders made by Einstein J against Mr James not having been disturbed); the Court of Appeal proceedings; and the joint venture proceedings, amongst other things. Parties to that settlement included Mr James and his trustee in bankruptcy, as well as the parties to the various proceedings the subject of the settlement.

58 DJZ then instructed Giles Payne and Mr McGovern to bring these proceedings, commenced in 2005.

The nature of the legal practitioners’ duty of care

59 There was no issue as to the nature of Mr Pritchard’s duty, or indeed that of Giles Payne and Mr McGovern. It required them to exercise reasonable care and skill in the provision of their legal advice, to the standard which may reasonably be expected of legal practitioners (see Rogers v Whitaker [1992] HCA 58; (1992) 175 CLR 479 at 483; Heydon v NRMA (2005) 51 NSWLR 1.)

60 In this case there was no expert evidence led as to the question of whether the required level of skill was exercised. For DJZ it was argued that this was unnecessary (see Lucantonio v Kleinet [2009] NSWSC 853).

61 For Mr Pritchard, reliance was placed on the observations of Simpson J in Attard v James Legal Pty Limited [2009] NSWSC 811 at [59], but it was accepted that in accordance with s 5O of the Civil Liability Act 2002, the defendant bore the onus of calling an expert to give any relevant opinions. No evidence was called, but written advice given by Mr Wales QC to DJZ, before the Supreme Court proceedings were commenced, as well as advice given by Giles Payne and Mr McGovern, was relied on.

62 When determining whether a legal practitioner has breached his or her duty to a client, consideration must also be given to the way in which the advice is given. That may be affected by the type and experience of the client for whom the practitioner is acting (see Capebay Holdings Pty Ltd v Sands [2002] WASC 287; [2003] ANZ ConvR 170 at [94]). Thus in this case both Mr Palmieri’s command of spoken and written English and his business acumen are relevant matters to consider, in resolving the issues lying between the parties.

63 This case also raises questions as to the extent of the retainers of Giles Payne and Mr McGovern. In David v David [2009] NSWCA 8 it was observed by Allsop P, Hodgson JA and Handley AJA agreeing:

Waimond Pty Ltd v Byrne

Kowalczuk v Accom Finance Pty Limited

Heydon v NRMA Ltd

Astley v Austrust Ltd

64 Also to be born in mind is what was observed by the Court of Appeal in Capital Brake Service Pty Limited v Meagher & 8 Ors t/as Sparke Helmore [2003] NSWCA 225 at [30]:

Mr Palmieri’s command of English and questions of credit

65 It is convenient at this point to deal with evidence which Mr Palmieri gave about his command of English and his business acumen. Regrettably, I have come to the conclusion that his evidence about these matters was not given in a way consistent with a strict adherence to the truth.

66 In his affidavit it was Mr Palmieri’s evidence that:

"1. I am one of the directors and an ordinary class shareholder of the plaintiff.

2. I came to live in Australia in 1962 from Italy. When I arrived in Australia I could not speak, read or write English. I subsequently learnt to speak English. However, I have never formerly learned to read and write English.

67 Mr Pritchard’s evidence was that in his dealings with Mr Palmieri, he had found that he had a good grasp of his business dealings and a sufficient grasp of English, to conduct that business. Ms Haas was a paralegal who worked for many years for Mr Pritchard and had various dealings with Mr Palmieri before her employment came to an end in 1996, in relation to a number of conveyancing transactions, including when he attended to execute such contracts, or to deliver or collect documents. Her evidence was that on occasions Mr Palmieri asked for explanations, but his questions, when she explained documents to him, were no different to those asked by other clients. He gave her no indication that he was not himself reading such documents.

68 Ms Becker’s evidence at one point was that when she was acting for Mr Palmieri in 2003, she met with and spoke to him about the progress of the Supreme Court proceedings and that he sometimes brought documents to her, which she explained. He was not always able to accurately understand written documents, but he would understand the essence of the documents, when they were explained to him. Later, when being cross examined as to advice which she had given Mr Palmieri in October 2003, when she reviewed the draft 2003 sale agreement, Ms Becker said that Mr Palmieri had great difficulty understanding certain legal concepts and that the English involved in them would escape him and a great deal of time was required to explain various matters to him. She believed however, that he understood the explanation which Mr Gilles had given him of Mr McGovern’s written advice in March and April 2003.

69 In his oral evidence, Mr Palmieri repeatedly said that in 1999 and subsequently, he had read various documents, including documents from the Arab Bank, but that he could not remember exactly when. He also said that he could not understand their significance, and thus had relied on Mr Pritchard, or others such as bank managers, to explain them to him. His evidence later altered.

70 At one point, when his attention was drawn to a document, a cash flow statement for the 12 months to 30 June 2000, Mr Palmieri indicated that he could read what he was taken to under the heading ‘capital outflows’. He agreed that he had seen this document after a meeting, but said that he then relied on Mr Pritchard and Mr Osterberg to look at it for him. He was taken to a number of other documents, which he also identified as documents he had seen. He indicated other documents which he had not seen. He was able to read the parts of the documents to which he was taken, without apparent difficulty. In relation to a deed of trust of May 1999, Mr Palmieri said after examining the document that the front cover looked familiar, but that he could not remember its contents.

71 Later in the cross examination, when taken to another deed and asked about allegations there recounted, there was an objection. I then observed that there did not appear to be any necessity to read the document to Mr Palmieri, because he had been having no difficulty in reading documents to which he had been taken, although he had repeatedly said that he didn’t understand them. When the examination then continued, Mr Palmieri interrupted and asked what he said was a question:

‘When he tells me to read all of this, for a start, it would take me half a day, so the best way for to answer the question, to oral questions.'

72 Mr Palmieri was interrupted by his counsel at this point. It was said by counsel that he would not object to the passage in question being read to Mr Palmieri. That invitation was later taken up.

73 Mr Palmieri’s suggestion that he was having a difficulty at this point was rather implausible, given his cross examination to that point. It had been conducted by reference to numerous documents in a number of lever arch folders. Consistently with his affidavit evidence, he had no apparent difficulty in following that cross examination, or being able to read the parts of the documents to which his attention was drawn. He repeatedly explained that he could not necessarily understand what parts of the documents to which he was taken meant, and that he could not remember the time at which events to which he was being taken had occurred, or when he had first been made aware of certain things. Nevertheless, he recollected the events having occurred and having had relevant matters drawn to his attention at some point.

74 The documents to which Mr Palmieri had been taken included documents which he had signed, indicating that he had read them. He was a director of the plaintiff, as well as a director of a number of other companies. He had made his living, not as a blue collar worker, as he claimed at one point in his cross examination, but as a property investor and developer, since the early 1990’s. In 1999, he and entities associated with him owned commercial property worth millions of dollars. He had arranged lending facilities for very large amounts with the Arab Bank of Australia, having provided security for the advances made over various properties, as well as fixed and floating charges over corporate entities with which he was associated. He was involved in joint venture investments with Mr James and was pursuing an investment by DJZ in a substantial real estate business.

75 When the cross examination turned to the basis of an agreement reached with Mr and Mrs Christian and the entities associated with them in late 2000 and early 2001, Mr Palmieri’s evidence became entirely implausible. He was asked if he had read the February 2001 deed before he signed it. His evidence was that:

"A. I wouldn't be able to read it. This deed or whatever it is would have to go to Pritchard and he would have explained it to me.

Q. Mr Palmieri, the position is, isn't it, that you did your best to read this document before you signed it in February 2001?
A. Of course I did, but I wouldn't understand it, as I keep saying. My limit in English is very limited, so that's when I realise with my solicitor or with the accountants. For me I can read a few words of it, but all the important part of it I wouldn't know what I am reading.

Q. Mr Palmieri, are you saying to the Court that you would sign a legal document of this type without reading it?
A. If I can't read it, it is not going to help me, that's why I go to the experts.

Q. You are able to read it now, aren't you, Mr Palmieri?
A. No.

76 I am unable to accept this evidence as entirely truthful.

77 Mr Palmieri went on to give evidence as to matters dealt with in the February 2001 deed, which recorded the agreement reached by the plaintiff and other investors with Mr and Mrs Christian and the entities associated with them. He claimed that he had nothing to do with matters dealt with in the deed, particularly borrowings by Surf Road Nominees Pty Limited on behalf of the SRUT of $300,000 from Macquarie Bank. This was despite the fact that DJZ, Mr Palmieri himself and his wife were each parties to the deed. He was also a director of the trustee company, Surf Road Nominees Pty Limited, which was also a party to the Deed. In that capacity, he was one of those involved in the matters which had led to the agreements which the deed reflected. He had been intimately involved in the decision to act in relation to Mr James' misappropriation; to terminate Mr James’ employment with the real estate agency; to have him removed from the Board of Surf Road Nominees Pty Limited and to ensure Mr Christian’s continued involvement, which permitted the real estate agency to continue to operate.

78 The distinct impression which Mr Palmieri gave by this stage of his cross examination was that he had become frustrated and was giving the evidence which he thought would best advance DJZ's claims, rather than giving evidence which was strictly truthful. At this point, Mr Palmieri’s memory diminished markedly. He repeatedly said either that he could not remember matters to which he was taken, or that he had nothing to do with them.

79 When the hearing resumed a year later and Mr Palmieri’s cross examination resumed, these impressions were reinforced. Either various answers then given were not truthful, or Mr Palmieri had suffered some medical condition which had seriously impaired his memory. No such suggestion was made in DJZ's case.

80 By way of contrast to Mr Palmieri’s evidence as to the difficulties which flowed from his limited command of English, his evidence did not suggest that he experienced such difficulties in relation to advice which he received from Giles Payne or Mr McGovern. Given the matters with which that advice was concerned, the time at which it was given, and that in part it was given in writing, the absence of the suggestion of similar difficulties with understanding this advice, by way of comparison to the difficulties Mr Palmieri claimed he had an understanding Mr Pritchard's advice, also leant support to the view that Mr Palmieri’s evidence was not being entirely truthful, in his evidence.

81 The result was that while I accept that Mr Palmieri required assistance to understand the legal ramifications of various documents which were prepared for him and his companies from time to time, he had an adequate understanding of matters then explained to him. When giving his evidence, he had no real difficulty in reading documents to which he was taken. While Mr Palmieri was no doubt truthful when he said on some occasions that he could not remember various events, I came to the view that he had a better memory of the events to which he was taken, than he was prepared to admit and that the evidence which he gave about what he remembered of those events, was not always entirely truthful.

82 The investments in which Mr Palmieri and his companies were involved required a relatively sophisticated understanding of financial and legal concepts. Mr Palmieri had an understanding of his affairs and took steps to take advice as to his interests, when he perceived that he and DJZ needed it. While he denied ever rejecting Mr Pritchard’s advice, or that of his other legal advisers, the evidence showed that he made commercial decisions on a number of occasions which involved a rejection of legal and other professional advice which he had received. He was strategic about seeking advice from separate advisers, when he believed that it was in his interests to do so.

83 It finally appeared that adherence to the truth remained Mr Palmieri’s approach only when he believed that it would advance, or not hurt DJZ’s claims. I have concluded that his evidence must be approached with caution. In the case of conflict, I am not able to accept his evidence over that of other witnesses, other than where it is corroborated.

84 I did not have reservations such as this in relation to any other witness.

The 1999 Deed

85 In order to consider the issues lying between the parties, it is necessary to consider the terms of the 1999 deed. There was disagreements to its effect.

86 The 1999 deed provided in clauses 2 - 5:

"2. The Investors as A Class unit holders in the Surf Road Unit Trust shall be entitled and shall receive a preferential distribution from the profits of the Surf Road Unit Trust equal to the amount paid by Surf Road Unit Trust to the bank in accordance with clauses 12.10 of the Surf Road Unit Trust Deed ("the preferential distribution").

3. The preferential distribution shall be paid in whole on a monthly basis during each year of income until the Surf Road bank debt has been repaid in full.

4. Until otherwise resolved by the Trustee, the Trustee shall pay to all unit holders in the Trust, an amount of $2,200.00 per unit per month by way of an interim distribution of the anticipated annual net income of the Trust provided always that the preferential distribution to the Investors and any amount paid to the bank in respect of the Surf Road bank debt or the IGM bank debt shall be deducted respectively from the interim distribution to the Investors and to the unit holders.

(a) payment of the IGM bank debt and the Surf Road bank debt;

(2) The Indemnifying parties, the guarantor and the unit holders jointly and severally indemnify the Investors for any loss or damage suffered by the Investors should the Indemnifying parties, the guarantor and the unit holders fail to ensure payment of the bank debts and the preferential distributions."

87 The construction of these clauses is not without difficulty. They must be understood in the light of the definitions of the terms ‘the investors’ the 'unit holders', the 'guarantor' and the ‘indemnifying parties’. DJZ was one of ‘the investors’. James Christian Pty Limited was ‘the guarantor’. ‘The indemnifying parties’ were Mr and Mrs James and Mr and Mrs Christian. ‘The unit holders’ were Cottenham Nominees Pty Limited as trustee for M & K Christian Family Trust and New South Head Road Nominees Pty Limited as trustee for the Janet Margaret James family Trust. ‘The trustee’ was Surf Road Nominees Pty Limited.

88 It was Mr Palmieri’s complaint in these proceedings that clause 5 of the deed did not ensure that the interim dividend provided in clause 4 of the deed was guaranteed. A difficulty, it seems to me, with the case so advanced, is that clause 4 did not apply to investors such as DJZ. It was concerned with the rights of the unit holders, entities associated with Mr James and Mr Christian. It was Mr Pritchard’s evidence that this structure had been a part of the presentation made by Mr Goman at the meetings he attended with Mr Palmieri. There was nothing said to him by Mr Palmieri then to indicate that he did not understand the proposal, or that he understood that the transaction worked in a way different to that which Mr Goman had explained.

89 The construction of clause 5 was in issue before Einstein J. In construing that clause his Honour had to consider what was provided in the clauses to which the guarantee was directed, which as his Honour observed at [140] of his judgment, distinguished between the obligation to pay the bank debt (referred to in clause 4 of the deed) and the obligation to make the preferential distribution (dealt with in clauses 2 and 3). The rights of the investors are not dealt with in clause 4, which is concerned with distributions to the unit holders. This led his Honour to conclude:

“1.5 The promise of guarantee of the preferential distribution by the guarantor, unit holders and the indemnifying parties, upon the proper construction of the Deed and clause 5(i)(b), was a promise to the Investors. This is clear from clause 2 and the express terms of clause 5(i)(b) itself.

A declaration that the Defendants are jointly and severally liable pursuant to clause 5 (i) of the Deed, to guarantee the obligations of the First Plaintiff as trustee for the Surf Road Unit Trust, in relation to the payment of the preferential distributions, for the benefit of the Fourth Plaintiff and the Fifth Plaintiffs.”"

90 DJZ cannot distance itself from the case which it successfully advanced before Einstein J as to the construction of this deed, as it has now sought to do in these proceedings. That case accorded with Mr Pritchard’s evidence in these proceedings, as to his understanding of the transaction, consistently with Mr Goman's explanation.

Did Mr Pritchard fail in his duty of care to DJZ?

Mr Palmieri’s instructions in relation to the 1999 deed

91 Each of the allegations of negligence must be determined having in mind the provisions of the Civil Liability Act. The first complaint necessary to be considered is that pursued in relation to Mr Palmieri’s instructions in relation to the 1999 deed.

92 Consistently with Einstein J’s conclusion, there was no issue between the parties in these proceedings that the provisions made in the 1999 deed for investors such as DJZ, did not include a guarantee of the kind which DJZ now claims Mr Palmieri instructed Mr Pritchard to ensure the deed contained. DJZ complains that there should have been such a guarantee. That was not a claim advanced in the earlier proceedings.

93 Mr Palmieri’s evidence was that the proposed transaction was a complex one, and so he had relied on Mr Pritchard to ensure that he got the return which Mr James had promised investors would receive. He instructed Mr Pritchard to ensure that the deed reflected what he had been guaranteed in the negotiations with Mr James and others involved, namely, that DJZ would receive as a guaranteed return on its investment in the business, a monthly dividend of $2,200 per unit. Mr Pritchard denied that those were his instructions, or the basis of the agreement documented in the deed.

94 This is the allegation which lies at the heart of the case which DJZ brings. I have come to the conclusion that DJZ has not made out the case which it so advances. In explaining why I have reached that conclusion, it will be necessary to refer to a deal of evidence.

95 Mr Palmieri’s evidence was that he clearly recollected Mr James saying at the second BDO Nelson Parkhill meeting that:

"There will be a guaranteed monthly dividend of $2,200.00 per unit for all investors.

96 Mr James also said:

I will guarantee a monthly dividend of $2,200 per unit for all investors if the Unit Trust does not pay the dividend.

97 This recollection is important to DJZ’s case. Mr Pritchard denied such a statement being made. To his knowledge there were no guaranteed monthly dividends proposed for investors. Such a guarantee would have been contrary to his understanding of how the venture was to operate. He understood that dividends would only be paid from profits and that the investors were assuming a business risk that there would be sufficient profits to pay dividends.

98 Neither Mr Palmieri nor Mr Pritchard made any notes at this meeting.

99 Mr Palmieri’s recollection of the guarantee which Mr James promised at the meeting was inconsistent with the terms of the deed which the parties later entered, long after the venture commenced on 1 July 1999. Whether the draft of the deed which Mr Palmieri was originally given was in the same terms as the deed finally executed, is unknown. On Mr Pritchard’s evidence he was not provided with that draft. He first received the deed after it had been executed by the James and Christian interests, after the venture had already commenced.

100 No evidence was called from others present at the BDO Nelson Parkhill meetings, such as Mr Mortimer, Mr Goman, Mr Osterberg or Mr Christian. Mr Wilson’s affidavit evidence was that he had attended and remembered Mr James saying:

There will be a guaranteed monthly dividend of $2,200.00 per unit for all investors no matter what."

101 Mr James also said:

"I will guarantee your monthly dividend."

102 Mr Wilson had earlier made a statement, when Giles Payne was preparing a misrepresentation case, as had Mr Palmieri, Mr Christian and Mr Osterberg. There Mr Wilson said that Mr James had said at this meeting that:

"You will not be out of pocket."

and

103 In Mr Osterberg’s statement to Giles Payne he said that either Mr James or Mr Goman or both said at the meeting that each unit will receive a distribution of $2,200 per month from the trust; that Mr Osterberg’s understanding was that this distribution was against future profits; and that he had later told Mr Palmieri, Mr Mortimer and Mr Wilson that this was his understanding, after he learned that they were not receiving such distributions.

104 Mr Christian also provided a statement to Giles Payne where he said that while he could remember Mr James making statements to investors at various times that he would ‘guarantee a minimum of $2,200 per month for each unit you own’, he could not remember any discussion about guarantees at the meeting with the solicitors and accountants.

105 Mr Palmieri’s statement to Giles Payne also made no mention of any guaranteed payment of $2,200 being discussed at the meeting.

106 Mr Palmieri’s evidence in these proceedings as to the instructions which he gave Mr Pritchard was that:

I said: " The guaranteed monthly dividend is important as far as I am concerned, it is the main reason why I am interested in making this investment. I will want you to look at this proposal for me and advise me on it - I will need to ensure that the guarantees are included in the deal no matter what. I don't understand this document I can't read it [pointing to the document I had been given at the second meeting]."

Mr Pritchard said: "I understand. I will look at it and advise you about the proposal. Ensuring the inclusion of the guarantees will not be a problem.

"I will arrange to come and see you."

107 Mr Palmieri also gave evidence that he met after the second meeting with Mr Pritchard, Mr Wilson and Mr Mortimer when he instructed Mr Pritchard that:

"I am going to borrow money to invest in this business - it is an investment I am making for my children. Any income I receive I will be giving to my daughters."

"I said: "Make sure I am protected. Make sure the monthly $2,200 dividend is guaranteed. I don't have any experience in this type of thing. This is the first time I have invested in a Unit Trust. Make sure you also get the monthly guarantee from Michael and Tass no matter what."

"Don't worry I will read over this deed and make sure you are protected

You will recall also that as a part of the deal Mr James owes money. I will make sure he is responsible for it."

108 Mr Wilson’s evidence was that the instructions Mr Palmieri gave were:

"Mr Palmieri: "Make sure I am protected. Make sure the $2,200 monthly dividend is guaranteed. Make sure you get the monthly guarantee from Michael and Tass."

Don't worry. I will ensure you are protected."

109 These instructions are crucial to DJZ’s case. In their earlier statements to Giles Payne, neither Mr Palmieri nor Mr Wilson made any mention of having given Mr Pritchard such instructions.

110 For his part, Mr Pritchard did not remember having received such instructions, or having then been given the deed. Such instructions were contrary to his understanding of the arrangement. His evidence was that he received the deed later, after the venture had commenced. His role then was to review various documents to ensure that they were satisfactory, from a legal perspective, and to undertake a due diligence exercise in relation to the assets of the business. Mr Palmieri took financial advice on the transaction from Mr Osterberg. Mr Pritchard did not remember receiving any direct instructions from Mr Palmieri about the topic of A class shares, or preferential distributions, but he agreed that there were ongoing discussions and it was likely that this topic was discussed. In cross examination, he explained that if he had received the instructions which Mr Palmieri claimed he had given, he believed that he would have remembered them, because in his experience a declaration of dividends, whether profits had been earned or not, would have been outside normal business practice.

111 Mr Pritchard agreed that a problem of dividends normally only being extracted from profits could be overcome by the provision of a guarantee that they would be paid, whether there were profits or not. He also agreed that there were many business transactions in which guarantees were given by third parties. Still, he disagreed that such a guarantee would not have involved a major departure from business practice, which in his view involved a normal commercial business carrying normal commercial risk.

112 Mr Pritchard also agreed that Mr James was keen to attract investors, so that the real estate business could be acquired. He did not, however, form a view that Mr James was offering what he could, in order to induce investors like Mr Palmieri to come into the venture.

113 Mr Wilson also agreed that the discussions which he had with Mr James before he made the investment were nothing more than Mr James assuring him that he was good for the money, because it was going to be a good investment. Mr Wilson also agreed that he was taking Mr James at face value, having known him for 7 years. He explained that they didn’t know that there was nothing in the trust fund which Mr James said he was putting up. He assumed that when the deed was done up, ‘we were covered’, no matter how it went.

358 In the circumstances in which Giles Payne accepted instructions to advise in relation to the settlement of the ongoing Supreme Court proceedings in January 2004, that a solicitor, acting competently, would not have considered whether that the 2001 deed and the 2003 the sale agreement posed difficulties for the litigation, or at least potential difficulties, may simply not be accepted.

359 Had necessary consideration been given to the 2001 deed and the 2003 sales agreement, it is apparent that quite different advice would have been given by Giles Payne, to that which was given.

360 Whether such advice would have been accepted by Mr Palmieri, given his aims in relation to the joint venture properties, is more difficult judge. Mr Palmieri’s evidence that he was concerned both about DJZ’s losses, which he was pursing in the litigation, as well as the joint venture properties, must be accepted. He said that he did not know what he would have done had Giles Payne advised him to settle. In that context, that there must have been a real prospect that he would have accepted advice recommending a settlement, had both Mr Alexis and Giles Payne given DJZ advice as to the difficulties posed for the litigation by the 2001 deed and the 2003 agreement, must be accepted. While Mr Palmieri was a businessman who was content to reject legal and other advice, when he judged it appropriate to do so, given his commercial interests, he was also an astute and successful businessman. I doubt that he would have rejected advice to settle, had all of his legal advisers joined in giving DJZ that advice.

361 Giles Payne had no advocate’s immunity from suit in the circumstances in which it was advising DJZ. It never took on the role of advocate. That situation does not support the submissions advanced for Giles Payne as to the limited role which it played in advising DJZ. It accepted instructions to provide advice in relation to ongoing proceedings in which other lawyers were already acting. That did not limit its responsibilities in relation to the advice given. I am satisfied that in advising on settlement in January 2004, Giles Payne was negligent and acted in breach of its retainer, by failing to consider and advise DJZ about the potential impact of the 2001 deed and the 2003 sales agreement on the case it was pursuing in the Supreme Court.

362 But for the conclusions which I have reached in relation to the fact that the Court of Appeal’s judgment did not turn on the 2001 deed, I would have concluded that Giles Payne was earlier partially responsible for the loss suffered by DJZ. Under s 35 of the Civil Liability Act consideration must be given to what is just, having regard to Giles Payne’s responsibility for the damage suffered as the result of tis negligence, by way of comparison to Mr Pritchard's reasonability for the damages which flowed from his negligence. Given the conclusions which I have reached, that Giles Payne were also responsible for the losses suffered by DJZ from 12 January 2004, in relation to the costs thereafter incurred, must be accepted. I assess their contribution at 50%.

Mr McGovern

363 Mr McGovern was initially briefed, amongst other things, with the Supreme Court pleadings, Mr Wales’ brief; and a copy of the 2001 deed, wrongly described in the observations as being a deed entered in July 2001. The document provided was unsigned and undated, bearing only a fax transmission header dated 13 July 2001. Mr McGovern had also been provided with other material which suggested that such a deed had been entered, including 2001 correspondence from the Christians’ lawyers, which disputed the purported exercise of the power of sale of their units under the 1999 deed, given the terms of a deed entered earlier in 2001.

364 When initially advising DJZ, Mr McGovern was considering a possible misleading and deceptive conduct claim in the context of the representations it was claimed had been made prior to the entry into the 1999 deed. He agreed in cross examination that he gave consideration to that claim, in the context of the terms of that deed and any subsequent events which could have had an impact on such a claim. That being so, it is apparent that the 2001 deed, which purported to vary the 1999 deed, including as to the guarantees provided by the Christians under the deed, was a necessary consideration. The effect of the payment of some $287,500 to SRUT by the Christian interests, by way of contribution to capital under the 2001 deed, as well as other aspects of the agreement there reached, also required consideration, particularly in relation to the question of damages.

365 While the version of the 2001 deed with which Mr McGovern was briefed was incomplete, undated and unsigned, the submission that Mr McGovern had not been briefed with any February 2001 deed may not be accepted. If Mr McGovern had any doubts that a deed in the terms of the 2001 deed with which he was briefed had been entered, as he had been instructed, like Giles Payne, he should have sought a copy of the executed deed. Competent practice did not permit Mr McGovern to proceed on the basis of an assumption that such a deed had not been entered, or that a deed in different terms had been entered in 2001, given his instructions.

366 The terms of Mr McGovern's brief are earlier set out. In his first advice he recommended that DJZ should be separately represented in ongoing proceedings. That advice was accepted. Mr McGovern also advised that there should be further investigation as to the value of the units. That was pursued. It was at this time that his retainer altered.

367 Mr McGovern was then briefed to draft documentation necessary for DJZ to be separately represented in the ongoing proceedings and to pursue the misleading and deceptive conduct claim in those proceedings. He then asked for and was provided with a copy of the documents filed in the Supreme Court. He found that those claims relied on the 1999 deed. No defence or cross claim relied on the 2001 deed and there was no suggestion that it would be relied on. Mr McGovern later gave written advice in the terms earlier set out, including:

"So understood it seems to me that the present Supreme Court proceedings, relying as they do upon the deed of 1 July 1999, offer the most reasonable prospect of being able to secure the reasonably arguable claims of Surf Road Nominees Pty Ltd and the investors. Essentially the deed of 1 July 1999 was intended to govern the relationship between the parties and to provide a mechanism for creating rights of guarantee and indemnity."

368 Mr McGovern explained in his evidence that he gave this advice in order to reassure Mr Gilles and his clients that on the pleadings as they then stood, and on the evidence filed and served, DJZ had reasonable prospects of success. It was argued that this advice went beyond the scope of his retainer and that it was in any event, correct.

369 Even accepting that Mr McGovern had decided to provide advice which went beyond the scope of his retainer, which I do not, it is apparent that the 2001 deed was a necessary consideration in the advice which he gave, given Mr McGovern’s instructions that the 1999 deed had been later varied by that deed, and what DJZ was pursing in the proceedings, which he advised had reasonable prospects of success. Any consideration of DJZ’s prospects in the proceedings required a consideration of the impact, if any, of the 2001 deed. Having decided to offer this advice, Mr McGovern was required to exercise necessary skill and care in the advice which he gave.

370 Mr McGovern’s evidence was that before he provided this advice, he had closely considered the 1999 deed, noting both the guarantee and indemnity and had revisited certain relevant texts and authorities. He also noted that no one had pleaded that the defendants were relieved of their obligations under the 1999 deed, because of the entry into the 2001 deed. It followed, in his view, given affidavit evidence with which he was also briefed, that the claims advanced by the plaintiffs in the proceedings were reasonably arguable. In his opinion, without further amendment of the pleadings, no claim being advanced was doomed. The possibility of pleading amendment to rely on the 2001 deed, was not addressed.

371 Mr McGovern explained that his view initially was that he needed to have some understanding of what had happened to the units in the unit trust, in order to consider the question of damages for the Trade Practices Act claim. The 2001 deed, which contained an agreement not to sell the units held by the Christian interests, did not marry up with the 1999 deed and a notice of the exercise of the right of sale provided by that deed given in May 2001. Mr McGovern’s evidence was that the 2001 deed could be considered to be a covenant not to sell. He thus needed to understand what had happened.

372 Mr McGovern was not certain whether he had read Mr Wales’ advice about the 2001 deed, before he gave his own advice. He was briefed with Mr Wales’ brief, which included observations from Mr Pritchard, calling for advice in relation to a potential difficulty created by the 2001 deed. Mr McGovern had read this brief.

373 Mr McGovern’s evidence was that he asked Mr Palmieri at their conference, if he could tell him anything about the deed which had been entered in 2001. Mr Palmieri could provide no useful information. Despite this, Mr McGovern suggested no further investigation to establish what had happened in relation to the 2001 deed, even though he considered that what had happened to the units held as security under the 1999 deed, to be relevant to the potential Trade Practices Act claim he was advising on. Had that investigation been suggested, Mr McGovern’s instruction that the 2001 deed had been entered in the terms briefed would have been confirmed. Instead, Mr McGovern proceeded on the basis of certain incorrect assumptions.

374 Mr Palmieri also told Mr McGovern that the Christians’ units had been ‘taken’, when asked about any sale of those units under the 1999 deed. From this, Mr McGovern assumed that the units had been sold as the result of the exercise of rights under the 1999 deed. This was despite the correspondence from the Christians’ solicitors, disputing the right to sell, given the terms of the 2001 deed, with which he had been briefed.

375 Mr Palmieri also said that Mr James’ shares had been taken. Mr McGovern assumed from this that Mr Palmieri was referring to the units in the SRUT, which beneficially owned the business, because Mr James’ company, New South Head Nominees Pty Limited held units, not shares, in the Trust. Mr McGovern came to the conclusion that there had been a ‘wash sale’ of the units in the Trust under clause 8 of the 1999 deed. This would not have involved any discharge of the James’ interests. That is not, however, what had occurred.

376 Mr McGovern’s conclusions rested on Mr Palmieri’s instructions at the meeting. His evidence was that Mr Palmieri did not then have any facility in reading English, but he was an experienced businessman. Mr McGovern did not show him the 2001 deed with which he had been briefed. When he asked him about any deed entered in 2001 and Mr Palmieri could provide him with no information, Mr McGovern then simply directed all of his further advice to the 1999 deed. Mr McGovern explained that he proceeded as he did, because he considered that as the pleadings in the Supreme Court made no reference to the 2001 deed, the exercise of the power of sale must have taken a different form. He concluded that whatever had happened in respect of the 2001 deed, it was of no consequence to what he had to advise on.

377 It was argued that Mr McGovern was entitled to proceed on the reasonable belief to which he had come, given what Mr Palmieri had told him.

378 I am unable to accept that submission. Given the complexity of the matters about which advice was being given, that belief, resting as it did on the little Mr Palmieri was able to tell Mr McGovern about what had happened in relation to a deed entered in 2001, was not a basis which competent legal practice permitted such advice to be based.

379 Mr McGovern’s evidence was that he himself did consider the law in relation to guarantees, when giving his final advice. When he gave his evidence, he had seen Mr Wales’ advice in relation to the 2001 deed. When he first saw that advice is not clear, but it was apparent from that advice that Mr Wales had referred to a deed in the form of the 2001 deed with which Mr McGovern was briefed. Mr Wales seemingly had no difficulty in proceeding on the basis of an instruction that a deed in that form had been entered. Mr McGovern’s evidence was that whenever he saw the advice, he agreed with it, but in his own advice he had made no mention of any risk that the 2001 deed could give rise to potential arguments, which could be used against DJZ in the proceedings on foot.

380 Indeed, Mr McGovern’s April advice made no reference at all to the February 2001 deed. The chronology which he had prepared for himself, as was his practice, also made no reference to this deed. His evidence was that it was his practice to exclude any undated document from such a chronology and to flag it in his brief. When he came to review the facts, he took account of such documents, in order to work out how, if at all, they might fit into the factual background.

381 In so approaching his instructions and coming to the conclusions which he reached, Mr McGovern obviously erred. By its terms the 2001 deed had amended the 1999 deed. His instructions were that such a deed had been entered. The fact that Mr Palmieri could tell him nothing more about the deed entered in 2001, was not a sound basis for concluding that no such deed had been entered. Mr McGovern knew that the Christian’s lawyers had asserted that there was no right of sale under the 1999 deed, given the terms of a 2001 deed and that Mr Wales had been asked to advise on a potential problem posed by such a deed. Yet Mr McGovern took the view that there was no necessity to further investigate whether his conclusion that there had been a sale effected under the 1999 deed was correct.

382 Mr McGovern’s advice, that there was no claim being advanced in the Supreme Court proceedings which was doomed to fail, rested on the fact that under the pleadings, no reliance was placed on the 2001 deed. An obvious explanation for the plaintiffs not referring to the deed, was the potential problems it might cause for their claims. An obvious explanation for the defendants not referring to it, was that they were not aware of its existence, not being parties to the deed.

383 Mr McGovern did not consider or advise in relation to any available reliance on the 2001 deed, even though on his instructions a deed in those terms had been entered and it had been considered by Mr Pritchard, that the deed raised a potential problem. Nor did he consider what impact that might have had on the misrepresentation claim. The view which he reached was that the units must have been dealt with by some mechanism other than the 2001 deed, namely the 1999 deed. Neither this assumption, nor the 2001 deed itself, was mentioned at all in Mr McGovern’s April advice, nor it would seem at the conference that day, as posing any potential problem, or requiring any further investigation or consideration. Mr McGovern did not even suggest that an executed version of the 2001 deed be obtained, or any other document by which the transaction which he assumed must have occurred by some other means, had been implemented. The advice which he gave Mr Palmieri in conference was directed simply to the operation of the 1999 deed.

384 In December 2003, Mr McGovern was approached about appearing in the Supreme Court proceedings, by Mr Fitzpatrick, but he was not free to accept the brief. Mr Fitzpatrick then mentioned that an agreement had been entered in November, under which some of the guarantors under the deed of guarantee were released from their obligations. Mr McGovern’s evidence was that he immediately commented that the agreement might work to release the defendants from their liability under the guarantee. Mr McGovern’s consideration of the February 2001 deed, which raised a similar and other issues, was not earlier raised with Giles Payne and Mr Palmieri. It would seem that while Mr McGovern may have appreciated the problems which the 2001 deed potentially gave rise to, he made no mention of this in his earlier written advice, or in conference, because of the view to which he came, that no such deed had been entered.

385 Mr McGovern explained that when he wrote the advice in which he commented on DJZ’s prospects, he felt himself at liberty to mention any other matter which might be of potential benefit or comfort to DJZ. Given his instructions, which required him to consider the 2001 deed which had amended the 1999 deed, he plainly ought to have raised any potential difficulty as well. By this stage he had advised DJZ that it ought to be seperately represented in the Supreme Court proceedings and had been instructed to prepare amended pleadings to pursue the misrepresentation claim. That also required consideration of the case being advanced in relation to the 1999 deed, amended as he had been instructed by the 2001 deed. While Mr McGovern did not advise on prospects of success of the claims already being advanced, given that he was commenting on what was reasonably arguable, if there were problems with the claims being advanced, because of the result of what had been agreed in the 2001 deed, DJZ ought to have been alerted to the difficulty, whether or not the defendants had yet relied on such problems.

386 Mr McGovern accepted that it would have been his duty to advise DJZ, if he believed their claims were doomed to fail. Had any other difficulty come to his attention, his duty also required him to draw them to attention. In cross examination, Mr McGovern maintained that the letter sent from the Christian’s solicitors, which relied on the 2001 deed, as removing the right to sell their units under the 1999 deed, did not require his attention, because of Mr Palmieri's instructions. Given that his written instructions were that a deed had been entered in 2001 and the deed with which he was briefed, had the effect claimed, that view may not be accepted.

387 Had necessary attention been paid to the effect of the 2001 deed on the 1999 deed, at the least the difficulty which Mr Wales had earlier addressed, ought to have been considered by Mr McGovern and raised with DJZ.

388 Mr McGovern’s cross examination showed that he had considered the terms of the 2001 deed, but he did not refer to it in his advice, or draw attention to any potential risk that it might have any impact on the case being advanced in the Supreme Court, because of the view which he reached that the Christians’ units must have been dealt with by some mechanism other than the deed with which he had been brief. Given the views which Mr McGovern proffered DJZ as to its ‘reasonably arguable claims’, there was, at the least, an obligation to explain the conclusion which he had reached. Had that occurred, his error in relation to the 2001 deed would have been revealed. On the evidence, Mr McGovern’s view of the 2001 deed was quite different to the understanding of either Mr Gilles and Ms Becker.

389 Mr McGovern expressed the view that his advice would not have differed, if he had been briefed with an executed version of the 2001 deed. This was because he did not perceive it as adverse, or materially so, to DJZ’s prospects of success, because it was not being relied on in the proceedings and that he had no duty to speculate about defences which might or might not be relied on. The 1999 deed remained fully enforceable and the defendants had not been discharged.

390 There is an obvious difficulty with that evidence. It was not a question of Mr McGovern speculating about possible defences not yet advanced, but advising about the claims being advanced by DJZ under the 1999 deed, given his instructions that it had been amended by the 2001 deed and whether, as he said in his advice, in that context the claims being advanced were ‘reasonably arguable’. Mr McGovern did not give consideration to the 2001 deed, which competent legal practice required be given, if such advice was to be proffered. Nor did he give necessary consideration to the 2001 deed in the context of the misrepresentation case. Had he revealed the basis for his conclusions about the 2001 deed, his misunderstandings would have been revealed. Even if the advice which he gave went beyond his retainer, as was argued in submissions, that was not a licence to advise negligently.

391 Mr McGovern’s case was that even if he had given advice as to the problems posed by the 2001 deed, DJZ would have still pursued the litigation, given the concerns then driving Mr Palmieri. It followed that there was no casual link between the advice which Mr McGovern gave and any damages DJZ suffered.

392 Undoubtedly, given Mr Palmieri’s concerns about the joint venture properties, DJZ may still have continued with its pursuit of the proceedings, even despite the potential problem which the 2001 deed created. Having alerted DJZ to the problem created by 2001 deed, that Giles Payne would have given different advice to that given about the 2001 deed in October 2003 and the advice given about settlement in January 2004, after Mr Alexis recommended settlement in December 2003, is evident. I am unable to accept the arguments advanced in relation to causation.

393 Mr McGovern gave no advice in relation to the 2003 agreement, although when approached by Mr Fitzpatrick, he then raised the potential problem created by the 2003 sales agreement.

394 Given the views which I have reached in relation to the 2001 deed not having been the causative effect of any damage suffered by DJZ, given what the Court of Appeal’s judgment turned on, it is not necessary to further consider whether any order should be made against Mr McGovern. Had I not reached that conclusion, plainly, he too, would have been found partially responsible for the damages suffered by DJZ.

Calculation of damages

395 That losses flowed from the negligence established must be accepted; including those flowing from the legal costs DJZ incurred.

396 DJZ sued on the guarantees provided by the 1999 deed. It succeeded before Einstein J, who made orders in its favour, in the sum of $355,870. It lost the benefit of those orders as the result of the Court of Appeal’s conclusion that the 2003 sale agreement had discharged the guarantees. Costs orders were made against DJZ, in favour of Mrs James. It was also ordered to pay $189,326 to New South Head Nominees Pty Limited.

397 Einstein J also made orders made against Mr James, of some $647,355, in favour of Surf Road Nominees Pty Limited, Chris Burke & Co Pty Limited and IG Martyn Real Estate Pty Limited. Those orders and the costs order made against Mr James were not disturbed on appeal, but must be considered, given the settlement reached after the Court of Appeal’s judgment. Under that settlement, DJZ paid $450,000.

398 DJZ pursued a number of items of damages.

Item 1

399 Item 1 in the schedule of damages related to the claims advanced in relation to the 1999 deed. Those claims were not established.

Item 2

400 Under item 2, the judgment sum of $355,870 ordered by Einstein J in favour of DJZ, plus interest of some $187,012, a total of $542,882.13, was claimed to have been lost by DJZ as the result of the Court of Appeal’s judgment. I am satisfied that this claim was established as against Mr Pritchard.

Item 3

401 Party/party costs of $419,850, as assessed by Mr Hardman, were claimed at item 3 as being owed by DJZ in respect of Mrs James’ costs of the Supreme Court and Court of Appeal proceedings. In reaching his conclusions, Mr Hardman did not consider that part of these costs were incurred by Mr James, in defending the claims brought against him before Einstein J, which were not challenged on appeal. The problem that Mr Hardman had not considered Mr James’ position, was acknowledged in his cross examination. Einstein J had said that the issues which the parties had litigated were inextricably interlinked and did not award costs on an issues basis. Establishing the amount of the costs incurred by Mr James would thus require an assessment which was not undertaken.

402 Also not considered by Mr Hardman was that DJZ, Surf Road Nominees Pty Limited, Chris Burke & Co. IG Martyn and WIT all had a liability for Mrs James’ costs of the first instance and appeal proceedings, as the result of the Court of Appeal’s orders.

403 In determining whether this aspect of the damages claim was established, consideration must also be given to the $450,000 paid by DJZ under the 2005 settlement, in which a number of claims were compromised. They included what was owed by DJZ to Mrs James under the Court of Appeal’s orders; what it and WIT owed New South Head Nominees Pty Ltd and the claims made by the James’ interests in relation to the joint venture properties owned by other of Mr Palmieri’s interests, as well as what was owed by Mr James.

404 It was argued for DJZ that this settlement involved a mitigation of its losses and that in determining what damages DJZ had established on the evidence under this heading, a broad-brush approach would be adopted. It was accepted that a conservative approach was required in the circumstances. (See Nikolaou v Papsavas at 404). This approach was urged because of the many parties and elements involved in the compromise reached. It was also argued that another available approach was that the Court could direct that the sum to be recovered out of the $450,000 which DJZ had paid under the settlement, be referred for assessment.

405 I am not able to agree with the latter approach. As was argued for Mr Pritchard, an onus fell on DJZ to establish its damages. If it failed to meet that onus, no order can be made in its favour.

406 I have already dealt with the question of whether the settlement was a reasonable one. That was not established. The further difficulty is that the evidence leaves entirely unclear what compromise was made in relation to what aspect of any of the matters dealt with in the settlement, even on the basis of Mr Hardman’s assessment as to the costs Mrs James could have recovered from DJZ under the Court of Appeal’s orders. Those costs were recoverable from DJZ, Surf Road Nominees Pty Limited, Chris Burke & Co. IG Martyn and WIT, but under the settlement, $450,000 was paid by DJZ, which also had a separate obligation, (together with WIT under the Court of Appeal’s judgment), to pay the James’ company New South Head Nominees Pty Limited $189,326.

407 Given that what was settled included the interest which was claimed by the James’ interests in the joint venture properties and the litigation relating to that interest, it is not apparent to me that any rational conclusion may be reached that DJZ has established any aspect of this part of its claim.

408 In a position paper advanced in the negotiations, an interest in the joint venture properties of some $2,806,000 was being advanced by the James’ interests. Given what was the subject of negotiation, the compromise which the parties reached, was very substantial on any view. In return for the payment of $450,000 by DJZ, the interests associated with Mr Palmieri achieved not only a release from the Court of Appeal’s orders, under which something like $608,326, was payable, (taking into account Mr Hardman’s assessment), but also the James’ interest in the joint venture properties. While the James interests gave up those entitlements, they thereby achieved Mr James’ release from his bankruptcy, he having been ordered to pay $647,355, plus costs by Einstein J.

409 There was no assessment undertaken as to how much of the costs which had been incurred by the James’ interests in the Supreme Court proceedings, reflected costs which only related to Mr James. While Mr Hardman’s evidence was that some of the costs would have been incurred on a joint and several basis and were therefore all recoverable by Mrs James, what proportion that was, is entirely unclear.

410 I have come to the conclusion that DJZ has not shown that it incurred the damages claimed. One real possibility, given all that was agreed in the settlement, is that the James interests agreed to settle the whole of what DJZ owed under the Court of Appeal’s decision, in order to achieve Mr James’ release from bankruptcy and that what DJZ paid was, in reality, a payment for the James’ interests in the joint venture properties and the settlement of that litigation.

411 In the circumstances, I am satisfied that a broad brush cannot be adopted to this aspect of DJZ’s claim, as it urged. DJZ has not met the onus falling upon it, to establish the loss it claimed that it had suffered under this head.

Item 4

412 DJZ’s costs of the proceedings brought against Mr and Mrs James are claimed at item 4 of the Schedule, as some $489,022, plus interest. They have been established other than in so far as they relate to costs incurred in relation to the claims advanced against Mr James in the Supreme Court proceedings.

413 The orders made against Mr James were not challenged on appeal, but formed a part of the settlement reached in 2005. What part of the costs claimed relate to Mr James, is not clear. No analysis was undertaken. I accept in the circumstances, that a broad brush approach to an assessment of these costs must be undertaken, as discussed by the High Court in Nikolau. The pursuit of the guarantees under the 1999 deed occupied a substantial part of the proceedings before the Court of Appeal, but a much lesser part of those before Einstein J, where a number of other matters were dealt with. I have assessed that 40% of the costs assessed in relation to the first instance proceedings related to the pursuit of Mr James. Accordingly, only 60% of those costs are recoverable as damages in these proceedings. The sum claimed must be adjusted to reflect that conclusion.

414 I have concluded that DJZ was responsible for 30% of the damages suffered after 18 December 2003 in relation to the costs incurred and that Giles Payne was responsible for 50% of the balance of the costs incurred after 12 January 2004. Mr Prichard is liable for the remaining balance.

Orders

415 The parties will need to produce short minutes of orders to reflect the conclusions which I have reached. They should also confer as to costs and approach in the event of disagreement.

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Citations

DJZ Constructions Pty Ltd v Paul Pritchard trading as Pritchard Law Group [2010] NSWSC 1024

Most Recent Citation

DJZ Constructions Pty Ltd v Paul Pritchard trading as Pritchard Law Group [2010] NSWSC 1472

Cases Citing This Decision

2

Schacht v Bruce Lockhart Thompson and Dennis Michael Staunton (trading as Staunton and Thompson Lawyers) (No. 3) [2013] NSWSC 316

DJZ Constructions Pty Ltd v Paul Pritchard trading as Pritchard Law Group [2010] NSWSC 1472

Cases Cited

35

Statutory Material Cited

4

Surf Road Nominees Pty Ltd v James [2004] NSWSC 61

Surf Road Nominees Pty Limited v Tass James [2004] NSWSC 223

James v Surf Road Nominees Pty Ltd [2004] NSWCA 475

CITATION:	DJZ Constructions Pty Ltd v Paul Pritchard trading as Pritchard Law Group and Ors [2010] NSWSC 1024
HEARING DATE(S):	10 March 2009, 11 March 2009, 12 March 2009, 13 March 2009, 29 April 2010, 30 April 2010, 3 May 2010, 4 May 2010, 5 May 2010, 7 May 2010, 10 May 2010, 11 May 2010
JUDGMENT DATE :	10 September 2010
JUDGMENT OF:	Schmidt J
CATCHWORDS:	PROFESSIONS AND TRADES - lawyers - duties and liabilities - whether negligence in advising client in relation to guarantee in deed under which interest in real estate business acquired - in relation to terms of second deed settling certain disputes - in relation to agreement selling interest in business - nature of duty of care - duty of care owed - negligence established in part - questions of credit - advocate's immunity - section 5O of the Civil Liability Act 2002 - causal connection - inherent risk and contributory negligence - s 5I and s 5R of the Civil Liability Act 2002 - contributory negligence established - cross claim - concurrent wrongdoers - negligence established - were damages established - claimed damages established in part - TORTS - negligence - general matters - lawyers negligence - damages - EVIDENCE - admissibility and relevancy - witness not available for cross examination - s 135 of the Evidence Act 1995 - statements received - admissions - s 87 of the Evidence Act 1995 - admissions not established
LEGISLATION CITED:	Evidence Act 1995 Civil Liability Act 2002 Law Reform (Miscellaneous Provision) Act 1946 Trade Practice Act 1974 (Cth)
CATEGORY:	Principal judgment
CASES CITED:	Attard v James Legal Pty Limited [2009] NSWSC 811 Bennett v Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408 Capebay Holdings Pty Ltd v Sands [2002] WASC 287; [2003] ANZ ConvR 170 Capital Brake Service Pty Limited v Meagher & 8 Ors t/as Sparke Helmore [2003] NSWCA 225 David v David [2009] NSWCA 8 Dean v Allin & Watts [2001] 1 Lloyd's Rep 249 D’Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1 Dobler v Halverson [2007] NSWCA 335; (2007) 70 NSWLR 151 Fox v Everingham and Anor (1983) 50 ALR 337 Giannarelli v Wraith [1988] HCA 52; (1988) 165 CLR 543 Hawkins v Clayton [1988] HCA 15; 164 CLR 539; Waimond Pty Ltd v Byrne, Heydon v NRMA Limited (1989) 18 NSWLR 642 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (no 4) [2006] NSWSC 90 James & Ors v Surf Road Nominees Pty Ltd & Ors [2004] NSWCA 475 Lucantonio v Kleinet [2009] NSWSC 853 Macindoe and Anor v Parbery (1994) Aust Torts Reports 81-290 at 61,534 Murphy v Miller [1998] NSWCA 150 Nikolaou v Papsavas Phillips & Co [1984] HCA 11; (1989) 166 CLR 394 Ordukaya v Hicks [2000] NSWCA 180 Pegrum and Pegrum v Fatharly [1996] 14 WAR 92 Podrebersek v Australian Iron & Steel Pty Ltd [1985] HCA 34; (1985) 54 ALR 529 Rogers v Whitaker [1992] HCA 58; (1992) 175 CLR 479 Surf Road Nominees Pty Ltd & Ors v Tass James & Ors [2004] NSWSC 61 Surf Road Nominees Pty Limited & Ors v Tass James & Ors [2004] NSWSC 223 Stringer v Flehr & Walker [2003] QSC 370; (2003) Aust Tort Reports 81-718 Tabet v Gett [2010] HCA 12; (2010) 265 ALR 227 Teachers Health Investments Pty Ltd v Julian [2001] NSWSC 231; ANZ ConvR 449 Unity Insurance v Rocco Pezzano [1998] HCA 38; (1988) 192 CLR 603 Watson v Foxman (1995) 49 NSWLR 315 WCW Pty Ltd v Bolster & Company [1993] FCA 2 Wilkinson v Daley [2004] NSWCA 331 Windy Construction UK Limited v Poole [1984] 2 Lloyds Rep 499 at 506-7 Woolcock Street Investments Pty Limited v CDG Pty Limited [2004] HCA 16; (2004) 216 CLR 515 Young v Commissioner of Taxation [2010] NSWSC 288
PARTIES:	DJZ Constructions Pty Ltd - Plaintiff Paul Pritchard t/as Pritchard Law Group - First Defendant/Cross Claimant Joseph John Gilles - Second Defendant/First Cross Defendant Gregory George Eliades - Third Defendant/Second Cross Defendant David McGovern SC - Fourth Defendant/Third Cross Defendant
FILE NUMBER(S):	SC 2005/269375
COUNSEL:	Mr C Birch SC with Mr M Cleary - Plaintiff Mr A McInerney with Mr P Livingston - First Defendant/Cross Claimant Ms KJ Williams - Second and Third Defendants/First and Second Cross Defendants Mr Gibb SC - Fourth Defendant/Third Cross Defendant
SOLICITORS:	Pryor Tzannes & Wallis - Plaintiff Yeldham Price O'Brien Lusk - First Defendant/Cross Claimant Sparke Helmore - Second and Third Defendants/First and Second Cross Defendants McCabe Terrill Lawyers - Fourth Defendant/Third Cross Defendant