Dual Homes Pty Ltd v Moores Legal Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION

S CI 2012 7079

DUAL HOMES VICTORIA PTY LTD & ORS	Plaintiffs
v
MOORES LEGAL PTY LTD and PILLEY McKELLAR PTY LTD	Defendants

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JUDGE:	JOHN DIXON J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	11-14, 17, 19 AUGUST 2015
DATE OF JUDGMENT:	10 MARCH 2016 (revised 24 March 2016)
CASE MAY BE CITED AS:	DUAL HOMES PTY LTD v MOORES LEGAL PTY LTD & ANOR
MEDIUM NEUTRAL CITATION:	[2016] VSC 86

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NEGLIGENCE – Solicitor – Alleged breach of retainer – Where client wound up in insolvency on presumption under Corporations Act 2004 (Cth) s 459C(2)(a) – Client failed to compromise or set aside a statutory demand – Company in fact solvent – Alleged failure to advise on the effect of statutory demand lapsing – Solicitor’s failure to appear or otherwise organise representation for plaintiffs at adjourned hearing of winding up application.

NEGLIGENCE – Advocates’ immunity – Whether conduct of solicitor out of court affected conduct of the case in court.

NEGLIGENCE – Causation – Wrongs Act 1958 (Vic) s 51 – Whether solicitor’s conduct contributed to losses sustained by reason of the winding up.

TRADE PRACTICES - Misleading and deceptive conduct – Whether conduct of solicitor was “in trade or commerce”.

DAMAGES - Substantial losses suffered due to winding up – Whether lost opportunity established – Contributory negligence.

PROPORTIONATE LIABILITY - Solicitor a principal or employee of each defendant firm consecutively during relevant period – Assessment of proportionate liability as between defendants for plaintiffs’ loss.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr M.A. Robins QC with Mr S. Warne	Roy Jaffit, Rochman & Co
For the Defendants	Mr D.A. Klempfner	Lander & Rogers

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

Issues.................................................................................................................................................... 1

Factual Findings................................................................................................................................. 3

Observations about witnesses..................................................................................................... 4
Background.................................................................................................................................... 5
Solvency of Dual Homes.............................................................................................................. 6
The First Statutory Demand........................................................................................................ 9
The second Statutory demand.................................................................................................. 13
The Winding Up Application.................................................................................................... 19

Principles applying.......................................................................................................................... 32

Duty owed to Dual Homes........................................................................................................ 32
Scope of duty...................................................................................................................... 32
Causation............................................................................................................................ 33

Duty owed to the Roiniotises’................................................................................................... 36

First Statutory Demand................................................................................................................... 37

Negligence.................................................................................................................................... 38
Causation...................................................................................................................................... 39
Misleading or deceptive conduct.............................................................................................. 42
Causation...................................................................................................................................... 48

Second Statutory Demand.............................................................................................................. 49

Negligence.................................................................................................................................... 49
Causation...................................................................................................................................... 53
Walton v Efato Pty Ltd (in liq)...................................................................................................... 56

The Winding Up Application........................................................................................................ 60

The 6 July 2011 hearing.................................................................................................................. 63

Causation...................................................................................................................................... 63
Misleading and deceptive conduct........................................................................................... 64

Advocate’s Immunity...................................................................................................................... 65

Defendant’s submissions........................................................................................................... 65
Plaintiffs’ submissions................................................................................................................ 66
Principles...................................................................................................................................... 69
Conclusions on Immunity......................................................................................................... 73

Quantum............................................................................................................................................ 76

Particulars of loss and issues..................................................................................................... 76
Quantum evidence...................................................................................................................... 78
Some general remarks................................................................................................................ 81
Causation............................................................................................................................ 81
GST.... 81
Contributory negligence................................................................................................... 84

The Property Loss Claims............................................................................................................... 85

Item 6 - Murradoc Rd................................................................................................................. 85
Plaintiff’s Submissions...................................................................................................... 87
Defendant’s submissions.................................................................................................. 88
Analysis............................................................................................................................... 91
Cost and profits of development..................................................................................... 91

Items 8 & 9 delayed sales at Fairfield....................................................................................... 93
Remaining loss............................................................................................................................. 97
Item 2a................................................................................................................................. 98
Item 2b and 2c.................................................................................................................... 98
Item 2d................................................................................................................................. 98
Items 2(e), (f), and (g)........................................................................................................ 99
Item 2(h).............................................................................................................................. 99
Item 2(i)............................................................................................................................... 99
Item 2(k).............................................................................................................................. 99
Item 2(l)............................................................................................................................. 100
Item 2(m)........................................................................................................................... 100
Item 3100
Item 4101
Item 5101
Item 11............................................................................................................................... 101
Item 12............................................................................................................................... 102

Amounts paid by the Roiniotises’.......................................................................................... 102
Item 14............................................................................................................................... 102
Item 15............................................................................................................................... 103
Item 16............................................................................................................................... 104
Item 18............................................................................................................................... 104

Conclusions on quantum......................................................................................................... 104

Proportionate Liability.................................................................................................................. 105

Introduction

The first plaintiff (‘Dual Homes’) was the trustee of The Roiniotis Family Trust of which members of the Roiniotis family were beneficiaries. The second and third plaintiffs are members of the Roiniotis family and creditors/shareholders of the first plaintiff. Dual Homes was a builder and a developer. Its solicitor was Alex McKellar (‘McKellar’) who was a principal or employee of each defendant firm consecutively during the relevant period. The defendants, Moores Legal Pty Ltd (‘Moores Legal’) and Pilley McKellar Pty Ltd (‘Pilley McKellar’) were separate independent legal practices until 1 May 2011, when Mr Pilley retired and Mr McKellar merged the practice with Moores Legal. Except when it is desirable to identify the particular defendant, I will refer to the defendants as McKellar.

The plaintiffs sued the defendants for damages in negligence, for breach of retainer, and for misleading or deceptive conduct contrary to section 18 of the Australian Consumer Law. The plaintiffs based their claims on McKellar’s conduct in respect of two creditor’s statutory demands (‘CSD1’ and ‘CSD2’) served on Dual Homes by an Owners’ Corporation, and a subsequent winding up application against it, including when he failed to appear on the return of the adjourned winding up application on 6 July 2011. The application was undefended and on that date, the court ordered that Dual Homes be wound up in insolvency. Dual Homes alleged that at all relevant times it was solvent and, ultimately, after the court terminated the winding up on 2 April 2102, the liquidator’s balance sheet as at 17 April 2012 showed a surplus of assets over liabilities of $150,898. Dual Homes alleged that it suffered substantial losses due to the winding up.

For the following reasons, there will be judgment for the first plaintiff against the first defendant for $388,189.68 and against the second defendant for $196,894.84.[1]
[1]Pilley McKellar is severally liable for the first $2,800 and proportionally liable for $194,094.84.

Issues

The parties agreed an extensive list of issues as arising on the pleadings, but when the trial commenced, Moores Legal conceded that it had breached its duty of care to the plaintiffs in failing to attend court on 6 July 2011, or otherwise arrange for Dual Homes to be represented, on the return of the application to wind up Dual Homes in insolvency. The defendants submitted that the dispute would be determined on three broad topics: the advocates immunity, causation, and damages.
I do not agree. As will appear, the defendants’ admission was convenient for their defence of advocates immunity but I am satisfied that their wrongful conduct was far more extensive, meaning that there were a number of further issues to be resolved.

The issues in the trial were, in summary, the following:

(a) The solvency of Dual Homes and McKellar’s knowledge of its solvency.

(b) In respect of:

(i) the first statutory demand;

(ii) the second statutory demand; and,

(iii) the winding up application;

was McKellar’s conduct and/or any failure to advise the plaintiff in respect of it negligent, in breach of his retainer, and/or misleading and deceptive conduct contrary to the Australian Consumer Law (‘wrongful conduct’)?

(c) If yes to (b), in respect of any wrongful conduct was McKellar immune from liability to the plaintiffs?

(d) If no to (c), was that conduct a cause of the loss alleged?

(e) What sum is assessed to be the plaintiffs’ loss and damage?

(f) Are the defendants concurrent wrongdoers and are the plaintiffs restricted to a proportionate judgment against each of them?

The defendants contended that the failure to attend the adjourned hearing of the winding up application triggered the liquidation of Dual Homes. Moores Legal submitted that it was immune from suit for this breach of duty and in respect of all work done out of court that led to a decision affecting the conduct of the application in court. The defendants contended that, assuming McKellar’s wrongful conduct prior to 6 July 2011, there was no causative link between such conduct (implicating Pilley McKellar prior to 1 May 2011 and Moores Legal from that date) and the plaintiffs’ loss and damage. The proximate cause of the plaintiffs’ loss and damage was Dual Homes’ inability to prove its solvency at the hearing on 6 July 2011 (or such later adjourned hearing as might have been granted by the court) as a result of Moores Legal’s failure to appear.

The defendants submitted that but for Moores Legal’s admitted breach of duty, Dual Homes could at any time between 4 May 2011 (being the date on which the presumption of insolvency arose) and 6 July 2011 (being the adjourned date of the winding up application) have proved its solvency in the winding up proceedings to avoid liquidation. Moores Legal did not explain how Dual Homes might have established solvency in the winding up proceedings. They argued that it was open for it to have done so because of the subsequent termination of the winding up on that basis. Moores Legal’s failure to appear on 6 July 2011 effectively deprived Dual Homes of the opportunity to avoid winding up by proving its solvency.

The plaintiffs contended that that McKellar’s wrongful conduct commenced from the first statutory demand and continued up to his failure to appear on 6 July 2011 and caused its loss. The plaintiffs submitted a schedule of thirteen events that they labelled ‘McKellar’s Miscellany of Mishaps’ covering this period and many of those events will be analysed below.

Factual Findings

I will first set out my findings in respect of the events that led up to the winding up order on 6 July 2011.

On liability issues, George Roiniotis, and his sons John and Peter Roiniotis gave evidence for the plaintiff and Alex McKellar gave evidence for the defendants. There were contemporaneous emails, letters and other documents in evidence generated by the parties.

Observations about witnesses

Based principally upon the concessions extracted in cross-examination and the inconsistencies between Mr McKellar’s evidence and both the pleadings and his witness statement, I found McKellar’s evidence was unreliable and I reject it. I have not acted on it except to the extent that contemporaneous documents or the relevant testimony of other witnesses supported it. There were occasions when McKellar did not persuade me that he was giving a frank account or explanation of his conduct or, more often, his failure to act. I viewed him as prone to reconstruct events to lessen the appearance of his want of care in his dealings with Dual Homes’ affairs. I have referred to some of those occasions, to contradictions between McKellar’s witness statement and the defence, and to the concessions McKellar made under cross-examination when setting out my factual findings.

Dealing at this stage with the evidence in respect of liability issues, I found George Roiniotis to be a truthful and mostly reliable witnesses. He appeared to conflate advice given in relation to each statutory demand when referring to the offsetting claim. John Roiniotis was a truthful and reliable witness and I accept his evidence.

To the extent that there is inconsistency between the evidence of John and George Roiniotis and McKellar, I prefer the evidence of John and George Roiniotis.

I accept that language and translation difficulties restricted Peter Roiniotis in telling his story, and he appeared consistently to have problems with recollection. However, making appropriate allowances, Peter Roiniotis did not persuade me that he was a reliable witness and his evidence did not assist me. For example, I was not convinced, as Peter Roiniotis suggested, there was no resistance to the idea of Dual Homes paying out the first statutory demand, had McKellar advised it to be a prudent course to adopt. There was a history of animosity between Dual Homes and the owners’ corporations and in an affidavit sworn for the purposes of the application to terminate the winding up, Peter Roiniotis accepted responsibility for a deliberate decision not to pay monies to the owners’ corporations because he was unwilling as a matter of principle to pay monies that were being improperly sought.

Background

It was common ground that the two defendants were responsible for any wrongful conduct by McKellar. He was a principal of Pilley McKellar until its dissolution, and employed as special counsel by Moores Legal from 1 May 2011 until the end of that financial year, and thereafter as principal until the end of June 2014.

The plaintiff initially engaged McKellar over disputes with owners’ corporations. Because Peter Roiniotis, who was the sole director of Dual Homes, has limited English language skills, McKellar dealt primarily with George Roiniotis who worked in building and development and, to a lesser extent, John Roiniotis, who is a biochemist by training. The exact date when Dual Homes initially instructed McKellar was unclear. Both George Roiniotis and McKellar agreed that George met with McKellar around mid-2009. Both McKellar and George agreed that their communications throughout the retainers were rushed and irregular. They were both busy men.

Dual Homes was the registered proprietor of Units 4 and 5, 36 Railway Place, Fairfield (‘4 Railway Place’ and ‘5 Railway Place’) and Lot 6, 83 Station St, Fairfield (‘Station St’), each of which had an owners’ corporation that are the owners’ corporation referred to throughout these reasons. Dual Homes was also the owner of properties at 1362 Murradoc Road, St. Leonards (‘Murradoc Road’), and 108 Bluff Road, St. Leonards (‘Bluff Road’) that were development opportunities.

It was common ground that McKellar learned during the retainers that Dual Homes owned the Fairfield land and that it owned other land.

Dual Homes developed and built Station Street and developed, but did not build, the two Railway Place units. Disputes between Dual Homes and the owners’ corporations of Station St and Railway Place resulted in the following litigation:

(a) The Railway Place Owners’ Corporation issued VCAT proceeding 829/2010 against Dual Homes seeking payment of certain charges (‘Fees Claim’);

(b) The Railway Place Owners’ Corporation issued VCAT proceeding D918/2010 against Dual Homes seeking damages for alleged building defects at Railway Place (‘Railway Place Property Damage Claim’);

(c) Dual Homes issued VCAT proceeding 1054/2010 against the Railway Place owners’ corporation seeking payment for cleaning works completed by Dual Homes at Railway Place (‘Cleaning Claim’); and

(d) The Station St Owners’ Corporation issued VCAT proceeding D996/2010 (subsequently renumbered D100/2011) against Dual Homes seeking damages for alleged building defects at Station St (‘Station St Property Damage Claim’).[2]

[2]This claim was stayed by the liquidation of Dual Homes.

This litigation commenced during Pilley McKellar’s retainer. The Railway Place Owners’ Corporation obtained a judgment at VCAT for $13,388 on 30 November 2010. On 22 December 2010, it served CSD1 on Dual Homes seeking payment of $13,435. The deadline for compliance with that demand, 12 January 2011, passed without payment. Dual Homes applied, on 13 January 2011 to set aside the statutory demand. By agreement, on 22 February 2011 Dual Homes withdrew that application. On 13 April 2011, the Railway Place Owners’ Corporation served CSD2 for the same debt. On 30 April 2011, Pilley McKellar merged with Moores Legal. The deadline for compliance with that demand, 4 May 2011, also passed without payment. On 27 May 2011, the owners’ corporation applied to wind up Dual Homes. On 22 June 2011, the court adjourned that application until 6 July 2011 when it made a winding up order appointing Mr Gideon Rathner as liquidator.

Solvency of Dual Homes

The first issue was that of the solvency of Dual Homes. The plaintiff tendered documentary evidence that satisfied me that Dual Homes was solvent at all material times,[3] and on or before 4 May 2011 could have accessed funds sufficient to pay CSD2, and other debts later claimed against it, had it been advised to do so and thus averted a presumption of insolvency.
[3]It is not necessary to consider the solvency of Dual Homes on 13 January 2011, which was the deadline for compliance with the first statutory demand. The relevant period is from 13 April 2011 when the second statutory demand was served until 6 July 2011 when Dual Homes was put in liquidation.

There were two relevant bank accounts. Dual Homes operated a bank account in respect of the Railway Place project that had a credit balance of $27,798 on 13 April 2011 and had a credit balance of $21,332 on 4 May 2011. In addition, Dual Homes could be, and was when necessary, financially supported by the Roiniotis family. Dual Homes, as trustee of the Roiniotis Family Trust, guaranteed a NAB Flexi Plus mortgage faculty for George, John and Nick Roiniotis, which had a debit balance with NAB of $235,654 and on 4 May 2011 an undrawn amount of $164,345.48 was available. That facility had been used to financially support Dual Homes and I am satisfied that the undrawn funds were available to Dual Homes at all material times. The facility was increased to $400,000 on 17 March 2011 and on 23 March 2011, $60,000 was transferred into the account of Dual Homes’ ‘Railway Place Project’ which thereafter had a credit balance. It was abundantly clear that Dual Homes could have paid the judgment debt, interest, and costs to discharge the creditors statutory demand prior to 4 May 2011.

As will appear, in May 2011 the owners’ corporation undertook for 14 days not to wind up Dual Homes to permit McKellar to submit a bill of costs. On 19 May 2011, the Railway Place project bank account had a credit balance of not less than $16,282. Further, $164,345 was available for drawdown in the NAB facility. On 27 May 2011, when the winding up application was filed, the bank account had a credit balance of $15,015 and $159,346 was available for drawdown in the NAB facility. During the period through until the winding up order was made, not less than $140,229 was available for drawdown in the NAB facility. The credit balance of the Railway Place project bank account was $3,997 on 22 June 2011, partly because of payments made to Pilley McKellar on account of costs, and for counsel’s fees and withdrawals by members of the Roiniotis family.

In unusual circumstances, which I discuss later, Moores Legal paid the judgment debt on behalf of Dual Homes. I am satisfied that Dual Homes could have paid that debt in the ordinary course of its business from the facilities referred to. The owners’ corporations claimed that this payment did not discharge the total indebtedness of Dual Homes and that $24,833 remained outstanding. I am also satisfied that Dual Homes could have paid that other debt in the ordinary course of its business from the facilities referred to.

Also in evidence were financial statements prepared by Dual Homes’ accountant, Mr Caripis for the year ending 30 June 2011. The trading statement for that year for Dual Homes as trustee for The Roiniotis Family Trust stated total assets of $2,296,928 and total ‘non-Roiniotis family’ liabilities of $365,395. Mr Rathner’s balance sheet for Dual Homes after termination of the liquidation showed an asset surplus of $150,895.

Dual Homes was also the registered proprietor of unencumbered land in mid-2011.[4] Dual Homes mortgaged the Murradoc Road property to the extent of $275,000. On 1 June 2011, Mr McKellar instructed counsel that Dual Homes owned approximately $3 million in property assets. McKellar stated in contemporaneous documents including correspondence with the liquidator in July 2011 that Dual Homes was solvent. I accept the plaintiffs’ evidence and the contemporaneous assertions of McKellar in his written advice that at all material times McKellar believed Dual Homes was solvent and had sufficient funds to pay not just CSD2, but also all of its outstanding debts.
[4]Lots 1, 4 and 5 Railway Place, Fairfield, and Lots 5 and 6 Station Street, Fairfield.

The defendants, as interested creditors, did not contest an application later made, on 16 October 2011, under s 482 of the Corporations Act to terminate the winding up of Dual Homes on the grounds that Dual Homes was not solvent; rather they actively supported that application. At trial, the defendants led no evidence on the issue of solvency and did not directly challenge the plaintiffs’ accountant Mr Caripis in cross-examination as to the balance sheets or financial statements prepared by him, or as to his assertions concerning the solvency of Dual Homes in 2011, or the ability of Dual Homes to pay the sums sought by the owners’ corporations.

Finally, I do not accept that Dual Homes advised McKellar it could not pay CSD2.

The First Statutory Demand

VCAT heard the Fees Claim and the Cleaning Claim on 11 October 2010 and published its reasons, with an indicative costs order subject to further submissions, on 5 November 2010. Dual Homes lost on each claim. VCAT foreshadowed making an order for costs in the sum of $2,500 in the unpaid fees proceeding. In McKellar’s view that order was a better result than Dual Homes would have obtained if the other party made costs submissions and further submissions on costs were unlikely to be commercially justifiable. McKellar permitted the deadline for filing costs submissions to pass.

On 12 November 2010, LMS Lawyers (representing the owners’ corporation) sought an extension of time for costs submissions. Although LMS Lawyers copied McKellar into the request, he did not respond to it. On 17 November 2010, LMS Lawyers made a costs submission. McKellar did not make any response, or take objection, to the submission, assuming that VCAT would first determine the application for extension of time that he had ignored.

McKellar did not seek instructions from Dual Homes about these matters. George Roiniotis, who was aware of the VCAT Ruling, was not aware that the owners’ corporation had sought an extension or made submissions and assumed McKellar was dealing with the costs issue because he had told George that he would do so.

On 30 November 2010, VCAT ordered that Dual Homes pay $13,388, including costs assessed at $8,995.90. On 16 December 2010, the Magistrates’ Court registered this order for enforcement. The costs order surprised McKellar due to the significant increase in costs awarded, and also because the order was made without giving Dual Homes the opportunity to respond to the late submissions.

The first statutory demand (‘CSD1’) was served on Dual Homes on 22 December 2010. The deadline for compliance with the demand passed on 12 January 2011.

It is common ground that Pilley McKellar was retained to advise and act in respect of CSD1 very shortly after it was served. Dual Homes instructed McKellar to ‘do what he thought necessary.’ I am satisfied, because there was no greater specificity in the evidence of the terms of the retainer, that the parties failed to define their relationship with any precision.

On or about 13 January 2011, McKellar told George Roiniotis that VCAT’s order made 30 November 2010 was irregular and that Dual Homes could appeal. McKellar told Dual Homes not to immediately pay the claim and it believed that it had a good chance of successfully avoiding the consequences of 30 November 2010 VCAT Order, which it believed that McKellar would manage on its behalf. McKellar advised George that Dual Homes had good prospects on an appeal and should apply to set aside the statutory demand. I accept George Roiniotis’ evidence of Dual Homes’ instructions to McKellar:

I rang McKellar after receiving the first statutory demand. I told him we had received a document that I did not understand and I asked him what this was all about. He said something along the lines of, ‘These guys never give up. They just dig their heels in deep as much as they can. They work together, the manager and these solicitors and they’ve done this to quite a few people. We’ve got a genuine dispute and we’ll set it aside.’ This advice gave me comfort and in substance I told McKellar to do what he thought necessary.

McKellar asked an employee to prepare a research note about statutory demands. That research focused on the requirements for service by post and noted the possibility of setting aside a statutory demand by an offsetting claim. The author set out extracts from textbooks that referred to the consequences of presumed insolvency which follow from non-compliance with a statutory demand.

On 13 January 2011, McKellar wrote to VCAT inviting it to reconsider the costs order.

I do not accept McKellar’s claim that, at this time, he advised Dual Homes that it would be grossly uncommercial to further challenge the order and the simplest way to avoid pointless expense was to pay the judgment debt. It may be that at a later stage George Roiniotis and McKellar discussed that option. McKellar told Dual Homes that he was going to deal with the issue and have the amount reduced or set aside. McKellar did not inform Dual Homes of the legal consequences of non-compliance with a statutory demand and I accept that Dual Homes was not told of any risk of an application to wind it up or that the family might lose control of Dual Homes. McKellar could not specifically recall giving any such advice and John and George Roiniotis each denied receiving any such advice. The cross-examiner did not challenge that denial. With McKellar not identifying any risk to Dual Homes, it instructed him to do whatever he thought necessary.

John Roiniotis stated that McKellar was going to write some letters and get it sorted out, and that he seemed very confident about this. That was what McKellar did. He wrote to VCAT on 13 January 2011, which refused his request that it reconsider the costs order. In doing so, VCAT made a specific finding that it gave Dual Homes an opportunity to be heard.

The defendants suggested that George Roiniotis was familiar with and understood statutory demands from prior experience. George Roiniotis accepted that he was ‘loosely familiar’ with the concept of a statutory demand, but I am satisfied that he did not fully appreciate the legal consequences of non-compliance with a statutory demand, and did not understand the presumption of insolvency, or that the 21 day compliance period was strict. John Roiniotis’ knowledge of statutory demand procedure was similarly general. Consistently, in cross-examination McKellar conceded that the Roiniotis family as a whole only had a layperson’s view of the law.

I find that at this stage Dual Homes was reluctant to pay the VCAT judgment debt to the owners’ corporation given a history of animosity between them due to Dual Homes’ objection to a levy to fund a proceeding against it. I find that Peter Roiniotis expressed Dual Homes’ attitude in an affidavit in the termination proceedings:

I accept that the Company had deliberately chosen not to pay the owners corporation the money which was sought by it, notwithstanding the award made in VCAT and notwithstanding the judgment entered against it in the Magistrates’ Court. I was largely responsible for that decision. It was my view that the money sought from the Company was improperly sought, and the Company was unwilling to pay the money as a matter of principal, rather than a matter of inability to make the payment.

Although George Roiniotis interpreted Peter Roiniotis’ affidavit for him, I accept that both George and John Roiniotis rejected the notion that Dual Homes would not have paid the debt because of animosity between it and the owners’ corporation if McKellar had either recommended it or explained the legal consequences of the situation that was developing.

Four matters are clear. Dual Homes did not pay the judgment debt that was the subject of CSD1. It would have been able to do so, but McKellar did not advise it of the legal consequences of not paying the statutory demand within time. Dual Homes instructed McKellar to apply to set aside CSD1 based on his advice to it.

Acting prudently, a solicitor instructed as McKellar was, would have understood that s 459F of the Corporations Act stated that if at the end of the period for compliance with a statutory demand, the demand is still in effect and the company has not complied with it, the company is taken to have failed to comply with the demand. In that event, the Court is required, pursuant to s 459C(2), to presume that the company is insolvent for the purposes of a winding up application under s 459P.

In David Grant & Co Pty Ltd (Receiver appointed) v Westpac Banking Corporation[5] the High Court stated that the Supreme Court does not have power to extend time within which to file such an application. A prudent solicitor would have appreciated the need to give advice, obtain instructions, and act within the 21-day period. Pursuant to s 459H, a court must set aside the demand where it is satisfied that there is a genuine dispute between the company and the creditor about the existence of the debt, unless any amount in respect of which there is no such dispute exceeds $2,000.
[5](1995) 184 CLR 265.

On 13 January 2011, McKellar applied, outside of the 21-day time limit, to set aside CSD1. The basis for this application was unclear. Although McKellar had advised that there was an offsetting claim in respect of costs, and the affidavit in support of the application refers to the apparent denial of natural justice by VCAT when making the costs order, McKellar’s strategy was obscure as any reduction in the costs ordered would not reduce the debt below $2,000.

McKellar attributed the lateness of the application to his mistaken belief that the time provisions under Chapter V of the Rules extended the strict legislative time limit under s 459G(2). McKellar did not have an adequate grasp of the practices and procedures in insolvency law concerning statutory demands, the operation of the presumption of insolvency, and winding up applications.

Within days, on 18 January 2011, VCAT dismissed McKellar’s application seeking reconsideration of its costs decision. Dual Homes never challenged that dismissal. From 18 January 2011, there was no basis for the application to set aside CSD1. George Roiniotis was unaware that McKellar had written to VCAT or that it had refused to reconsider the costs order and he believed that McKellar was dealing appropriately with the issue.

On 22 February 2011, McKellar negotiated with LMS Lawyers that he would withdraw Dual Homes’ application to set aside CSD1 on condition that it pay the owners corporations’ costs fixed at $2,800. I accept George Roiniotis’ statement that McKellar did not seek instructions concerning this ‘settlement’. McKellar did not compromise the underlying debt of $13,434.93. McKellar told George Roiniotis at some point in early 2011 that he had dealt with, or fixed, the first statutory demand and Dual Homes did not need to pay anything. But McKellar’s efforts achieved nothing. Rather, Dual Homes’ position had deteriorated. It remained indebted for the existing judgment debt and costs, had incurred a costs liability to Pilley McKellar, and incurred an additional $2,800 costs liability in favour of the Railway Place Owners’ Corporation.

The second Statutory demand

Seven weeks after the compromise of the application to set aside CSD1, on 13 April 2011, the owners’ corporation served another statutory demand (CSD2) for the same debt ($13,434.93). This demand fell to be satisfied by 4 May 2011.

In the interim, Dual Homes succeeded in the Railway Place Property Damage Claim, commenced against it on 1 November 2010, and was awarded its costs on 19 April 2011 (‘19 April 2011 Costs Order’).

Dual Homes retained McKellar in respect of CSD2. George Roiniotis described the scope of the retainer in similar terms to the retainer for CSD1:

In my conversations with McKellar about what I know [sic] understand to be the second statutory demand, he said he would set the statutory demand aside. He said we had an ‘off-setting claim’ which we could rely on the set aside the statutory demand. He said the ‘off-setting claim’ was the 19 April Costs Order. He said this could be set-off against the statutory demand. Accordingly, I accepted his advice and told McKellar to deal with the matter. I trusted him to deal with the matter, in part, because, as far as I believed, he had successfully dealt with the first statutory demand. I did not take any steps, or cause Dual Homes to take any steps, separately to satisfy the second statutory demand or pay the judgment debt, nor to apply to set it aside. I relied on McKellar to do what needed to be done, having accepted his advice about the ‘off-setting claim’.

I am satisfied the parties did not define the scope of their obligations with any greater precision than this. It is not clear precisely when the conversation establishing this retainer took place. The question of the apportionment of responsibility between the defendants is affected by when McKellar first received Dual Homes’ instructions in respect of CSD2. Dual Homes maintained that it instructed McKellar by 28 April 2011 at the latest, when he was at Pilley McKellar, and plainly that is correct because he wrote to LMS Lawyers about CSD2 on that date.

I reject McKellar’s evidence that he had advised George or John Roiniotis in conversation that ‘the only sensible thing to do in the circumstances was to pay the statutory demand in full’ or ‘you’re playing with fire,’ and that George Roiniotis told him that Dual Homes was unable to pay the debt by 4 May 2011. I am persuaded that McKellar told George Roiniotis that Dual Homes had an offsetting claim on which they could rely to set aside CSD2. His advice to Dual Homes was to leave the matter with him and he would deal with it. McKellar consistently posed to Dual Homes as a solicitor who could deal with its legal issues.

By this time, George Roiniotis wanted Dual Homes to resolve the debt with the owners’ corporation that had returned, but he relied on McKellar’s advice not to do so and to permit him to continue to deal with the demand. McKellar gave the same advice to John Roiniotis. McKellar did not explain to either of them the strict 21-day time limit for dealing with the demand or the prospect of a presumption of insolvency arising if the demand was not satisfied and his counsel did not suggest otherwise in cross-examination.

The documents confirm the account of George and John Roiniotis. When cross-examined, McKellar could not recall his advice in writing to Dual Homes concerning CSD2. However, on 2 June 2011, McKellar wrote to Dual Homes about his fees. He also stated that the ‘prospects of setting aside the demand [were] good’, a statement that was not consistent with the evidence just mentioned of his negative advice in a conversation. However, by 2 June 2011, the period for compliance with the statutory demand had expired and the owners’ corporation had issued a winding up application returnable on 22 June 2011. McKellar made this written statement to Dual Homes despite having communicated about the issues with a barrister the preceding day to which I will return.

On 28 April 2011, McKellar wrote a letter to LMS Lawyers, asserting the inappropriateness of CSD2 given the owners’ corporation's liability for costs pursuant to the order of 19 April 2011, and stating that he was instructed to apply to set it aside unless LMS Lawyers withdrew it beforehand.

30 April 2011 was McKellar’s last day practising as Pilley McKellar before merging his practice with Moores Legal. Pilley McKellar ceased operation on 30 April and McKellar recommenced practice with Moores Legal, initially as an employee solicitor, on 1 May 2011. McKellar agreed in cross-examination that he was very distracted by the process of the changeover.

On 2 May 2011, LMS Lawyers emailed to McKellar a letter advising they were considering his letter of 28 April 2011. LMS Lawyers requested a bill in taxable form for the total costs said to be owing to Dual Homes.

On 4 May 2011, the deadline for compliance with CSD2 expired. McKellar did not apply to set it aside or apply for an extension of time for compliance pursuant to s 459E of the Corporations Act.

Instead, McKellar, now at Moores Legal, emailed LMS Lawyers on 4 May 2011 requesting withdrawal of CSD2 and a further 21 days to present a bill for costs recoverable from the owners’ corporation under the 19 April 2011 Costs Order, noting ‘we are presently preparing a bill in taxable form, however, in part due to our merger with this firm we will not be in a position to provide it today.’ McKellar stated ‘in the circumstances, we require your written confirmation by 12 noon today that the demand will be withdrawn failing which our client will be forced to make application to set aside the demand.’ By midday, there was no response. McKellar could give no reasons for his failure to apply that afternoon to set aside the statutory demand in accordance with Dual Homes’ instructions.

The particular significance of McKellar’s failure to file such an application was that from 5 May 2011, the Court was required, pursuant to s 459C(2) of the Corporations Act, to presume that the company was insolvent for the purposes of an application under s 459P for the company to be wound up. A prudent solicitor who held to instructions to deal with the matter by having the demand set aside would not have permitted an avoidable statutory presumption of insolvency to arise against his client in this way.

On 5 May 2011, LMS Lawyers responded, undertaking on behalf of the owners’ corporation not to initiate a winding up application if a bill in taxable form for the costs the subject of the 19 April 2011 Costs Order was received by 19 May 2011, noting that it was highly unlikely that, after setting off the costs, the remaining debt would not exceed the statutory minimum amount claimed in the demand.

These considerations became irrelevant because no bill in taxable form was prepared. McKellar gave two reasons for his failure to prepare the bill.

First, McKellar did not feel qualified to prepare the bill of costs himself. In his witness statement, McKellar said that he raised this issue with George or John Roiniotis and offered them the option of paying a costs consultant or paying the demand in full, referring to the practical timing difficulties. George and John Roiniotis denied the conversation and there was no documentary record of it. During cross-examination, McKellar recalled personally attempting to prepare a bill and speaking with a costs consultant, but he could not recollect any conversation with George or John Roiniotis about preparing a taxable bill. I am satisfied that McKellar did no more than commence the process of preparing a bill and did not finish it. I reject his assertion of the conversation with his client.

McKellar conceded that he did not give written advice to Dual Homes about the risks in his strategy to deal with the statutory demand, or about his discussion with the costs consultant and the possibility the bill could not be prepared in time. He could not explain why he did not give written advice. McKellar said that it was a busy time with the merger and I accept this as the probable excuse for the absence of a bill in taxable form for the 19 April 2011 Costs Order.

Secondly, by their defences, the defendants asserted that Dual Homes could not fund a costs consultant to prepare the bill of costs. In his witness statement and in cross-examination, McKellar described Dual Homes as ‘recalcitrant payers’. Pressed to justify this description, McKellar identified three small bills issued in late April 2011. These events appear to be after the relevant period and irrelevant on the issue of whether McKellar’s failure to prepare the bill of costs was excusable. In his witness statement, McKellar said:

Each of George Roiniotis and Dual Homes were recalcitrant payers and clients and I was again being asked to fund the defence of a very minor claim for a company that claimed to have assets. I was reluctant to do so in circumstances where I had significant doubts about the capacity of Dual Homes to pay. The risk to Dual Homes of failing to quantify the costs was not immediate and would only materialise later. I was in the final stages of closing down Pilley McKellar and arranging our move to Moores and I prioritised other issues I had to contend with at that time.

McKellar, by this statement, was defending his own ineptitude by attacking the character of his client. The only part of it that I accept to be true is that he was prioritising his own interests over those of his clients. First, there was no evidence of recalcitrance on the part of Dual Homes in paying McKellar’s fees. Rather, McKellar appears to have been dilatory in rendering his invoices. The documentary evidence before the court suggested that Pilley McKellar had rendered the following accounts but the invoices show each account as paid. Precisely when these documents were generated was unclear.

·10 September 2010, #00002075, $7,865, status – paid
·26 April 2011, #00002320, $4,570, status – paid
·26 April 2011, #00002321, $1,232, status – paid
·26 April 2011, #00002325, Nil invoice
·29 April 2011, #00002360, $1,815, status – paid.

I accept as probable that McKellar sent out the invoices dated 26 and 29 April 2011 at that time, claiming $7,617 in total.

On 2 June 2011, McKellar wrote to Dual Homes and the text of the letter suggests that fees were outstanding. McKellar stated that he had a problem committing to further work and further costs exposure ‘given that no payment of any account has ever been made.’ McKellar accepted in cross-examination that in June 2011, he spoke with George Roiniotis and agreed that the sum of $8,300 would be sufficient for him to continue. McKellar could not tell his cross-examiner why he did not address the payment of $8,300 from Dual Homes in his witness statement. It is plainly a sufficient sum to discharge the outstanding indebtedness. McKellar accepted that the assertion that Dual Homes was a recalcitrant payer was false and that, when asked to pay for legal work, Dual Homes generally speaking would do so promptly and without complaint.

I do not consider that McKellar was truthful when he said that he ‘was again being asked to fund the defence of a very minor claim for a company that claimed to have assets.’ I have already stated why I am satisfied that McKellar understood the financial position of Dual Homes, but, more significantly, McKellar’s complaint about funding litigation for his client cannot sit with his willingness to pay out the debt demanded by the statutory demand on the morning of the return of the winding up application, which I will come to in due course.

Finally, McKellar’s suggestion that there was no immediate risk to Dual Homes in failing to quantify the costs underscores other observations I have made that McKellar did not have a sufficient understanding of the law and procedures of winding up in insolvency to have prudently given legal or strategic advice to Dual Homes.

I am satisfied that as a result of McKellar’s conduct of his retainer, Dual Homes did not prior to 4 May 2011:

(a) comply with CSD2;

(b) apply for an extension of time to comply with CSD2;

(c) issue an originating motion to set aside CSD2 pursuant to s 459G of the Corporations Act; or

(d) compromise the creditor’s claims.

Dual Homes properly understood that McKellar was ‘dealing with’ CSD2. I am satisfied, for the reasons already given, that Dual Homes had the necessary funds available to comply with the statutory demand, otherwise satisfy the creditor’s claims, and meet the costs of preparing a taxable bill. Had Dual Homes been advised by McKellar to take any of these actions or make such payments, I find that it would have done so. Further, had Dual Homes been properly advised about probable outcomes, risks, and likely expenses associated with resolving the dispute represented by CSD2, I find that Dual Homes would have instructed McKellar that it would pay out the creditor’s claims, or any lesser sum that McKellar was able to negotiate in full satisfaction prior to 4 May 2011, and it would have made that payment.

The Winding Up Application

On 27 May 2011, the Railway Place Owners’ Corporation applied to wind up Dual Homes, pursuant to s 459P of the Corporations Act. The application was listed before the court on 22 June 2011. Because of McKellar’s failure to apply to set aside the demand, Dual Homes was presumed to be insolvent by virtue of s 459C(2)(a) of the Act. McKellar knew that his failure to negotiate a satisfactory resolution of CSD2 using the offsetting claim constituted by the costs order was problematic and, belatedly, he sought advice from counsel.

Section 459S of the Act was now relevant. It provides that a company cannot, without the leave of the court, oppose an application to wind up on a ground, (a) that the company relied on for the purposes of an application by it for the demand to be set aside; or, (b) that the company could have so relied on, but did not so rely on (whether it made such an application or not). Section 459S(2) provided that the court was not to grant leave under subsection (1) unless it was satisfied that the ground relied on was material to proving that the company was solvent.

Dual Homes, not having been informed about the progress of the dispute by McKellar, learned of the winding up application in an unusual way. On 31 May 2011, John Roiniotis noticed a reference to ‘an action in the Supreme Court to place Dual Homes into Bankruptcy’ in a consultant’s report relating to other litigation.[6] John Roiniotis enquired of McKellar about the grounds upon which that could be done.
[6]The Station St Property Damage claim.

An email from John Roiniotis on 28 May 2011 constituted a retainer for McKellar to deal with the application to wind up Dual Homes. In that email, John Roiniotis asked McKellar:

Finally, the one of most concern: He has an action in the Supreme Court to place Dual Homes into Bankruptcy?? [sic] Is this something we know about? Under what grounds can he do this, the fact that we have outstanding money owing? Or is this another case of him trying to raise some revenue for himself and his LMS Mates. How much should we be worrying about and is there any course of action against all this dribble?

McKellar addressed John’s query by written advice to George Roiniotis on 2 June 2011. In an email dated 3 June 2011, John Roiniotis wrote:

In follow up to my email earlier this week we have been served with the Supreme Court papers as of this morning/last night. Well, actually they were dropped off without an envelope in the junk mail section of my parent’s letter box. I haven’t read them, but my dad say’s [sic] it’s regarding the $13,000 owed due to our loss at the VCAT hearing, the cleaning debacle and there is a 21 day time frame to reply. Can I drop these off to you Monday and are we going to need to have a chat about this and other matters?

McKellar responded on 3 June 2011 to John Roiniotis as follows:

I have a copy of the documents. I have e-mailed George about them. He is planning on coming on Monday morning to discuss how to proceed.

As I noted, the application prompted McKellar to seek advice from counsel and on 1 June 2011, McKellar emailed counsel, referring to an ‘ill-fated [sic] attempt to set aside a statutory demand’ prior to Pilley McKellar’s merger with Moores Legal. McKellar stated that Dual Homes had a ‘winding up application made against it’ and that ‘the client is not insolvent as it has approx. 3M in property assets to its name.’ McKellar instructed counsel that two matters that were not in doubt. First, Dual Homes had an offsetting claim based on a consent order.[7] Second, Dual Homes was solvent, having approximately $3M in property assets. The reference to the solvency of Dual Homes persuades me that McKellar was well aware that a presumption of insolvency was operative and aware of the potential obligation on Dual Homes to prove solvency.
[7]McKellar did not inform counsel that the offsetting claim was a costs order that was unlikely to sufficiently reduce the quantum of the debt.

Counsel replied promptly by email. McKellar now understood from counsel that it was more difficult to resist a winding up application after expiry of a statutory demand and if an offsetting claim arose prior to the expiration of the time in which the demand fell to be satisfied, the leave required under s 459S of the Corporations Act would only be granted if the claim was material to establishing solvency. A prudent solicitor would have immediately appreciated that the quantum of the costs claim rendered it immaterial in establishing solvency. Counsel explained to McKellar that in the alternative, a rather heavy onus of proof was borne by the company to prove solvency by audited accounts. A prudent solicitor would have also appreciated the implications flowing from this course of action being the only defence to the application.

Counsel offered to discuss the matter with McKellar but McKellar gave no evidence of any discussion. I do not accept that a prudent solicitor would have provided such generic and perfunctory instructions to counsel and then failed to follow through to obtain a clear understanding of what was required to retrieve his client’s situation after receiving the information that counsel provided. I am satisfied that McKellar well understood that the winding up application had been filed because he had failed to do anything about the offsetting costs claim he had identified when the creditor had undertaken not to act. I am also satisfied that when he read counsel’s email McKellar appreciated that it was too late to apply to set aside the demand and that the only option available to Dual Homes was to satisfy its creditors and prove its solvency.

I am satisfied that the parties did not define this retainer with any greater specificity than these communications, either at this point, or at a later stage as the matter progressed to hearing.

I find that, at this point, McKellar ought to have been aware of the risk that Dual Homes would be wound up if it failed to prove its solvency, and I am satisfied that he was so aware. So much is clear from his correspondence with LMS Lawyers and with counsel and his dealings with his client immediately thereafter.

For reasons that I will later explain, the crux of McKellar’s wrongful conduct was in essence complete by this time and he knew this. The following cross-examination occurred:

COUNSEL: Is that because you were concerned for your own position, given the failure by you on 4 May and the further failure by you by 19 May to do anything?---I was concerned on two fronts. I was concerned for Dual Homes, as my client, and I was concerned for the history of the matter and some of the errors that you've pointed to.
COUNSEL: Why did you not tell your client about your errors and your legitimate concerns about the history then?---I don't have a good answer to that question.
COUNSEL: I suggest to you that [counsel's] advice to you is put in clear, cogent and accurate terms?---The accuracy I couldn't comment on, but yes.
COUNSEL: But he made it plain to you - - -?---Spells it out clearly.
…
COUNSEL: Why did you not attach that email of 1 June 2011 to your email to George Roiniotis of 2 June 2011?---Can I have a look at the 2 June email, please?
COUNSEL: Yes. The email to Mr Roiniotis - in fact, it is a letter – is at 301 and 302, with his handwritten annotations. I think your file copy is at 303 and 304?---I suspect at this point in time there is an element of self-preservation in some of the correspondence.
COUNSEL: Because if your client had seen Mr Greenway's email, that would have alerted them to the fact that nothing had been done in relation to the second statutory demand, do you agree with that?---Yes, if they'd had Mr Greenway's email, they would have been aware of that.

I earlier referred to McKellar’s email/letter of 2 June 2011 in the context of dealing with outstanding accounts, which was its primary purpose, but this letter also included McKellar’s written advice for Dual Homes. McKellar wrote:

We have discussed with counsel the basis upon which the application to set aside the application to wind up might be made. We are of the view your prospects of setting aside the demand are good however serious consideration needs to be given to the cost of continuing to fight the claim and the alternative of paying the outstanding amounts and recovering your entitlements in the usual way.

That was the full extent of McKellar’s report of his communications with counsel. He did not attach the email. By omitting the email, McKellar sought to preserve his own position in stating that the chances of setting aside the demand were ‘good.’ McKellar admitted under cross-examination that by 2 June 2011, he was aware the presumption of insolvency had arisen.

This advice fell well short, in both its content and its correctness, of advice that a prudent solicitor would have given in the circumstances. McKellar agreed with the cross-examiner that he was aware that the offsetting claim was never going to be sufficient to reduce the debt below the threshold limit. He did not inform his client of that fact nor did he alert Dual Homes that he had done nothing to ‘deal with’ the second statutory demand. He failed to inform his client that on the winding up application it was subject to a presumption of insolvency and, despite being solvent, faced a difficult and expensive exercise to avoid being wound up.

McKellar stated in his witness statement and in cross-examination that he thought Dual Homes still had good prospects of resisting a wind up application at the time he sent the advice, but he accepted that he was wrong to state in that letter that the prospects of setting aside the demand were good. He also accepted that Dual Homes would be obliged to pay out all creditors and not just the judgement debt. McKellar understood that Dual Homes had refused to pay Railway Place Owners Corporation levies to fund the VCAT litigation against it and that the Station Street Owners Corporation claimed similar levies.

George Roiniotis viewed the 2 June 2011 letter in the context of McKellar’s advice that Dual Homes should not pay out the demand. In his witness statement, George Roiniotis stated:

I did not at the time understand this advice to be saying that it would be uncommercial for Dual Homes to fight the winding-up application and that Dual Homes should simply pay whatever amount was required in order to have the winding-up application withdrawn. McKellar never gave me any direct advice to that effect. Rather, I noted his advice that we had good prospects of winning this case in court (according to McKellar and, so he then said, his barrister). Accordingly, I thought there was a good chance we would win and get our costs back, or most of them, from the owners’ corporation, all of which might assist us in other ongoing matters with the oc. In particular, Dual Homes’ dispute with the Station Street owners’ corporation, which was managed by the same owners corporation manager, who had appointed the same lawyers, was ongoing at the time.
I understand that McKellar now claims that he gave Dual Homes advice that, in order to avoid being wound-up, it should pay the judgment debt owed to the oc. I understand that he claims that he gave me advice on numerous occasions that ‘the only real option’ was to pay before 22 June 2011 otherwise the company would be wound up. That is not true and I never received advice to that effect, from McKellar.

In cross-examination, he maintained his evidence.

COUNSEL: Mr McKellar was suggesting to you that serious consideration ought be given to the cost - in effect, to the commerciality of continuing to fight the debt?---He has - he did write this, but he always said ‘we will win, we have got to run this, we will do it, no problem’. For this small amount, we could have paid it any time. If he said ‘let's pay, forget it about it, let's move on’, we'll pay it.

On 3 June 2011, John Roiniotis emailed McKellar, saying he had not yet read the Supreme Court papers that had been served, but that his father told him it concerned the $13,000 owed due to the loss at VCAT and that there was a 21 day time frame to pay. John Roiniotis agreed in cross-examination that he was aware of the time limit, but maintained McKellar never suggested paying the debt.

Despite counsel’s advice, and McKellar’s failure to prepare a taxable bill, at a meeting on 6 June 2011, he advised George Roiniotis that Dual Homes could recover $10,000 on the 19 April 2011 Costs Order. George referred to hand-written notations on his copy of the 2 June 2011 email/letter that supported his recollection and the cross-examiner did not challenge his evidence of this meeting.

George Roiniotis and McKellar conferred immediately prior to the winding up application. I accept George Roiniotis’ account that the meeting was after hours on 21 June rather than early in the morning of 22 June. McKellar did not dispute that during the meeting he acknowledged that no payment had been made. He appeared to have realised the urgency of the situation. McKellar advised George Roiniotis that it was necessary for Dual Homes to pay the judgment debt by bank cheque before the hearing commenced. McKellar told George Roiniotis that the payment would satisfy the debt.

George Roiniotis pointed to the impracticality of making such a request at that time of the evening. McKellar said that he would pay it for Dual Homes because he trusted the Roiniotises’ to reimburse him. The documentary evidence showed that on 22 June 2011, McKellar procured that Moores Legal paid $13,434 by electronic funds transfer to LMS Lawyers. McKellar confirmed that payment by letter to LMS Lawyers that day, in which stated that the payment was ‘on account of the above matter’. The payment was not made pursuant to any agreement with the creditor or its solicitors.

McKellar maintained that Moores Legal, rather than Dual Homes, made this payment because there was a question of Dual Homes’ financial capacity. McKellar asserted that George Roiniotis told him that ‘we don’t have the money available’. Dual Homes agreed that McKellar paid the judgment debt on its behalf. I am satisfied that he did so because he had turned his mind to Dual Homes’ problems too late and outside of banking hours when Dual Homes could not reasonably obtain a bank cheque. McKellar believed, wrongly, that payment of the debt would avoid the consequences of his earlier want of care.

In cross-examination, McKellar conceded that the problem was the need to immediately transfer the money and not that Dual Homes lacked financial capacity. That concession, and the implicit trust that Dual Homes would repay the solicitors, was inconsistent with McKellar’s other evidence of Dual Homes’ financial capacity. This was one example, of many, of McKellar’s capacity in the preparation of his witness statement, to state what he thought best supported his position or explained his defaults. I accept Dual Homes’ account that McKellar paid the funds because of the timing issue, rather than Dual Homes’ lack of capacity.

McKellar’s awareness of the precarious position of Dual Homes was evident in this last minute attempt to pay the judgment debt with the defendants’ funds. What is also evident, as I find, is that McKellar was now aware of his own precarious position in the sense of being aware that he was responsible for the position in which Dual Homes now found itself. In his email of 22 June 2011, instructing a staff member to pay $13,434.93 to LMS Lawyers, McKellar stated:

Dear Connie,
Can we pay $13,434.93 in account xxx-xxx-xxx immediately and can you send me a transfer confirmation?
I can explain later and we will get the money back but I need to avert a winding up for a company with approx. 3M in assets.

McKellar stated in evidence that he had thought the payment of $13,434 to LMS Lawyers would satisfy the owners’ corporation and he understood the purpose of the adjournment to 6 July 2011 to be to ensure that the transferred funds had cleared. I do not accept these statements as truthful. McKellar plainly understood the need to provide cleared funds paying out the creditor before the application was called on by either bank cheque or bank transfer. He organised the payment before court and he provided an electronic payment receipt to LMS Lawyers when he informed them of the payment. McKellar then engaged a barrister to appear for Dual Homes, instructing him of both the fact of the payment and that Dual Homes’ unencumbered property asset holding. He recognised the need for an affidavit to be prepared. McKellar understood on 22 June 2011 that the matter was not yet fully resolved for his client. I am satisfied McKellar did not believe the payment of $13,343.93 made that day had resolved the application or the wider dispute with the creditor.

Counsel obtained an adjournment of the winding up application to 6 July 2011 and informed McKellar by email that day. McKellar did not advise the plaintiff of the adjourned date, or the potential requirement to prove solvency.

The evidence did not disclose what, if any, advice counsel gave to McKellar concerning the preparation required for the hearing on 6 July 2011. I am satisfied that McKellar either recognised then, or was told, that the court would require evidence of the dealings between the company and the petitioning creditor before granting the petitioning creditor leave to discontinue the application. Even if McKellar honestly believed that the payment had settled the debts between the owners’ corporation and Dual Homes, which I do not accept, he ought to have been aware that another creditor could substitute as petitioning creditor and he was aware of the other debts claimed against Dual Homes by both owners’ corporations. There remained the probability that Dual Homes would be required to prove solvency despite the $13,343 payment. Although McKellar claimed to be unaware of that prospect, he had been told as much by counsel and his assertions to the contrary were undermined by his recognition of the need to place Dual Homes’ asset position before the court on affidavit.

George Roiniotis thought McKellar had dealt with the winding-up application, and no further action was required of Dual Homes, apart from reimbursing Moores Legal for settling the judgment debt.

Both McKellar and George Roiniotis regarded LMS Lawyers and its client, the manager of the owners’ corporations, as tenacious and aggressive in their dealings with Dual Homes. McKellar was aware that statutory interest runs on judgments, and although he stated he did not recall considering that the petitioning creditor would seek legal costs, I do not accept that as a truthful statement. I do not accept that McKellar honestly believed that payment of the judgment sum without interest or costs or any agreement to forgo such claims could resolve the dispute. It is probable that by this strategy, formulated in ‘time-on’ desperation, McKellar intended to force a period for further negotiation that he wholly failed to use.

McKellar conceded to his cross-examiner that he was aware ‘with hindsight’ that there could be a problem in finally resolving the winding up application, given the presumption of insolvency, and the existence of other creditors including the Station Street Owners Corporation which also claimed fees and interest. A prudent solicitor would not accept that a unilateral payment of a judgment debt, without interest or legal costs, ignoring other claimed debts, and absent the prior agreement of a tenacious and aggressive creditor would have settled the matter and I do not accept that McKellar believed it to be a formality that the winding up application would be dismissed on the return date without any input from him on behalf of Dual Homes.

On 4 July 2011, LMS Lawyers made plain to McKellar that there was no agreement to accept $13,343 in settlement of the winding-up application, although McKellar would only accept the proposition that LMS Lawyers did not positively assert that the payment was the end of the matter. LMS Lawyers stated that after receipt of $13,343, Dual Homes remained indebted for additional outstanding owners’ corporation fees of $24,883 and that the owners’ corporation believed Dual Homes was insolvent. Significantly, the owners’ corporation offered to accept $24,883 plus $4,702 in costs in return for withdrawing the winding-up application.

McKellar forwarded this email/letter from LMS Lawyers to George Roiniotis that day, stating only that ‘this shit rolls on.’ The letter did not identify the adjourned date of the hearing. He proposed discussing the letter at a conference with George Roiniotis on 7 July 2011 (the day after the adjourned date of the winding up hearing). I am not persuaded that McKellar actually read this letter at the time of receipt or that its receipt reminded him of the imminent return before the court of the adjourned application. He did not inform George Roiniotis of the adjourned hearing date. He did not advise Dual Homes about the offer to discontinue the winding up application on payment of $29,585, or that he had not prepared Dual Homes’ defence of the application for the 6 July 2011 hearing. McKellar had not even briefed counsel to appear. It is not apparent that he had considered the consequences of Dual Homes not appearing at the hearing. He did not explain the cost implications for Dual Homes of attempting to prove solvency.

Of the email, George Roiniotis said in his witness statement:

I would have read McKellar’s email of 6.28pm shortly after that time because I had access to my emails on my mobile phone. I understood from McKellar’s email and the attachments that:
a.the Railway Place owners’ corporation was now claiming to be entitled to a further $24,882.83 from Dual Homes, plus $4700 in costs (a total of $29,582.83);
b.the owners’ corporation intended to proceed with the winding-up application unless Dual Homes paid those amounts to it; and
c.McKellar wished to discuss this demand with me, and Dual Homes’ strategy for dealing with it, on the coming Thursday, which was 7 July 2011.

There was nothing in his email or its attachments informing me that the adjourned date of the winding up was 6 July 2011 and I assumed that McKellar’s invitation for me to meet with him on Thursday 7 July 2011 gave him sufficient time to do what may have been necessary for him. Nor did McKellar then advise me or inform me that Dual Homes ought to pay the further $29,582.83 demanded by the Railway Place owners’ corporation, or negotiate some lesser amount.

On 5 July 2011, McKellar flew to Townsville for an unrelated mediation. On 6 July 2011, with Dual Homes unrepresented, this Court ordered that Dual Homes be wound up and appointed Mr Rathner as liquidator. McKellar returned to Melbourne by the early morning of 7 July 2011, unaware of the winding up order.

On 7 July 2011, McKellar met with George Roiniotis. They did not discuss the winding up application. Of this meeting, McKellar said:

COUNSEL:     So notwithstanding the concerning letter you'd received from LMS on 4 July, raising an additional $29,500 of moneys they said they wanted, as best you can recall, that was not discussed on 7 July?---Yes, that's right.
COUNSEL:     And that's because you'd entirely overlooked the looming application date of 6 July?---Yes.
COUNSEL:     And the sole reason why there was nothing done for that date was simple human oversight?---That's certainly part of it. I believe I also had a view at the time that payment of the amount claimed in the statutory demand would dispose of the winding-up application.
COUNSEL:     But when you saw the LMS email of 4 July, surely that landscape changed and you realised that there was another $29,500 in play?---I was aware that they were claiming that there was another $29,500 payable.
COUNSEL:     So whatever one could do, you couldn't simply rest on your laurels and assume the payment of $13,434.93 had made the problem go away?---With hindsight, that is certainly true.
COUNSEL:     And that was your belief at the time as well?---I'm not sure it was, no.

For the reasons set out earlier, I do not accept that McKellar believed that his $13,343 payment on behalf of Dual Homes resolved the winding up application, and if there were any doubt about this, it is certain he would be aware the issue was not resolved on receipt of the LMS email of 4 July 2011 demanding $29,582.83.

McKellar’s concession that he had entirely overlooked the adjourned application date contradicted the defence.[8] In response to this defence, George Roiniotis said the following in his witness statement:

I understand that McKellar now claims that he told me that the winding-up application had been adjourned to 6 July 2011 during a telephone conversation with me prior to that date. That is not true. I was unaware that there was a hearing scheduled for 6 July 2011, and McKellar never told me that there was. His email of 4 July 2011 made no reference to that hearing, nor did I understand there to be any urgency. Had I known that there was a hearing scheduled for 6 July 2011, I would never have waited until 7 July 2011 to speak to McKellar about the owners’ corporation's latest demands. I would have discussed those matters and the hearing with McKellar prior to 6 July 2011, so that I could get advice from McKellar and provide him with instructions prior to the hearing.

[8]The defence, at paragraph 8(c)(ii), stated that McKellar gave winding up advice between 22 June 2011 and 4 July 2011 informing George Roiniotis of the adjournment of the winding up application.

Of the 7 July meeting, George Roiniotis stated in his witness statement:

I do not recall if I actually met with McKellar as planned on 7 July 2011. However, I did send him an email at 9.37am that morning inquiring about a lease at 343 Mont Albert Road. It is possible I may subsequently have had a phone discussion with McKellar on 7 July 2011 instead of a meeting, and that we may have discussed the recent correspondence from the Railway Place owners’ corporation’s solicitors. But I do not have a specific recollection of having such a discussion. I certainly do not recall McKellar telling me on 7 July 2011 anything about a hearing on 6 July 2011 or that a winding-up order had been made against Dual Homes.

McKellar did not challenge this evidence. There was no indication in writing given to Dual Homes of the adjourned date and I am satisfied that Dual Homes was unaware of it.

McKellar’s concession that he overlooked the adjourned application was one of a number of concessions made by Mr McKellar during his evidence under cross-examination that contradicted either his witness statement or the pleaded defence. Other concessions include statements contradicting George Roiniotis’ supposed knowledge and understanding of statutory demands,[9] Dual Homes’ supposed inability to fund a costs consultant to tax the 19 April 2011,[10] the payment of $13,434 by the second defendant on 22 June 2011 being because Dual Homes supposedly could not do so, rather than being a mere matter of convenience,[11] and the purported adequacy of McKellar’s advice given 2 June 2011[12] in the defence.
[9]Paragraphs 23, 23A, 50(a) and 82(c) of the defence.
[10]Paragraphs 44 and 50(b) of the defence.
[11]Paragraph 73(b)(ii) of the defence.
[12]Paragraph 66 of the defence.

Further, as noted above, McKellar did not challenge in cross-examination much of the evidence of George and John Roiniotis about the content of advice given to Dual Homes. The focus of the defendant’s case appeared to shift from assertions put forward in the defence as to the content of McKellar’s advice, many of which McKellar subsequently contradicted in cross-examination, to the defendants’ trilogy of issues - causation, immunity and quantum.

The response of a prudent solicitor in the circumstances would have been quite different to that of McKellar. Assuming for present purposes that a prudent solicitor found him or herself in McKellar’s circumstances on 4 July 2011, that solicitor would have advised Dual Homes of the offer to resolve the application. The prudent solicitor would have assisted the client with estimates of the risks and the expense of alternative courses of action that were open. Dual Homes would be invited to make a commercial decision whether to undertake the risks and incur the expense of contesting the winding up application or to pay the sum demanded. A prudent solicitor would have stressed the need for an urgent response in order that counsel could be instructed to appear on the application, armed with an appropriate affidavit explaining the dealings with the petitioning creditor and the future intentions of Dual Homes with respect to the application.

If Dual Homes had been properly appraised of the risks and expenses involved in contesting the winding up application, I am satisfied that it would have paid the sum demanded or some lesser sum if negotiated with the creditor.

Principles applying
Duty owed to Dual Homes
Scope of duty

It is trite law that a solicitor owes a client a duty to exercise reasonable skill in the performance of the solicitor’s retainer. The duty derives from both contract and tort.[13] The scope of the duty includes warning the client of material risks inherent in implementing a proposed transaction in a particular way, if a reasonable person in the client’s position, if warned of the risk, would be likely to attach significance to it.[14] What is required for the performance of this duty in the particular case depends upon the circumstances, including the scope of the retainer and the nature of the task entrusted to and undertaken by the solicitor.[15] As Winneke P observed in Carew Counsel Pty Ltd v French:[16]

A solicitor who brings a reasonable degree of skill and knowledge to his task, and exercises reasonable care, in the circumstances, in carrying it out will not be liable per se for an error of judgment; nor will he be liable, necessarily, for a mistake made upon a "nice and difficult point of law". In giving advice or making decisions in the exercise of the retainer, the solicitor does not warrant or guarantee the soundness of the advice or decision but only that the requisite degree of skill and care has been used in arriving at them.

I do not accept George Roiniotis’ suggestion that the delay after 2 April 2012 in selling the Fairfield properties arose because he considered that it was not realistically practical to sell the properties until the defect liability issues with the owners’ corporations, which underpinned the mortgages, were settled and this explanation was not challenged by his cross-examiner. Although it was also a condition of the order terminating the winding up that Dual Homes had to provide a mortgage over Lot 5, Railway Place and Lot 6, Station Street in favour of each Owners Corporation securing any defects liability claim and I accept that the Owners Corporations’ representatives were tenacious opponents, the existence of those mortgages could not have any causative effect in respect of the claimed loss, as there was no impediment to the sales proceeding at an earlier time with the value of the defects liability claim secured against the proceeds of the sale. It provides no explanation in respect of Lot 4 Railway Place, which remained unencumbered. A further indicator of the improbability of this assertion about the effect of the mortgage on Dual Homes’ ability to sell the Railway Place properties, is that Lot 5 (the mortgaged property) sold on 27 July 2013 prior to Lot 4, which sold on 9 May 2014.

I am not persuaded by this explanation and consider, as I have already said, that Peter Roiniotis’ observation to George is the probable motivation for the fact, and timing, of the sale.

For these reasons, I am not persuaded that Dual Homes has established a causative link between the conduct of the defendants and the timing of the sale of the Station Street properties. Further, in relation to each of the Fairfield properties, Dual Homes has not established that it is probable that it has suffered loss by reason of the delay in the sale of these properties and its claim in respect of items 8 and 9 of its particulars of loss is refused.

Remaining loss

Turning to the remaining of the heads of damage set out in the plaintiffs’ Further Particulars of Loss dated 13 August 2015, the scope of the dispute between the parties was much narrower.

The plaintiffs asserted that by an email sent 12 August 2015 at 1.57 pm by the defendants’ solicitors, the defendants did not challenge the quantum of items 2(a), (b), (c), (e), (f), (g), (i) and (l) which total $276,122.94, as opposed to $257,000 said to be admitted in the Joint List of Issues. The plaintiffs submitted the email was an admission of liability for, and the quantum of, those items, which should be allowed on a GST included basis.

The defendants disputed this interpretation of the email noting that the plaintiffs could not be under any misconception that the inclusion of GST was in issue, as reflected in the joint list of issues. I agree. The email when read in context of the joint list of issues which sets out the dispute over the GST cannot be regarded as an admission. In any event, the plaintiffs were not disadvantaged in closing submissions in dealing with the issue of GST on its merits and, for the reasons already given, Dual Homes would be overcompensated if all items of expenditure were awarded on a GST inclusive basis.

Item 2a

I allow Dual Homes the GST-exclusive amount of $190,000 in respect of the liquidator’s remuneration. The balance of $19,000 can be sought from the ATO by set off or refund.

Item 2b and 2c

These items were not disputed and are allowed in the sums of $1,853.23 and $47,054.61 respectively.

Item 2d

The defendants deny liability for this item - insurance cover taken out by Rathner in the sum of $2,858.47 - on the basis that it has not been proved. The Court has no specific evidence as to what this item relates to, but there is sufficient evidence that the liquidator incurred an insurance expense in that sum.

The plaintiffs were dependent upon the liquidator to provide the information requested by the defendants to identify the specific expenditure, but the liquidator did not supply any further information. The plaintiffs relied upon the liquidator’s final financial statements, and in particular the P&L Statement, as business records of Dual Homes. I am satisfied that Dual Homes incurred this expense during the liquidation.

Based on the entry in the liquidator’s financial statements, I allow this item.

Items 2(e), (f), and (g)

These items were not disputed and are allowed in the sums of $90.20, $877.92, and $12,000 respectively.

Item 2(h)

This item relates to other costs paid by the liquidator to the owners’ corporation lawyers in the sum of $6,526.60. The defendants accept the GST-exclusive quantum of this item in the sum of $6,117.10 and accept causation. For the reason set out above, I allow recovery of this item in the sum of $6,117.10.

Item 2(i)

This item is the cost incurred by the liquidator when changing locks on Dual Homes’ properties claimed in the sum of $1,145.98. The defendants accept the quantum of this item but do not accept a liability for it, contending that had Dual Homes provided the keys more promptly to the liquidator, it could have avoided this expense. I have already commented on this matter. In a short period, the liquidator made numerous requests of Dual Homes for it to provide the keys to its properties. At this stage, Dual Homes was still being advised by McKellar. I am not persuaded that this item should be disallowed on the basis that Dual Homes failed to take reasonable care to minimise the expenses of the liquidator. The expense was incurred by the liquidator in the exercise of his responsibilities. Irrespective of any question of whether the liquidator was overzealous in that regard, Dual Homes is entitled to be compensated and I will allow this item.

Item 2(k)

First Valuation Group at the liquidator’s request valued Dual Homes’ properties and charged fees in the sum of $10,997.00. The defendants accept the quantum of this item but do not accept a liability for it, submitting that in comparison to Mr Hendrey’s fees ($5,225.00), the First Valuation Group’s charges appear to be very high.

Valuation of the company’s properties was a legitimate expense for the liquidator to incur, and the sum to be paid for those valuations was a matter between the liquidator and the valuer. It was not a matter where Dual Homes could have influenced the charges made by the First Valuation Group pursuant to the liquidator’s request. These were a proper expense incurred by the liquidator. I allow this item.

Item 2(l)

This is a small charge of $99 for grass slashing at Murradoc Road. The defendants accept the quantum of this item but do not accept a liability for it contending that irrespective of whether Dual Homes was in liquidation, maintenance expenses would have been incurred at Murradoc Road. I do not accept this contention. It is not established these charges would have been incurred regardless. These were a proper expense incurred by the liquidator. I allow this item.

Item 2(m)

The liquidator incurred conveyancing costs on the sale of Murradoc Road in the sum of $4,330.58. The defendants accept the quantum of this item but do not accept a liability for it. Dual Homes had already placed the Murradoc Road property on the market prior to 6 July 2011. Conveyancing costs would have been incurred by Dual Homes in any event upon the sale of the property. Its entitlement is properly limited to the net proceeds of sale. I disallow this item.

Item 3

The liquidator paid legal fees to B2B Lawyers in the sum of $456.50. The defendants accept the GST-exclusive quantum of this item ($415.00), but do not accept that this item is referable to any act or omission on the part of the defendants. George Roiniotis asserted that Dual Homes paid B2B Lawyers’ professional fees but gave no evidence as to the work undertaken by B2B Lawyers or its connection to the liquidation of Dual Homes. The cover letter accompanying the invoice, addressed to George Roiniotis indicated that the invoice is for ‘Corporate Advice’ and related to the period 8 November 2011 to 31 December 2011. The narration shown on the invoice relates to a ‘Conference with Mr G Roiniotis and Mr A De Luca’. The identity of Mr De Luca is a mystery. He does not appear to be a legal practitioner at B2B Lawyers and during that period, Madisons Lawyers represented George and Peter Roiniotis with respect to the termination application. It is unexplained why George Roiniotis would seek further legal advice from B2B Lawyers when he had retained Madisons Lawyers.

I accept the defendants’ submission that the plaintiffs have not proved that the B2B invoice relates to any aspect of the liquidation of Dual Homes. I disallow this item.

Item 4

The defendants accept the GST-exclusive quantum of this item in the sum of $175. The defendants accept that these legal fees paid to Cussen Legal were caused by the liquidation of Dual Homes. I allow this item at $175.

Item 5

The defendants accept the GST-exclusive quantum of this item – fees paid to Kliger Partners of $880. The defendants do not accept that this item relates solely to the liquidation of Dual Homes. They submitted that the narration on the trust statement of account refers to ‘Advice in regard to owners’ corporation and Liquidation Matters’. The lack of information does not entitle the court to speculate as to what the fees relate to. It is not possible for the defendants, or the court, to identify what proportion of these fees relate to the liquidation, and which relate to the owners’ corporation; the latter fees may have been incurred irrespective of the liquidation.

I reject the defendant’s objection to this item, because issues concerning the owners’ corporation were sufficiently connected to issues arising in the liquidation. I allow this item in the GST exclusive amount of $800.

Item 11

The plaintiffs submit that this item represents costs in the sum of $6,738.25 incurred in obtaining a discharge of the mortgage of Unit 5, 36 Railway Place paid to Roy Jaffit Rochman & Co. The defendants accept the GST-exclusive quantum of this item in the sum of $6,135.46. However, the defendants deny liability for that amount, submitting that the tax invoice showed that the costs related not simply to the discharge of the mortgage but included advice with respect to the owners’ corporation’s claims, engaging counsel to advise and perusing advice about those claims. The tax invoice is dated 5 August 2013. By that date, the owners’ corporation had reinstated their VCAT proceeding concerning the Station Street defects claim. The proceeding was not settled until 18 September 2013. I am satisfied that it appears from the face of the bill that the fees incurred extended beyond the costs associated with obtaining a discharge of the mortgage of Lot 5, 36 Railway Place.

The defendants submitted, and I agree, that any liability on the part of the defendants to the costs associated with obtaining a discharge of the mortgage of Lot 5, 36 Railway Place ought be limited by reference to the amount charged by Roy Jaffit, Rochman & Co for the discharge of the mortgage over Lot 6, Station Street; namely, $1,888.02.

I allow this item in the sum of $1,888.02.

Item 12

The plaintiffs’ claim Roy Jaffit Rochman & Co’s costs in obtaining a discharge of the mortgage of Unit 6, 83 Station Street in the sum of $2,058.77. The defendants accept the GST-exclusive quantum of this item in the sum of $1,888.02. The defendants accept causation in regard to this item. I allow this item in the sum of $1,888.02.

Amounts paid by the Roiniotises’

The remaining items are amounts that were paid by George and Peter Roiniotis and were claimed by them. I find as a fact these amounts were paid by George and Peter Roiniotis on behalf of Dual Homes when it was in liquidation and under the control of Mr Rathner. Further, because Dual Homes is not entitled to a tax invoice that would permit it to recover the GST element of these expenses, George and Peter Roiniotis would be under compensated if these expenses are not allowed on an exclusive of GST basis. As discussed above, these payments will be treated as amounts loaned to Dual Homes and credited to George and Peter Roiniotis’ loan accounts.

Item 14

The plaintiffs contended the defendants were liable for Madisons Lawyers’ legal costs with respect to the application to terminate the liquidation in the sum of $132,119.14. The defendants accept this item as to quantum but not causation, submitting that these legal fees would have been incurred in any event if Dual Homes was to have defended the winding up application on the basis of its solvency. Thus, the plaintiffs were not entitled to the entirety of this item.

I reject this contention. The application to terminate the winding up application was caused by the negligence of McKellar. For the reasons I have given, the prospect of defence of the winding up application on the basis of solvency is an irrelevant consideration and McKellar’s negligence prior to the commencement of the winding up application caused the plaintiffs to incur the cost of the application to terminate the winding up.

I allow this item in the sum of $132,119.14.

Item 15

The plaintiffs contended the defendants were liable for Caripis & Co’s accountancy expenses in the sum of $33,207.17. Again, the defendants contended that had Dual Homes opposed a winding up on the basis of its solvency, the fees paid to Caripis & Co would have been incurred in any event, because much the same financial and accounting evidence had to be adduced as was used in support of the later application to terminate the winding up.

For the same reasons as I have stated in respect of item 14, I reject the defendants’ objection to this item. However, part of these fees were incurred in the preparation of annual financial statements, tax returns and other matters, fees that would have been incurred in any event. The tax invoice in evidence from Caripis & Co did not break down the component parts of the accounting, taxation and secretarial services that it provided. Although this basis for assessing the recoverability of the accounting fees was not the subject of submissions, doing the best that I can on the evidence before me, I will discount this item by 50%.

I allow this item in the sum of $16,603.59.

Item 16

The defendants accepted the quantum of Brooke Bird’s fees of $3,865.64, incurred in respect of specialist insolvency advice, but challenged the amount of $1,004.10 set out in an invoice of 11 November 2011 on the basis that the narrative referred simply to ‘consulting fees’. The defendants submitted that it was unclear whether these consulting fees were referable to any act or omission on the part of the defendants. The second page of the invoice details that the fees were incurred for meetings between Brooke Bird and Madisons to review the liquidator’s fees and were directly incurred in connection with the liquidation of Dual Homes.

I reject the defendants’ objection to this item and I allow the item in the sum of $3865.64.

Item 18

The defendants accept liability for the cost of property valuations referred to in Robert Hendrey’s affidavit sworn 4 October 2011 in the sum of $5225, and I allow recovery of this item in that sum.

Conclusions on quantum

In summary, I have assessed the damages claimed by Dual Homes in respect of items 1 – 12 inclusive, in the sum of $277,844.55, and the damages claimed by George and Peter Roiniotis in respect of items 14 – 18 inclusive in the sum of $157,813.37, a combined total of $435,657.92. In addition I allow, against Pilley McKellar, the sum of $2,800.[101] Damages in the nature of interest are also claimed and applying the rate from time to time under the Penalty Interest Rates Act 1983 (Vic) to the assessed damages from the date of issue of the writ, I award a further sum of $146,626.61.[102] Accordingly, the first plaintiff will recover the sum of $585,084.53.
[101]See paragraph [146] above.
[102]The penalty interest rate calculations are as follows:

Proportionate Liability

By its defence, the first defendant (Moores Legal) contended that the plaintiffs claim against it was an apportionable claim pursuant to Part IVAA of the Wrongs Act and that if the first defendant was found to have caused any of the loss and damage claimed then by reason of the matters alleged in the proceeding by the plaintiffs against the second defendant, Pilley McKellar is a concurrent wrongdoer within the meaning of that term in Part IVAA of the Wrongs Act.

Pursuant to s 24AI of the Wrongs Act, Moores Legal’s liability to the plaintiffs is limited to an amount reflecting the proportion of their loss and damage that the court considers just and equitable having regard to the extent of its responsibility, when compared with the responsibilities of Pilley McKellar for that loss and damage.

The same defence is taken, mutatis mutandis, by Pilley McKellar to limit the quantum of the judgment to which the plaintiffs are entitled against it. Neither defendant particularised its proportionate liability defence. Further, the issue of proportionate liability was not explored in any detail at trial and was not the subject of written submissions. The defendants’ counsel maintained that the failure of his client, Moores Legal, to attend the winding up hearing was the sole cause of the plaintiffs’ loss and the issue of apportionment did not arise because his client Pilley McKellar was not a concurrent wrongdoer. It was unclear whether this submission was put by counsel in his capacity as counsel for the first or for the second defendant. It might be thought that, on this question, the interests of counsel’s clients were in conflict.

In any event, given my findings that the causes of the plaintiff’s loss were far more extensive than the failure of Moores Legal to attend the winding up hearing, the submission is irrelevant.

Both defendants, as independent legal practices, are required to hold professional indemnity insurance and were insured by the same insurer. This may explain the fact that although each defendant pleaded a defence of proportionate liability, the defendants were jointly represented and neither adduced evidence or made submissions against the other.

It has been settled since the early decision of Barrett J (as he then was) in Reinhold v NSW Lotteries Corporation (No 2),[103] that although a case will ordinarily be pleaded and proved by one or more defendants so as to engage the statutory provisions, the findings ultimately made at trial determine whether the statutory conditions compelling the court to apportion damages are engaged. In short, ‘claim’ where it appears in s 24AI(1)(b) of the Wrongs Act, refers to a claim as proved and established, not a claim as made or advanced.[104] Here, the defence has been pleaded, and the statutory provisions compel me to apportion damages between the defendants if:
[103] Reinhold v NSW Lotteries Corporation (No 2) (2008) 82 NSWLR 762, 771 [32].
[104]Ibid, 769 [22]. This approach accords with that taken by Middleton J to Part IVAA of the Wrongs Act 1958 (Vic) in Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (2007) 164 FCR 450 at [31], and the decision of Bryson AJ in Chandra v Perpetual Trustees Victoria Ltd (2007) ANZ ConvR 481 at [110-111]. See also the obiter dicta of the Victorian Court of Appeal in Godfrey Spowers (Vic) Pty Ltd v Lincolne Scott Australia Pty Ltd (2008) 21 VR 84.

(a) the plaintiffs’ claim against the each defendant is an apportionable claim;

(b) that in relation to that claim each defendant is a concurrent wrongdoer; and

(c) the court can identify the material facts by reference to which it is to assess the extent of each defendant’s responsibility for the plaintiff’s damage, which can include regard to the comparative responsibility of the other defendant for the plaintiff’s damage.

Each of these conditions is satisfied in this proceeding.

This proceeding involves an apportionable claim. Section 24AF(1)(a) provides that Pt IVAA applies to:

a claim for economic loss or damage to property in an action for damages (whether in tort, in contract, under statute or otherwise) arising from a failure to take reasonable care,

and the plaintiffs’ claim, as determined by the court, was a claim for economic loss in an action for damages arising from the failure to take reasonable care.

The defendants are concurrent wrongdoers. Section 24AH of the Wrongs Act, defines a ‘concurrent wrongdoer’ as a person who is one of 2 or more persons whose acts or omissions caused, independently of each other or jointly, the loss or damage that is the subject of the claim.

Whether a defendant is a concurrent wrongdoer is assessed by reference to the particular claims against that defendant. A finding that a defendant is a concurrent wrongdoer must necessarily involve analysis of responsibility for causing the plaintiff’s damage in respect of each apportionable claim. The analysis of comparative responsibility between concurrent wrongdoers undertaken under s 24AI when determining the just apportionment requires a broad discretionary evaluation of the conduct of the wrongdoers in terms of both causation and culpability.[105]
[105]As explained in Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529 and Alcoa Portland Aluminium Pty Ltd v Husson & Anor (2007) 18 VR 112, 136 [86]. In NSW, see Mitchell Morgan Nominees Pty Ltd v Vella [2011] NSWCA 390, 33 [83] (Giles JA); and, on appeal, Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613, 638 [58] (French CJ, Hayne and Kiefel JJ).

I have determined that each defendant owed the first plaintiff a duty of care.[106] I have also determined that McKellar breached his duty of care to the first plaintiffs during the period from shortly after 13 April 2011 when CSD2 was served until 19 May 2011. During that period McKellar was a partner of Pilley McKellar until 30 April 2011 and an employee of Moores Legal from 1 May 2011. The acts and omissions of McKellar on which my finding of breach of duty is based span the transition in his employment from the first defendant to the second defendant. On the basis of my earlier findings, the plaintiffs’ loss and damage was caused by McKellar’s conduct through the whole period, and I find that each of Pilley McKellar and Moores Legal are concurrent wrongdoers.
[106]Or a duty to each of the plaintiffs if that be necessary.

These findings require me to limit the amount of the judgment to be entered against each defendant. Section 24AI(1) of the Wrongs Act provides:

(1) In any proceeding involving an apportionable claim—
(a)the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the loss or damage claimed that the court considers just having regard to the extent of the defendant's responsibility for the loss or damage; and
(b)judgment must not be given against the defendant for more than that amount in relation to that claim.

In Goddard Elliot v Fritsch,[107] Bell J reviewed the cases that establish the principles applicable in this court for the assessment of comparative responsibility under s 24AI(1).[108] I agree with his Honour’s analysis. The starting point is the oft-cited passage of Gibbs CJ, Mason, Wilson, Brennan and Deane JJ in Podrebersek v Australian Iron & Steel Pty Ltd, in the context of contribution:[109]

The making of an apportionment as between a plaintiff and a defendant of their respective shares in the responsibility for the damage involves a comparison both of culpability, i.e. of the degree of departure from the standard of care of the reasonable man … and of the relative importance of the acts of the parties in causing the damage … It is the whole conduct of each negligent party in relation to the circumstances of the accident which must be subjected to comparative examination. The significance of the various elements involved in such an examination will vary from case to case; for example, the circumstances of some cases may be such that a comparison of the relative importance of the acts of the parties in causing the damage will be of little, if any, importance.

[107][2012] VSC 87, 285-286 [1115].

[108]Moore v Scolaro’s Concrete Constructions Pty Ltd [2004] VSCA 152 [8]-[9] (Callaway JA, Buchanan JA and Dodds-Streeton AJA agreeing); Kingswood Golf Club Ltd v Smith [2005] VSCA 224, [25] (Callaway JA, Maxwell P agreeing), [51] (Ashley JA); Alcoa Portland Aluminium Pty Ltd v Husson (2007) 18 VR 112, 136 [86] (Chernov JA, Neave JA agreeing); Metzke and Allen v Sali [2010] VSCA 267, [64] (Warren CJ, Neave JA and Beach AJA).

[109](1985) 59 ALR 529, 532-533 (citations omitted).

What is required of the court is a broad consideration of both the culpability of the departure from the standard of reasonable care and the relative importance of the acts of the parties which caused the damage. The concept of culpability which is applied is not ‘moral blameworthiness but [the] degree of departure from the standard of care of the reasonable man’,[110] while the relative importance of the conduct of the wrongdoers invokes an assessment of causal potency. These considerations may overlap.
[110]Pennington v Norris (1956) 96 CLR 10, 16 (Dixon CJ, Webb, Fullagar and Kitto JJ); Kakouris v Gibbs Burge & Co Pty Ltd [1970] VR 502, 512 (Winneke CJ, Pape and Adam JJ); Broadhurst v Millman [1976] VR 208, 219 (Gowans and Menhennitt JJ, Dunn J agreeing).

The High Court in Podrebersek referred to Smith v McIntyre.[111] In that case, Burbury CJ, Gibson and Crisp JJ identified considerations that might influence a finding of apportionment, including who created the hazard which ultimately caused the injury, the age, role and position of the person causing the damage and failing to take an obvious and available last opportunity to avoid the damage. The court emphasised the need for a broad discretionary assessment of all the circumstances:

We think the true view is that there is no dichotomy between culpability and causation. A comparison of degrees of fault between two negligent actors requires an examination of the whole conduct of each in relation to the circumstances of the accident. The degree of departure from the standard of the reasonable man on the part of either should not be assessed without considering the extent to which that departure was a contributing cause of the accident. A variety of factors may enter into a judicial determination as to which party has the greater share in the responsibility for the accident. There is no single touchstone of responsibility.

[111][1958] Tas SR 36.

In this case, the degree by which McKellar’s conduct departed from the applicable standard of care grew as the need to address the CSD2 became more urgent. Before 30 April 2011, when Pilley McKellar was the responsible defendant, McKellar departed from the expected standard of care by failing to advise Dual Homes to settle or address the debt claimed by CSD2. Pilley McKellar informed LMS lawyers of their instructions to set aside the CSD2, and although the basis for that application was unclear, on 30 April 2011 there was a dialogue open between the parties and the deadline for CSD2 was yet to expire. However, Dual Homes was proceeding on a misunderstanding, caused by McKellar’s negligent advice, that it had a good off-setting claim and CSD2 would be set aside. This misunderstanding was the source of risk, the hazard, that Dual Homes faced as the deadline for compliance with CSD2 approached.

After 1 May 2011, when Moores Legal was the defendant responsible for McKellar’s conduct, McKellar failed to address the increasing urgency of the imminent expiry of CSD2, and he failed to commence the proceeding to set aside CSD2. When he then failed to take the opportunity extended by LMS Lawyers in its letter of 2 May 2011 to quantify the bill of costs, an obvious and available last opportunity to avoid the damage was missed. Further, that missed opportunity for a negotiation following on the bill of costs for taxation was the last chance to avoid the consequences of the presumption of insolvency that McKellar had permitted to accrue for the benefit of the creditor. In my assessment, McKellar’s breach of duty in the period from 1 to 4 May in particular, and in the period from 5 to 19 May when he failed to act as instructed to protect his client’s interests was both more culpable, and of greater causal potency, then his earlier breach of duty in giving advice to Dual Homes.

Bearing all these matters in mind, I consider it just and equitable that the damages recoverable by the respondent be paid in one third by Pilley McKellar, and two thirds by Moores Legal.

---

19/12/2012 to 06/10/2013 = $36,729.84 (292 days @ $125.79 per day @ 10.500% p.a.)
07/10/2013 to 02/02/2014 = $14,294.93 (119 days @ $120.13 per day @ 10.000% p.a.)
03/02/2014 to 10/08/2014 = $26,109.27 (189 days @ $138.14 per day @ 11.500% p.a.)
11/08/2014 to 31/05/2015 = $37,082.73 (294 days @ $126.13 per day @ 10.500% p.a.)
01/06/2015 to 10/03/2016 = $32,409.85 (284 days @ $114.12 per day @ 9.500% p.a.)

[2016] VSC 86

10 MARCH 2016 (revised 24 March 2016)