Howlett v Dobson Mitchell & Allport

[2008] TASSC 65

[2008] TASSC 65

CITATION:            Howlett v Dobson Mitchell & Allport [2008] TASSC 65

PARTIES:  HOWLETT, Colin Horace and
  HOWLETT, Roslyn Gladys
  trading as C H & R G HOWLETT
  v
  DOBSON MITCHELL & ALLPORT (A FIRM)

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  ORIGINAL
FILE NO/S:  465/04
DELIVERED ON:  7  November 2008
DELIVERED AT:  Hobart
HEARING DATE:  29 October 2008
JUDGMENT OF:  Holt AsJ

CATCHWORDS:

Procedure – Supreme Court procedure – Tasmania – Practice under Rules of Court – Amendments – Statement of claim – Pleadings obviously bad in law.

Aust Dig Procedure [276]

REPRESENTATION:

Counsel:
           Plaintiffs:  D F Zeeman              
           Defendants:  D J Gunson SC  
Solicitors:
           Plaintiffs:  Butler McIntyre & Butler              
           Defendants:  Gunson Williams

Judgment Number:  [2008] TASSC 65
Number of paragraphs:  18

Serial No 65/2008
File No 465/2004

HOWLETT & ANOR v DOBSON MITCHELL & ALLPORT

REASONS FOR JUDGMENT  HOLT AsJ
  7 November 2008

1. Mr & Mrs Howlett have sued their former solicitors claiming damages for breach of contract and negligence.  They have applied for leave to amend their statement of claim. 

1. Omitting unnecessary matters of detail the background is as follows. 

h      The Howletts were the operators of an earthmoving business.  They say that in 1987 they were engaged to carry out some subdivision work for Mr Donald Hurburgh and that their accounts were not fully paid.  The contract provided that interest would be payable on outstanding accounts at 18 percent per annum compounded at six monthly intervals.  On 8 September 1987 the Howletts issued a writ against Mr Hurburgh claiming payment of about $40,000 alleged to be due under the contract.  There was no claim for interest at the contract rate.  The action remained unresolved and in May 1990 the Howletts retained solicitors Dobson Mitchell & Allport to act for them in the matter.  DMA continued to act until May 1998, when the Howletts engaged new solicitors.  It is alleged that in breach of the terms of their retainer and negligently DMA failed to apply to amend the statement of claim to include a claim for interest at 18 percent per annum. 

hAn attempt to amend to add the interest claim was made by the Howletts new solicitors in 2002.  See Howlett v Hurburgh [2002] TASSC 42. The attempt was unsuccessful because the statutory time limit for bringing the claim had passed. Crawford J (as he then was) said at pars11 – 14:

"11 … the claim for interest the plaintiffs now wish to raise is based on a new cause of action in a technical sense, as that expression was originally used by Susan Campbell in her article Amendments and Limitations: The Rule in Weldon v Neal (1980) 54 ALJ 643 at 645, which is that of a new cause of action involving a change in the legal categorisation of a plaintiff's claim. The term has been adopted in a number of cases and was referred to by the members of the Full Court in Ritchie & Parker Alfred Green & Co v Gornalle [2000] TASSC 8. The Chief Justice, in par3, said that an amendment will normally be refused if it introduces a new cause of action in a technical sense, and the limitation period has expired. By the Limitation Act 1974, s4(5) it is provided that an action shall not be brought to recover arrears of interest in respect of any sum of money after the expiration of six years after they became due.

12 … I hold, …, that by the amendment the plaintiffs seek to raise a new cause of action.

13 It is therefore unnecessary to consider the exercise of the discretion to allow the amendment. …

14  The application will be dismissed."

hThe rule in Weldon v Neal was abolished by amendment to the Supreme Court Rules in 2003.  A new attempt to secure the amendment was made in 2004, but the Howletts failed to obtain a favourable exercise of the Court’s discretion. 

hThe Howletts claim against Mr Hurburgh was then settled, but according to the Howletts for much less than would have been recovered if interest at the contract rate had been included in the claim. 

hThe Howletts did not issue their writ against DMA until September 2004, being more than six years after DMA had ceased to act for them. The Limitation Act 1974 provides in s4(1) that actions founded on contract or tort shall not be brought after the expiration of six years from the date on which the cause of action accrued. A defence has been filed claiming the protection of the time bar.

1. In April this year the Howletts again changed solicitors.  In an attempt to get around the limitation problem the new solicitors have brought this application for leave to amend the statement of claim. 

1. The proposed amendments  are designed to introduce:

ha contention that a cause of action in negligence did not accrue until 2002 or 2004 because loss resulting from the failure to claim interest did not occur until the Court rejected the amendment applications in 2002 and 2004. 

ha claim for equitable compensation for breach of fiduciary duty (the Limitation Act does not apply to purely equitable claims).

1. In support of the contention that loss or damage was not suffered until 2002 or 2004, counsel for the Howletts relied solely upon the decision of the High Court in Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514. There the State of Western Australia had, in October 1987, granted an indemnity in respect of some financial accommodation granted by a bank to a company. The grant of the indemnity was based on a misrepresentation allegedly made by Wardley. The indemnity was later called in. The State sued Wardley under the Trade Practices Act.  A three year time limit applied.  More than three years after the indemnity was granted an amendment to the statement of claim, introducing a new allegation of misrepresentation, was disallowed in the Federal Court by French J.  He regarded the amendment as being out of time because in his view loss was suffered as soon as the indemnity was given.  His Honour held that risk of loss is itself a loss.  The High Court disagreed.  At 527 Mason CJ, Dawson J, Gaudron J and McHugh J said:

“When a plaintiff is induced by a misrepresentation to enter into an agreement which is, or proves to be, to his or her disadvantage, the plaintiff sustains a detriment in a general sense on entry into the agreement. That is because the agreement subjects the plaintiff to obligations and liabilities which exceed the value or worth of the rights and benefits which it confers upon the plaintiff. But, as will appear shortly, detriment in this general sense has not universally been equated with the legal concept of "loss or damage". And that is just as well. In many instances the disadvantageous character or effect of the agreement cannot be ascertained until some future date when its impact upon events as they unfold becomes known or apparent and, by then, the relevant limitation period may have expired. To compel a plaintiff to institute proceedings before the existence of his or her loss is ascertained or ascertainable would be unjust. Moreover, it would increase the possibility that the courts would be forced to estimate damages on the basis of likelihood or probability instead of assessing damages by reference to established events. In such a situation, there would be an ever-present risk of undercompensation or overcompensation, the risk of the former being the greater.”

1. The present case is plainly distinguishable.  The decision in Wardley is concerned solely with the situation where as a result of actionable misrepresentation the plaintiff enters into a contract which exposes him or her to a contingent loss or liability.  In Wardley it might have been that the indemnity was never called upon and so there may never have been any economic loss.  Here, the Howletts suffered actual and measurable (rather than merely prospective or contingent) economic loss as soon as the effluxion of time removed the chance of bringing a successful claim to recover interest which was more than six years in arrears. 

1. There is no merit in the contention that the Howletts had not accrued a cause of action in negligence against DMA until the rejection of the amendment applications in 2002 and 2004.  The proposed amendments designed to support such a contention are futile because they are obviously bad in law and accordingly will not be allowed.

1. I now turn to the proposed claim for equitable compensation for breach of fiduciary duty. 

1. It is alleged that in August 1987 the Howletts became entitled to interest on the contract debt owed to them by Mr Hurburgh.           Because of the Limitation Act, s4(5) (but subject to some exceptions in the case of mortgages and charges specified in s23(7)) interest more than six years in arrears at the time the action is commenced is irrecoverable. (It is to be noted that s4(5) differs from the general rule that interest being only accessory to the principal cannot be recovered once the action for the principal is barred. Elder v Northcott (1930) 2 Ch 422.) From August 1993 the Howletts started to progressively lose their ability to recover interest. DMA acted for them until 1998 and made no claim for interest. DMA had an interest in not being sued by the Howletts for their failure. DMA also had a duty to advance the Howletts interests. DMA neither resigned as the Howletts solicitors nor referred them for independent legal advice.

1. Counsel for DMA submitted that a claim for equitable compensation for breach of fiduciary duty cannot be brought after a claim in contract or tort for damages, based on substantially the same facts,  has become statute barred. 

1. He referred to Tusyn v State of Tasmania [2004] TASSC 50. That case concerned an attempt by the victim of sexual assaults whilst a ward of the State to claim that the State owed a fiduciary duty to protect him from such assaults. It was held that no such fiduciary duty should be recognised with the cases to the effect that fiduciary duties will not be found to exist merely to avoid limitation periods or fill gaps where common law actions would fail for good reason followed. With respect to counsel, the decision has no bearing on the present case.

1. The Limitation Act, s9, is as follows:

"Claims in equity

This Division does not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by analogy in like manner as the corresponding enactment repealed by, or ceasing to have effect in this State by virtue of, this Act has heretofore been applied."

1. The circumstances in which courts of equity have acted by analogy were explained by Lord Westbury in Knox v Gye (1872) LR 5 HL 656 where he said at 674:

"Where the remedy in Equity is correspondent to the remedy at Law, and the latter is subject to a limit in point of time by the Statute of Limitations, a Court of Equity acts by analogy to the statute, and imposes on the remedy it affords the same limitation … Where a Court of Equity frames its remedy upon the basis of the Common Law, and supplements the Common Law by extending the remedy to parties who cannot have an action at Common Law, there the Court of Equity acts in analogy to the statute;  that is, it adopts the statute as the rule of procedure regulating the remedy it affords." 

1. Counsel for DMA did not refer to any case where a limitation period has been applied by analogy to a claim for equitable compensation for breach by a solicitor of fiduciary duty and I am aware of no such case.  Accordingly, I would not refuse leave to add the claim for breach of fiduciary duty because of the assertion that it is time barred.

1. Counsel also submitted that an element essential to disclose a cause of action has been omitted from the plea.  In particular, that someone at DMA knew that the Howletts had a potential claim against the legal firm and concealed it.  Reference was made to Honeychurch Management Pty Ltd v Deloitte Touche Tohmatsu [2005] TASSC 13. There Blow J said, in the context of a claim for breach of fiduciary duty, at par78:

"In order for the claim for equitable compensation to succeed, it would be necessary to establish conduct that was engaged in with the intention of furthering the interests of another client to the prejudice of the interests of the plaintiff."

1. Counsel for the Howletts submitted that par41 of the proposed statement of claim sufficiently pleads  intent.  I disagree, it is argumentative and lacks the specificity required of pleadings by the rules.  Par41 is as follows:

"DMA must have known or cannot not have known of the existence of the fiduciary duty, the causes of action against DMA, the conflict of interest between DMA and the Plaintiffs and the fiduciary breaches."

1. If par41 is repleaded to contain only explicit allegations of fact and not argument, there would appear to be no reason why leave should not be granted to amend to introduce the claim for equitable compensation for breach of fiduciary duty.  I refer to the inclusion of an allegation (if counsel is satisfied that there is a sufficient basis for it) that someone at DMA was conscious that a time limit had been allowed to pass by and concealed that fact from the Howletts.

1. The proposed pleading will not be permitted in its present form.  I will defer making any orders until after counsel has had an opportunity to apply to amend the application to bring the proposed statement of claim into conformity with these reasons.