Knox & Hargrave v Fullston - [2009] SADC 4

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
KNOX & HARGRAVE & ANOR v FULLSTON
[2009] SADC 4
Judgment of His Honour Judge Barrett
24 July 2008
PROFESSIONS AND TRADES - LAWYERS - SOLICITOR AND CLIENT - RETAINER
Solicitors reviewed securities provided by client pursuant to retainer and determined they were insufficient to proceed to act without payment for work already done. Whether solicitors entitled to cease to act. Held: review bona fide and reasonable, solicitors entitled to cease acting.

TORTS - NEGLIGENCE - ESSENTIALS OF ACTION FOR NEGLIGENCE
Solicitor did not advise client to plead insolvency of business in partnership dispute. Instructions did not suggest business insolvent but the one valuer suggested it was. Held: solicitor not negligent in the circumstances.

PROFESSIONS AND TRADES - LAWYERS - RIGHTS AND PRIVILEGES
Solicitor did not advise client to plead insolvency in partnership dispute. Whether solicitor immune from suit because advice or absence of advice on pleadings is intimately connected with conduct in the trial. Held: immunity applied.
D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12, considered.

PROCEDURE - JUDGMENTS AND ORDERS
Solicitor did not advise client to plead insolvency in partnership dispute. Client unrepresented at trial. Settled case during trial. Whether consent judgment is final and immune from collateral attack seeking to recover damages for alleged negligence of solicitor. Held: consent judgment is immune from collateral attack.
Simington v Australian Prudential Regulation authority [2006] FRAFC 118; Cirillo v Consolidated Press property Pty Ltd [2007] FCA 60; Giannarelli v Wraith (1988) 165 CLR 543; Keefe v Marks (1989) 16 NSWLR 713; Donnellan v Watson (1990) 21 NSWLR 335, considered.

KNOX & HARGRAVE & ANOR v FULLSTON
[2009] SADC 4
Introduction

The plaintiffs seek to recover their legal fees from the defendant. They had a written retainer from him. The first plaintiff acted for the defendant in three matters for approximately 14 months from June 2000 to 31 August 2001. On 31 August 2001 the first plaintiff merged practice with the legal firm of Cosoff Cudmore and Partners to become the firm comprising the second plaintiff. The second plaintiff acted for the defendant in the same three matters and, later, a fourth matter, for approximately 2 and a half months from 1 September to December 2001. In December 2001 they ceased acting for him because they were no longer satisfied with the securities he had provided against legal fees. Except for some work early on in their relationship, the first plaintiff had not been paid by the defendant for their fees as they were incurred. Pursuant to their retainer they acted for him without requiring payment so long as they regarded securities he had put up as adequate. The second plaintiff acted pursuant to the same retainer. Altogether the two plaintiffs claim fees, disbursements and interest, to 12 January 2005, amounting to $158,016.81. It is the agreed position of the plaintiffs and the defendant that by a process of novation the second plaintiff assumed the obligations and benefits of the first plaintiff upon the merger.
The defendant disputes liability principally on the basis that the plaintiffs breached their retainer by wrongly ceasing to act. They were not, in the circumstances, entitled to cease to act for the reason given by them, namely that the securities put up by the defendant were inadequate. The defendant asserts that the securities were adequate and that the plaintiffs did not make a bona fide assessment of the securities when they ceased to act. There are several questions raised under that broad heading but that is the first issue in the trial: Were the plaintiffs entitled to cease acting?
The defendant says further that, even if the plaintiffs were entitled to cease acting for him, and to sue for their fees, he is entitled to a set-off against any amounts he may be liable to pay. He says the plaintiffs were negligent, principally in the matter of pleadings in the partnership dispute. That is the second issue in the trial. Is the defendant entitled to a set-off?
There are several questions arising out of each of these two issues and I will deal with them as they seem most conveniently to arise. During the course of the hearing it was agreed that questions of quantum of loss should be deferred until liability had been determined.
Background to the first issue
The defendant is a potato grower and processor with property in the Adelaide Hills at Mount Barker and at Charleston, and in the south-east of the state. He planned, (and still plans) to sub-divide part of his land at Charleston into building allotments. Until 1996 he had worked in partnership with his de facto wife, Joycelyn (Joy) Fennell. She died in November 1996. Over the years he had been involved in a variety of litigation but following her death he was involved in several disputes which are the subject of these proceedings. He consulted the first plaintiff about three of them. The first was a dispute with Ms Fennell’s two daughters about the partnership assets (the partnership dispute). He was also in dispute with the daughters over his interest in the house in which he had lived with Ms Fennell. She had left the house to him in her will but her daughters were making testamentary claims for a greater share in her assets, including that house property. That dispute was tied up, to an extent, with the partnership dispute. The Testamentary dispute has relevance in this trial only insofar as it made the defendant’s interest in the house contingent upon the daughters’ claims to the house. He offered the house as a security.
Messrs Johnston Withers solicitors had been representing the defendant in the partnership dispute. They had ceased to act for him and he was in dispute with them about their fees (the Johnston Withers claim). This was the second dispute he wanted the first plaintiff to take over from Messrs Von Doussas whom he had consulted about this matter.
The defendant was content to have Von Doussas continue acting for him in another legal dispute. He was suing an individual for damages for personal injury resulting from an alleged assault (the personal injuries claim). Von Doussas continued to act for him in that matter. This litigation only assumes relevance in this action as being a possible source of funds for the defendant in the prosecution of his litigation.
The third matter in which the first plaintiff was asked to act for the defendant was the Aclaw matter. The defendant had been in dispute with a potato farmer. Mr Schroeder, of the first plaintiff, represented him in a Supreme Court appeal in which the defendant had been successful. Costs had not been finalised by the time of the merger of the two firms on 31 August 2001. The question of costs had to be resolved as quickly as possible because Messrs Cosoff Cudmore and Partners, with whom the first plaintiff was proposing to merge, had acted for the other side in that matter.
The fourth and final matter on which the defendant sought representation by the second plaintiff was a dispute he had with another legal practitioner, Mr Bennett. Mr Bennett was claiming fees from the defendant when the defendant first sought advice from the first plaintiff, but he had not yet taken proceedings. He did not take proceedings to recover his legal fees until after the merger of the two legal firms. The defendant did not think that Mr Bennett would sue for his fees as there was said to be some error in the way he had handled the matter. In fact, Mr Bennett did later sue for his fees and the second plaintiff acted for the defendant in the matter.
The defendant first consulted Mr Schroeder of the first plaintiff in June 2000. The partnership dispute was underway and Johnston Withers had sued for their fees. The Aclaw matter was still not finalised.
Mr Schroeder and the defendant met and discussed the defendant’s various cases. On the account given by him, Mr Schroeder felt that there was prima facie merit in his actions, and he was keen to help him prosecute or defend them. The defendant said he had no money to pay his legal fees as they were incurred, but he persuaded Mr Schroeder that he could offer sufficient security for his legal costs. There was money tied up in an account which, with the permission of the court, he could access (the Swincer money). He had inherited a house from Ms Fennell. He had a factory and rural land at Mount Barker he could sell. He had a personal injury (assault) claim which might realise $200,000 to $300,000. Most promising of all was the proposed subdivision of the land at Charleston. Although the defendant needed cash to advance the subdivision, the project could soon be underway and it would realise a profit in excess of $1,000,000. Each of these proffered securities was contingent, but overall, after some consideration of the matter, they appeared to Mr Schroeder, and his partners, to be sufficient to undertake to act for the defendant in three of his then current cases, ie the partnership dispute, the Johnston Withers claim and the Aclaw matter. The personal injuries claim would remain with Von Doussas and the dispute with the solicitor, Mr Bennett, had not yet become litigious. Both plaintiffs sue for their fees in the three matters above, which were begun by the first plaintiff. In addition, the second plaintiff sues for its attendances in relation to the Bennett matter.
By letter dated 26 June 2000 (TB Volume 2 page 2106-2108) the first plaintiff set out the terms of the retainer pursuant to which it was willing to act for the defendant. The defendant signed the last page of the letter on 27 June. It is convenient to recite the retainer in full.
Knox & Hargrave
Lawyers
Our Ref: B35:RRS:AS:
26 June 2000
Mr Peter Fullston
7 Cedar Grove
Mount Barker South Australia 5251
Dear Peter
Various Litigation Matters
We confirm you propose to instruct us to act for you in relation to various litigation matters and that we are pleased to act for you upon the following terms:
1.Our charges are based on the usual hourly charges for each solicitor engaged upon your matter. The solicitor who currently has conduct of your matter is Rick Schroeder who will be assisted by Danny Damin. The hourly rate for those solicitors is presently $220.00 plus 10% GST.
2.Others (solicitors and/or legal staff) may work on your matters from time to time as we consider necessary, appropriate and efficient having regard to the nature and extent of the tasks at hand and their urgency. The usual rates for other solicitors who may be engaged upon your matter are available upon request. The rate will depend upon whether the solicitor is a partner, associate or employed solicitor.
3.All charges are calculated as one-tenth of the hourly rate for each six-minute time unit or part thereof.
4.Photocopies are charged at 50¢ plus 10% GST per page and facsimiles sent at $1.00 plus 10% GST per page. Disbursements are charged at cost. You must reimburse us for any GST paid by us for disbursements incurred on your matters.
5.The charges in paragraphs 1 and 4 are fixed until 30 June 2001. These charges will be reviewed then and on 1^st July each year thereafter, and may be increased approximately in line with inflation. Upon request, you will be advised of increased rates.
6.Subject to paragraph 11 of this letter, we will render interim accounts to you at intervals determined by us. We will normally render accounts at approximately monthly intervals. Provided that you have given security for those costs, and that we are satisfied as to the extent of the security, we will not required immediate payment.
7.Interest will be payable by you on all amounts outstanding at the rate of 10% per annum. That rate shall be adjusted from time to time in line with the variations in the indicator lending rate of Australia and New Zealand Banking Group Limited.
8.You have agreed to give us security. This letter, once signed by you, is the agreement for the provision of legal services referred to in that security. At your meeting with Mr Damin on 16 June 2000 you were provided with a copy of the security to be taken, being a mortgage over your interest in the factory at Mount Barker and the land at Charleston. You were advised to seek independent legal advice as to the contents and effect of that security and you took a copy of the documentation with you. You are also advised to seek independent legal advice as to the contents and effect of the agreement contained in this letter.
9.If funds become available to you from any source, then you agree to immediately apply those funds to payment of our outstanding invoices. Should we receive any moneys from you or on your behalf or hold any moneys in trust, you agree that we are at liberty to apply that money in payment of our outstanding invoices.
10.We will continue to act for you provided that we consider the security given by you is adequate for outstanding charges and disbursements. If this is not the case, we may cease to act for you.
11.Rather than sending you an account, we may send you a summary of charges. If you wish to dispute such charges you should notify us within 14 days. If you accept the charges, you should sign the summary and return it to us. If you do nothing, it will be deemed that you agree with the charges.
12.The interest referred to above accrues on all charges listed in a summary sent to you from the date of the summary.
13.Our basis for charging is different to, and higher than, the scale of costs set by various Courts. In litigation matters, it is possible that you may obtain an order that another party pay your costs. If so, such order will generally enable you to recover costs only on the applicable Court scale and only for work which is essential for the litigation and not just desirable for it. You will therefore not recover your costs in full from the other party.
14.You are obliged to pay our charges regardless of the outcome of any litigation.
15.Where there is more than one client, liability for our charges is joint and several.
16.We undertake to use reasonable care in giving advice and taking any action on your behalf, and you undertake to use reasonable care in acting upon our advice and protecting your own interests.
17.This agreement shall also apply to all future matters in which you instruct us to act, unless otherwise agreed.
18.We will not consciously become involved in a conflict of interest of a legal nature but if this should occur, we may terminate the engagement in your matter, the other matter or both.
19.It is a term of this agreement that you will reply to correspondence, return phone calls, respond reasonably to requests for instructions and otherwise comply with the other terms of this agreement. If you do not work with us in these ways then we may terminate this agreement. In such circumstances, you agree that you will file a notice of acting in person in any current court proceedings in which we have been acting for you.
When you have carefully read this letter, please sign the enclosed duplicate and return it to us. I reiterate that you are free to obtain independent advice upon this letter if you wish. Please keep the original letter as your record of these terms of engagement.
Yours faithfully,
(Signed)
Rick Schroeder
Partner
[Contact details excluded]
Enclosure:
Duplicate letter
I hereby instruct Knox & Hargrave to act for me and agree to the above Terms of Engagement.
DATED the 27.6.00 (inserted) day of 2000
(signed)
Peter Michael Fullston
The first plaintiff proceeded to act for the defendant in his three matters. For present purposes I will pass over important historical matters which will have to be revisited. I do so in order to direct attention to what I see as the first issue in the case to require resolution.
Mr Schroeder had been working on the expectation that when the defendant obtained access to the Swincer monies he would thereafter be able to pay his legal fees as they were incurred (T106). This turned out not to happen. On the disbursal of the Swincer monies in March 2001 the defendant received just over $180,000 (TB Volume 2 page 3,359). From that sum he paid just under $60,000 to the first plaintiff for invoices for legal work done on the three cases from June 2000 up to that time. The defendant spent the rest of the money. None of the rest of the money was put into the first plaintiff’s trust account to cover ongoing work. The retainer did not require the defendant to do that. Mr Schroeder did not ask him to deposit any monies into their trust account for anticipated fees.
Between March 2001 and the merger of the firm on 31 August 2001 Mr Schroeder had discussions with the defendant about realising assets or providing security for anticipated costs. The defendant said on 20 March that the factory at Mount Barker was about to be sold for $250,000. The sale fell through. The subdivision project at Charleston had not begun. Substantial legal work had to be done on the partnership dispute. Discussions with Mr Bennett revealed to Mr Schroeder that, while Mr Bennett was prepared to reduce his claim for outstanding fees by a small amount, he was still seeking from the defendant approximately $45,000. Mr Schroeder had not previously realised that the defendant’s exposure on that front was so substantial. He advised the defendant to settle the Johnston Withers claim even if on unfavourable terms so as to reduce his exposure there but the defendant did not accept that advice. The Aclaw matter was nearing resolution but any costs awarded in the defendant’s favour would go to Johnston Withers and the barristers they had briefed on his behalf.
I will defer detailing the state of the securities and discussions as to their sufficiency. Mr Schroeder’s position at the time of the merger was that the securities were looking less secure in light of the progress of the litigation. He was having ongoing discussions with the defendant about possibilities of reducing exposure in litigation, realising assets and increasing the firm’s security. He was pinning his hopes on the defendant’s assurances about the prospective income from the subdivision sales. Mr Schroeder became a partner in the amalgamated firm. There was agreement between the partners of both firms that there would be a review of all files where there were special arrangements in place for fee deferral. An incoming partner from Cosoff Cudmore and Partners, Mr Tony Hurren, was the partner conducting the review of the defendant’s file. I think it is a fair assessment of the evidence on this topic that Mr Hurren was more sceptical of the adequacy of the securities and the defendant’s assurances than was Mr Schroeder. Mr Schroeder said that he had a good working relationship with the defendant and was confident that he would pay his bills as soon as he was able to (T315).
By letter dated 24 September 2001 (TB Volume 2 pages 4101-4102), Mr Schroeder wrote to the defendant a letter which was in fact drafted by Mr Hurren. In its terms the letter appeared to suggest that the solicitor/client relationship between the first plaintiff and the defendant had ceased and a new solicitor/client relationship with the second plaintiff would have to be entered into. In the meantime the second plaintiff would only act on an interim basis. Two relevant paragraphs of the letter read as follows:
The first reads:
CCK is a different entity to Knox & Hargrave. The new partners would be delighted for you to instruct CCK in relation to your matters but, given the somewhat unusual circumstances which exist, they first wish to become better acquainted with;
1. The litigation in the Supreme and the District Courts;
and
2.Your own financial circumstances and the nature of the security taken by Knox & Hargrave
and may wish to see some variation to the current arrangements before CCK commences acting for you.
The second reads:
CCK is happy to act for you on an interim basis in relation to [the three matters] pending our meeting, and pending our agreement as to the terms (particularly as to security) on which CCK would be prepared to act for you.

The defendant met with Mr Schroeder and Mr Hurren on 27 September to discuss the matters raised in the letter.
At the meeting Mr Hurren questioned the defendant about increasing the firm’s security. It seems he did so on the premise that the amalgamated firm was not bound by the first plaintiff’s retainer and that the new firm would continue to act only on an interim basis. The question of the adequacy of the securities was not resolved at that meeting. In the six weeks or so after that meeting there was ongoing discussion between Mr Schroeder and the defendant about the securities but Mr Schroeder continued to work on the defendant’s matters. By letter of 8 November 2001 Mr Hurren articulated the terms on which the amalgamated firm would continue to act for the defendant. The letter did not in its terms suggest that what the second plaintiff was doing was reviewing the adequacy of the securities pursuant to clause 10 the first plaintiff’s retainer. The letter required the defendant to confirm by 14 November that he agreed with the financial terms of engagement put forward in an enclosed separate letter of the same date. In combination the letters tended to reinforce the view that the second plaintiff was seeking to negotiate new terms of engagement rather than undertaking a review of the adequacy of the assets contemplated by the first plaintiff’s retainer. Mr Hurren’s letter recites the reasons why the new financial arrangements were being proposed. In it he points to several matters. He said the defendant was unwilling to take action to vary the amount of the bank guarantee he was required to put up (paragraphs 3.2 and 4 of the letter TB Volume 2 page 4286 and 4287). The anticipated cost of work to conclude the Johnston Withers claim and the partnership claim would be of the order of $200,000. In addition the letter sought payment of some cash before the plaintiffs would proceed further.
In a memo dated 9 November (TB Volume 2 page 4298) Mr Schroeder sought to persuade Mr Hurren that with some cooperation from the defendant, including the sale of some chattels and placing monies in trust, the firm could safely continue acting for the defendant. Mr Schroeder’s memo does appear to be a review of the adequacy of the securities as contemplated by the retainer. After reciting what he proposed as a re-adjustment by the defendant of his finances, Mr Schroeder wrote,
All of this would be subject to the existing term that we would only have to continue acting if we consider that the security position is adequate (as per agreement with Knox & Hargrave). But the above would be an indication of what we consider adequate.
It is to be noted that paragraph 2 of the memo proposes that the defendant borrow $50,000 and put it into the trust account of the second defendant. After that there were five alternative additional further steps that the defendant should take by the end of February 2002. In other words, the proposal was for the payment of $50,000 cash to take care of existing liabilities, and further steps to be taken to provide security in the mid term for ongoing work. I refer to those details of Mr Schroeder’s memo to demonstrate that, contrary to a submission put on behalf of the defendant[1], Mr Schroeder did change his mind about the adequacy of the overall security.
[1] Defendant’s outline in closing, paragraph 3
It appears that the defendant protested about being asked to provide cash for ongoing work. Mr Schroeder thought that he made his protest sometime in November or December 2001 (T188). He protested in writing by way of a letter dated 3 December 2001 (TB Volume 2 page 4498). In that letter he gave Mr Schroeder an ultimatum that he, Mr Schroeder, should indicate by 5 pm on 3 December that the second plaintiff was willing to continue acting without being paid any cash until he started receiving profits from the Charleston sub-division. He said that earthworks for the sub-division needed to be carried out in the next 14 days. The implication of the letter was that only if the firm desisted from requiring cash for ongoing work could the defendant proceed with the sub-division work, the profits from which represented the best, if not the only, prospect of the defendant paying for his legal fees. The day after that letter, on 4 December 2001, there was a meeting between Messrs Cosoff, Hurren and Schroeder at which the defendant’s letter of 3 December was discussed. That meeting gave rise to the letter sent by the second plaintiff to the defendant dated 4 December 2001 (TB Volume 2 page 4508). It is convenient to set out that letter in full. Although the letter is signed by Mr Hurren, Mr Schroeder said that he agreed that, by that date, the security offered by the defendant was inadequate (T193).
Our Ref: ACH:1747 COSOFF CUDMORE KNOX
By facsimile
4 December 2001
Mr Peter Fullston

7 Cedar Grove

MOUNT BARKER SA 5251
Dear Mr Fullston
Partnership dispute and other matters
We refer to your facsimile transmission yesterday to us. We also refer to our letter dated 8 November 2001 to you.
In our letter to you, we reminded you that this firm (‘CCK’) has not accepted instructions to act generally for you and that, pending any decision by us to do so, we have been acting for you on an interim basis only (at $240 per hour plus GST). We therefore do not understand your statement that ‘it is wrong of your Company to change our agreement about payment of my accounts’.
As for the terms agreed between you and Knox & Hargrave, we refer you to paragraphs 6, 9 and 10 of the letter dated 26 June 2000 from Knox & Hargrave to you. The ‘security’ you have offered is inadequate (particularly given your request that CCK also act in the Bennett proceedings). Further, you do have a source of funds which you appear unwilling to apply towards legal costs.
In our letter to you, we also pointed out that future costs of over $200,000 are likely to be incurred in acting for you, and we therefore required you to sign our terms of engagement letter, and agree to provide various funds to us, before we would act generally for you. Unfortunately, you did not agree to these requirements. You have not put any counter proposal.
We do not understand why you are unwilling to put a proposal to us for the orderly payment of our fees. We understand that you are able to borrow at least $30,000 in the short term.
The partnership action is next before the Court on Tuesday 11 December 2001. If we have not received an acceptable proposal form you by 10.00 am this Thursday, 6 December 2001 (involving at least the payment to use before Christmas of $30,000 and a schedule for additional monthly follow-up payments), we will take steps immediately to cease acting for you, and to inform Justice Lander of that fact.
Yours faithfully
COSOFF CUDMORE KNOX
Tony Hurren
[excluding contact details]
cc Peter Michelmore
On 7 December 2001 Mr Hurren again wrote to the defendant recapitulating the counter proposal put by the defendant to the firm. However Mr Hurren reiterated the requirements of the firm stated in their letter of 4 December. In the accompanying Terms of Engagements letter the firm had required that henceforth accounts would be rendered by the firm each month and would have to be paid within 14 days of being rendered. Things came to a head on 10 December 2001. On that day the defendant told Mr Schroeder that he did not want the second plaintiff to act for him anymore, although there seems to have been some ongoing discussion between the defendant and Mr Schroeder about resuming the professional relationship if the defendant could make appropriate financial arrangements. These were never made and work done after that time by Mr Schroeder was done on a pro bono basis. Significantly Mr Schroeder assisted the then unrepresented defendant when he appeared for himself as plaintiff in the Supreme Court on the trial of the partnership dispute in late 2002. Essentially the professional relationship between the second plaintiff and the defendant ceased when the defendant did not sign the plaintiff’s Terms of Engagement document dated 7 December.
At the time the professional relationship ceased, only the first plaintiff had any security from the defendant although it may be that the second plaintiff had an equitable interest in the securities held by the first plaintiff. The first plaintiff had the unregistered second mortgages over the properties at Mount Barker and Charleston. It had charges over the bank guarantees provided for the partnership dispute and the Johnston Withers claim although these were second in line to the banks. They also had the assignment to the personal injuries claim subject to Von Doussa’s being able to recover their costs first.
There is one further background topic to the first issue. When the defendant first consulted Mr Schroeder, the time for filing a defence in the Johnston Withers claim was imminent. The defendant knew this. He told Mr Schroeder about it. At that stage Mr Schroeder had not undertaken to act for the defendant. He had not been able to confer with his partners to formulate the conditions on which they would be willing to act without fees being paid when costs were incurred. Knowing that the time within which to file the defence was imminent Mr Schroeder undertook to write to the plaintiff’s solicitors asking for more time to file the defence; in other words, to ask for the plaintiffs to desist from signing judgment until the defendant was in a position to file a defence. Mr Schroeder wrote as promised to the plaintiff’s solicitors but they did not grant time. They signed judgment. Mr Schroeder did not have any of the Johnston Withers file. When the first plaintiff did agree to act for the defendant it applied successfully to have the judgment set aside but only on condition that the defendant provide security for the amount of $105,000. The bank provided that security by way of a bank charge. The defendant complains that the first plaintiff did not file a defence immediately. Despite there being no agreement to act and despite Mr Schroeder not having the file he should, so the argument goes, file a “holding” defence. His failure to do so disentitles him to take that charge into account when assessing the adequacy of the defendant’s securities in late 2001.
That account of the background will suffice to consider the first issue in the trial, namely, whether the second plaintiff was entitled to cease to act for the defendant.
The first issue – Were the plaintiffs entitled to cease acting for the defendant?
It is first necessary to clarify the position of the two plaintiffs in relation to each other. The plaintiffs have amended their pleadings so as to acknowledge that the second plaintiff is bound by the retainer entered into by the first plaintiff.
The defendant maintains that the first plaintiff breached its retainer with the defendant by merging with Cosoff Cudmore and Partners to form the second plaintiff. Mr Manetta for the plaintiff maintained that position in his address. In my view that position is not sustainable. As Mr Abbott for the plaintiff submits, and as Mr Manetta appeared to concede in another part of his address (and also in paragraph 5 of his Outline in Closing) there has really been a form of novation at the time of the merger of the firms so that the second plaintiff stands in the place of the first plaintiff so far as its rights and obligations towards to the defendant are concerned.
Certainly when Mr Hurren first reviewed the defendant’s file for the purposes of considering the adequacy of the financial arrangement he took the view that the new firm was not bound by the agreement of the old firm. Mr Manetta submitted that that attitude taken by him initially, and only changed later, illustrates a lack of bona fides on his part in reviewing the adequacy of the securities offered by or put up by the defendant. Mr Hurren’s correspondence with the defendant, and his evidence at the trial, makes it clear that he wanted the defendant to enter into a new agreement with new terms relating to the payment of professional fees. In his evidence Mr Hurren made no secret of the fact that by the time of the merger he was dissatisfied with the securities offered by the defendant. As time went on he became frustrated by what he saw as the defendant’s inability to make any progress on the sub-divisions and his unwillingness to take steps to improve the overall value of the securities. The defendant refused to instruct the second plaintiff to seek to vary the terms of the court order requiring him to provide security for the partnership action in the Supreme Court even when, eventually, Mr Hurren agreed to make that application without fee. The defendant resisted settling the Johnston Withers claim when the parties were not far apart, thus doing nothing to reduce his exposure in litigation. He refused to sell chattels such as slate, which he said was worth $20,000 and which, on Mr Hurren’s view, had no strategic financial importance to the defendant. The slate was not necessary to carry on his business. The defendant would only offer a charge over chattels including the slate. The only offers the defendant would make by way of further security were highly contingent. His house was subject to a testamentary claim by Ms Fennell’s daughters. The charge actually taken by the plaintiffs over the personal injuries claim was contingent on its success.
Mr Manetta submitted that I should not accept Mr Hurren’s evidence at trial that at the time he ceased acting for the defendant in December 2001, he had reviewed bona fide the defendant’s securities and was dissatisfied with their adequacy. It represents instead, Mr Manetta submitted, a convenient expression of what was no more than his long-term view that the first plaintiff’s agreement to act for the defendant without requiring payment of fees was imprudent. He was really just looking for a way to get out of what he saw as an ill-advised agreement. Mr Hurren’s belief that the second plaintiff was not bound by the retainer shows that what he was doing all along was proposing a new agreement. He wanted a new, more favourable, agreement than the one that the first plaintiff had concluded. He has belatedly recast that motive into a bona fide review of the adequacy of the securities as permitted by the retainer.
In my view that submission is not borne out by the evidence. It might be reasonable to infer that Mr Hurren regarded the agreement by the first plaintiff to act without immediate payment with the original securities in place was imprudent. Mr Hurren was certainly unwilling to expose the new firm to the risks posed by continuing to act for the defendant having only the existing securities. However none of that is inconsistent with a bona fide review of the adequacy of the securities. In my view, nothing could be clearer from Mr Hurren’s evidence than that in late 2001 he genuinely regarded the securities as inadequate to protect the firm from unacceptable financial risk if they continued to act in the way that they had been acting for the defendant. He had available to him much information provided principally by Mr Schroeder about the defendant’s finances. He had spoken to the defendant in a conference at which all three of them were present. The more closely his views about the securities were explored during the trial the clearer it became how inadequate he saw them and the reasons why he held those views.
Several further questions have to be answered at this juncture.
1. Was the adequacy of the securities to be determined by reference only to invoices already rendered for work done, or may regard be had to estimates of future costs? In other words, may the plaintiffs have security up front?
2. Was it permissible to seek different securities from those accepted by the first plaintiff as adequate at the time of the retainer?
3. Did the review of the securities have to be reasonable as well as being bona fide?
4. If the review had to be reasonable, was it reasonable?
Mr Abbott for the plaintiffs conceded that the first question must be answered in favour of the defendant. He concedes the correctness of Mr Manetta’s submission that Clause 10 of the Retainer required the plaintiffs to continue to act provided they were satisfied that the securities were adequate for “outstanding charges and disbursements” (T1365). That is a proper concession. The outstanding fees and disbursements in November 2001 were approximately $76,000, $40,000 due to the first plaintiff for work done until the merger and $36,000 for the second plaintiff for work done after the merger. The plaintiffs were therefore not entitled to have regard to the anticipated costs exposure of $200,000. In his letter to the defendant of 4 December 2001 Mr Hurren referred explicitly to that costs exposure (TB Volume 2 page 4508). In the preceding paragraph of the letter he had referred to paragraphs 6, 9 and 10 of the Retainer and said that the security the defendant had offered was inadequate. Earlier correspondence made it clear that the inadequacy was current in his view. It was inadequate at that time. The letter goes on to require the defendant to sign the new Terms of Engagement which had been sent to him earlier.
In my view, the letter must be read as meaning that there were two reasons for the second plaintiff requiring the defendant to sign the new Terms of Engagement. The first relates to the inadequacy of the securities, and the second relates to the future costs exposure. I conclude that the subsequent ceasing to act was probably based on both those reasons. The plaintiffs were entitled, subject to the two further questions referred to above, to rely upon the first reason but they were not entitled to rely on the second. In my view the two reasons are severable. If the plaintiffs were entitled to cease acting on the first ground, then it does not matter that they were not entitled to rely on the second.
The second question relates to the change in securities sought. The first plaintiff had been willing to act having by way of security unregistered second mortgages over the factory at Mount Barker and the land at Charleston, a charge over the bank guarantees and an assignment over the personal injury claim proceeds.
Mr Manetta submitted that the second plaintiff was not entitled to become dissatisfied with those securities unless there was, as he put it, “inherent change in [their] value” (T1289). He allowed also that they might take into account a sharp increase in the likelihood of the defendant losing the court cases which the bank guarantees secured and over which the plaintiffs had charges second in line to the bank. I take the submission to mean that unless the securities clearly and substantially diminished in value, then the second plaintiff was not entitled to regard them as inadequate. He was not entitled to seek other securities.
Mr Manetta drew an analogy with security over shares. He submitted the plaintiffs were not entitled to seek to change their security say from shares to real estate simply because they foresaw a stock market crash. Ultimately they would have to wait to see if the crash occurred. Their obligations as fiduciaries did not permit them to regret their earlier decision about the adequacy of the securities and to seek to make a more prudent decision (T1289-1291).
Put so, I think Mr Manetta’s submission is well founded. If circumstances had not changed then the second plaintiff would have been bound by the decision taken by the first plaintiff. However the submission overlooks what really happened. Between June 2000 and late 2001 circumstances had changed. First of all, the securities were originally taken at a time when there were no outstanding costs. There might have been some work in progress but none had been billed. In November 2001 there was $76,000 outstanding.

In 2000 there were only three actions for which the first plaintiff was acting. By November 2001 Mr Bennett had sued for his fees of about $45,000. The extent of the fees was a surprise to Mr Schroeder (T126). Even Mr Schroeder thought that that gave rise to the possibility to the defendant’s bankruptcy (T126). That eventuality would in all likelihood put an end to the proposed sub-division.
The Swincer money had come and gone. The first plaintiff’s fees up to that time had been paid in accordance with the Retainer. Although the defendant was not obliged to put aside any money he received over and above outstanding fees, it had been Mr Schroeder’s hope that when that money became available to the defendant he would put aside some of it for future legal expenses. In the event he did not. The first plaintiff never had security over that money but it was one of the defendant’s assets that Mr Schroeder had in mind when he accepted the adequacy of the securities proffered.
One of the bank guarantees over which the first plaintiff had a charge, second to the bank, secured the sum of $475,000 in the partnership dispute. The defendant refused to instruct the second plaintiff to apply to the court to reduce the sum secured, so that the second plaintiff could improve its security. The defendant refused even when the second plaintiff offered to make that application without charge.
The defendant refused also to sell chattels to improve the security. He had refused to sell the slate.
In the light of these two refusals Mr Hurren took the view that the defendant was being unreasonable. That informed his view about the value of the contingent securities, which were all subject to prior claims. The mortgages were second mortgages, the bank had prior claims over the two bank charges and the solicitors acting for the defendant in the personal injuries claim would take their fees first.
There had been talk by the defendant of selling the rural land at Charleston and the factory at Mount Barker, but neither had been sold. Possible agreements to sell had fallen through.
The asset by which Mr Schroeder had laid most store in 2000 had been the imminent sub-division of the land at Charleston. The defendant had said all along that the sales were imminent and that they would be extremely lucrative. But what was imminent in June 2000 was still imminent in November 2001. Nothing had happened to advance the project.
In my view, Mr Manetta’s submission is untenable. It fails to appreciate what was meant by security in the Retainer Agreement and it fails to take account of the changes that had occurred. Adequacy of security in the context of the Retainer must be taken to mean an evaluation of the fees to be secured at a given time and the likely value of the assets securing these fees. There had to be taken into account the risk posed by their contingent nature. The book value of an asset would not be the only consideration in that evaluation. Some assessment must surely be made of the prospects of realising the security, and realising it within a reasonable time. If for example the plaintiffs thought in late 2001 that the sub-division might not take place until sometime after late 2007 (as has turned out to be the case) then I see no reason why they should not regard that security as inadequate. I see no reason why they should not seek a different sort of security.
It should be remembered that the second plaintiff had no legal entitlement to the security held by the first plaintiff. It may be that they would have an equitable interest in those securities, recoverable, presumably from the first plaintiff. What the second plaintiff sought in its letter of 8 November 2001 was cash by instalments. It sought the payment of $10,000 by 14 November, $36,000 (being its component of the outstanding fees) by 7 December, and agreement to paying $20,000 per month from January 2002. In that way the total outstanding fees of $76,000 would be paid by February 2002, although by then it was reasonably expected that an accelerated incurring of fees would occur because the hearing of the Johnston Withers case was expected to be in November or December of 2001.
The letter identified what Mr Hurren considered the reasonable steps the defendant could take to meet the firm’s requirements (see paragraphs 13, 15 and 16 of the letter). The proposal fell short of requiring that the defendant henceforth pay accounts when they were rendered. However, the three securities were left to protect a much smaller risk. If the cash payments were made as sought, then the security would have to protect the plaintiffs only against an outstanding amount of $66,000 by the end of November 2001, $30,000 by the end of December and $10,000 by the end of January. To that must be added in each case the fees incurred in those months by the ongoing legal work. In one sense the proposal by the second plaintiff could be seen as a change of securities as argued by Mr Manetta. In another sense it could be seen as diminishing by cash payments the protective load that the securities had to bear.
In any event I see no reason why securities should not change their form if that is what was proposed. There is nothing in the Retainer to suggest that that was not permissible. I do not think this was a case of changing the nature of the securities to get out of an imprudent agreement. Rather it was a changed financial proposal to take account of the changed circumstances.
The third question is whether the review by the second plaintiff had to be both reasonable and bona fide. Mr Manetta submitted that the second plaintiff’s fiduciary obligations required reasonableness. So too did the contra proferentem rule, that is, the contract must be construed in favour of the party who did not draw it, at least where there is ambiguity. The line between a bona fide review and a reasonable one might be a fine one but I accept that there is such a line. However, for reasons I now give, I do not think that I have to answer to that question.
The fourth question is whether, in the circumstances, the second plaintiff’s review was reasonable. Mr Manetta submits that no proper enquiry was made by Mr Hurren into the value of the properties supporting the two mortgages. Likewise there was no proper enquiry into the merits of the two actions giving rise to the bank charges.
It is true that the second plaintiff did not cause valuations to be made of the two properties. Mr Hurren had only the information provided by the defendant as to the value of the properties and as to the liabilities to other creditors standing ahead of the plaintiffs. Mr Hurren nevertheless came to the conclusion that the defendant’s evident unreasonableness in failing to take steps to realise assets and to minimise financial and litigation risk lessened the chances of recovering monies from the securities. Indeed he feared that a judgment debt in the new Bennett litigation might send the defendant bankrupt, and any monies recovered by the plaintiffs for the period 6 months before the bankruptcy might be regarded as preferences. In my view, the plaintiff was entitled to look beyond what might appear to be the book value of the defendant’s assets. He was entitled to look at the prospects of recovering monies from them
So far as the litigation was concern the second plaintiff had every reason to be wary about recovering anything from the bank charges guaranteeing sums of money in the Johnston Withers claim and the partnership dispute. In the former case the defendant’s offer to settle was substantial. It was clear he admitted a substantial liability. (I understand these proceedings have still not been concluded so I will say no more on that topic.) Attempts by Mr Schroeder to narrow the areas of disagreement in the partnership dispute had been unsuccessful. In fact the prospective length and complexity of the partnership dispute was increasing from that which Mr Schroeder anticipated when he was first consulted by the defendant.
In my view the second plaintiff was entitled to take these matters into account when assessing the adequacy of the securities.
Perhaps the most decisive factor in assessing the reasonableness of the second plaintiff’s review is that Mr Schroeder agreed with it. All the evidence and all the attendance notes and internal memos demonstrate that Mr Schroeder was optimistic about the adequacy of the securities. He got along well with the defendant, he trusted him, he believed in his various causes and he was keen to vindicate his legal position. Mr Schroeder accepted the defendant’s assurances about the prospects of realising the sales of properties that he put up for sale and he believed in the imminence of returns from the much vaunted sub-division. Yet in November 2001 even he was forced to concede that the steps proposed by Mr Hurren had to be taken. Reluctantly he had come round to realising that the existing securities were inadequate. In his memo to Mr Hurren on 9 November 2001 (TB Volume 2 page 4298) his arguments for continuing to act for the defendant are conditional on the payment by the defendant of $50,000. For reasons I have already touched on in my discussion of the second question, I find that the review was a reasonable one in the sense that, looking at it objectively, the conclusion of the second plaintiff as to the adequacy of the securities was reasonable. There was $76,000 in outstanding fees. The unreasonableness of the defendant effectively devalued the contingent securities. He was unwilling to offer further securities that were not also contingent. Nothing appeared to be happening to effect the subdivision. There was in my view every reason to require a change in the security arrangements. The second plaintiff’s review was both bona fide and reasonable.
Finally on this topic I deal with the defendant’s contention that the plaintiffs were not entitled to take into account in the review of the adequacy of the securities the bank charge of $105,000 provided in the Johnston Withers claim. The contention is that Mr Schroeder failed in his duty to file a “holding” defence when first consulted by the defendant. He should have done so despite not having agreed to act for the defendant and despite not having the file.
In my view there are two reasons for rejecting that submission. The first is that, while it might be accepted that a solicitor ought to take reasonable steps to protect a potential client from litigious disadvantage, the fact remains it was by no means certain that the firm would act. In the event that solicitors did not agree to act after having filed a defence, they would have to seek to get off the file. Mr Schroeder made it clear that the only thing he could do to help in that situation was to ask the solicitor not to proceed to judgment. He did that but the solicitor did sign judgment. As an aside, while I do not regard it as a compelling reason not to file a so called “holding” defence, I do think it is questionable whether a practitioner should file a defence based only on instructions and not based on any evaluation of the case having read the file.
The second reason why I reject the submission is that in my view the “holding” defence would in all likelihood have lead to an application by the plaintiff for summary judgment. It is entirely possible that if the defendant had managed to defeat that application he would only have been allowed to do so on condition that he provide security such as he was required to provided when the judgment was set aside. In that way the filing of the “holding” defence would only delay the necessity to provide security. In my view the defendant’s contention in this respect is untenable.
Conclusion as to the first issue
I find that the second plaintiff was entitled to make the proposals it made in November and December for a change to the security arrangements, including the requirement that the defendant pay cash to reduce the plaintiff’s costs exposure. I find that the plaintiff was entitled to cease to act when the defendant refused to agree to the new financial proposal. I find the plaintiff is entitled to recover its fees, disbursements and interest. (By “plaintiff” I mean both plaintiffs because there is no practical reason not to regard them as being in the same position.)
That being so, I must consider the set-off to which the defendant claims he is entitled.
The set off
Mr Manetta submitted that the issue of the set off turns largely on the report of a valuer, Mr Richard Mintz, dated 23 June 1999 (see paragraph 13 of outline).
He submitted that Mr Schroeder was negligent in that either he did not read the Mintz report, or if he had read it, he did not appreciate its significance. In either event his failure led him to fail to plead in the defendant’s statement of claim in the partnership dispute that the partnership assets at the time of Ms Fennell’s death should not have been valued as if the partnership had operated an on going business, as the daughters claim they should, but instead, they should have been valued on the basis that the partnership was insolvent. Mr Mintz had prepared a report for Johnston Withers who were then acting for the defendant. He suggested an insolvency valuation. Mr Ellery was a valuer appointed by the court. He had suggested an ongoing business valuation.
The partnership dispute came on for trial in the Supreme Court before Lander J in December 2002. The defendant was unrepresented at the trial. The second plaintiff had ceased acting for the defendant twelve months earlier, but Mr Schroeder provided pro bono advice and support for the defendant at trial and also in the period leading up to the trial. He still felt sympathy for the defendant and wanted to help him in his litigation. On occasions he attended before Lander J at the judge’s invitation to assist the defendant. The trial came to an end when the parties announced they had settled the case. In the result the defendant agreed to pay the daughters approximately $750,000. Only after the settlement did it occur to the defendant that the Mintz report could have assisted him in his litigation. He now seeks a set off against any monies he may be liable to pay to the plaintiffs. He alleges negligence on Mr Schroeder’s part. He says he would not have settled that case on the terms that he did if he had realised the significance of the Mintz report. The issue on the set off claim (the second issue in the trial) may be expressed thus;
Does the failure of Mr Schroeder to plead insolvency in the partnership dispute entitle the defendant to a set off against the sums he owes to the plaintiffs?
Background to the set-off claim
As already mentioned, the defendant and his partner ran a potato growing and processing business. The growing was done partly in the south-east and partly in the Adelaide Hills. The processing was done in the factory at Mount Barker. Essentially the defendant operated the growing side of the business. He spent most of his time living and working in the south-east for some years before Ms Fennell’s death. She operated the processing side. She attended to the bookwork. For some time before her death there had been discussions between the two partners about selling the south-east land because the growing side of the business was not doing well. That had not occurred at the time of Ms Fennell’s death. There was even talk about selling the processing plant. From time to time after the defendant consulted Mr Schroeder, Mr Schroeder was preparing a statement by the defendant for use in the partnership dispute. Several versions of the statement became part of the plaintiff’s tender documents in these proceedings. The most recent statement was dated 7 May 2001 (TB Volume 1 pages 3959 to 3983). Nowhere in the statement does there appear any instruction or any information suggesting that at the time of Ms Fennell’s death the partnership was insolvent. More particularly the processing factory which she was running appears to have been a going concern. It is true that there are accounts by the defendant of liquidity problems with the partnership business as a whole and also with the processing factory. However, the factory kept running after Ms Fennell’s death in November 1996. In fact the defendant engaged his current de facto wife, Yvonne, to run the factory from March 1997 (TB Volume 1 page 3976). The business kept on operating until May 2000 (TB Volume 1 page 3981). The gravamen of the defendant’s complaints in his statement was that Ms Fennell’s daughters had withheld documents and tied up money so that eventually an operating business had to be closed down. He said that had it not been for the daughters’ behaviour the factory would have generated a profit of about $100,000 per year from March 1999. As it was it was making a loss of $30,000 a year from March 1999. Mr Botting, an agricultural consultant, was called by the defendant to give evidence in this trial. He was advising Ms Fennell leading up to her death. His impression was that the business was a good one but it was not “performing” (T1154). He was being given insufficient information by Ms Fennell about the business’s finances. He said:
I thought that the losses in processing should have been a lot less than they appeared to be, but I couldn’t get accurate figures to put a finger on it. (T1154)
He thought capital expenses involved in aspects of the growing side of the business were part of the problem (T1154). One of the defendants complaints expressed in his statement was that Ms Fennell was taking large sums of money out of the business. He specifically referred to her taking at least $26,000 out of the partnership to pay for her two daughters’ weddings. The whole tenor of his instructions, and hence the pleadings on his behalf, was that despite financial difficulties, the partnership business as a whole was a going concern at the time of Ms Fennell’s death and that the closure of the processing factory in 2000 was the fault of the daughters, the defendants in the partnership dispute. There were certainly discussions before Ms Fennell’s death about selling the factory but, as Mr Botting’s evidence demonstrates, it was intended to sell it as a going concern.
Mr Schroeder has no recollection of reading the Mintz report. He says he was clear that the defendant’s instructions all along were that the partnership was not insolvent at the time of Ms Fennell’s death. The defendant said nothing to him that suggested that he should be pleading insolvency. On the contrary, the instructions were always that the defendants had ruined a viable business. He did criticise Ms Fennell’s bookkeeping and her cash withdrawals in the partnership for her own purposes, but, he said it was the defendants who had ruined the business.
Mr Manetta is surely correct when he submits that it is not the function of this court to determine whether or not the partnership was insolvent. That is a collateral matter. The court-appointed valuer, Mr Ellery, had concluded it was not. Johnston Withers commissioned Mr Mintz who concluded that it was. While Mr Schroeder does not recollect reading the report he says he was aware of the financial difficulties of the business. He saw any suggestion by the defendant that the business was insolvent at the time of Ms Fennell’s death as being at odds with the loudly expressed claim by the defendant that after the daughters had sabotaged the otherwise profitable business.
Mr Manetta meets that contention with the argument that Mr Schroeder should not have seen the two positions as being inconsistent. He submitted that Mr Schroeder had misunderstood the significance of the insolvency issue. He should have seen that, rather than being contradictory, the two positions could have been maintained simultaneously. As he put it in his outline, what should have been pleaded against the daughters was “a charge of killing a dying business rather than subverting a sound one …” (see paragraph 16 of outline). Mr Manetta concedes that the defendant never instructed Mr Schroeder to plead in that way but he asserts that Mr Schroeder was negligent in not advising him to do so.

Mr Schroeder said that if he had read the Mintz report he would have advised the defendant against pleading insolvency. To do so would involve great difficulty in proof and would weaken the sabotage claim the defendant was so clearly making.
Negligence claim
In my view the claim for negligence on Mr Schroeder’s part cannot be sustained. The whole tenor of the defendant’s allegations in his statement, and the preponderance of evidence before me, suggests that it would have been ill-advised to have embarked upon pleading insolvency. There is no basis for finding that Mr Schroeder was negligent in not advising the defendant to plead insolvency. On the contrary, on the information available to me, the advice would seem to be sound.
If I am wrong about that, the defendant has to surmount two other obstacles. The first is the immunity which barristers and solicitors have in respect of professional conduct which is intimately connected with the conduct of a case in court (see D’Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12).
The second is the conclusiveness of the result of the trial before Lander J, whether that be by way of a judgment of the court or by way of a settlement consent order (see Simington v Australian Prudential Regulation Authority [2006] FCAFC 118 at [27] to [30] and Cirillo v Consolidated Press Property Pty Ltd [2007] FCA 60 at [29] and [31]).
Immunity
I deal with the immunity question first. I accept that the onus of proof rests on the party claiming the immunity. I move straight to the position of a solicitor, which is the capacity in which Mr Schroeder was acting. I have no difficulty assuming that Mr Schroeder was acting for the defendant as a solicitor in 2002 during the period leading up to the trial and also during the trial. This is despite his having no retainer, and, as I understand it, no expectation of a fee. He was continuing to assist his client in his professional capacity. The High Court in D’Orta-Ekenaike v Victoria Legal Aid (supra) held that a solicitor possesses immunity from suit in negligence “in respect of advice which leads to a decision which affects the conduct of a case in court” (see head note page 1). McHugh J at [151] reviewed the authorities for the proposition that that protection applies to practitioners undertaking work “intimately connected” with the conduct of the case in court in the sense that it amounts to “a preliminary decision affecting the way that that case is to be conducted when it comes to hearing”. As one would imagine, drafting or advising on pleadings would normally constitute such work. Examples of such work were cited by McHugh J at [154]. They support that view.
The rationale for the immunity is not the protection of the practitioner per se, but rather the public policy principle that there should be finality in litigation except by way of appeal. McHugh J pointed to a particular aspect of that principle which has application in this case. His Honour said at [168]:
… the immunity should extend to any work, which, if the subject of a claim of negligence, would require the impugning of a final decision of a court, or the re-litigation of matters already finally determined by a court.
In this case the enquiry into the alleged negligence of Mr Schroeder would require revisiting the evidence lead at the trial before the settlement occurred, and presumably, also the evidence might have been lead if there had not been a settlement. This would have to be undertaken to see what effect the alleged negligence might have had on the outcome.
It is in my view no solution to that problem to submit, as Mr Manetta does, that all that would have to be determined was what was the loss of a chance or opportunity that the defendant suffered as a result of the failure to advise the insolvency pleading. The enquiry would inevitably amount to re-litigation.
In his written reply dated 6 December 2007 to the submission of Mr Abbott, Mr Manetta disputes that the alleged failure of Mr Schroeder to amend the pleadings to include the insolvency is intimately connected with the in-court proceedings. He submits that if the omission amounts to an oversight by the pleader or a misapprehension by him as to the nature of the claim to be pleaded, then that is not protected by the immunity. Only the positive making of a decision affecting the conduct of the case in court will be protected. He cited Giannarelli v Wraith (1988) 165 CLR 543 per Mason CJ at 559-560, Keefe v Marks (1989) 16 NSWLR 713 per Priestly JA at 725 and Donnellan v Watson (1990) 21 NSWLR 335. In my view Mr Manetta’s submission overlooks the nature of the alleged failure on Mr Schroeder’s part. Mr Schroeder gave evidence that he was unable to recollect reading the Mintz report, but he says that if he had read it, he would not have advised pleading the insolvency claim. In fact he would have advised against it. The whole tenor of the defendant’s instructions and the evidence he proposed to adduce at trial would at least weaken, and possibly destroy, his sabotage claim against the daughters. If the Mintz report had ever been discussed between Mr Schroeder and the defendant it was summarily dismissed by both of them. (I have already decided that in my view that approach by Mr Schroeder was not only not negligent but was actually sound. For present purposes however, I put aside that finding.) Mr Schroeder’s position is therefore this – he does not recall reading the Mintz report but if he did read it he would not have pleaded insolvency. He would have advised against it. That being so the only relevant action is the formation of the view that the insolvency should not be pleaded. Not having read the Mintz report, if that is what happened, would not of itself, in the circumstances, be negligent. It is the decision not to plead insolvency that constitutes the negligent act, if indeed that is negligent. There is no reason to conclude that Mr Schroeder is engaging in suspect reconstruction when he gave evidence of that being his opinion. The reasons for his holding that view are in my judgment, honestly held. I pause to say that throughout his evidence, Mr Schroeder appeared to me to have been diligent, honest and able in his dealings with the defendant’s legal problems. He manifested those same characteristics in the witness box. The defendant could not, and did not, suggest otherwise except in respect of his discrete allegation of negligence. The failure to plead insolvency must be seen as a positive act and one leading directly to a decision affecting the conduct of the case in court. That being so, it is protected by the immunity.
The collateral attack
I now turn to the topic of the conclusiveness of the settlement of the proceedings before Lander J. Mr Abbott refers to this aspect of the defendant’s claim as the collateral attack.
I have already referred to the High Court decision in D’Orta. That case turned on the question of the immunity, but the rationale for the immunity is essentially the importance of the finality of litigation. I will not recapitulate the High Court’s reasoning. Mr Abbott referred to the two federal cases of Simington and Cirillo (ibid). At the passages he cited, those cases refer to the binding nature of an order of the court. In my view the settlement reached by the parties in the partnership dispute is final and enforceable and it would amount to re-litigating the matter to seek to identify and quantify the loss suffered by the defendant because of the negligence he alleges against Mr Schroeder. Those proceedings are final
Conclusion as to the set-off claim
I find that the defendant is not entitled to claim a set-off against his obligation to pay the plaintiff’s fees etc.
Sundry issues
There were a number of more minor issues in the case which in the end were either abandoned or plainly have no merit. I will refer to them using the descriptions applied to them by Mr Abbott in his outline of argument. The first two are described as the Interest defence and the CPI defence. The defendant initially claimed that neither plaintiff was entitled to recover interest on fees the subject of the summaries, nor were they entitled to increase their fees broadly in line with inflation. I do not understand either of those defences to be maintained but in any event the retainer plainly provides both for the payment of interest and an increase in fees in line with inflation (see Retainer paragraphs 7 and 5 respectively).
I turn to what are described as the first and second premature claim defences. These claims broadly allege that the retainer must be taken to permit the defendant a reasonable opportunity to pay accounts before legal proceedings were commenced. The final bill was rendered very shortly before the proceedings but there is not the slightest suggestion that the defendant intended paying the fees. This whole actions flies in the face of that suggestion. That is the first premature claim defence.
The second premature claim defence relates to the allegation that the bill was not in taxable form. In my view there is no merit in that submission and it does not appear to have been pursued.
The rectification defence suggests that the retainer was not fair. This does not appear to have been pursued by the defendant and is completely without merit. The defendant was given an opportunity to seek legal advice on the retainer and did not do so. There is nothing unfair about the terms of the retainer in my view.
There are then several minor claims by way of set-off. They are the moving costs, diary and invoice claims. The defendant certainly maintained his position in regard to these three claims in his evidence but in my view they are without merit. The defendant says Mr Schroeder failed to include in the partnership pleadings details of the cost of moving partnership assets in the partnership dispute. As part of that same complaint he says that Mr Schroeder mislaid a diary and invoices which would have substantiated those claims. He has had available to him all the documents in the plaintiff’s possession and cannot himself produce them. In my view his claims are not sustainable.
Finally there is the $40,000 fee claim. It is suggested by the defendant that the plaintiffs misrepresented their expected fees at $40,000 when they turned out to be somewhat more by the time they were paid out of the Swincer settlement. In my view that argument is without merit. The estimate was just that – an estimate.
Conclusion
I find that both plaintiffs were entitled, pursuant to the retainer entered into by the first plaintiff, to cease to act for the defendant. I find that they are entitled to recover their costs and disbursements together with interest.
I further find that the defendant is not entitled to any set-off by reason of any negligence on the part of Mr Schroeder. I find that Mr Schroeder was not negligent as alleged. In any event, I find that he was protected by an immunity from suit in not pleading insolvency. I further find that the defendant is not entitled to recover any loss alleged to be suffered in the settlement he reached in the partnership dispute. The settlement is final.
Orders
I will hear the parties as to the quantum of the final orders I should make.