Lee v Lawfirst Pty Ltd [No 2] - [2023] WASCA 166

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT :   THE COURT OF APPEAL (WA)
CITATION:   LEE -v- LAWFIRST PTY LTD [No 2] [2023] WASCA 166
CORAM:   BUSS P
MAZZA JA
VAUGHAN JA

HEARD:   24 OCTOBER 2023
DELIVERED          :   1 DECEMBER 2023
FILE NO/S:   CACV 54 of 2022
BETWEEN:   JEFFREY STEWART LEE
Second Appellant
AND
LAWFIRST PTY LTD
Respondent

ON APPEAL FROM:
Jurisdiction              :   SUPREME COURT OF WESTERN AUSTRALIA
Coram:   MASTER SANDERSON
Citation: KINGSFIELD HOLDINGS PTY LTD -v- LAWFIRST PTY LTD [2022] WASC 161
File Number            :   CIV 2167 of 2021

Catchwords:

Appeals - Practice and procedure - Appellant retained respondent solicitors in defamation proceedings - Claims for breach of contract, negligence and breach of fiduciary duty against respondent solicitors - Appeal against interlocutory orders striking out claims for general damages for loss to appellant's reputation - Whether claims were reasonably arguable - Pleaded case reasonably arguable

Legislation:

Nil

Result:

Leave to appeal allowed in part
Appeal allowed

Category: B

Representation:

Counsel:

Second Appellant	:	In person
Respondent	:	G D Cobby SC

Solicitors:

Second Appellant	:	In person
Respondent	:	Popperwell & Co

Case(s) referred to in decision(s):

Addis v Gramophone Co Ltd [1909] AC 488
Aerial Advertising Co v Batchelors Peas Ltd (Manchester) [1938] 2 All ER 788
Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344
Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256
Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 253 CLR 169
Cook v Swinfen [1967] 1 WLR 457
Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124
Duvall v Godfrey Virtue & Co (a firm) [2001] WASCA 105
English v Vantage Holdings Group Pty Ltd [2021] WASCA 47
Foaminol Laboratories Ltd v British Artid Plastics Ltd [1941] 2 All ER 393
General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125
Groom v Crocker [1939] 1 KB 194
Hadley v Baxendale (1854) 9 Exch 341; (1854) 156 ER 145
Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365
Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468
Johnson v Unisys Ltd [2001] UKHL 13; [2003] 1 AC 518
Kingsfield Holdings Pty Ltd v Lawfirst Pty Ltd [2022] WASC 161
Kingsfield Holdings Pty Ltd v Rutherford [2016] WASC 117
Kingsfield Holdings Pty Ltd v Sullivan Commercial Pty Ltd [2021] WASC 289
Lee v Lawfirst Pty Ltd [2023] WASCA 59
Malik v Bank of Credit and Commerce International SA [1998] AC 20
Marbe v George Edwardes (Daly's Theatre) Ltd [1928] 1 KB 269
Moore v Scenic Tours Pty Ltd [2020] HCA 17; (2020) 286 CLR 326
Ruxley Electronics and Constructions Ltd v Forsyth [1996] AC 344
Watts v Morrow [1991] 1 WLR 1421
Wilson v United Counties Bank Ltd [1920] AC 102
Withers v General Theatre Corporation Ltd [1933] 2 KB 536
Young v Chief Executive Officer (Housing) [2023] HCA 31

JUDGMENT OF THE COURT:

Introduction

The appellant, Mr Lee, sought leave to appeal against interlocutory orders made by Sanderson M on 11 May 2022 striking out various paragraphs of an amended statement of claim dated 14 March 2022 filed in the primary proceedings against the respondent (Lawfirst). The master's orders striking out the paragraphs of the statement of claim were made pursuant to reasons published in Kingsfield Holdings Pty Ltd v Lawfirst Pty Ltd.[1]
[1] Kingsfield Holdings Pty Ltd v Lawfirst Pty Ltd [2022] WASC 161 (primary reasons).
The application for leave to appeal was partly resolved by orders of this court made 18 April 2023. For reasons delivered in Lee v Lawfirst Pty Ltd [No 1][2] the court determined that leave to appeal should be refused other than in two respects. The question of leave to appeal in respect of the remaining issues was referred to the hearing of the appeal.[3]
[2] Lee v Lawfirst Pty Ltd [2023] WASCA 59 (Lee v Lawfirst [No 1]).
[3] Lee v Lawfirst [No 1] [65].
These reasons deal with the matters that remain for determination on the hearing of the appeal. In substance the issues for determination concern:
1.Whether, as contended by ground 3.1(a) and ground 3.1(b)(iii), the master wrongly struck out par 89.11 of the amended statement of claim and the words 'personal injury to credit and reputation' in par 93 of the amended statement of claim - this turns on whether the relevant pleas seeking damages for harm to Mr Lee's credit and reputation disclose a reasonably arguable head of loss for pleading purposes.
2.Whether, as contended by ground 5, the master erred by ordering that Mr Lee pay Lawfirst's costs of the application.
For the reasons that follow Mr Lee has a reasonable cause of action so far as he claims general damages for loss of reputation. That aspect of Mr Lee's claim should not have been struck out on a summary basis. The claim should be determined by a trial on the evidence and full argument as to the facts and the law. Mr Lee should have leave to appeal, and the appeal should be allowed, to that limited extent. Otherwise the application for leave should be dismissed.

The primary proceedings

It is convenient to develop the background to the issues on appeal by substantially reproducing the exposition that was provided in Lee v Lawfirst [No 1].
Mr Lee was the sole director and shareholder of the former first appellant (Kingsfield).[4] The primary proceedings concern claims brought by Kingsfield and Mr Lee against Lawfirst. Lawfirst was Kingsfield and Mr Lee's former solicitor. We will address Mr Lee's pleaded claims against Lawfirst, and ignore the claims made by Kingsfield, as the appeal now solely concerns Mr Lee's claims against Lawfirst.
[4] Kingsfield filed a notice discontinuing its appeal on 8 June 2022. Accordingly, Mr Lee is now the sole appellant.
Mr Lee alleged that Lawfirst, in acting for him as a plaintiff in defamation proceedings against a Mr Rutherford, had acted in breach of contract, negligently and in breach of fiduciary duty. In the defamation proceedings it was alleged that Mr Rutherford, the director of a company which was a leaseholder of premises on Rottnest Island, had said to a Mr Duffield, the director of the leasing agent for the Rottnest Island Authority, that a café operated by Kingsfield on Rottnest Island had been closed following a health inspection. The defamation proceedings were originally commenced by Mr Lee's then law firm, Avedon Lee, and were effectively taken over by Lawfirst, on Mr Lee's instructions, in about September 2015.
The defamation proceedings went to trial in November 2015. The proceedings were dismissed on 11 April 2016 with an order for costs against Kingsfield and Mr Lee. The trial judge (Kenneth Martin J) found that, while Mr Rutherford had uttered the words complained of, Mr Lee had failed to establish any of the alleged defamatory imputations. Kenneth Martin J also found that Mr Lee had not been identified as an object of the publication.[5]
[5] Kingsfield Holdings Pty Ltd v Rutherford [2016] WASC 117.
In the primary proceedings Mr Lee alleged that he suffered loss and damage in consequence of the alleged defaults of Lawfirst in the conduct of the defamation proceedings. Mr Lee alleged that his loss and damage comprised: (1) his liability to pay Mr Rutherford's costs of the defamation actions in the amount of $160,000; (2) his liability, which he allegedly discharged, of paying costs to his own solicitors, Lawfirst, in the amount of approximately $260,000; and (3) unparticularised damage in respect of 'personal injury to credit and reputation'. Mr Lee also included a claim for exemplary damages.
Lawfirst applied to strike out a number of paragraphs of the amended statement of claim. The master upheld Lawfirst's strike-out application and ordered that much of the amended statement of claim be struck out.

The amended statement of claim

The amended statement of claim in the primary proceedings contained pleas which, in general terms, may be grouped into categories as pleas relating to:
1.The retainer of Lawfirst to act in the defamation proceedings.[6]
2.Various alleged matters and disputes between various parties on Rottnest Island.[7]
3.Other proceedings involving Mr Rutherford.[8]
4.Certain events relating to, or considered by Mr Lee to be relevant to, the defamation proceedings, both when Mr Lee's firm was acting and subsequently when Lawfirst was acting.[9]
5.The filing of a witness statement and the leading of evidence at trial.[10]
6.The conduct of the defamation trial including counsel's failure to object to a certain matter which allegedly 'severely damaged the credibility of [Kingsfield and Mr Lee]'.[11]
7.The alleged breach of the implied terms of the retainer and negligence by Lawfirst.[12]
8.The alleged existence and breach of fiduciary duties owed by Lawfirst.[13]
[6] Amended statement of claim dated 14 March 2022 (SOC) pars 1 - 10.
[7] SOC pars 12, 15 - 16.
[8] SOC pars 28 - 30.
[9] SOC pars 31 - 66.
[10] SOC pars 75 - 83A.
[11] SOC pars 84 - 87.
[12] SOC pars 89.1 - 89.13.
[13] SOC pars 10A, 89A.
There were, broadly speaking, two categories of pleas relating to the alleged breaches of retainer and duty:
1.First, alleged breaches to the effect that Lawfirst should have advised that the defamation proceedings had no real prospect of success; and that Kingsfield and Mr Lee should have accepted an offer by the defendant for the proceedings to be dismissed with no order as to costs.[14]
2.Other breaches in or in relation to the conduct of the defamation proceedings.[15]
[14] SOC pars 67, 89.1 - 89.5, 89.9, 89.12.
[15] SOC pars 89.6 - 89.8, 89.10 - 89.11, 89.13.
In relation to the first category, the plaintiffs pleaded:
1.There was an implied term of the retainer that Lawfirst was to act, or alternatively that Lawfirst owed a duty to act, with reasonable skill, care and diligence including in relation to the conduct of the defamation proceedings and any settlement negotiations.[16]
[16] SOC pars 9 - 10.
2.On 5 November 2015 the plaintiffs received an offer of settlement by Mr Rutherford. It provided, in effect, that the defamation proceedings be dismissed with no order as to costs. The offer was open for acceptance until 5.00 pm on 6 November 2015.[17]
3.Lawfirst provided no advice in respect of the offer; and the offer expired.[18]
4.Lawfirst, in breach of the implied term of the retainer and in breach of duty:
(a)was negligent in failing to advise that the plaintiffs' prospects in the defamation proceedings were poor and had no real prospect of success;[19]
(b)failed to advise the plaintiffs that their prospects of success were poor in the context of Mr Rutherford's settlement offer and in that respect failed to advise the plaintiffs of the consequences of not accepting the offer (and in particular the advantages or disadvantages of accepting or rejecting the offer) when in Lawfirst's opinion the plaintiffs had poor prospects of success;[20]
(c)'caused [the plaintiffs] to be harmed in their credit, standing and repute by the entry of judgment against them';[21] and
(d)caused the plaintiffs to suffer loss and damage by causing them, through the absence of proper advice, to reject the settlement offer.[22] Implicit in this plea is an allegation that had proper advice been given the plaintiffs would have accepted the walkaway offer of settlement.
5.Further or alternatively, Lawfirst breached its fiduciary duties in the above respects.[23]
[17] SOC par 67.
[18] SOC pars 69 - 72.
[19] SOC pars 89.1, 89.4, 89.5.
[20] SOC pars 89.2, 89.4, 89.9 (both pars 89.9).
[21] SOC par 89.11.
[22] SOC par 89.12.
[23] SOC par 89A.
The plaintiffs then pleaded the following:
90.The Defamation Actions went to trial on 11, 12 and 20 November 2015 and the reasons for decision were delivered on 11 April 2016.
91.As part of the judgment Kenneth Martin J made orders (Costs Orders) for [Kingsfield and Mr Lee] to pay Mr Rutherford's costs of the Defamation Actions.
92.[Kingsfield and Mr Lee] paid approximately $160,000 to Mr Rutherford as agreed costs, pursuant to the Costs Orders made after trial. [Kingsfield and Mr Lee] paid [Lawfirst] approximately $260,000 in relation to the Defamation Actions.
93.The breach of the Implied Term and/or the breach of duty and/or the breach of fiduciary duty by [Lawfirst] caused [Kingsfield and Mr Lee] to suffer loss and damage.
Particulars of Loss and Damage
Liability incurred to [Lawfirst]  $260,000
(approximately)
Costs paid to Mr Rutherford  $160,000
Personal injury to credit and reputation          to be assessed
And [Kingsfield and Mr Lee] claim [against Lawfirst]:
1.Damages for breach of contract;
1A.Further or alternatively damages for breach of duty;
1BFurther or alternatively damages and/or equitable compensation for breach of fiduciary duty;
2.Exemplary damages[.] (underlining in original)
Mr Lee has confirmed, in effect, that his claim for injury to his credit and reputation is not for specific financial loss; it is, rather, for non‑financial loss in respect of his personal credit and reputation.[24] Accordingly, in substance, the claim is one for a non-pecuniary loss. Mr Lee claims general damages for loss of credit and reputation.
[24] Appeal ts 9 - 11 (24 March 2023). See Lee v Lawfirst [No 1] [58] (see also [61], [63]).
The nature of the claim was described by Mr Lee in further detail at the hearing before the court that resulted in the reasons in Lee v Lawfirst [No 1].
As has been seen, at par 93 of the amended statement of claim Mr Lee's pleaded particulars of loss and damage included a head of loss for 'personal injury to credit and reputation' (see [14] above). There was also a further plea relevant to the pleaded claim for loss of credit and reputation. Mr Lee, in his particulars of negligence and breach of the implied term to take reasonable care, alleged at par 89.11 of the amended statement of claim that '[Lawfirst] caused [Mr Lee] to be harmed in [his] credit standing and repute by the entry of judgment against [him]' (see [13.4](c) above).
The second plea appeared to be a plea of causation rather than breach. However, Mr Lee submitted, in effect, that the plea was to be understood on the basis that Lawfirst's conduct in not advising him to settle resulted in judgment being entered against him and harm to his credit, standing and reputation.[25] So understood, Mr Lee's real complaint is that the master, having left intact Mr Lee's claims to recover the costs paid to Mr Rutherford and Lawfirst in consequence of the alleged failure to advise Mr Lee to settle on the basis that he had no real prospects of success, wrongly struck out Mr Lee's additional claim for the harm to his credit and reputation as a result of judgment being publicly entered against him.
[25] Appeal ts 10 (24 March 2023). See Lee v Lawfirst [No 1] [50].
In this regard, it should be inferred that it is the public entry of judgment against him which Mr Lee contends resulted in this particular form of harm. That is because, on Mr Lee's case, had he been given the correct advice and accepted the offer by Mr Rutherford in the defamation proceedings, Mr Lee still would have had judgment entered against him in the form of the formal dismissal of his action. However, the entry of judgment would have occurred without the publicity of a trial and the publication of reasons for judgment.
Relevantly, in the reasons for judgment in the defamation proceedings, Kenneth Martin J stated that he was cautious about accepting all of Mr Lee's evidence in an unqualified fashion.[26] Some parts of Mr Lee's evidence were assessed as being not acceptable.[27] Mr Lee was said to be 'deeply affected emotionally' such that he suffered a heavily jaundiced perspective and so sometimes his evidence was unreliable.[28] Kenneth Martin J observed that Mr Lee had a 'propensity to see "daggers around every corner", and also to doggedly obsess over matters - in the process losing a sense of proper proportion'.[29] Particular answers in cross-examination were said to be 'shaky, suspicious and unreliable'[30] and 'very unconvincing'.[31]
[26] Kingsfield Holdings Pty Ltd v Rutherford [184].
[27] Kingsfield Holdings Pty Ltd v Rutherford [184]. See also [201] - [231], [258].
[28] Kingsfield Holdings Pty Ltd v Rutherford [186].
[29] Kingsfield Holdings Pty Ltd v Rutherford [187].
[30] Kingsfield Holdings Pty Ltd v Rutherford [202].
[31] Kingsfield Holdings Pty Ltd v Rutherford [204]. See also [207].

The strike-out application and the master's decision

Lawfirst's strike-out application was directed principally to the paragraphs of the amended statement of claim other than those which alleged, in effect, that the plaintiffs suffered loss and damage by reason of one or both of breach of contract or negligence in Lawfirst: (1) failing to advise that the defamation proceedings had no real prospects of success; and (2) failing to advise the plaintiffs to accept the walkaway offer of settlement.
In the strike-out application Lawfirst contended, in effect, that the impugned pleas: (1) were embarrassing; (2) failed to disclose reasonable causes of action in the case of the pleas of fiduciary duty; (3) failed to disclose reasonable causes of action in relation to the conduct of the trial in light of the doctrine of advocate's immunity; and (4) were an abuse of process as a collateral attack on the findings in the defamation action and in other proceedings brought by Kingsfield and Mr Lee after the defamation proceedings, which had also failed.[32]
[32] Lawfirst there relying on Kingsfield Holdings Pty Ltd v Sullivan Commercial Pty Ltd [2021] WASC 289.
The effect of the master's decision, in general terms, was to strike out the pleas in the categories referred to in sub-pars 2 - 6 and 8 of [11] above and the pleas in relation to the alleged breaches of the retainer and breaches of duty other than those referred to in [13.4](a) - (b) & (d) above. This essentially left intact Mr Lee's claims against Lawfirst in respect of financial loss arising from the failure to advise that the defamation proceedings had no real prospects of success.
The master made the following orders:
1.The following in the Amended statement of claim be struck out:
a.paragraphs 6B, 6C, 6D, 10A, 10B, 12, 13, 15, 16, 28 to 66, 74 to 87, 89.3, 89.6, 89.7, 89.8, 89.10, 89.11, 89.13 and 89A;
b.the words:
i.'with an advice on evidence or provide them' in paragraph 72;
ii.'failed to provide an advice on evidence as referred to in Consolidated Practice Directions 2009 4.4.1.1. or' in sub-paragraph 89.1;
iii.'Personal injury to credit and reputation' in paragraph 93;
c.paragraphs 1B and 2 of the prayer for relief.
2.The plaintiffs [ie Kingsfield and Mr Lee] pay the defendant's [ie Lawfirst's] costs of the application including reserved costs to be taxed if not agreed.

The decision in Lee v Lawfirst [No 1]

This court's earlier decision in Lee v Lawfirst [No 1] came about as a result of Mr Lee becoming a bankrupt on a debtor's petition. Following notification of the appeal to Mr Lee's trustee-in-bankruptcy there was no election for the purpose of s 60(2) of the Bankruptcy Act 1966 (Cth). In those circumstances there was a hearing to consider what orders, if any, should be made consequent on Mr Lee becoming a bankrupt. The court also considered the question of leave to appeal.
In summary, for the reasons given in Lee v Lawfirst [No 1], the court determined that:
1.Leave to appeal should be refused other than in respect of: (a) the issue as to whether the pleas in pars 89.11 and 93 of the amended statement of claim seeking damages for non-financial loss for harm to Mr Lee's credit and reputation disclosed a reasonably arguable head of loss for pleading purposes; and (b) the costs issue agitated by ground 5.[33]
2.Insofar as, by the appeal, Mr Lee sought to contend that his claim for non-financial loss for harm to his credit and reputation was reasonably arguable for pleading purposes, the appeal came within s 60(4) of the Bankruptcy Act.[34]
[33] Lee v Lawfirst [No 1] [7], [62] - [65].
[34] Lee v Lawfirst [No 1] [61].

In Lee v Lawfirst [No 1] the court gave consideration to various authorities relevant to the question of a claim for damages for non-financial loss for harm to credit and reputation. Reference was first made to Wilson v United Counties Bank Ltd.[35] There an analogy was drawn with cases where a bank wrongly dishonours a cheque when a trader is in funds - the inference being drawn that the breach is injurious to the credit of the trader without allegation or proof of special damage.[36] However, in Wilson the House of Lords was dealing with 'the exceptional language of an exceptional contract'.[37] The contract was one by the defendant bank to take all reasonable steps to maintain its customer's credit and reputation while absent on military service. Lord Birkenhead LC expressly stated that in allowing reasonable compensation for the injury done to the claimant's credit and reputation without proof of special damage he did not lay down a rule of general law.[38]
[35] Wilson v United Counties Bank Ltd [1920] AC 102.
[36] Wilson v United Counties Bank Ltd (112), (120), (133 ‑ 134), (140).
[37] Wilson v United Counties Bank Ltd (112).
[38] Wilson v United Counties Bank Ltd (112). But compare Viscount Finlay at (120).
Lord Atkinson observed that the claimant was seeking to recover damages for the injury caused to credit and reputation by the defendant's failure to perform the service that the defendant had bound itself to perform by the contract - namely, to take all reasonable steps to maintain that credit and reputation. Accordingly, the claimed damage was not too remote. On entry into the contract injury to credit and reputation must have been in the parties' contemplation as the probable result which would follow from breach.[39]
[39] Wilson v United Counties Bank Ltd (132).
Accordingly, in Wilson v United Counties Bank Ltd the loss of reputation was recoverable as constituting the very damage which the contractual bargain was designed to prevent.
In Lee v Lawfirst [No 1][40] the court also referred to Duvall v Godfrey Virtue & Co (a firm),[41] Groom v Crocker,[42] Cook v Swinfen[43] and Ruxley Electronics and Constructions Ltd v Forsyth.[44] Rather than repeat that analysis these reasons should be understood to adopt and incorporate the consideration of those cases. One additional point should be made in relation to Duvall v Godfrey Virtue & Co (a firm). That authority involved a claim for financial loss for injury to credit worthiness and reputation; it was not, strictly, a claim for non-financial loss of the kind made by Mr Lee. In any event the absence of detailed analysis in Duvall means that it is of limited assistance.
[40] Lee v Lawfirst [No 1] [56] - [60].
[41] Duvall v Godfrey Virtue & Co (a firm) [2001] WASCA 105.
[42] Groom v Crocker [1939] 1 KB 194.
[43] Cook v Swinfen [1967] 1 WLR 457.
[44] Ruxley Electronics and Constructions Ltd v Forsyth [1996] AC 344.
The court concluded in Lee v Lawfirst [No 1] that the parties had given little attention to whether a non-financial loss claim for harm to credit and reputation was reasonably arguable. Nor was the point addressed in any meaningful way in the primary reasons. The court determined that the question of leave to appeal in respect of this aspect of the appeal should be referred to the hearing of the appeal. The court observed that there needed to be a fuller consideration of the authorities as to recovery for social discredit and the application of those authorities to a contract for the provision of legal services of the kind created by Lawfirst's retainer to act for Mr Lee in the defamation proceedings.
The parties were given the opportunity to file supplementary submissions on this question, an opportunity that the parties availed themselves of before the appeal hearing.

Disposition - is the claim for general damages for alleged injury to credit and reputation reasonably arguable? (grounds 3.1(a) and 3.1(b)(iii))

Mr Lee's submissions

Mr Lee referred to the nature and scope of Lawfirst's retainer. It was a retainer to act for the plaintiffs in a defamation claim. He submitted that protecting his reputation was, or ought reasonably to have been, within Lawfirst's contemplation at the time of entry into the retainer. Mr Lee pointed to the pleaded case. He said that the judgment in the defamation proceedings was damaging to his creditworthiness and reputation. It was, in Mr Lee's submission, reasonably arguable that Lawfirst had breached the retainer - including by not advising him of the advantages and disadvantages of accepting or rejecting the walkaway offer when Lawfirst considered that the plaintiffs had poor prospects of success - and that Lawfirst's breach had caused or materially contributed to him suffering harm to his credit, standing and repute.
Mr Lee contended that the law did not limit the loss for which compensation was awarded for contractual breach to financial loss. He said the law compensated for intangible losses and referred to cases of loss of pleasurable enjoyment[45] and the holiday cases where there was recovery for disappointment and distress.[46]
[45] Mr Lee referred to Ruxley Electronics and Constructions Ltd v Forsyth.
[46] Mr Lee referred to Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468. See also: Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344; Moore v Scenic Tours Pty Ltd [2020] HCA 17; (2020) 286 CLR 326.
As to whether the loss as pleaded was compensable, Mr Lee said that the relevant test was that set out in Hadley v Baxendale.[47] Mr Lee contended that harm to his credit and reputation was not too remote. He said that loss for harm to credit and reputation was recoverable because such losses were a natural and probable consequence of Lawfirst's breach. So far as, based on Addis v Gramophone Co Ltd,[48] Lord Greene MR in Groom v Crocker held that damages could not be recovered for injury to reputation and feelings in a claim against solicitors for contractual breach of duty in the conduct of litigation,[49] Mr Lee pointed to various English cases[50] and an academic article[51] that read down the ratio decidendi of Addis. Mr Lee also relied on English authorities that were said to allow recovery for loss of reputation.[52]
[47] Hadley v Baxendale (1854) 9 Exch 341; (1854) 156 ER 145.
[48] Addis v Gramophone Co Ltd [1909] AC 488.
[49] Groom v Crocker (205 - 206). Scott LJ was of the same view: Groom v Crocker (224 - 225).
[50] Malik v Bank of Credit and Commerce International SA [1998] AC 20, 51; Johnson v Unisys Ltd [2001] UKHL 13; [2003] 1 AC 518 [44].
[51] Enonchong N, 'Contract Damages for Injury to Reputation' (1996) 59(4) Modern Law Review 592, 593, 596.
[52] Mr Lee relied on: Marbe v George Edwardes (Daly's Theatre) Ltd [1928] 1 KB 269, 281, 288, 290; Aerial Advertising Co v Batchelors Peas Ltd (Manchester) [1938] 2 All ER 788, 795; Cook v Swinfen (460).
For these reasons Mr Lee submitted that the master should not have struck out the claim for the head of loss for 'personal injury to credit and reputation'. He said that, as pleaded, the relevant pleas in pars 89.11 and 93 of the amended statement of claim set out a reasonably arguable case which was not suitable for summary disposition. Mr Lee contended that this aspect of his claim against Lawfirst should be determined at trial following evidence and full argument as to the facts and the law.

Lawfirst's submissions

Lawfirst emphasised that Mr Lee did not seek to recover what he should have won in the defamation action against Mr Rutherford. Instead the claim was for existing credit and reputation that had been lost by the alleged breach of the retainer. Lawfirst said that the general rule in a claim for breach of contract - established in the employment case of Addis v Gramophone Co Ltd - was that a claimant cannot recover damages for injured feelings or loss of reputation. Lawfirst acknowledged that the general rule had been eroded and that, in Baltic Shipping Co v Dillon, the High Court of Australia had recognised exceptions to the general rule. But, according to Lawfirst, none of the accepted exceptions were applicable.
Lawfirst accepted that it might be concluded that an object of its retainer was to secure Mr Lee an award of damages and thereby both achieve consolation for the alleged wrong and obtain vindication. It followed, in Lawfirst's submission, that the law may permit a claimant to recover damages for a lost chance to restore reputation - and also consequential damage to the claimant's reputation because a case was dismissed. This was because it was arguable that a legal practitioner's retainer to prosecute a defamation action has, as an objective, securing peace of mind for the claimant. But, according to Lawfirst, Mr Lee's damages claim was unarguable - it was not alleged that Lawfirst's wrongful conduct was a cause of the non-attainment of that objective. Mr Lee failed at trial in the defamation action on the facts rather than due to Lawfirst's alleged negligence.
Lawfirst characterised Mr Lee's case as requiring acceptance that a legal practitioner acting in litigation has a liability to compensate a client for damage to the client's reputation when the client's action is lawfully dismissed on its merits. There was, according to Lawfirst, no implicit promise on the part of Lawfirst to protect Mr Lee against the consequences of the court failing to accept his evidence. Lawfirst submitted that, as a matter of policy, the consequences of a failure to advise on prospects should not extend to recompense where the client's evidence was not accepted or was the subject of some criticism - this was said to be outside the scope of the parties' contemplation as an inherent risk of litigation.

Consideration of the authorities

Mr Lee's claim was pleaded both in contract and in tort. However, the parties made their submissions on whether the claim for damages for injury to credit and reputation was reasonably arguable by reference to the claim in contract. We will consider the appeal on the same basis. If the claim in contract is not reasonably arguable that must inevitably be the position for the claim in tort. Indeed, McGregor on Damages suggests there is limited scope in tort to recover non-pecuniary loss by social discredit outside of the tort of defamation.[53]
[53] Edelman J, McGregor on Damages (21^st ed, 2021) [5-011].
The circumstance that the tort of defamation protects reputation does not preclude recovery of damages for contractual breach causing injury to credit and reputation where that is otherwise available as a matter of principle. Such damages do not cease to be recoverable because they might also be recoverable in an action for defamation.[54]
[54] Malik v Bank of Credit and Commerce International SA (40 - 41), (52 - 53).
Lawfirst relied on Addis v Gramophone Co Ltd as establishing that, as a general rule, damages are not recoverable in contract for injury to or loss of an existing reputation. Addis was so understood in Groom v Crocker.[55] Withers v General Theatre Corporation Ltd (about which more will be said below) was also decided conformably with such an understanding.[56]
[55] Groom v Crocker (205 - 206), (224 - 225).
[56] Withers v General Theatre Corporation Ltd [1933] 2 KB 536. See at (545), (547 - 548), (551) (Scrutton LJ), (554) (Greer LJ), (556) (Romer LJ).
Addis concerned a claim for damages following the wrongful dismissal of an employee. The employee was awarded damages that included a component for the harsh and oppressive manner in which he was dismissed. The House of Lords held, by majority with Lord Collins dissenting, that the manner of dismissal did not affect the damages. Lord Loreburn LC stated:
If there be a dismissal without notice the employer must pay an indemnity; but that indemnity cannot include compensation either for the injured feelings of the servant, or for the loss he may sustain from the fact that his having been dismissed of itself makes it more difficult for him to obtain fresh employment.[57]
[57] Addis v Gramophone Co Ltd (491). Lord James of Hereford (at 492) and Lord Atkinson (at 493) agreed with the judgment of Lord Loreburn LC.
It is unclear from the report of the facts in Addis whether, as to the loss related to the claimed difficulty in obtaining fresh employment, the claim was one for financial loss or non-financial loss. Lord Loreburn LC's observation was framed in general terms. It is apparent, however, that the employer argued the case on the basis that damages could not exceed the immediate pecuniary loss sustained by the breach of contract and that no damages could be awarded for loss of reputation.[58]
[58] Addis v Gramophone Co Ltd (489).
The true ratio decidendi of Addis was considered in Malik v Bank of Credit and Commerce International SA.
Malik was another employment case. Former employees lodged proofs of debts in a liquidation claiming substantial sums as compensation for the alleged stigma attaching to them as innocent employees of a bank whose business had been carried on fraudulently. The claim was for loss allegedly caused by the bank's breach of an implied contractual obligation of mutual trust and confidence. The claim sought financial loss rather than, as in the present appeal, non-financial loss. A judge held that the claims failed to disclose a reasonable cause of action or a sustainable claim for damages. That decision was upheld in the Court of Appeal. The House of Lords allowed an appeal. This relied on the alleged implied term. In Commonwealth Bank of Australia v Barker the implied term assumed in Malik was not accepted by the High Court as being applicable to employment contracts in Australia.[59] For now, however, we are only concerned with how Addis was treated in Malik. Commonwealth Bank of Australia v Barker does not cast any doubt on the analysis of Addis as found in Malik.
[59] Commonwealth Bank of Australia v Barker [2014] HCA 32; (2014) 253 CLR 169.
Morritt LJ, in the Court of Appeal, relied on Addis. His Lordship held that the employees had no remedy stating that, subject to certain exceptions, 'damages are not recoverable in contract for damage to or loss of an existing reputation'.[60] In the House of Lords, Lord Steyn (Lord Goff of Chieveley, Lord Mackay of Clashfern and Lord Mustill agreeing) considered whether this was correct. Lord Steyn held that Addis did not preclude the claim put forward in Malik.[61]
[60] Malik v Bank of Credit and Commerce International SA (44).
[61] Malik v Bank of Credit and Commerce International SA (51). Lord Steyn came to a similar conclusion in Johnson v Unisys Ltd [16].
Lord Steyn made a number of important observations:[62]
1.It was 'far from clear' how far the ratio in Addis extended.
2.It was arguable, as a matter of precedent, that the ratio in Addis was restricted to a wrongful dismissal case. However, a wider principle emerged. Addis stood for the proposition that damages for breach of contract may only be awarded for the breach - loss caused by the manner of the breach was not compensable.
3.No member of the House of Lords in Addis said that compensation for loss of reputation can never be awarded in breach of contract cases - or that it could only be awarded in cases falling in certain defined categories.
4.Addis decided simply that the loss of reputation in that particular case could not be compensated because it was not caused by a breach of contract.
[62] Malik v Bank of Credit and Commerce International SA (51). In doing so Lord Steyn drew upon the analysis in Enonchong N, 'Contract Damages for Injury to Reputation' (593 - 594). See also (596).
However, as on the pleaded case in Malik the manner of dismissal involved a breach of the assumed term of trust and confidence causing financial loss flowing from damage to reputation, there was a reasonably arguable cause of action.[63]
[63] Malik v Bank of Credit and Commerce International SA (42), (52 - 53). See also Johnson v Unisys Ltd [44].
Lord Steyn went on to examine Withers v General Theatre Corporation Ltd and Marbe v George Edwardes (Daly's Theatre) Ltd. In the Court of Appeal, Morritt LJ had relied on Withers in concluding that a distinction is to be drawn between: (1) injury to reputation already acquired - for which there can be no compensation; and (2) loss of a reputation which would have been acquired - for which the law gives compensation. It will be recognised that Lawfirst's submissions in this appeal contain echoes of that supposed distinction (see [37] above).
Both Marbe and Withers concerned performers who were denied an opportunity to perform, the denial constituting a breach of contract. Marbe involved an actress who had already acquired a considerable reputation. The actress entered into a contract to play a particular part in a named play. The actress' name, and her forthcoming role, were advertised. In breach of contract the defendants refused to allow the actress to perform in the play (apparently there was a concern that the actress might overshadow another performer who would not tolerate that state of things). In Withers the claimant was a variety artiste. In breach of contract the defendant refused to allow the artiste to perform a sketch at the London Palladium.
In Marbe damages were awarded to compensate for the loss of reputation which the actress expected to acquire if the contract was performed and also for the harm to the claimant actress' already acquired reputation. Bankes LJ stated that:
the court recognizes that the damages for [the breach of contract to employ the actress] may properly include such a sum as a jury may award to compensate the plaintiff for the loss of the reputation which would have been acquired, or damages to reputation already acquired.[64]
[64] Marbe v George Edwardes (Daly's Theatre) Ltd (281). See also Atkin LJ ('her existing reputation may also be considered') (288).
Marbe was decided in 1927. In Withers v General Theatre Corporation Ltd, decided in 1933, the Court of Appeal decided that damages were recoverable in contract for loss of the reputation which, but for the breach, would have been acquired, but damages were not recoverable for loss of the claimant artiste's existing reputation.[65] It is not necessary for present purposes to examine why, in Withers, the Court of Appeal declined to follow Marbe.[66] It suffices to state that in Malik Lord Steyn held that the decision in Withers was wrong on this point - his Lordship stated that the distinction drawn in Withers was contrary to principle and unsound.[67] Moreover, nothing in Addis supported the distinction.[68] Lord Nicholls of Birkenhead, writing separately in Malik, also preferred the view expressed in Marbe.[69] Lord Nicholls said that there was no reason why the law should deny recovery of damages where loss of promised publicity caused financial loss in the form of absence from the theatre scene damaging an existing professional reputation.[70]
[65] Withers v General Theatre Corporation Ltd (547 - 548), (551), (554), (556).
[66] Mr Enonchong, in the article relied on by Mr Lee, explains both why the Court of Appeal in Withers declined to follow Marbe and why that reasoning was erroneous: Enonchong N, 'Contract Damages for Injury to Reputation' (594 - 595). See also Malik v Bank of Credit and Commerce International SA (51 ‑ 52).
[67] Malik v Bank of Credit and Commerce International SA (52).
[68] Malik v Bank of Credit and Commerce International SA (51).
[69] Malik v Bank of Credit and Commerce International SA (41).
[70] Malik v Bank of Credit and Commerce International SA (41).
In Malik, Lord Steyn referred to a number of cases where, consonant with ordinary principles of contract law, damages had been awarded for loss of reputation caused by breach of contract.[71]
[71] Malik v Bank of Credit and Commerce International SA (52).
One example mentioned was Aerial Advertising Co v Batchelors Peas Ltd (Manchester). This was an advertising case. The defendant was engaged to advertise the claimant's products by trailing a large streamer behind an aeroplane flying over various towns. A pilot flew over a crowded main square during the two minutes' silence while an Armistice Day service was in progress. The event led to the vigorous denunciation of the claimant and the receipt of many letters announcing that its goods would be boycotted. There was a marked drop in the demand for the claimant's goods. It was held that the court could give general damages in respect of the pecuniary loss brought about by the loss of reputation that had been sustained.[72] In other words, a claimant is not precluded from recovering in respect of pecuniary loss brought about by a loss of reputation caused by a breach of contract.[73]
[72] Aerial Advertising Co v Batchelors Peas Ltd (Manchester) (796 - 797).
[73] Johnson v Unisys Ltd [21] (referring to: Foaminol Laboratories Ltd v British Artid Plastics Ltd [1941] 2 All ER 393, 400; Malik v Bank of Credit and Commerce International SA (40), (52).

Another relevant case in this respect, although not referred to by Lord Steyn, is the decision of Cook v Swinfen (a decision mentioned in Lee v Lawfirst [No 1]).
In Cook v Swinfen a defendant solicitor was negligent in the performance of his retainer. As a result of the breach of the retainer, the claimant lost a divorce suit against her husband - she was found to be the guilty party. The claimant wife was awarded damages for loss of the chance of a more favourable outcome of the divorce proceedings. Lord Denning MR stated that the reason the wife was entitled to damages for the loss of the chance was because 'it does affect a person's standing to be found to be the guilty party instead of the innocent party'.[74] The loss as claimed, while expressed in terms of 'loss of chance' and 'standing', was in substance a claim for injury to the personal credit and reputation accruing to the wife.
[74] Cook v Swinfen (460).
Returning to Malik v Bank of Credit and Commerce International SA, both Lord Nicholls and Lord Steyn concluded that damages for breach in connection with dismissal should be assessed in accordance with ordinary contractual principles.[75] Lord Steyn explained:
Provided that a relevant breach of contract can be established, and the requirements of causation, remoteness and mitigation can be satisfied, there is no good reason why in the field of employment law recovery of financial loss in respect of damage to reputation caused by breach of contract is necessarily excluded.[76]
[75] Malik v Bank of Credit and Commerce International SA (39), (52).
[76] Malik v Bank of Credit and Commerce International SA (52).
Lord Steyn's conclusion is supported by what was said by Lord Hoffman (Lord Bingham of Cornhill agreeing) in Johnson v Unisys Ltd. There, having observed that in Canada there was authority that an employee dismissed in brutal circumstances might be awarded damages for mental distress and loss of reputation and prestige, Lord Hoffman considered the position in the United Kingdom. His Lordship said that such an approach would have to circumvent or overcome the obstacle of Addis v Gramophone Co Ltd. But this, according to Lord Hoffman, was a task that if called upon to perform he would be able so to do. His Lordship then referred, with evident approval, to the speech of Lord Steyn in Malik.[77]
[77] Johnson v Unisys Ltd [44].
Ignoring the implied term - which, in any case, was assumed for the purpose of Malik as its existence was not contested before the House of Lords - Lord Steyn's analysis of Addis and contractual claims for damages for harm to reputation is compelling. On Lord Steyn's analysis in Malik, contrary to Lawfirst's contention, there is no general rule established by Addis that a claimant alleging breach of contract cannot recover damages for loss of reputation. Instead any claim for damages for breach of contract must be evaluated by the usual contractual law principles in terms of causation, remoteness and mitigation.
However, there should also be consideration of what was said by Lord Millett (Lord Bingham agreeing) in Johnson v Unisys Ltd. There, after referring to Addis, Lord Millet stated:
The supposed rule that damages are not recoverable for financial loss arising from injury to reputation (or in a case of wrongful dismissal for making it more difficult for the employee to find employment) is not easy to defend and may no longer be the law after [Malik].[78]
[78] Johnson v Unisys Ltd [70].
Lord Millett went on to state:
[T]he general rule [ie the 'supposed rule' derived from Addis] would seem to be a sound one, at least in relation to ordinary commercial contracts entered into by both parties with a view of profit. In such cases non-pecuniary loss such as mental suffering consequent on breach is not within the contemplation of the parties and is accordingly too remote. The ordinary feelings of anxiety, frustration and disappointment caused by any breach of contract are also excluded, but seemingly for the opposite reason: they are so commonly a consequence of a breach of contract that the parties must be regarded not only as having foreseen it but as having agreed to take the risk of its occurrence: see Treitel, The Law of Contract 10th ed, p 923. Contracts which are not purely commercial but which have as their object the provision of enjoyment, comfort, peace of mind or other non-pecuniary personal or family benefits (as in Jarvis v Swans Tours Ltd[1973] QB 233 and similar cases) are usually treated as exceptions to the general rule, though in truth they would seem to fall outside its rationale. Such injury is not only within the contemplation of the parties but is the direct result of the breach itself and not the manner of the breach. Indeed the avoidance of just such non-pecuniary injury can be said to be a principal object of the contract.[79]
[79] Johnson v Unisys Ltd [70].
Accordingly, while Lord Millett refers to a 'general rule' that damages for financial loss for injury to reputation are not recoverable, his Lordship explains that putative general rule in terms of it being the usual result of the application of the ordinary principles of the law of contract to a particular kind of factual scenario. Lord Millett is not suggesting a prescriptive rule applies whereby in a particular class of case loss of this kind is always too remote to be recoverable on breach of contract. To the contrary, his Lordship is saying no more than that the application of ordinary contractual principles will usually result in a particular result in cases of a particular kind.
In using the language of there being an applicable 'general rule', Lawfirst also invoked the High Court decision of Baltic Shipping Co v Dillon.
Strictly speaking, Baltic Shipping is a 'disappointment and distress' case rather than a 'loss of reputation' case. Although Baltic Shipping was a disappointment and distress case Brennan J (as his Honour was then) mentioned claims for damages for loss of reputation. His Honour was the only member of the High Court to do so. Brennan J stated:
Analogously, damages have been awarded without proof of pecuniary loss for damage caused in direct breach of a contractual promise where the damage consists in a general loss of reputation but, except in the 'direct breach' cases, damages are not awarded for general loss of reputation without proof of pecuniary loss. The distinction between a case where a contract is expressed to protect a promisee from disappointment of mind and a case where disappointment of mind is merely a mental reaction to a breach and resultant damage appears in Heywood v Wellers. That was a case of a solicitor's negligence in prosecuting proceedings in accordance with his retainer. Bridge LJ said:
'There is, I think, a clear distinction to be drawn between mental distress which is an incidental consequence to the client of the misconduct of litigation by his solicitor, on the one hand, and mental distress on the other hand which is the direct and inevitable consequence of the solicitor's negligent failure to obtain the very relief which it was the sole purpose of the litigation to secure. The first does not sound in damages: the second does.'
The principle applies to cases where peace of mind is promised.[80] (citations omitted) (emphasis added)
[80] Baltic Shipping Co v Dillon (370).
Accordingly, contrary to Lawfirst's insistence that there is a general rule that a claimant cannot recover for loss of reputation in a claim for breach of contract, Brennan J accepts that there are cases where general damages have been awarded for contractual breach causing a general loss of reputation. Moreover, in direct breach cases damages may be awarded without proof of pecuniary loss. A 'direct breach' case is one where the very object of the contract is to protect or enhance reputation.
In Baltic Shipping every member of the High Court accepted that disappointment and distress caused by a breach of contract is a compensable head of loss where the object of the contract is to provide pleasure or relaxation.[81] A number of the members of the court expressed this as being an exception to a general rule that damages for disappointment and distress are not recoverable in actions for breach of contract[82] (although Mason CJ observed that the scope of the exceptions had been so much expanded that the authority of the general rule was 'now somewhat uncertain').[83]
[81] Baltic Shipping Co v Dillon (362 - 366) (Mason CJ), (371 - 372) (Brennan J), (380 - 382) (Deane & Dawson JJ), (383) (Toohey J), (387) (Gaudron J), (404 - 405) (McHugh J). See also Moore v Scenic Tours Pty Ltd [43].
[82] Baltic Shipping Co v Dillon (361 - 363) (Mason CJ with Toohey & Gaudron JJ agreeing), (380 - 382) (Deane & Dawson JJ), (394, 397 - 404) (McHugh J).
[83] Baltic Shipping Co v Dillon (361).
In a case where there is a claim for compensation for disappointment and distress as a result of breach of contract there must be close attention to the approach mandated by the High Court in Baltic Shipping. In that connection we acknowledge that almost all members of the court embraced the proposition that there was a relevant 'general rule' and exceptions thereto. That said, in explaining the rule and its exceptions, different views were expressed as to their respective rationales and, in particular, the extent to which the rule and its exceptions are based on the notion of remoteness.
Relevantly, Mason CJ (Toohey & Gaudron JJ agreeing) seemingly rejected the application of the rule in Hadley v Baxendale. The Chief Justice said it was preferable to adopt the rule that damages for disappointment and distress are not recoverable unless they proceed from physical inconvenience caused by the breach or unless the contract is one the object of which is to provide for enjoyment, relaxation or freedom from molestation - damages flowing directly from the breach of the relevant promise in the latter case as the breach results in a failure to provide the promised benefit.[84]
[84] Baltic Shipping Co v Dillon (364 - 365).
McHugh J stated that none of the explanations of the rationale for the rule were satisfactory.[85] So far as the explanation was put in terms of remoteness, his Honour observed that an explanation that disappointment and distress arising from breach of contract were not within the contemplation of parties to commercial contracts did not accord with everyday experience relating to the making of contracts. McHugh J stated that the parties to many contracts, including commercial contracts, are fully aware when they make them that breach will result in disappointment and distress to the innocent party.[86]
[85] Baltic Shipping Co v Dillon (395). See also (395 - 397).
[86] Baltic Shipping Co v Dillon (396).
Ultimately, in enunciating the applicable rule, McHugh J referred to the principles of causation and remoteness; but then, despite having mentioned the ordinary contractual principles, proceeded to set out a test that was similar in content to that of Mason CJ.[87]
[87] Baltic Shipping Co v Dillon (404 - 405).
McHugh J also noted a trend in the English cases claiming damages for distress or disappointment. Initially the rationale was explained as being the contemplation of the parties that the breach might give rise to distress (ie the explanation was couched in terms of remoteness). However, more recent cases had rejected that view. The recent cases had instead concluded that such damages were recoverable only where the object of the contract was to provide enjoyment, pleasure or freedom from distress or where the distress was consequent upon the suffering of physical inconvenience.[88]
[88] Baltic Shipping Co v Dillon (400 - 401).
By contrast, Brennan J considered that the difference in the cases as to the recoverability of damages for disappointment and distress was based on remoteness.[89] Deane & Dawson JJ also analysed the issue by reference to the doctrine of remoteness.[90] In accepting, as settled principle, the general rule that a claimant is not entitled to recover damages for distress and disappointment, their Honours stated that the rule represented 'an essentially pragmatic and judicially imposed assumption which is to be made for the purposes of the application of the second limb of the rule in Hadley v Baxendale' (emphasis added).[91]
[89] Baltic Shipping Co v Dillon (367). See also (368 - 370).
[90] Baltic Shipping Co v Dillon (380 - 381).
[91] Baltic Shipping Co v Dillon (380).
Shortly after the appeal hearing in this appeal, the High Court handed down its recent decision in Young v Chief Executive Officer (Housing).[92] In that case Gordon & Edelman JJ considered the availability of compensation for disappointment and distress in a claim for breach of contract. It was common ground that the general contract law restriction upon the availability of such damages was as stated in Baltic Shipping. Their Honours observed that, outside the category of case where the disappointment and distress was consequent on physical inconvenience caused by the breach of contract, such damages were only recoverable 'where the disappointment and distress was not too remote and was within the scope of the duty assumed by the promisor'.[93]
[92] Young v Chief Executive Officer (Housing) [2023] HCA 31.
[93] Young v Chief Executive Officer (Housing) [69].
After referring to Mason CJ in Baltic Shipping, and a subsequent Canadian case, Gordon & Edelman JJ stated:
The limitations upon recovery for disappointment and distress that is not consequent upon physical inconvenience are, therefore, concerned not merely with requirements of remoteness but also with the scope or objects of the duty (and therefore the risk) assumed by the promisor.[94]
[94] Young v Chief Executive Officer (Housing) [70].
Their Honours observed that in Baltic Shipping the scope of the duty of the defaulting defendant required a focus on the contract as a whole. By contrast, where the claim is brought for the breach of a particular contractual provision, damages for disappointment and distress can only be recovered if 'an' object of that particular obligation was the provision of enjoyment, relaxation or freedom from molestation. It is the object of the term that is relevant. That is not to say, however, that the purpose of other provisions - as well as the contract as a whole - will not be relevant in construing the particular term in context and identifying its object.[95]
[95] Young v Chief Executive Officer (Housing) [72] - [73].
In the present appeal the parties did not address the question whether the varying rationales in Baltic Shipping Co v Dillon (as now further explained in Young v Chief Executive Officer (Housing)) had implications for the recoverability of damages for loss of credit and reputation. But the limited recoverability in contract of damages for injury to reputation is said to be closely connected with and established by the same authorities as the general proposition (now eroded) that ordinarily damages for disappointment and distress are not recoverable on contractual breach.[96] Coherence in the law - and in particular coherence in the law of contract - suggests that the principles that inhere in the recoverability of damages for disappointment and distress will inform the principles that govern the recoverability of damages for injury to credit and reputation.

Conclusion - Mr Lee's claim for general damages for alleged injury to credit and reputation is reasonably arguable

[96] Edelman J, McGregor on Damages (21^st ed, 2021) [5-036].

Four points should be made arising from the nature of these proceedings, namely, an appeal from orders striking out an aspect of Mr Lee's claim as not disclosing a reasonable cause of action.
First, the master's implicit conclusion that the claim for damages for alleged injury to credit and reputation is not reasonably arguable is not a matter of judicial discretion. It is a matter of law. Accordingly, the correctness standard of appellate review applies. The decision is susceptible to appellate intervention if it is wrong.
Second, the usual admonitions apply insofar as Lawfirst in substance sought summary determination of this aspect of Mr Lee's claim. Summary determination is only appropriate in the clearest of cases, where there is a high degree of certainty about the ultimate outcome of the proceedings if they were to go to trial.[97] Great care must be exercised to ensure that a claimant is not improperly deprived of the opportunity for trial. It is necessary to demonstrate that the claimant's case is so clearly untenable that it cannot possibly succeed.[98]
[97] Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [46].
[98] General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, 129 ‑ 130.
Third, insofar as Lawfirst sought to strike out the pleaded head of loss as not disclosing a reasonable cause of action, it should be remembered that:[99]
1.The court should proceed with caution before striking out a pleading on the ground that it does not disclose a reasonable cause of action.
2.While the court may determine a difficult question of law on such an application, it would usually be appropriate to leave the determination of such questions for trial.
3.'Reasonable' means reasonable according to law - if the facts pleaded conceivably give rise to relief, then the cause of action should be held to be reasonable.
4.The mere fact that a case appears weak is not of itself sufficient to strike out the action.
[99] English v Vantage Holdings Group Pty Ltd [2021] WASCA 47 [55] - [56].
Finally, the court should be careful not to risk stifling the development of the law by summarily rejecting a claim where there is a reasonable possibility that, as the law develops, it will be found that a cause of action will lie.[100]
[100] Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365, 373 - 374.
The master did not give any reasons for striking out the pleas that are in issue on this appeal. Paragraph 89.11 and the relevant part of par 93 of the amended statement of claim were simply swept up in the master's broader consideration of the pleaded case. In the circumstances it is not necessary to consider the merits of the appeal by reference to the master's reasons. Nor is it possible to do so. It is, in any case, enough if this court considers that on a breach of a contract for the provision of legal services there is, in the circumstances as pleaded by Mr Lee, a reasonably arguable case for the recoverability of general damages for loss of reputation.
A number of things arise from the amended statement of claim:
1.Mr Lee pleaded that he was registered as a pharmaceutical chemist under the Pharmacy Act 1964 (WA) and was also a solicitor with a practising certificate. He was the owner and operator of a pharmacy and also carried on business as a lawyer through a legal practice. In the circumstances it may be inferred that Mr Lee was a person of good character and repute whose reputation was integral to his professional standing and livelihood.
2.In September 2015 Lawfirst was retained to act for Mr Lee in defamation proceedings he had commenced against another person.
3.Mr Lee contends that, at all material times, Lawfirst considered that Mr Lee's prospects of success in the defamation proceedings were poor. However, at no time did Lawfirst advise Mr Lee that the defamation proceedings had no real prospects of success.
4.The walkaway offer was received on 5 November 2015 (ie less than a week before the trial of the defamation proceedings was listed to commence). The offer remained open for acceptance until 5.00 pm on 6 November 2015. Lawfirst sent Mr Lee the offer at 5.48 pm on 5 November 2015 and invited Mr Lee to contact it if he wished to discuss the offer. Mr Lee emailed and telephoned Lawfirst to discuss the offer. No reply was received. The offer lapsed. At no time did Lawfirst provide Mr Lee with advice on his prospects of success in the defamation proceedings or the risks in proceeding with the defamation proceedings. Nor did Lawfirst advise Mr Lee of the advantages and disadvantages in accepting or rejecting the walkaway offer.
5.The defamation proceedings went to trial on 11, 12 and 20 November 2015. After delivery of reasons for decision on 11 April 2016 judgment was entered against Mr Lee. The defamation proceedings failed. It is said that there were aspects of Kenneth Martin J's reasons for decision that were critical of Mr Lee.
6.Mr Lee alleges that the entry of judgment against him in the defamation proceedings - ie the failure of the defamation proceedings - caused him to be harmed in his credit, standing and repute.

The appeal is to be approached on the basis that Mr Lee will succeed at trial in establishing these pleaded facts. There is, in this respect, a reasonably arguable case that Lawfirst negligently breached its contractual duties to Mr Lee. So too there is a reasonably arguable case that the alleged contractual breach caused or contributed to a loss of reputation on the part of Mr Lee. It is not to the point that Mr Lee failed in the defamation proceedings at trial on the facts or that the loss to Mr Lee's reputation arose in the course of his action being lawfully dismissed on its merits (see [38] - [39] above). On Mr Lee's case he would have accepted the walkaway offer but for Lawfirst's negligent breach of the retainer and the harm suffered would not have occurred.
On Mr Lee's case, had he been properly advised in response to his unanswered requests to discuss the offer, Mr Lee would have become aware of his poor prospects of success in the defamation proceedings and the advantages that would ensue from accepting the offer. It may be inferred that those advantages would have included - or at least it is reasonably arguable that they would have included - not being exposed to actual or potential reputational harm in the determination of defamation proceedings that had poor prospects of success. In the circumstances we are satisfied that there is a reasonably arguable case in terms of causation.
This is not to find a reasonably arguable case that Lawfirst impliedly promised to protect Mr Lee against the consequences of the court failing to accept his evidence. Nor is it to suggest that there is a reasonably arguable case that in representing Mr Lee in the defamation proceedings Lawfirst undertook to obtain a particular outcome. In both of these respects Mr Lee did not plead a claim to the effect suggested by Lawfirst in its submissions. The pleaded contractual breach concerned failure to advise with the result that Mr Lee suffered harm that would have been avoided had Lawfirst acted with reasonable skill, care and diligence.
The real issue is whether it is reasonably arguable that Mr Lee's alleged loss (ie the pleaded injury to credit and reputation) is recoverable at law.
We are satisfied, for the reasons already given, that Addis v Gramophone Co Ltd does not preclude recovery. The ratio decidendi of Addis does not extend to create the general rule contended for by Lawfirst. But the mere absence of preclusion does not establish a reasonably arguable claim for damages for loss of reputation. It remains necessary to demonstrate to the requisite standard (ie whether there is a reasonable cause of action) that the claimed loss is recoverable.
Mr Lee contended that the relevant test was that of remoteness as established by Hadley v Baxendale. The rule in Hadley v Baxendale would entitle a claimant to damages for loss of reputation when those damages are:
such as may fairly and reasonably be considered either arising naturally, ie according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.[101]
[101] Hadley v Baxendale (9 Exch (355)); (156 ER (151)).
Mr Lee has a reasonably arguable case in terms of the second limb of Hadley v Baxendale. The amended statement of claim is not a model of the pleaders' craft. It is, nevertheless, sufficiently clear that there are allegations that various special circumstances were communicated to and known by Lawfirst. These included Mr Lee's professional qualifications, status and standing and that the retainer was to prosecute defamation proceedings on Mr Lee's behalf. The established purposes to be served by an award of damages for the tort of defamation include both reparation for harm done to a claimant's personal and professional reputation and the vindication of the claimant's reputation. It is, however, notorious that defamation proceedings - although intended to protect and vindicate a claimant's reputation - may misfire and have the opposite result. In the circumstances, in our view, it is reasonably arguable that in entering into the retainer it ought to have been in the contemplation of the parties that reputational loss would be, among other things, a probable result of Lawfirst failing to act with reasonable skill, care and diligence in providing Mr Lee with legal services pursuant to the retainer.
There is, however, an unresolved issue as to whether recoverability for this kind of loss should be determined by the test of remoteness in accordance with the rule in Hadley v Baxendale.
The application of the usual rule of remoteness in Hadley v Baxendale is supported by the speeches of Lord Nicholls and Lord Steyn in Malik v Bank of Credit and Commerce International SA and Lord Millett in Johnson v Unisys Ltd. It is also conformable with the ordinary principles of the law of contract. There is obvious merit in damages for loss of reputation being determined by the same rule that applies to other heads of damages in cases of breach of contract.
Against that is the approach of the majority of the members of the High Court in Baltic Shipping Co v Dillon in the closely connected area of claims for damages for disappointment and distress. In Baltic Shipping only Brennan J expressed a test of remoteness in accordance with the usual conception of the rule in Hadley v Baxendale. Deane & Dawson JJ provided for the application of Hadley v Baxendale on the basis of a proviso that was subject to a pragmatic judicially imposed assumption. This led to an outcome that was relevantly indistinguishable from that endorsed by Mason CJ (with Toohey & Gaudron JJ agreeing) and McHugh J. Those other members of the High Court enunciated a general rule that excluded recoverability subject to certain exceptions - the relevant exception, for present purposes, being one based on the object of the contract as revealed by its terms, express or implied, construed in the context of facts which the parties know or are taken to know.
In Young v Chief Executive Officer (Housing) Gordon & Edelman JJ also take the view that a further restriction should be imposed on the recoverability of damages for disappointment and distress - their Honours adopt and apply an approach whereby the damages must be within the scope or object of the duty assumed by the defaulting promisor.
In Baltic Shipping all members of the High Court (including Brennan J) quoted with approval the following passage from Bingham LJ's judgment in Watts v Morrow:
Where the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured instead. If the law did not cater for this exceptional category of case it would be defective.[102]
[102] Watts v Morrow [1991] 1 WLR 1421, 1445 (quoted with approval in Baltic Shipping Co v Dillon (364) (Mason CJ with Toohey & Gaudron JJ agreeing), (371) (Brennan J), (382) (Deane & Dawson JJ), (402) (McHugh J)).
So too, where damages for harming reputation have been awarded for breach of contract, the cases are ones where the purpose or object of the contract was to protect or enhance reputation. In such cases, unlike in contracts generally, it may readily be seen that the promisor ought to be taken to have assumed the risk of liability for such loss of reputation.
In allowing recoverability, in the disappointment and distress context, where the contract is one the object of which is to provide enjoyment, relaxation or freedom from molestation, the various members of the High Court who eschewed a remoteness rule based on Hadley v Baxendale adopted a more exacting requirement. Damages were only recoverable where the breach arose from a failure to provide the promised benefit. It became necessary to characterise the object of the contract. Damages were awarded if the intended object was not provided or if the contrary result was procured.
Should an analogous - and more exacting - requirement arise as to recoverability of damages for loss of reputation, we are satisfied that Mr Lee's pleaded case still meets the threshold of being reasonably arguable.
The contract between Lawfirst and Mr Lee was one to provide legal services. It cannot be suggested that Lawfirst contracted to bring about a particular result in the defamation proceedings or that there was a covenant to protect Mr Lee against adverse reputational consequences associated with the proceedings. In both respects there must be due recognition of the inherent uncertainty of litigation. But, so too, there must be due recognition of two other matters. First, regard must be had to Mr Lee's professional qualifications, status and standing. Mr Lee's reputation was a matter of considerable importance to him given his occupations as a pharmacist and a lawyer. Second, most critically, the retainer was to act for Mr Lee in the defamation proceedings. Accordingly, it may be inferred (or at least is reasonably arguable that it may be inferred) that a substantial object or purpose of the retainer was to prosecute the defamation proceedings employing reasonable skill, care and diligence as a means to obtain reparation for harm to Mr Lee's reputation or to vindicate Mr Lee's reputation.
In the circumstances we consider it is reasonably arguable that an object of the retainer and the relevant contractual obligation was to protect or enhance Mr Lee's reputation. Should, by analogy with the disappointment and distress cases and in particular the approach of the High Court in Baltic Shipping, there be a more exacting requirement for recoverability than the test of remoteness in Hadley v Baxendale, it is reasonably arguable that the more exacting requirement is satisfied. It follows that there is a reasonable cause of action so far as Mr Lee seeks to recover damages for alleged injury to his credit and reputation.
On this basis it is not necessary to finally determine whether, as Mr Lee contends, the rule of remoteness in Hadley v Baxendale is applicable. Mr Lee has a reasonable cause of action irrespective of whether recoverability is determined by the rule of Hadley v Baxendale or a more exacting requirement analogous to that adopted in the disappointment and distress cases.
We are not presently inclined to offer an opinion as to which of the two positions is correct as a matter of law. The question is difficult. An answer proffered at this stage could be no more than obiter dicta. And, in any case, while in some cases the court might decide to determine a difficult question of law in the context of a strike-out application, it is generally appropriate to leave the question for trial. That is all the more so in the present appeal where, in many respects, the parties' respective submissions did not address the merits of the competing possibilities in a meaningful way.
To this we would add that, even if presently minded to apply the more exacting standard insofar as it is prima facie more consonant with the approach of the High Court in Baltic Shipping, we are cognisant of the views expressed in the United Kingdom authorities Mr Lee relied on. Those authorities are subsequent to Baltic Shipping. It may be that the law is developing (although the reasons of Gordon & Edelman JJ in Young v Chief Executive Officer (Housing) would suggest otherwise). Even if we were presently minded to apply the more exacting standard - and, contrary to our conclusion, we were to be satisfied that it was not reasonably arguable that the retainer had as an object the protection or enhancement of Mr Lee's reputation - we would still consider that Mr Lee's claim for damages for loss of reputation was reasonably arguable. There would be at least a reasonable possibility that, if the law develops consistently with the views expressed by Lord Nicholls and Lord Steyn in Malik v Bank of Credit and Commerce International SA and Lord Millett in Johnson v Unisys Ltd, it will be found that there is a cause of action as advanced by Mr Lee.
Grounds 3.1(a) and 3.1(b)(iii) succeed to the extent that the grounds challenge the striking out of par 89.11 and the words 'personal injury to credit and reputation' in par 93 of the amended statement of claim.

Disposition - the challenge to the master's costs order (ground 5)

Ground 5 seeks to overturn the costs order made by the master.
In Lee v Lawfirst [No 1] the court referred to the appeal the question of leave to appeal in relation to ground 5. The court did so on the basis that ground 5 was consequential on the success, if any, Mr Lee enjoyed on the appeal. Mr Lee has enjoyed limited success on the appeal. Two pleas previously struck from the amended statement of claim are to be reinstated. That success does not demonstrate any material error in the master's order that the plaintiffs, including Mr Lee, pay Lawfirst's costs of the strike-out application. The two pleas that have been reinstated are inconsequential to the overwhelming success that Lawfirst otherwise enjoyed before the master.
That is all the more so where the submissions before the master did not address the issues raised by the claim for loss for harm to credit and reputation in any meaningful way. In particular, the principles and authorities addressed on the appeal were not canvassed at all in submissions before the master.
In any case, the costs order was made before Mr Lee became a bankrupt. It is a provable debt in the bankruptcy. Accordingly, it is not apparent why Mr Lee has an interest which would confer standing to appeal in his own name against the costs order.[103] In this respect, Mr Lee freely conceded at the appeal hearing that the costs issue did not really matter to him.[104]
[103] Cummings v Claremont Petroleum NL [1996] HCA 19; (1996) 185 CLR 124, 137 - 138.
[104] Appeal ts 39.
Ground 5 fails.

Conclusion and orders

The master's orders as challenged by the appeal are interlocutory. Mr Lee requires leave to appeal. It is in the interests of justice that there be leave to appeal limited to those grounds which have been upheld. In these limited respects the master's decision has been demonstrated to be in error. Mr Lee will suffer substantial injustice if that aspect of the master's decision remains unreversed. The master's orders will prevent Mr Lee prosecuting a reasonable cause of action insofar as Mr Lee seeks to recover damages for the alleged injury to his credit and reputation.
This court should make orders which, in effect, reinstate par 89.11 and the relevant words of par 93 of the amended statement of claim.
Subject to hearing from the parties as to the precise terms, we would make orders to the following effect:
1.The appellant has leave to appeal in relation to:
(a)ground 3.1(a) insofar as that ground alleges that the master wrongly struck out par 89.11 of the amended statement of claim; and
(b)ground 3.1(b)(iii) with respect to the striking out of the head of damage for 'personal injury to credit and reputation' in the particulars to par 93 of the amended statement of claim.
2.Leave to appeal in relation to ground 5 is refused.
3.The appeal is allowed.
4.The order of the Supreme Court made 11 May 2022 in action CIV/2167/2021 is varied by:
(a)in par 1(a) - deleting the words '89.11,'; and
(b)in par 1(b)(ii) - deleting the words 'sub-paragraph 89.1;' and substituting the words 'sub-paragraph 89.1.'; and
(c)deleting par 1(b)(iii).
The parties should be heard on the question of the costs of the appeal.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EM
Associate to the Honourable Justice Vaughan
1 DECEMBER 2023