Lovell v Penkin (A Bankrupt) and Another

The case of Lovell v Penkin (A Bankrupt) and Another involves Mr Lovell, a journalist and author, seeking to proceed with a claim against Mr Penkin, a bankrupt individual who was his solicitor, for professional negligence. The dispute arose from Mr Penkin's alleged failure to serve a Crown Suits Act notice within the relevant time period, which led to the statute barring or preclusion of a claim against the State of Western Australia. Mr Lovell's claim was initially framed in terms of a breach of the implied duty of care within the solicitor/client retainer and, alternatively, for breach of the duty of care owed by Mr Penkin. However, Mr Lovell amended his pleading to focus solely on the negligence claim. The solicitors for the insurer successfully argued in the Supreme Court that the damages sought by Mr Lovell were a provable debt under the Bankruptcy Act 1966 (Cth) and that the claim should be stayed.

The court was required to determine whether Mr Lovell's claim for professional negligence against Mr Penkin was a provable debt under s 82(2) of the Bankruptcy Act 1966 (Cth), and if so, whether leave should be granted for the claim to proceed. The court also had to consider whether the statutory requirement for solicitors to maintain indemnity insurance should influence the disposition of the matter. The court examined the relevant provisions of the Act, including s 117, which vests the right of the bankrupt to indemnity under an insurance policy in the trustee, and the case law on the issue, such as Chittick v Maxwell (1993) 118 ALR 728 and Kattirtzis v Zaravinos [2001] FCA 1158.

The court concluded that although there was uncertainty regarding the construction of s 82(2) of the Act, the emphasis on the narrow basis of exceptions to provable claims might support the conclusion that a direct claim in negligence by a client against their solicitor was provable. The court also noted that if insurance cover was in place, the effect of s 117 of the Act would ensure that the benefit of the cover would still be received by the claimant rather than the estate as a whole. Therefore, the court decided that leave should be granted for the claim to proceed, but on conditional terms. The court required Mr Lovell to provide an undertaking to the Court that he would not seek final relief in the Action without giving seven days notice to the office of the Official Trustee and would not oppose any application by the Official Trustee to be joined or heard in the Action. Additionally, any step to enforce any judgment obtained in the Action would require leave from the Court. The court made no order as to costs, subject to any submissions made by the parties within 14 days.

In summary, the court granted leave for Mr Lovell to continue and take fresh steps in his proceedings against Mr Penkin in the Supreme Court, subject to the conditions outlined above. The court's decision was based on the uncertainty regarding the construction of s 82(2) of the Act and the potential benefit to Mr Lovell of insurance cover, if in place. The court emphasised the importance of considering the statutory requirement for solicitors to maintain indemnity insurance and the potential need for further input from the Official Trustee and other parties in the future.