May v Mijatovic - [2002] WASC 151

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: MAY -v- MIJATOVIC [2002] WASC 151

CORAM: HASLUCK J

HEARD: 15-18 & 29 APRIL 2002

DELIVERED : 14 JUNE 2002

FILE NO/S: CIV 1709 of 2001

BETWEEN: KENNETH GEORGE MAY
Plaintiff
AND
TOMAS MIJATOVIC
Defendant
AND
THE RURAL ACTION MOVEMENT OF WA INC
First Third Party
GREGORY OCTAVIUS COLE
Second Third Party

Catchwords:

Professional negligence - Duty of care - Concurrent liability in contract and tort - Nature of retainer in determining scope of duty of care - Solicitor instructed to apply for injunction at short notice - Client eventually held liable pursuant to undertaking as to damages - Standard of care expected of competent and careful solicitor in such circumstance - Causation - Whether failure to warn of risks of litigation occasioned loss

Advocate's immunity - Application of rule where solicitor acts as advocate - Immunity held not to apply to advice by solicitor as to merits of proposed claim

Legislation:

Corporations Law, s 436A, s 437A, s439A, s 439B(2), s 449A, s 449B, s 449E

Result:

Judgment for the plaintiff

Category: A

Representation:

Counsel:

Plaintiff:     Mr A Metaxas
Defendant:     Mr A N Siopis & Mr P V Lansell
First Third Party           :     No appearance
Second Third Party       :     No appearance

Solicitors:

Plaintiff:     Metaxas & Vernon
Defendant:     Jackson McDonald
First Third Party           :     No appearance
Second Third Party       :     No appearance

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

Arthur J S Hall & Co (a firm) v Simons [2000] 3 WLR 543
Astley v Austrust Ltd (1999) 197 CLR 1
Boland v Yates Property Corporation Pty Ltd (1999) 167 ALR 575
Chappel v Hart (1998) 195 CLR 232
Dalleagles Pty Ltd & Ors v Australian Securities Commission & Ors (1991) 4 WAR 325
Del Borrello v Friedman & Lurie (a firm) [2001] WASCA 348
Duchess of Argyll v Beuselinck (1972) 2 Lloyd's Rep 172
Esanda Finance v Peat Marwick Hungerfords (1997) 188 CLR 241
Feldman v A Practitioner (1977) 18 SASR 238
Giannarelli & Shulkes v Wraith (1988) 165 CLR 543
Hawkins v Clayton (1988) 164 CLR 539
Heydon v NRMA Ltd (2000) 51 NSWLR 1
Keefe v Marks (1989) 16 NSWLR 713
Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp (a firm) [1979] Ch 384
Perre v Apand Pty Ltd (1999) 198 CLR 180
Rees v Sinclair [1974] 1 NZLR 180
Rogers v Whitaker (1992) 175 CLR 479
Saif Ali v Sydney Mitchell & Co (a firm) [1980] AC 198
Voli v Inglewood Shire Council (1963) 110 CLR 74
Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642
Yates Property Corporation Pty Ltd v Boland (1997) 145 ALR 169

Case(s) also cited:

Mortgage Express Ltd v Bowerman & Partners (a firm) [1996] 2 All ER 836
Pegrum v Fatharly (1996) 14 WAR 92

HASLUCK J: The plaintiff in these proceedings, Kenneth George May, was at the material time an office‑bearer of an incorporated association known as the Rural Action Movement or RAM. This body supports farming interests and companies in Western Australia. The office held by the plaintiff was that of Bank Watch Officer. His role was to represent members of the association who were having financial problems. The plaintiff had been a farmer for many years, and therefore had practical experience of problems facing the rural community, but he did not have any formal qualifications in the fields of law or accounting.
The defendant, Tomas Mijatovic, is a legal practitioner who has been admitted to practice as a barrister and solicitor of the Supreme Court of Western Australia. The plaintiff engaged the defendant to act on his behalf. This led to legal proceedings CIV 2589 of 2000 ("the legal action") being commenced by the plaintiff on 20 November 2000 against Vincent Smith as administrator of Cole Engineering Pty Ltd (under administration).
The plaintiff brought an application for injunctive relief in the legal action, but this eventually proved to be unsuccessful. The plaintiff now advances a claim for relief against the defendant upon the basis that the defendant failed to exercise reasonable skill, care and diligence in the course of acting for the plaintiff.

Cole Engineering

The business known as Cole Engineering was founded in Kellerberrin, Western Australia in 1955. The business specialised in the design, manufacture, repair and maintenance of agricultural machinery. The company Cole Engineering Pty Ltd was incorporated in Western Australia on 7 January 1977. After 1988 the business was managed by Mr Greg Cole, son of Cole Engineering's founder, Octavius George Cole. By the year 2000, the company employed 24 staff, 20 of whom were full time employees. The company also had agents based in the Eastern States.
Early in the year 2000 the directors decided to advertise the business for sale as a going concern and appointed Elders Real Estate (WA) Pty Ltd as their agents. The asking price for the business and all of its assets was approximately $3.8m. Whilst there was some interest in the business, most parties felt that the asking price was unrealistic and accordingly the sale process faltered.
By mid 2000 the company was facing various financial difficulties. Mr Cole was conscious that the Challenge Bank might move against the company. It was against this background that the plaintiff as the Bank Watch Officer of the Rural Action Movement was called in to review the situation. He conferred with Mr Cole, inspected various documents, and eventually concluded that the company could trade out of its difficulty. He rendered an invoice for his services dated 15 June 2000 in the sum of $1,268.90 and thereby became a creditor of the company.
It seems that in August 2000 Mr Guy Lehmann of the accounting firm, Muntz & Partners, formed a view that the company required the assistance of an insolvency practitioner. The Perth based firm Norgard Clohessy was approached for advice. Subsequently the directors of Cole Engineering Pty Ltd resolved to appoint Mr Vincent Smith and Mr Bryan Hughes - members of the firm Norgard Clohessy - as joint administrators. The appointment was effected on 24 August 2000. According to the administrators' first report to creditors, preliminary investigations suggested that the primary reasons leading to the company's failure were a certain loan agreement, poor internal accounting and stock controls, and a lack of internal financial management skills within the company.
The plaintiff and other members of the Rural Action Movement were concerned for the future of Kellerberrin if the company were to be wound up and sold. He and Mr Cole looked at ways and means of rescuing the company. They were troubled also by the way in which the administrators were discharging their duties.
It emerged during the course of the trial that the Rural Action Movement had on 13 previous occasions taken successful action to assist companies in rural communities. The plaintiff had played a part in conducting negotiations and conferring with solicitors. On this occasion the plaintiff and Mr Cole concentrated upon finding alternative sources of finance, with a view to discharging a debt in excess of $1m which was owed to the Challenge Bank. Pursuant to this strategy, approaches were made to the National Australia Bank, notwithstanding that the company was under administration.
In the meantime, RAM had issued a media release to say it was going "in to bat for the Kellerberrin based engineering company, Cole Engineering." Pledges of financial support were invited. The release was authorised by Mr Gentle as President of RAM.

The Progress of the Administration

Mr Cole's disenchantment with the progress of the administration did not abate. He authorised his then solicitors Paiker & Overmeire to write to Mr Smith at Norgard Clohessy by letter dated 1 September 2000 in these terms:
"Our client has provided to us a copy of your letter of 31 August 2000. You are placed on notice that under no circumstances are you authorised to proceed with the sale of the business. The purpose of placing Cole Engineering Pty Ltd ("the company") in administration was not to sell the business. The purpose was to give our client "breathing space" so he can consider his various options once the creditors have made a determination.
Should you proceed with the sale of business it will be considered and deemed that you are on a 'frolic of your own' and our client will, without hesitation, notice or delay take appropriate action to restrain you in the sale.
Further and in any event we have been advised and have reason to believe that you did not at the meeting put to the vote, by the creditors attending in person or in proxy, your appointment as administrator of the company. When the issue of your appointment arose, the question was asked 'Is there any other administrator present?' and as there was no other administrator present you proceeded to confirm your appointment.
Our instructions are therefore that you are to immediately call a further meeting of creditors for the purpose of allowing the creditors to decide whether they wish to have Norgard Clohessy appointed as administrator or not. Our instructions are further and in any event that the majority of creditors would be happy not to have Norgard Clohessy appointed as administrator to the company and we therefore require for that purpose alone the further meeting of creditors so that they can decide who should be appointed as administrator formally and properly.
Our client has advised you that he has secured approximately $250,000.00 of orders at the Dowerin Field Day. We understand that you advised the creditors at the meeting that your costs for 28 days of administration would be in the region of $70,000‑$80,000. Those kind of costs would clearly destroy the company. In any event our instructions are that this is in contradiction to the other advice received from your firm that the costs would be between $10,000‑$13,000. We also require you to forward to us, by return fax, a copy of the minute of the meeting held on 31 August 2000."
The administrators proceeded with their work. The second meeting of creditors was adjourned on 20 September until 11 October when it was further adjourned to 1 November 2000. The adjournment was to enable the administrators to pursue their efforts to sell the business. By letter dated 14 November 2000 to Mr Cole the joint administrator, Mr Hughes, responded to a more specific allegation concerning the administrators' fees in these terms:
"You are quite correct in your statement that we transferred an amount of $75,000 from the Cole Engineering Pty Ltd administration trading account and into our Firm's Trust Account on or about 27 October 2000. You appear to misunderstand the purpose of a Trust Account. It is standard procedure of this Firm and many other Insolvency practices to transfer funds from an administration trading account to a Trust Account (where they remain in trust on behalf of the Company) during the period of an administration. The purpose of this is to ensure that sufficient funds are available to pay administrator's fees and expenses (including legal fees) in the event creditors approve such costs at the Second Meeting of Creditors. It also makes common sense for an administrator to carefully manage the cashflow of an administration during ongoing trading, something I am sure you can appreciate.
You may recall that at the reconvened meeting of creditors held on 1 November 2000, creditors approved my remuneration in the amount of $99,986.72 plus disbursements and GST. For your information, immediately after the meeting, I transferred the amount of $75,000, previously held in the Trust Account, into Norgard Clohessy's trading account. I trust the above alleviates any concerns you may have had regarding this matter."
The creditors meeting of 1 November had been further adjourned to 20 November 2000 by which time it was hoped that a sale of the business would have been finalised or a worthwhile proposal made for a deed of company arrangement.
Mr Cole eventually put up a proposal to the administrators for paying out the Challenge Bank. The plan was to obtain finance from the National Australia Bank so that the company could discharge its liability to the Challenge Bank and trade out of its difficulties pursuant to a deed of company arrangement.
In his fourth report to the creditors dated 9 November 2000 the administrator, Mr Vincent Smith, described the proposal made by the directors to obtain finance to pay out the secured creditors, as brief in content and lacking in detail. Mr Smith went on to say this:
"I advised Mr Cole that I needed confirmation regarding finance by no later than 8 November 2000. On that date (i.e. yesterday) Mr Cole rang me to tell me that his finance broker had advised him that the National Australia Bank Limited had approved his finance application but that written confirmation would not be available until 9 November 2000. Given that I still did not have written confirmation regarding the approval I sought independent confirmation by contacting the National Australia Bank directly. I was advised by the manager handling the application that finance had not been approved, that the National Australia Bank was far from completing its review of the application, and that their preliminary view was that approval was unlikely. This is obviously contrary to what I was advised and it appears the actual position was misrepresented to me. I questioned Mr Cole on this discrepancy and to date he has yet to advise how this misrepresentation occurred.
In the absence of finance approval I see no means by which the directors' proposal (and particularly the proposed pay out of Challenge Bank) can proceed. I have also been advised by Challenge Bank that it will not support the proposal in the absence of the necessary financing. In these circumstances, and in the absence of the Farmers Carbon proposal proceeding, it will be my recommendation at the second meeting of creditors that the Company be placed into liquidation."
The stance adopted by the administrator was a source of great annoyance to the plaintiff and Mr Cole. The plaintiff said in evidence at the trial that he and Mr Cole formed the view that the administrator was determined to put the company into liquidation and with that thought in mind had thwarted the proposal to obtain finance from the National Bank with a view to saving the company. They believed the administrator had spoken to National Bank officers and denigrated Mr Cole.

Mr Gentle and Mr O'Connor

The President of RAM at that time, Mr Gentle, gave evidence at the trial in support of the plaintiff's case. Mr Gentle described the position in mid November in these terms:
"By about the middle of November 2000 it seemed that at the next creditor's meeting there was a probability that a resolution to liquidate Cole Engineering Pty Ltd would be passed. I felt this would be a devastating blow to the town of Kellerberrin and inappropriate on the basis that I understood the company could trade profitably if it received some short term assistance from its bank. I believed that that position was supported by figures supplied by Guy Lehmann.
In order to ensure that we had not misunderstood the position it was decided that we should seek advice from George Lopez, an insolvency practitioner from Melsom Robson. Ken May and I went to see George as best as I can recall in the week ending 10 November 2000. The situation regarding Cole Engineering was explained to George and he said that he was prepared to act as the administrator. There were a number of grievances against Smith as follows:
1.George Cole told me that orders from his 2 major customers had been cancelled because Smith was demanding a level of accuracy in relation to projected costings which was just unrealistic and without that Smith was unwilling to take the risk of further production;
2.Smith was being difficult in terms of ordering further material or parts;
3.Smith's fees were very high and a severe drain on the company's cashflow; and
4.Cole's assessment was that Smith was there as the undertaker to bury the company and had no real intention to see if it could trade on profitably.
Having completed this meeting with Lopez I had discussions with Ken May and Greg Cole as a result of which we were in agreement that steps needed to be taken to prevent the creditors resolving to liquidate the company. In order to pursue that objective a meeting was arranged with Michael O'Connor who was the solicitor for Mr and Mrs Cole and had also acted in the past for clients referred to him by RAM.
We met O'Connor at his office. Present was O'Connor, May and me. O'Connor was supportive of our position and recommended that we instruct Tom Mijatovic in order to make an application to the Supreme Court. O'Connor said he was negotiating or wanted to try and negotiate a resolution with the bank on Greg Cole's behalf and so he did not want to be seen as the solicitor acting to restrain."
Mr Gentle's evidence concerning the sequence of events was supported by the evidence of Mr O'Connor, the solicitor said to be acting for Mr and Mrs Cole. Mr O'Connor was a legal practitioner with many years of experience behind him. He had held a senior position in the Corporate Affairs Office (as it then was) and, more recently, was the principal of the firm O'Connor Partners, a law firm with an office in West Perth. He said in his evidence in chief that in or about the period 1 July 1999 to 30 September 2001 the Rural Action Movement referred to him for assistance a number of its members. He also undertook a number of assignments for RAM itself. The large majority of the work was referred by Ken May (the plaintiff) who described himself to Mr O'Connor as RAM's Bank Watch Officer, past president of RAM and a current member of its executive.
Mr O'Connor said further that on 24 October 2000 the plaintiff had attended at his office with Mr Cole who was introduced as a RAM member and as a shareholder and director of Cole Engineering Pty Ltd which had been placed into administration. Mr O'Connor agreed to assist with the development of a proposal to refinance the company with a view to terminating the administration. Mr O'Connor confirmed that at a later stage on 14 November 2000 he received two telephone calls from the plaintiff in which he expressed anger at what he described as steps by Mr Smith to sabotage the rescue package. He indicated that both he and Mr Cole wished to commence proceedings to remove Mr Smith and restrain him from acting.

The 15 November Meeting

It was against that background that on 15 November 2000 a meeting was arranged by Mr O'Connor at the offices of the defendant, Mr Mijatovic. This meeting was attended by the plaintiff (Mr May), Mr O'Connor and the defendant. There was a degree of controversy at the trial as to whether the President of the Rural Action Movement (Mr Gentle) and the defendant's secretary were also present.
The case for the plaintiff was that those present at the meeting were essentially looking to the defendant, in his role as a legal practitioner, to provide advice and to act on any instructions that were provided to him as a consequence of such advice.
The defendant's case was that a plan of action had already been formulated as a consequence of prior discussions between O'Connor, Gentle, Cole and the plaintiff. In essence, the defendant's role was limited to giving effect to the requirements of the plaintiff and his associates by commencing legal proceedings with a view to removing the administrators and restraining Mr Smith from acting further. The defendant was not being asked to advise on the merits of the plan or as to the prospects of an injunction being obtained. He was to act as advocate in presenting the plaintiff's claim.
It was a live issue between the parties to the present action as to what took place at this crucial meeting.
The defendant's case at trial was that the plaintiff or alternatively Mr O'Connor informed the defendant, during the course of the meeting, about the events concerning Cole Engineering Pty Ltd. It was said that the plaintiff was a creditor of the company and acted for the majority of the company's unsecured creditors.

It was said further that the company was not insolvent and was able to continue trading in that its assets exceeded its liabilities and it had made a profit of $180,000 since 24 August 2000. There was a risk that at a forthcoming creditors' meeting the creditors would resolve to liquidate the company. This was not thought to be appropriate. Since his appointment, Mr Smith had hindered the company in relation to its operations and caused the company to lose orders. He had undermined Mr Cole's approach to the National Australia Bank to put together a rescue package. Furthermore, he had withdrawn the sum of $75,000 or thereabouts in payment of his fees, notwithstanding that such remuneration had not been fixed as a resolution of the company's creditors.
On this version of the meeting, the defendant was told that RAM had or would have sufficient funds in Mr O'Connor's trust account to pay the costs of the proceedings and indemnify the plaintiff. It was common ground at the trial that a fighting fund of $15,000 had in fact been raised to meet legal costs, but there was some controversy at the trial as to what exactly was said to the defendant about this aspect of the matter. Under cross examination, the plaintiff said that he did not say anything to the defendant about the fund specifically, but it was what he had in mind when he said there were funds available to meet the costs.
The tenor of Mr O'Connor's evidence was that if the defendant agreed to act for the plaintiff in the proceedings, he (O'Connor) would act for the company and Cole in respect of certain negotiations which were taking place with the National Bank of Australia. A proposed refinancing package was under consideration whereby the company would be valued at $500,000 and used as security. Put shortly, Mr O'Connor would handle the negotiations; the defendant would handle the litigation. If an injunction were obtained so that the administrators were restrained from proceeding further, this would be of assistance in Mr O'Connor's attempt to complete the negotiations. I observe in passing that the defendant's handwritten notes made at the time of the meeting speak of a "2 pronged act."
The defendant's case was that at the meeting on 15 November 2000, after his initial exposition, Mr O'Connor went on to inform the defendant that he had advised the plaintiff that strong grounds existed for commencing proceedings in the Supreme Court and obtaining an injunction to restrain Smith from convening the creditors' meeting and taking any steps to procure the liquidation of the company. Mr O'Connor spoke of Smith being removed as administrator of the company and an award of damages against Smith.
The defendant's case was that he told the plaintiff and Mr O'Connor that the proceedings could not be commenced without proper evidence of the matters to be relied upon and that an undertaking as to damages would be required. In the event, however, the plaintiff and Mr O'Connor insisted that the proceedings be commenced and arrangements were then made for the gathering together of documentation which would support the claim to be advanced against the administrator. The defendant's handwritten notes conclude in this manner: "* more evidence - Go ahead anyway. Ken wants to sue."

The Plaintiff's 17 November Letter

A letter dated 17 November 2000 from the plaintiff to the directors of Cole Engineering has a bearing upon the plaintiff's state of mind at this time. The letter, written on the letterhead of the Rural Action Movement, reads as follows:
"Dear Sir/Madam
Cole Engineering products have been well known throughout rural WA for over 50 years, for quality of workmanship and durability to stand up to hard wear.
Greg and Wendy Cole joined the Rural Action Movement of WA nearly 12 months ago, and we have enjoyed their input into our meetings.
My connection with Cole Engineering began when Greg Cole requested help in June 2000. Inspection of the factory at that time resulted in one that was centrally placed for ease of marketing rural products. Factory layout has grown over the years and works exceptionally well.
Norgard Clohessy
Cole Engineering was placed under administration to the above firm by Challenge Bank on 24/08/00.
This is a most unusual step, as firms such as Cole Engineering, who have traded profitably since its inception normally are given the option of choosing an administrator.
After attending several creditors meetings of Cole Engineering, I realized that Mr Vincent Smith had a desire to act not as an administrator, but as a receiver, thereby earning a greater salary to the cost of Cole Engineering.
This observation has been subsequently born out by the problems that Cole Engineering have had in sourcing product, including steel, hydraulic parts, etc to complete orders on time, to the point that Cole have lost orders, especially from South Australia, due to lack of delivery within contracted specification date.
Greg Cole has offered increased security of $500,000 to Challenge Bank, but this has been rejected.
The role of Vincent Smith acting without moral principles is born out by the fact that:
1.On 27th October, $75,000 was withdrawn from Cole Engineering without permission from the creditors, which permission he did receive on the 1st November.
2.On the 15th November Cole Engineering office received a phone call from Norgard Clohessy, asking where accommodation could be found in Kellerberrin to house security guards, well before any decision is to be made on the future of Cole Engineering at the Creditors meeting on 20th November.
3.Courier Australia has been booked to provide transport to shift 100 boxes of supposedly office documents and computers on Monday 20th November.
The conclusion that I can only arrive at is that pressure is being put on Vincent Smith or he is that much in a hurry to act as a receiver, he is letting greed override commonsense.
Ken May
Past President of Rural Action Movement of WA Inc."
I pause briefly to observe that the plaintiff was wrong in his assertion that Cole Engineering had been placed under administration by Challenge Bank. The appointment of the administrators had been effected by a resolution of the directors. Further, as I have already indicated, by the time the plaintiff wrote his letter on 17 November 2000, Mr Hughes, by letter dated 14 November 2000, had provided a detailed response to the allegation about the administrators' fees, although it is doubtful that the plaintiff had actually seen the response.
The meeting at the defendant's office on 15 November 2000 had concluded on the basis that the plaintiff and Mr Cole were to assemble and deliver to the defendant evidentiary materials to underpin the proposed case against the administrators. It seems, however, in the period between 15 November 2000 and 20 November 2000, being the date of the forthcoming creditors' meeting, that the only documents received by the defendant were some proxy forms affirming that certain of the unsecured creditors were to be represented at the meeting by the plaintiff, and a form whereby Mr George Lopez consented to act as administrator if Mr Smith ceased to act.

The 20 November Events

The defendants' case was that on 20 November 2000 at 9.30 am or thereabouts, the plaintiff and Mr Cole attended at the offices of the defendant. Mr Cole had brought with him a box of papers concerning the affairs of the company. The plaintiff then instructed the defendant to commence the proceedings that had been discussed previously.
I note in passing that at about 10.30 am the defendant contacted Mr Smith by telephone. During the course of the conversation the administrator said that the adjourned meeting of creditors which was scheduled for 2.00 pm on the afternoon of that day would proceed unless he was restrained by an injunction. The defendant was therefore put on notice that any proceedings commenced by the plaintiff or by Mr Cole were likely to be contested.
The defendant said in evidence at the trial that he did not have sufficient time to read and make an appraisal of the papers placed in front of him. He told the plaintiff this, but he was instructed to proceed.
A writ of summons was prepared by the defendant bearing an indorsement of claim in these terms:
"1.The plaintiff claims as against the defendant relief under the Corporations Law for the extension of time to convene a meeting under section 439A(6), the removal of the administrator and the prevention of the placing of the Company into Liquidation by the First Defendant, breaches of duties by the First Defendant causing the plaintiff and the second defendant losses contrary to the interests of the creditors.
2.The plaintiff claims losses as a result of the actions of the First Defendant including losses to the Second Defendant, breach of fiduciary duty and other duties under the Corporations Law."
The defendant also prepared an undertaking as to damages. The effect of the document (in the usual form) was to provide an undertaking by the plaintiff to compensate any party affected by the restraint.
The writ of summons was to be supported by a chamber summons seeking an interlocutory injunction against Smith. According to the defendant, he did not have sufficient time to prepare an affidavit in support of the application. He recognised a need to protect the plaintiff, so he hastily arranged for an indemnity agreement to be signed in these terms:
"We Kenneth May and Greg Cole hereby agree that:
1.Greg Cole will indemnify Kenneth May for all costs and expenses, legal fees and disbursements and all losses and damages or charges or as a result of the undertaking as to damages provided by him to the Court on today's date or thereafter in respect of the action against Vincent Smith as Administrator of Cole Engineering Pty Ltd (Under Administration).
2.Kenneth May will prosecute the action in the Supreme Court in the interests of the unsecured creditors and myself.
3.We have had the opportunity to receive independent legal advice in regard to this agreement and have chosen not to obtain the same and sign this agreement of our own free choice and without any duress or pressure.
20 November 2000
Greg Cole
Kenneth May"
I pause to say that in the course of his evidence at trial the plaintiff conceded he had read the undertaking and the indemnity agreement, but very quickly. He appreciated that the indemnity agreement was to his advantage but throughout the events of that morning he believed the documents were referring to legal costs only in which respect, in any event, he was protected by the availability of the RAM fighting fund of $15,000 which had been present to his mind at the earlier meeting. According to him, the defendant did not explain or make clear at either meeting the nature of the liability that could arise under the undertaking as to damages.
The plaintiff's case at trial was that on 20 November 2000 the plaintiff engaged the defendant to issue proceedings against Vincent Smith in his capacity as the administrator of Cole Engineering Pty Ltd. These instructions followed, and were influenced by, the earlier meeting on 15 November 2000, between Mr May, the defendant, Mr O'Connor (in his role as solicitor for Mr Gregory Cole) and John Gentle at which the possibility of obtaining an injunction was discussed. On the plaintiff's case it was an implied term of the retainer that the defendant would perform his work with reasonable skill, care and diligence. Alternatively, a duty of this kind was owed in tort.
The defendant said in evidence that on the way to Court he advised the plaintiff and Mr Cole that he would have to call them to depose viva voce before the Court as to the misconduct of the administrator. On his case, he told them that the Rules of Court had not been complied with and it would be a miracle if the injunction were granted. As it turned out, when the defendant proposed that the two gentlemen be called to give evidence Justice Miller said that it would be sufficient if the defendant advised him from the Bar table of the substance of what their evidence would be.
The defendant, relying on the oral instructions he had been given in the meeting a few days previously, described the matters relied on in support of the injunction. Somewhat reluctantly, Justice Miller granted the interim injunction. The defendant, accompanied by the plaintiff and Mr Cole, then took a taxi to West Perth in order to serve a signed copy of the order on Mr Smith. Hence, the creditors meeting was adjourned. Later, on 20 November 2000, the plaintiff swore an affidavit prepared by the defendant confirming what had been put to the Court.
The restraining order allowed to the plaintiff by Justice Miller was to the effect that the time period affixed by s 439B(2) of the Corporations Law be extended by 28 days and that the adjourned meeting of the meeting of creditors not be held before 21 days from 20 November 2000 unless otherwise ordered by the Court.
The defendant reported to Mr O'Connor by letter dated 21 November 2000 in these terms:
"We refer to the orders of the Honourable Justice Miller of the Supreme Court made on 20 November 2000.
We enclose a copy of the 2 sets of orders made yesterday and a further chamber summons to remove Mr Smith as administrator and appoint Mr Lopez as a new administrator and to review the remuneration as served on Phillips Fox today.
We have filed a writ of summons, undertaking as to damages and 2 affidavits sworn by Mr May. We will require a further affidavit by Mr Cole in support to ensure a strong case for removal which will be heard on 29 November 2000 at 10.30 am. We require further evidence as to improprieties and the re‑finance proposal that was stifled and new re‑finance proposals in writing, otherwise the company will be put into liquidation.
We confirm that the writ now bears the action number CIV 2589 of 2000 and we have requested that all of the papers be placed on this court file.

Discharge of the Injunction

It seems that on 27 November 2000 the administrator Mr Smith filed an application in the proceedings seeking orders that the injunction granted by Justice Miller be discharged and that the writ and indorsement of claim be struck out.
In the meantime, Mr O'Connor had prepared a deed of indemnity and forwarded the same by fax to the defendant. Mr O'Connor's covering letter dated 28 November 2000 reads as follows:
"Please find to follow the Deed of Indemnity prepared for Mr Ken May. Please call me if you require any further assistance."
This letter strongly suggests that Mr O'Connor saw himself as having an interest in the matter beyond being simply the solicitor for Mr Cole.
The deed of indemnity was executed and dated 28 November 2000 ("the deed"). The Rural Action Movement acknowledges having been requested by Mr Cole to assist in the making of an application to remove the administrators. It acknowledges that Mr May had agreed to commence the proceeding subject to the Rural Action Movement providing Mr May with an indemnity in accordance with the terms of the deed.
The Deed of Indemnity between RAM and the plaintiff is in these terms:
"WHEREAS:
A.Vincent Smith and Brian Hughes of Norgard Clohessy Chartered Accountants of 10 Ord Street West Perth ("the Joint Administrators") were appointed as joint administrators of Cole Engineering Pty Ltd A.C.N. 008 825 689 ("the Company") on day of 2000;
B.Gregory Octavius Cole of 51 Hammond Street Kelleberrin in the State of Western Australia ("Cole") and his family are, either directly or through interposed entities, major shareholders and creditors of the Company;
C.Cole is of the opinion that the Joint Administrators are not acting in the best interests of the Company or its creditors;
D.Cole has requested RAM to assist him in removing the Joint Administrators as joint administrators of the Company by making application to the Supreme Court for an order removing them as joint administrators of the Company and seeking other related orders ("the Application");
E.RAM has agreed to Cole's request and requested that May assist Cole in making the Application;
F.May has agreed to make the Application subject to RAM giving to him an indemnity in accordance with the terms of this Deed; and
G.At Cole's request, and with the agreement of RAM, May has instructed TRM Legal Services ("TRM") to make the Application.
NOW THE PARTIES HEREBY AGREE AS FOLLOWS:
1.Subject to May instructing TRM to proceed with the Application:
(1)RAM shall indemnify and hold May safe from all legal costs and other costs and expenses incurred by him or on his behalf in respect of the Application.
(2)If, in respect of the Application, May gives any undertaking as to damages or any other similar undertaking, RAM shall indemnify and hold May safe from any liability that May does or may incur as a result of giving that undertaking as to damages or any similar undertaking.
2.RAM shall, forthwith on demand from May, pay to May any:
(1)Legal costs, other costs or expenses referred to in clause 1(1) of this Deed; and
(2)The amount of any liability referred to in clause 1(2) of this Deed.
3.RAM shall pay the costs of and incidental to the preparation and stamping of this Deed (in duplicate)."
In due course, the plaintiff swore a further affidavit in support of the claim. The affidavits on the plaintiff's side consisted of Mr May's affidavit of 20 November 2000 and his further affidavits of 21 and 28 November 2000. On 28 November 2000 Mr Greg Cole swore an affidavit in support of the application. This affidavit also was prepared by the defendant. On 28 November 2000 Mr Cole executed an undertaking as to damages.
I pause to note that the affidavit sworn by Cole contained these passages:
"I am have been operating and managing, as a director and manager, the businesses of the second defendant for over 25 years.
The plaintiff is a proxy for me at the creditors meeting called by the first defendant seeking resolutions to place the second defendant into liquidation and that was to be held on 20 November 2000.
I am personally aware that a majority of the value of the claims of the unsecured creditors of the second defendant including myself have signed proxy and authority forms in the favour of the plaintiff to act on their behalf and to proceed with legal action against the first defendant in regard to his conduct of the administration of the second defendant.
I am personally aware that a majority of the value of the claims of the unsecured creditors of the second defendant and I support the removal of the first defendant as the administrator and a review of his remuneration in the interests of the second defendant and the unsecured creditors and the appointment of George Aubrey Lopez as a new administrator.
The remuneration of the first defendant is substantially excessive and at the meeting of 1 November 2000 when this was approved, the first defendant did not allow full debate on this issue as the Westpac Banking Corp Ltd, being the secured creditor, voted in favour of the payment of the remuneration from the accounts of the second defendant to that of the first defendant.
The first defendant has ignored or not acted in the interests of the unsecured creditors to my personal knowledge and has been winding up, hampering or selling off the second defendant and its businesses since his appointment on 24 August 2000."
There were further passages in the Cole affidavit to this effect:
"The first defendant and Westpac Banking Corporation Ltd have conspired together to sell the second defendant and oppose any re‑financing of the loan of the second defendant to Westpac Banking Corporation Ltd.
I am personally aware that the first defendant was directly responsible for the defeat and stifling of a re‑finance proposal by the National Australia Bank Ltd. It is false to say that such a proposal was unreasonable or would not have proceeded if it had not been for the conduct of the first defendant in rejecting the same."

The plaintiff said in his witness statement that after he had sworn his further affidavit on 28 November 2000 the defendant said that the application to discharge the injunction should be opposed. He told the plaintiff that there was a 90 per cent chance of success.
On 29 November 2000 the question of whether the interlocutory injunction should be extended came before Justice Roberts‑Smith. On 1 December 2000 the learned Judge delivered his written reasons for judgment. He noted that the court rules relevant to the application before him had not been complied with. He ordered that various paragraphs of the affidavits filed on the plaintiff's side be struck out. His Honour went on to find that there was no evidence to support a finding that there was a serious question of fact or law to be tried. He held further that the balance of convenience weighed against the plaintiff's injunction.
This ruling meant that the plaintiff's application was dismissed. The plaintiff was ordered to pay the costs of the application of the administrator and Cole Engineering Pty Ltd. The plaintiff and Mr Cole were ordered to pay damages to Mr Smith and Cole Engineering Pty Ltd caused by the grant of the interlocutory injunction.
Justice Roberts‑Smith noted in the course of his judgment that the plaintiff's contention appeared to be essentially that the administrator had been "deliberately running the business down with a view to putting it into liquidation". He went on to say:
"It seems to me, without for present purposes troubling to canvass the evidence in any more detail, that on all the essential or important issues the contest on the evidence is not one of credibility in the usual sense. It is not a question of determining who is telling the truth in the face of directly conflicting assertions of fact.
The evidence of Mr May is in the main hearsay, opinion and speculation. It seems necessarily to be evidence of what he was or must have been told by someone else, primarily Mr Cole, about the situation of the second defendant or the activities and conduct of the first defendant.
For his part the evidence of Mr Cole consists largely of broad assertions of what he believes Mr Smith has said or done, what he believes Mr Smith's motives for such conduct were and what he believes the effect on the company has been. There is very little, if anything, in his evidence which is capable of lending objective support to those assertions of belief.
As against that, the evidence adduced by the first defendant goes directly to the matters raised by the plaintiff and Mr Cole, relevantly constitutes a denial of them and includes cogent objective evidence, for example the minutes of the meetings of creditors and the letter from the National Australia Bank to which I have already referred, which supports the first defendant's account."
For ease of reference, I will call this Justice Roberts‑Smith's summary of the plaintiff's case for an injunction.
It was against this background that the plaintiff took advice from another legal practitioner, Mr Metaxas. This led to Mr Metaxas writing to the defendant in these terms by letter dated 30 January 2001:
"I have advised my client to the following effect in respect of that action:
1.there was never any basis upon which he should have been advised to seek an interlocutory injunction to restrain the liquidation of Cole Engineering Pty Ltd;
2.the affidavits prepared in support of the application for interlocutory injunction were incompetently drawn;
3.he should have been advised that by offering an undertaking as to damages it was inevitable that he would be called upon to meet the damages associated with the grant of an injunction when it was later dissolved;
4.that he should look to you for damages sustained by reason of your negligent conduct. That damage would extend to the following:
4.1any fees paid to you;
4.2any costs payable to Smith's solicitors upon the discontinuance of the proceedings whether that be by agreement or by dismissal; and
4.3any damages payable pursuant to the undertaking as to damages."
The plaintiff said in evidence that he has incurred loss as a consequence of the defendant's actions. He has been obliged to pay the administrator's taxed costs of $15,152 pursuant to orders made in the injunction proceedings. On 23 October 2001 Master Sanderson ruled that the administrator and Cole Engineering were entitled to proceed with an assessment of damages occasioned by the grant of the injunction in respect of certain trading losses incurred between 20 November 2000 when the injunction was granted and 11 December when the company was wound up. The quantum of these damages has not yet been determined, but it was an agreed fact at the trial that loss of this kind was occasioned. I will return to this aspect of the matter later.
I pause to note also that in the course of his evidence at the trial of the action Mr Cole confirmed that he has been declared bankrupt on his own petition. He remains indebted to the Challenge Bank for the company's debt pursuant to a personal guarantee given to the bank. It was common ground at the trial of the action that the plaintiff had not pressed any claim for an indemnity against Mr Cole and RAM before commencing the present proceedings. In due course, the defendant joined RAM and Cole as third parties.

Pleadings

By a writ of summons dated 9 February 2001 the plaintiff commenced the present proceedings against the defendant as the legal practitioner said to be responsible for loss incurred by the plaintiff. The writ of summons included a statement of claim which recited the events I have described and claimed that by reason of the defendant's breaches of contract and his duty to perform the defendant's work and to advise the plaintiff with reasonable skill, care and diligence, the plaintiff had suffered loss.
I pause to note that various amendments to the pleadings were effected during the course of the proceedings including amendments allowed on the first day of the trial. My description of the cases of the respective parties is derived from the final version of the amended papers for the judge which was approved on 29 April 2002. In essence, the plaintiff's claim is that the defendant should have advised his client that the proposed claim against the administrator lacked merit and should not be pursued because there was no evidence to sustain it. He failed to give any such advice and the plaintiff suffered loss as a consequence.
The plaintiff's claim is pleaded in this way. The plaintiff says that he engaged the defendant to issue proceedings against Mr Smith and Cole Engineering seeking relief of the kind reflected in the indorsement of claim mentioned earlier. The relief sought included Smith's removal as administrator and an injunction to restrain Smith from convening a meeting of the company's creditors or taking any steps to procure the liquidation of the company. The plaintiff pleads in par 3 that it was an implied term of the retainer that the defendant would perform his work and advise with reasonable skill, care and diligence or, alternatively, in par 4, that the defendant was subject to such a duty in any event.
The plaintiff sets out the events leading up to the discharge of the injunction and goes on to say in par 10 that:
"In breach of the implied term pleaded in paragraph 3 above and in breach of the duty pleaded in paragraph 4 above the defendant failed to perform his work and to advise the plaintiff with reasonable skill care and diligence insofar as:
10.1the defendant verbally advised the plaintiff on about 20 November 2000 that the plaintiff had a good cause of action for the grant of an interlocutory injunction to restrain Smith from taking steps to liquidate the Company when the plaintiff had no case to restrain the liquidation of the Company;
10.2the defendant verbally advised the plaintiff on about 20 November 2000 that the plaintiff would be required to provide an undertaking as to damages as a condition of the grant of an interlocutory injunction but failed to advise the plaintiff that it was inevitable that the plaintiff would be required to meet the damages occasioned by the grant of an interlocutory injunction when that interlocutory injunction was dissolved;"
The alleged lack of care also included reference to the following matters:
"10.3the defendant failed to draw the affidavits sworn by the plaintiff and Cole with reasonable skill care and diligence so that they would contain only evidence admissible under the Rules;
10.4the defendant failed to warn the plaintiff that the plaintiff had no cause of action against Smith and the Company and should not institute the action;
10.5the defendant failed to warn the plaintiff that whatever the merits of the plaintiff's proposed action against Smith and the Company, the plaintiff was not able to adduce sufficient admissible evidence to secure the grant of an interlocutory injunction inter partes."
In par 10.6 to par 10.12 the plaintiff provides particulars of further alleged breaches. In these paragraphs there is some repetition of the broad allegations mentioned earlier. In essence, the plaintiff complains of various shortcomings in regard to the application for an injunction and the related undertaking as to damages. The plaintiff says that the defendant failed to advise that the indemnities might not be enforceable. Much of the evidence in support of the grant and continuation of the injunction was inadmissible and insufficient. The proxies held by the plaintiff did not authorise him to act as he did. Further, Mr Cole had standing to bring the same application as the plaintiff and had a much more substantial personal interest in the outcome. It is said that in these circumstances Cole should have advanced the claim rather than the plaintiff.
More particularly, in par 10.6 to par 10.12 the plaintiff says that the brief indemnity prepared by the defendant on 20 November 2000 was no security for the plaintiff if Cole had not cash or assets to meet the claim. No enquiry was made of Mr Cole's capacity to honour the undertaking which in the event was nil. No enquiry was made as to the Rural Action Movements capacity to provide an indemnity. In the result, the formal deed of indemnity signed by Mr Gentle on behalf of RAM was beyond power. The real issue for Mr May and the Rural Action Movement was survival of the business and its employment capacity. The defendant failed to advise that the winding up of the Cole company as a corporate entity would not necessarily mean the cessation of the company's business so that the action to prevent the liquidation was not necessary.
The plaintiff says in par 11 that by reason of the defendant's breaches of contract and duty he has suffered loss and damage, being costs payable in respect of the proceedings and damages arising under the undertaking as to damages.
The defendant, by his statement of defence, sets out the substance of instructions the defendant contends were received by him on 15 November 2000 in the course of a meeting with the plaintiff, Mr O'Connor, the defendant and his secretary. He says in par 3 that the plaintiff or, alternatively, Mr O'Connor informed him, inter alia, that the plaintiff and RAM were clients of Mr O'Connor, Cole Engineering was not insolvent and was able to continue trading, the plaintiff acted for a majority of the company's secured creditors, Mr Smith was negligent and had improperly withdrawn $75,000 for fees, RAM had sufficient funds in Mr O'Connor's trust account to pay the costs of the proceedings and indemnify the plaintiff, Mr O'Connor proposed that if the defendant agreed to act for the plaintiff in the proceedings, he (Mr O'Connor) would act for Mr Cole and the company in respect of a proposed refinancing package with the National Bank.
Mr O'Connor informed the defendant also that he had advised the plaintiff that grounds existed for commencing proceedings to remove Mr Smith and to restrain him from taking any steps to wind up the company.
For ease of reference, I will call the facts and matters set out in par 3 of the defence "the defendant's version of the 15 November meeting."
In par 5 the defendant alleges that prior to 20 November 2000 the plaintiff failed to provide the defendant with any further instructions or documents in relation to the proposed proceedings. In par 6 he says that on 20 November at his office the plaintiff instructed him to commence the proceedings.
In par 7 the defendant pleads that he was retained to commence and act on behalf of the plaintiff in the proceedings. The further terms of the retainer were that the defendant was to apply for the injunction by 2.00 pm and to use his best efforts to prepare the documentation within those time constraints. Further, the defendant was to act as the advocate for the plaintiff in making the application.
In par 8 and par 9 the defendant admits that duties of care arose as alleged in par 3 and par 4 of the statement of claim. Elsewhere, in the pleading, however, the defendant says that any loss suffered by the plaintiff was not caused or occasioned by any breach of retainer or negligence by the defendant.
In par 12 the defendant says that the affidavits filed were drafted in accordance with the instructions provided to the defendant. By the time they were drafted the undertaking had already been enlivened.
On the issue of the substantive advice, the defendant in par 18 denies advising the plaintiff that the plaintiff had a good cause of action. He advised the plaintiff on or about 15 November and again on 20 November 2000 that the plaintiff would be required to provide an undertaking as to damages.
The defendant says in par 18(c)(ii) that it was not part of his retainer to provide the plaintiff with advice as to the ultimate prospects of success and, in any event, the plaintiff did not provide the defendant with the relevant documentary evidence in sufficient time for such an opinion to be formed. Further, by reason of the indemnity provided by Mr Cole it was not at the material time inevitable that the plaintiff would be required to meet damages occasioned by the grant of an injunction.
The defendant in par 19 alleges that the instructions provided to him were false or misleading. The particulars of the false instructions provided by the defendant are set out in answer to the plaintiff's request for further and better particulars.
The defendant says in par 20 that by reason of the matters pleaded he was not in breach of any duty of care. He acted reasonably and exercised the care and skill to be expected of a competent and careful solicitor. I pause to say that, for reasons which will become apparent, this plea was arguably the principal matter in controversy at the trial. I will call this the "exercise of reasonable care defence."
For the sake of completeness, I note that in par 24 to par 26 of the defendant's statement of defence it is said that the plaintiff has failed to pursue claims for contribution against RAM and Cole. Paragraphs 29 and 30 raised issues concerning mitigation and contributory negligence but these pleas were abandoned at the trial of the action.
Before leaving the procedural history of the present proceedings, I remind myself that the defendant took steps to join as third parties the Rural Action Movement and Mr Greg Cole. Pleadings were filed in respect of the third party claims. However, before trial, a direction was given that these claims should abide the outcome of the trial.

The Defendant's Case

The defendant's preliminary submission at trial was that even if the alleged breaches of duty were established, they occurred in relation to work carried out in Court or work done out of Court which was intimately connected with work ultimately done in Court. The defendant was therefore entitled to rely on the immunity allowed to advocates.
The defendant said further, and in the alternative, the defendant was not liable to the plaintiff for breach of duties of care as alleged. Counsel for the defendant summarised the defendant's case in the alternative as follows.
The plaintiff's undertaking for damages became enlivened shortly before 2.00 pm on 20 November 2000 as a consequence of the interim injunction issued by Justice Miller. The injunction only remained in place for about 10 days. The defendant had been retained for a few hours when the undertaking became enlivened. Accordingly, the only breaches of duty that could be causative of any loss to the plaintiff on the undertaking for damages were any alleged breaches of duty that occurred during the few frantic hours before the injunction was obtained. Any alleged breaches of duty in relation to the period after the grant of the injunction would, even if established, have no causative consequence in relation to the liability under the undertaking.
Accordingly, the defendant contended, the relevant alleged breaches would appear to be those that occurred during the few frantic hours before obtaining the injunction on the morning of 20 November 2000. These alleged breaches were essentially that the defendant failed to advise the plaintiff that the case for the removal of the administrator was hopeless and bound to fail, or that there was not enough admissible evidence to secure the injunction.
The defendant said that the answer to an argument of that kind was as follows. The defendant owed a duty of care to the plaintiff to carry out his retainer with a reasonable degree of skill and care. However, the retainer did not include an express obligation to advise on the ultimate merits of the case or to advise on whether there would be sufficient evidence to prove the case at trial. Nonetheless, it would be an incident of the general duty of care that the defendant take reasonable care not to commence proceedings for which there was no basis in law.
The defendant's case was that he complied with the standard of care that the law would impose in the circumstances confronting the defendant on the morning of 20 November 2000. The standard of care contended for by the plaintiff, namely, that the defendant was obliged to read and consider the documents brought into his office that morning before commencing the action imposed an unrealistic standard of care in the circumstances of this case. It was sufficient compliance with the standard of care properly applicable to the defendant that morning that he was satisfied that the plaintiff had received professional advice from other lawyers and an insolvency practitioner, Mr Lopez, which supported the commencement of the proceedings; and that the course of conduct in commencing the proceedings and applying for the injunction had been approved and counselled by Mr O'Connor, a lawyer experienced in corporate matters.
Further, and in any event, if the standard of care required the defendant to advise personally as to the ultimate merits of the case, it would have to have been on the basis of the information then available to the defendant at that time. On the basis of the limited information relating to the circumstances of the company and the conduct of the administrators known to the defendant at the time, it was open to a reasonable legal practitioner in the position of the defendant to come to the view that if the information was true, that the plaintiff did not have a hopeless case for the removal of the administrator. It is significant that Justice Miller did, albeit reluctantly, grant an interim injunction on the basis of statements that the defendant practitioner made from the bar table which reflected the information which the defendant had got from the plaintiff. Implicit in this outcome is the fact that Justice Miller was of the view that if the information was true there was a serious question to be tried.

Legal Principles

Before addressing the issues raised by the pleadings and the submissions made on behalf of the respective parties, it will be useful to refer to some of the relevant legal principles.
The decided cases establish that the defendant was bound to exercise due care, skill and diligence, bringing to the task in hand the competence and skill usually employed among solicitors or barristers (as the case may be) practising their profession and taking proper care in what they did. Voli v Inglewood Shire Council (1963) 110 CLR 74 at 84.
The due care, skill and diligence were to be exercised in doing what the solicitor was retained or briefed to do. Because a solicitor's duty lies in tort as well as contract, it may be that in particular circumstances the solicitor is required to go beyond the specifically agreed professional task or function if that is necessary to avoid a real and foreseeable risk of economic loss being sustained by the client. Hawkins v Clayton (1988) 164 CLR 539 at 579.
The approach of the High Court in Hawkins v Clayton (supra) was applied in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642. The Court of Appeal held in that case that the duty of a solicitor to his client lies in tort as well as in contract. Justice Kirby said at 652 that the attempt to limit a solicitor's duty strictly to the scope of his retainer was inconsistent with the holding of the High Court in Hawkins v Clayton (supra) because it attempts to confine the duty of care to a contractual format. He accepted that the duty of care lies also in tort and recognised that the consequences of tort liability may not be the same as contractual liability. Although the contract of retainer will be an important indicium of the nature of the relationship which gives rise to the common law duty of care, it will not chart exclusively the parameters of that duty, for the duty may require the taking of positive steps beyond the specifically agreed professional task or function where these steps necessary to avoid a real and foreseeable risk of economic loss being sustained by the client.
Kirby J said further that where the loss is purely economic loss, it is necessary to establish as a pre‑requisite to recovery in negligence that a relationship of proximity existed between the claimant and the solicitor. This requires the proof of some additional element which will commonly consist of known reliance or dependence or the assumption of responsibility on the part of one party to the other. He observed that at the heart of the ordinary relationship between a solicitor and his client there will usually be an assumption of responsibility by the one and reliance by the other.
His Honour's observations concerning proximity must now be read subject to later decisions of the High Court in which some members of the High Court have suggested that the notion of proximity as a requirement additional to foreseeability is of limited use. The circumstances that call a duty of care into existence will arguably be determined by reference to various discrete categories of liability apparent in the previously decided cases. For example, in the category of negligent misstatement factors such as an assumption of responsibility or known reliance on the word of an adviser will attract a duty of care. Esanda Finance v Peat Marwick Hungerfords (1997) 188 CLR 241. Further, when a person is in a position to control the exercise of legal rights that is a factor similar to proximity, that may give rise to a duty of care. Perre v Apand Pty Ltd (1999) 198 CLR 180. However, in the circumstances of the present case, there is no need to explore issues of this kind in depth, for the decided cases clearly show that the relationship of solicitor and client gives rise to a duty of care, and this was conceded by the defendant and his advisers.
The duty of care of a professional person and the need to warn of risks was most recently considered in the High Court in Rogers v Whitaker (1992) 175 CLR 479. It appears that in the case of a medical practitioner the law imposes a duty to exercise reasonable care and skill in the provision of professional advice and treatment. The standard of reasonable care and skill required is that of the ordinary skilled person exercising and professing to have that special skill, which in that case was the skill of an ophthalmic surgeon specialising in corneal and anterior segment surgery.
The approach reflected in these cases was echoed in Dalleagles Pty Ltd & Ors v Australian Securities Commission & Ors (1991) 4 WAR 325 in which Anderson J said at 332 that whenever a lay client gives instructions to a legal practitioner to perform specialists legal services involving the exercise of professional skill, there is imposed upon the solicitor a duty to give any advice reasonably necessary to protect the client's interests in the transaction whether expressly requested or not.
It is apparent from these cases that the scope of the duty of care and the nature of the standard of care to be exercised by the practitioner will depend upon the circumstances of each case including the instructions given to the solicitor and the urgency of the situation.
In Duchess of Argyll v Beuselinck (1972) 2 Lloyd's Rep 172 a solicitor was engaged to vet the plaintiff's proposed publication of her life story for liability in defamation, although he soon introduced the question of copyright. The gravamen of the charge of negligence subsequently brought against the defendant was his alleged failure to advise the plaintiff on tax matters in relation to the relevant agreement, or to advise her to obtain advice. Justice Megarry dismissed the claim for negligence and in the course of doing so said this at 185:
"In this world there are few things that could not have been better done if done with hindsight. The advantages of hindsight include the benefit of having a sufficient indication of which of the many factors present are important and which are unimportant. But hindsight is no touchstone of negligence. The standard of care to be expected of a professional man must be based on events as they occur, in prospect and not in retrospect. If the standard of care is that of the average prudent solicitor, then I have no doubt whatever that the defendant was not negligent."
In Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp (a firm) [1979] Ch 384 Oliver J doubted the value of evidence concerning the practice or some accepted standard of conduct in a particular profession. He said that evidence of such kind which really amounts to no more than an expression of opinion by a particular practitioner of what he thinks that he would have done had he been placed, hypothetically and without the benefit of hindsight, in the position of the defendants, is of little assistance to the Court, as this is a question for the Court to decide.
In Heydon v NRMA Ltd (2000) 51 NSWLR 1 Justice Malcolm in his capacity as an Acting Justice of the Court of Appeal in New South Wales undertook a comprehensive review of the decided cases bearing upon the duty and standard of care. That was a case in which a leading barrister was instructed by a firm of solicitors to provide advice as to the restructuring of the NRMA in New South Wales as a company limited by guarantee into a company with shareholders conducted with a view to making profit. The case raised the question of whether the barrister was liable in negligence for failure to advise the NRMA in relation to the risks flowing from a successful appeal in respect of a matter pending before the High Court and the impact the High Court's decision in the so‑called Gambotto case was likely to have upon the advice being provided by the barrister and the solicitors.
Justice Malcolm noted that while there were issues regarding the scope of the retainers, it was common ground at the trial that the retainers of both firms of solicitors gave rise to concurrent duties of care in negligence as well as in contract. He went on to observe that such a view was affirmed in Astley v Austrust Ltd (1999) 197 CLR 1 with the result that in the case of solicitors, the liability remains a concurrent liability in contract and in tort. Contributory negligence is not a defence to an action for breach of contract, even where there was concurrent liability in contract and tort. He said further at par 148:
"As already noted, the liability of a barrister to the lay client has always been founded on tort rather than contract. Prior to the decisions in Hawkins v Clayton and Waimond Pty Ltd v Byrne, the duty of a barrister briefed to advise was generally regarded as being to advise on the specific matters or questions raised in the brief from the solicitor. It is a nice question whether there was a duty on the part of counsel to volunteer advice beyond the scope of the brief, although counsel may well and generally would volunteer additional advice which was considered relevant, but not specifically raised in the instructions. In the present case the learned trial Judge referred to Waimond Pty Ltd v Byrne in the context of findings against the appellants of negligently failing to warn of risks with respect to questions which, on the face of it, were not within the scope of the specific questions on which they had been asked to advise."
In the course of his review of the decided cases Justice Malcolm said at 53 that in his opinion the approach adopted in Rogers v Whitaker (supra) is applicable to the duty of care of legal practitioners and the standard of care. Both barristers and solicitors owe a duty of care to those whom they advise or for whom they act. Their duty is to exercise reasonable care and skill in the provision of professional advice. The standard of care and skill is that which may be reasonably expected of practitioners. In the case of practitioners professing to have a special skill in a particular area of the law, the standard of care required is that of the ordinary skilled person exercising and professing to have that special skill.
Justice Malcolm made these observations at par 147:
"In this context the content of the duty of care and the liability is the same whether it is founded on contract in the case of a solicitor, or whether it is founded on a duty of care in tort in the case of a barrister. In each case the duty is to apply the relevant degree of skill and exercise reasonable care to carrying out the task. There is no implied undertaking that the advice is correct, but only that the requisite degree of professional skill and care has been exercised in the giving of the advice. Of course, where there is reason for doubt or there are risks which a person possessing the relevant degree of skill and competence should perceive, it follows from the above that there may be a duty to warn of the kind recognised by their Honours in Rogers v Whitaker. Thus, in Hawkins v Clayton (at 583-585), it was held by Deane J that, in the case of a solicitor, the circumstances may give rise to a duty to do more than simply perform the task defined by his instructions, if circumstances arose giving rise to a real and foreseeable risk of economic loss by the client, or, in particular circumstances, even a person who was not a client but who may be adversely affected."
Justice Malcolm went on to deal with the question of the admissibility and relevance of expert evidence. He expressed this conclusion at par 150:
"In the light of these authorities, I consider that expert evidence would have been both relevant and admissible in the present case, but it remains for the court to determine what is the appropriate standard of care and whether, in the instant case, the relevant advice was given consistently with or in breach of that standard."
Justice Malcolm said this at par 237 while addressing the question of whether the barrister, Mr Heydon, was negligent:
"The content of the duty of care in a particular case is governed by the relationship of proximity giving rise to that duty: Hawkins v Clayton (at 579). The assumption of the responsibility and reliance will, in general, determine the content of the duty: Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at 418. There was no evidence that Mr Heydon assumed a responsibility for making a prediction how the law might change or develop during the prospective life of the proposal. There was no evidence that Mr Heydon's instructing solicitors or the relevant officers of the NRMA relied upon his opinion as involving any prediction. Such evidence as there was suggested to the contrary… On the basis of the material before him, I do not consider that, at the time he gave his advice, there was any want of duty care, skill of diligence on the part of Mr Heydon in failing to foresee as a real or significant risk that the decision in Gambotto's case would have any adverse consequences for what was proposed by the NRMA as at 20 December 1993. It follows that Mr Heydon's appeal should be allowed."
It was not suggested before the trial Judge or on appeal that Mr Heydon was entitled to the advocate's immunity considered in Giannarelli & Shulkes v Wraith (1988) 165 CLR 543, notwithstanding that the matters under consideration were known to be contentious and there was a real prospect that the proposal the subject of the legal advice might lead to litigation. However, in the case before me, the defendant prepared court documents and represented his client in Court within a few days of the initial approach and it is therefore necessary in the circumstances of the present case to ascertain to what extent, if any, the legal principles bearing upon the relationship between a solicitor and his client are affected by the rules concerning an advocate's immunity.

Advocate's Indemnity

In Giannarelli & Shulkes v Wraith (supra) the plaintiffs had been convicted of perjury as a result of certain evidence they gave to a Royal Commission. The negligence alleged was that the barristers who had conducted the case had failed to advise that a certain statutory provision would render the evidence given in the Royal Commission inadmissible and thus defeat the Crown case. The plaintiffs complained also of an alleged failure to object on that ground to the tender of the evidence. The High Court held that at common law a barrister cannot be sued by his client for negligence in the conduct of a case in Court or in work out of Court which leads to a decision affecting the conduct of a case in Court.
Mason CJ noted that the two major public policy considerations supporting the advocate's immunity were the need to preserve public confidence in the administration of justice by protecting the advocate's freedom of judgment with respect to what is said and done in Court and to prevent collateral attacks on the decisions of judicial officers through attacks on the lawyers presenting a case.
He went on to say this at 559:
"However, the grounds for denying liability for in‑court negligence have no application to work done out of court which is unconnected with work done in court: Saif Ali. The public policy considerations underlying immunity from in‑court negligence have no relevance to a barrister's liability for negligent advice in relation to out‑of‑court matters, in accordance with the principles expounded in such cases as San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340; Hawkins v Clayton (1988) 164 CLR 539; and Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. The problem is: where does one draw the dividing line? Is the immunity to end at the courtroom door so that the protection does not extend to preparatory activities such as the drawing and settling of pleadings and the giving of advice on evidence? To limit the immunity in this way would be to confine it to conduct and management of the case in the courtroom, thereby protecting the advocate in respect of his tactical handling of the proceedings. However, it would be artificial in the extreme to draw the line at the courtroom door. Preparation of a case out of court cannot be divorced from presentation in court. The two are inextricably interwoven so that the immunity must extend to work done out of court which leads to a decision affecting the conduct of the case in court."
His Honour the Chief Justice (as he then was) went on to say that to take the immunity any further would entail a risk of taking the protection beyond the boundaries of the public policy considerations which sustain the immunity. He then endorsed the observations of McCarthy P in Rees v Sinclair [1974] 1 NZLR 180 at 187 where it was said that:
"…the protection exists only where the particular work is so intimately connected with the conduct of the cause in Court that it can fairly be said to be a preliminary decision affecting the way that cause is to be conducted when it comes to a hearing."
He said further that this persuasive statement of the limits of the immunity was endorsed by four members of the House of Lords in Saif Ali v Sydney Mitchell & Co (a firm) [1980] AC 198 at 215, 224, 232 and 236. The statement was all the more important in that it acknowledged the existence and the limits of the immunity in a country where the legal profession is fused.
Before leaving this case, I note that Justice Mason had said earlier at 558 that exposure of counsel to liability for in‑court negligence would not result in liability for a mere error of judgment. However, the dividing line between a non‑negligent error of judgment and a negligent error of judgment in particular factual situations is by no means easy to draw. For example, many tactical decisions about the way in which a case is to be conducted might well be characterised as mere errors of judgment. On the other hand, some tactical decisions about the conduct of a case may be so flawed that they go beyond an error of judgment.
The reasoning of the High Court was applied by a majority of the Court of Appeal in New South Wales in Keefe v Marks (1989) 16 NSWLR 713. In that case the plaintiff briefed the defendant, who was a barrister, to advise and appear for a client named Tehfe in the preparation and conduct of a common law negligence action for damages for personal injury. The plaintiff's solicitor subsequently sued the barrister for alleged failure to advise the plaintiff to amend the statement of claim in order to include a claim for interest.
His Honour, Gleeson CJ, observed at 717 that the statement of claim was prepared against the background of the existence of a well understood immunity from suit which, as a matter of public policy, operates to protect persons involved in the conduct of Court proceedings including, but not limited to, barristers. The substance of the complaint against the barrister in question was that, having been briefed to act as counsel, he did not at any relevant time, either prior to the commencement of the hearing, or during the hearing, direct his mind to the desirability of making a claim for interest or taking the steps necessary to propound such a claim with the result that Master Greenwood failed to award interest. The learned Chief Justice noted that the question before him was whether a claim of this kind was within the area of advocate's immunity.
Gleeson CJ observed at 719 that the relevant principle of immunity would be capricious in its operation if its application in a case were made to depend upon the precise history or circumstances of the communications and dealings between the barrister and his solicitor and lay client. A rule of law which is said to be based upon considerations of public policy should not depend for its practical operation upon chance. Furthermore, it did not seem to him that a plaintiff could circumvent the immunity, simply by constructing allegations of damage in a manner which attempted to relate the harm suffered as a consequence of a barrister's alleged negligence to that aspect of his conduct furthest removed from physically standing up and speaking in Court.

I feel obliged to add at this point that I have not lost sight of the realities of the situation. I am acutely conscious of the dilemma that confronted the defendant when the plaintiff and Mr Cole turned up at his office on the morning of the creditors' meeting with what seems to have been a box of unsorted documents and insisted that legal proceedings against the administrator (of the kind previously outlined by Mr O'Connor) be commenced forthwith. I draw upon my own experience as a legal practitioner in this State in weighing up what is to be done in such a situation. In making that appraisal, I am acutely conscious also of the wisdom inherent in Megarry J's remarks in Duchess of Argyll v Beuselinck (supra) mentioned earlier: "in this world there are few things that could not have been better done if done with hindsight." Unfortunately, hindsight is not a form of vision allowed to the busy practitioner, and the demands of an insistent client can sometimes get in the way of reasonable foresight.
It is true that the law and its special procedures are frequently represented to the public by external commentators as a mystery. For the most part, however, rules of law tend to reflect the values and habits of the community. If a layman is in possession of a box of scientific data it may not be possible for him to work out what use can be made of it without the assistance of a technician or a scientist. If, however, the box contains business papers bearing upon an alleged default upon the part of a company administrator, a layman can be expected to have some general understanding of what is relevant and as to whether there is any substance in the case to be advanced, although, admittedly, he is probably not in a position to determine with any real certainty whether his claim is likely to succeed before a court of law.
To my mind, it follows from these observations that in a situation of urgency, where an application for a restraining order is in contemplation, and must be made forthwith if it is to be of any use, a legal practitioner is entitled to give some weight to the client's summation of his case. Legal practitioners are well aware that a client's instinctive sense of what is right often proves to be sound, although a precedent in favour of the claim cannot be located at a moment's notice. Furthermore, most legal practitioners are conscious that in situations of urgency, where a person is about to be removed from the jurisdiction, or property dealt with, or a building demolished, or an auction held, a degree of boldness is called for. Indeed, it might be regarded as an abdication of responsibility on such occasions for a practitioner to retire to a library for several days with a view to pondering the precedents and satisfying himself that every syllable he utters can withstand the chill of rarefied debate if the matter finishes up on appeal. A balance has to be struck between acting with sufficient resolution to achieve a result and acting with due care. If a claim clearly has no merit, or the practitioner is aware he lacks the necessary skill or experience to handle a certain case, he is obliged to say so, irrespective of the client's demands for immediate action.
It is an integral part of practising law that a situation of urgency is seen for what it is, especially when an application for a restraining order is in contemplation. The practitioner must be on his mettle. He must decide whether he is equipped to evaluate the risks. He must be ready to stand up to the client, if necessary, and not be overborne. He must ensure that the client is kept fully in the picture and is aware of the risks. It follows from my review of the decided cases, and my earlier observations, that he must look beyond the scope of his instructions, strictly defined, and acquaint his client with any real and foreseeable risks of economic loss that might come from the contemplated action.
When I apply these ruminations to the circumstances of the present case in order to test the reliability of my earlier, more precise observations, I find that my views remain the same. Having regard to what was said at the preceding 15 November meeting, the plaintiff and Mr Cole must have known that it was too much to expect the defendant to make a thorough appraisal of the proposed case against the administrator. Their assumption that at this late hour the defendant could make a proper appraisal of the relevant evidence in the manner foreshadowed at the 15 November meeting was unrealistic. However, legal practitioners must always be ready to deal with the vagaries of their clients.
I give credit to the practitioner for not attempting to avoid responsibility and for acting with a degree of boldness. He tried to do what he could for his client in a situation of urgency. I accept also that in such a situation he was entitled to give some weight to his client's assertion that the administrator was acting improperly. Nonetheless, this was a situation in which the practitioner had to be on his mettle. He did not have sufficient time to review the documents or prospective evidence fully and no particular document reflecting a conclusive case against the administrator had been singled out for his inspection. Mr O'Connor may have devised the projected plan of action but it was now clear that the plaintiff was looking to the defendant alone for guidance as to whether the plan was viable.
It seems to me that in these circumstances, the defendant was under a duty to give the client clear advice as to the risks associated with the application for an injunction and the signing of the undertaking as to damages. I will return to the question later as to whether any such advice was given and, if so, whether it was sufficient to discharge the duty of care. I am of the view, however, that any steps taken in the performance of this duty could not be said to be intimately connected with the conduct of a cause in court, for the required advice had to be directed not simply to the way in which the case was to be presented but to the situation as a whole, including the wisdom of commencing proceedings at all. It follows that the defendant cannot avail himself of the advocate's immunity in respect of the breaches of duty alleged against him in pars 10.1 to par 10.5 of the statement of claim. This leaves outstanding the defendant's exercise of reasonable care defence and the question of how the standard of care imposed upon a practitioner is to be regarded in a situation of urgency.

The Nature of the Proceedings

It will be useful at this point to look at the nature of the proposed legal proceedings and the prospects of obtaining an interim injunction. The situation confronting the defendant as at 15 November 2000 when the proposed strategy was first unfolded to him cannot be properly appreciated without some understanding of the relevant provisions of the Corporations Law.
Section 436A of the Corporations Law provides for a company's directors to appoint an administrator in circumstances where they believe the company is insolvent or likely to be insolvent. Section 437A provides that an administrator may dispose of all or part of the company's business. It appears from s 449A that the appointment of an administrator cannot be revoked but the effect of s 449B is that the Court may remove the administrator. Section 449E provides that the administrator is entitled to remuneration as fixed by a resolution of the creditors.
A consideration of these provisions suggests that the power of the Court to remove an administrator under s 449B is a power that would be exercisable only for cause and not merely because a creditor or certain creditors had decided that they preferred to appoint another administrator or were disgruntled by the manner in which the administrator was discharging his responsibilities. Quite clearly, in order to persuade a Court to remove the administrator or to restrain him from proceeding further, specific evidence would be required that he was proceeding in an improper or unlawful manner, or had misconceived the nature of his responsibilities.
The meeting at the defendant's office on 15 November 2000 concluded upon the basis that evidence would be required if the proposed proceedings were to be initiated. The allegations against the administrator had been voiced in general terms at that stage and, in the absence of documentation, the defendant was not in a position to provide a considered opinion as to whether there was merit in the proposed proceedings. It was possibly the case that the administrator was appropriating fees and forcing the company into liquidation prematurely but in the absence of evidence to that effect the defendant could not be expected to provide well‑rounded advice. To my mind, it cannot be said that there was any default on the defendant's part at this stage. The problem to be addressed had been described in general terms and, quite properly, the defendant insisted that the allegations be supported by evidence.
One has to recognise, however, that it was apparent from the urgency of the situation that the evidence was likely to arrive at short notice and would probably be in a somewhat disorganised form. A reasonably skilled practitioner would probably have recognised that either by asking hard questions of his client or by rapid reading he would need to seize quickly upon the one or two key pieces of evidence which could be said to represent the high water mark of a case in support of the allegation. It follows from what I have said so far that in the absence of any current proceedings it could not be said at this stage of the matter that the defendant had assumed the advocate's role and was taking steps intimately connected with the presentation of a case in Court. He must be regarded as one performing the solicitor's advisory role.

Standard of Care

Before returning to the events of 20 November 2000 in detail it will be useful to look at the defendant's reasonable care defence in overview. It emerges from my earlier findings that the defendant was under a duty of care to give any advice reasonably necessary to protect the client's interests whether expressly requested or not. He was under a duty to exercise care in preparing the documents required to advance the plaintiff's claim. In performing these duties the defendant was obliged to act reasonably and exercise the care and skill to be expected of a qualified and careful solicitor in the exercise of his profession. The decided cases suggest that the Court can take account of constraints of time and circumstances in determining what a solicitor acting reasonably could be expected to do.
It follows from this, as I review the crucial events of 20 November, that I must make a finding as to whether the defendant provided advice to the plaintiff before the parties went to Court. For the reasons, I have previously given, a solicitor acting with due care could not necessarily be expected to cite chapter and verse for every word he uttered, but a solicitor on his mettle could reasonably be expected, at some stage before the parties left his office, to say succinctly how he saw the matter and to review the risks. It must also be remembered that a few days earlier, at the meeting on 15 November, the defendant had been given some forewarning of what might be expected of him at short notice and could have researched the law to some extent.
It follows from earlier discussion also that although a solicitor acting reasonably was entitled in a situation of urgency to give some weight to Mr O'Connor's opinion and the plaintiff's assertions that the administrator was acting improperly, such a solicitor could be expected to insist that admissible evidence be produced in support of the allegation before some advice was given and the matter was taken further. Further, a solicitor acting reasonably would surely foresee that although an interim injunction might be obtained on an ex parte basis for a short period, the crucial question was whether the injunction obtained initially could be sustained.
It seems that the defendant was generally conscious of the duty of care imposed upon him by agreeing to act for the plaintiff. I am satisfied, and so find, that at the 15 November meeting he asked for evidence to back up the plaintiff's grievances. I accept that on the morning of 20 November he said he did not have time to make a full appraisal of the papers and warned the plaintiff and Mr Cole that they might be required to give viva voce evidence. It is an undisputed fact that the defendant arranged for the plaintiff and Mr Cole to sign the short, informal indemnity agreement on that morning. He also arranged for the plaintiff to read and sign an undertaking as to damages before the parties left for court. But did the defendant go far enough in the discharge of his duty of care?
As I turn to the details bearing upon that issue, I have to say that I am satisfied after a review of the evidence brought before me, that Justice Roberts‑Smith's summary of the plaintiff's case for an injunction was fair and accurate. It is therefore apparent (with the benefit of hindsight, admittedly), that the plaintiff's case was fundamentally flawed. The evidence in support of the plaintiff's case was not sufficient to establish that there was a serious issue to be tried. There was no substance in the assertions of impropriety and, in any event, they were based on hearsay.
I must constantly remind myself, however, that the defendant was acting under severe time restraints, he did not have access to the opposing evidence, and he had reason to believe that RAM would indemnify his client against any loss that might be incurred. He did not have the benefit of hindsight. Moreover, as appears from the decided cases, any advice he gave did not have to be correct. It was enough that it be given with reasonable care and skill, bearing in mind that the situation was one of urgency. These considerations make it difficult to resolve the matters in issue.
In dealing with these issues I must obviously weigh up the credibility of the principal witnesses, although it is important to keep in mind that there was broad agreement between them as to the sequence of events on 20 November. I must also keep in mind that matters proceeded rapidly on that day, and thus the recollections of the witnesses must be considered within the framework of the contemporary documentation. I note in passing at this stage, that in giving evidence at the trial the defendant undoubtedly did his best to answer the questions put to him truthfully, but he was obviously somewhat indignant that he, who had tried so hard, at short notice, and with limited information, to fulfil the plaintiff's instructions should subsequently be exposed to a claim. This meant that many of his answers were too effusive. I was left with an impression that at times, and perhaps sub‑consciously, he presented his description of certain events in the most favourable light.

Appraisal of the 20 November Events

The only evidentiary materials received by the defendant prior to 20 November 2000 were some proxies by unsecured creditors and the consent of Mr Lopez, the prospective administrator. At about 9.30 am on 20 November 2000 Mr Cole and the plaintiff arrived at the defendant's office with a box of papers. I have already acknowledged that the standard of care to be exercised by a practitioner is influenced by the surrounding circumstances and by constraints of time.
To my mind, faced with a need to get before the Court by midday if anything were to be achieved, most practitioners would recognise that they might not have time to sift through all the evidentiary materials presented to them. Indeed, the defendant himself seems to have focused principally upon the administrator's fourth report which pointed to the absence of any real prospect of disposing of the business and foreshadowed a resolution by creditors to wind up the company. However, as I have already indicated, it was open to the defendant to press the plaintiff to identify one or two key documents or incidents to be described to the Court which would point to impropriety on the part of the administrator or a misconception as to the nature of his role.
The evidence before me does not establish that the defendant proceeded in that manner or singled out a number of vital documents which would have underpinned the case to be made. There does not appear to have been any clearly identifiable moment on the morning in question when the defendant called a halt and provided the plaintiff and Mr Cole with a level‑headed survey of the position and cautioned the plaintiff about the risks. This was probably due to a degree of confusion in the defendant's mind as to whether he or Mr O'Connor was responsible for the underlying strategy and a degree of pressure from the plaintiff to make haste. Nonetheless, to my mind, a solicitor acting reasonably, even in a situation of urgency, would have perceived that the burden of responsibility lay upon him alone, and paused long enough to make at least two important points; first, that there did not appear to be any compelling evidence to substantiate the plaintiff's grievances, second, that the plaintiff could be exposed to risk if the undertaking as to damages were enlivened.
I found the plaintiff to be generally a forthright and reliable witness, although somewhat dogmatic in the expression of his views. His evidence in chief included a passage to this effect:
"Mr May, on what basis did you commence proceedings in the Supreme Court against Vincent Smith and Cole Engineering Pty Ltd?‑‑‑On the advice that I had from Mr Mijatovic.
Did he ever tell you that the case was hopeless?‑‑‑No
Did he ever tell you that the case was perhaps not strong and that you could lose?‑‑‑No, he did not.
Had you been told that the case was hopeless or that you could lose what would you have done?‑‑‑Run. I would not have gone ahead with it.
Did you have any financial commitment to Cole Engineering?‑‑‑No, the reverse was true.
Was there anything you stood to gain by the survival of the company?‑‑‑No. I would gain nothing except the town of Kellerberrin would have an ongoing business and providing employment."
The plaintiff went on to say a little later that he did not speak to the defendant to any great degree before they went to court. The defendant did not say that he had not had a proper opportunity to review the documents produced that morning or that further evidence was necessary. He did not say that the application was unlikely to be granted. He did not say that it would be a miracle if the injunction were obtained.
I find that after his review of the evidence, such as it was, the defendant did not purport to give the plaintiff any specific advice as to the likely outcome of the proceedings or as to the risk of loss if the undertaking as to damages were enlivened. The defendant did not have time to undertake and present a carefully formulated opinion but it follows from what I have said earlier that, as I see it, he was under an obligation to advise and warn of the risks in general terms. I have already noticed that as a consequence of his telephone call to Mr Smith at about 10.30 am on the date in question the defendant had been alerted to the likelihood that any proceedings commenced by the plaintiff would be contested.
If the defendant had looked at the evidentiary materials delivered to him closely he would have noticed the letter dated 14 November 2000 in which Mr Hughes provided a specific answer to the allegation concerning wrongful appropriation of the administrators' fees. Putting it another way, however, it must have been apparent to the defendant that the materials before him represented little advance on the allegations that had been voiced in his presence a few days earlier, and that there was no specific evidence to underpin the allegation concerning wrongful appropriation of fees.

To my mind, it would strike a reasonably skilled practitioner that the application to adjourn the creditors' meeting could not be based upon Mr Cole's desire for more time in order to formulate a proposal for a deed of company arrangement. By 20 November 2000 Mr Cole had already had almost three months for this to be done without success. The application therefore had to be founded on some cause of action which would justify the Court in implementing an adjournment of the creditors' meeting which was scheduled for the early afternoon on 20 November 2000 as an appropriate form of interim relief.
As I have indicated, the defendant was engaged by the plaintiff to act as the plaintiff's solicitor, and that brought with it an obligation to alert the plaintiff to the possibility of adverse consequences. The defendant in that capacity was obliged to undertake a process of analysis of the claim sought to be brought and to advise the plaintiff of his opinion or, at least, of his preliminary views and of the adverse consequences that could follow. The role of a solicitor is not merely to put in a required form whatever the client wishes to say or believes to be relevant. The solicitor is required to exercise his independent judgment in order to ensure, if possible, that the client does not proceed in a manner that will result in loss.
There was evidence before me from the defendant that on the way to Court the defendant suggested that it would be a miracle if the plaintiff were able to obtain an injunction. I am not convinced on the balance of probabilities that words to this effect were spoken. However, in any event, they were obviously in the nature of a gratuitous aside and cannot be equated to the giving of sober advice to a client who is poised on the brink of taking an important step, namely, initiating a claim for an injunction and presenting an undertaking as to damages in support of the same which could lead to adverse consequences.
It is true that generally an interim injunction can only be obtained if the Court being asked to grant the relief is persuaded that there is a serious issue to be tried as to the merits of the claim and the balance of convenience favours the grant of an injunction directed to maintaining the status quo. In weighing up the balance of convenience an important factor will be whether the plaintiff could be adequately compensated by an award of damages. However, in the final analysis, an interim injunction lies within the discretion of the Court and circumstances may arise in which an injunction is granted for a short period owing to the urgency of the situation. Accordingly, I put to one side a line of argument urged upon me by counsel for the defendant that the obtaining of the injunction on 20 November 2000 demonstrated that there was some merit in the plaintiff's case. The crucial question was whether the injunction could be sustained.
As I have already indicated, I consider that the position concerning the merits of the plaintiff's claim was succinctly expressed in that portion of Justice Roberts‑Smith's judgment quoted earlier. The plaintiff's case appeared to be essentially based upon an assertion that the administrator had been deliberately running down the business with a view to putting it in liquidation. The learned Judge's finding was that the evidence of Mr May, as plaintiff, was in the main hearsay, opinion and speculation based upon what he had been told by Mr Cole. For his part, the evidence of Mr Cole consisted largely of broad assertions of what he believed Mr Smith had said or done. According to the learned Judge, "there is very little, if anything, in his evidence which is capable of lending objective support to those assertions of belief."
The defendant himself seemed to accept that there was insufficient evidence before the Court to sustain the injunction. It was for this reason, apparently, that in his letter of 21 November 2000 to Mr O'Connor reporting on the outcome of the hearing before Justice Miller, he added:
"We require further evidence as to improprieties and the re‑finance proposal that was stifled and new re‑finance proposals in writing, otherwise the company will be put into liquidation."
Against this background, I conclude that the defendant was in breach of his duty of care to the plaintiff as alleged in par 10.1 and par 10.2 in that he failed to advise the plaintiff will reasonable skill, care and diligence.
The defendant did not say explicitly that the plaintiff was bound to obtain the injunction, for, in my earlier finding, there was no clear moment on the morning of 20 November 2000 when the defendant called a halt and set out what he thought about the plaintiff's prospects. The tone of the exchanges on that morning, however, seems to have been generally positive and to the effect that there were prospects of obtaining the injunction, notwithstanding some infringements of the Rules. By implication, the defendant advised the plaintiff that he had a good cause of action for the grant of an interlocutory injunction when the plaintiff had no case to restrain the liquidation of the company. He failed to advise the plaintiff that it was inevitable that the plaintiff would be required to meet the damages occasioned by the grant of an interlocutory injunction when the injunction was dissolved. My view concerning the positive tone of the exchanges on the morning of 20 November is reinforced when I take account of the plaintiff's evidence that, at a later stage, after swearing his affidavit of 28 November, the plaintiff was told by the defendant that there was a 90 per cent chance of success.
I consider that the defendant was acting as a solicitor in an advisory capacity when these breaches of duty occurred and that his conduct does not fall within the rule enunciated in Giannarelli & Shulkes v Wraith (supra), that is to say, that at common law a barrister cannot be sued by his client for negligence in the conduct of a case in Court or in work out of Court which leads to a decision affecting the conduct of a case in Court. The advisory obligations of the defendant were not limited simply to the presentation of the proposed case in Court. It was open to the defendant to weigh up the various avenues of relief. It was open to him to advise the plaintiff that in the absence of compelling evidence it might be better to concentrate upon the refinancing package or some other form of negotiated settlement. Alternatively, in the manner alluded to in par 10.12 of the statement of claim, he could have counselled the plaintiff that a sale of the business by the administrator did not necessarily mean that the business would cease to trade in Kellerberrin, in which event the plaintiff's overall concern would have been met. For the reasons I have previously given, it was not open to the defendant to answer the claim for negligence in regard to the advice issue by saying that his only role was to implement the strategy previously formulated by Mr O'Connor as a more experienced practitioner. The defendant had to exercise his own judgment as the plaintiff's adviser.
This brings me to a further issue. It can be argued on behalf of the defendant that in a situation of urgency in which a degree of boldness was called for, some weight should be given to the presence of the RAM fighting fund and the willingness of RAM and Mr Cole to provide indemnities. A solicitor acting reasonably and with due care would be entitled to take account of these safeguards against loss, even if he felt some uncertainty about the strength of the plaintiff's claim. Viewed in this light, it was appropriate for the defendant to act quickly and decisively, and without devoting too much time to advising his client about the risks involved. If the risks materialised, the plaintiff would be protected by the assurances of support.
The difficulty with this line of argument is that the breaches of duty occurred essentially on the morning of 20 November before the injunction was obtained. At that time the only indemnity the defendant had attempted to arrange was the informal agreement made between the plaintiff and Mr Cole. To my mind, it would have been apparent to a solicitor acting reasonably that the indemnity agreement was unlikely to provide the plaintiff with sufficient protection as proved to be the case. Mr Cole was clearly in a perilous financial position. In the absence of a firm agreement RAM could not necessarily be relied on. It therefore seems to me that the presence of the proposed indemnities as a safeguard was not sufficient to absolve the defendant from his duty to advise or to qualify the standard of care imposed upon him in any significant respect.
It must also be remembered that, on my finding, no clear advice had been given by the defendant concerning the plaintiff's prospects or the possibility that damages might be awarded against him. Thus, it cannot be said with certainty that those providing the indemnity would have provided support had proper advice been given.
Put shortly, I find that for the reasons previously given the defendant was subject to a duty of care to advise in the manner contemplated by these two paragraphs of the claim. In failing to advise in the required manner the defendant failed to act reasonably and exercise the care and skill to be expected of a qualified and careful solicitor in the exercise of his profession, notwithstanding the urgent circumstances. He was therefore in breach of the duty of care arising from his retainer. These breaches of duty occurred on the morning of 20 November 2000 before the injunction was obtained. For the reasons I develop in more detail later, I consider that they had a causative consequence in relation to the liability of the plaintiff under the undertaking as to damages and the order for costs made against him.
Against the background of these general findings, which bear principally upon the allegations reflected in par 10.1 and par 10.2 of the statement of claim, I must now deal with some further matters.

Further Matters

Paragraph 10.3

The allegation in par 10.3 of the statement of claim is that the defendant failed to draw the affidavits of the plaintiff and Mr Cole with reasonable care so that they would contain only evidence in an admissible form under the Rules.
This allegation is somewhat different from the preceding allegations concerning a failure to advise. Further, there is a basis for saying that this allegation falls within the rule concerning advocate's immunity because the preparation of affidavits in support of the proposed claim might generally be regarded as work intimately connected with the conduct of a case in Court. In Boland v Yates (supra) Gleeson CJ and Callinan J appeared to approve the view expressed by Branson J that out of court preparatory work undertaken by a firm of solicitors many months before the hearing could fall within the ambit of the immunity.
Balanced against such a view, however, are the observations by Bray CJ in Feldman's case (supra) to the effect that in a fused profession, where a solicitor failed to obtain the necessary evidentiary material before he put himself in the position of counsel providing an advice on evidence, that such a one might be liable in negligence.
To my mind, it is ultimately a matter of degree. A decision to plead or not to plead a claim for interest, as in Keefe v Marks (supra),can be easily regarded as the work of a barrister in refining a claim. Likewise, if certain paragraphs of a contentious affidavit are eventually excluded for failure to comply with an evidentiary rule then a degree of carelessness on the solicitor's part may possibly be protected by the immunity rule. In the present case, however, as appears from the reasons for judgment of Justice Roberts‑Smith, the affidavits on the plaintiff's side were fundamentally flawed; or, to put it another way, were tainted by the defendant's failure to advise the plaintiff that his grievances, although genuinely felt, did not add up to a sustainable case in the eyes of the law. Justice Roberts‑Smith struck out many paragraphs from the affidavits on the plaintiff's side, and this exposed the fundamental weakness in the plaintiff's case, that the alleged impropriety was not supported by evidence.
In these circumstances, I do not consider that the advocate's immunity applies. I return to the observations made by Mason CJ and Kirby J in Giannarelli & Shulkes v Wraith (supra). The grounds for denying liability have no application to work and decisions made out of court which are not truly referable to the conduct of the case in the court. The immunity must not be unnecessarily extended.
When I turn to the question of whether the defendant exercised sufficient care in preparation of the affidavits, similar considerations apply. I make allowance for the need for haste, as a matter bearing upon the standard of care, but the fact is that the affidavits were basically deficient. In his letter to Mr O'Connor immediately following the initial hearing the defendant recognised that further evidence was required. I therefore consider that this breach of the duty of care has been made out.

Paragraphs 10.4 and 10.5

The plaintiff alleges in par 10.4 that the defendant failed to warn the plaintiff that he had no cause of action and that he should not institute the proceedings. It is alleged in par 10.5 the defendant failed to warn the plaintiff that whatever the merits of the proposed action, the plaintiff was not able to adduce sufficient admissible evidence to secure an interlocutory injunction inter parte.
These allegations can be viewed as a variation on a theme introduced in the preceding paragraphs. It follows from earlier discussion in regard to par 10.1 to par 10.3 of the claim that, in my view, there was a breach of duty as alleged.

Paragraphs 10.6 to 10.12

Paragraph 10.6 contains an allegation of failure to advise the plaintiff as to various matters including that Cole could be the plaintiff as he was a creditor of the company (10.6.1); that it was not appropriate for the plaintiff to be the plaintiff in the action (10.6.2); that Cole's indemnity in respect of the liabilities the plaintiff might incur was no protection of the plaintiff unless Cole had cash or assets to make good any liability (10.6.3); that Cole's assets were already securing advances by Challenge Bank to the company made it improbable that Cole could make good the indemnity (10.6.4); that the interlocutory injunction granted on 20 November 2000 was incapable of being sustained having regard to the insufficiency of the evidence (10.6.5).
The allegations made in par 10.7 to par 10.11 are a variation on the theme reflected in earlier paragraphs of the plaintiff's pleadings, namely, that the defendant failed to advise the plaintiff of various risks associated with the proposed claim bearing in mind the paucity of evidence available to sustain the claim. In these later paragraphs, however, there is an emphasis upon the defendant's alleged failure to warn the plaintiff that the indemnities supposedly obtained from RAM and Cole were likely to be and were in fact illusory. Again, it follows from earlier discussion that the breaches of duty alleged do not fall within the advocate's immunity rule and the allegations relied on have been made out.
Par 10.12 contains an allegation that the defendant failed to advise the plaintiff that the liquidation of the Cole Company would not necessarily mean the cessation of the company's business. I am not satisfied that these was a breach of duty in regard to this matter. The defendant was not instructed to consider this issue and he was not provided with sufficient materials to express an opinion on the subject.

Availability of Relief

The plaintiff alleges in par 11 of the statement of claim that by reason of the defendant's breaches of contract and duty the plaintiff has suffered loss and damage. The loss is said to consist of the costs and damages payable by the plaintiff which should not have been incurred had the plaintiff been properly advised.
I noted earlier that it was an agreed fact at the trial that loss of the kind alleged had occurred. However, the quantum had yet to be determined, save for the taxed costs of $15,152 payable by the plaintiff to the defendant. The effect of par 28 of the defence was to raise an issue as to whether the plaintiff's loss was caused by any breach of retainer or negligence by the defendant.
The defendant said in answer to the plaintiff's plea that the breaches complained of are essentially referable to an alleged failure to advise the plaintiff of the risks associated with his proposed action. However, in the circumstances of the present case it appeared that any advice given to the plaintiff by the defendant would have been ignored because the plaintiff was committed to the plan of action outlined by Mr O'Connor and was influenced by his own determination to proceed against the administrator.
In dealing with this issue I must take account of the reasoning of the High Court in Chappel v Hart (1998) 195 CLR 232. That was a case in which a causal connection between a surgeon's failure to warn of the risks associated with an operation and the damage suffered by the patient was made out. The High Court indicated that courts will generally take a commonsense view of causation. If the plaintiff can prove breach of duty followed by harm of a foreseeable kind then a causal connection will generally be assumed unless the defendant can point to an intervening event or some other reason to the contrary.
In the present case, I accept that the plaintiff was influenced by Mr O'Connor and had a strong desire to proceed against the administrator. Nonetheless, I am not persuaded that he was not prepared to and would not have listened to advice. He responded to the defendant's request at the initial meeting that evidence be obtained. He was guided by the defendant in signing the informal agreement for an indemnity. He was Bank Watch Officer of RAM and had worked with solicitors on previous occasions. The tenor of his evidence was that he would not have proceeded if he had received advice that his case lacked merit. It is an undisputed fact that costs have been awarded against him in the sum of $15,152.
Against this background, having regard to the reasoning in Chappel v Hart (supra) I am satisfied on the balance of probabilities that the plaintiff suffered loss and damage by reason of the defendant's breaches of duty. It follows that the plaintiff is entitled to recover damages in an amount to be assessed.
There is one remaining matter to be addressed. It was argued on behalf of the defendant that the plaintiff could not be said to have suffered loss without having tried to enforce his indemnities. To my mind, the fact that the plaintiff may be entitled to an indemnity from third parties is not a sufficient answer to the present claim. It is apparent from the evidence that his claim for an indemnity against Mr Cole is of no value and cannot be enforced. As to his claim against RAM pursuant to the deed of indemnity, the plaintiff is in the same position as a litigant who may eventually look to his insurer if his defence of the action proves unsuccessful. In the meantime, if the outcome of the relevant proceedings is, as in the present case, that an award of damages, or an order for costs, can be enforced against him then he can be said to have suffered loss, with the result that the cause of action is complete.

Summary

I consider that the plaintiff is entitled to succeed in his claim against the defendant. I will hear from the parties as to the further orders that may be required in regard to the assessment of damages.