Mujkic Family Company Pty Ltd v Clarke and Gee Pty Ltd - [2018] TASFC 4

[2018] TASFC 4

COURT: SUPREME COURT OF TASMANIA (FULL COURT)

CITATION: Mujkic Family Company Pty Ltd v Clarke & Gee Pty Ltd [2018] TASFC 4

PARTIES:  MUJKIC FAMILY COMPANY PTY LTD
  MUJKIC, Asim
  MUJKIC, Goran

v
CLARKE & GEE PTY LTD
LESTER, William Frederick

FILE NO: FCA 2041/2017
JUDGMENT

APPEALED FROM: Mujkic Family Company Pty Ltd v Clarke & Gee Pty Ltd [2017] TASSC 49

DELIVERED ON:  7 September 2018
DELIVERED AT:  Hobart
HEARING DATE:  20 April 2018
JUDGMENT OF:  Blow CJ, Brett J and Marshall AJ

CATCHWORDS:

Professions and Trades – Lawyers – Duties and liabilities – Solicitors' duties to other persons – Other persons – Company in liquidation – Solicitors instructed by officers of company to apply to terminate winding-up – Whether arguable that solicitors owed duty of care to company.

Badenach v Calvert [2016] HCA 18, 257 CLR 440, referred to.
Aust Dig Professions and Trades [1182]

REPRESENTATION:

Counsel:
           Appellants:  M A Karam
           Respondents:  S B McElwaine SC
Solicitors:
           Appellants:  McInnes Wilson Lawyers
           Respondents:  Shaun McElwaine + Associates

Judgment Number: [2018] TASFC 4
Number of paragraphs: 47

Serial No 4/2018
File No FCA 2041/2017

MUJKIC FAMILY COMPANY PTY LTD, ASIM MUJKIC
and GORAN MUJKIC v CLARKE & GEE PTY LTD
and WILLIAM FREDERICK LESTER

REASONS FOR JUDGMENT FULL COURT

BLOW CJ
BRETT J
MARSHALL AJ
7 September 2018

Orders of the Court

Appeal allowed.

Orders 1 and 2 made on 1 December 2017 set aside.

Respondents' interlocutory application filed on 27 October 2017 dismissed.

Appellants granted leave to file and serve an amended statement of claim within 28 days.

Serial No 4/2018
File No FCA 2041/2017

MUJKIC FAMILY COMPANY PTY LTD, ASIM MUJKIC
and GORAN MUJKIC v CLARKE & GEE PTY LTD
and WILLIAM FREDERICK LESTER

REASONS FOR JUDGMENT FULL COURT

BLOW CJ
7 September 2018

This appeal relates to an action for damages for professional negligence that was brought by the appellants against an incorporated legal practice, Clarke & Gee Pty Ltd, and one of its legal practitioner directors, Mr W F Lester. The first appellant, Mujkic Family Company Pty Ltd, was the trustee of a family trust and, in that capacity, was the owner of a medical practice. The second appellant, Asim Mujkic, was the sole shareholder and director of that company. The third appellant, Goran Mujkic, was the manager of the medical practice.
During 2014 a Queensland company sued the appellant company, obtained a default judgment against it, issued and served on it a creditor's statutory demand, and commenced winding-up proceedings against it. Apparently those proceedings were not defended. In February 2015 the Supreme Court of Queensland ordered that the appellant company be wound up and appointed a liquidator. The appellants contend that the appellant company was solvent at all material times. Shortly after the winding-up order was made, Asim Mujkic and Goran Mujkic went to see Mr Lester. It is alleged that they retained Clarke & Gee to institute proceedings for the termination of the winding-up; that those instructions subsisted until May 2016; that no satisfactory progress with the termination application was made before then; and that the liquidator's costs increased substantially up to that point. In May 2016 new solicitors were engaged to act for Asim Mujkic, and an order was soon made terminating the winding-up of the company. The appellants contend that the respondents were negligent in failing to act promptly and diligently in seeking the termination of the winding-up and that, as a result, damage was suffered in that the liquidator's costs were much higher than they would otherwise have been.
Of course the appellant company, which was in liquidation, was never a client of the respondents. The respondents contend that they did not owe it a duty of care in tort. They filed an interlocutory application seeking that the negligence claim of the appellant company be struck out for failing to disclose a reasonable cause of action. That application was successful. On 1 December 2017 Holt AsJ ordered that that claim, as pleaded in certain paragraphs of the appellants' statement of claim, be struck out: Mujkic Family Company Pty Ltd v Clarke & Gee Pty Ltd [2017] TASSC 49. This is an appeal from that decision. The appellants contend that it is arguable that the respondents owed the appellant company a duty of care, and that the learned associate judge was therefore wrong to order that that company's claim be struck out.
The learned associate judge concluded that that claim could not possibly succeed. He reached that conclusion principally on the basis that it was not even arguable that the interests of the appellant company coincided with the interests of the clients of the respondents. For the reasons stated by Marshall AJ, I consider that his Honour erred in reaching that conclusion, and that it was at least arguable that there was a coincidence of interests sufficient for a duty of care to arise.
There was a second basis upon which the learned associate judge held that a duty of care to the appellant company could not have existed. It concerned the concept of vulnerability. The significance of vulnerability was explained by Gleeson CJ, Gummow, Hayne and Heydon JJ in a paragraph that his Honour quoted from Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16, 216 CLR 515 at [23], where their Honours said:
"Since Caltex Oil, and most notably in Perre v Apand Pty Ltd, the vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. 'Vulnerability', in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, 'vulnerability' is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant. So, in Perre, the plaintiffs could do nothing to protect themselves from the economic consequences to them of the defendant's negligence in sowing a crop which caused the quarantining of the plaintiffs' land. In Hill v Van Erp - FTN.20, the intended beneficiary depended entirely upon the solicitor performing the client's retainer properly and the beneficiary could do nothing to ensure that this was done. But in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords - FTN.21, the financier could itself have made inquiries about the financial position of the company to which it was to lend money, rather than depend upon the auditor's certification of the accounts of the company." [Footnotes omitted.]
In his reasons, at [10], the learned associate judge held that the requirement of vulnerability, was necessary to give rise to a duty of care to the appellant company and could not be satisfied, saying this:
"The liquidator had standing to bring a termination application under the Corporations Act, s 482 and if the sole interest of the company in liquidation was in having the winding up terminated, the company had the necessary protection through the agency of its liquidator."
In the course of the hearing before the learned associate judge on 23 November 2017, counsel for the respondents expressly stated that the only point he would be arguing "on the duty question" was whether, as a matter of law, there was a coincidence of interests. He did not argue that the appellant company's claim should be struck out on the basis of a lack of vulnerability or on the basis of the absence of any other relevant salient feature. It follows that it was not open to the learned associate judge to order the striking out of the appellant company's claim on the basis of a lack of vulnerability. There was no issue as to vulnerability or lack thereof. In the circumstances, by reaching a conclusion as to an absence of vulnerability, the learned associate judge denied the appellants procedural fairness. At the hearing of this appeal, the respondents did not rely on his Honour's conclusion as to vulnerability.
I agree that the appeal should be allowed, and that orders should be made as proposed by Marshall AJ.

File No FCA 2041/2017

MUJKIC FAMILY COMPANY PTY LTD, ASIM MUJKIC
and GORAN MUJKIC v CLARKE & GEE PTY LTD
and WILLIAM FREDERICK LESTER

REASONS FOR JUDGMENT FULL COURT

BRETT J
7 September 2018

I agree with the reasons expressed, and the orders proposed by Blow CJ and Marshall AJ.

File No FCA 2041/2017

MUJKIC FAMILY COMPANY PTY LTD, ASIM MUJKIC
and GORAN MUJKIC v CLARKE & GEE PTY LTD
and WILLIAM FREDERICK LESTER

REASONS FOR JUDGMENT FULL COURT

MARSHALL AJ
7 September 2018

Background

On 17 July 2017, the appellants issued a writ accompanied by a statement of claim in which they sought common law damages against the respondents for breach of contract and negligence, and for statutory damages for breaches of the Competition and Consumer Act 2010 (Cth).
The first appellant is a company incorporated in Tasmania under the Corporations Act 2001 (Cth), and is the trustee of the Mujkic Family Trust. The first appellant, as trustee of the trust, conducts a medical practice. The second appellant is the sole shareholder and director of the company. The third appellant is the manager of the practice.
The first respondent is a law firm in Tasmania. It was the legal representative of the second and third appellants during the approximate period 6 February 2015 to 28 April 2016. The second respondent, Mr Lester, was, at all material times, a director of the law firm.
On 6 February 2015, the Supreme Court of Queensland ordered that the company be wound up and appointed a liquidator.
In mid-February 2015, the second and third appellants had an initial conference with Mr Lester. The second and third appellants allege that they issued instructions to Mr Lester to bring proceedings to terminate the winding-up.
Mr Lester held a retainer from the second and third appellants until it was withdrawn in May 2016. By 27 March 2015, an application seeking orders pursuant to s 482 of the Corporations Act had been filed, seeking to terminate the winding-up. There had been no satisfactory progress with the termination application so the second appellant appointed new solicitors to act for him in that proceeding. On 25 July 2016, an order was made terminating the winding-up, but by that time the costs of the liquidator had grown.

The proceeding below

The appellants filed an interlocutory application in this proceeding, seeking leave to amend their statement of claim to refine the company's claim in negligence. The respondents filed an application to strike out the negligence claim of the company for failing to disclose a reasonable cause of action.
The interlocutory applications were heard by Holt AsJ. His Honour struck out those paragraphs of the statement of claim insofar as they alleged negligence by the respondents in respect of a duty of care owed to the company. His Honour refused the appellants leave to amend, but granted them liberty to apply for an amendment which would exclude the claim of the company in negligence.
The only issue before the primary judge was, as he put it at [3] of his reasons (Mujkic Family Company Pty Ltd v Clarke & Gee Pty Ltd [2017] TASSC 49):
"… whether it is so clear at the pleading stage that the solicitor, during the course of his retainer, had no duty of care to the company in liquidation, that the claim in negligence should be summarily ended by allowing the strike-out application and refusing the amendment application."
His Honour determined that issue by holding that the solicitor had no duty of care to the company. He observed that there was no coincidence of interests between the second and third appellants and the company. Referring to the judgment of the High Court in Badenach v Calvert [2016] HCA 18, 257 CLR 440, his Honour said at [5]:
"… the duty to the client is one protective of the client and the client's interests alone and cannot be compromised by a duty to a non-client where the interests are not the same."
His Honour held at [6] that:
"[a] duty to the client to take all steps to have the winding up terminated is far narrower than the duties owed in respect of a company in liquidation."
In addition the primary judge held that a duty of care which may be owed by a solicitor to protect the company from economic loss could not exist because the requirement of vulnerability necessary to give rise to the duty could not be satisfied.
His Honour held that the company had the necessary protection through the agency of its liquidator, and referred to the judgment of the High Court in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16, 216 CLR 515 at [23].

The competing contentions

On appeal, the respondents did not make submissions on the question whether the pleading should be struck out because the company was able to protect itself. The only issue on the appeal is whether the primary judge correctly struck out the impugned paragraphs in the statement of claim on the basis that the respondents did not owe a duty of care to the company because its interests were not coincident with those of the personal appellants.
Counsel for the appellants has described the issue as:
"Whether it is arguable that a solicitor, in carrying out instructions given by a shareholder of a company in liquidation to terminate the winding up of that company, could owe a duty of care to the company."
Grounds 1 and 2 of the appeal concern the issue of lack of coincidence of interest. Grounds 3 and 4, which, given the respondents' approach, need not be examined concerning the issue of vulnerability.
A pleading is liable to be struck out if it does not disclose a reasonable cause of action or is incapable of success, and thus futile: see Spencer v Commonwealth [2010] HCA 28, 241 CLR 118 at [24].
It is not appropriate to strike out a pleading if it raises an arguable point of law: see Agar v Hyde [2000] HCA 41, 201 CLR 552 at [64].
In the current matter, if it is clear that the interests of the company and the other appellants do not coincide, it would be futile to allow the impugned pleading to stand.
The appellants submit that the finding as to whether there is the requisite coincidence of interests ought not be made until after the trial when all relevant evidence has been adduced. The appellants allege that at the time the respondents were retained, the respondents and the liquidator believed that it would be in the best interests of the company for the winding-up to be promptly terminated on the application of the second appellant as a contributory of the company.
Counsel for the appellants submits that there was a suggestion that the second or third appellants had the tacit authority of the liquidator to act on behalf of the company, and that the interests of the company were the same as the other appellants.
The appellants rely on what they say are the following factual matters supporting coincidence of interests:
·    the liquidator's view as at 17 February 2015 that an application to terminate the winding-up should be made promptly;
·    correspondence to the solicitors of the judgment debtor from the respondents dated 23 February 2015, in which the respondents purport to act for the company;
·    a further letter sent by the respondents to that solicitor on 23 February 2015, in which the company is described as "my client";
· a letter sent the same day by the respondents to the liquidator foreshadowing an application under s 482 of the Corporations Act;
·    a letter sent on 23 February 2015 by the liquidator encouraging the making of the application as a matter of urgency.
The appellants accept that there is a diverse range of shareholders to whom the liquidator owes a duty in the course of a liquidation, but submit that the best interests of all those shareholders would have been served by the making of an order terminating the winding-up.
The appellants contend that it would be open for the Court to conclude after hearing all the evidence at trial, that the interests of all shareholders were consistent and coincident such that a competently prepared and prosecuted termination application would be in the interests of all of them. The appellants submit that the primary judge should have found that it was arguable that the interests of the company and the personal appellants did coincide, such that a duty of care was owed by the respondents to the company.
Counsel for the respondents submits that the interests of the company and the other appellants were not coincident. Counsel points to s 471A(1) of the Corporations Act which, as it applied at the relevant time, prevented a person from exercising power as an officer of a company while it is being wound up in insolvency. An exception arises under s 471A(1A)(c), where the liquidator gives written approval for the exercise of a power by an officer. However, counsel observes that the liquidator was made aware of an intended s 482 application and was concerned that it be made promptly. The respondents were not seeking prior approval for the making of an application, but were advising the liquidator of its making.
Next, counsel notes that the liquidator was not requested to turn his mind to the requirements of s 471A(1A)(c), and did not do so in his letter of 23 February 2015, or otherwise. The liquidator did not give the respondents authority to act for him in the s 482 application.
Counsel for the respondents point to new obligations and responsibilities imposed on directors and officers of the company by the winding-up order. These included requirements designed to assist the liquidator in the winding-up. The discharge of those responsibilities is said to be inimical to any coincidence of interests between the company and its officers which may have applied before the winding-up order.
Counsel next refers to the fact that the liquidator removed management and control of the company from the shareholders and vested it in the liquidator. Counsel also refers to the liquidator becoming subject to responsibilities and duties arising from the liquidation, including a duty to creditors and contributories of the company, and an obligation to act independently as an officer of the Court. These duties and responsibilities were compared to the role of a contributor, such as the second appellant, who acts in his own personal interest in making a s 482 application. Counsel submits that the interests of unsecured creditors did not align with those of the personal appellants.
Finally, counsel observes that the liquidator appointed his own solicitor in relation to the s 482 application. Given that fact, the respondents, it is submitted, do not have a concurrent and coincident duty of care to the company.

Consideration

It is important to remember that the Court is not asked, at this stage of the proceeding, to determine whether the interests of the company and the interests of the appellants in the application to void the winding-up were coincident. The Court is examining whether it is arguable that those interests were coincident. It is only when a pleading is bad beyond argument that it should be struck out.
Whether the interests of a company in liquidation and a contributory are coincident in the conduct of an application under s 482 of the Corporations Act is a novel argument on which there is no direct authority. There were a diverse range of stakeholders to whom the liquidator owed a duty of care. However, it is arguable that it was in the best interests of all stakeholders for the company to cease to be in liquidation, given that the costs of the liquidator were mounting, and the company appeared to be solvent.

It is more appropriate to have the question of whether there were relevant coincident interests determined at trial. The point is an arguable one. Counsel for the respondents focuses on the different interests of a company in liquidation and its officers. However the point before the Court is more confined and concerns whether there were different interests in the conduct of the s 482 application. It is not suggested that the respondents acted for the company in that application, but that does not mean that the company did not have an interest in the success of that application. It is also arguable that it was in the interests of unsecured creditors for the s 482 application to be prosecuted promptly so that they could secure payment of money owed to them. The fact that the liquidator had appointed his own solicitor in the s 482 application does not deny a coincidence of interests between the company and the other appellants, especially if it is in the interests of the company that the application succeed.
In Badenach v Calvert at [20], the plurality said:
"… a solicitor's duty is generally considered to be owed solely to the client because the duty is to exercise professional knowledge and skill in the protection and advancement of the client's interests in the transaction in which the solicitor is retained. That duty cannot be compromised by a duty to a person whose interests are not coincident with those of the client, …".
At [49] in Badenach, the plurality said that there may be circumstances in which a duty of care could arise to a third party. The Court referred to Hill v Van Erp (1997) 188 CLR 159 at [43], and noted that there the interests of a testatrix and an intended beneficiary were aligned.
The interests of the company and the interests of the other appellants were arguably coincident in the s 482 application. That is so, notwithstanding the liquidator's role, given that the interests of creditors (including unsecured creditors) were also arguably coincident with the company and the other appellants in the s 482 application.
In Hopkins v AECOM Australia Pty Ltd (No 3) [2014] FCA 1043, 102 ASCR 393, Nicholas J of the Federal Court, permitted an application for leave to amend a pleading to add a claim that solicitors owed a duty of care to non-clients. The non-clients were prospective investors in relation to a product disclosure statement. His Honour rejected a claim that the amendment failed to disclose a tenable cause of action. The Court observed that Hill v Van Erp recognised that there are circumstances in which the general rule that a solicitor only owes a duty of care to the client, may not apply. It was considered that the issue was best left for trial. Counsel for the respondents submits that Hopkins is not a persuasive authority as it was decided before Badenach v Calvert. However, Hopkins applied Hill v Van Erp, and there was nothing in Badenach which was inconsistent with that case, rather it was distinguished.
Counsel for the appellants also referred the Court to the judgment of Dixon J in the Supreme Court of Victoria in Dual Homes Victoria Pty Ltd v Moores [2016] VSC 86, 50 VR 129, 306 FLR 277, where it was held that a solicitor owed a duty of care to directors of a company while acting for the company in respect of a judgment debt which led to the company being wound up. This case is distinguishable because, unlike the present matter, the retainer was in place between the company and the solicitor prior to the liquidation, and not with the directors.

Conclusion

For the foregoing reasons, I consider that the issue whether there was a coincidence of interests between the company and the other appellants in the s 428 application, or any other application that may have been brought to set aside the winding-up, is an arguable one. It is one which is best left for the trial judge to determine. I would allow the appeal, set aside the order below, dismiss the interlocutory application of the respondents, and permit the appellants to apply to further amend their statement of claim, including the claim of the company in negligence.