Patrick Jebb as trustee for Trafalgar West Investments Trust v Corrs Chambers Westgarth (A Firm) - [2022] WASC 165

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   PATRICK JEBB as trustee for TRAFALGAR WEST INVESTMENTS TRUST -v- CORRS CHAMBERS WESTGARTH (A FIRM) [2022] WASC 165
CORAM:   SOLOMON J
HEARD:   6 MAY 2022
DELIVERED          :   10 MAY 2022
PUBLISHED           :   10 MAY 2022
FILE NO/S:   CIV 2136 of 2020
BETWEEN:   PATRICK JEBB as trustee for TRAFALGAR WEST INVESTMENTS TRUST
Plaintiff
AND
CORRS CHAMBERS WESTGARTH (A FIRM)
Defendant

Catchwords:

Practice and procedure - Application for a trial of preliminary issues - Whether issues of duty and breach, and causation and damages/quantum can be separately tried - Consideration of utility - Significant risk of overlap or duplication in the factual matrix - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 233

Rules of the Supreme Court 1972 (WA), O 32 r 4

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff	:	Mr R Price
Defendant	:	Mr B Tomasi

Solicitors:

Plaintiff	:	Jebb Legal
Defendant	:	McNally & Co

Cases referred to in decision:

Chenery v Conti [1999] WASCA 258
Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317
Hammond Worthington v Da Silva [2006] WASCA 180
Instant Nominees Pty Ltd v Redman [1987] WAR 218
Kitchen v RAF Association [1958] 2 All ER 241
Landsdale Pty Ltd v Moore [2009] WASCA 176
Minister for the Environment v Sharma [2022] FCAFC 35
Nikolaou v Papasavas, Phillips & Co [1989] HCA 11; (1989) 166 CLR 394
Patrick Jebb as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2019] WASC 121
Perre v Apand Pty Ltd [1999] HCA 36; 198 CLR 180
Smith v McCusker QC [No 3] [2013] WASCA 60
Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1

SOLOMON J:

By chamber summons dated 22 February 2022, the plaintiff applied for what is commonly referred to as a 'split trial', or more formally, an order pursuant to O 32 r 4 of the Rules of the Supreme Court 1972 (WA) for certain issues in the matter to be determined separately and in advance of the other matters in the proceedings. Each side filed affidavit material and submissions in support of its position.
The plaintiff commenced these proceedings by writ on 16 November 2020 and filed a statement of claim one year later on 17 November 2021. The defendant filed a defence one month later on 16 December 2021.
The plaintiff brings the action in his capacity as trustee for the Trafalgar West Investments Trust (Trust), having been appointed as the sole trustee of the Trust on 13 December 2016 upon the resignation of the former trustee.
The defendant is a law firm practicing, amongst other things, in commercial litigation.
In 2014, the former trustee on behalf of the Trust engaged the defendant to provide advice and representation in relation to proceedings it had brought in this court referred to as COR 59 of 2011 (COR 59). That action concerned allegations of oppressive conduct in the affairs of a company known as Superior Lawns Australia Pty Ltd and was brought against that company and members of the Flugge family seeking relief under s 233 of the Corporations Act 2001 (Cth). In July 2018, the proceedings were dismissed for want of prosecution.
Those proceedings and related proceedings have a long and complex history which was summarised by Vaughan J in Patrick Jebb as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd and need not be repeated.[1]
[1] Patrick Jebb as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2019] WASC 121.
In this action, the plaintiff on behalf of the Trust alleges that the defendant breached duties it owed to the former and then trustee in its advice and representation in respect of COR 59. In particular, the plaintiff alleges that the defendant breached its duties by its failure to advise of certain risks. The duties related to negotiations from May 2014 and orders ultimately made in November 2014 by the court in COR 59 for security for costs, and the operation and impact of a litigation funding agreement with litigation funder LCM Litigation Management Pty Ltd.
The plaintiff also alleges breaches of duties allegedly owed to the former trustee by the defendant by the failure to advise that the defendants in COR 59 would seek further security for costs beyond that which the court ordered in November 2014, and by advice given in November 2015 to the plaintiff to file an appearance as a legal practitioner on behalf of the former trustee in COR 59. These additional elements of the defendant's alleged conduct are referred to in the statement of claim as the 'Anticipated Application' and the 'Appointment Advice'
The nub of the plaintiff's claim is that the defendant's breach of its duties to the then trustee caused a series of events such that the plaintiff in COR 59 was unable to meet its obligations under the court's orders for security, which ultimately led to the proceedings in COR 59 being dismissed for want of prosecution. The plaintiff pleads a 'counterfactual' that, had the defendant properly advised the former trustee of the relevant risks, or not breached its duties in respect of the Anticipated Application, matters would have unfolded differently. The plaintiff pleads various alternative 'counterfactuals' resulting in any event, in the successful prosecution of the claim on behalf of the Trust.
The defendant's alleged failure to advise of the relevant risks is said, in turn, to have led to the loss of the claim the subject of COR 59, the loss of a substituted or alternative claim subsequently advanced on behalf of the Trust in COR 77 of 2018 (COR 77) and the loss of security and costs paid by the former trustee in the course of COR 59. On behalf of the Trust, the plaintiff in this proceeding principally seeks to recover very significant damages for the loss of that opportunity as well as the recovery of the security and costs that it paid.
The duties alleged to be owed by the defendant to the former trustee are fiduciary, tortious and contractual. The defendant admits that it owed fiduciary, tortious and contractual duties to the former trustee in respect of COR 59 but disputes the content and scope of those duties.
In the broadest of terms, the contested issues that arise for determination in this proceeding are:
(a)the scope and content of the duties owed by the defendant to the former trustee;
(b)whether those duties were breached in the manner alleged by the plaintiff;
(c)whether the breaches caused the ultimate dismissal of COR 59 and thereby the losses alleged by the plaintiff; and
(d)the valuation or quantification of those losses, including the value of the loss of the opportunity to prosecute COR 59 or COR 77.
By its application, the plaintiff seeks to have the first two issues, that is, the duty and the breach issues, heard and determined in advance of the causation and the damages/quantum issues. The plaintiff contends that the duty to warn the former trustee of the relevant risk is an incident of, and is encompassed by, the well‑established duties that solicitors owe their clients. The defendant accepts it owed the usual duties to its client but contends that in the circumstances, those duties did not extend to warning the former trustee of the particular risks that arose out of the funding agreement by reason of the orders for security. In that regard, the defendant directs particular attention to the terms of its retainer with the former trustee which, inter alia, provided expressly for the former trustee's acknowledgement of the divergence of its interests from the interests of the litigation funder, and that the funder was entitled to decline to meet an order for security for costs.
The plaintiff contends that there are particular features of this matter that weigh strongly in favour of a trial of preliminary issues.
First, there is a clear line of demarcation between the two sets of issues. The factual enquiry in respect of the two sets of issues are quite distinct.
Secondly, there is a very significant disparity between the time and expense that the two sets of issues will absorb. The first set of issues, that is, duty and breach, are relatively straight forward, involve many uncontroversial facts, and are well advanced. The issues can be heard relatively soon and completed in a matter of days. In contrast, the issues of causation and damages are factually dense and complicated, largely disputed, and legally complex. In that regard, the plaintiff points to the principles arising from a line of 'loss of opportunity' cases. On that basis, the plaintiff contends that the court will be required to hear and determine in a fairly comprehensive manner the evidence and issues that would have been aired in COR 59 or COR 77. It is plain that the hearing of the causation and damages issues will absorb some weeks of hearing, and will be much more time consuming and costly than the duty and breach issues.
Thirdly, the plaintiff submits that if the defendant is successful on the duty and breach issues, that will determine the whole matter in favour of the defendant. If on the other hand, the plaintiff is successful on the duty and breach issues, that outcome is likely to enhance the prospects of a commercial settlement.
The proposal advanced by the plaintiff's application is immediately attractive. The question of duty and breach would appear to present as fairly straightforward. The terms of the former trustee's funding agreement with its litigation funder had a particular impact on orders for security. Simply put, the funder's obligation to provide the security did not survive the termination of the funding agreement. When the funding agreement was terminated at the funder's discretion, the former trustee was left unable to meet the orders for security, which triggered the chain of events that the plaintiff contends caused the losses it seeks to recover in these proceedings. The relevant question of duty and breach might be expressed in simple terms: did the former trustee's lawyers have a duty to warn the former trustee of these potential consequences when it negotiated and consented to the orders for security on behalf of the Trust from May to November 2014? In contrast, the issues of causation and damages/quantum are undoubtably not straightforward and will involve considerably more time and complexity.
However, as the relevant cases make clear, the allure of such apparent efficiency can be beguiling. It is necessary to consider the issues in greater detail to determine whether this is a case that appropriately lends itself to the course urged by the plaintiff.
It is appropriate first to turn to the principles set out in the relevant authorities.
The relevant principles were referred to by the Court of Appeal in Landsdale Pty Ltd v Moore by Newnes JA (with whom Buss JA agreed).[2] The Court of Appeal referred to the decision of the High Court in Tepko Pty Ltd v Water Board, particularly to the reasons of Kirby and Callinan JJ,[3] which reflected sentiments previously expressed by Callinan J in Perre v Apand Pty Ltd.[4] In both those cases, the trial judge had adopted a course of 'splitting' the proceeding so as to conduct a preliminary trial of issues rather than hearing the case in its totality. That course was the subject of criticism in both matters. In Tepko, Kirby and Callinan JJ were in dissent in the result. However, their Honours' observations in relation to trials of separate issues as distinct from hearing the cases in their totality, have been widely cited and adopted, including in Landsdale. Relevant principles that emerge from those decisions include:
(a)the starting point is that the trial of an action should include all issues arising in the action;
(b)an application for the separation of issues is to be approached with caution;
(c)the apparent benefits of a separate trial of issues are often illusory and a course that often causes the very delay, expense and uncertainty it was intended to avoid;
(d)such a course will generally only be appropriate where there is a clear line of demarcation between the issues the subject of preliminary determination and the balance of issues;
(e)such a course will only generally be appropriate where it is likely to result in a substantial saving in time, inconvenience and expense; and
(f)such a course should only be embarked upon when its utility, economy and fairness are beyond question.
[2] Landsdale Pty Ltd v Moore [2009] WASCA 176 (Landsdale).
[3] Tepko Pty Ltd v Water Board [2001] HCA 19; (2001) 206 CLR 1 (Tepko).
[4] Perre v Apand Pty Ltd [1999] HCA 36; 198 CLR 180 [436] (Perre v Apand).
As the Court of Appeal observed in Landsdale, a case advancing a cause of action in tort warrants particular caution. That caution has been reiterated by the High Court and the Court of Appeal. As Newnes JA observed in Landsdale:
Particular caution needs to be exercised in cases in tort. As Owen and Steytler JJ explained in Chenery v Conti:
The practice of splitting issues often leads to unforeseen and unfortunate results. It is trite to say that a tort is not complete until damage has ensued. Matters of liability will, therefore, almost inevitably involve a consideration of damage. The question usually arises as to the wrong that a plaintiff says it has suffered (liability in the strictest sense), whether damage has ensued and whether the damage found to have been suffered was caused by the wrong done by the defendant (liability in an extended sense). The question that then follows is whether the damage found to have been suffered and to have been caused by the defendant can be quantified and compensated for in monetary terms. That is a question of remedy, not liability.[5]
Similar views were expressed by Hayne and Callinan JJ in Dovuro Pty Ltd v Wilkins as follows:
The difficulties of separating questions of liability for negligence from questions of damages are evident. Damage is an essential element of the tort of negligence. Proof of damage is essential to establishing liability. Further, assessing the standard of care to be met, by reference to the degree of probability of damage occurring, and the expense, difficulty and inconvenience of taking alleviating action, will often be assisted by knowing what happened as a result of the alleged negligence. In a case like the present, where the negligence is said to have had financial consequences, knowing the extent of those consequences may be particularly important. Splitting trial of the issues of liability and damage may, therefore, achieve little real saving in time or expense. More significantly, by truncating or abbreviating the evidence led about, and attention given to, questions of damage at the trial of questions of liability, separation of the trial of the issues may distort the determination of questions of liability.[6]
In Perre v Apand Pty Ltd,[7] Callinan J expressed the view that in tort cases in which damage is the gist of the action it will generally be undesirable to order separate trials of liability and damages unless all parties accept that compensable damage has been sustained.[8]
[5] Chenery v Conti [1999] WASCA 258 [64].
[6] Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317 [142].
[7] Perre v Apand [436].
[8] Landsdale [22] - [24].
It may be accepted, as the plaintiff argues, that there is no hard and fast rule that tort cases should not be the subject of a split trial. And it is undoubtably the case that questions concerning the scope of the duty and the breach of those duties will absorb significantly less time than the more factually dense and complex issues relating to causation and damages. As it happens, I very much doubt whether those proposed preliminary matters will be able to be determined within less than two days as the plaintiff suggests. Nevertheless, there is as I have said, an obvious attraction to the suggestion that the confined questions of the duty and breach be determined in a relatively confined hearing which will be directed to what would appear to be a straightforward issue.
However, even accepting that the issues of duty and breach will take much less time than the issues of causation and damages, that is only one factor to be considered, and in my view of the principles referred to above, not the determinative factor in this matter.
As the passage from Dovuro Pty Ltd v Wilkins quoted in Landsdale explains, where negligence is said to have had financial consequences, knowing the extent of those consequences may be particularly important to assessing the standard of care to be met.
This issue was the subject of some debate at the hearing. Counsel for the plaintiff argued that Dovuro was dealing with novel circumstances where negligence was alleged on the part of a producer and distributor of canola seed containing small quantities of a particular weed. Despite the absence of any harm caused by the seed, financial loss was incurred after the agricultural authorities in Western Australia declared the weed as a prohibited species after the appellant had imported and distributed the canola seed. It is in that unusual or novel context that the extent of the consequences may be important to assessing the scope of the duty said to be owed. In contrast to that unusual context, counsel for the plaintiff submitted that the duties owed by lawyers are well established. It is the general kind of loss, not the actual detail of the loss, that bears upon the scope of the duty. In this case, the uncontroversial facts regarding the chain of events that unfolded are sufficient to determine the scope of the duty of care, and that exercise will not be advanced by evidence in relation to the detail of the loss and damage. This case therefore does not present the same concern in relation to the necessity to hear the evidence of the actual loss and damage in order to determine the scope of the duty.
Counsel for the defendant submitted that the general principle and concern expressed in Dovurowas applicable. The defendant, counsel submitted, needs to know the nature and the reach of the loss in order to address the scope of the duty and the breach. Counsel for the defendant further argued that this matter also involved some novelty. Funding agreements have only become common in relatively recent times. They create novel problems in the respective duties that lawyers owe the funder and the client in relation to issues in which the interests of the client and the funder diverge. In this emerging area it is not appropriate to assess the scope of duty and consequential breach in isolation from the evidence regarding the actual loss.
The disaggregation of the duty of care from issues of causation and damage was recently considered, in an undoubtedly novel context, by the Full Court of the Federal Court in Minister for the Environment v Sharma;[9] see particularly the reasons of Allsop CJ at [12] - [13], [295] - [299] and Wheelahan J at [767] - [783]. Wheelahan J observed:
It has long been recognised that contested questions going to liability in negligence such as the existence of a duty of care cannot be isolated from the damage that has actually been suffered, because it is by reference to such damage that the duty question is to be resolved.[10]
[9] Minister for the Environment v Sharma [2022] FCAFC 35.
[10] Minister for the Environment v Sharma [767].
And at [782], his Honour commented:
The observations of Hayne and Callinan JJ in Dovuro allude to the difficulties that are identified in the authorities of determining the duty question in a negligence action divorced from any concrete facts giving rise to a completed cause of action. As I have sought to demonstrate, those difficulties are pronounced where, as here, no individual circumstances are identified, the duty alleged is one in respect of injuries that include mental harm, and where potentially difficult questions of factual and legal causation might arise. But the difficulties are not confined to such cases.

At the same time, the problem is more pronounced in novel contexts, particularly those outside the accepted categories of relationship where there are settled principles of legal responsibility (and in general terms the solicitor/client relationship is certainly one of those established relationships). Wheelahan J said:
In novel cases there may be many elements of a matrix that are in play in determining whether liability for damages in negligence arises. Consistently with what was said by Hayne J in Modbury Triangle at [103] and [105], it is usually desirable in novel cases to determine the existence and scope of a claimed duty of care by reference to concrete facts that arise by reference to a claim that actual damage has been sustained.[11]
[11] Minister for the Environment v Sharma [777].
In my view, at this stage of the proceeding, there is no clear indication of the extent to which, if any, the factual matrix relating to causation and the actual damage will be germane to the scope of the duty. But the general principle and the circumstances of this matter involving divergent interests between the defendant's client and the funder is sufficient to warrant caution, and to suggest that in this matter, the utility of the course urged by the plaintiff cannot be characterised as being 'beyond question'. In my view, the potential difficulties emanating from the cautions identified by the relevant cases militate against a departure from the usual course and the 'starting point' that all matters should be heard and determined together.
In addition, I consider that it would be unwise to assume that the issue of damages can necessarily be quarantined from matters of duty and breach in a case such as this, where what is sought is damages for the loss of an opportunity. The damages to be assessed in such cases were considered by Burt CJ in Instant Nominees Pty Ltd v Redman.[12] The Chief Justice cited (with approval), the comments of Lord Evershed in Kitchen v RAF.[13] That analysis makes plain that if it emerges that the plaintiff would never have succeeded in the lost action, then there can be no prospect of success in the claim for the loss of that opportunity. The point was succinctly expressed by McLure P in Smith v McCusker QC [No 3] as follows:[14]
The trial judge also considered the position on the assumption that, contrary to his view, the respondent breached his duty to the appellants and the breach caused or materially contributed to the loss of an opportunity to pursue their claim against the R & I Bank. Attention then turns to valuing the loss of that opportunity. The appellants are not required to prove those damages on the balance of probabilities; they only need to establish that the claim against the R & I Bank had some value that was more than mere nuisance value. Damages will be awarded even if the prospects of success are less than 50%. In making the assessment of value, the court is required to take a broad brush approach, not to conduct a trial within a trial.[15]
[12] Instant Nominees Pty Ltd v Redman [1987] WAR 218.
[13] Kitchen v RAF Association [1958] 2 All ER 241.
[14] Smith v McCusker QC [No 3] [2013] WASCA 60 [73].
[15] Citing Nikolaou v Papasavas, Phillips & Co [1989] HCA 11; (1989) 166 CLR 394, 404; Hammond Worthington v Da Silva [2006] WASCA 180 [116].
It follows that it is quite possible that even in the determination of the proposed preliminary issues it may well be necessary to determine whether the lost opportunity, or various distinct causes of action constituting COR 59, had 'some value'. Counsel for the plaintiff submitted that as the defendant was the firm of lawyers on record for the former trustee and signed the pleadings in COR 59, the defendant cannot be heard to assert that the claim had no value. Counsel for the defendant accepted as much in principle. However, the defendant did not accept that the claim necessarily had any value because critical matters could emerge after the initial making of the claim and in any event, the defendant denied any causal link between the alleged breach and the damage allegedly incurred. Thus, the defendant does not accept, from the outset, that the claim (or each of its aggregate parts) has some value. It would follow that the demarcation between the various issues relating to causation and damages on the one hand, and other more 'preliminary' issues, may not be as clean as the plaintiff insists.
In addition, as I have noted, the plaintiff pleads a fairly complicated array of possible counterfactuals. The plaintiff contends that these complexities ought to be determined at the second stage of the proceeding as part of the causation issue and can be neatly excised from the proposed preliminary issues. Again, I am not persuaded that the demarcation will necessarily be as clean as the plaintiff insists. What the plaintiff, the former trustee, and various others, would have done as a counterfactual is not simply a matter of whether the plaintiff or others may be believed as to what would have been done, even if such evidence is admissible. Rather, the court will draw its own inferences as to the likely conduct of the plaintiff, the former trustee, or others in the hypothetical scenarios based upon the court's assessment of all the circumstances, including in particular, the factual matrix at the time the duties arose, and the alleged breaches occurred. That is part and parcel of the factual matrix that will need to be explored in respect of the issues of duty and breach. It follows that there is at least a not insignificant risk of overlap or duplication in the factual matrix to be explored in respect of the proposed preliminary issues and the balance of issues, particularly causation.
In all the circumstances, I remain concerned that the attractive proposal advanced by the plaintiff carries the latent pitfalls that the High Court and the Court of Appeal have cautioned against. I do not think the benefits of the course urged by the plaintiff are beyond question. I am therefore not persuaded that this is an appropriate matter for the determination of preliminary issues in the manner sought by the plaintiff and I therefore dismiss the application.
At the same time, I commend the plaintiff for seeking to identify means by which a protracted and expensive trial can be more efficiently prosecuted. Although a matter for down the track, it would nevertheless appear that there may be a sensible basis to defer some of the complicated issues relating to quantum and valuation in due course and I would strongly encourage the parties to explore those avenues of efficiency.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
NW
Associate to Justice Solomon
10 MAY 2022