Philip Walton v Efato Pty Ltd

[2008] NSWCA 86

New South Wales

Court of Appeal

CITATION:	Philip Walton trading as Pitcher Walton & Co v Efato Pty Ltd [2008] NSWCA 86
HEARING DATE(S):	31 March 2008
JUDGMENT DATE:	7 May 2008
JUDGMENT OF:	Beazley JA at 1; Giles JA at 2; Tobias JA at 3
DECISION:	Appeal dismissed with costs
CATCHWORDS:	Negligence – Legal Practitioners – Solicitor – Failure to exercise reasonable care and skill – Immunity from suit – Work out of court concerning conduct of case – Damages – Whether losses sustained were reasonably foreseeable - Contract – Legal Practitioners – Solicitor – Breach of implied term of retainer – Whether loss or damage not unlikely to flow from breach
LEGISLATION CITED:	Corporations Act 2001 (Cth) s 459C, s 459E, s 459G, s 459H, s 459P and s 459S
CASES CITED:	Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 Burns v M.A.N. Automative (Aust) Pty Ltd (1986) 161 CLR 653 Castellan v Electric Power Transmission Pty Ltd (1967) 69 SR (NSW) 159 Chief Commissioner of Stamp Duties v Paliflex [1999] NSWSC 15 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Coulton v Holcombe (1986) 162 CLR 1 D’Orta Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 Dansar Pty Ltd v Pagotto [2008] NSWSC 112 David Grant & Co Pty Ltd (Receiver appointed) v Westpac Banking Corporation (1995) 184 CLR 265 Giannarelli & Ors v Wraith & Ors (1988) 165 CLR 543 Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 Heenan v Di Sisto & Ors [2008] NSWCA 25 Kenny & Good v MGICA (1999) 199 CLR 413 Koufos v C Czarnikow Ltd [1969] 1 AC 350 Master Paving Pty Ltd v Heading Contractors Pty Ltd (1997) 15 ACLC 1025 Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631 Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd (2002) NSWSC 411 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 University of Wollongong v Metwally (No. 2) (1985) 59 ALJR 481; 60 ALR 68 Wenham v Ella (1972) 127 CLR 454 Wilson v Carter [2005] NSWSC 1351
PARTIES:	Phililp Walton trading as Pitcher Walton & Co Efato Pty Limited (In Liquidation)
FILE NUMBER(S):	CA 40501/07
COUNSEL:	A: G Curtin / Y Cachia R: W G Muddle SC / L Tyndall
SOLICITORS:	A: Colin Biggers & Paisley, Sydney R: Dennis & Company, Sydney
LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 5656/05
LOWER COURT JUDICIAL OFFICER:	Truss J
LOWER COURT DATE OF DECISION:	25 July 2007

CA 40501/07
DC 5656/05

BEAZLEY JA
GILES JA
TOBIAS JA

Wednesday 7 May 2008

PHILIP WALTON t/as PITCHER WALTON & CO v EFATO PTY LTD

(IN LIQUIDATION)

Judgment

1 BEAZLEY JA: I agree with Tobias JA.

2 GILES JA: I agree with Tobias JA.

3 TOBIAS JA: This appeal arises out of proceedings instituted in the District Court by the respondent, previously known as Wardair Pty Ltd, against the appellant, its former solicitor, claiming damages for breach of an implied term of the appellant’s retainer and/or breach of his duty of care in his representation of the respondent with respect to a debt claim made against it by a Mr Geoffrey Bush (Mr Bush).

4 The primary judge, her Honour Judge Truss, found in favour of the respondent and on 25 July 2007 entered judgment in its favour in the sum of $127,615.77 together with costs. It is against those orders that the appellant appeals to this Court.

The relevant factual background

5 Ms Salli-Ann Ward was at all material times the sole director and shareholder of the respondent whose business was that of providing pilot training and charter services. Between January 2000 and July 2002 Ms Ward was in a relationship with Mr Bush which ended acrimoniously and resulted in her filing an application for an apprehended violence order against him at Bathurst Local Court in April 2003. Some 10 days later Mr Bush instituted proceedings against the respondent in the Downing Centre Local Court claiming that it was indebted to him in the sum of $28,149.81. Included in that claim was the sum of $11,000 allegedly comprising three cash advances made by Mr Bush to the respondent on 7 September 2001 in the sum of $6,750, 21 September 2001 in the sum of $2,250 and 14 October 2001 in the sum of $2,000 (together the advances).

6 On 17 June 2003 the respondent was served with a Creditor’s Statutory Demand for Payment of Debt dated 23 May 2003 pursuant to s 459E of the Corporations Act 2001 (Cth) (the Act) which asserted that it owed Mr Bush the amount of $11,000 being the amount of the advances (the Demand).

7 Pursuant to s 459E(3)(a) of the Act, the Demand was accompanied by an affidavit by Mr Bush verifying that the Demand was due and payable and asserting his belief that there was no genuine dispute with respect to the existence of the respondent’s indebtedness.

8 Section 459F of the Act provides that if, as at the end of the period for compliance with a statutory demand, the demand is still in effect and the company has not complied with it, the company is taken to have failed to comply with the demand at the end of that period. In the present case the relevant period was 21 days which expired on 8 July 2003.

9 Section 459G of the Act provides that a company upon whom a statutory demand has been served may apply to the Supreme Court for an order setting aside the demand within 21 days after it has been served. Pursuant to s 459H the court must by order set aside the demand where it is satisfied that there is a genuine dispute between the company and the party who served the demand about the existence of the debt or debts unless any amount in respect of which there is no such dispute exceeds $2,000. In the event that a company fails to comply with a statutory demand, the Court is required pursuant to s 459C(2) to presume that the company is insolvent for the purposes of an application under s 459P for the company to be wound up.

10 It was common ground that no application was made by the appellant on behalf of the respondent on or before 8 July 2003 pursuant to s 459G to set aside the Demand. Accordingly, when on 9 July 2003 Mr Bush filed an application pursuant to s 459P to wind up the respondent, the latter was presumed to be insolvent by virtue of s 459C(2)(a). That application relied upon the failure of the respondent to comply with the Demand, and so s 459S became relevant. It provides that a company can not, without the leave of the court, oppose such an application to wind up on a ground:

“(a) that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b) that the company could have so relied on, but did not so rely on (whether it made such an application or not).”

Furthermore, s 459S(2) provided that the court was not to grant leave under subsection (1) unless it was satisfied that the ground relied on was material to proving that the company was solvent.

11 The primary judge found that it was not in dispute that on the date of service of the Demand (17 June 2003) Ms Ward sent a copy by facsimile to Mr Keith Williams, a solicitor employed by the appellant, with instructions to act on behalf of the respondent with respect to the Demand. Thereafter there was correspondence between Mr Williams and Mr Bush’s solicitors with a view to resolving the matter without recourse to litigation. As those attempts were unsuccessful, on 2 July 2003 Ms Ward gave instructions to Mr Williams to apply to set aside the Demand and confirmed those instructions in a facsimile dated 7 July 2003.

12 On 9 July 2003 Mr Williams filed an application purportedly under s 459G to set aside the Demand. The appellant conceded that that application had been filed out of time and that the effect of the decision of the High Court in David Grant & Co Pty Ltd (Receiver appointed) v Westpac Banking Corporation (1995) 184 CLR 265 was that the Supreme Court did not have power to extend time within which to file such an application. Accordingly, it was common ground that as and from 9 July 2003 the respondent was by virtue of s 459C(2)(a) presumed to be insolvent.

13 At the time Mr Williams filed the application under s 459G, an affidavit sworn on 9 July 2003 by Ms Ward was also filed (the 9 July affidavit). The purpose of that affidavit was to lay the evidentiary foundation required by s 459H(1)(a) that there was a genuine dispute between the respondent and Mr Bush about the existence of the debt to which the Demand related.

14 Once Mr Williams appreciated that the application which he had purportedly made under s 459G (the s 459G application) to set aside the Demand under s 459E was out of time, an amended application was filed in which an order was sought pursuant to s 459S(1)(b) that the respondent be granted leave to oppose the winding up application filed on 9 July 2003 (the s 459S application). This application was based on a ground upon which it could have relied for the purposes of an application to set aside the Demand under s 459G (namely, that there was a genuine dispute about the existence of the debt to which the Demand related) but upon which it did not so rely as no such application had been validly made. There were other grounds relied upon which are not presently relevant.

15 The s 459S application was determined by Master Macready (as the Associate Judge then was) in a judgment delivered on 19 August 2003. After rejecting a number of presently immaterial arguments, his Honour prefaced his findings with respect to the s 459S application in the following terms (at [9]):

“The only matter which may or may not be material to solvency would be the existence of the debts the subject of the demand, and I turn to the matter of leave under s 459S.”

16 This statement is of some significance as it sets the context of his Honour’s finding which followed, namely, that by virtue of s 459S(2) the court was not to grant leave under subsection (1) unless it was satisfied that the relevant ground relied on was material to proving that the company was solvent. In other words, a company is only entitled to leave to oppose a winding up application on a ground that the company could have relied on in an application by it for the demand to be set aside where that ground was material to proving that the company was solvent.

17 The Associate Judge then referred to a passage from the judgment of Lander J in Master Paving Pty Ltd v Heading Contractors Pty Ltd (1997) 15 ACLC 1025 where his Honour (at 1033) said:

“The scheme therefore contemplates that the hearing of the winding up application will be confined to matters relevant to the solvency of the company. The scheme when understood that way means that it is only when it is a matter that it is important for the resolution of the question of the defendant company's solvency that the court is called upon, on an application for winding up, to determine whether the debt is due to the creditor. There is a public interest … that solvent companies do not get wound up so that the company, its contributories and its creditors are not put to the expense of an administration in insolvency.

…

I believe the existence or otherwise of the debt is a ground material to proving the defendant company's solvency. That is so because the amount disputed is greater than the difference between the company's current assets and current liabilities. If this debt was recognised as a liability then that would be a material matter in a consideration of this defendant company's solvency.

A further matter which needs to be considered is some assessment of the strength of the ground sought to be put in opposition. I would have thought that the defendant company would need to establish that the ground was arguable before it could benefit by the order. It must be remembered that the company is seeking a statutory indulgence. If it had a good ground to set aside the statutory demand it should have advanced it at the appropriate time and before the creditor was put to the cost of the application for winding up.

I would therefore be entitled to make an order in favour of the defendant company pursuant to s 459S. However whether or not the order ought to be made must involve some consideration of why the ground or grounds were not advanced in opposition to the statutory demand.”

18 To the same effect, and also referred to by the Associate Judge, was the decision of Austin J in Chief Commissioner of Stamp Duties v Paliflex [1999] NSWSC 15 where it was held (at [49]) that the exercise of a discretion to grant leave under s 459S(1) involved three considerations of which relevantly the first was a preliminary consideration of the company’s basis for disputing the debt which was the subject of the demand and the third was an investigation as to whether the dispute about the debt was material to proving that the company was solvent.

19 With respect to the first matter Austin J considered (at [56]) that it was sufficient that there was a plausible argument to be made for the company’s contention that the debt was in dispute or that its case was not so hopeless that it should be deprived of the opportunity of developing it. This was a relatively low threshold.

20 The Associate Judge accordingly gave preliminary consideration to the respondent’s basis for disputing the three debts constituted by the advances. After concluding (at [17]) that there was “no doubt that the funds were provided”, his Honour then said:

“… there is evidence from the sole director and shareholder of the plaintiff that she and the defendant were in a de facto/personal relationship at the time. She gave evidence of conversations concerning the provision of the $6,750 to the effect that the provision of those funds was a gift to her or her company.
[18] In respect of the $2,250 there is evidence that the funds were provided to do some renovations to the company’s premises as the defendant would have preferred to have provided the funds rather than help with renovations himself – apparently he preferred golf.”

21 The evidence to which the Associate Judge referred in the above passage was consistent with the matters deposed to by Ms Ward in her affidavit sworn 9 July 2003 with respect to the first two advances. For the purposes of the present litigation, the appellant accepted that his Honour was satisfied that there was a genuine dispute with respect to the Demand of $6,750 and $2,250 respectively. With respect to the third advance of $2,000 his Honour separately stated (at [19]):

“There is no evidence of a dispute in respect of the $2,000.”

This finding was relied upon by the appellant in support of his submission that the primary judge had erred in finding that had the s 459G application been made within time, the respondent would have succeeded in establishing that there was a genuine dispute in relation to that advance. I shall return to this issue below.

22 The Associate Judge concluded (at [20]) that the evidence demonstrated:

“at least what might be described as and is described in the authorities as a plausible argument for the payment of the $9,000. That leaves the question as to whether the $9,000 is material to solvency.”

23 Although infelicitously expressed, it was common ground that his Honour had found that there was a genuine dispute with respect to the first two advances the subject of the Demand, which totalled $9,000. However, his Honour ultimately declined leave under s 459S as he considered that the existence of the disputed debt of $9,000 was not material to the respondent’s solvency.

24 Relevant to the issues on the appeal was the evidence of Ms Ward in her 9 July affidavit with respect to the third advance. The relevant paragraphs of that affidavit were as follows:

“20. On 28 September 2001 I flew with the Defendant to Mudgee to allow him to attend a golfing engagement. I did this as a favour to the Defendant as we were in a relationship. The Company had ‘on-line’ a hired aircraft which the company made available for this purpose. Both the Defendant, who has a private pilot’s licence, and myself flew the aircraft.
21. On that occasion the Defendant and I had lunch at the Chinese restaurant in the golf club at Mudgee. The Defendant and I had a conversation about my business. During the course of that conversation we said words to the effect:
GB : How are you going for money? You will need some money to pay the rent.
SW : That’s OK, I’ll be right. I’ve got enough money.
GB : No, take it I’m going to do some flying anyhow.
22. At this time I knew that the Defendant’s private pilot’s licence was not ‘current’ nor was he to ‘standard’. This meant that that he could only fly under the supervision of an instructor such as myself. I knew that in order to bring his licence up to ‘standard’, the Defendant would have to fly in the company of an instructor such as myself.
23. I understood the Defendant’s statement to be a reference to the Defendant continuing to fly with me in order to get ‘back up to standard’ and become ‘current’. I further understood that part of the money represent[ed] recompense to the company for the costs associated with hiring an aircraft to take the Defendant from Bathurst to Mudgee and back.

24. I understood the reference to helping with the rent to be a reference to the rent on a farm cottage which I occupied near Bathurst for several days each week. I understood that it was the Defendant’s intention to spend several days every week with me, and the cottage be made available for he and his children to stay.

25. I did not take the Defendant’s offer to represent any form of binding agreement but rather an informal arrangement between partners to a relationship.

26. I do recall the Defendant providing some money following our conversation on 28 September 2001 however I have reviewed the company’s bank records and I say that no monies were received by the company from the Defendant on 14 October 2001 or thereafter.

…

30. At no time prior to the filing of that Response had the Defendant ever requested the return of the monies that are the subject of this Statutory Demand, either orally or in writing.
31. At no time between the date on which the monies were paid to the company and the filing of that response, a period in excess of eighteen months, had the company ever received a document from the defendant referring to any detail whatsoever of any alleged loan from the Defendant.”

25 The copy of the 9 July affidavit in evidence before the primary judge was not the original affidavit filed in court but what appears to be a copy upon which the appellant had made various markings and in particular, markings indicating those paragraphs which were rejected by the Associate Judge. In this regard all of the paragraphs which are set out in preceding paragraph apart only from para 26, have a notation in the right hand margin “R/Rej”. Although these appear to be the markings of the appellant himself who was in court when the affidavit was read, there was no evidence from him as to the meaning of the notations which can be construed as either “Read/rejected” or “Relevance/rejected”. There may be other possibilities. Nor was the transcript of the relevant part of the hearing before the Associate Judge in evidence before the primary judge that may have elucidated the basis upon which those paragraphs were rejected.

26 The only inference one can draw is that the Associate Judge’s finding that there was “no evidence of a dispute in respect of the $2,000” followed from his rejection of those paragraphs of Ms Ward’s 9 July affidavit to which I have referred.

27 Accepting that the rejection of some of those paragraphs may have been on the basis of form, the appellant was unable to advance any convincing argument to support the rejection by the Associate Judge of paras 20, 21, 22, 30 and 31. When read in conjunction with para 26, which was apparently admitted, those paragraphs were admissible with respect to whether there was a genuine dispute as to the existence of the debt of $2,000 and, secondly, whether they prima facie established such a dispute.

28 Rather, as will appear, the appellant’s argument on the appeal was that had the s 459G application been brought within time, the same evidence that was before the Associate Judge on the s 459S application would have been before court which, as a matter of probability, would have been constituted by the Associate Judge, who would have come to the same decision, namely, that there was no evidence of a genuine dispute with respect to the advance of $2,000. Accordingly, his Honour would have varied the Demand pursuant to s 459H(4) which would have stood with respect to that amount, thus giving rise to a presumption of insolvency pursuant to s 459C.

29 The application by Mr Bush to wind up the respondent was ultimately dismissed by the Associate Judge on 21 October 2003. It was common ground that his Honour was satisfied that the company had immediate access to $50,000 without any strings attached on a long term basis from a Mr Burke for the redevelopment of the company and which was available to pay creditors. On that basis, his Honour determined that the respondent was solvent.

30 After hearing argument as to the costs of the winding up application, on 29 October 2003 his Honour ordered that the respondent pay Mr Bush’s costs of the proceedings for the following reasons:

“2. I think it is fairly clear from a consideration of that judgment, and the timing of the matter, which I have been addressed on, that the success of the defendant really hinged upon the evidence of Mr Burke. That evidence was given on the morning of the hearing. The foreshadowing of evidence in affidavit form certainly did not refer to the extent of that evidence. The suggestion was that there might be some borrowings of $10,000. But even that would still be marginal in terms of whether or not there should be a winding up.

3. The character of Mr Burke’s evidence was quite different, as I have tried to point out in my judgment.

4. I accept the fact that the information in question only became available, firstly, as a result of the change of solicitors in the matter on the defendant’s part, and also because the offer was not extended by Mr Burke until the day before the hearing.

…

8. In the circumstances it seems to me that the evidence of Mr Burke was something that came out of the blue on the day of the hearing. Obviously the day’s hearing costs had been incurred before the evidence was available, including counsel’s costs.”

31 The factual history underlying the making of the costs order on the winding up application was as follows. At the same time as the Associate Judge delivered his judgment dismissing the s 459S application (19 August 2003) he directed that the winding up application be stood over to his list on 29 August 2003. The appellant was present in court when that direction was made.

32 Prior to that time and notwithstanding the making of the s 459S application the success of which was anything but assured, the appellant was aware first, that it was critical to adduce evidence to rebut the presumption of insolvency arising as a consequence of the failure to have the Demand set aside pursuant to a s 459G application filed within time and, second, that with a small company that could be a difficult task. Accordingly, on 18 July 2003 the appellant requested the respondent’s accountant (a Mr Favero) to prepare an assessment of the company’s solvency.

33 On 23 July 2003 the appellant retained Mr A C Hogg of counsel to whom a brief was delivered. The observations in that brief noted a report from the respondent’s accountant as to its solvency which made a preliminary assessment that, although the company was yet to complete its accounts for the 2002/03 financial year, it would probably be solvent even when the “deemed debt of $11,000” owing to Mr Bush was taken into account. Reference was then made to the possibility of making a s 459S application. Counsel was requested to advise whether such an application was feasible or whether any other application could be made in which it could be established that there was a genuine dispute with respect to the debts the subject of the Demand.

34 Counsel provided a written advice dated 25 July 2003. After referring to s 459S and noting that before leave under that provision could be granted, the respondent would have to show that it was solvent, he then advised that on the question of solvency the company would have to show that it was able to pay the disputed debts. He further advised that an affidavit should be obtained from Mr Favero establishing that the company was able to pay its debts as and when they fell due, being the established test of solvency. He concluded his advice by stating that once Mr Favero’s affidavit was to hand, he would appreciate the opportunity to confer with Mr Williams to review “the final documentation”.

35 Mr Favero’s affidavit was sworn 2 August 2003 but there is nothing in the evidence to suggest that it was ever reviewed or settled by counsel.

36 No further steps appear to have been taken by the appellant to establish the respondent’s solvency prior to 19 August 2003 when the Associate Judge dismissed the company’s s 459S application. Notwithstanding that on that date, to the appellant’s knowledge, the Associate Judge had stood the winding up application over to 29 August 2003 for possible hearing, it was not until 27 August 2003 that the appellant wrote to Mr Hogg enclosing a copy of the Associate Judge’s judgment of 19 August 2003 together with a draft affidavit by himself. The letter concluded in these terms:

“We would be grateful if you would contact the writer to discuss what further steps we may have to take or what further evidence may be required to defeat Mr Bush’s application to wind up Wardair on the basis of solvency.”

37 According to Ms Ward, on or about the same day (27 August) she attended the appellant’s office where she had a discussion with he and Mr Williams to the following effect:

“Me: ‘Is there anything I can do or provide for the hearing? Do I need to get any letters or references from family or friends that they would be prepared to offer financial help for my Company?’

I recall Philip Walton saying to me words to the following effect:

PW: ‘No. I don’t think so. We will need a copy of the bank statements of the company and probably your personal accounts.’ ”

Although both the appellant and Mr Williams disputed that this conversation occurred, the primary judge (at [50]) held that it did.

38 On 29 August 2003 the Associate Judge fixed the hearing of the winding up application for 10 September 2003 and directed that the respondent file and serve any further material upon which it proposed to rely on the issue of solvency on or before 5 September 2003.

39 By letter dated 29 August 2003 the appellant advised the respondent of the date of hearing of the winding up application and the date by which any further evidence had to be filed. The company was requested to provide the appellant with the bank statements of Ms Ward’s personal account as well as the business account of the respondent as Mr Bush proposed arguing that the company was technically insolvent due to the existence of a directors loan account contained in the balance sheet and which allegedly constituted its major asset.

40 On the same date the appellant wrote to Mr Hogg confirming that the matter had been set down for hearing on 10 September 2003 and stating

“…[Mr Bush] is arguing that the company is insolvent and should be wound up notwithstanding the tender of the amount demanded pursuant to the Statutory Demand. We are concerned as to whether there is sufficient information contained in the accountant’s report and whether we should put on further material other than the draft Affidavit of Philip Walton which was recently forwarded to you. We are currently obtaining a bank statement from the client in relation to her personal account, hopefully to verify that she has sufficient funds to pay the debt owed to the company which is shown in the company balance sheet. Another aspect of the balance sheet that may be argued by the Plaintiff is the value of the various assets noted at their depreciated value. We consider that in the absence of any further material, these values are the only values available to the Court, however you might urgently advise whether we should attempt to obtain valuations of those assets.” (Emphasis in original)

41 The letter emphasised that it was imperative that the respondent not be placed in liquidation and that counsel should advise of any further steps needed to be taken by the solicitor to ensure that the winding up application did not succeed. Counsel’s urgent attention to the matter was sought.

42 Apparently nothing was heard from counsel and as a consequence the appellant wrote to Mr Hogg by letter dated 2 September 2003, referring to the fact that the matter was listed for hearing on 10 September 2003 and requesting counsel to advise as to his availability. The letter continued:

“As you will recall the Court has ordered that we provide any further evidence of solvency by 5 September 2003. We would be most grateful if you would advise us as a matter of urgency as to what further evidence we should obtain.” (Emphasis in original)

43 Again, there was no response to this request and on 3 September 2003 the respondent terminated the appellant’s retainer and new solicitors were retained.

44 By letter dated 4 September 2003 the appellant wrote to the respondent’s new solicitors, Lazarus Smith, noting that it had delivered its file to their office and further noting, amongst other things, the following:

“The writer [Mr Williams] was not present when the related matter of Wardair v Mr Bush (3692/03) [the s 539S application] was argued before the Master. However, I understand that much of Mr Bush’s argument directed at insolvency concerned whether the depreciated value given to Wardair’s assets was accurate and whether Salli-Ann Ward was in a position to repay a loan to her appearing in Wardair’s books.”

45 By letter dated 5 December 2003, Lazarus Smith wrote to the appellant noting that it had only received instructions on the afternoon of 4 September 2003 to act on behalf of the respondent in the winding up application and noting that all affidavits on behalf of their client were to be filed on or before 5pm on 6 September 2003 [no doubt a typographical error for 5 September 2003]. The letter continued in these terms:

“In the time available to us, we only had time to prepare and finalise affidavits by Salli-Ann Ward and from the company’s accountant.
In view of the short time available to us, it was impossible to investigate the resources available to the Company to pay any debts as and when they fell due.
On Monday 9 September 2003, we had the opportunity to make further enquiries as to the capacity of [the respondent] to raise capital to meet its debts.
Our enquiries reveal that Mr Graham Bourke of Bourke’s Transport Pty Limited [sic] was prepared to advance [The respondent] a sum up to $50,000 to assist it, if it needed such assistance, to pay its creditors.
It was this evidence that ultimately proved to be the turning point in the case. Master Macready found that the Defendant had established, to his satisfaction, that it was solvent whereby it had available to it a source of funds to supplement its own resources.”

46 Lazarus Smith’s letter then noted that with respect to the costs of the winding up application, Mr Bush had argued that the normal rule as to costs following the event should not be followed as the evidence upon which the Associate Judge ultimately determined the matter was not presented in accordance with his directions as to the filing of evidence so that Mr Bush had not been given an opportunity to consider such evidence prior to the hearing. The letter asserted that Mr Burke’s evidence ought to have been elicited well prior to 4 September 2003 or at least investigated with preliminary statements taken in order that an affidavit could have been prepared and filed in accordance with the directions of the Court.

The nature of the respondent’s claim

47 By its Amended Statement of Claim filed 8 March 2006, the respondent claimed that the appellant, in breach of its contract of retainer and/or in breach of its common law duty of care, had failed to exercise due skill and diligence with respect to the instructions to act for the company in relation to the dispute between it and Mr Bush regarding the debts the subject of the Demand. The particulars filed in support of that allegation were as follows:

(a) The Defendant failed to prepare an application to set aside the Statutory Demand within the time permitted for such filing.

(b) The Defendant caused the Plaintiff to incur a Costs Order against it in favour of Mr Bush in the application to set aside the Statutory Demand in the Supreme Court of New South Wales Proceedings No. 3692 of 2003 (the ‘First Costs order’).

(c) The Defendant caused the Plaintiff to be presumed insolvent pursuant to the Corporations Act 2001 (Cth).

(d) As a result of (a) and (c) above, the Plaintiff was forced to defend Winding Up proceedings in the Supreme Court of New South Wales Proceedings No. 3693 of 2003.

(e) The Defendant failed to prepare a satisfactory defence to the Winding Up proceedings in time, or at all, so as to prevent the Costs Order in (f) below being made against the Plaintiff in favour of Mr Bush.

(f) The Defendant caused the Plaintiff to incur a Costs Order (the ‘Second Costs Order’) against it in favour of Mr Bush in the Winding Up proceedings on 29 October 2003.

I shall refer below to the costs orders so particularised as the first costs order and the second costs order.

48 The respondent then claimed that as a result of its inability to pay both the first costs order and the second costs order, the company in April 2004 had in a general meeting resolved by special resolution that it should be wound up. The damages therefore claimed by the respondent relevantly comprised the amount of the two costs orders made in favour of Mr Bush (the Bush costs), the respondent’s costs of defending the winding up proceedings being those paid to its new solicitors Lazarus Smith (the Smith costs), and the liquidator’s fees in administering the winding up (the liquidator’s fees). Those three heads of damage were $47,509.97, $51,593.80 and $28,512 respectively, a total of $127,615.77. The primary judge entered judgment in favour of the respondent for that sum, the quantum of which was not challenged on the appeal.

The primary judge’s reasons

49 The primary judge noted (at [7]) the respondent’s submissions that the heads of damage which it had sustained were a direct consequence of the appellant’s initial act of negligence in failing to file a s 459G application within time. Accordingly, any subsequent act of negligence in relation to the late filing of evidence in the winding up application was irrelevant because, as a consequence of that initial act, the company was presumed insolvent and therefore was required to defend the winding up application by affirmatively proving its solvency.

50 Notwithstanding the manner in which the respondent had put its case before the primary judge, the appellant advanced his case thus:

“(a) Even if the application had been filed in time the result would have been the same given that there was no genuine dispute regarding the third advance of $2,000.

(b) The defendant relied upon counsel for advice as to what evidence was required in relation to solvency in circumstances where he was entitled to do so and thus discharged his duty of care to the plaintiff.

(c) If there were negligent preparation of evidence in relation to the winding up application the defendant is immune from suit on the basis of advocate’s immunity.

(d) Irrespective of the costs ordered the company would have gone into liquidation by April 2004 in any event.”

He did not dispute that an error had been made in the calculation of the last day for the filing of the s 459G application.

51 At [11] her Honour stated that the factual matters in dispute were limited to the following:

“(a) Whether or not there was a genuine dispute in relation to the third advance of $2,000.

(b) What, if any, discussions occurred between Ms Ward and the defendant as to parties who may be able to provide funds to the company in order to prove solvency.

(c) Whether, when the demand was served, the company was already insolvent.

(d) Whether the defendant relied upon counsel in relation to rebutting the presumption of insolvency.”

52 Her Honour then proceeded to deal with the company’s allegations of negligence and breach of retainer in two stages, namely,

(a) the failure to apply to set aside the Demand within 21 days, and,

(b) the failure to obtain proper evidence to rebut the presumption of insolvency.

53 With respect to the first matter her Honour noted (at [14]) that the appellant conceded breach of duty/retainer with respect to his failure to file the s 459G application within time and that no claim of immunity was made with respect to that breach. At [16] she noted that the major issue was the consequence of that breach, the respondent submitted that that breach of itself entitled it to all the damages sought. The appellant on the other hand submitted that even if the application had been filed in time, the consequences would have been the same because the company was insolvent and liquidation was inevitable irrespective of any negligence on his part.

54 Her Honour then dealt with the question of whether there was a genuine dispute in relation to the third advance. After referring to the paragraphs in Ms Ward’s affidavit which I have set out in [24] above, she observed (at [29]) that although the appellant accepted that Ms Ward’s clear instructions were that there was a genuine dispute with respect to that advance, he had nevertheless submitted that the respondent had failed to distinguish between instructions and evidence so that if the application had been made in time, the relevant judicial officer, probably Associate Justice Macready, would have reached the same decision as his Honour had on 19 August 2003, namely, that there was no genuine dispute with regard to the third advance.

55 At [33] her Honour noted that it was important to bear in mind that first, the Associate Judge was dealing with an application for leave under s 459S and, second, he was not required to determine the issue which would have arisen under s 459H(1)(a), namely, whether there was a genuine dispute about the Demand. In any event, her Honour observed that the Associate Judge did not say that there was no genuine dispute with regard to the third advance, recording only that there was no evidence as to a dispute. She continued:

“Having considered the Master’s judgment I do not consider that whether or not there was in fact a genuine dispute in relation to the third advance for $2,000 was relevant to the decision he ultimately reached.”

56 After referring to a passage from the decision of Barrett J in Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd (2002) NSWSC 411 at [23], her Honour accepted (at [35]) that the relevant test was not a particularly stringent one. It required only evidence of a genuine dispute on a prima facie basis. In her Honour’s view there was such evidence, namely, that of Ms Ward. She thus concluded:

“36 In the absence of any evidence to contradict that of Ms Ward as to the circumstances in which the third advance was made I find that had the application been made in time the company would have succeeded in establishing that there was a genuine dispute in relation to it.
37. I therefore reject the defendant’s submission that had the application been filed in time, the outcome would have been the same and that the plaintiff’s position would have been no different from that which it is now.”

57 The primary judge then dealt with the winding up application. Her Honour referred to the evidence which I have summarised above leading to the making of the second costs order due to the late adduction of the evidence of Mr Burke and held that she accepted Ms Ward’s evidence as to the conversation recorded in [37] above. She then made the following findings:

“51. In any event neither Mr Walton nor Mr Williams asserted that they gave any advice about the possibility of obtaining financial assistance from third parties. The deadline for filing the evidence as to solvency was 5 September 2003, the correspondence with counsel makes no reference to such evidence and it is common ground that the defendant did not in fact take steps to obtain evidence such as that obtained from Mr Burke which was responsible for the success of the application.
52. Having regard to the counsel’s submissions and the totality of the evidence in relation to this issue, I find that the defendant failed to obtain adequate evidence to rebut the presumption of solvency in time, or at all and that this constitutes a failure to exercise reasonable care. Whether this entitles the plaintiff to a finding of negligence depends upon 2 defences raised in the alternative by the defendant who says that any adverse finding which the court may make in this regard is ultimately irrelevant because either:
(a) his actions were so intimately connected with the conduct of the proceedings that he is protected by advocate’s immunity; or
(b) he relied upon counsel’s advice in circumstances where he was entitled to do so.”

58 The primary judge then turned to these defences. With respect to the second her Honour concluded that neither the appellant nor Mr Williams could be regarded as specialists in the field of insolvency and that consequently it was reasonable for them to have relied on counsel (Mr Hogg) in this area of discourse. She said (at [63]):

“I accept that counsel was provided with draft affidavits, that the [appellant] made the appropriate enquiries of him and that there is no evidence to suggest that he ever raised the possibility of obtaining funds from third parties. However, [the respondent] says, in my view with some force, that there can be no reliance on counsel’s advice as to further evidence of solvency because none was ever received.”

59 Hence, although the appellant had sought counsel’s advice with respect to the filing of further evidence of solvency, it was clear that no such advice was forthcoming. Accordingly, her Honour concluded (at [65]) that:

“…in order to be able to establish reliance upon counsel’s advice it was incumbent upon [the appellant] to actually obtain the advice sought and I do not consider that [the appellant] is entitled to rely upon what is in effect a lack of response from counsel.”

60 The appellant’s first defence referred to in [57] above was based on the principle of advocate’s immunity. After referring to the decisions of the High Court in Giannarelli & Ors v Wraith & Ors (1988) 165 CLR 543 and D’Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 and that of Rothman J in Wilson v Carter [2005] NSWSC 1351 at [55], her Honour (at [73]) rejected the respondent’s submission that the failure to obtain evidence of financial assistance to the company was not made in circumstances where the conduct of the matter in court was in issue and that the proving of insolvency was not a matter intimately connected with such conduct.

61 The evidence, according to her Honour, overwhelmingly suggested to the contrary. She therefore concluded (at [74]) that the relevant conduct of the appellant was intimately connected with the conduct of the winding up application in court. Nevertheless, while she accepted that immunity could extend a failure to advert or attend to a particular matter in the preparation of a case for hearing, in the present case the evidence established that the appellant did not accept the responsibility of advising in relation to these matters but sought to rely upon counsel. Accordingly, the facts of the present case were distinguishable from D’Orta-Ekenaike where both counsel and the solicitor had given relevant advice to their client.

62 For these reasons her Honour concluded (at [75]) that the principle of advocate’s immunity did not apply to the appellant’s conduct. She therefore found that the appellant was liable for his negligence in failing to obtain appropriate evidence to rebut the presumption of insolvency.

63 The primary judge finally turned to the issue as to whether the inability of the respondent to pay the costs orders caused it to be wound up. It was the appellant’s contention that the company was always going to go into liquidation because by April 2004 it had liabilities of $104,000 in respect of creditors other than Mr Bush. At [87] the primary judge rejected this submission and found that the respondent had discharged the onus of establishing that the costs orders had caused it to go into liquidation. Therefore, it was entitled, as part of its damages, to the costs of the liquidation.

The challenge to the finding of initial breach of duty

64 The appellant challenged the primary judge’s finding that, had a s 459G application been made within time, the respondent would have succeeded in establishing that there was genuine dispute in relation to the third advance. Their written submissions on this issue were, with respect, without force. It was merely asserted that had the application been filed in time the Demand would have been varied to $2,000 as no reason had been identified or proved by the respondent as to why that variation would not have been made. Accordingly, it was submitted, even if the application had been made in time, the respondent would have suffered the same or a substantially similar costs order as that which was in fact made.

65 Paragraph 20 of the appellant’s written submissions were in these terms:

“On the facts in this case, no different costs order would have resulted had the application been filed in time because there would have been no dispute regarding the third advance, the statutory demand would have been varied, the application would have failed, and [the company] would have been ordered to pay the creditor’s costs.”

66 In oral argument these bald assertions were supplemented by the submission that had the application been made in time the judicial officer hearing the application would have had before him or her the same evidence as was before the Associate Judge and would, therefore, have come to the same conclusion as did his Honour that there was no evidence of any dispute with respect to the advance of $2,000 given his rejection of Ms Ward’s evidence on that issue.

67 The appellant conceded that the rejected paragraphs of Ms Ward’s affidavit relating to the circumstances with respect to the advance of $2,000 would, if admitted, be likely have contained sufficient evidence of a genuine dispute with respect to that alleged debt. Nevertheless he submitted that there was no reason to believe that the same evidentiary rulings would not have been made even if the application had been made in time – particularly if that matter had been heard by the same judge, namely Associate Justice Macready. Hence, it was submitted that the costs outcome would have been no different to that which in fact occurred.

68 In my opinion this submission should be rejected. No reason was advanced in support of the Associate Judge’s rejection of the relevant evidence which would support the appellant’s contention that the evidence would have been similarly rejected in the putative context of a s 459G application, had such an application been filed in time. It was merely speculated that such evidence might be rejected upon the basis that, whether or not there was a genuine dispute with respect to the alleged advance of $2,000, the relatively small size of the debt meant it would not have been material in proving that the respondent was solvent for the purposes of s 459S(2). In the absence of any evidence as to the basis of the rejection of the relevant paragraphs, and given that on their face at least paras 20, 21, 22, 26, 30 and 31 were admissible both in substance and in form, there can be no doubt that such evidence, if left uncontradicted, established on a prima facie basis that there was a genuine dispute with respect to the subject advance. Her Honour so found and in my view she was correct to do so.

69 Nor can I accept that even if a s 459G application had been heard by the Associate Judge, he would have made the same evidentiary rulings with respect to the relevant paragraphs of Ms Ward’s affidavit as he apparently did on the s 459S application. As the primary judge observed, the two applications raised different issues. On a s 459G application there is no reason to believe that the Associate Judge would not have admitted those paragraphs on the issue of whether there was a genuine dispute with respect to the existence of the $2,000 advance on the same basis as he had admitted similarly framed evidence in finding that there was a genuine dispute with respect to the first two advances. No logical or other explanation was advanced by the appellant to suggest that there was some plausible differentiation between the evidence with respect to the first and second advances and that with respect to the third advance.

70 In these circumstances I have little doubt that had a s 459G application been made within time, it would have succeeded and the Demand would have been set aside. It follows that the first costs order would not have been made. The appellant is clearly liable for those costs.

The challenge to the findings of no reliance and lack of immunity

71 The primary judge held (at [52]) that the appellant had failed to obtain adequate evidence to rebut the presumption of solvency and that his failure to do so on or before 5 September 2003 constituted a failure to exercise reasonable care. It was not contested that such a breach of duty was directly causative of the second costs order. It was nevertheless submitted that in fact there was no breach by the appellant of his duty of care with respect to the obtaining of evidence of a “white knight” such as Mr Burke as both he and Mr Williams had relied upon counsel to advise as to the evidence which should have been garnered for the purpose of rebutting the presumption of insolvency. Although no such advice was forthcoming, it was submitted that the appellant was entitled to assume that no further evidence was required with respect to that issue unless and until advised to the contrary by counsel.

72 Accordingly, the fact that Mr Hogg did not specifically advise that no further evidence was required did not result in there being no reliance by the appellant upon the non-communication by counsel that any further evidence was required. In other words, the appellant was entitled assume by counsel’s non-response to the appellant’s requests for advice that no such evidence was necessary.

73 The appellant the referred to her Honour’s finding that the failure by him to obtain Mr Burke’s evidence in a timely fashion was intimately connected with the conduct of the winding up application in court. However, she had held that the immunity did not apply because of the appellant’s reliance upon counsel to advise in relation to the obtaining of further evidence of solvency. What her Honour had done, so it was submitted, was to confuse the existence of a duty to exercise reasonable care in the preparation of the respondent’s defence to the winding up application with his breach of that duty. If the appellant was entitled to rely upon counsel with respect to that preparation, as her Honour had found, then there could be no breach. If there was no breach then no question of immunity could arise.

74 On the other hand, if there was no relevant reliance, there must have been breach. If there was breach, namely, the failure of the appellant to properly prepare the respondent’s case for hearing by obtaining Mr Burke’s evidence in a timely fashion, then as that failure was intimately connected with the subsequent conduct of the case in court, the immunity applied.

75 In summary therefore, it was submitted that either there was no breach of duty because the appellant was entitled to rely upon counsel and did so or, if it were found he did not so rely, any breach was one in respect of which the immunity applied. Either way, the appellant was not liable for the losses allegedly sustained by the respondent as a consequence of the making of the second costs order and the inability of the respondent to meet it.

76 The respondent’s principal contention at trial was that the need to resist the winding up application (which was based on the presumption of insolvency arising from the Demand not being set aside) and to prove actual solvency, was a direct and foreseeable consequence of the appellant’s admitted failure to file a s 459G application in time. Notwithstanding that its case was conducted in that manner, the primary judge took a different course which required her to deal with the issues of reliance on counsel and immunity relied on by the appellant in answer to the respondent’s claim. It was submitted that these issues did not arise because each item of loss included in the damages as assessed was a direct and foreseeable consequence of the appellant’s failure to lodge a s 459G application in time.

77 Nevertheless, the respondent submitted that her Honour was correct to find that there was no relevant reliance by the appellant on counsel so that her finding that there was a breach by the appellant of his duty of care in the preparation of its case on the winding up application should stand. This was particularly so given her finding that on 27 August 2003 Ms Ward had expressly raised with the appellant and Mr Williams whether there was a need to ascertain whether there were any third parties who would be prepared to offer financial help to the company. The appellant’s response that there was no such necessity was itself a failure to appreciate what was required to affirmatively establish solvency without recourse to the advice of counsel.

78 Whilst the appellant sought to rely upon counsel, no actual reliance occurred. No doubt if such advice had been obtained it would have been relied upon. But as no advice was received it was impossible for the appellant to establish that he in fact relied upon non-existent advice. In any event, it was submitted that the failure of the appellant to bring to counsel’s notice the fact that Ms Ward had raised the question of obtaining an offer of financial help from a third party was itself a failure which constituted a breach of the appellant’s duty of care. This failure was of significance given that the appellant had been aware since 19 August that the winding up application had been stood over to the 29 August, ostensibly for hearing, so that any further evidence relating to solvency would need to be ascertained with some urgency.

79 As to the issue of advocate’s immunity, the respondent submitted that the immunity only applied in circumstances where the solicitor was performing work which led directly to (or was intimately connected with) a decision affecting the conduct of the case in court. In the present case the appellant sought to rely on counsel and to limit his own responsibility to the administrative functions associated with obtaining and implementing such advice as might be received from counsel. However, the appellant’s failure was in actually obtaining counsel’s advice and/or retaining alternative counsel to advise in sufficient time.

80 In other words, where counsel’s advice had been sought but was not forthcoming on a matter which the appellant accepted was of critical importance, namely, ensuring that there was adequate admissible evidence of solvency, his failure to at least communicate with counsel (other than by way of the letters already referred to) and to obtain a definitive answer to the question as to whether further evidence was required, constituted a failure to exercise reasonable care in circumstances which could not be said to be intimately connected with the conduct of the case in court. Alternatively, to paraphrase the test described in Giannarelli by Mason CJ (at 560), the appellant’s failure was not one which attracted immunity, because the conduct was not “work done out of court which leads to a decision affecting the conduct of the case in court.”.

81 In particular, it was submitted that the statement of Rothman J in Wilson v Carter, referred to by the primary judge in [71], was too wide. In that case, Rothman J held (at [55]):

“The drafting of affidavits, the determination of the contents of those affidavits and the advices relating thereto, indeed all the tactical decisions associated with the preparation for and presentation of the extension application were in the circumstances of this case, ‘intimately connected’ with conduct of the case in court and affected the hearing. It is difficult to imagine out-of-court work more connected with the conduct of the case in court than the determination of the witnesses to be called and the evidence to be adduced from them. To the extent that these allegations concern out-of-court work, they are fundamentally directed to such matters or to preliminary steps leading only to such matters.”

82 The difficulty with this statement is that on its face it would appear to apply to a situation where, months before the hearing of the case in court an affidavit is drafted, sworn and filed which is defective in form but which defect is not ascertained before the affidavit is read when the offending paragraphs are rejected. No doubt it might be said that there was a continuing breach of duty constituted by the failure to appreciate in time the defective form of the affidavit. And yet it seems unrealistic to assert that the negligent preparation of that affidavit was intimately connected with the ultimate conduct of the case in court.

83 In D’Orta-Ekenaike, Gleeson CJ, Gummow, Hayne and Heydon JJ determined (at 16 [31]) that there was no sufficient reason for reconsidering the High Court’s decision in Giannarelli. They then considered whether the boundary of the operation of the immunity should be redrawn. Their Honours concluded (at 31):

“86. Again, we consider that no sufficient reason is proffered for doing so. In particular, there is no reason to depart from the test described in Giannarelli as work done in court or ‘work done out of court which leads to a decision affecting the conduct of the case in court’ or, as the latter class of case was described in the Explanatory Memorandum for the Bill that became the Practice Act, ‘work intimately connected with’ work in a court. (We do not consider the two statements of the test differ in any significant way.)

87. As Mason CJ demonstrated in Giannarelli , ‘it would be artificial in the extreme to draw the line at the courtroom door’. And no other geographical line can be drawn that would not encounter the same difficulties. The criterion adopted in Giannarelli accords with the purpose of the immunity. It describes the acts or omissions to which immunity attaches by reference to the conduct of the case. And it is the conduct of the case that generates the result which should not be impugned.”

84 If I were to choose between the two tests referred to in [86] of their Honours judgment, then that articulated by Mason CJ in Giannarelli seems to me to be more readily and easily applied to the facts of any particular case than the alternative. On this basis one asks with respect to the present case: what work was not performed but which ought to have been performed by the appellant which led to a decision affecting the conduct of the respondent’s case in court? The work not performed was that of obtaining additional evidence of solvency in the form of that ultimately provided by Mr Burke. However, it is difficult to identify the decision to which that failure led and which affected the manner in which the case was conducted in court. This is particularly so where in fact the evidence of Mr Burke was called and was decisive in the respondent’s success in having the winding up application dismissed.

85 In these circumstances I am extremely doubtful as to whether the immunity has any application in the present case and whether her Honour was correct to find that the appellant’s conduct in failing to obtain evidence of financial assistance to the company was intimately connected with the conduct of its case in court on the hearing of the winding up applications.

86 During the course of argument reference was made to the recent decision of Harrison J in Dansar Pty Ltd v Pagotto [2008] NSWSC 112 where the alleged breach of duty on the part of the solicitors was their failure to advise the plaintiffs whether or not the relevant proceedings were hopeless. His Honour said (at [91]) that

“Such advice is wholly anterior to, and separate from, work done leading to a decision affecting the conduct of the first proceedings. ‘Conduct’ in that sense is clearly a reference to how, or the manner in which, litigation should be conducted, not a reference to whether or not it should be commenced at all or continued.” (Emphasis in original)

87 It was therefore submitted that the failure of the appellant to obtain Mr Burke’s evidence on or prior to 5 September 2005 was not work which led to any decision affecting how, or the manner in which, the case should be conducted in court. Rather, it was a form of collateral negligence which had no effect on that conduct. Without finally deciding the issue, there seems on the face of it to be substance in that submission.

88 In any event, the present case involves a complaint by the respondent of what was referred to in D’Orta-Ekenaike as a case of wasted costs, being the making of a costs order which, but for the negligence of the barrister or solicitor, would not have been made. As was pointed out in the joint judgment at 27 [70], such a costs order cannot be set aside notwithstanding that but for the advocate’s conduct there would have been a different result.

89 Their Honours nevertheless considered that a claim for wasted costs fell into a different category from a complaint that there had been a wrong intermediate or final result. At 30 [83], the following observations were made:

“There remains for separate consideration the last of the three kinds of consequence identified earlier as consequences of which a client may wish to complain: wasted costs. Again, at first sight it might be thought that seeking to recover wasted costs would not cut across any principle of finality. But it is necessary to recall that the general rule is that costs follow the event. To challenge the costs order, therefore, will often (even, usually) involve a direct or indirect challenge to the outcome on which the disposition of costs depended. For the reasons given earlier, that should not be permitted lest a dispute about wasted costs become the vehicle for a dispute about the outcome of the litigation in which it is said that the costs were wasted.”

The difference between the example posited by their Honours in the foregoing paragraph and the present case, is that the respondent did not seek to challenge the second costs order and certainly did not seek to mount a direct or indirect challenge to the outcome of the proceedings that were in its favour. The present is not a case where the disposition of costs depended on that outcome. It is not a case of costs following the event. No possible dispute about the outcome of the litigation in respect of wasted costs arises.

90 It will thus be seen that the present case does give rise to an interesting and important question relating to the application of the advocate’s immunity with respect to preparatory court work. However, for reasons to which I shall now turn, in my view it is unnecessary to come to any conclusion with respect to that question.

91 The respondent’s primary submission on appeal before this Court, as it was before the primary judge, was that neither the Bush costs, the Smith costs nor the liquidator’s fees, would have been incurred had the appellant filed a s 459G application within time. Had such an application been filed within time and the Demand set aside, no presumption of insolvency would have arisen and on any winding up application the onus would have lain upon Mr Bush to establish that the respondent was insolvent, rather than the respondent being required to establish that it was actually solvent. The onus of proof would have been reversed. In these circumstances at the time of the appellant’s breach of his duty of care or of the implied term of his retainer to exercise such care, it was reasonably foreseeable (in the case of negligence) and in the usual course of things (in the case of breach of retainer) that the damages claimed by the respondent would have been sustained.

92 These submissions engage, in the case of breach of retainer, the first limb of the rule in Hadley v Baxendale (1854) 9 Ex 341 at 354; 156 ER 145 at 151 per Alderson B. His Lordship’s statement of that rule was that the damages claimed must flow “according to the usual course of the things” from the defendant’s breach. The preponderance of Australian authority has, however, preferred Lord Reid’s approach in Koufos v C Czarnikow Ltd [1969] 1 AC 350 at 388: that the loss or damage must be “not unlikely” to result from the breach: see generally Wenham v Ella (1972) 127 CLR 454 at 471-2; Burns v M.A.N. Automative (Aust) Pty Ltd (1986) 161 CLR 653 at 657; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 99; Kenny & Good v MGICA (1999) 199 CLR 413 at 435 [46]. In each of those cases the following elaboration by Lord Reid in Koufos at 385 of the relevant principle was referred to with approval:

“The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.”

93 It was submitted in the present case that at the time the appellant was retained on behalf of the respondent to take steps to have the Demand set aside, a reasonable person in his position would have realised that his failure to make a s 459G application within time would result in a presumption of insolvency which, in any subsequently instituted winding up proceedings, would require his client to affirmatively establish that it was solvent. From that failure, the incurring of the Bush costs and the Smith costs would be likely to result; and the incurring of liquidator’s fees would be likely to result from the respondent being wound up as a consequence of its inability to pay the Bush costs which were the subject of court orders.

94 With respect to the respondent’s claim in tort, the question of remoteness of damage is determined by the test of foreseeability of the type of harm in question. It is well established that the harm suffered or loss sustained must be of a kind, type or class foreseeable as a result of the defendant’s negligence. Furthermore, the cases establish that it is unnecessary for a plaintiff to prove the precise manner in which it sustained its loss. The test is whether, in the circumstances, the defendant could reasonably have foreseen in a general way the kind or type of loss that was likely to result from his negligent failure to exercise reasonable care and whether “some such sequence of events” as those that actually occurred was foreseeable: Castellan v Electric Power Transmission Pty Ltd (1967) 69 SR (NSW) 159 at 169; Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 365-366.

95 In my view it is sufficient to find, and I so find, that a reasonably competent solicitor in the position of the appellant would, in the circumstances, have foreseen that if a s 459G application was not filed in time, a presumption of insolvency would arise, the onus of rebutting which in any consequent winding up application would lie with his client which would involve the incurring of legal costs and expenses. If the respondent was unable to rebut the presumption, such costs would extend to Mr Bush’s costs of the winding up application on the basis of the rule that costs would follow the event. But even if it was rebutted so that the winding up application was dismissed, as in fact occurred, it was in my view still foreseeable that circumstances could occur which would result in an order that the respondent pay the whole or part of Mr Bush’s costs of that application. A reasonably competent solicitor would foresee that circumstances might arise during the course of such litigation which could result in the making of special costs orders or the denial, in whole or in part, to a successful party of their costs of the proceedings.

96 Accordingly, in my view the making of the second costs order was reasonably foreseeable although the precise reason for or manner of its occurrence was not. In other words, the general sequence of events was foreseeable and this is sufficient. I would add that no remoteness issue was raised with respect to the Smith costs, being those incurred by the respondent in attempting, as it turned out successfully, to rebut a presumption which it should not have been required to rebut in the first place.

97 Accordingly, in my opinion the second costs order was not too remote in terms of the appellant’s breach of its duty of care to file a s 459G application within time.

98 Whether or not the incurring of the liquidator’s fees was also reasonably foreseeable at the time Mr Williams failed to apply to have the Demand set aside is a somewhat more difficult question.

99 In the event, liquidator’s fees were incurred because the respondent was wound up voluntarily due to its inability to pay the two costs orders. Arguably, the sequence of events that led to that result was reasonably foreseeable. Even if the respondent was able to rebut the presumption of insolvency in the winding up application, which it did albeit with evidence adduced at the last minute, it was foreseeable at the time of the defendant’s breach that it might incur the costs orders. It is but a short step from this to also hold that if the respondent was unable to meet those costs it was likely that it would be wound up either on the application of Mr Bush or voluntarily and that liquidator’s fees would thereby be incurred. It can be inferred that Mr Williams knew that the respondent was a small company and that its financial position was relatively tight, so that the incurring of the substantial costs in contesting a winding up application based on its presumed insolvency might force it into liquidation.

100 However, as I have indicated it is not necessary that the precise sequence of events as actually occurred be foreseen if the ultimate event, namely, the liquidation of the respondent, could have been foreseen albeit occurring by a somewhat different route. I have already held that it was a reasonably foreseeable consequence of the appellant’s failure to apply to set aside the Demand that the presumption of insolvency would arise in winding up proceedings and that rebutting this presumption may be a difficult and potentially costly task. If the respondent was unable to rebut that presumption in the winding up application it would be subject to an order to be wound up in insolvency and liquidator’s fees would thereby be incurred. The consequence of liquidation and the incurring of liquidator’s fees in these circumstances were reasonably foreseeable.

101 Accordingly, in my view not only were the two costs orders reasonably foreseeable but so also was the incurring of liquidator’s fees if the inability of the respondent to pay those costs resulted in its winding up, as occurred. A reasonably competent solicitor in the position of the appellant at the time of the breach of his duty of care would in my opinion have reasonably foreseen “some such sequence of events” as those that actually occurred, namely, that the respondent would be ultimately placed in liquidation and liquidator’s fees thereby incurred (paraphrasing Castellan at 169).

102 For the foregoing reasons I would therefore determine this appeal upon the basis contended for by the respondent, which does not depend upon a finding that the appellant was also in breach of his duty of care by failing to obtain Mr Burke’s evidence in a timely manner. It is in these circumstances that it is unnecessary to express a concluded view upon the issues of reliance and immunity upon which the appellant relied.

Leave applications to amend Notices of Appeal and Contention

103 The respondent sought leave to amend its Notice of Contention by arguing that the appellant’s conduct in failing to produce and serve within time an affidavit of Mr Burke containing the evidence which he ultimately gave at trial was not conduct which was intimately connected with the conduct of the case in court within the meaning of the immunity principle. Notwithstanding that it is unnecessary to finally deal with that contention, in my opinion that leave should be given and it was not opposed.

104 The appellant sought leave to amend its Notice of Appeal by adding the following further ground of appeal:

“The primary judge erred and her Honour ought to have valued the respondent’s damages on the basis of a lost chance of bringing an application to set aside the Statutory Demand within time.”

105 This amendment arose out of the suggestion by the Court to counsel for the appellant during oral argument that the present case was really one of a lost chance and that it should have been determined accordingly. This was because the consequence of the appellant’s negligence in failing to make a s 459G application in time was that the respondent lost the chance of having the Demand set aside: see generally, Heenan v Di Sisto & Ors [2008] NSWCA 25 at [28]-[34] per Giles JA with whom Mason P and Mathews AJA agreed.

106 As Giles JA pointed out in [29] of Heenan, there is an initial question of causation, namely: did the negligence of the defendant cause the loss of a chance? This is to be decided on the balance of probabilities. In the present case it clearly did. It was nevertheless suggested that what the respondent lost by the appellant’s negligence was the opportunity, or the chance, of having the Demand set aside so that no presumption of insolvency would arise which the respondent would be required to rebut by proving actual solvency.

107 It was common ground that the case before the primary judge was not conducted upon the basis that it was, in truth, a case involving the loss of a chance. Had it been, the respondent would, so it submitted, have in all probability wished to have called further evidence and, in particular, expert evidence on the issue of whether, had a s 459G application been filed in time, it would have been successful.

108 In these circumstances the principles stated in cases such as Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438, Coulton v Holcombe (1986) 162 CLR 1 at 7-9 and University of Wollongong v Metwally (No. 2) (1985) 59 ALJR 481 at 483; 60 ALR 68 at 71 apply to deny a party seeking to advance for the first time on appeal a new ground not taken at trial where that new ground could possibly have been met by calling evidence at the hearing or, had the ground been raised below, the respondent might have conducted its case differently at trial: Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631 at 645 per Mason P with whom Gleeson CJ and Priestley JA relevantly agreed.

109 Accordingly, in my opinion the leave sought by the appellant to amend his Notice of Appeal in the manner proposed should be refused.

Conclusion

110 It follows from the foregoing that in my view the various challenges advanced by the appellant with respect to the findings of the primary judge should be rejected. I would therefore propose that the appeal be dismissed with costs.

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