Smith v McCusker QC
[2000] WASCA 320
•30 OCTOBER 2000
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE FULL COURT (WA)
CITATION: SMITH & ANOR -v- McCUSKER QC & ANOR [2000] WASCA 320
CORAM: MALCOLM CJ
OWEN J
TEMPLEMAN J
HEARD: 24-25 MAY 1999
DELIVERED : 30 OCTOBER 2000
FILE NO/S: FUL 153 of 1997
BETWEEN: JAMES GARNETT SMITH
ELIZABETH ANNE SMITH
Appellants (Plaintiffs)AND
MALCOLM JAMES McCUSKER QC
First Respondent (First Defendant)JOHN GILMOUR QC
Second Respondent (Second Defendant)
Catchwords:
Practice and procedure - Pleadings - Amendment - Appeal against refusal of leave to file amended writ and statement of claim - Appellants in person - Action against legal practitioners as instructing solicitor and senior counsel - Indication by Master that proposed substituted statement of claim should not be allowed to stand - Indication that matter could be disposed of by filing substituted statement of claim and entering judgment for respondents - Adjournment granted to allow appellants to file further material - Further material considered - Judgment entered for respondents dismissing action - Whether pleadings disclosed cause or causes of action
Appeal and new trial - Appeal - Appeal against refusal of leave to file amended writ and substituted statement of claim and entry of judgment dismissing action against respondent legal practitioners - Whether proposed substituted statement of claim disclosed a cause of action
Equity - Fiduciary obligations - Whether respondent legal practitioners constructive trustees of appellants' cause of action against bank - Whether first respondent trustee of information concerning appellants' affairs - Whether pleading disclosed any breach of such trust as to entitle appellants to relief
Torts - Negligence - Pleadings - Particulars - Whether statement of claim disclosed a cause of action in negligence against first respondent - Duties of legal practitioner - Assuming allegations to be true six of numerous particulars disclosed a cause of action
Torts - Negligence - Pleadings - Causation - Whether facts pleaded regarding alleged negligent opinion by first respondent caused loss by Legal Aid Commission terminating grant of legal aid so that appellants lost opportunity for a trial of action against bank
Torts - Negligence - Legal Practitioners - Pleading - Whether matters pleaded disclosed unreasonable delay by first respondent causing the appellants' loss
Limitation of actions - Torts - Negligence - Legal opinion - Writ issued 11 days prior to expiration of limitation period - Claim for damages for negligence in giving legal opinion in 1989 - Whether claim for fraud by way of amendment on 15 April 1997 based on conflict of interest inconsistent with claim for negligence and would delay fair trial - Alternative claim for fraudulent misrepresentation statute barred by Limitation Act 1935 s 38(1)(c)(vi)
Torts - Defamation - Cause of action pleaded by proposed amendment to statement of claim statute barred by Limitation Act 1935 s 38(1)(c)(vi)
Torts - Negligence - Pleading - Facts pleaded did not disclose a cause of action in negligence against the second respondent - Not material that any liability of respondents arose concurrently in contract and in tort
Legislation:
Limitation Act 1935
Result:
Appeal allowed as against the first respondent to the extent indicated by the answers to the questions formulated for the purposes of the appeal
Appeal dismissed as against the second respondent
Representation:
Counsel:
Appellants (Plaintiffs) : In person
First Respondent (First Defendant) : Mr C L Zelestis QC & Mr N K Stewart
Second Respondent (Second Defendant) : Mr C L Zelestis QC & Mr N K Stewart
Solicitors:
Appellants (Plaintiffs) : In person
First Respondent (First Defendant) : Pullinger Stewart
Second Respondent (Second Defendant) : Pullinger Stewart
Case(s) referred to in judgment(s):
Astley v Antitrust Ltd [1999] HCA 6; (1999) 73 ALJR 403
Austrust Pty Ltd v Astley (1993) 60 SASR 354
Carradine Properties Ltd v D J Freeman & Co (1982) 126 SJ 157
Guimelli v Guimelli (1999) 73 ALJR 547
Hawkins v Clayton (1988) 164 CLR 539
Henderson v Merrett Syndicate Limited [1995] 2 AC 145
National Home Loans Corp Pty Ltd v Giffen Couch & Archer [1998] 1 WLR 207
State of Western Australia v Wardley Australia Ltd (1991) 102 ALR 213
The State of Queensland v J L Holdings Pty Ltd (1996‑97) 189 CLR 146
Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642
Case(s) also cited:
Day v Williams Hill (Park Lane) Ltd [1949] 1 KB 632
MALCOLM CJ: In my opinion this appeal should be allowed as against the first respondent, but only to the extent indicated by the answers to the questions formulated for the purposes of the appeal. The appeal as against the second respondent should be dismissed. I have reached these conclusions for the reasons to be published by Templeman J.
It is regretted that there has been some delay in the publication of the reasons for judgment in this case, but this is a matter which has proved difficult to deal with because the appellants are unrepresented and the materials involved are extremely voluminous. These difficulties have been compounded by my own absence from the Court to sit in Sydney in May 2000 and being absent overseas on long service leave and to attend conferences in the period from June to September, compounded by the absence of Templeman J who has been and is still absent on leave.
By way of summary and for ease of reference I set out below the Questions which were formulated and the answers to them which represent the unanimous views of the Court.
Question 1
(1)Did the first and second respondents, by accepting the appellants' instructions on 28 August 1986 and 10 May 1985 respectively, become constructive trustees of the grant of legal aid and the appellants' cause of action against the R & I Bank and (in the case of the first respondent) the knowledge and information which he had or had access to concerning the appellants' affairs?
This question arises under paras 1.11, 2.1.17, 3.2, 6.2, 7.2, 16.1 and 16.2.
(2)If a constructive trust existed as alleged in the paragraphs referred to above, does para 16 disclose:
(1)that there was a breach of trust; and
(2)that the appellants are entitled to the relief claimed in para 16.4?
Answer:
(1)"No".
(2)"Not necessary to answer".
Question 2
Do the facts and matters set out in para 9 and in the particulars running from para 9.3.1.1 (appeal book page 60) to 9.3.20.4 (appeal book page 81) disclose a cause of action in negligence against the first respondent?
Answer: "Yes, to the extent indicated by Templeman J in the summary at p 40 - p 41, par 160 of his Honour's reasons".
In this context the view expressed by Deane J in Hawkins v Clayton (1988) 164 CLR 539 at 578, 583 - 585 was followed in Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642. It was also held in Hawkins v Clayton that in the case of a solicitor liability lay only in tort rather than concurrently in contract and in tort. In Henderson v Merrett Syndicate Limited [1995] 2 AC 145 the House of Lords declined to follow Hawkins v Clayton in that respect. In Astley v Antitrust Ltd [1999] HCA 6; (1999) 73 ALJR 403 the High Court decided to follow the decision in Henderson v Merrett Syndicate Limited in preference to the judgment of Deane J. Consequently, the liability of a solicitor remains a concurrent liability in contract and in tort.
Question 3
Do the facts and matters set out in par 10 disclose that the allegedly negligent opinion provided by the first respondent caused the appellants to suffer loss by causing the Legal Aid Commission to terminate the grant of legal aid in reliance on the opinion so that the appellants lost the opportunity of having a trial of their action against the R & I Bank?
Answer: "Yes".
Question 4
Do the facts and matters set out in par 11 disclose:
(1)that the first respondent delayed unreasonably in delivering his opinion; and
(2)if so, that the appellants thereby suffered loss?
Answer:
(1)"Yes".
(2)"Yes".
Question 5
Are the appellants entitled to prosecute a cause of action against the first respondent based on a conflict of interest when such claim was made for the first time on 15 April 1997 in an application to amend the writ?
Answer: "Yes".
Question 6
Subject to Question 5, do the facts and matters set out in para 12 disclose:
(1)that the first respondent was in a position of conflict when he accepted the appellant's retainer;
(2)if so, that he failed to disclose the existence of that conflict to the appellants; and
(3)if so, that the appellants thereby suffered loss?
Answer:
(1)"Yes".
(2)"Yes".
(3)"Yes".
Question 7
Subject to Question 5, if the first respondent accepted the appellants' retainer without disclosing that he was in a position of conflict as alleged in para 12, does para 13 disclose:
(1)that the first respondent was thereafter under a duty to disclose to the appellants any facts and matters within his knowledge which were relevant to the appellants' relationship or dealings with any entity in respect of which the conflict existed; and
(2)if so, did he fail to make such disclosures to the appellants; and
(3)if so, that the appellants thereby suffered loss?
Answer: "Not necessary to answer".
Question 8
Subject to Question 5, if the first respondent was in a position of conflict as alleged in para 12, does para 14 disclose:
(1)that the first respondent preferred the interests of the persons or entities in respect of which the conflict existed; and
(2)if so, that the appellants thereby suffered loss?
Answer: "Not necessary to answer".
Question 9
Are the appellants entitled to pursue a claim against the first respondent in respect of an alleged fraudulent misrepresentation notwithstanding that such claim was made for the first time on 15 April 1997 in an application to amend the writ?
Answer: "No".
Question 10
Subject to Question 9, do the facts and matters set out in para 15 disclose:
(1)that the first respondent represented to the appellants that he was not in a position of conflict; and
(2)if so, that the appellants were induced thereby to retain the first respondent as their counsel; and
(3)if so, that the said representation was false; and
(4)if so, that it was made fraudulently; and
(5)if so, that the appellants are entitled to any of the relief claimed in para 15.9?
Answer: "Not necessary to answer".
Question 11
Do the facts and matters set out in para 17 permit the appellants to pursue a defamation claim against the first respondent notwithstanding that such claim was made for the first time on 15 April 1997 in an application to amend the writ?
Answer: "No".
Question 12
Subject to Question 11, do the facts and matters set out in para 17 disclose a cause of action in defamation against the first respondent?
Answer: "Not necessary to answer".
Question 13
Do the facts and matters set out in para 18 disclose a cause of action in negligence against the second respondent: and if so, are the appellants entitled to claim damages in respect of any of the matters set out in para 18.7?
Answer: "No".
Question 14
Are the appellants entitled to prosecute a claim against the second respondent in respect of breach of fiduciary duty notwithstanding that the claim was made for the first time on 15 April 1997 in an application to amend the writ?
Answer: No".
Question 15
Subject to Question 14, do the facts and matters set out in para 19 disclose a cause of action for breach of fiduciary duty against the second respondent; and if so, are the appellants entitled to claim damages in respect of any of the matters set out in para 19.3?
Answer: "No".
Question 16
If any of the questions set out above are answered favourably to the appellants, was the Master wrong to refuse leave to the appellants to file the proposed Substituted Statement of Claim having regard to matters including case management principles, delay in the prosecution of the action and prejudice to the respondents?
Answer: "Yes".
OWEN J: I have read the reasons to be published by Templeman J. I agree with them and his Honour's conclusions. I have nothing further to add.
TEMPLEMAN J:
The background to the appeal
James Garnett Smith and his wife Elizabeth Anne Smith ("the Smiths") appeal against a decision of Master Sanderson who, on 5 September 1997, refused them leave to file a proposed amended writ and substituted statement of claim in an action they had commenced in March 1995. The defendants, who are the present respondents, were the Smiths' legal representatives in a previous action which they had brought against the Rural & Industries Bank of Western Australia ("the R & I Bank", or "the Bank").
The Smiths commenced the present action and have prosecuted it without the benefit of legal representation. All the work has been done by
Mrs Smith who appeared in person before the learned Master as she did before this Court.
The gravamen of the Smiths' claim in the present action is that Mr John Gilmour QC, who was then their solicitor, and Mr Malcolm James McCusker QC, who was their leading counsel, were negligent in the conduct of their action against the R & I Bank, with the result that legal aid funding was withdrawn, so that the action could not be pursued.
Further, the Smiths contend that Mr McCusker was in a position of conflict, being a director of the Town & Country Building Society ("Town & Country") which refinanced the borrowings the Smiths had made from the R & I Bank. It was Town & Country as mortgagee which ultimately sought and obtained possession of the property which had been given as security for those original borrowings.
The writ in the present action was issued on 13 March 1995, but was not served until 30 January 1996. The Smiths served their original statement of claim on 22 February 1996. That pleading was subsequently struck out by order of Acting Master Chapman. However, the learned Acting Master gave leave to the Smiths to serve a substituted statement of claim.
On 31 January 1997, after several interlocutory applications and extensions of time, the Smiths served a minute of proposed substituted statement of claim. This pleading raised issues of defamation, fraud, fraudulent misrepresentation and breach of fiduciary duty. The pleading was revised further. On 15 April 1997, the Smiths filed a notice of motion for leave to file the proposed amended writ and proposed substituted statement of claim. That was the document considered by Master Sanderson. He said of it:
"…it is clear that it cannot be allowed to stand. It offends almost all principles of pleading. It is argumentative, it includes matters of evidence and it would undoubtedly delay a fair trial of the action."
The learned Master then went on to consider the options open to him. The first was to refuse leave to allow the minute of proposed substituted statement of claim to stand, but to give the Smiths a further opportunity to produce an acceptable pleading. The learned Master decided against that course. He took the view that the difficulties inherent in drafting a statement of claim were such that the Smiths, as litigants in person, could not be expected to achieve that result.
The second alternative was to allow the matter to proceed without pleadings. As the learned Master pointed out, that is an unusual step which is justified in special circumstances when the issues between the parties may be identified easily. However, the learned Master considered that this was not such a case and that it would be manifestly unfair to the respondents to proceed without pleadings.
The third alternative was to refuse to allow the Smiths to file the proposed pleading, and to enter judgment for the respondents.
The learned Master said that, having informed Mrs Smith that he was minded to take that course, she asked for time to file further material. The learned Master said:
"I had in mind she would file short, succinct submissions highlighting the strength of her case. What I received was five volumes of submissions running to over 570 pages. It is clear Mrs Smith put enormous effort into the submissions and the evidence which accompanied them. In deference to her position I have read everything she has submitted. But I have come to the conclusion that it would be pointless to allow this litigation to continue."
The learned Master went on to say that he had then read a copy of the opinion written by Mr McCusker, which is at the heart of the case the Smiths wish to bring against him. The learned Master said he found it difficult to see how the opinion was wrong, but that in any event it was necessary for the Smiths to establish not only that the opinion was wrong, but that it was prepared negligently. The learned Master said he was unable to see any hope of the Smiths establishing that to have been the case.
The learned Master then went on to consider whether, in the exercise of his discretion, he should allow the Smiths to file a further statement of claim. He decided it would be inappropriate to do so. He took into account his view that not only was the action unlikely to succeed, but that even if it did succeed, it would still be a very difficult task for the Smiths to prove their damages.
Ultimately, the learned Master came to the following conclusion:
"Extending to the [Smiths] every consideration and mindful always of the right of any citizen to pursue claims in this Court for damage they have suffered as a consequence of the wrongful acts of others, I cannot see this action should be allowed to proceed. I am not satisfied there is any basis for allowing the [Smiths] the opportunity to submit a further substituted statement of claim."
The learned Master accordingly dismissed the action and entered judgment for the respondents. He ordered the Smiths to pay the costs of the application and the costs of the action.
It is against that decision that the Smiths now appeal. Although, strictly, this is a pleading summons in which evidence would not normally be considered, the appeal book consists of nearly 1,000 pages of evidence in five volumes. In addition, counsel for the respondents provided the court with copies of Mr McCusker's opinion dated 21 March 1989 which contains 47 pages. As I have noted, a copy of the opinion had been provided to the learned Master, but it had not been included in the appeal books. I shall refer below to an issue which arose in relation to the opinion.
The appeal: directions hearings
The appeal came on before the Full Court in September 1998. On that occasion, directions were given for the matter to be managed by a single Judge so as to facilitate the substantive hearing. I was the nominated Judge.
On 1 December 1998, sitting in chambers, and with the co‑operation and consent of the parties, I settled a series of questions for the Full Court. The questions were directed to the minute of proposed substituted statement of claim dated 15 April 1997 and were intended to be considered in lieu of the issues raised by the Notice of Appeal.
I gave the parties leave to file submissions directed to the questions. On behalf of the appellants, Mrs Smith produced a substantial document in which she set out her arguments supported by references to authority. The respondents filed an outline of submissions.
The appeal: the substantive hearing
The appeal came on before the Full Court on 24 and 25 May 1999. Mrs Smith again appeared in person. She did not complete her submissions by the end of the time allotted. However, the Court gave her leave to file further written submissions, should she wish to do so, by 25 June 1999.
Extension of time
Mrs Smith did not file any further submissions by 25 June. Instead, she sought an extension of time of six weeks due to her ill‑health and her difficulty in grappling with the complexity of the issues.
Having been appointed by the Full Court to manage the appeal, I heard Mrs Smith's application on 16 August. Over opposition, I granted the extension of time. I did so on the basis that in the overall scheme of things a further six weeks would not make a great deal of difference.
An issue as to the authenticity of the opinion
Mrs Smith then contended that the opinion which had been provided to the Full Court as being a copy of the opinion provided by Mr McCusker to the Legal Aid Commission was not in fact that opinion. Mrs Smith said there were three documents:
1.an unsigned draft opinion which Mr McCusker had given her for consideration and comment;
2.the signed opinion which he had sent to the Legal Aid Commission; and
3.the document provided to the learned Master and to the Full Court, which was a hybrid.
Mrs Smith said she had only just realised that the Court had been provided with a hybrid document. She said all but the last two pages were from the unsigned draft opinion and that the final two pages were from the signed opinion. She said that Mr McCusker had revised his draft in a way which was much less favourable to her and her husband before submitting it to the Legal Aid Commission.
Leading counsel for the respondents took issue with these assertions. He said, on instructions, that the copy opinion which he had handed to the Full Court had been obtained from Mrs Smith herself in response to a request from his instructing solicitors to provide a copy.
Counsel said that Mr McCusker had only a copy of his unsigned draft.
I concluded that the possibility existed of an error having been made in the offices of counsel's instructing solicitors. I therefore gave leave to Mrs Smith to file an affidavit setting out her contentions and to the respondents to file affidavits in answer as they might be advised.
I told the parties that although it was within my power to allow an extension of time for filing submissions, I could not commit the Full Court to receiving further evidence. My objective in permitting affidavits to be filed was to clarify the position if possible and if not, to set the scene for any further applications to the Full Court.
Evidence in relation to the opinions
On 30 August 1999, Mrs Smith filed an affidavit in which she deposed to various matters relating to Mr McCusker's opinion. She filed a further short affidavit on 31 August, to remedy some typographical errors and some omissions from the earlier affidavit.
The affidavits set out the Smiths' views about a number of matters. The evidence relevant to this issue may be summarised as follows:
1.On or about 21 March 1989, Mr McCusker gave Mrs Smith an unsigned opinion of 46 pages, on which he sought comments.
2.On about 28 March 1989, Mr McCusker sent to the Legal Aid Commission an opinion which differed in some respects from the unsigned version.
3.The changes reflected a less favourable opinion about the Smiths' credibility.
4.The copy opinion which was handed to the Court on the hearing of this appeal was the draft of 21 March 1989, in which the last two pages had been replaced by the two last pages of the opinion given to the Legal Aid Commission.
In response to Mrs Smith's affidavits, the respondents filed an affidavit sworn by their solicitor, Mr Neil Kevin Stewart. Mr Stewart deposed to the fact that when he took instructions about the original statement of claim, he was not provided with a copy of Mr McCusker's opinion. Mr Stewart therefore served on the Smiths a notice to produce, inter alia, the opinion on which they relied. In response to that notice, Mr Stewart said he received a copy of an opinion of 47 pages, signed by Mr McCusker and dated 21 March 1989. Mr Stewart then said that he obtained recently from the Legal Aid Commission a copy of the opinion on its files. The Commission had previously been unwilling to provide a copy.
It is clear from a comparison of the various documents that the opinion handed to the Court on 24 May 1999 (which is the same as the opinion before the learned Master) consists of the first 45 pages of the draft opinion, to which the final two pages of the final opinion, given the Legal Aid Commission, have been added. That appears to explain the duplication of the penultimate paragraphs of the conclusion to the opinion.
Having regard to the explanation given by Mr Stewart about the way in which the copy opinions came into his possession, I have no reason to doubt that Mrs Smith was the source of the document which was provided to the Master and this Court.
It is not necessary now to investigate how that came about. It is common ground that there were two opinions: and that the Court has a hybrid. It is Mrs Smith's contention that the Court should base its judgment on the version of the opinion which Mr McCusker provided to the Legal Aid Commission. I agree. Although the learned Master had a different version, I do not think the differences are relevant for present purposes. That is because the changes made to the draft opinion largely mirror the substitution of objective comments about the Smiths' credibility for subjective expressions of opinion by Mr McCusker. Although the final opinion undoubtedly creates a less favourable impression of the Smiths, the changes do not, in my view, have any impact on the allegations of negligence in the preparation of the opinion. And it is only in relation to those allegations that the opinion itself is relevant.
Further submissions
On 16 August 1999, I allowed Mrs Smith a further extension of six weeks in which to file submissions, a period which expired on 27 September. I emphasised that this would be a final extension. In fact, 27 September was a public holiday. It was therefore appropriate for submissions to be filed on 28 September, which they were. They were supplemented by further submissions filed on 1 October. Although out of time, no objection has been taken to these submissions, which I would allow. However, on 30 September, the Smiths purported to serve on the respondents' solicitors a document entitled "Amended Submissions of the appellants ….". These submissions were directed to the questions for the Full Court which I had settled in December 1998.
In a subsequent letter to the Court, the respondents' solicitors complained about the Smiths' conduct in serving the amended submissions, without being authorised to do so. The objection is well‑founded, but I do not think anything turns on the amendments.
Essentially, the question for this Court is whether the learned Master was right in his conclusion that the proposed substituted statement of claim ("the statement of claim"), prepared by the Smiths and dated 15 April 1997, did not disclose a cause of action.
Against that background, I turn to a consideration of the questions for the Full Court.
Question 1
(1)Did the first and second respondents, by accepting the appellants' instructions on 28 August 1986 and 10 May 1985 respectively, become constructive trustees of the grant of legal aid and the appellants' cause of action against the R & I Bank and (in the case of the first respondent) the knowledge and information which he had or had access to concerning the appellants' affairs?
This question arises under paras 1.11, 2.1.17, 3.2, 6.2, 7.2, 16.1 and 16.2.
(2)If a constructive trust existed as alleged in the paragraphs referred to above, does para 16 disclose:
(1)that there was a breach of trust; and
(2)that the appellants are entitled to the relief claimed in para 16.4?
The Smiths contend that as from the respective dates on which Mr Gilmour and Mr McCusker were instructed, they each became the trustee of a constructive trust, the property of which was the Smiths' grant of legal aid to enable them to pursue the action against the R & I Bank. The subject matter of the constructive trust is said to include the grant of legal aid, the Smiths' chose in action against the R & I Bank, and "all the knowledge and information" which the respective respondents had, or had access to, about the Smiths' financial and legal matters.
In my view, there is no legal basis for the Smiths' contention. It is true that their claim against the R & I Bank was a chose in action. It is also true that the information about their affairs was confidential to the respondents. However, neither of those species of property was ever vested in the respondents so as to make them trustees. The respondents were professional advisers who owed duties of care and fiduciary duties to the Smiths. But that does not result in their being trustees of the relevant property.
For the same reason, the respondents were not trustees of the grant of legal aid. That grant was made to, or in favour of, the Smiths. It was never vested in the respondents, who had only a contractual right to be paid a proper remuneration for the services which they provided to the Smiths. It is true, as Mrs Smith submitted, that the conduct of their case was entrusted to the respondents. One of the complaints made against Mr McCusker is that he delayed inordinately in delivering his opinion. Mrs Smith submitted that one of the consequences of that delay was that the Legal Aid Commission declined to proceed further with the action. Thus, Mrs Smith said, Mr McCusker had the power to prevent the appellants from proceeding with the action. Accepting that to be true, for the purposes of the argument, it makes no difference. As the High Court pointed out in Guimelli v Guimelli (1999) 73 ALJR 547 at 548 ‑ 9:
"The term 'constructive trust' is used in various senses when identifying a remedy provided by a court of equity. The trust institution usually involves both the holding of property by the trustee and the personal liability to account in a suit for breach of trust for the discharge of the trustee's duties. However, some constructive trusts create or recognise no proprietary interest. Rather there is the imposition of a personal liability to account in the same manner as that of an express trustee. An example of a constructive trust in this sense is the imposition of personal liability upon one 'who dishonestly procures or assists in a breach of trust or fiduciary obligation' by a trustee or other fiduciary."
In the present case, as I have explained, neither of the respondents had any property vested in them. The case does not, therefore, fall within the first category identified by the High Court. And since there is no question of any breach of trust or fiduciary obligation by persons other than the respondents, the second category is equally inappropriate, there is no basis for the imposition of a personal liability to account.
It is submitted by Mrs Smith in her written submissions (page 3, par 5 and par 6) that the respondents held the grant of legal aid upon trust. That is not so, because the respondents did not become the recipient of trust moneys. As I have stated above, they enjoyed a contractual right to be paid for their services. In any event, what is complained of is not misuse of money but the quality of the work carried out by the respondents and the advice which they gave. The answer to Question 1(1) is "No". It follows that it is not necessary to answer Question 1(2). Thus, the essential question is whether the respondents were negligent. That is the subject of Question 2.
Question 2
Do the facts and matters set out in para 9 and in the particulars running from para 9.3.1.1 (appeal book page 60) to 9.3.20.4 (appeal book page 81) disclose a cause of action in negligence against the first respondent?
Paragraph 9 of the statement of claim is as follows:
"1.[Mr McCusker] negligently asserted errors of fact in his opinion
2.As a consequence of the errors of fact its premises and conclusions were flawed
3.[Mr McCusker] negligently failed to address the true issues in his opinion."
Then there follows some 22 pages of detailed allegations under the heading "Particulars".
It will be convenient to deal with this allegation by reference to the individual paragraphs, or groups of paragraphs where one group deals with a specific matter.
In so doing, it will be necessary to refer to materials other than the statement of claim. This is because the statement of claim contains references to external documents which are therefore incorporated in it. These include Mr McCusker's opinion, the proof of evidence prepared for him by Mrs Smith, the pleadings in the Smiths' action against the R & I Bank and opinions prepared by Mr B W Rowland QC (as he then was). Before his appointment to the Supreme Court, Mr Rowland acted as counsel for the Smiths in their action against the Bank.
Before embarking on an analysis of the statement of claim, it is necessary to know what Mr McCusker was instructed to do. It is pleaded in par 4.1.1 that the grant of legal aid was for a "full opinion from senior counsel on the merits of Supreme Court action against the R & I Bank, together with opinion on quantum." The text of the letter of instruction is set out in full in par 4.1.2. It referred to the legal aid certificate and continued:
"We shall be obliged if you will give us your opinion in that regard."
It is then alleged, in par 6.1, that as a consequence of accepting his retainer, Mr McCusker:
"had a duty to exercise all due professional care, skill and diligence as a solicitor in relation to [the Smiths] said business and affairs…."
On the basis that the "said business and affairs" is limited to the Smiths' action against the Bank, that is, I think, a fair statement of Mr McCusker's duty.
The pleading does not set out the standard implicit in the expression "due professional care". However, as a matter of law (which was not required to be pleaded) the following statement is applicable:
"When a client retains a firm that professes to be specially experienced in a discrete branch of the law that client is entitled to expect that the standard of care with which his retainer will be performed is consistent with the expertise that the firm has or professes to have.": Yates Property Corporation v Boland (1998) 157 ALR 38 per Drummond, Sundberg and Finklestein JJ at 50.
Further, as Deane J said in Hawkins v Clayton (1988) 164 CLR 539 at 579, the relationship of solicitor and client:
"… is a relationship of proximity of a kind which may well give rise to a duty of care on the part of the solicitor which requires the taking of positive steps, beyond the specifically agreed professional task or function, to avoid a real and foreseeable risk of economic loss being sustained by the client."
It is relevant also that the Smiths were inexperienced in legal matters. As Donaldson LJ said in Carradine Properties Ltd v D J Freeman & Co (1982) 126 SJ 157:
"An inexperienced client will need and be entitled to expect a solicitor to take a much broader view of the scope of his retainer and his duties than will be the case with an experienced client."
That statement, which was approved by the Court of Appeal in National Home Loans Corp Pty Ltd v Giffen Couch & Archer [1998] 1 WLR 207, has been applied in Australia : Austrust Pty Ltd v Astley (1993) 60 SASR 354.
Although Mr McCusker was in fact instructed as counsel, I do not think anything turns on that distinction for present purposes. Mr McCusker is, and was in 1986, an eminent Queen's Counsel, who specialised in litigation. The Smiths were therefore entitled to expect that he would bring a high degree of expertise to bear on their case.
For the purposes of a pleading summons such as this, I would accept that, at least, Mr McCusker's retainer would have required him to carry out the following tasks:
•familiarise himself fully with the Smiths' case against the Bank;
•consider the merits of that case;
•review the pleadings in the action against the Bank
•advise whether any amendments were necessary or desirable to those pleadings;
•provide a full opinion as to the merits;
•provide a full opinion on the quantum of damages the Smiths might recover if successful in the action;
•advise generally.
In order to understand the allegations pleaded in par 9 of the statement of claim, it is necessary to summarise the Smiths' claim against the Bank. It will be convenient to base this summary on the further amended statement of claim in that action. It is dated 6 June 1985. It is a document which is referred to in Mr McCusker's opinion and may therefore be taken as having been incorporated in it, and therefore, into the statement of claim.
In 1977, the Smiths, who had been sharefarming on a conditional purchase property at Borden, Western Australia, wanted to expand their operations. They sought financial assistance from the R & I Bank's Ongerup branch, where they dealt with Mr Richard Danks, the Manager. They told him their requirements and provided information about their farming activities. He said the Bank would provide them with financial assistance and advice. As a result, it is said, the Smiths were advised to withdraw their business from the National Bank, with which they had banked for many years, but which was unwilling to assist to the extent they required.
In about April 1977, the R & I Bank produced a cash flow budget for the Smiths. It showed the income they could expect in the following 12 months, and the expenditure necessary to generate that income. At about that time, the Smiths alleged it was agreed that the Bank would advance $7,000 to them for a period of three years, to enable them to pay the deposit on a tractor; it would provide them with an overdraft facility to enable them to farm in accordance with the budget, and that it would thereafter continue to finance their reasonable farming commitments. The Smiths alleged that they entered into the financial arrangements in reliance on representations made to them by the Bank. It is contended that the representations became terms of the respective financial agreements.
The Smiths then said that they commenced to farm in accordance with the budget, but found it to be "completely unrealistic and …. incapable of being implemented ….". In the result, their budget deficit increased from its opening limit of $2,000 in March 1977 to $15,373 in March 1978.
It is then contended that the Bank failed or refused to provide an overdraft facility which would have enabled the Smiths to carry on "economically practical farming operations for the year commencing April 1977" and failed to provide a sufficient facility "to enable them to continue their expanded farming operations in an economically practical manner in the ensuing years".
There is an additional claim that the Bank owed the Smiths a duty of care because it knew they were relying on the cash flow budget and the representations about the provision of financial assistance. It is then said that the Bank was negligent because it failed to use reasonable skill and care in the preparation of the cash flow budget.
The Smiths claimed to have suffered loss and damage both as a result of the breach of contract and negligence. However, no figure was placed on the damages claimed. It was said only that the Smiths had lost income they would otherwise have earned and had incurred an overdraft which they had no prospects of repaying.
There is then a claim arising from the Smiths' agreement not to deal with Western Livestock Ltd ("Western Livestock") as a result of the Bank's intervention. The Smiths said that in September 1978 they had agreed with Western Livestock that it would provide finance to enable them to deal with it in buying and selling pigs. They had agreed to obtain further finance from Western Livestock, up to a maximum of $3,000, subject to granting it a bill of sale over their livestock.
The Smiths then said that they were advised by Mr Danks not to deal with Western Livestock and that instead, the Bank would provide finance and a new cash flow budget which would take into account nine outstanding cheques drawn by the Smiths on the Bank, which the Bank agreed to honour. Mr Danks is said to have told the Smiths that although the budget would require head office approval, they could operate on the increased overdraft forthwith. The Smiths said that in reliance on these representations, which were contractual in nature, they withdrew from the arrangements with Western Livestock and presented the outstanding cheques for payment.
The Bank then produced a cash flow budget which made no provision for the nine cheques. It was said also that the Bank then repudiated its agreement to provide overdraft facilities, with the result that the Smiths suffered loss. Again, no figures were provided. It was said only that the Smiths had lost the ability to earn an income. It is then said that the Bank acted negligently, because Mr Danks should have known that the new budget did not take the nine outstanding cheques into account and should have known that the proposed arrangements would require head office approval, which was apparently not given. In 1979, the Smiths were granted legal aid to prosecute an action against the Bank. They instructed solicitors who retained Mr Rowland. He settled a statement of claim in an action which was commenced in August 1982.
In March 1983, the Smiths borrowed $135,000 from Town & Country in order to discharge their indebtedness to the R & I Bank and their creditors, and to enable them to continue their farming operations. Town & Country became the mortgagee of the Smiths' property (which was registered in Mr Smith's name).
On 10 May 1985, the Smiths instructed the firm of solicitors Gilmour Richardson to act for them against the Bank. Mr Gilmour had the conduct of the action. On 23 May 1985, the Smiths were granted legal aid in the terms referred to above for "a full opinion" on the merits of the action and on the quantum of damages. On 28 August 1986, Mr Gilmour retained Mr McCusker to provide that opinion.
Against that background, I turn to the various allegations of negligence pleaded against Mr McCusker. In considering whether they disclose a cause of action, I apply the principles summarised in Seaman on Civil Procedure, par 20.19.6. They include the following:
•all the facts alleged in the statement of claim must be accepted as true;
•great care must be taken to ensure that a plaintiff is not improperly deprived of the opportunity for the trial of his case; and
•as a general rule, a plaintiff is entitled as of right to have his case heard, to have the facts found, and then to argue questions of law on the facts as found.
9.3.1.1 to 9.3.3.2
It is said that Mr McCusker referred to Mr Rowland's opinions by wrong names. However, Mrs Smith accepted in the course of argument that he had not done so (Ts 155-6). The essence of the complaint is that because of the way in which Mr McCusker referred to Mr Rowland's opinion and quoted selectively from it, he:
"… put a doubt in the minds of the readers of his opinion as to Mr Rowland's positive conclusions on the likelihood of success of the R & I action and the substantial damage Mr Rowland thought would be recoverable in the event of the said success."
(Par 9.3.1.8 of the statement of claim).
In order to understand this claim, it is necessary to have regard to the way in which Mr Rowland delivered his various opinions.
On 21 July 1980, Mr Rowland prepared a short memorandum (AB 5/788) in which he said he had been asked whether the Smiths had a maintainable action against the R & I Bank. After referring briefly to the issues, Mr Rowland said he was not able to make an assessment on the facts presently at his disposal as to whether a claim would lie. He said it would be necessary to obtain a detailed proof from the Smiths as to the precise conversation that had occurred when the cashflow was being discussed and in particular, about who supplied the relevant information. He concluded:
"It seems to me quite clear that a cause of action can exist but I am by no means convinced that the factual situation as indicated to me would give rise to a cause of action."
Then, on 20 May 1981, Mr Rowland delivered an opinion in which he referred to his previous memorandum. He acknowledged that the matter was "not easy". However, he went on to say that:
"On the basis that the overall evidence of Mr and Mrs Smith is accepted, then I believe that they can establish both a breach of promissory conditions and also negligence against the Bank's officers. I have reached this conclusion despite the fact that I am still of the view that Mr and Mrs Smith will not escape criticism in the way that they acted. I appreciate and accept that they had no prior experience in budgetary aspects of farming, but their completely uncritical approach to the budget or their failure to attempt to understand it from the beginning is again something that will, I am sure, be the subject of adverse comment."
He went on to express his belief that the Bank had not met its obligations under the relevant contracts and that the Bank Manager "has not exercised the skill that one could ordinarily expect from such officers".
Mr Rowland then went on to address the "real difficulty in this matter" which related to the proof of damage. After considering some of the issues, Mr Rowland said:
"In the result, it seems to me that the Smiths have reasonable prospects of succeeding on the question of liability but I have doubts as to their ability to prove a general loss arising from the breaches and negligent advice, and in my view they will not be able to show a causal connection between the Bank's breaches and any individual particular items of damage that might otherwise have been available to them."
On 16 September 1981, Mr Rowland wrote to his instructing solicitors. He said he had been given further information by Mrs Smith relating to the question of damages, and that she had prepared various calculations "based generally on what might have been the situation". Mr Rowland said he was not convinced this was a correct approach. He suggested an alternative. He went on:
"I repeat my earlier advice. That is, that if the evidence of Mr and Mrs Smith is accepted, then I believe that they can establish liability against the Bank. I also believe that they are entitled to damages which will have to be assessed in the way I have indicated or in some other general way. This will not be easy but there is no question that the loss suffered by the Smiths is real and it is not inconsiderable. It will involve a deal of evidence to establish the loss and it will also, in my view, involve the obtaining of expert evidence, preferably from a farm management consultant who can no doubt produce some projections that will help quantify the loss."
Mr Rowland went on to say that in his view the action against the Bank was justified.
The Smiths complain that Mr McCusker failed to quote this passage, which was favourable to them. They complain also that in par 3 of his opinion, Mr McCusker misquoted from Mr Rowland's opinion of 20 May 1981. The quote attributed to Mr Rowland is that:
"On balance I believe the Smiths can succeed on liability but I suspect that they will have difficulty in proving damage."
In fact, what Mr Rowland said was:
"In the result, it seems to me that the Smiths have reasonable prospects of succeeding on the question of liability but I have doubts as to their ability to prove a general loss arising from the breaches and negligent advice …." (5/797)
Although this is a misquotation, I do not think it to be of any consequence because it conveys the same impression.
It is clear from Mr Rowland's opinions that he had reservations about the Smiths' case on liability and damages. Mr McCusker's opinion was that the case was "most unlikely to succeed": see p 42. Whether or not Mr McCusker was negligent in preparing that opinion is a matter which is addressed in other parts of par 9.
9.3.4.1 to 9.3.4.3
It is alleged that Mr McCusker referred, incorrectly, to the farming property being owned by "the Smiths", not by Mr Smith. It is then said that Mr McCusker failed to take into account that Mrs Smith had given personal guarantees to the Bank, and that he did not, therefore, consider whether the Bank Manager owed her a separate duty of care.
Accepting that there was an error in the reference to ownership, I do not think it relevant for present purposes. It had nothing to do with the case as pleaded. The case was that the Bank gave negligent advice and failed to advance money, in breach of an agreement to do so. As Mrs Smith pointed out, the Bank did not enforce her personal guarantee, because Town & Country discharged the debt to the Bank. (Ts 176)
9.3.5.1 to 9.3.5.3
The allegation here is similar, namely that Mr McCusker mistakenly referred to the Smiths' farm being developed with sharefarming and other general income, when in fact, Mrs Smith's pension and the income from pigs was used.
Thus, it is said that Mr McCusker failed to appreciate that Mrs Smith had a separate interest in the property, and was owed a separate duty of care. It is said also that the existing pig operation was capable, with appropriate finance, of generating an immediate and substantial income. The general allegation is that:
"As a consequence of his failure to familiarise himself with those facts [Mr McCusker] also failed to address the legal issues consequent upon them in his opinion."
Mrs Smith contends that Mr McCusker had a general duty to safeguard the Smiths' interests. That is true, as I have already noted, but the points raised in this section of the pleading are peripheral only. The general allegation about a failure to address legal issues is dealt with later in the pleading.
9.3.6.1 to 9.3.6.3
The gravamen of the pleaded complaint is that Mr McCusker failed to familiarise himself with Mr Smith's success in establishing the piggery:
"… and as a consequence failed to address the legal issues relating to the nature of [Mr Smith's] success and the cash flow budget and banking advice provided by the R & I Bank manager."
An allegation that a barrister has failed to familiarise himself with a relevant part of his instructions clearly has the potential to found an allegation of negligence. The "legal issues" referred to in the present context are, I think, no more than reliance. They are raised specifically at a later point in the pleading. The allegations in this section of the pleading seem to me to be superfluous.
9.3.7.1 to 9.3.8.4
These paragraphs set out some factual errors said to have been made by Mr McCusker and an allegation that he failed to familiarise himself with the history of the Smiths' dealings with the National Bank. It is said, in substance, that the magnitude of the inducements offered by the R & I Bank should have been viewed against that background, and the consequential loss of opportunity. As Mrs Smith put it in argument:
"… we would say that what Mr McCusker failed to bring out was the inducement to leave the National bank when we actually had good relations with them and a real prospect of not getting into the difficulty we got into with the R & I Bank". (Ts 187)
Construing this part of the statement of claim in that way, I am not persuaded that it discloses any basis for a finding of negligence against Mr McCusker. The Smiths' case is that they were induced to leave the National Bank. There is no doubt that they did so. These allegations are therefore another aspect of the reliance issue, which is dealt with elsewhere.
9.3.9.1 to 9.3.9.4
These paragraphs relate to the Smiths' pig farming operations. They contain an allegation that Mr McCusker failed to understand that the Smiths had already established a substantial piggery on the property.
This is, I think, a misunderstanding. Mr McCusker said in his opinion (par 9) that Mr Danks was told of the Smiths' plan to increase the piggery from 50 to 150 sows over the next three to four years. Mr McCusker was therefore aware of the pre‑existing piggery.
It is then said that Mr McCusker failed to familiarise himself with the Smiths' "financial and development position" relating to the piggery, and that he failed to address "in an informed manner" the relevance of various aspects of the piggery on the merits of the action against the Bank.
The pleading continues with an allegation that Mr McCusker:
"… missed the point entirely that [the Smiths] had already, with little finance, developed and established quite a large piggery and were well on the way to being self sufficient when the loan from the R & I cut across their progress…."
Two points emerge from these allegations. First, it might seem surprising for the Smiths to allege that the bank loan "cut across their progress", when they had been to the Bank in order to obtain financial assistance. The point here, I think, is that the Smiths did not just want a loan. They also wanted advice about the viability of their proposed operations, in respect of which they sought finance. They did not want to borrow money on a basis which would result in their becoming hopelessly indebted to the Bank. As Mrs Smith put it in the proof of evidence she gave to Mr McCusker, at their interview with Mr Danks, she and Mr Smith:
"… went to great lengths to get our point across that 'it was no use going into debt beyond what we were able to pay back' …."
Secondly, is the point that the Smiths had already achieved a measure of success in their farming operations. They could have continued to develop those operations without assistance, albeit more slowly. By entering into onerous financial obligations, they put their existing enterprise at risk.
The pleading goes on to refer to par (b) on p 39 of Mr McCusker's opinion in which it is said that he failed to impress on the minds of the readers that the Smiths had already been successful, before obtaining the loan. Instead, it is alleged, Mr McCusker questioned Mr Smith's farming record and his ability to farm.
That complaint is not entirely justified, in my view. What Mr McCusker said was that:
"The Bank would no doubt seek to establish, by reference to poor performance over the years, that Mr Smith simply lacked sufficient ability to successfully carry through the programme envisaged by the cash flow budgets which underlie the calculation of damages."
It is therefore clear that the "poor performance over the years" is not a reference to pre‑loan performance, but to a failure to perform in accordance with the budgets. To that extent, the complaint is unjustified. However, I think it unreasonable to criticise Mr Smith for failing to perform in accordance with the budgets, having regard to the contention that the budgets were unworkable.
This is an aspect of an allegation pleaded later in par 9 that Mr McCusker failed to address the matters set out in Mrs Smith's proof of evidence. I shall deal with the issue in that context.
9.3.10.1 to 9.3.10.3
As Mrs Smith accepted in the course of argument, these paragraphs are based on a misinterpretation of Mr McCusker's opinion. Mr McCusker had referred in his opinion (par 11) to Mr Danks envisaging a shortfall in the budget, whereas the Smiths say it was never intended that there should be a shortfall.
It is now conceded that the reference to a shortfall was intended only to reflect the continuing need for an overdraft facility.
9.3.11.1 to 9.3.12.8
In par 13 of his opinion, Mr McCusker said, in effect, that the evidence of what was agreed by the Bank, as alleged by the Smiths, was "essentially" their oral evidence. Mr McCusker referred to Mr Rowland's opinion, in which he had expressed the view that the Smiths had a good claim (in terms of liability) "provided their evidence was accepted by the court". Mr McCusker pointed out, correctly, that Mr Rowland had expressed no opinion about the likelihood of that evidence being accepted.
In these paragraphs of the statement of claim, it is alleged that, contrary to Mr McCusker's assertion, most of what was agreed between the Bank and the Smiths is recorded in the Bank's internal documents, prepared by Mr Danks: documents which were discovered after Mr Rowland gave his opinion. In short, it is alleged that Mr McCusker was negligent in failing to familiarise himself with the relevant documents, which, it is said, supported the Smiths' credibility.
It is true that much of what was agreed between the Bank and the Smiths was reduced to writing. However, a critical element was not. That is reflected in par 8(a) of the further amended statement of claim in the action against the Bank, in which it is alleged that there was an oral agreement that, after the then current farming year, the Bank would:
"… supply further overdraft facilities from year to year which would be sufficient to enable [the Smiths] to finance their reasonable farming commitments."
In his opinion (par 10), Mr McCusker referred to the meeting between the Smiths and Mr Danks, at which Mr Danks is said to have given various undertakings. These, Mr McCusker said, were "mirrored in paragraph 8(a) of the statement of claim". Mr McCusker went on (par 11) to refer to other discussions with Mr Danks and to the relevant paragraphs of the statement of claim. He then summarised the Bank's defence, from which it is apparent that the principal issue would be whether, as the Smiths alleged, the Bank had agreed to provide a continuing overdraft or whether, as the Bank alleged, the overdraft was a matter for annual review (par 12).
It was in this context that Mr McCusker referred to what was "essentially the oral evidence of the Smiths" (par 13). In my view, he was correct to do so. It is not pleaded in the claim against Mr McCusker that the Bank documents disclosed that part of the agreement which was so important to the Smiths. What the Bank documents do disclose, is a matter for interpretation. The Smiths plead that:
"… written evidence of the oral commitment by the bank is contained in and implied by the internal bank documents and in the cash flow budget, and in the record of further loans extended to [the Smiths] by the bank (par 9.3.12.7 of the statement of claim).
That is true, up to a point. Indeed, Mr McCusker quoted from the Advance Application dated 5 April 1977. But he went on to say that neither that nor any other contemporaneous document referred to any agreement to extend the overdraft in the way alleged by the Smiths (par 14).
As I have said, it is not suggested that there was any such document. There is therefore no substance in the criticism that Mr McCusker failed to point out "the full extent of the documentary evidence contained in the bank documents": (par 9.3.11.3 of the statement of claim). As I understand it, the Smiths seek to rely also on an implication to be drawn from the fact that further funds were advanced. But that fact is equivocal. It is not consistent only with the Smiths' case.
9.3.13.1 to 9.3.13.7
In this section of the pleading, the Smiths allege that Mr McCusker failed to understand the 1977 cash flow budget. They refer to the statement made on p 13 of Mr McCusker's opinion, that:
"… the cash flow budget itself, prepared by the Bank, makes no provision for finance being extended by the Bank beyond the 12 months covered by that budget."
The opinion continued:
"… a Court may consider it surprising that the Bank would commit itself, orally, to the provision of overdraft finance for a programme expected to take between 3 and 5 years, without preparing a budget to cover that period, and without recording anywhere, in writing, that such commitment had been made". (pp 13-14)
The Smiths point out that the cash flow budget did not include the first of three repayments due in respect of the loan of $7000 to enable them to purchase a tractor. However, Mr McCusker was clearly aware of this. He referred to it in par 10 of his opinion.
Then it is said that Mr McCusker failed to mention Bank documents which referred to, or implied, annual review. That is incorrect. Indeed, on p 14 of his opinion, Mr McCusker noted that the Bank's offer letter of 10 May 1977 required the repayment of the working account to be the subject of an annual review. In his opinion, such a provision supported the Bank's case because it was inconsistent with a long‑term commitment to provide finance.
The interpretation to be placed on documents is a matter of opinion. Mr McCusker was expressing an opinion about the view a court might take. The Smiths do not share his opinion on that point, but I do not think the pleading discloses a cause of action in negligence, when Mr McCusker was clearly aware of the relevant documents.
9.3.14.1 to 9.3.14.4
In these paragraphs, the Smiths allege that Mr McCusker failed to familiarise himself with the background to their response to the Bank's offer letter. On p 15 of his opinion, Mr McCusker referred again to the Bank's offer letter, which, he said, was so markedly different from the arrangement which the Smiths claimed to have made:
"… that a Court may think it extraordinary that there should be no written or oral response from the Smiths to that letter."
Mr McCusker went on to say that the court might therefore draw "the strong inference" that the only arrangements made were those set out in the letter.
Mr McCusker said he had discussed the problem with Mrs Smith, who told him that neither she nor her husband saw any need to reply to the Bank because they relied on the promise made by Mr Danks that the Bank would provide such further finance as was necessary.
It is pleaded in par 9.3.14.2 that in fact the Smiths did respond orally to the letter, as set out on p 43 and p 44 of Mrs Smith's proof of evidence. That document does not, however, make plain that there was a specific response to the letter. It refers to Mr Danks' "general response" to questions asked of him about financial matters, namely "don't worry about that, I'll look after it". (AB5/912)
That, I think, is to the same effect as Mr McCusker's opinion. In my view, therefore, there is no basis for alleging that Mr McCusker failed to familiarise himself with that aspect of his instructions.
9.3.15.1 to 9.3.15.2
The allegation here is that on p 15 of his opinion, Mr McCusker over-simplified the discussions held between Mr Danks and the Smiths when he referred to Mr Danks' assurance that the Bank would advance to the Smiths "such further funds as they might need." The discussions are said to be described at p 25 to p 34 of Mrs Smith's proof of evidence. (AB 3/479‑88)
Having considered those matters, I understand Mrs Smith's contention to be, as she put it in argument (Ts 227), that the Bank agreed to advance money as part of what was almost a joint venture between it and the Smiths, for the development of the farm.
However, I do not think that Mr McCusker overstated or misrepresented the Smiths' case. In my view, at p 15 of his opinion, he was simply using a shorthand expression for the arrangements which he set out in summary form on p 10:
"The Smiths say that they were totally unfamiliar with cash flow budgets, that they were told by Mr Danks that the R & I Bank was expert in that area, on the basis of which they believed that the Bank was competent to assess their financial requirements, had done so, and was prepared to provide them with the necessary finance to meet their proposed farming and development programme, as discussed with Danks."
In my view, that is an accurate summary of that part of the Smiths' case against the Bank.
9.3.15.3
The allegation in this paragraph is that in discussing the Smiths' reliance on the 1977 cash flow budget, on p 19 to p 22 of his opinion, Mr McCusker did not address the issues raised in specific parts of Mrs Smith's proof of evidence, and her proof generally:
"… which tells the story of an inexperienced housewife and an almost illiterate farmer and their struggles to understand the paperwork for such a financial venture, and the necessary reliance they placed on [Mr Danks] both in the procedural and formal stages of the loan arrangements".
On p 19 of his opinion, Mr McCusker referred to opinions given by various farming experts to the effect that the budget was "so fundamentally wrong as to constitute negligence". He went on to say that he had asked the Smiths in conference whether they agreed with that proposition and had been assured they did. He said Mr Smith told him he appreciated that the budget was inaccurate, particularly in its underprovision for the cost of stock feed.
Mr McCusker said he went on from that "concession" to press the Smiths to explain how they could have relied on the budget if they were aware of its inadequacies. He said Mrs Smith told him they had absolutely no knowledge of cash flow budgets. He went on to say that despite several discussions with Mrs Smith, he was unable to comprehend how it could be said that reliance was placed on the budget (p 21).
A little later, Mr McCusker said that if reliance had not been placed on the budget:
".. then a central feature of the case against the Bank cannot succeed … A court must be satisfied that the Smiths relied upon [the budget] and in so doing, acted to their detriment."
The difficulty I have with this part of the opinion is that it was not part of the Smiths' case against the Bank that they relied on the budget, in the sense of borrowing money against it. It is clear from Mrs Smith's proof of evidence (as Mr McCusker acknowledged) that the Smiths had no experience in the preparation of budgets. They went to the Bank in the hope of obtaining financial assistance to expand their farming operations. In so doing, as they explained to Mr Danks, they also needed advice as to the way in which they might achieve that result. As Mrs Smith said:
"…we were quite satisfied, indeed delighted that [Mr Danks] understood the whole situation and was competent to draw up a suitable programme for us." (AB 3/469)
As the Smiths realised later, Mr Danks:
"… apparently knew nothing about farming or what the Bank was actually agreeing to. He either didn't know how to draw up a programme for us, or wasn't interested in doing it or didn't consider it necessary … he was just a nice bloke, anxious to help us get on, without a clue what the terrible financial burden we had undertaken would mean to us or to the Bank". (AB 3/470)
It was in that context, Mrs Smith explained, Mr Danks asked them for the information which was to be included in the budget. The Smiths gave him rough estimates, which, as they told him, might have been wrong.
Mr Danks said the Bank had to have some figures to work on. The Smiths said they did not mind providing these rough estimates:
"… providing we can come back to you if there are any problems and he said '… that's what I'm here for. The cash flow is a guide, but ring me and discuss any problems you might have.' We said, 'one of the problems we are having with the National Bank is that we can see the most practical way to spend money and we ring and ask the manager and he won't allow us to do it'. He said 'Well, that's what the R&I is for. It's set up for farmers' needs and it understands their problems' ..." (AB 3/471)
Mrs Smith said of the budget:
"We couldn't even understand the thing, so what use was it to us? … I couldn't see, from the cash flow supplied to us, how it all worked …." (AB 3/472)
Later in her proof of evidence Mrs Smith said:
"It was immediately obvious that the budget could not be adhered to. [Mr Danks] had left out the accounts and put a large sale of pigs right at the start. Both were untrue so I just had to use my brains and do the best I could". (3/498)
It is therefore clear from the papers provided to Mr McCusker that the Smiths placed no reliance on the budget. Prima facie, therefore, there was no need for him to have explored this issue in conference. More significantly, it was arguably negligent to refer to the Smiths having made a "concession" about their not relying on the budget. This created an impression in the opinion that he had discovered a weakness in the case, when that was not so.
However, as Mr McCusker pointed out in his opinion, the Smiths had to prove that they had relied on the budget (p 21). That was because the Smiths had pleaded reliance in their action against the Bank.
In par 3 of the Smiths' statement of claim, they alleged that they:
"… sought and received from [Mr Danks] advice as to the financial aspects of [their] proposed expanded programme."
In par 5, the Smiths alleged that the Bank:
"… prepared and handed to [the Smiths] a cash flow budget for [the Smiths] which advised [them] of the extent of the farming operations for the year, the income they could expect for the ensuing twelve monthly period and the outlays and time of outlay of moneys required to produce such income."
It is then alleged in par 6 that the budget:
"… represented that by expending money for the purposes shown at the rate and times set out in such budget [the Smiths] would be able to carry on farming operations within the financial restraints set out in such budget and earn the income stated in such budget."
There is then an allegation in par 8 of the statement of claim that various representations (including that in par 6 above):
"… were promissory in nature and induced thereby in or about April 1977 it was orally agreed between [the Smiths] and [the Bank] as follows: …."
There are then set out the elements of the agreement. These included the advance of $7000 to pay the deposit on a tractor and the provision of an overdraft sufficient to enable the Smiths to "live [on] and farm the property in accordance with the budget". It is also pleaded in this part of the statement of claim that the Bank would "… supply to [the Smiths] a cash flow budget."
It seems to me that there is an obvious inconsistency here. The Smiths cannot have been induced by the budget to enter into an agreement for the provision of that budget. Indeed, in her proof of evidence for Mr McCusker, Mrs Smith said she could not remember exactly when they were given a copy of the budget (AB3/497).
The reality, I think, is that the statement of claim did not reflect the Smiths' case, as it appears in the proof of evidence given to Mr McCusker. The Smiths did not rely on the budget; they relied on the Bank to provide a proper budget. They went to the Bank to obtain finance for a development programme which they did not have the expertise to implement unaided. They wanted advice about how they should plan their programme, and they wanted funds to implement it.
The Smiths thought the Bank had agreed to give that advice, and the necessary funds, over an extended period. They borrowed money and they then realised the budget was inappropriate. They raised their concerns with Mr Danks and he told them not to worry. They did the best they could, but soon encountered financial difficulties. There is then, of course, a question of the cause of those difficulties. Were they the result of lack of advice from the Bank or of extraneous matters, such as the late delivery of the tractor or poor seasons?
Setting that question aside for the present, the fact remains, I think, that on the basis of the material submitted to Mr McCusker there is an argument that, as the Smiths allege in par 9.3.15.3, he failed to address the issues raised in Mrs Smith's proof of evidence. At several places in his opinion he focussed on reliance on the budget, which was not a real issue. He did not address the inconsistency in the statement of claim against the Bank, nor did he advise how it should be amended to reflect the true issue.
Although Mr McCusker had not been asked specifically to give general advice, he in fact took it upon himself to do so. In par 2 of his opinion, he said, in substance, that he had undertaken a full review of the issues in the action and the basis of the Smiths' claim. As I have noted above, that was his duty in any event.
In my view, therefore, this part of the statement of claim against Mr McCusker does disclose a cause of action in negligence. Whether any loss flowed from the alleged negligence is the subject of Question 3.
9.3.16.1 to 9.3.16.4
It is alleged that Mr McCusker failed to have regard to information which had been provided to him in his brief.
On p 25 to p 26 of the opinion, Mr McCusker noted that the 1977 budget provided for a reduction in debt at the end of the 12 month period, but that there had been no such reduction (par 17). He went on to say that he had been unable to discern, from all the material provided to him, "in precise detail" how this had come about.
He said there appeared to be no contemporaneous Bank document which recorded any formal agreement to increase the overdraft:
"…nor have I been provided with specific detail as to the expenses incurred in that 12 month period, not provided for in the budget." (par 18)
The allegation in par 9.3.16.2 is that in fact, the information had been provided to Mr McCusker. For present purposes the allegation must be assumed to be true. The pleading therefore discloses a cause of action resulting from a negligent failure to refer to the relevant papers, or to seek assistance in obtaining the information which they contained.
9.3.17.1 to 9.3.17.3
The complaint is that on p 26 of his opinion, Mr McCusker referred to the Smiths preparing an application to the Rural Adjustment Authority ("RAA") for assistance after the Bank refused to increase the overdraft facility. Mr McCusker was critical of the Smiths for failing to tell the RAA that their problems had been caused by the Bank. However, as Mrs Smith pointed out in the proof of evidence she gave to Mr McCusker, in reality, the application was prepared by Mr Danks, in the sense that it was prepared following his instructions about what it should contain.
In my view, therefore, the pleading discloses an arguable cause of action arising from a negligent failure to read instructions.
9.3.18.1 to 9.3.18.8
It is alleged that Mr McCusker failed to deal adequately with the Western Livestock issue, which was a substantial element of the Smiths' claim against the Bank. It is said that he failed to familiarise himself with the facts which had been provided by the Smiths, and then failed to appreciate that substantial damages would flow from the Bank's interference in the arrangements made between the Smiths and Western Livestock.
In his opinion, Mr McCusker said it was "tentatively proposed" that Western Livestock would provide limited finance to the Smiths to enable them to deal in pigs. He said the proposal did not eventuate because Mr Danks suggested it should abide the outcome of an assessment carried out by the Bank's farm advisory service.
The Smiths contend that an agreement had been prepared between them and Western Livestock. It was more than a tentative proposal. They withdrew from the agreement because they were "coerced" by Mr Danks, who:
"… told us the bank liked the first bite of the cherry and gave us to understand the bank would not like it if we signed it". (par 9.3.18.7)
In my view, there is no substance in Mrs Smith's complaints. In her proof of evidence she said that when she told Mr Danks on the telephone about the agreement with Western Livestock, he said, very deliberately:
"I don't think I'd do that if I was you, Libbie. The bank wants the first bite at the cherry". (AB 3/512)
Mrs Smith says that she felt "a bit scared". But that came from a recognition of their weak position because "the Bank held all the cards".
On that evidence, I do not think it justifiable to say that Mr Danks "coerced" the Smiths into withdrawing from the Western Livestock arrangements. I accept that "suggested" may be inappropriate. I accept also that "tentative" may not be an apt description of the arrangements. However, these are somewhat semantic points. The essence of the complaint is that Mr McCusker:
"… failed to give any meaningful opinion on the Western Livestock matter which formed a large part of the [Smiths'] claim against the R & I". (par 9.3.18.8)
In my view, that allegation is without foundation. It is clear from the opinion (p 29 to p 34) that Mr McCusker dealt thoroughly with the aftermath of the Smiths' withdrawal from the Western Livestock arrangements, the involvement of the Bank's advisers and the omissions from the budgets produced as a result. This was the pleaded claim against the Bank. In so doing, Mr McCusker referred to the relevant contemporaneous documents.
9.3.19.1 to 9.3.19.3
The complaint is that Mr McCusker said in his opinion that his "primary brief" had been to advise on the quantum of damages (par 30) when, in fact, it was to advise on the merits. Thus, it is said, he wasted many months seeking information on damages which was unnecessary in the light of his opinion that the Bank would not be held liable in any event.
It is not clear why Mr McCusker said his primary brief had been to advise on quantum. As I have noted above, it is clear from his instructing solicitors' letter dated 28 August 1986 that he was retained to advise on the merits (AB 3/429). Further, the legal aid certificate was granted for advice on both merits and quantum. Nothing turns on this, however. Mr McCusker said in par 2 of his opinion that although the advice he was asked to give "was directed specifically to the quantum of damages", a consideration of that question had necessitated a full review of the issues. And clearly, that is what Mr McCusker did.
It is alleged that time was wasted by Mr McCusker in seeking unnecessary information about damages, with the consequence that the Smiths became liable for interest on their debt to the Town & Country Building Society at the rate of $150 per day. In my view, this criticism is unjustified. First, since Mr McCusker was instructed to advise on damages, he was entitled to seek the relevant information. The real complaint here is about delay, which is the subject of Question 4, below.
Secondly, of course, the Smiths did not become liable to pay interest on their debt because of any act or omission by Mr McCusker. The liability for interest flowed from their inability to repay the debt. That was the subject of the action against the Bank.
9.3.20.1 to 9.3.20.4
These paragraphs raise again the question of the Smiths' reliance on the 1977 cash flow budget. This is a matter to which I have referred under par 9.3.15.3 above. There is nothing further that I wish to add.
Summary of this part
I have come to the conclusion, assuming the facts pleaded in the statement of claim to be true, it alleges that Mr McCusker was negligent in the following respects:
(1)he failed to read or to take into account that part of his brief which disclosed that the Smiths did not rely on the 1977 cash flow budget, but on the Bank to provide proper advice as to the implementation of the Smiths' proposal for the expansion of their farming activities;
(2)he therefore placed undue emphasis in his opinion on the difficulties which the Smiths would face in seeking to prove that they had relied on the budget;
(3)he failed to read or to take into account that part of his brief in which Mrs Smith explained that she and Mr Smith had provided only approximate figures to Mr Danks for inclusion in the cash flow budget, on the basis that they would not be held to those figures;
(4)he therefore failed to point out that the allegation in the Bank's defence, that the figures had been provided by the Smiths, while true up to a point, was largely irrelevant to their case;
(5)he failed to recognise an inconsistency in the Smiths' statement of claim against the Bank, which would have been cured by omitting references to reliance on the budget and pleading reliance on the Bank to provide a proper budget;
(6)he failed to familiarise himself with that part of his brief in which it was explained how the actual costs for 1977 had exceeded the budget;
(7)he failed to familiarise himself with that part of his brief in which Mrs Smith described how the application to the Rural Adjustment Authority came to be made, thus explaining why, as he put it in his opinion (par 18) "there is not a hint … of any suggestion that the R & I Bank was responsible for [the Smiths'] difficulties ….";
It follows that, to the extent indicated, the answer to Question 2 is "Yes".
Question 3
Do the facts and matters set out in par 10 disclose that the allegedly negligent opinion provided by the first respondent caused the appellants to suffer loss by causing the Legal Aid Commission to terminate the grant of legal aid in reliance on the opinion so that the appellants lost the opportunity of having a trial of their action against the R & I Bank?
It is alleged in par 10 of the statement of claim that on 5 August 1991 the Smiths received an extension of legal aid to proceed to trial. Thus, it is submitted by the respondents that the opinion cannot have caused the termination of legal aid.
However, it is then alleged that on 9 April 1994:
"… in reliance upon the errors in the opinion and in view of the projected costs and the diminishing availability of legal aid money the Legal Aid Commission terminated [the Smiths'] grant of legal aid".
That is an allegation of fact, which must be assumed to be true for present purposes. It is submitted by the respondents that the plea does not raise an arguable case on causation and that it "impermissibly assumes that the opinion should have been favourable" (Submissions, par 12). I do not accept that submission. On the facts pleaded in the statement of claim, it is arguable that the opinion was prepared negligently, to a certain extent. It was unfavourable to the Smiths. It may be assumed that but for the negligence it would have been more favourable. It would not have given the impression that the question of reliance posed an almost insuperable hurdle. It would not have cast doubt on the Smiths' credibility in relation to their initial conversations with Mr Danks and in relation to their apparent failure to tell the RAA about the cause of their problems. It would not have given the impression that Mrs Smith had failed to provide information on which the calculation of damages had been based.
Indeed, although Mr McCusker said (wrongly, it seems) that his primary brief was to advise on the quantum of damages, he addressed that issue in a somewhat superficial way: p 37 ‑ p 42. Although he said that Mrs Smith's approach to the calculation of damages "in terms of principle, is correct", he did not say what that approach involved. Further, he said that Mrs Smith's calculation was a correct basis for determining the damages recoverable:
"… if the Bank can be shown to have breached a contractual commitment to provide finance sufficient to cover the development and farming programme which these cash flow budgets envisage." (par 31, p 38)
However, since it was the Smiths' contention, supported by their experts, that the budgets were unworkable, and were not relied on, that seems to me to be an inappropriate way to proceed.
In any event, the reader is left with no clear idea about what the Smiths might have been expected to recover, if successful on the question of liability, other than that it would be "comparatively nominal" (p 47).
In all the circumstances, and particularly as it seems the Legal Aid Commission regarded the case as being somewhat borderline, it seems to me to be arguable that if there had not been negligence as alleged, and the opinion had been more favourable, legal aid would not have been terminated. The Smiths therefore arguably lost the opportunity of having their case tried. Consequently, they lost the chance of recovering damages against the R & I Bank. Whether, and to what extent, the loss of that chance meant that they actually suffered financial loss and damage it is not possible to say. Subject to those qualifications, the answer to Question 3 is "Yes".
Question 4
Do the facts and matters set out in par 11 disclose:
(1)that the first respondent delayed unreasonably in delivering his opinion; and
(2)if so, that the appellants thereby suffered loss?
As I have noted above, Mr McCusker was instructed by letter dated 28 August 1986. He signed his opinion on 21 March 1989, some two years and seven months later.
Accepting that a legal practitioner is obliged to act with due diligence in the discharge of his duty to advise, then, prima facie, Mr McCusker was in breach of that obligation. In my view, a delay of that magnitude is, on the face of it, unacceptable.
Assuming there was a breach of duty, it would not be actionable unless it caused loss. However, the statement of claim alleges facts which, if proved, would arguably establish that the Smiths did suffer loss. In summary, it is said that the Town & Country would probably not have exercised its power of sale as a mortgagee of the Smiths' property if it could have been satisfied that the action against the R & I Bank was proceeding and might result in the discharge of the Smith's debt. Upon the assumption that this allegation is true, the answer to Question 4(1) is "Yes" and the answer to Question 4(2) is "Yes".
Accepting that to be true, for present purposes, the statement of claim does, I think, disclose a cause of action resulting from the delay in delivery of the opinion.
Question 5
Are the appellants entitled to prosecute a cause of action against the first respondent based on a conflict of interest when such claim was made for the first time on 15 April 1997 in an application to amend the writ?
The conflict of interest is said to arise in the circumstances pleaded in par 12. It is essentially a claim for breach of fiduciary duty on the part of Mr McCusker who, it is alleged, owed competing obligations to different entities.
Such a claim, being equitable in nature, is outside the Limitation Act 1935‑1978 and is not of a kind in respect of which that Act is applied by analogy with legal claims. It follows that the Smiths would be entitled to prosecute such a claim unless a defence based on delay or acquiescence was successful.
However, there is, in my view, no bar to the Smiths prosecuting such a claim. The answer to Question 5 is "Yes".
Question 6
Subject to Question 5, do the facts and matters set out in para 12 disclose:
(1)that the first respondent was in a position of conflict when he accepted the appellant's retainer;
(2)if so, that he failed to disclose the existence of that conflict to the appellants; and
(3)if so, that the appellants thereby suffered loss?
It is alleged that when he accepted the retainer to act on behalf of the Smiths, Mr McCusker was in a position of conflict because of various offices and positions he held. Essentially, these involved associations with entities related to Town & Country. It is said also that Mr McCusker was a director and shareholder of Town & Country, as well as its solicitor.
It is then said that because the R & I Bank was the banker to and a creditor of the Town & Country, in which Mr McCusker was a shareholder, he had a further personal interest in the matter. It is said that this was an interest in not having the Smiths' action proceed, because of the adverse impact it might have had on both the R & I Bank and on the Town & Country. For present purposes it is to be assumed that these allegations are true.
It is submitted by the respondents, however, that in fact there was no conflict, because both the Smiths and Town & Country had a common interest in the Smiths recovering substantial damages from the R & I Bank. While this is true, the submission takes no account of the relationship as pleaded, between these two institutions. It also ignores the other matters summarised above, which, on the assumption that they are true, serve to demonstrate the extent of Mr McCusker's conflict.
It is pleaded in the statement of claim that the conflicts of interest were not disclosed to the Smiths when Mr McCusker accepted their retainer. That allegation must also be taken to be true, for present purposes.
I accept that a solicitor who acts for a client when he has a conflict of interest is prima facie in breach of his fiduciary duty and is liable to pay damages for any loss which his client suffers as a result.
The question, then, is what loss the statement of claim alleges. In par 12 of the statement of claim, the Smiths plead the following:
•the loss of opportunity of having a senior counsel without a conflict of interest;
•the loss of confidence they ought to have been able to repose in their senior counsel;
•the loss of comfort of having their senior counsel acting for them with undivided fidelity.
Paragraph 13 takes the matter further. It is there alleged that the Smiths have suffered the loss of legal rights against Town & Country. It is said that they did not know the circumstances in which it loaned them funds. Nor did they know whether its power of sale had arisen. It is alleged also that the Smiths "may have lost legal rights they are unaware of" by virtue of Mr McCusker's failures.
In my view, claims for loss of comfort or loss of confidence are not actionable in this context. And claims for loss of unknown rights clearly do not disclose a cause of action.
The claim for loss of the opportunity of instructing a counsel who did not have a conflict would only be of value if it could be proved that Mr McCusker in fact preferred his own interests to those of the Smiths. They say it is clear from the opinion that he did, that he approached the case from a banker's perspective. They point to the fact that he repeatedly expressed the view that a court would be most likely to accept the Bank's version of the relevant events. This is pleaded in par 14 of the statement of claim, where it is alleged that Mr McCusker:
"preferred … his duties to the other persons and entities by keeping silence (sic) in matters which could have helped (the Smiths) and by preferring the viewpoint of the bank in his opinion."
The matters about which it is said Mr McCusker kept silent are, I assume, those referred to in par 12 and par 13, which I have summarised above. Accepting that the Smiths would have instructed another counsel if they had been aware of the conflict, that is not, of itself, enough to justify a claim that they suffered loss through ignorance. In my view, the only allegation which is capable of founding a claim for damages, and therefore disclosing a cause of action, is that Mr McCusker in fact preferred his own or third party interests over those of the Smiths.
Although, as I have noted repeatedly, allegations of fact in a statement of claim must be accepted as true for the purposes of a striking out application, there is an additional consideration here. That is because the claim of actual preference is, in substance, an allegation of fraud. The rules require such a claim to be "distinctly alleged" : see Seaman, par 20.9.2. It is not enough to rely on suspicion, which is, I think, the basis for the Smiths' contention.
In any event, the fraud claim is inconsistent with the claim in negligence pleaded in par 9. It is there said that the reason for Mr McCusker concluding that a court might well prefer the Bank's case was that he was negligent in the preparation of his opinion. And if his opinion resulted from a negligent failure to read or to take proper account of his instructions, it is unlikely to have been fraudulent. Even if it was fraudulent, that would not, in my view, add anything to the negligence claim.
For these reasons, I would not permit the Smiths to bring a claim based on an allegation that, in preparing his opinion, Mr McCusker actually preferred his or third party interest over the Smiths' interests. Even if the statement of claim discloses a cause of action in this respect, it would, I think, delay the fair trial of the action if it was to proceed because of the overlap with the claim in negligence. In this context, the answer to Question 6(1) and (2) is "Yes". Assuming the allegations in par 12 of the statement of claim are true, the answer to Question 6(3) is "Yes".
Question 7
Subject to Question 5, if the first respondent accepted the appellants' retainer without disclosing that he was in a position of conflict as alleged in para 12, does para 13 disclose:
(1)that the first respondent was thereafter under a duty to disclose to the appellants any facts and matters within his knowledge which were relevant to the appellants' relationship or dealings with any entity in respect of which the conflict existed; and
(2)if so, did he fail to make such disclosures to the appellants; and
(3)if so, that the appellants thereby suffered loss?
I have dealt with the issues raised in this question in answering Question 6. Consequently it is not necessary to answer Question 7.
Question 8
Subject to Question 5, if the first respondent was in a position of conflict as alleged in para 12, does para 14 disclose:
(1)that the first respondent preferred the interests of the persons or entities in respect of which the conflict existed; and
(2)if so, that the appellants thereby suffered loss?
I have dealt with the issues raised in this question in answering Question 6. Consequently it is not necessary to answer Question 8.
Question 9
Are the appellants entitled to pursue a claim against the first respondent in respect of an alleged fraudulent misrepresentation notwithstanding that such claim was made for the first time on 15 April 1997 in an application to amend the writ?
It is alleged in par 15 that Mr McCusker fraudulently represented to the Smiths that he had no conflict of interest in order to induce them to enter into his contract of retainer. This is therefore a tortious claim, unlike those made in par 12, par 13 and par 14, which are equitable in nature.
It is submitted by the respondents that because the claims were made in 1997, over 10 years after the event, they are barred by s 38(1)(c)(vi) of the Limitation Act 1935, which provides a six year limitation period. I accept that submission. I do not accept the Smiths' submission that because the fraud was concealed, the plea is saved by s 27 of the Limitation Act. That section applies only to a limited species of equitable claims for the recovery of land or rents. It has no application here : see State of Western Australia v Wardley Australia Ltd (1991) 102 ALR 213 at 236 ‑ 7.
The Smiths rely also on the decision of Dankwerts J in Re Howlett [1949] Ch 767. However, that case was concerned with s 19(1)(b) of the English Limitation Act 1939, which provides that no period of limitation would apply to an action by a beneficiary under a trust for the recovery of trust property. The decision has no relevance here.
I therefore consider that the Smiths are not entitled to bring a claim for fraudulent misrepresentation against Mr McCusker. The answer to Question 9 is "No".
Question 10
Subject to Question 9, do the facts and matters set out in para 15 disclose:
(1)that the first respondent represented to the appellants that he was not in a position of conflict; and
(2)if so, that the appellants were induced thereby to retain the first respondent as their counsel; and
(3)if so, that the said representation was false; and
(4)if so, that it was made fraudulently; and
(5)if so, that the appellants are entitled to any of the relief claimed in para 15.9?
It is not necessary to answer this question.
Question 11
Do the facts and matters set out in para 17 permit the appellants to pursue a defamation claim against the first respondent notwithstanding that such claim was made for the first time on 15 April 1997 in an application to amend the writ?
It is alleged in par 17 of the statement of claim that, on 28 March 1989, Mr McCusker said to the then Director of Legal Aid words which were defamatory of Mrs Smith.
Mrs Smith contends (although not in the statement of claim) that she did not become aware of this matter until September 1996, after the limitation period had expired. She submits that time should not start to run until then. I do not accept that submission. Again, Mrs Smith's claim is not equitable in nature, even though the allegedly defamatory words are said to have been spoken by a fiduciary. The claim is purely tortious and is therefore barred by s 38(1)(c)(vi) of the Limitation Act. There are no equitable considerations which would remove the matter from the ambit of that Act. The answer to Question 11 is "No".
Question 12
Subject to Question 11, do the facts and matters set out in para 17 disclose a cause of action in defamation against the first respondent?
It is not necessary to answer this question.
Question 13
Do the facts and matters set out in para 18 disclose a cause of action in negligence against the second respondent: and if so, are the appellants entitled to claim damages in respect of any of the matters set out in para 18.7?
The Smiths make a number of complaints against Mr Gilmour. It is said first that he failed to provide a proper brief to Mr McCusker, and that what he did provide was the subject of criticism by Mr McCusker.
As a matter of professional obligation, an instructing solicitor is required to provide proper instructions to counsel. That usually involves the provision of a brief, but not necessarily so. In the present case, Mrs Smith herself provided nine lever‑arch files of documents and a detailed proof of evidence.
The matter was complex and did not lend itself to presentation in the summary form which usually constitutes a brief. In these circumstances, I do not think the pleading discloses negligence.
Then it is said that Mr Gilmour did not require the Smiths to meet him "to go through the facts and issues or the documents". Whether such a conference is necessary is a matter for the judgment of the solicitor. A failure to hold a conference does not necessarily mean that the solicitor has been negligent. In any event, Mrs Smith's proof of evidence cross-referenced the documents so that it should have been a relatively straightforward matter to follow them.
Then it is said that Mr Gilmour refused to attend a meeting at which Mrs Smith was to tell Mr McCusker whether the opinion was satisfactory and that he "lost interest" generally after the opinion was obtained.
In my view, none of those matters discloses a cause of action in negligence. Each relates to an event after the opinion had been prepared. They cannot therefore have caused loss.
There are also allegations about Mr Gilmour's failure to protect the Smiths' interests in relation to disclosure of Mr McCusker's conflict of interest. It is not alleged, however, that Mr Gilmour was aware of the relevant matters, apart from Mr McCusker's involvement with Town & Country as its solicitor. It appears that Mr Gilmour did raise that matter and that the Smiths (albeit reluctantly) accepted it: (see par 8 in AB1/95).
It is then said that Mr Gilmour did nothing "meaningful" to prevent Mr McCusker's inordinate delay in the provision of the opinion. The impression I have is that Mr Gilmour was concerned about the delay. But, clearly, he could not force Mr McCusker to deliver the opinion. Again, this is a matter which involves a degree of judgment. But, ultimately, if the Smiths suffered loss as a result of delay in the production of the opinion, the responsibility for it must lie with Mr McCusker.
In all these circumstances, I do not think the statement of claim discloses a cause of action in negligence against Mr Gilmour. The answer to Question 13 is "No".
Question 14
Are the appellants entitled to prosecute a claim against the second respondent in respect of breach of fiduciary duty notwithstanding that the claim was made for the first time on 15 April 1997 in an application to amend the writ?
In my view, the Smiths would be entitled to prosecute a claim against Mr Gilmour for breach of fiduciary duty, notwithstanding that the claim was made for the first time in April 1997. My reasons are the same as those given in answer to Question 5. Such a claim would be equitable in nature and would fall outside the Limitation Act. The answer to Question 14 is "No".
Question 15
Subject to Question 14, do the facts and matters set out in para 19 disclose a cause of action for breach of fiduciary duty against the second respondent; and if so, are the appellants entitled to claim damages in respect of any of the matters set out in para 19.3?
Paragraph 19 of the statement of claim alleges breaches of Mr Gilmour's "duty of loyalty and honesty". However, the breaches complained of are failures
•to support or protect the Smiths when they discovered Mr McCusker's alleged "fraudulent misrepresentation";
•to brief Mr McCusker in a proper manner; and
•to conduct the action against the Bank in such a way as to protect the Smiths' rights.
These are clearly not matters which have any relevance to Mr Gilmour's fiduciary obligations. That being so, this part of the statement of claim does not disclose a cause of action. The answer to Question 15 is "No".
Question 16
If any of the questions set out above are answered favourably to the appellants, was the Master wrong to refuse leave to the appellants to file the proposed Substituted Statement of Claim having regard to matters including case management principles, delay in the prosecution of the action and prejudice to the respondents?
For the reasons set out above, I have come to the conclusion that, in relation to some of the allegations of negligence only, the statement of claim discloses a cause of action against Mr McCusker. That being so, I think the learned Master was wrong not to allow the action to proceed. In reaching that view, I have taken account of case management principles, delay and prejudice.
As the majority of the High Court said in The State of Queensland v J L Holdings Pty Ltd (1996‑97) 189 CLR 146, 154, case management principles should not be employed, except perhaps in extreme circumstances, to shut a party out from litigating an issue which is fairly arguable. Case management is not an end in itself:
"… the ultimate aim of a court is the attainment of justice and no principle of case management can be allowed to supplant that aim."
In any event, case management principles should, I think, be regarded as of secondary importance when dealing with litigants in person who do not have the resources or expertise possessed by legal practitioners. That is not to say that cases involving litigants in person should not be managed. Rather, they should be managed in a way which accommodates the reasonable requirements of the persons concerned, provided no injustice is thereby visited on other parties. This case provides an example. The identification of issues for the Full Court and the provision of written submissions involved the management of the case so as to facilitate the resolution of this aspect of the dispute.
There has, of course, been an extraordinarily long delay in the prosecution of the action, which was commenced on 13 March 1995. However, the delay is due in part to the respondents' persistent objection to the form of the Smiths' pleadings. That objection has been justified in the sense that a litigant is required to comply with the rules of pleading. However, the Court should, I think, approach matters involving litigants in person with a degree of flexibility. The power to dispense with pleadings illustrates that the rules of pleading are a means to an end, not an end in themselves.
I therefore think that the Court should accept some responsibility for not managing this case as well as it might, and taking earlier the steps to identify the issues which were in fact ultimately taken by the Court.
Part of the delay is attributable to Mrs Smith's failure to comply with time constraints. However, such delays have been explained and authorised. In any event, it seems to me that a legal practitioner who takes two years and seven months to deliver an opinion cannot be heard to complain too stridently about delay.
Prejudice now falls to be considered only in relation to Mr McCusker. I accept that there is prejudice in having this action outstanding. However, as I have said, that prejudice would have been cured to a large extent if the Court had taken earlier steps to ensure that issues were identified. But in my view, there is a more important public policy issue involved here. We are dealing with a claim by litigants who undoubtedly have a genuine belief that they have been ill‑used by the legal profession. Although much of the claim is obviously untenable, and should not be permitted, there are, in my view, elements of the claim in negligence which are at least arguable.
In all the circumstances, I think it would be wrong for this Court now to stifle that claim. I consider that the public interest in maintaining the integrity of the legal profession outweighs any prejudice which might be suffered by one of its members if the action were to proceed. The answer to Question 16 is "Yes".
I would therefore allow the appeal only against Mr McCusker and only to the extent indicated by the answers to the questions posed for the purposes of the appeal. I would permit the Smiths to file the statement of claim limited to par 9.3.15.3, par 9.3.16.1 ‑ 4 and par 9.3.17.1 ‑ 3 and such other paragraphs as were necessary to give them a context.
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