Smith v Moloney

[2006] HCATrans 466

[2006] HCATrans 466

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A45 of 2005

B e t w e e n -

JOCELYN CLARE SMITH

Applicant

and

PETER NICHOLAS MOLONEY

Respondent

Application for special leave to appeal

GUMMOW J
KIRBY J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

FROM ADELAIDE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 1 SEPTEMBER 2006, AT 10.50 AM

Copyright in the High Court of Australia

MR R.W. SALLIS:   If the Court pleases, I appear for the applicant.  (instructed by Costi & Co)

MR F. DI FAZIO:   May it please the Court, I appear for the respondent.  (instructed by Lynch Meyer)

GUMMOW J:   Yes, Mr Sallis.

MR SALLIS:   If the Court pleases, the issues in relation to which the applicant seeks special leave to appeal are set out in paragraph 1, comprising subparagraphs 1.1 to 1.4 thereof, of the amended application for special leave to appeal which appears at page 76 of the application book. 

The proposed appeal involves questions of general principles as to the appropriate tests and the application of those appropriate tests for causation in relation to the following separate and distinct causes of action:  one, breach of contract; two, negligence; three, breach of fiduciary duty; four, misleading and deceptive conduct under the Trade Practices Act (Cth) and, in this case, the Fair Trading Act (SA) but the decision, obviously, would apply to all Fair Trading Acts in other States and ‑ ‑ ‑

GUMMOW J:   Just a minute, you have a dissenting judgment in your favour of Justice Debelle, but was there really any difference between the three members of the court on these legal questions?  Was not Justice Debelle really taking a different view of the fact‑finding process by the primary judge?

MR SALLIS:   If the Court pleases, Justice Debelle adopts the same test for causation for breach of contract as did the learned trial judge and Justices Besanko and Vanstone who form the majority of the Full Court.  However, his Honour Justice Debelle simply applies that test differently.  However, neither the learned trial judge nor any of the justices in the Full Court did they look at the each separate cause of action.  For example, none of their Honours looked at the breach of fiduciary.

GUMMOW J:   Are you saying Justice Debelle erred in law as well?

MR SALLIS:   Justice Debelle looked at the breach of contract, applied the same test as the learned trial judge and the majority in the Full Court, but came to a different conclusion.  But his Honour did not deal at all, nor did any of the judges really deal at all with each and every separate cause of action that was pleaded in relation to which evidence was led and in relation to which I made submissions, and fairly lengthy submissions, on each and every one of those causes of action.  For example, breach of fiduciary duty – not dealt with at all by any of the justices.  Negligence, misleading and deceptive conduct is touched upon briefly by the learned trial judge and by the majority of the Full Court but not at all by Justice Debelle.

KIRBY J:   I assume Justice Debelle took that course because his finding on the facts in the breach of contract was enough to get him home to his orders ‑ ‑ ‑

MR SALLIS:   That is correct, your Honour.

KIRBY J:   ‑ ‑ ‑ so that he did not have to deal with everything if you were going to win on the breach of contract claim.

MR SALLIS:   That is correct, your Honour, and none of the judges at any level dealt with the ‑ ‑ ‑

KIRBY J:   But the majority had to deal with them, in your submission, I suppose, in order to dispose of your claim in its entirety.

MR SALLIS:   Correct, and they do not.  The learned trial judge simply looked at breach of contract.  The learned trial judge acknowledges in his judgment that the applicant had pleaded all of the causes of action that I have referred to.  He acknowledges that, evidence was led and detailed submissions were made, but the learned trial judge says “I will deal with the case as if it were a breach of contract case” because the same applies, the same tests and the same result applies, regardless of what other cause of action either learned trial judge look at and ‑ ‑ ‑

GUMMOW J:   Just listen to me, Mr Sallis.  At the end of the day, Mr Sallis, the question is, what would your client have done if properly advised, is it not?

MR SALLIS:   Yes, well ‑ ‑ ‑

KIRBY J:   And the trial judge formed a view that she was so determined in her personality and convinced of her rightness that, whatever anybody said about the costs, she would have gone on.

MR SALLIS:   Yes, your Honour, that is the way the learned trial judge approached it.

KIRBY J:   It is very hard for you to disturb that; very hard for you to disturb that.

MR SALLIS:   But his Honour applied ‑ ‑ ‑

KIRBY J:   I suppose you are entitled to say she did not get a chance ‑ ‑ ‑

MR SALLIS:   She did not.

KIRBY J:   ‑ ‑ ‑ and she should have had a chance and it is a matter of important principle that solicitors should tell their clients the costs and give them that chance.

MR SALLIS:   Absolutely, your Honour, and not ‑ ‑ ‑

KIRBY J:   But the primary judge found this factual element against you and it stands like a great big Rock of Gibraltar in the path of this tanker that you are trying to steer towards home.

MR SALLIS:   Your Honour, that may be his finding of fact, but what my client has been robbed of is the application of the correct legal principles that apply to causation in respect of each and every cause of action that she pleaded.  She has never received that from any court.  In other words, the learned trial judge and the Full Court have never addressed the correct legal principles in relation to any of the separate and distinct ‑ ‑ ‑

GUMMOW J:   One applies the law to the facts.  One first has to find the facts, and if you do not have the right factual substratum the rest just becomes academic speculation, which we should not readily get involved in at the hazard of your client’s further outlay in costs.

MR SALLIS:   Well, can I just give your Honours one example of how that is not so in this case?  The learned trial judge finds in more than one passage of his judgment that the risks of costs, both costs of her own lawyer and costs of the opposition, were material factors.  He finds that in more than one spot in his judgment.  He finds that and, with respect, he is right about that.  But he then does not apply the correct tests for causation which would lead, on his own findings, to an opposite result.

For example, breach of contract and negligence, the test is not the test that the learned trial judge and the Full Court applied; it is the test that the High Court has laid down in Chappel’s Case, Medlin’s Case, Bennett’s Case, March v Stramare and which this court, the Full Court of South Australia, correctly adopted and applied in the case of Van Den Heuvel v Tucker.  I respectfully say that if that bench, comprising Chief Justice Doyle and Justices Duggan and Gray, when you look at the principles that they espoused that apply to causation for negligence, and the same would apply for breach of contract, if you read their Honours’ judgments, on the facts of ‑ ‑ ‑

KIRBY J:   Well, do not worry about the judgments, but can you help me with this?  How would it have helped your client in the facts of the case if the Full Court had applied not a “but for” test, but the more nuanced test in Chappel v Hart?

MR SALLIS:   My client would have succeeded, and I will ‑ ‑ ‑

KIRBY J:   Why?

MR SALLIS:   Because, your Honours, the test for causation, as the High Court has clearly laid down for breach of contract and negligence, is whether the conduct, if you like, the defendant’s conduct, materially contributed to the loss or materially increased the risk.

KIRBY J:   Just pause there.  If you have a judicial finding that your client was so fixated on her own rightness that she would have sailed on anyway, then does that not stand as a barrier to the acceptance of the Chappel v Hart test in her case?

GUMMOW J:   In Chappel v Hart there was a finding to the contrary.  Do you see what I mean?

MR SALLIS:   Yes.

GUMMOW J:   A finding of fact as to what the patient would have done - would not have done.

MR SALLIS:   Yes, the answer to that, your Honours, is that if the learned trial judge and the majority in the Full Court had applied the right test, the Chappel v Hart test, if you like, there may have been a different finding.  In other words, if their Honours had addressed their minds not to the “but for” test which is so dangerous, as the High Court has said time and time again, but if the judges had applied their minds to the right test, that is, whether the failure of the lawyer to advice on the risks of costs was a material contribution, then that could have led to an opposite result, and what we have here is alarm bells.

The trial judge actually finds in two passages in his judgment that clearly the failure by the lawyer to advise of the risks of the costs was a material factor.  He finds that specifically.  So what the learned trial judge is not doing, and did not afford himself the opportunity to do, is apply the correct legal principles to his findings of fact.  So my client has been, in a sense, deprived of having the findings of the learned trial judge applied to the law, and that only relates to contract and negligence.

For breach of fiduciary duty, there may not be an issue of causation at all, as in the decision of Gemstone, a decision of the Full Court of the Supreme Court of this State, it clearly followed the Brickenden Case, the Privy Council decision in Brickenden, that once you had a breach of fiduciary duty and that breach led to the loss, you do not have to look at causation.

The High Court in Maguire’s Case has left open, in my respectful submission, the issue of what is the test for causation where you have a breach of fiduciary duty and in particular whether the High Court will follow the Privy Council in the Brickenden Case.  The facts of this case are perfect, a perfect vehicle for that decision to be argued and determined.  The law in this country at the moment where you have a breach of fiduciary duty, the law on causation is unclear because the High Court has left it open in Maguire’s Case.

In this case there can be no doubt there was a breach of fiduciary duty on the findings of fact of the learned trial judge, namely, there was a conflict of interest here.  The solicitor had a conflict of interest, ie, the applicant’s interests and his own interests.  His fees were just under $50,000 so there was a clear conflict of interests.  He clearly breached that fiduciary duty on the findings of the learned trial judge in the sense that he never ever gave any estimate to the applicant of her likely fees with him nor of her likely fees or costs in relation to the opposition.  So if the High Court decided to follow the Privy Council in Brickenden’s Case there is very little doubt that on the findings of fact of the learned trial judge my client would succeed at trial.

Lastly, your Honours, with misleading and deceptive conduct, Justice Wilson with whom the majority of the Justices agreed in Gould v Vaggelas, which has been cited and approved on numerous occasions by the High Court including I & L Securities, have adopted a different test for the law on causation for misleading and deceptive conduct which is often referred to as reliance and inducement ‑ ‑ ‑

GUMMOW J:   Mr Sallis, can I ask you this, and it is on a different tack – in South Australia is there legislative provision made requiring costs agreement between solicitors and clients?

MR SALLIS:   There are professional conduct rules, your Honour ‑ ‑ ‑

GUMMOW J:   No, no.  Not just professional conduct but legislative requirements.

MR SALLIS:   I think section 42 of the Legal Practitioners Act deals with retainers and in fact that section has been to the High Court in a case of Kasmeridis, which I was involved in as counsel for the respondent, but I do not think that section provides a complete answer to this case.  What does provide a complete answer is there are professional conduct rules which were tendered as exhibits at the trial which were pleaded.  Evidence was led and not one judge at any level has dealt with those professional conduct rules.

On the learned trial judge’s findings of fact there is no doubt that those professional conduct rules were breached, in particular, rule 9.14 which, in effect – I will not read it all to your Honours but the effect of it is that “It is a practitioner’s duty to communicate effectively and promptly with clients” and “as soon as practicable after first taking instructions from a client provide to the client written advice as to the reasonably estimated range of costs and disbursements the client may incur by pursuing the legal activity and the method of calculation of those costs”.  I have just read, actually, from the rule.  Now, not one judge at any level has dealt with that issue which was pleaded ‑ ‑ ‑

KIRBY J:   That might be because of two factors:  first, that professional conduct rules have to be dealt with in professional conduct bodies if they are breached; and secondly, that as to their relevance to this case, there is that rock that I have talked of, that the judge said, “The solicitor should have done these things, or might have done these things, but your client was fixated on her own propriety and justification and just would not have been affected if she had been told”.  Now, that is a hard finding but it is one you have to overcome to be able to sail home and it is difficult for you to overcome it.

MR SALLIS:   If your Honour pleases, my client is not only entitled to findings of fact, but my client is entitled to have the court address the correct principles of law ‑ ‑ ‑

KIRBY J:   Justice Gummow said to you before, unless you can overturn that finding of fact then all the legal edifice does not arise.  You build the legal edifice on the findings of fact, and if the finding of fact is your client would just not have been affected, she would have sailed on regardless because she was so determined that she was in the right.  I mean, there are litigants like that.  We have all known people who have that and they do not pay regard to the practicalities.

MR SALLIS:   Your Honour, there are two points to that.  Firstly, a point raised by Justice Debelle that that begs the question.  The learned trial judge made a finding that the applicant was very determined to press on.  We do not argue with that but that finding does not take into account that she was deprived of the benefit of informed knowledge and advice from the solicitor ‑ ‑ ‑

KIRBY J:   You have made that point and you have made it very effectively but if it does not lead anywhere, if you have this finding by the primary judge who saw the applicant – we do not see her.  The primary judge saw her, assessed her and reached this conclusion.  Now, it seems a very hard conclusion to me and I can understand your argument.  She should have been given the option.  That is what the professional rules and the law safeguard to her, but then you have this rock that if she had been given the option she still would have gone ahead anyway, and that is the finding you have to overcome before you come to the legal evidence.

MR SALLIS:   Your Honour, that begs the question in this sense, that is that none of the judges have ever addressed their minds to the legal issues given that finding of fact.  For example, in misleading deceptive conduct the clear test as espoused in Gould v Vaggelas is whether the representation or the conduct played even a minor role.

Now, it is quite consistent for the learned trial judge to say the applicant was hell‑bent on proceeding with the case, but if she had been informed about the risks that may have played a minor role – at least a minor role – in her decision whether to proceed or not, and if it did then she gets over the line for the test of causation for misleading and deceptive conduct.

With breach of contract and negligence the learned trial judge has found that the failure to advise was a material contribution.  He has found that in two places in his judgment, and yet having found that he finds against her because he has not applied the correct principles.  If he had applied the Chappel v Hart test, the legal principles for causation in contract and negligence, married that with his findings in at least two places – I think paragraphs 64 and I think 65 of his judgment where he finds that the failure to advise was a material factor, a material contribution - if his Honour had applied the correct principles of law, together with that finding, it is quite consistent for the learned trial judge to have said, “Look, I find as a matter of fact that the applicant was hell‑bent on proceeding but the costs risks were a material factor.  She was not informed about those and so her decision was uninformed and really without consent”.  So it is quite consistent for the finding of the learned trial judge to stay, that is, that she was pretty determined to proceed, but that the risks factor was a contributing factor.

Your Honour, the fallacy of the finding of the learned trial judge can be demonstrated as such.  The claim was for $33,100 and her costs amounted to $50,000 for her lawyer and 59 for the other side, but that was compromised at 45, thus making a total of $95,000.  What if those costs had come instead of to $95,000 to $200,000 or $300,000 or $500,000, does the trial judge say that no matter if it was a million dollars – and we are dealing here with two pensioners, a retired police officer of 40 years service and a nurse of 40 years service, with modest assets, a family home – at what level of risk is the learned trial judge saying that whether her costs would have been a million or ten million, she would have gone ‑ ‑ ‑

KIRBY J:   The learned trial judge was dealing with this case.  He knew what was involved in this case so that I do not think you can raise that as a theoretical spectacle.  Essentially, the law is agreed – the law is laid down, nobody is asking for it to be reformulated so we, the High Court of Australia, would be going through the facts of this case in order to apply established and well‑known law to the facts of this case.  I know it is very important for your client and I have a lot of sympathy for her but that is not really our function in the judicial hierarchy.

MR SALLIS:   Can I just say this, your Honour says that the principles are all settled.  They are for contract and negligence, they are for misleading and deceptive conduct, but they are not settled at all for breach of fiduciary duty.  In fact, the High Court in Maguire’s Case, the last word on causation for breach of fiduciary duty deliberately left open the test for causation for breach of fiduciary duty so that has not been settled.  Lastly – and I will finish here – no one has determined, not even the High Court, whether the breach of professional conduct rules form part of an implied term of the contract or duty of care in negligence or part of the fiduciary duty that a solicitor owes clients.

There are those issues which have not been dealt with by the High Court as a matter of law and, finally, the three inconsistent decisions of the Full Court of this State, namely, the Gemstone Case, which follows the Privy Council in Brickenden, the Van Den Heuvel Case which I have referred to that applies the correct principles on causation for negligence, and the same would apply to breach of contract, and this decision which applies quite different legal tests.  So, there are inconsistent Full Court decisions in this State.

The only court that can resolve those is the High Court of Australia.  So there are at least three areas where the High Court has not made a pronouncement on principles.  I acknowledge there are some well‑established principles for contract, negligence and misleading and deceptive conduct, but there is no ‑ ‑ ‑

GUMMOW J:   I think you are starting to repeat yourself, Mr Sallis, more than twice.

MR SALLIS:   Yes, I am sorry, your Honours.  I am just addressing Justice Kirby’s question to me that all the issues really are covered by well‑established principles.  I say in at least three very, very critical ‑ ‑ ‑

GUMMOW J:   You have said that several times, Mr Sallis.  Do not say it again, please.

MR SALLIS:   Yes.  They are not covered, your Honour.  Unless there is anything further that your Honours wish to hear from me, they are my submissions.

GUMMOW J:   Thank you.  Yes, Mr Di Fazio.

KIRBY J:   Mr Di Fazio, can I tell you, I do understand the strength of your submission concerning the factual finding on which the edifice of law is built and that essentially the Court would, if special leave were granted, be dealing with the analysis of the facts in the case but can it be said that the outcome of the Full Court majority opinion is really not a very satisfactory outcome for the point of principle of the obligation of solicitors to always alert their clients to the costs consequences of litigation in which they are involved.

MR DI FAZIO:   All of that may be accepted, your Honour, but the problem for the applicant by strength in the case is the finding of the trial judge.  It is a trenchant finding based on good evidence and reviewed by the Full Court and not found wanting.  It is, as I put in my outline of submission, I think at paragraph 19, all of the arguments that are raised by this applicant founder on that finding of fact.  It may be harsh, it may be hard, but that is the ‑ ‑ ‑

KIRBY J:   The question I am asking is not whether it is harsh or hard, but whether it betrays an attitude to the solicitor’s obligation, which was a little bit too generous to the solicitor, because I was a solicitor for seven years and not bringing costs implications every day to the client was something that would have been unthinkable for me, especially if they were people of modest means as my clients often were.

MR DI FAZIO:   Although it was not a total failure by the solicitor in this case, your Honour.  As the trial judge found, there were indications given by the solicitor to the applicant as to the possible extent of her costs, albeit, I would have to concede, not in any dollar terms and not within a certain range.  She was told that it would be very expensive and ‑ ‑ ‑

KIRBY J:   Anyway, the anchor of your case is the factual finding.  You say that stands as a barrier to the applicant.

MR DI FAZIO:   Yes, it does, your Honour, although I do have something more to say about the propositions advanced by the applicant that in this case the applicant was deprived, in effect, of the opportunity to have the causation ‑ ‑ ‑

GUMMOW J:   We do not need to hear you any further.  Thank you, Mr Di Fazio.  Yes, Mr Sallis, anything in reply?

MR SALLIS:   All I can say, your Honours, is this.  My client has never been afforded by any court the application of the learned trial judge’s findings of fact to the correct principles of law that apply to the law of causation on any of the five separate and independent and distinct causes of action that have been pleaded in relation to which evidence was led and which were argued in detail in closing addresses before the learned trial judge and the Full Court.

The High Court of Australia should be greatly concerned if that in fact is the case, namely, that a learned trial judge makes findings of fact but then never addresses the correct legal principles that apply in relation to the causes of action, the separate and distinct causes of action, that a litigant pleads, leads evidence on and argues.  Then it goes to a Full Court and the Full Court basically, in a sense, rubber stamps, just approves what the learned trial judge has done, but again does not address, firstly, what the proper legal principles are and every ‑ ‑ ‑

KIRBY J:   I do not think this is reply.  I know you are putting up a stronger fight for your clients and that is your duty, but this is not really replay.  You have said all this in‑chief.  The reply is an opportunity to answer anything additional that has been put by the respondent.

MR SALLIS:   Can I just put this and I will sit.  There is a passage where the Full Court - it is the linchpin of the Full Court’s decision where the Full Court says that the failure to advise was at best a very indirect and a fairly ineffectual, if you like, factor in the loss.  The Full Court says that the loss, really, was brought about not by the solicitor’s failure to advise of the risks, but of the loss of the unfair dismissal case.  That is a very, very erroneous line of reasoning when you draw an analogy to the medical negligence cases.  A very simply analogy to draw, if you have a doctor that fails to advise a patient of the risks of surgery and the surgery goes ahead and there is injury - the analogy is the Full Court saying it is the operation, the surgery, that caused the injury, not the failure to advise of the risk. 

Bringing it to this case, what the Full Court is really saying, “You, the applicant, have lost $95,000, not because the lawyer failed to advise you as to the risks of the costs but because you lost your unfair dismissal case”.  That begs the question, if she had been properly advised and she made an informed decision she may not have proceeded, as Justice Debelle argues in his dissenting judgment, she may never have proceeded with the application.

Finally, your Honours, if your Honours do not allow the special leave to appeal then a solicitor can go ahead, breach contractual, tortious, fiduciary duties, the conduct ‑ ‑ ‑

GUMMOW J:   No, that is not right, Mr Sallis.  Yes, thank you. 

The judgment of the primary judge depended in critical respects upon the finding of fact that even if properly advised the applicant would have continued the proceedings in which she suffered the cost consequences of which she complains.  The majority of the Full Court of the Supreme Court of South Australia declined to interfere with that finding of fact. 

The points of principle which the applicant would seek to agitate in this Court would fall for consideration only if that finding of fact were disturbed.  An appeal to this Court would enjoy insufficient prospects of success to warrant a grant of special leave.  Special leave is refused with costs. 

The Court will adjourn to establish the video link with Perth.

AT 11.19 AM THE MATTER WAS CONCLUDED