Webster v Shueard
[2012] SASC 93
•8 June 2012
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
WEBSTER v SHUEARD
[2012] SASC 93
Judgment of The Honourable Justice White
8 June 2012
PROFESSIONS AND TRADES - LAWYERS - DUTIES AND LIABILITIES - SOLICITOR AND CLIENT - AUTHORITY
PROFESSIONS AND TRADES - LAWYERS - DUTIES AND LIABILITIES - TO OTHER PERSONS - UNDERTAKINGS
PROFESSIONS AND TRADES - LAWYERS - DUTIES AND LIABILITIES - SOLICITOR AND CLIENT - FIDUCIARY DUTY
The plaintiffs obtained judgment by consent against the defendant in respect of the defendant's non-compliance with undertakings given to them in his capacity as solicitor for the third party - plaintiffs were creditors of third party - under irrevocable authority from third party, defendant had undertaken to pay plaintiffs directly from proceeds of third party's damages' claim - third party purported to revoke authority and agreed to indemnify defendant in respect of the consequences - defendant then failed to comply with undertaking - defendant now seeks to recover from third party the sum paid to plaintiffs under the consent judgment and the costs of defending plaintiffs' claim - third party counterclaims against defendant on basis of failure to advise and breach of duty.
(1) Whether third party's agreement to indemnify defendant enforceable - whether third party lacked sufficient understanding of nature of an irrevocable authority - whether third party lacked sufficient knowledge or intention before signing agreement to indemnify.
(2) Whether defendant liable to plaintiffs - whether defendant unnecessarily consented to judgment - nature of defendant's undertakings - whether undertakings discharged by reason of impossibility of performance - whether undertakings subject to condition precedent that damages proceeds would be sufficient to wholly discharge third party's indebtedness - whether undertaking sufficiently certain - whether defendant liable to plaintiffs in contract.
(3) Whether defendant failed to advise third party appropriately as to the nature of an irrevocable authority - whether defendant breached duties to client in accepting indemnity from third party in absence of independent advice.
(4) Whether third party liable for full amount claimed by defendant - whether amount of consent judgment reasonable - whether defendant delayed unduly in reaching settlement with plaintiffs.
Held: third party liable to indemnify defendant with respect to his liability to the plaintiffs in the sum of $94,000 and to pay the defendant's reasonable costs of defending plaintiffs' claim up to 31 December 2008.
(1) Agreement to indemnify enforceable - third party understood nature of an irrevocable authority - third party had requisite understanding and intention re agreement to indemnify - undertakings sufficiently certain.
(2) Defendant liable to plaintiffs - defendant's undertakings of personal nature in capacity as solicitor - defendant's undertakings binding - not open to defendant to terminate undertakings unilaterally - undertakings not subject to condition precedent - undertakings sufficiently certain - defendant also liable to plaintiffs in contract.
(3) Counterclaim dismissed - defendant did not fail to advise third party appropriately concerning the nature of an irrevocable authority - defendant did not breach duties to third party in accepting indemnity from third party in absence of independent advice.
(4) Third party not liable for full amount claimed by defendant - amount of consent judgment reasonable but for interest sum - defendant unduly delayed in reaching settlement with plaintiffs - costs incurred by defendant in defending action after 31 December 2008 were not reasonably incurred.
Australian Commissions Credit Union Ltd v Howard & Co (1984) 114 LSJS 465; Australian Guarantee Corporation (NZ) Ltd v East Brewster Urquhart & Partners [1990] 2 NZLR 167; Australian Securities Commission v Ampolex Ltd (1995) 38 NSWLR 504; Brook's Wharf and Bull Wharf Ltd v Goodman Bros [1937] 1 KB 534; Geoffrey Silver & Drake v Baines [1971] 1 QB 396; In re Grey [1982] 2 QB 440; John Fox v Bannister, King & Rigbeys [1988] 1 QB 925; Law Society of New South Wales v Harvey [1976] 2 NSWLR 154; National Westminster Finance New Zealand Ltd v Bryant [1989] 1 NZLR 513; Re McDougall's Application [1982] 1 NZLR 141; Royal Bank of Queensland Ltd v Ryan (1897) 8 QLJ 97; Saccardo Constructions Pty Ltd v Gammon (1991) 56 SASR 552; Saccardo Constructions Pty Ltd v Gammon (No 2) (1994) 63 SASR 333; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; Udall v Capri Lighting [1988] QB 907; United Mining & Finance Corporation Ltd v Becher [1910] 2 KB 296; Williams v Williams (1910) 54 Sol Jo 506, considered.
WEBSTER v SHUEARD
[2012] SASC 93Civil
WHITE J. Undertakings by lawyers in the course of their professional activities are important in the relationships between lawyers, their clients, the courts and third parties. Those who deal with lawyers must be able to rely on such undertakings. A breach by a lawyer of a personal undertaking is usually regarded as a departure from the standard of honest and honourable conduct expected of lawyers, and for this reason is subject to the special jurisdiction of this Court concerning the discipline of legal practitioners.
In some cases, the undertaking will give rise to a contract between the lawyer and the recipient of the undertaking, so that the practitioner will incur a liability in contract in the event of breach.
These considerations indicate that special care is required in framing undertakings and lawyers should be assiduous to comply with the personal undertakings which they give. It was a failure to pay proper regard to these requirements which has given rise to the present dispute.
A practitioner, who accepts that he did not ensure compliance with undertakings which he had given to creditors of his client, seeks to recover from that client the sum of $102,356.16 which, under a consent judgment, he paid to the creditors for the consequences of his non‑compliance. In addition, he seeks to recover the substantial costs which he incurred in defending the creditors’ claims.
The case involves issues as to the nature of the undertakings given by the practitioner, whether the undertakings gave rise to a contract between the practitioner and the creditor, whether the undertakings or contract were sufficiently certain, the obligations with respect to undertakings of a practitioner who retires from practice before the time for performance of the undertakings has occurred, the ability of a client to revoke the authority on which the practitioner’s undertaking were based, and the rights of recovery from a client of a practitioner who is required to make good breached undertakings.
Background
The defendant, Mr Webster, formerly practised as a solicitor under the name “Frank Webster & Associates” (FWA). One of his clients was the third party, Mr Shueard. Mr Shueard suffered injuries in two separate car accidents on 16 April 1996 and 21 October 1996, and in late 1996 retained Mr Webster to act for him in his claims for damages.
Mr Webster commenced separate proceedings in the District Court on Mr Shueard’s behalf relating to these claims. Ultimately, Mr Shueard resolved both actions by compromise and, on 4 May 2004, the District Court entered judgments by consent. By the first, judgment was entered against the Nominal Defendant for the sum of $75,000 inclusive of costs and interest and, by the second, judgment was entered against a Mr Coats for $225,000 inclusive of costs and interest. Mr Coats was entitled to indemnity from the Territory Insurance Office (TIO).
It is the manner of dispersal of the settlement proceeds which gives rise to the present litigation.
In 2001, and for some years before that, Mr Shueard was indebted to Mr and Mrs Knope, who are the plaintiffs in this action. That indebtedness arose from loans which the Knopes had made to Mr Shueard in his personal capacity and from guarantees which he had given to them in relation to investments or advances which they had made to a company controlled by Mr Shueard, Floor Care Supplies Pty Ltd (FCS). There is evidence indicating that, as at 1 June 2001, Mr Shueard’s indebtedness to the Knopes was $111,256.85, with that indebtedness increasing each month by reason of accruing interest and continuing unpaid liabilities. It seems that, apart from the proceeds of his damages claim, Mr Shueard did not have the capacity to meet his liability to the Knopes.
In June 2001, Mr Shueard agreed to provide the Knopes with some assurance and security for his indebtedness. First, on 12 June 2001, he signed a written agreement recording their arrangement with respect to repayment. The Knopes countersigned the agreement on 18 June. The agreement was as follows:
This agreement is made this 12th day of June 2001 between R Hallett Shueard … and Barbara and Bernard Knope …
In consideration of the past, current and future financial benefits which Mr Shueard has or will receive from Mr & Mrs Knope (or either of them) it is hereby agreed that Mr Shueard will do everything he can to a) repay all monies advanced or loaned to him by Mr & Mrs Knope on or after the date of this agreement and b) repay all accumulated arrears, together with interest at the agreed rate, which has or will arise before or after the date of this agreement. In particular Mr Shueard will immediately repay his indebtedness to Mr or Mrs Knope from the proceeds of any event which will place him in funds such as an inheritance, insurance claim, award of the Courts or any other source. If Mr Shueard does not repay his accumulated indebtedness in full on receipt of a lump sum from any source or in any event within twelve (12) months from the date of this agreement he will, from that date, repay Mr & Mrs Knope (or either of them) at the rate of 30 per cent of his net monthly income from all sources and that level of repayment will continue until the debt has been repaid in full.
It can be seen that, amongst other things, Mr Shueard agreed, in an unqualified way, to repay his indebtedness immediately from the proceeds of any insurance claim or award by a court.
Secondly, Mr Shueard instructed Mr Webster to provide an undertaking to the Knopes that he would pay a sum of money to them from the proceeds of his damages claims. On 13 June 2001, Mr Webster sent the following letter on the letterhead of FWA to the Knopes:
Dear Mr & Mrs Knope
Re: Our client: ROBERT HALLETT SHUEARD
We confirm that we act for Robert Hallet Shueard of 294 Seaview Road, Henley Beach in relation to his claim for damages arising out of his personal injury claims which have arisen as a result of two accidents in which our client was involved namely on the 18th April 1996 and 21st October 1996.
Our client has requested that we provide to you an Irrevocable Authority that upon resolution of our client’s claim either by way of Court proceedings or settlement that we are to repay to you from the proceeds of such claim after payment of all special damages, costs and disbursements relating to such claim a sum as agreed between Mr Shueard and Mr & Mrs Knope.
Should you require any further clarification concerning these matters or wish to make any amendment to the sum quoted herein do not hesitate to contact the writer.
We will be grateful if you would acknowledge receipt of this letter and return a copy of the same to us by signing where indicated on the bottom of the page.
Yours faithfully
FRANK WEBSTER & ASSOCIATES
(signed) F R WEBSTER
We acknowledge receipt of this letter and agree with the terms set out herein.
…………………………….. ……………………………..
Bernard Knope Barbara Knope
Dated Dated
Each of Mr and Mrs Knope signed the acknowledgment and agreement at the foot of the letter and returned the original to Mr Webster on the following day.
Two things may be noted at this stage about Mr Webster’s letter. First, it refers to Mr Shueard’s request that FWA provide the Knopes with “an Irrevocable Authority”. That involves some confusion in terminology, as there was no occasion for Mr Webster to be providing an irrevocable authority to the Knopes. Considered objectively, Mr Webster was instead conveying to the Knopes that Mr Shueard had provided an irrevocable authority to him in the terms set out. Implicit in that statement was an undertaking by Mr Webster that, because he had been so authorised, he would act in accordance with the authority which Mr Shueard had given. By his Defence at [4.2], Mr Shueard accepted that by the letter of 13 June 2001 Mr Webster had given an undertaking to the Knopes, although he disputed that the undertaking was enforceable or effective.
The second matter to note at this stage is that the undertaking is to “repay to you … a sum as agreed between Mr Shueard and Mr & Mrs Knope”. Mr Shueard submitted that an undertaking in these terms was uncertain and therefore unenforceable.
Shortly after June 2001, Mr Webster developed a serious medical condition requiring extensive treatment. This led initially to prolonged absences from work, then to him working on a part-time basis, and eventually to his retirement altogether from legal practice on 29 January 2004. During his absences from the practice, employed solicitors had the day to day conduct of Mr Shueard’s claims. From about September 2002, Mr Gluche was one such practitioner. Mr Webster also employed Mr Fairclough as a law clerk. Mr Fairclough has legal qualifications but was not entitled to practise as a legal practitioner at relevant times. He assisted from time to time in work relating to Mr Shueard’s claims.
As time went by, the Knopes became concerned at the delay in the finalisation of Mr Shueard’s claims. Mr Knope wrote to both Mr Shueard and to Mr Webster expressing that concern. On 3 September 2002, Mr Webster informed Mr Knope that he was unable to provide any information regarding Mr Shueard’s claim without a written authority from Mr Shueard permitting him to do so. Mr Shueard then signed a written authority which, on 6 September 2002, Mr Knope provided to Mr Webster. The authority was in the following terms:
Please accept this letter as my Irrevocable Authority to provide Mr and/or Mrs Knope with all and any information they may request at any time in connection with my claim(s) for injury, damages and costs arising from my accidents on 18th April 1996 and 21st October 1996.
For the avoidance of doubt this Authority extends to include any offers of settlement which I may decide to reject as well as any I decide to accept.
It is to be noted that Mr Shueard used the expression “Irrevocable Authority”. In his evidence, he acknowledged that he had understood at the time that he was promising not to revoke his authority.
Mr Webster then wrote a long letter dated 26 September 2002 to Mr Knope setting out the present stage which the two claims had reached and explaining some of the delays which had occurred. His letter included the following:
We confirm that we have been notified of your interest in these matters. Mr Shueard has instructed us to the effect that you have loaned monies to Mr Shueard and that an agreement exists between yourself and Mr Shueard to the effect that you are to be repaid your monies as a first priority from any compensation received by Mr Shueard in either of his two actions. A note to that effect is retained in our file and we will act upon that authority when the matters are concluded.
…
We trust that this letter provides you with the assurance and information that you seek. No doubt Mr Shueard will keep you informed of further developments as they occur.
(Emphasis added)
Mr Webster made no express reference in this letter to his letter of 13 June 2001. However, it was not suggested that Mr Shueard had given additional instructions for an undertaking to the Knopes, and in my opinion, Mr Webster should be understood as referring to the instructions given in June 2001.
The note on the file to which Mr Webster referred in the letter of 26 September 2002 was in the following terms:
Note
In relation to this matter, Hallett Shueard has entered into an agreement with Mr Knope of Port Vincent (see his letter on file (re: first accident) dated the 6th September 2002 and our response thereto).
Pursuant to the agreement, no monies are to be disbursed to anybody until Mr Knope has been paid.
This has been expressly authorised by Mr Shueard.
(Emphasis in the original)
The letter of 6 September 2002 and the response to which the note referred were respectively Mr Knope’s letter providing Mr Shueard’s authority, and Mr Webster’s letter to Mr Knope of 26 September 2002.
The final matter to note about Mr Webster’s letter of 26 September 2002 is his statement “we will act upon that authority when the matters are concluded”. Mr Webster submitted that this was a separate undertaking on his part to pay to the Knopes from the proceeds of Mr Shueard’s damages claims the sum owed by Mr Shueard to the Knopes or, alternatively, a contract by which he bound himself to make that payment. Mr Shueard disputed that characterisation.
The next significant event was Mr Webster’s retirement from legal practice on 29 January 2004. He entered into a written agreement with Mr Gluche for the transfer of his practice to him. For the purposes of this case, it is not necessary to attempt any legal characterisation of the agreement between Mr Webster and Mr Gluche. It is sufficient to note that the effect of the agreement was that Mr Webster retired from practice altogether; that Mr Gluche commenced trading under the name Frank Webster & Associates; that he occupied the premises formerly occupied by Mr Webster; that he employed the same staff; and took over the conduct of the matters on which Mr Webster had been retained before his retirement. Arrangements were made between Mr Webster and Mr Gluche for the latter to complete the work on those files, to recover the costs due to the firm in respect of that work, and then to account to Mr Webster in respect of the costs attributable to the work performed before 29 January 2004.
Mr Webster prepared a pro forma letter to be sent to his clients informing them of his retirement from practice, and that Mr Gluche would assume the role of principal of the firm of FWA. Mr Gluche sent the letter to the clients of the firm. Mr Shueard said that he had no recollection of receiving such a letter. Nevertheless, I am satisfied that Mr Shueard did receive such a letter, although he may not have attached much significance to it at the time given that, by 2003, very few of his dealings at the firm had been with Mr Webster.
However, Mr Webster did not send a copy of the letter to the Knopes and it seems that at material times they were unaware of his retirement from practice.
As noted earlier, the District Court entered consent judgments on Mr Shueard’s claims on 4 May 2004. The TIO, the insurer of Mr Coats, provided a cheque in the sum of $202,500 to FWA on or about 4 June 2004 and the Nominal Defendant provided a cheque of $67,500 on or about 21 June 2004. Each cheque was for the respective judgment sum less 10 per cent. That 10 per cent was paid to the Health Insurance Commission (HIC) under legislative arrangements by which the reimbursement to the HIC of any monies it had paid on account of treatment for Mr Shueard’s injuries was secured. Subsequently the HIC accepted that it was entitled to recover only $125.55 and it provided a cheque for the balance, made out to Mr Shueard, to FWA.
Regrettably, Mr Gluche did not act in accordance with Mr Webster’s previous undertakings in relation to the settlement proceeds, and Mr Shueard agreed to that course of action. It is necessary to make detailed findings as to the circumstances in which this occurred. In making these findings, it is appropriate to keep in mind that the Knopes did not give evidence at the trial. This is significant because they were important participants in a meeting on 17 June 2004 at the office of Mr Gluche.
The Meeting of 17 June 2004
When Mr Shueard gave instructions for the settlement of his damages claims on 23 April 2004, he acknowledged that after payment of the outstanding special damages, the amounts which the HIC was entitled to recover and his legal fees, he would receive “at least $190,000 in my pocket”. Mr Shueard had hoped for more. Mr Shueard’s disappointment with the amount which he was to receive is the probable explanation for some of his later conduct.
On 6 May 2004, Mr Fairclough had a telephone conversation with Mr Shueard. Mr Fairclough’s handwritten note of that conversation includes the following:
Explained that we have authority to release funds to Mr Knope. [Therefore] if any change to that, we need authority to be annulled. He to arrange [and] get it to us.
Neither Mr Fairclough nor Mr Shueard gave any oral evidence regarding this conversation, but there is no reason to doubt that the note records the effect of their discussion. The inference from the note is clear enough: Mr Fairclough reminded Mr Shueard of the authority requiring the payment of the settlement proceeds to the Knopes, and indicated that the firm would act on it unless the authority was “annulled”. Mr Shueard responded by saying that he would arrange such an annulment and would provide it to FWA. Thus it seems that from as early as 6 May 2004, Mr Shueard was contemplating resiling from his agreement with the Knopes.
Following the receipt from the TIO on 6 June 2004 of its cheque for $202,500, FWA banked it in the firm’s trust account. On 11 June 2004, Mr Gluche gave written instructions to a staff member to apply the monies in the trust account in payment of disbursements, outstanding special damages and in part payment of the costs of FWA. His memorandum to the staff member concluded as follows:
On my calculations that should mean that the client will receive a cheque of about $115,943.79.
When the payments have been attended to and the cheque drawn, please call the client to advise him that we have received part payment of the settlement sum and that there is a cheque ready for him and find out whether he wants to come in a collect it. You might want to advise him that on your reading of the letter I have prepared there are some documents that he has to sign and therefore he might want to come in to do that.
(Emphasis added)
The letter to which Mr Gluche referred was also dated 11 June 2004 but it appears that it was not provided to Mr Shueard until 18 June 2004. It was a long letter explaining the requirements of the HIC, that the cheque from the Nominal Defendant had not yet been received, and explaining that FWA was at that stage seeking part-payment only of its own costs. Mr Gluche’s letter then continued:
On that basis there will be enclosed herewith a cheque for the balance of the funds currently held in trust representing the first instalment of the monies payable to you.
Mr Gluche was not questioned about his state of mind when preparing his memorandum and letter of 11 June 2004. However, the emphasised passages seem to indicate that he had overlooked the authority given by Mr Shueard and the undertaking given to the Knopes, or that he considered that he was not bound by either. At that stage no “annulment” of the authority to which Mr Fairclough had referred on 6 May 2004 had been received by FWA.
By some means which the evidence did not disclose, Mr Shueard must have informed Mr Knope of the settlement of his claims. It can be inferred that Mr Knope then claimed an entitlement to the whole of the net proceeds. Mr Shueard acknowledged in evidence that at this time he expected that all of the net proceeds of about $190,000 would have to be paid to the Knopes under the Irrevocable Authority. He also acknowledged that he had agreed with Mr Knope at the same time that “the entire net proceeds from the personal injuries claims would go to him”. Regrettably, Mr Shueard’s word proved not to be his bond.
On 15 June 2004 Mr Shueard prepared, but did not send, a long letter to Mr Knope. The letter was in parts justificatory in tone, in other parts, an appeal to Mr Knope’s better nature, and, in other parts, contained indications that Mr Shueard wished to withdraw from his agreement that the Knopes should receive the whole of the net settlement proceeds. The letter included the following passage:
You plan to take all of the settlement as money owed to you with little consideration of what I have lost, ie, house, loss of wages. The bulk of your claim is for car expenses and director’s fees, even after I was unable to earn a high income for FCS due to my illness and operation. I feel this is unfair, as I could have easily folded FCS.
I have never wavered in my intention to repay you but I feel there should be consideration given to the difficult circumstances that I have been in (and still am due to the restraints that were placed on me) and that your claim has been ongoing, even at times of very little income.
…
I have advised the solicitors to deal directly with you.
On the following day, Mr Knope contacted Mr Fairclough by telephone. Mr Knope indicated that he was seeking payment of the settlement proceeds to which Mr Shueard was entitled and reminded Mr Fairclough of the undertaking which Mr Webster had given. He asked Mr Fairclough how much he was to receive and when he would receive it. Mr Fairclough arranged for him to attend at the office of FWA the following morning at 11 o’clock.
Without informing Mr Knope, Mr Fairclough then telephoned Mr Shueard and also arranged for him to attend at 11.00 am on the following day. Mr Fairclough’s recollection of this conversation was limited but I accept his evidence that he discussed with Mr Shueard in this telephone conversation the “transfer” of funds to the Knopes under what was described as a “third party authority”, and the fact that Mr Shueard was to pay to the Knopes “a significant sum of money”.
Both Mr and Mrs Knope attended at the office of FWA on 17 June 2004. It seems that they attended with the expectation that they would receive a cheque for the net proceeds of Mr Shueard’s damages claims. They were taken aback to find that, not only was that not occurring, but instead a meeting involving Messrs Shueard, Gluche and Fairclough was contemplated. From their perspective, it must have seemed that Mr Shueard was being represented in the meeting by two lawyers. Mr Knope expressed his concerns and it seems that some unpleasantness then occurred.
Messrs Gluche and Fairclough agreed to leave the office so that the Knopes and Mr Shueard could discuss matters privately. Before leaving the room, Mr Gluche told Mr Shueard that he and the Knopes had to agree the sum to be paid to the Knopes so that he (Mr Gluche) could draw the cheque.
At some stage, Mr Shueard handed to Mr Knope his letter of 15 June 2004. The evidence does not indicate whether the letter was handed to Mr Knope while Messrs Gluche and Fairclough were present or after they had left. Nor does the evidence indicate expressly whether Mr Knope read the letter at that time, but I think it probable that he did.
It is difficult to make precise findings about what occurred in the private meeting between Mr Shueard and the Knopes. I did not hear evidence from the Knopes, and Mr Shueard’s own evidence on this topic was not satisfactory. I considered his evidence generally to be marked by evasiveness and disingenuity.
I also consider that by this time Mr Shueard had come to realise that the provision in Mr Webster’s letter of 13 June 2001 that he would pay the Knopes “a sum as agreed between Mr Shueard and Mr and Mrs Knope” presented a means by which he could avoid having FWA act in accordance with their undertaking. It may be that Mr Shueard had been prompted to that view by Mr Gluche’s statement that he and the Knopes had to agree a figure before he (Mr Gluche) could prepare a cheque for the Knopes. It may also be the case that he was encouraged to some extent by other statements of Mr Gluche.
Mr Gluche freely acknowledged in his evidence that his understanding at the time about the effect of an irrevocable authority and of a solicitor’s undertaking was incomplete. In addition, he did not regard himself as bound by Mr Webster’s undertaking, thinking that only Mr Webster was so bound. In fact Mr Gluche thought at the time that it was proper for him to act in accordance with the instructions of Mr Shueard in June 2004, irrespective of the previous authority given by Mr Shueard to FWA.
In any event, Mr Shueard did not agree a figure with the Knopes and they, being upset, stormed out of the office of FWA.
Mr Shueard then informed Mr Gluche that he had not reached agreement with the Knopes as to the amount which was to be paid to them and asked for the net settlement proceeds to be paid directly to himself. Unfortunately, Mr Gluche did not tell Mr Shueard there and then that he could not act on those instructions. He did, however, tell Mr Shueard that he was not prepared to pay any monies to him directly unless he had written instructions to do so, together with an indemnity from Mr Shueard in respect of any liability which either he or Mr Webster might incur as a result of, and in accordance with, Mr Shueard’s present instructions. For reasons which are not clear, those instructions were not prepared immediately and arrangements were made for Mr Shueard to return the following day.
The Events of 18 June 2004
Mr Gluche then prepared written instructions for signature by Mr Shueard. On 18 June 2004, Mr Shueard came again to the office of FWA and spoke to Mr Fairclough, as Mr Gluche was absent from the office. The instructions were as follows:
INSTRUCTIONS
I, Robert Hallett Shueard, of 294 Seaview Road, Henley Beach SA 5022 hereby instruct my solicitors as follows:
· I refer to the letter to Mr Bernard and Mrs Barbara Knope dated the 16th (sic) June 2001 prepared on my instructions by my former solicitor, Frank Webster and to my instructions to Mr Webster that an agreement existed between myself and Mr and Mrs Knope that they were to be repaid monies owed to them as a first priority from any compensation I might receive in respect of claims handled on my behalf by Mr Webster.
· I have been unable to agree with Mr and Mrs Knope the amount payable to them and this is now the subject of negotiations between myself and Mr and Mrs Knope.
· Consequently, I hereby revoke absolutely and in its entirety any such instructions with regard to the payments to Mr and Mrs Knope.
· I confirm that as at 29th January 2004 Mr Frank Webster ceased to act for me whereupon I instructed Mr Ken Gluche and that I have [at] no time instructed Mr Gluche to make any payments to Mr and Mrs Knope.
· I hereby instruct Mr Gluche to pay to me the balance of monies held in trust on my behalf after payment of all outstanding costs and disbursements associated with the proceedings in respect of which such monies have been received.
· I hereby indemnify and undertake to keep indemnified both Mr Webster and Mr Gluche against all proceedings that might arise or costs that might be incurred as a consequence of complying with the instructions contained herein.
Dated this 18th day of June 2004
Signed by: ……………………….. (R H Shueard)
By these instructions, Mr Shueard purported to revoke his previous irrevocable authority, instructed Mr Gluche to pay the net settlement proceeds directly to him, and provided an indemnity to both Mr Webster and Mr Gluche in respect of any claims arising as a consequence of Mr Gluche complying with the new instructions.
Mr Fairclough then handed to Mr Shueard a trust account cheque in the sum of $115,755.79. This was an interim payment as FWA had not then received the cheque from the Nominal Defendant. Mr Shueard banked that cheque into (apparently) the account of FCS. On the same day Mr Shueard posted two cheques to Mr Knope drawn on the FCS account, one for $20,000 and one for $77,520. He used the balance of the interim payment to discharge liabilities to other creditors.
The Second Payment
FWA received the cheque from the Nominal Defendant for $67,500 on 21 June 2004 and on 14 July 2004 it made a second payment from its trust account to Mr Shueard. The amount of this payment was $44,633.31.
Later, FWA handed directly to Mr Shueard the cheque from the HIC in the sum of $29,874.45, being the balance of the monies which had been paid to the HIC by TIO and the Nominal Defendant to secure its entitlement to reimbursement. Accordingly, Mr Shueard had paid to him directly a total of $190,263.55 from the settlement proceeds. It seems that Mr Shueard must have received a further $113.20 (perhaps in reimbursement of a medical expense previously paid by him) because he informed Mr Knope on 8 August 2004 that he had received payments totalling $190,376.75.
I note that FWA could have banked the HIC cheque made payable to Mr Shueard into its own trust account, as Mr Shueard had previously given an authority to that effect.
Subsequent Events
On 8 August 2004, Mr Shueard provided a further cheque in the sum of $15,000 to the Knopes. This was the last payment which the Knopes received from Mr Shueard. In all Mr Shueard paid the Knopes $112,520.00 from his settlement proceeds. This was $77,856.85 less than the amount which the Knopes would have received if they had been paid the full amount of Mr Shueard’s net settlement proceeds.
On 17 August 2006, the Knopes commenced proceedings in the District Court against Mr Webster in respect of his breach of undertaking. Some 13 months later, Mr Webster filed a third party notice against Mr Shueard. However, Mr Shueard took no part in the Knopes’ claim against Mr Webster.
On 4 May 2009, and after the transfer of the proceedings to this Court, Mr Webster consented to judgment in favour of the Knopes in the sum of $102,356.16 (comprising the principal sum of $77,856.85 and interest of $24,499.31).
Mr Webster now seeks to recover that sum of $102,356.16 from Mr Shueard together with the costs which he incurred in defending the claim by the Knopes.
Mr Shueard counterclaims, contending that FWA had failed to advise him properly in relation to the irrevocable authorities and his purported revocation of those authorities, and that it had breached a duty owed to him by accepting the indemnity contained in the instructions of 18 June 2004 without ensuring that he had first obtained independent advice.
The Undertakings of 13 June 2001 and 20 September 2002
As I indicated at the commencement of these reasons, courts will insist upon the performance of personal undertakings given by lawyers in the course of their professional practice. The enforceability of such undertakings is independent of any obligations arising by statute, contract or equity. It is a jurisdiction which is exercised, not to enforce legal rights, but to enforce honourable conduct by the Court’s own officers.[1] Nicholls LJ stated the relevant proposition in John Fox v Bannister, King & Rigbeys:
As officers of the court solicitors are expected to abide by undertakings given by them professionally, and if they do not do so they may be called upon summarily to make good their defaults … Where a solicitor, directly or indirectly, still has it in his power to do the act which he undertook to do, the court may order him to do that act. Where the solicitor does not have it in his power, he may be ordered to make good the loss flowing from his failure to perform the undertaking, as loss flowing from a breach of duty committed by a solicitor as an officer of the court. …[2]
(Citations omitted)
[1] In re Grey [1892] 2 QB 440 at 443; John Fox v Bannister, King & Rigbeys [1988] 1 QB 925 at 928.
[2] [1988] 1 QB 925 at 928.
In their claim against Mr Webster, the Knopes relied on only one undertaking, namely, that given in the letter of 13 June 2001. However, in his claim against Mr Shueard, Mr Webster contends that each of his letters to the Knopes of 13 June 2001 and 26 September 2002 contained a separate undertaking. Although Mr Shueard disputed that characterisation I am inclined to think that Mr Webster’s contention is correct, but even if he gave a single undertaking only, the two letters should be read together for the purpose of identifying the nature and extent of that undertaking.
For the reasons given earlier, by the letter of 13 June 2001 Mr Webster conveyed to the Knopes the fact of his receipt from Mr Shueard of an irrevocable authority and indicated to the Knopes implicitly that he would act in accordance with that authority, at least to the extent that he was not prohibited by law from doing so.
The letter of 13 June 2001 refers only obliquely to Mr Shueard’s indebtedness to the Knopes, ie, in Mr Webster’s statement that he has authority from Mr Shueard “to repay to you” an amount from the settlement proceeds. Otherwise, the letter does not refer to any indebtedness. As will be seen, I consider that the use of the word “repay” is important in relation to the submission that the reference to a sum to be agreed made the undertaking unenforceable.
In my opinion, Mr Webster’s letter of 13 June 2001 should be construed as a personal undertaking of Mr Webster. He spoke of the irrevocable authority that “we” are to repay you the sum described in the letter. The undertaking was given in Mr Webster’s capacity as a solicitor because it was in that capacity that he expected to receive Mr Shueard’s settlement monies and to deposit them in the trust account of FWA.[3] It was therefore only FWA which could give effect to the undertaking. That being so, it is not realistic, in my opinion, to construe the letter of 13 June 2001 as an undertaking given on behalf of Mr Shueard.
[3] See Geoffrey Silver & Drake v Baines [1971] 1 QB 396 at 402.
The letter of 26 September 2002 refers expressly to the Knopes’ loans to Mr Shueard and to the agreement between Mr Shueard and the Knopes as to the manner of repayment. Mr Webster assured the Knopes in a formal way that he would act in accordance with the authority given to him by Mr Shueard.
The personal nature of the undertaking contained in the letter of 26 September 2002 is indicated by Mr Webster’s statement that a note recording Mr Shueard’s agreement is retained in “our” file and that “we” will act upon that authority when the matters are concluded. This statement draws some of its colour as an undertaking from the letter of 13 June 2001 as Mr Shueard had not given separate instructions for the letter of 26 September 2002.
I also note that Mr Webster did not use any form of the words commonly used by solicitors who wish to indicate that an undertaking is provided on behalf of a client and is not a personal undertaking: for example, a statement that the undertaking is given as solicitor and agent for the client and not in a personal capacity, or a statement to the effect that it was Mr Shueard who was giving the undertaking.
In summary, I conclude that Mr Webster gave two personal undertakings to the Knopes in the course of his professional practice. Subject to the issue of certainty, to which I will turn shortly, he was bound by both undertakings.
I am also satisfied that Mr Webster gave the undertakings to the Knopes at the request of Mr Shueard for the purpose of securing a benefit for Mr Shueard, ie, relief from the prospect that the Knopes would take steps to enforce payment by Mr Shueard.
The effect on an undertaking given by a lawyer of the lawyer’s retirement from practice, or of a change of lawyer by the client, seems to have received relatively little attention in the authorities. The general principle, however, is that, except by operation of its own terms, an undertaking cannot be discharged except by performance, impossibility of performance,[4] release by the person in whose favour the undertaking was given, or by order of the Court.[5] Therefore, to the extent that an undertaking is capable of performance after a retirement or change of solicitor, the solicitor giving it remains bound.[6]
[4] Udall v Capri Lighting [1988] QB 907 at 910.
[5] Australian Securities Commission v Ampolex Ltd (1995) 38 NSLWR 504 at 521-2; Royal Bank of Queensland Ltd v Ryan (1897) 8 QLJ 97 at 98-9.
[6] Williams v Williams (1910) 54 Sol Jo 506.
In the present case, Mr Webster’s retirement from practice occurred before the time for performance of his undertakings arose. There is a sense in which the performance of his undertakings became impossible following that retirement. However, although perhaps forced on Mr Webster by his illness, the retirement was a voluntary act by Mr Webster, evidenced by the arrangements which he made with Mr Gluche. That is to say, it was Mr Webster’s own action, and not some external factor, which made the performance of his undertakings impossible. In accordance with general principle, it was not open to Mr Webster, by his own unilateral action, to terminate the undertakings in that way.
That does not mean that the existence of the undertakings required Mr Webster to continue in practice until the conclusion of Mr Shueard’s claims. A number of alternatives were available to him. In the first place, he could have taken steps to procure from Messrs Gluche and Shueard a fresh undertaking to the Knopes and secured their agreement to accept that fresh undertaking in lieu of his own. Alternatively, he could have secured from Mr Gluche an undertaking or some other binding commitment to honour his own undertaking. Alternatively again, he could have sought a Court order which, if granted, would no doubt have been on terms protecting the position of the Knopes.
Mr Webster did not adopt either the first or third of these alternatives. Nor, at least in express terms, did he adopt the second. It is possible that his agreement with Mr Gluche by which Mr Gluche was, in effect, to take over his practice, contained an implied term that Mr Gluche would honour the liabilities and obligations which Mr Webster had incurred to his clients, to his clients’ creditors, and to third parties in the course of his practice. However, Mr Webster did not advance a claim to this effect and did not, by way of third party proceedings against Mr Gluche, seek any recovery from him in respect of breach of such a term.
What can be concluded is that Mr Webster was in a position at the time of his retirement from practice to have taken steps to ensure that his undertakings to the Knopes were honoured, and that he failed to do so.
The statement of claim of the Knopes against Mr Webster made it plain that they invoked, amongst other things, the Court’s special jurisdiction with respect to the enforcement of undertakings. It was the first of several “causes of action” which they pleaded.
At the commencement of the hearing of the third party action against Mr Shueard, counsel for Mr Webster indicated that his consent to judgment in favour of the Knopes was, at least in part, a recognition of the Court’s ability to enforce the undertaking by making an order that he compensate the Knopes for their loss arising from his non‑compliance. However, in his final submissions, counsel withdrew that acknowledgement. It seems that he did so because Mr Webster was not prepared to acknowledge in this trial that his non‑compliance with his undertakings amounted to the kind of misconduct which would have attracted the Court’s jurisdiction to make a compensatory order. I note in passing that it may not have been necessary for Mr Webster to acknowledge moral wrongdoing on his part for this purpose. The reasons of Hamilton J in United Mining & Finance Corporation Ltd v Becher indicate the position:
The conduct which is required of solicitors is to this extent perhaps raised to a higher standard than the conduct required of ordinary men, in that it is subject to the special control which a Court exercises over officers so that in certain cases they may be called upon summarily to perform their undertakings, even where the contention that they are not liable to perform them is entirely free from any taint of moral misconduct.[7]
Mr Webster’s disclaimer of reliance on his undertakings in the claim which he now makes against Mr Shueard does not make these undertakings immaterial. On the contrary, they remain important in understanding the liability which the Knopes asserted against Mr Webster, and the liability which, on 4 May 2009, Mr Webster accepted that he had to the Knopes.
[7] [1910] 2 KB 296 at 305.
The Express Indemnity
In his claim for recovery, Mr Webster relied first on the express indemnity contained in Mr Shueard’s instructions of 18 June. As already seen, by these instructions, Mr Shueard bound himself to indemnify “both Mr Webster and Mr Gluche against all proceedings that might arise or costs that might be incurred as a consequence of complying with [his] instructions”.
It may have been said that, as there was no privity of contract between Messrs Webster and Shueard in relation to the instructions of 18 June, it is not open to Mr Webster to seek the enforcement of the indemnity. However, Mr Shueard did not raise this in opposition to Mr Webster’s claim. Counsel for Mr Shueard may well have considered that Mr Webster’s claim falls within the principles discussed in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd.[8]
[8] (1988) 165 CLR 107.
It is plain enough that Mr Shueard provided the indemnity in respect of the possible consequences to Messrs Gluche and Webster in respect of the purported revocation of his previous irrevocable authority and of his instructions that the net settlement proceeds should be paid to him.
Counsel for Mr Shueard raised a number of matters by way of defence to Mr Webster’s claim for indemnity. However, I did not understand him to contend that if these defences failed, Mr Webster’s present claim did not otherwise come within the terms of the indemnity provided by Mr Shueard on 18 June 2004. I will discuss in turn the “defences” raised by Mr Shueard.
Did Mr Shueard Give an Irrevocable Authority to Mr Webster?
Mr Shueard claimed that in June 2001 he was not familiar with the expression “irrevocable authority” and that he had not received any advice, including from Mr Webster, as to the effect of such an authority. I do not accept that evidence. It was one of many aspects of Mr Shueard’s evidence which had an air of disingenuity about it; it is inconsistent with Mr Shueard’s evident intelligence and education; it is inconsistent with his acknowledgment that Mr Knope had asked him to give an authority to Mr Webster which could not be revoked so that there would be no problem about them receiving monies from his damages claims; and it is inconsistent with Mr Webster’s evidence (which I accept) that he had told Mr Shueard that the effect of the authority would be that he (Mr Shueard) would not be able to withdraw it.
The expression has, in any event, a reasonably straightforward meaning. I note again that Mr Shueard himself used the expression in September 2002 when authorising Mr Webster to provide Mr Knope with such information as he requested regarding the progress of his [Mr Shueard’s] claims.
I am satisfied that Mr Shueard knew that, by giving Mr Webster an irrevocable authority, he was committing himself not to revoke the authority, and that he intended that Mr Webster should give an undertaking to the Knopes in accordance with that authority. Insofar as Mr Shueard’s counterclaim rests on an alleged failure by Mr Webster to give him advice about the effect of an irrevocable authority, it fails.
Did Mr Shueard Read the Written Instructions before Signing them?
In his cross‑examination, Mr Shueard asserted that he had not read the typed instructions of 18 June 2004 before signing them. He said that he attended the office of FWA at Mr Fairclough’s request, and that he was handed the document and told to sign it so that he could be given the interim payment. Mr Shueard was adamant that he had not read the document, that he had a clear recollection to that effect, and that he was sure that if he had read the document he would not have granted the indemnity.
Mr Shueard considered that his claimed ignorance of the true nature of the document to which he put his signature precluded Mr Webster from relying on it. For the reasons which follow, that view of the matter is mistaken.
First, I reject Mr Shueard’s evidence on this topic. It is yet another aspect of Mr Shueard’s evidence which was unimpressive, implausible and contradicted by other evidence.
Mr Fairclough’s evidence-in-chief was that he had handed the typed instructions to Mr Shueard, that he had asked Mr Shueard to read them, that he observed him appearing to do so, and that he did not observe anything to indicate that Mr Shueard was unable to read the document. That evidence was not challenged in the cross‑examination of Mr Fairclough.
I also note that Mr Fairclough’s contemporaneous file note of his attendance on Mr Shueard on 18 June 2004 includes “H.S. reading and signing authority”. Mr Fairclough confirmed that the “authority” to which the file note referred were the written instructions of 18 June 2004. There is no reason to doubt the reliability of Mr Fairclough’s file note.
Much of Mr Shueard’s evidence‑in‑chief was in affidavit form (Exhibit D 11). In relation to the meeting on 18 June 2004, Mr Shueard deposed:
[62]I attended at the offices of Frank Webster & Associates again on 18 June 2004. At that time Linden Fairclough presented me with a piece of paper which he asked me to read and sign.
(Emphasis added)
Although Mr Shueard went on to depose that he had not received any explanation of the purpose or content of the document, he did not make any claim in his affidavit that, despite Mr Fairclough’s request, he had not read the instructions.
Mr Shueard’s adamant denials in his cross‑examination also contrast with his evidence‑in‑chief on the topic:
QDid you read it?
AIt doesn’t appear that I did. I say that in the sense that I had no understanding of what the document was, I was quite surprised when it was brought to my notice at a later date, it was not explained to me in any way whatsoever, I was just told to “sign it you will get your cheque”.
(Emphasis added)
This was a much more equivocal response than Mr Shueard gave in cross‑examination.
Mr Shueard also denied that he had received any advice from Messrs Gluche or Fairclough in respect of the written instructions and, in particular, in relation to the indemnity. He claimed that it was an implied term of his contract of retainer with FWA that the firm would advise him as to the effect of the written instructions of 18 June 2004 and that it had not done so.
The parties directed relatively few submissions to the implied term asserted by Mr Shueard, but I am willing to accept that Mr Shueard’s retainer, whether with Mr Webster or Mr Gluche, did contain such a term. However, I reject Mr Shueard’s claim that he did not receive any advice with respect to the effect of the written instructions and his claim that the implied term was breached.
The evidence which I accept indicates that the subject matter of the written instructions was discussed in some detail between Messrs Gluche and Shueard on the previous day, after the Knopes had left the office of FWA when Mr Shueard had instructed Mr Gluche to pay the whole of the net settlement proceeds to him.
Mr Fairclough gave evidence that a lengthy discussion occurred between Messrs Gluche and Shueard at that time. He said that, amongst other things, Mr Gluche pointed out to Mr Shueard that he had on his file the authority given in June 2011 and that Mr Gluche expressed concern that if the Knopes did not receive any payment, they may take action, not only against Mr Shueard, but also against FWA. In the course of that discussion, Mr Gluche explained to Mr Shueard that before acting on the instructions to pay the whole of the net settlement proceeds to him, it would be necessary for Mr Shueard to provide signed instructions to FWA and to provide an indemnity to the firm.
Mr Fairclough also said that Mr Gluche discussed with Mr Shueard the elements of the written instructions and indemnity which he would require and concluded by saying that he would have a document prepared incorporating those instructions and the indemnity. Although Mr Fairclough did not say this expressly, I infer that Mr Gluche only said that he would proceed in that way after Mr Shueard had confirmed the instructions, and indicated his willingness to provide the indemnity. In his cross‑examination Mr Fairclough confirmed that Mr Gluche had expressed his concern that Mr Shueard may be exposing himself to legal action by the Knopes and, further, that he may be exposing FWA to legal action by the Knopes.
Mr Fairclough also seemed to think that Mr Gluche had dictated a draft of the written instructions in the presence of Mr Shueard. Although Mr Gluche did not have an exact recollection, he did not think that the document had been prepared during the course of his discussion with Mr Shueard. I consider that Mr Gluche is more likely to be correct about this. Otherwise, it is likely that Mr Shueard would have been invited to wait while the instructions were typed.
Mr Gluche acknowledged that Mr Shueard had not been provided with any advice concerning the content and effect of the written instructions after it had been prepared and that he had not explained to Mr Shueard what the word “indemnified” means. However, he said that when Mr Shueard instructed him to pay the net settlement proceeds directly to himself, he raised concerns with Mr Shueard about that course of action and said that he would need instructions in writing to that effect. Later, he said that he explained to Mr Shueard the “gist” of what he required in order to act on his instructions, although his evidence on this topic was in somewhat general terms:
I don’t recall what I wanted other than in general terms to say that I needed confirmation that Mr Shueard had provided those instructions to pay the monies to him and an acknowledgement that if there [were] any issues that arose by reason of the fact that Mr & Mrs Knope weren’t paid any funds that [we] were, to put it colloquially, covered.
(Emphasis added)
I accept the evidence of Messrs Fairclough and Gluche on these topics. It is plausible evidence, and there was nothing in the manner in which it was given which causes me to doubt its reliability. I consider it quite improbable that Mr Gluche would have included the indemnity provision in the written instructions without any prior discussion with Mr Shueard as to its purpose and effect. That is particularly so having regard to the fact that he was not to be present when Mr Shueard attended at the office of FWA to sign the instructions. Mr Gluche well knew that Mr Fairclough could not lawfully provide advice regarding the document to Mr Shueard. To my mind this makes it improbable that the provision of an indemnity was something which occurred to Mr Gluche only after Mr Shueard had left the office of FWA on 17 June.
In any event, save for one matter to which I will turn shortly, the question of whether Mr Shueard read or understood the written instructions before signing them on 18 June 2004 is immaterial. On the objective theory of contract, he is bound by his signature.[9]
[9] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 at [40]; (2004) 219 CLR 165 at 179.
Accordingly the plea made by Mr Shueard in [30.6] of his Defence that his lack of knowledge and intention in signing the document precludes Mr Webster relying on the indemnity, cannot be sustained.
I will address later in these reasons the issues raised by Mr Shueard’s counterclaim.
Was Mr Webster Liable to the Knopes?
Mr Shueard’s next ground of defence was that Mr Webster was not in any event liable to the Knopes and that he had unnecessarily consented to judgment in their favour. This contention was put on different bases.
A Condition Precedent?
Mr Shueard submitted that the undertakings given by Mr Webster to the Knopes were subject to a condition precedent that the net proceeds of Mr Shueard’s damages claims would be sufficient to discharge wholly Mr Shueard’s debt to the Knopes. As the net proceeds were less than his indebtedness, the undertakings never became operative.
For this submission, counsel focussed on the word “repay” in the letter of 13 June 2001. He submitted that the use of the word “repay” implied repayment of the debt in full, because one does not repay a debt by making a payment of a lesser amount. Accordingly, so the submission ran, if the net settlement proceeds were insufficient to repay the total amount of Mr Shueard’s debt to the Knopes, the implied condition precedent was not satisfied.
I do not accept this contention. The word “repay” used in the letter of 13 June 2001 can also be understood as meaning “repayment of such sum as is available to extinguish or reduce your debt”. That is a sensible understanding of the word. In my respectful opinion, the construction for which Mr Shueard contended is not sensible. There is no reason to suppose that any one of the parties contemplated that the Knopes should receive no payment at all in the event that Mr Shueard’s damages claims were insufficient to discharge his debt.
Are the Undertakings Uncertain or Subject to Further Agreement?
Mr Shueard’s second and more substantive submission was that the undertakings given by Mr Webster were so uncertain as to be incapable of enforcement or, alternatively, subject to a further agreement between Mr Shueard and the Knopes which had never been achieved. For this submission, counsel focussed on the words “we are to repay to you … a sum as agreed between Mr Shueard and Mr and Mrs Knope” in the undertaking of 13 June 2001.
Counsel referred to authorities emphasising the importance of solicitors’ undertakings being clear and unambiguous: Australian Guarantee Corporation (NZ) Ltd v East Brewster Urquhart & Partners;[10] National Westminster Finance New Zealand Ltd v Bryant.[11] However, the authorities also indicate that undertakings, like contractual documents, are to be construed in their commercial context, as intended to facilitate the completion of commercial dealings, and by reference to their substance and intention, rather than technicality.[12]
[10] [1990] 2 NZLR 167 at 171.
[11] [1989] 1 NZLR 513.
[12] Re McDougall’s Application [1982] 1 NZLR 141.
The Court received, without any objection from Mr Shueard, documents showing the origin of the undertaking of 13 June 2001. When Mr Webster was first instructed by Mr Shueard to provide an irrevocable undertaking to the Knopes, he prepared a draft dated 6 June 2001 which he sent to the Knopes on 7 June 2001. That draft was in identical terms to the undertaking of 13 June 2001, save only that, instead of the words “a sum as agreed between Mr Shueard and Mr and Mrs Knope”, it had the words “ the sum of $ ” with a space left for a figure to be inserted. Mr Webster had been instructed by Mr Shueard to prepare the draft in that way in the expectation that the Knopes would calculate the amount of his indebtedness and insert it into the draft.
However, instead of inserting a figure, Mr Knope wrote in his own handwriting the words “a sum as agreed between Mr Shueard and Mr and Mrs Knope”. He and his wife initialled this handwritten change and sent it by facsimile to FWA. Mr Webster then had the draft re‑engrossed with those words. In doing so it seems that Mr Webster overlooked the reference to “the sum quoted herein” in the immediately following paragraph.
It is reasonable to infer (and I do so infer) that the Knopes did not wish to nominate a particular sum because of the accruing nature of Mr Shueard’s liability to them. They appreciated that, as time went by, Mr Shueard’s liability would increase and they wished to have security in respect of that increasing sum, and not just with respect to the amount of the indebtedness as at June 2001. That is part of the factual matrix in which the letter of 13 June 2001 is to be construed.
Another important element of that factual matrix is the written agreement made between the Knopes and Mr Shueard more or less contemporaneously with the preparation of the undertaking. By that agreement Mr Shueard bound himself to pay immediately to the Knopes the whole of his indebtedness including the accrued interest. It is true that the undertaking of 13 June 2001 refers only obliquely to Mr Shueard’s indebtedness to the Knopes. However, Mr Webster’s use of the word “repay” is a clear indication, in my opinion, that the amount to be paid to the Knopes was to be fixed by reference to Mr Shueard’s indebtedness to them.
On this understanding, the undertaking of 13 June 2001 can be understood as a statement by Mr Webster that he would pay to the Knopes from the net settlement proceeds the amount of Mr Shueard’s indebtedness to them, with that amount being fixed by agreement between Mr Shueard and the Knopes. Put slightly differently, the emphasis was on the payment of Mr Shueard’s indebtedness and not on that sum which Mr Shueard and the Knopes may happen to agree should be repaid.
In my opinion, this is a reasonable construction of the words used. The construction for which Mr Shueard contends is not reasonable as it involves a conclusion that the Knopes moved from the certainty of a fixed and identified sum to an undertaking which was altogether uncertain.
Further, and in any event, the undertaking of 26 September 2002 is not qualified in the way for which Mr Shueard contended. By that undertaking Mr Webster assured the Knopes that they would be “repaid your monies” as a first priority. That is plainly a reference to Mr Shueard’s indebtedness to the Knopes, rather than some other sum which they may or may not be able to agree with Mr Shueard.
Accordingly, I reject Mr Shueard’s claim that the undertakings were too uncertain, or that their operation was entirely dependent upon he and the Knopes reaching agreement as to the amount to be repaid. That was really a matter of arithmetical computation only.
Liability to the Knopes in Contract
Given the personal nature of Mr Webster’s undertakings, there is no difficulty in regarding them as, objectively, giving rise to a contractual relationship between him and the Knopes. The Knopes’ forbearing from taking enforcement action against Mr Shueard was good consideration. It is perhaps obvious that implicit in this forbearance was the fact that, in the event that the proceeds of Mr Shueard’s damages were insufficient to fully discharge his indebtedness, the Knopes would remain entitled to recover the balance of the debt owed to them from Mr Shueard. No submission was advanced by Mr Shueard suggesting that the Knopes had agreed to nothing more than that to which they were already entitled. As such, I do not consider it necessary to address this issue. In effect, Mr Webster contractually bound himself to make repayment of Mr Shueard’s indebtedness from the net settlement proceeds.
The contract between Mr Webster and the Knopes meant that he could not, by the action of retiring from practice, avoid his liability to the Knopes. The contract was not, in other words, subject to a condition precedent of Mr Webster continuing to act for Mr Shueard at the time of receipt of the settlement proceeds. Instead, the contract should be understood as containing implied terms to the effect that if Mr Webster decided voluntarily to retire from practice, and to pass the conduct of Mr Shueard’s claims to someone who was, in effect, to stand in his shoes, he would ensure compliance with his undertakings. At the very least, the contract contained an implied term that Mr Webster would inform the Knopes of his impending retirement in sufficient time for them to take steps to protect their position.
For the reasons already given, Mr Webster was in breach of these terms.
It may be said that the damages which may be awarded for the breach of terms of this kind are not necessarily equivalent to the difference between the amount which the Knopes did receive, on the one hand, and the amount which they would have received if Mr Webster had complied with his undertakings, on the other. That is because account may have to be taken of the steps available to the Knopes in the postulated circumstances and of what it was they lost by being deprived of the opportunity to take those steps.
However, this matter did not receive attention in the parties’ submissions. In these circumstances, I think it preferable to proceed on the basis that the Knopes would have been able to safeguard their position to the full extent of their entitlement.
An Equitable Assignment?
In Australian Commissions Credit Union Ltd v Howard & Co,[13] Cox J discussed the effect of an irrevocable authority to a solicitor of a generally similar kind to that given by Mr Shueard. Cox J was prepared to construe the authority as giving rise to an equitable assignment of future property, and dealt with the creditor’s claim on that basis.
[13] (1984) 114 LSJS 465.
The parties in this case did not refer to the decision in Australian Commissions Credit Union Ltd v Howard & Co or to the possible effect of Mr Shueard’s authority to Mr Webster as an equitable assignment. In these circumstances, it is preferable not to rest this decision on such a characterisation.
Conclusion on Mr Webster’s Liability to the Knopes
For these reasons, I reject Mr Shueard’s claim that Mr Webster was not liable to the Knopes and find that he is obliged to honour the express indemnity to Mr Webster which he gave in his instructions of 18 June 2004.
Other Bases of Liability
Counsel for Mr Webster put forward alternative bases upon which Mr Shueard was liable to Mr Webster. These included an implied undertaking to indemnify arising from the irrevocable authority which Mr Shueard gave to Mr Webster, the right of agents to be reimbursed in respect of losses incurred by them carrying out the terms of their agency, and restitutionary remedies.
However, given that I consider Mr Shueard to be liable on his express indemnity, it is not necessary to consider these alternative bases in any detail. There are obvious difficulties with some of the alternative bases arising from the fact that Mr Webster’s present claim arises not from his performance of his undertaking, but from his non‑compliance. However, in the view that I take of the matter, it is not necessary to address these difficulties.
The Amount for which Mr Shueard is liable
Mr Shueard contended that in the event that he is liable to Mr Webster, it should not be for the full amount of $102,356.16 which is claimed. He claims that, in accordance with established principle, it is for Mr Webster to show the reasonableness of the consent judgment entered in favour of the Knopes on 4 May 2009,[14] and that Mr Webster has not done so.
[14] Saccardo Constructions Pty Ltd v Gammon (No 2) (1994) 63 SASR 333 at 335 per King CJ and at 343 per Perry J; Saccardo Constructions Pty Ltd v Gammon (1991) 56 SASR 552 at 554 per Mohr J and at 560 per Zelling AJ.
The consent judgment of $102,356.16 was expressed to comprise the principal sum of $77,856.85 and agreed interest in the sum of $24,499.31. The principal sum was the difference between the aggregate amount which the Knopes received directly from Mr Shueard and the amount which they would have received had there been compliance with Mr Webster’s undertaking. On the basis of my findings, it was reasonable for Mr Webster to acknowledge his liability for that sum.
The sum of $24,499.31 paid for interest stands in a different position. Mr Shueard contends that Mr Webster delayed unduly in reaching the settlement with the Knopes. In my opinion, there is force in this submission.
The Knopes commenced their proceedings against Mr Webster on 17 August 2006. The matter proceeded in the District Court until 11 September 2008 when it was transferred to this Court. In the District Court, time was taken up with applications for discovery and non‑party discovery and there were other delays which are not explained by the evidence received in this trial. In October 2008, following the transfer to this Court, Mr Webster took action to have Mr Shueard joined as a third party. I accept that there may have been a period during which Mr Webster may have been uncertain about the nature and strength of the claim which the Knopes brought against him, given his retirement from practice and his lack of ready access to Mr Gluche’s file concerning Mr Shueard. However, on 30 October 2008, the parties filed the certificate of readiness for trial and it is reasonable to conclude that, by that date, Mr Webster should have been able to assess the nature and strength of the claim of the Knopes. That was more than two years after they had commenced the proceedings. He did not, at that stage, move to compromise the claim of the Knopes.
Further, on 20 November 2008, the Knopes filed a formal offer of settlement under r 41.01(1) of the Supreme Court Rules (1987) SA. They indicated their willingness to settle the action for the sum of $94,000 in addition to costs. Mr Webster did not accept that offer.
On the basis of my findings, it was unreasonable of him to have failed to accept that offer. Instead, Mr Webster did not compromise the matter with the Knopes until, in effect, the eve of the commencement of the trial of the Knopes’ claim against him in this Court. By that time, the Knopes had incurred additional interest and Mr Webster had incurred additional costs in defending the action. Mr Webster did not adduce any evidence indicating that his delay in this respect was reasonable.
I am not prepared to find that Mr Webster’s conduct in defending the action before November 2008 was unreasonable. Mr Webster’s position was difficult. As a result of his retirement from practice, he had to take steps by way of discovery and non‑party discovery to ascertain what had occurred. It was also reasonable for him to explore the pursuit of third party proceedings against Mr Shueard before reaching the settlement.
I conclude that Mr Webster acted unreasonably in not accepting the Knopes’ filed offer. In his claim against Mr Shueard he should accordingly be confined to recovering the sum of $94,000 for which he would have been liable had he accepted the Knopes’ filed offer.
For these reasons I conclude that Mr Webster is entitled to recover from Mr Shueard the sum of $94,000 together with the reasonable costs which he incurred in defending the claim of the Knopes to 31 December 2008. I have fixed that date as the end point of a reasonable period in which Mr Webster should have considered and acted upon the Knopes’ filed offer.
During the course of the trial Mr Webster abandoned any claim for recovery from Mr Shueard of the costs incurred by the Knopes for which he is liable.
Mr Shueard’s Counterclaim
In his counterclaim, Mr Shueard claimed that by having him provide the indemnity in the instructions signed on 18 June 2004, Mr Gluche had created a conflict of interest between him as client, on the one hand, and Messrs Gluche and Webster as his solicitors, on the other. He submitted that this conflict gave rise to a duty on the part of Mr Gluche to advise him to seek independent legal advice about the provision of the indemnity, which duty had been breached.
I do not accept this contention. There are of course circumstances in which the fiduciary relationship between a solicitor and client precludes the solicitor from entering into arrangements with the client which provide benefits to the solicitor and detriments to the client unless the client has been fully informed on all aspects of the arrangements and advised to obtain independent advice concerning it. The relevant principle is stated in Law Society of New South Wales v Harvey.[15] Circumstances attracting the principle usually arise in relation to arrangements which are outside the usual incidents of the solicitor-client relationship as, for example, in arrangements which are solely for the personal interest or benefit of the solicitor.
[15] [1976] 2 NSWLR 154 at 170-1.
In my opinion, the indemnity which Mr Gluche sought from Mr Shueard is not in that category. It is an ordinary incident of the relationship of principal and agent that the principal will reimburse the agent for losses and expenses which the agent incurs in performance of the agency.[16] An analogous approach is warranted in the present case. Mr Shueard had purported to revoke his irrevocable authority. He did so despite the agreement which he had made with the Knopes. He wished his solicitors to act in accordance with his revised instructions. The solicitors’ request, in those circumstances, for an express indemnity from him before doing so did not create a conflict of the kind which required them not to accept the indemnity until Mr Shueard had been independently advised. This was not a case of Mr Gluche simply preferring his own interests at the expense of Mr Shueard or of him abusing a position of trust.
[16] Brook’s Wharf and Bull Wharf Ltd v Goodman Bros [1937] 1 KB 534 at 537.
Further, and in any event, on my findings, Mr Shueard knew that he was breaching the agreement with the Knopes. It must have been obvious that that breach could give rise to claims by the Knopes. Mr Shueard hardly needed legal advice to know of that possibility. Nor, in my opinion, did he need legal advice to understand that FWA required protection for themselves in relation to such action which may be brought against them by the Knopes in consequence of acting on his instructions.
There is a further reason why Mr Shueard’s counterclaim in relation to the alleged omissions of FWA in June 2004 must fail. Mr Shueard brings that counterclaim not against Mr Webster, who makes the claim against him, but against FWA. Mr Webster ceased to practice under the name of Frank Webster and Associates on 29 January 2004. Thereafter Mr Shueard’s retainer was with Mr Gluche. Accordingly Mr Webster could not, in any event, have breached in June 2004 the duties alleged by Mr Shueard in his counterclaim.
For these reasons I dismiss Mr Shueard’s counterclaim.
Conclusion
For the reasons given above, subject to the question of interest, I will enter judgment for Mr Webster against Mr Shueard in the sum of $94,000 and make a declaration that Mr Shueard is liable to pay to Mr Webster his reasonable costs of defending the claim by the Knopes to 31 December 2008. Mr Shueard’s counterclaim is dismissed. I will hear from the parties as to interest and costs.
7
0