1                     On 16 July 1985 the Supreme Court of New South Wales (Yeldham J) gave judgment in favour of George Wakim (the applicant) against Tedros Nader (the bankrupt) for $786,801.45 (judgment debt) together with costs.  On 9 October 1985, the bankrupt filed a debtor’s petition and he became bankrupt 9 days later when a Deputy Registrar accepted the petition.  The Official Trustee in Bankruptcy (the trustee) became trustee of the bankrupt estate.

the claim against the trustee

2                     On 16 July 1993 the applicant filed, and on 19 July he amended, an application in this Court against the trustee in the bankruptcy proceedings (W 963 of 1985).  In his amended application the applicant sought declarations and claimed damages, interest and other orders for alleged breaches of duty of care owed to him and to the bankrupt estate by the trustee arising out of the Bankruptcy Act, the general law and a deed signed by the applicant and the Official Receiver on behalf of the trustee on 19 May 1987.  This deed provided for the trustee’s commencement and maintenance of certain litigation for the benefit of the bankrupt estate and to pay the proceeds to the applicant in exchange for the applicant’s undertaking to indemnify the trustee for its legal costs.  Other claims in the amended application were not ultimately pressed.

3                     The applicant alleged five separate breaches of duty by the trustee:

1.             failure to commence proceedings against Nawal Nader, the bankrupt’s wife and former business partner, prior to the expiration of the relevant limitation periods, pursuant to section 45(2) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), sections 10 and 12 of the Partnership Act 1892 (NSW) (Partnership Act) and, as a joint tortfeasor, to section 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946(NSW) (Law Reform Act)

2.             agreeing to the dismissal of proceedings commenced against Nawal Nader under section 24(2)(a) of the Partnership Act

3.             failure to exercise its discretion under section 102 of the Bankruptcy Act to reject two proofs of debt lodged by George and Jim Nader, brother and cousin of the bankrupt respectively 

4.             refusal to seek a declaration under the Bankruptcy Act that the bankrupt’s sale of his interest in a company called Siyozu Pty Limited (Siyozu) be declared void as against the trustee 

5.             failure to realise the value of the bankrupt’s share in a company called T. & N. Nader Pty Limited

4                     The applicant contended that at the time the bankrupt’s estate vested in the trustee, it included a chose in action comprising a right to contribution or indemnity from Nawal Nader in relation to all of the debts of the partnership, including the judgment debt.  In the process of proving the first two breaches, the applicant thus sought declarations that the trustee failed to obtain a declaration that the judgment debt was a partnership debt incurred in respect of acts or omissions performed by the bankrupt in the ordinary course of the business of the partnership and with the authority of Nawal Nader: ss 9, 10 and 12 of the Partnership Act. Further related declarations were also sought concerning the effect of the deed of 19 May 1987 and the expiry dates of relevant limitation periods.

5                     Because the applicant’s claim against the trustee was a separate and distinct claim to those that arose from the filing of the debtor’s petition, I ordered on 18 August 1997 that the pleadings and other court documents concerning the applicant’s claim against the trustee be removed from the Court’s file in W 963 of 1985 and that they be separately constituted.  These proceedings then became NG 8252 of 1997.

The claim against mr Darvall

6                     The applicant filed a second application on 16 December 1993, numbered NG 981 of 1993, seeking inter alia damages from Mr Cholmondeley Darvall QC (Mr Darvall) for negligent advice given on or about 18 December 1987 to the trustee’s solicitors Lobban McNally & Harney (Mr McNally) which led to the dismissal of the trustee’s proceedings against Nawal Nader. 

the claim against mr mCnally

7                     The applicant filed a third application on 9 February 1994, numbered NG 65 of 1994, seeking inter alia damages from Mr McNally for negligent advice to the same effect as Mr Darvall’s.

the high court challenge

8                     In or around June or July 1998 the solicitors for Mr McNally and Mr Darvall filed applications in the High Court of Australia seeking writs to prohibit this Court from dealing with the proceedings brought against them.  The hearing of those two applications took place on 1 and 2 December 1998.  Judgment was handed down by the High Court on 17 June 1999: Re Wakim; ex parte McNally and Another (1999) 198 CLR 511, the far-reaching effect of which on the administration of justice in Australia is now well known.  The relevant effect of that judgment on the current proceedings is that the High Court found them to be within the jurisdiction of this Court. 

these proceedings

9                     The three respondents put in issue the alleged duties of care, the breaches, damage and the causal nexus.  Contributory negligence was also raised.  At a directions hearing on 4 May 2000, I ordered that the evidence in each of the three proceedings be taken as evidence in the others and that they were all to be heard together.

the subsTitution of hih for mr darvall

10                  On 13 June 2000, the first day of the hearing in this Court, the applicant applied for leave to substitute HIH Casualty and General Insurance Limited (HIH) as the respondent in the proceedings against Mr Darvall who had passed away on 26 April 1999.  The application was supported by evidence that the late Mr Darvall and his estate were indemnified by HIH against any liability to pay damages or compensation in respect of any professional negligence proven against him.  Counsel who had been appearing earlier for Mr Darvall appeared on behalf of HIH with instructions not to contest the application.  Accordingly, I made the orders sought and allowed the amendment.

further interlocutory proceedings

11                  At the conclusion of the hearing in this Court, directions were given for the filing of written submissions which were due to be finalised on 21 June 2000.  In fact what were supposed to be the final submissions were filed 2 days later.  On 15 December 2000, the applicant instructed a new firm of solicitors, Hurley & Associates, to give notice of a motion seeking leave to file further submissions.  As the preparation of the judgment was already well advanced by that time, I was not prepared to hear oral argument from the parties on the motion, but set a timetable for the filing and service of further written submissions including the reasons why leave should be granted to rely on them.  The applicant did not comply with this timetable and even sought to file and serve a second set of further submissions after receiving the further submissions in reply filed on behalf of Mr Darvall and Mr McNally.  Objection has been taken to my receiving all these further submissions.

12                  The purpose of the application to file further submissions was said in the applicant’s first set of further submissions dated 10 January 2001 to be to “add to and exemplify” the earlier submissions by additional references.  Not only did the submissions actually go much further, but the second set of further submissions received on 29 January 2001 raised entirely new arguments.  The applicant said that the receipt of this second set of further submissions, received almost two weeks after the expiry of the relevant deadline, was “in the interests of justice” and that if they were not considered “there is a distinct likelihood this will cause irreversible prejudice” to his case.  He also said that any delay or inconvenience to the respondents can be compensated by way of a costs order.

13                  There were four common elements to the respondents’ objections to the receipt of these two sets of submissions. First, no adequate explanation was proffered for the failure of the applicant’s senior counsel to raise the arguments initially despite evidence that they were considered and rejected.  Second, no proper basis was made out for granting the application which was said to be contrary to the orderly disposal of court business.  Third, the applicant failed to comply with the timetable for the filing and service of the additional submissions.  Fourth, the respondents were put to inconvenience and expense in responding to submissions made after the conclusion of the hearing.  Two of the respondents, aggrieved by the applicant’s filing of a second set of further submissions, sought a further directions hearing but for the reason given previously [11] that request was denied.  Most of what the respondents said was correct but there was in fact little prejudice to them.  This case is complex enough without entering into arid tactical polemics about matters which, as will become apparent, were to have little effect on the outcome of the case.  I therefore decided to receive and consider all the further submissions.

14                  The factual circumstances and legal issues raised by these proceedings are unusual and lengthy.  They commence almost 21 years ago on 26 March 1980 when the applicant slipped and fell in the course of his employment as a driveway attendant at the Amoco Service Station, Lakemba then run by the bankrupt and his wife Nawal Nader in a partnership trading as “Amoco Lakemba” (the partnership).  The partnership ceased trading on 30 September 1983 when its business – including all of its assets and liabilities – was taken over by T. & N. Nader Pty Limited, incorporated on 28 September 1983 with the bankrupt and Nawal Nader each holding a foundation directorship and one of the two shares in the company.

15                  The applicant sued the bankrupt alone for the injuries that he sustained in the accident and the judgment debt was the result.  In fixing on the ultimate sum to be paid to the applicant, Yeldham J deducted from the assessed damages the workers’ compensation payments already made to the applicant ($73,198.55).  Ebsworth and Ebsworth solicitors (Ebsworths) represented the applicant at the hearing of those proceedings in succession to a number of other firms which had earlier represented him.  No evidence was led in the present case of the reason for the failure of any of these solicitors to join Nawal Nader in the original proceedings.

16                  The bankrupt appealed against the judgment of Yeldham J on 12 August 1985 but on the day after he filed his debtor’s petition, his solicitors advised Ebsworths that he did not intend to pursue the appeal and it was dismissed 2 days later, on 11 October 1985.  In his statement of affairs accompanying the petition, the bankrupt disclosed five unsecured creditors to whom he owed $815,808.75 and three secured creditors to whom he owed $193,498.  The judgment debt represented 96% of the unsecured debts and 78% of the total debts, making the applicant the principal creditor.  Of the secured debts, $150,000, or 77.5% of the total, was said to be owed on two unregistered undated second mortgages over properties at 740 Hume Highway, Yagoona (to George Nader) (the Yagoona property) and 20 Browning Avenue, Lakemba (to Jim Nader) (the Lakemba property).  The remaining $43,498 was owed to the National Australia Bank on a registered first mortgage over the same properties.

17                  In October or November 1985, the applicant received $100,000 from the partnership’s workers’ compensation insurer, Manufacturers’ Mutual Insurance Co Ltd (MMI), in part satisfaction of the judgment debt, leaving the unpaid balance as $686,801.45 plus interest and costs.  Apparently the partnership’s common law insurance was capped at the amount paid.

18                  Notwithstanding the applicant’s assertion in his statement of claim that the right to contribution from Nawal Nader was a chose in action in the bankrupt estate, he himself commenced proceedings against her in the Common Law Division of the Supreme Court on 8 February 1986 for damages for personal injuries as if the case against the bankrupt had never been commenced and the judgment of Yeldham J had never been given, although a copy of it was later annexed to an affidavit of his then solicitor, Geoffrey Bourke, sworn on 23 May 1986.  The statement of claim made no mention of section 5(1) of the Law Reform Act which provides:

Where damage is suffered by any person as a result of a tort (whether a

crime or not):

(a)  judgment recovered against any tort-feasor liable in respect of that         damage shall not be a bar to an action against any other person who        would, if sued, have been liable as a joint tort-feasor in respect of the same damage.

………

(c)   any tort-feasor liable in respect of that damage may recover contribution from any other tort-feasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tort-feasor or otherwise, so, however, that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by that person in respect of the liability in respect of which the contribution is sought.

although this provision represented the only basis on which such an action could have succeeded.  To have any chance of success, the applicant would have been required to give evidence in the new proceedings.

19                  Nawal Nader defended the proceedings, the defence including an allegation of contributory negligence by the applicant and a claim for credit for payments already made to the applicant under the Workers’ Compensation Act.  She also pleaded that the applicant had previously been successful in obtaining an award of damages from her husband in respect of the injuries he suffered and ought not be allowed to bring and maintain essentially the same claim against another person.  This last ground of defence would have contradicted section 5(1)(a) of the Law Reform Act if it had been pleaded.

20                  About two months after the commencement of the proceedings against Nawal Nader, on 3 April 1986, the trustee examined the bankrupt under the now repealed section 69 of the Bankruptcy Act (now included in s. 81).  He was extensively questioned on his property interests and his financial situation generally.  Relevantly, he said that at the time of the applicant’s accident, the service station was owned and operated by the partnership.

21                  The trustee again examined the bankrupt on 23 October 1986 when the examination went into some detail on his interest in Siyozu.  George and Jim Nader were also examinedon that day under section 81, their examinations focusing particularly on the alleged mortgages which they proved in the bankruptcy.

22                  On 13 April 1987 the trustee convened a meeting of creditors.  The Notice of Meeting asserted the estate’s right of contribution against Nawal Nader:

An asset in the estate is a Chose in action in respect of the rights of the Bankrupt for indemnity or contribution from a business partner pursuant to Section 10 & 12 & 24(2) of the Partnership Act, 1982.

………

Counsel’s opinion was obtained in respect of proceedings against the partner Nawal Nader and on the basis of that advice it is now the intention of the Official Trustee in Bankruptcy to commence proceedings subject to the costs of the proceedings being indemnified by the creditors.

………

It is considered that an amount of $15,000 will be required as a cash advance from creditors to meet the Official Trustee [sic] costs of proceedings against Nawal Nader.  An unlimited indemnity will also be required to be given by indemnifying creditors in respect of costs.

If proceedings are taken against Nawal Nader and are successful, the Official Trustee will apply to the Federal Court of Australia pursuant to Section 109(10) of the Bankruptcy Act for an order directing that the proceeds received in the bankrupt estate as a result of those proceedings be paid to indemnifying creditors to an extent of 100 cents in the dollar. 

23                  During the meeting the applicant offered to provide the cash advance of $15,000 together with an unlimited indemnity for costs.  On 5 May 1987, Ebsworths wrote to the applicant’s then solicitors, P.F. Irvine & Co., stating a preference for the applicant to continue his proceedings against Nawal Nader but also to commence proceedings under the Partnership Act to preserve time.  On 12 May, P.F. Irvine & Co. wrote to Ebsworths, in the hope of eliciting the $15,000 cash advance, stating:

[T]o enable our client to be successful in [his proceedings against Nawal Nader], it will be necessary for [him] to once again give evidence.  In our opinion, [his] psychiatric condition is such that he may well be incapable of giving the evidence required.

24                  On 18 May Ebsworths sent a cheque for $15,000 to P.F. Irvine & Co., made payable to the trustee, on a without prejudice basis.  It was passed on to the trustee on the following day when the applicant executed a deed of indemnity for the trustee’s legal costs of proceeding against Nawal Nader under section 24(2)(a) of the Partnership Act, by which the trustee agreed that if the proceedings were successful, it would make an application under section 109(10) of the Bankruptcy Act that the applicant receive the entire sum recovered.

25                  The evidence does not disclose the motivation for Ebsworths’ payment.  However, its proximity to the applicant’s offer at the creditors’ meeting and the deed, and its without prejudice status, suggest a pre-arrangement in tacit acknowledgment of, or to minimise, the firm’s liability for its failure to join Nawal Nader in the original personal injury proceedings.

26                  With the protection of this deed, the trustee commenced proceedings under section 24(2)(a) of the Partnership Act against Nawal Nader in the Equity Division of the Supreme Court on 24 June 1987 seeking a declaration that the partnership was dissolved on 30 September 1983 or on 9 October 1985. The trustee also asked for declarations that the judgment debt was a liability incurred by, and that the payment of the sum of $100,000 to the applicant was a loan by him to, the partnership.  One of the orders sought was that an account be taken of the partnership and the partners from 1 July 1979 to the date of its dissolution. Section 24(2)(a) of the Partnership Act states:

24.  The interests of partners in the partnership property and their rights and duties in relation to the partnership shall be determined, subject to any agreement expressed or implied between the partners, by the following rules:

………

(2)   the firm must indemnify every partner in respect of payment made and personal liabilities incurred by the partner

(a)     in the ordinary and proper conduct of the business of the firm

       ………

27                  Mr McNally was the solicitor on the record for the trustee in those proceedings as of 2 November 1987 when he filed a Notice of Change of Solicitor.  When they were first listed on 19 November 1987, Waddell CJ in Eq commented to the effect that the evidence then before him did not support the making of all the orders and declarations sought by the trustee.  Nevertheless, he declared by consent that the partnership was dissolved on 30 September 1983 and ordered that the account requested be taken.

28                  The trustee convened a second meeting of creditors on 22 June 1987.  The Notice of Meeting dated 12 June 1987 relevantly informed the creditors that:

The securities in respect of the properties have been investigated as to their validity against the Official Trustee in Bankruptcy.  Following these investigations, which included Counsel’s advice, it is considered that the unregistered mortgages executed by the bankrupt in respect of his interest in the [Lakemba and Yagoona properties] in favour of Jim Nader and George Naderare settlements for the purposes of Section 120(1) of the Bankruptcy Act, 1966 and are not encumbrances in good faith and for valuable consideration.

Accordingly, I consider that an application should be made to the Federal Court of Australia that both mortgages be set aside pursuant to the provisions of Section 120 of the Bankruptcy Act, 1966.

The bankrupt was a shareholder and director of a company known as N. & W. Petroleum Pty Ltd (previously known as Siyozu Pty. Ltd).  In January 1985 the bankrupt advanced an amount of $50,000 to the company as capital to assist the company in the purchase of a fuel depot located at Kemps Creek, N.S.W.  The bankrupt stated that the source of the capital investment was a contribution of approximately $30,000 by his brother Edward Nader, who was resident in Lebanon at that time, and a contribution of $20,000 by himself on behalf of Edward Nader.  He claimed that the $20,000 which he contributed was owing to Edward Nader since 1973 as consideration for Edward Nader’s interest in a service station located at Lakemba which was acquired by the bankrupt.  Accordingly, the bankrupt claims that the $50,000 advanced to Siyozu Pty. Ltd., was the property of Edward Nader and the shareholding held by the bankrupt in the company was held in trust on behalf of Edward Nader.

In June 1985 the bankrupt received the sum of $40,000 in consideration of his shareholding and advance to the company.

With the information available to me including Counsel’s advice, I consider that an application should be made to have the transaction set aside i.e. the sale of the bankrupt’s shareholding in Siyozu Pty. Ltd., for $40,000 is a sham, or to have declarations made in respect of the proceeds received from the transaction in that the shareholding in Siyozu Pty. Ltd., was not held in trust by the bankrupt on behalf of Edward Nader and the proceeds of sale are an asset in the bankrupt estate.

Before commencing legal action in respect of these matters, creditors will be required to provide the Official Trustee with an unlimited indemnity in respect of the costs of the proceedings including appeals.

If proceedings are taken and are successful, the Official Trustee will apply to the Federal Court of Australia pursuant to Section 109(10) of the Bankruptcy Act for an order directing that the proceeds received in the bankrupt estate as a result of those proceedings, be paid to indemnifying creditors to an extent of 100 cents in the dollar.  

29                  The minutes of the meeting recorded that whilst the proposed proceedings were discussed at some length, the applicant was the only creditor offering to indemnify the trustee in respect of legal costs.  The minutes did not record any discussion of the proofs of debt submitted by George and Jim Nader.  The $40,000 for the share in Siyozu was alleged to have been paid by Loula Wehbe.

30                  After the meeting the applicant executed on 22 June 1996 a second deed of indemnity for costs in respect of the trustee’s proposed proceedings under section 120 of the Bankruptcy Act in return for a promise to again apply for an order under section 109(10) of the Bankruptcy Act that the applicant as the indemnifying creditor be paid all the proceeds of the proceedings.  On 2 July 1987, the trustee filed the application projected in that deed (including under section 121 of the Bankruptcy Act as a second basis of relief), naming as respondents the bankrupt, Nawal Nader, George Nader, Jim Nader and Loula Wehbe.

31                  On 26 November 1987, Justice Beaumont declared by consent that the mortgage granted by the bankrupt in favour of Jim Nader over the Lakemba property to secure a loan of $50,000 was void as against the trustee.  On 17 March 1988 his Honour dismissed by consent the proceedings against Loula Wehbe and ordered the trustee to pay her costs.  On 25 August 1988, after a contested hearing, Morling J declared void as against the trustee the mortgage to George Nader granted by the bankrupt and Nawal Nader over the Yagoona property to secure a loan of $100,000.

32                  On or about 10 December 1987 Mr McNally sent a brief to advise to the late Mr Darvall on instructions from the trustee and pursuant to a memorandum from Mr J.R. Wilson of counsel dated 30 November 1987 recommending that the advice of Senior Counsel be sought on what appeared to him to be complex legal issues.  The information contained in Mr Darvall’s brief included instructions that the applicant had commenced proceedings against Ebsworths and Nawal Nader but did not wish to continue the proceedings against Nawal Nader. As far as I can see, no proceedings had been commenced against Ebsworths at this time.  Mr Darvall was briefed with three advices from Mr Wilson of 4 April and 30 July 1986 and of 30 November 1987 and two advices of Mr P. Urquhart QC dated 22 December 1986 and 18 February 1987.  There was no suggestion in the material with which Mr Darvall was briefed that the applicant was unwilling or reluctant to give evidence, notwithstanding that Mr McNally and the trustee were informed of this reluctance in a conference with the applicant on 21 September 1987 [75].

33                  In his advice of 30 July 1986, Mr Wilson had conveyed his view that it was open to the trustee to enforce against Nawal Nader the right of contribution created by section 5(1)(c) of the Law Reform Act or the right of indemnity arising under section 24(2) of the Partnership Act.  On 30 November 1987, Mr Wilson had further advised that:

if the [trustee] could obtain an accounting from [Nawal Nader] in respect of the partnership between [her] and the bankrupt then at least this might provide a springboard for the reopening of all the partnership activities.

34                  However, on 22 December 1986, Mr Urquhart QC had advised that the most appropriate proceeding for the trustee to pursue was that under section 24(2) of the Partnership Act:

In my opinion, given that a partnership existed between Mr. Nader and his wife, the most appropriate procedure to be followed by the Official Trustee is the winding up of the partnership. … I do not consider that proceedings under section 5(1)(c) of [the Law Reform Act] will result in any practical advantage to the estate of Mr. Nader or to Mr. Wakim.

35                  Unbeknown to the trustee, and hence not included in the brief to Mr Darvall, Mr McAlary QC had advised P.F. Irvine & Co. on 7 October 1986 that partners are not automatically entitled to contribution from other partners: Thomas v Atherton (1877) Ch. D. 185.  Rather, in proceedings against Nawal Nader under section 5 (1)(c) of the Law Reform Act or section 24(2) of the Partnership Act, it would have been necessary for the trustee to prove that she and the bankrupt were in partnership, that they both incurred a liability in negligence in respect of the injuries suffered by the applicant, and that the applicant had recovered a verdict against the bankrupt in respect of that liability.  These were among the matters that Mr McAlary had been instructed it was sought to avoid having to prove because of the applicant’s reluctance or unwillingness to give evidence:

Obviously the proceedings against Mrs Nader will require the [applicant] to give evidence of the happening of the accident in which he was involved on 26th March, 1980 and of the events subsequent thereto.  I am instructed that the stress and trauma of again giving evidence would affect the [applicant] detrimentally.

………

My advice has been sought as to whether it is possible, and if so by what means, to have judgment entered against Mrs. Nader without the necessity for the plaintiff establishing [that] the injuries suffered by him on 26th March, 1980, were the result of both Mr. and Mrs. Nader.

36                  Mr McAlary concluded:

[I]n my opinion, a contribution action by the official trustee will not obviate the need to call [the applicant] if a verdict is to be obtained against Mrs. Nader.

………

Once again, in my opinion, if the official trustee brought contribution proceedings against Mrs. Nader, relying upon the obligation imposed by the Partnership Act, he would only be able to establish his case if he called Mr. Gorge Wakim, the current plaintiff.

            ………

In the upshot therefore, I am of the opinion that if Mr. Wakim desires to obtain a judgment against Mrs. Nader so that he [may] execute against her property in addition to her husband, he must pursue to judgment his current action against her.

37                  With the divergent opinions of Mr Wilson and Mr Urquhart QC in hand, the trustee asked Mr Darvall whether it had any ground on which to seek contribution or reimbursement from Nawal Nader in respect of the whole or any part of the judgment debt and, if so, what procedure it should follow to enforce such rights.  In particular, he was asked to advise on the correctness of Mr Urquhart’s opinion that the trustee should seek to wind up the partnership.  Mr Darvall was also asked to advise whether the right created by section 24 of the Partnership Act vested in the trustee on the bankruptcy.  Two further questions put to Mr Darvall were whether the judgment debt was a liability of the partnership and, if so, what action the trustee should take to recover the whole or part of that liability for the benefit of the bankrupt estate.  Presumably, in the formulation of his advice Mr Darvall assumed that the applicant would be prepared to give evidence if required, there being no information in his brief to the contrary.

38                  The advice provided to Mr McNally by Mr Darvall on 18 December 1987, the correctness of which forms the kernel of the current dispute between the applicant and HIH, included:

In the winding up of a partnership, the Receiver gets in the assets of the partnership and pays the creditors to the extent of those assets…..It is no part of a Receiver’s function to take proceedings against a partner to recover monies for the benefit of a creditor of the partnership.

………

The appointment of a Receiver for the winding up of the partnership would not advance the administration of the bankrupt estate subject only to the clarification and quantification of each partner’s capital account as at 30th September 1983.  This does not involve the taking of accounts but mere reference to the books of account themselves.

………

As matters stand at present, the [trustee] has no right to seek contribution or indemnity from Nawal Nader as the right of contribution is in respect of joint liability which has been paid in part or whole [Mr Darvall’s emphasis] by a partner from his own separate resources or a joint tortfeasor.  Until some payment is made to [the applicant] by the Official Trustee from the bankrupt estate of [Tedros] Nader, he has no claim against Nawal Nader for contribution.  See Wren v Mahoney (1972) 126 CLR 212, 1972 ALR 307 in which Rankin v Palmer (1912) 16 CLR 285 and Re Richardson; Ex parte Governors of St. Thomas’s Hospital (1911) 2 KB 705were referred to.

………

The [partnership] is required by the [Partnership Act] to indemnify every partner in respect of payment made and personal liabilities incurred by him in the ordinary course and proper conduct of the business of the firm.

If the injury suffered by [the applicant] occurred as a result of the negligence of the bankrupt so that it was not in the ordinary and proper conduct of the business of the firm, there would be no right to indemnify.  However, even if there is no bar to the indemnity the same principles limiting recovery to payments which have been made will apply.

………

[The judgment debt] probably is a liability of the partnership subject to its possible exclusion due to negligent conduct of [Tedros] Nader taking it beyond the affairs of the partnership.

………

The [trustee] should not take any action in the matter as apart from contribution it falls outside the administration of the bankrupt estate and is a matter between [the applicant] and Nawal Nader. [The applicant] has instituted proceedings against Nawal Nader and against his former solicitors.  It is a matter for him to pursue his claim against Nawal Nader and recover whatever he is able.  This cause of action has nothing to do with the [trustee] or the administration of the bankrupt estate. 

39                  On 18 February 1988, the proceedings between the trustee and Nawal Nader were dismissed by consent with no order as to costs.  Notwithstanding the applicant’s interest in the proceedings, his consent to their dismissal was not sought, although he was informed of the trustee’s intention to do so on the day of the dismissal.

40                  Mr Darvall’s reference to the proceedings against Ebsworths no doubt reflected Mr McNally’s apparently incorrect instructions on the matter.  However, on 29 February 1988, over two and a half years after Yeldham J had delivered his judgment in the original proceedings, the applicant commenced proceedings against Ebsworths for professional negligence for failing to join Nawal Nader in them.  Essentially, the applicant’s claim, as summarised in paragraph 9 of the statement of claim, was that:

In breach of the retainer and, alternatively, the duty owed to the plaintiff [the present applicant], the defendants [Ebsworths] failed properly to advise the plaintiff and, further, to take steps to join Nawal Nader as a defendant to the [original] proceedings.

41                  The proceedings against Ebsworths and Nawal Nader were listed together and their hearing commenced on 26 February 1990.  Less than 2 weeks later, on 9 March, the proceedings against Ebsworths were settled upon terms that were not to be disclosed.  However, the evidence now before this Court includes a Deed of Settlement between the applicant and the then partners of the firm stating that the settlement included a payment by the partners of the firm to the applicant of $150,000 in full and final satisfaction of his claims against the firm apparently, though not expressly, including legal costs.

42                  The applicant’s proceedings against Nawal Nader were settled 4 days later, on 13 March, by a deed which released her and her husband from all actions and claims that the applicant had or may have had at any time against them in return for a payment to the applicant by the Naders of $10,000 and an obligation on Nawal Nader to purchase from the trustee for $400,000 the estate’s interest in the Yagoona and Lakemba properties, as well as its interest in T. & N. Nader Pty Limited.  Nawal Nader duly made this offer to the trustee and acceptance was approved at a meeting of creditors on 18 April 1990.  Under this settlement both parties were to pay their own costs.

43                  At around the time of this transaction, the trustee and Mr McNally again turned their minds to the question of contribution.  In due course Mr McNally was instructed to seek, and by a brief dated 12 July 1990 duly sought, further advice from Mr Darvall as to whether the trustee would have a right of contribution from Nawal Nader once a dividend had been paid to the applicant out of the estate.  On 2 August 1990 Mr Darvall furnished a further advice in which he stated:

The Official Trustee may seek a contribution after payment by way of dividend to [the applicant] for half of the amount so paid less half the amount of any payment made by [Nawal] Nader to [the applicant].

44                  There are at least five letters in evidence from the trustee to the applicant or his then solicitors between 3 May 1991 and 24 November 1992 which set out or explain the effect of this advice.  Included within that correspondence was an offer that the trustee would be prepared to commence contribution proceedings on an appropriate indemnity from the applicant as to costs and a cash advance of $50,000 on account of the costs.  There is no evidence that any indemnity was given and the trustee did not commence any such proceedings.

45                  The applicant incurred some $304,829.93 in legal costs in bringing his proceedings against Nawal Nader and Ebsworths of which $210,065.19 was owed to a single firm, Gadens Ridgeway (Gadens).  The applicant had Gadens’ fees taxed in the process of which he incurred a further $39,442.85 in legal costs. 

46                  The first proof of debt having apparently been misplaced, the trustee approved, on or about 5 June 1990, a second proof of the judgment debt in the sum of $714,156, including interest and an appropriate reduction to account for the moneys already received from MMI.  In December 1992 the applicant wrote to the trustee seeking payment out of the estate of the costs of the original personal injury proceedings, assessed by Ebsworths at $33,121.10.  In response, the trustee informed the applicant that until such time as the costs had been agreed or taxed and a formal minute of Yeldham J’s costs order had been entered, he was not able to recover the costs from the estate.    Even now, despite the award of costs having been made in 1985, the costs in those proceedings apparently have not been taxed.

47                  On 12 November 1990 the trustee applied to this Court for an order under section 109(10) of the Bankruptcy Act to have $250,000 in the estate distributed, presumably out of the $400,000 paid by Nawal Nader under the deed of settlement with the applicant.  The structure of this distribution, ordered by consent on 24 April 1991, was to pay the applicant the balance of a total sum of $250,000 after certain priority creditors had been paid, including the taxed costs of the trustee in bringing the section 109(10) application, Mr McNally’s taxed costs, and the taxed costs of Loula Wehbe ordered by Justice Beaumont on 17 March 1988.  In fact, the applicant gave evidence in the present proceedings that he received various payments from the trustee out of the bankrupt estate between March 1991 and December 1995 totalling some $256,832.77.  The portion of the judgment debt not yet recovered, amounting to some $460,000 not including costs or interest, remains unpaid and forms part of the applicant’s damages claim.

48                  At the time the trustee and the applicant commenced their different proceedings against her, Nawal Nader is said by the applicant to have possessed a one-half interest in the Yagoona and Lakemba properties and in a property at 1 Canton Street, Canterbury.  The parties have provided a number of valuations of these properties between April 1986 and January 1989 but it is not necessary to put a precise value on them.  It is sufficient to note that their approximate total value is more than $1 million, suggesting that Nawal Nader has at all times had sufficient assets to meet any order for contribution towards the judgment debt.

49                  The applicant’s arguments related only to the trustee’s duty to the bankrupt estate and not to the applicant himself.  However, to allow the issues raised by the amended application to be fully addressed, I will treat the arguments as applying to each.

50                  A trustee in bankruptcy is governed by the general law relating to trustees except where the Bankruptcy Act, Regulations or Rules otherwise provide: Adsett v Berlouis (1992) 37 FCR 201 at 209.  At the commencement of the bankruptcy, the trustee’s principal statutory duties were two (s. 19(1)):

………

(b)   determining whether the estate includes property that can be realised to     pay a dividend to creditors;

………

(f)  taking appropriate steps to recover property for the benefit of the estate;

51                  After the commencement in January 1989 of certain relevant provisions of the Bankruptcy Amendment Act 1987 (Cth), some 11 months after the dismissal of the trustee’s proceedings against Nawal Nader, the duties became somewhat more diverse, including to:

(i)             ascertain the assets and liabilities of the bankrupt: s 19(1)(b)

(ii)           take reasonable steps to ensure the bankrupt completes a statement of affairs: s 19(1)(b)

(iii)          convene meetings of creditors in accordance with s 64: s 19(1)(d)

(iv)         decide on the admission or rejection of proofs of debt: s 102

(v)           make priority payments in the administration of the estate: s 109

(vi)         take possession of all property capable of manual delivery: s 129

(vii)        declare and distribute dividends from the estate: s 140

(viii)      keep proper books and accounts: ss 168-175

52                  In Mannigel v Aitken (1983) 77 FLR 406 Smithers J described the standard of conduct expected of trustees in bankruptcy in the performance of their duties to bankrupt estates (at 408-409):

In the case of bankruptcy the Trustee is in charge of the assets of the bankrupt and those assets are to be applied for the benefit of the creditors and if there be any surplus for the benefit of the bankrupt.  It is clear that the minimum standard required of the Trustee is that he shall handle the assets with a view to achieving the maximum return from the assets to satisfy the claims of the creditors and to provide the best surplus possible for the bankrupt.  Obviously a great deal of discretion and judgment is required to be exercised by the Trustee.  It was said by Rogerson J in Re Ladyman (1981) 55 FLR 383 at 394-396 that the standard of conduct required of the Trustee will ordinarily be the standard required of a professional man and perhaps higher.  The learned judge referred to “the high standard of conduct required of trustees.”

In Re Brogden [1888] All ER 927 Lord Justice Fry said at p 935:

“A Trustee undoubtedly has a discretion as to the mode and manner, and very often as to the time in which or at which, he shall carry his duty into effect.  But his discretion is never an absolute one.  It is always limited by – the dominant duty – the guiding duty of recovering, securing and duly applying the trust fund; and no Trustee can claim any right of discretion which does not agree with that paramount obligation.”

Where an order is sought that the Trustee be removed and to make good the losses suffered by the estate, it must be established that the Trustee has been guilty of a breach of duty to act “diligently and prudently in regard to the business of the Trust”.  See Riley J in Re Alafaci (1976) 9 ALR 262 at 285.

53                  Mannigel was approved by Full Courts of this Court in Adsett at 208 (Northrop, Wilcox and Cooper JJ) and Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 141 ALR 667 at 677-8 (Foster, Von Doussa and Sundberg JJ).  See also Elders Trustee and Executor Co Ltd v Higgins (1962) 113 CLR 426 at 448-9 (per Dixon CJ, McTiernan and Windeyer JJ); Re Alafaci at 284-5 (per Riley J); Speight v Gaunt (1881) 22 Ch D 727 at 740-1 (per Jessel MR); Re Chapman (1896) 2 Ch 763 at 776 (per Lindley LJ); Commercial & General Acceptance Ltd v Nixon (1981) 38 ALR 225 at 233 (per Mason J); and Jacob’s Law of Trusts in Australia, 6^th edition, paragraph [1718].

54                  Failure to attain these standards of conduct may lead to an order under section 176 of the Bankruptcy Act:

(1)    Where, on application … by a creditor who has or had a debt provable in the bankruptcy, the Court is satisfied that a person who is or has been a trustee of a bankrupt's estate has been guilty (whether before or after the commencement of this section) of breach of duty in relation to the bankrupt's estate or affairs, subsection (2) applies.

(2)   The Court may make any one or more of the following orders:

(a)     an order directing the person to make good any loss that the bankrupt's estate has sustained because of the person's breach of duty;

       ………

(c)      any other order that the Court considers just and equitable in the circumstances.

breach of trustee’s duty

55                  The term “breach of duty” is defined in section 5 of the Bankruptcy Act to mean:

Malfeasance, misfeasance, negligence, wilful default or breach of trust

56                  The applicant submitted that the duty is unqualified, in the sense that the non-performance of a duty cannot be excused by an honest and reasonable exercise of judgment.  The trustee argued that section 176 does not create any new kind of actionable conduct, but rather forms the statutory basis for remedying a breach of trust where the breach is actionable according to ordinary trust principles.  In other words, any remedies are dependant upon there being one of the types of breach referred to in section 5: Re Tyndall; ex parte Bankrupt (1977) 30 FLR 8; Re Stelnicki (1982) 62 FLR 430.  More simply expressed, the ‘trigger’ for the exercise of the Court’s power to order restitution will be satisfaction that a trustee has committed a breach of duty in relation to the bankrupt’s estate or affairs. 

57                  Apparently the section 5 definition of “breach of duty” has not been the subject of judicial interpretation.  The interpretation suggested by the trustee, as derived from a plain reading of the definition, is that its components are not mutually exclusive alternatives.  That is, the terms “malfeasance”, “misfeasance”, “negligence” and “wilful default” are to be understood as examples of and hence giving meaning to the term “breach of trust”.  Therefore, the trustee said, section 176 only provides a procedural remedy where there has been misconduct in the nature of a breach of trust, where such misconduct may be any of malfeasance, misfeasance, negligence, or wilful default, including dishonest or careless conduct and wilful or careless omissions.  According to the trustee, the terms cannot be mutually exclusive because among them are two pairs of synonyms – “malfeasance” and “wilful default”; “misfeasance” and “breach of trust” – and one term, “negligence”, that has in the past been regarded as a subset of “wilful default” and “breach of trust”: see In re Chapman; Cocks v Chapman (1896) 2 Ch 763 per Lindley J at 776 and Re B Johnson & Co (Builders) Ltd (1955) 1 Ch 634 at 649. 

58                  In Johnson at 645 to 650, Evershed MR considered the history of the term “misfeasance” in the context of corporations legislation.  He held that such provisions were enacted to provide a different procedural remedy for wrongs that were actionable in any event, rather than to provide a different substantive basis for an award of damages.  Therefore, conduct that is merely irregular does not fall within such sections – only conduct that constitutes a breach of trust and is productive of loss is covered.  The same approach was taken in Re Canadian Land Reclaiming and Colonising Company: Coventry and Dixon’s case (1880) 14 Ch D 660 at 670 (James LJ) and 672-3 (Bramwell J). 

59                  The trustee relied upon the fact that in the context of corporations legislation, the power to order a director to repay a company’s funds lost as a result of “misfeasance” does not apply to conduct engaged in honestly and reasonably: In re Kingston Cotton Mill Company (No 2) (1896) 1 Ch 331.  Also consistent with this view and hence supporting the procedural view of section 176 is the decision of Paine J in Re Killmier (1965) 8 FLR 21, who said at 27-8, in the context of the conduct of a trustee whose appointment was approved under the Bankruptcy Act 1924 (Cth) by the Court of Insolvency of South Australia, that the term “misfeasance” connoted something more than a mere omission, such as an improper performance of a lawful act.  The trustee also contended that the requirement of “guilt” in section 176 reinforces the notion that the conduct of the trustee must be wrongful and productive of loss according to ordinary trust principles before the Court will make any remedial orders.

60                  As to the contention that its duties are unqualified, the trustee stated that bankruptcy legislation has never spoken of an absolute obligation to realise the assets of the bankrupt estate.  Rather, as section 58 vests all of the bankrupt’s property in the trustee, the trustee is only subject to ordinary trust obligations as defined and enumerated in section 134(1), in which the relevant discretionary powers are to:

(a)    sell all or any part of the property of the bankrupt;

       ………

(e)     compromise any debt claimed to be due to the bankrupt or any claim by the bankrupt;

                   ………

(i)      obtain such advice or assistance as he or she considers desirable relating to the administration of the estate or to the conduct or affairs of the bankrupt;

(j)      bring, institute or defend any action or other legal proceeding relating to the administration of the estate;

       ………

61                  Furthermore, subsection (3) provides:

Subject to this Act, the trustee may use his or her own discretion in the administration of the estate.

62                  The trustee submitted that section 134 authorises a trustee to act on advice received. In other words, in litigation brought to recover or realise the property of the bankrupt, trustees have the ordinary powers of any litigant in relation to the conduct and compromise of litigation: Re Driller (1972) 21 FLR 159 at 175 (Sweeney J); Re Tyndall at 10 (Deane J).  Thus the scope of its duty to the bankrupt is only to act as an ordinary prudent person of business requiring no more than good faith and reasonable diligence in the circumstances.

63                  In National Trustees Company of Australasia Ltd v General Finance Company of Australasia Ltd [1905] AC 373, where the trustee’s powers and duties arose under a trust instrument rather than legislation,the Privy Council, in determining an appeal from the Supreme Court of Victoria, held that the trustee company was not excused from liability under the relevant statutory provision merely because it had acted honestly and reasonably in relying on erroneous legal advice.  The relevant statutory provision was section 3 of the Trusts Act 1901 (Victoria):

If it appears to the Supreme Court that a trustee is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the passing of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust, and for omitting to obtain the directions of the Court in the matter in which he committed such breach, then the Court may relieve the trustee either wholly or partly from personal liability for the same.

64                  At 379 their Lordships quoted from Doyle v Blake 2 Sch. & Lef. 231 at 243:

I have no doubt that they [the executors] meant to act fairly and honestly, but they were misadvised; and the Court must proceed, not upon the improper advice under which an executor may have acted, but upon the acts he has done.  If, under the best advice he could procure, he acts wrongly, it is his misfortune; but public policy requires that he should be the person to suffer.

65                  To different effect was Perpetual Trustee Co v Watson (No. 2) (1927) 28 SR(NSW) 43which concerned a claim by a beneficiary against a trustee under section 59(2) of the Trustees Act 1925 (NSW) to make good the loss suffered by a beneficiary when, acting on the advice of counsel, the trustee refused to adhere to the beneficiary’s request to invest certain moneys.  The section stated:

 A trustee shall be answerable and accountable only for the trustee's own

acts, receipts, neglects, or defaults, and not for those of any other trustee,

nor for any banker, broker, or other person with whom any trust moneys or

securities may be deposited, nor for the insufficiency or deficiency of any

securities, nor for any other loss, unless the same happens through the

trustee's own wilful neglect or default.

66                  At 46, Harvey CJ in Eq summarised the effect of the section as:

 that a trustee shall not be answerable or accountable for any loss unless the same happen through his own wilful neglect or default.

67                  He found (at 46-7):

In this case the trustees referred what was a matter of law to counsel and they were justified in thinking that he was in a position to give them advice on the question of law.  It was not a case in which, having a discretion, they referred that discretion to counsel for advice as to how they should exercise the discretion; what was referred to him was a question of law, and he apparently advised them as a matter of law that they were not entitled to do what the beneficiary had asked them to do, and they so informed the beneficiary.

………

That seems to me to afford them in this case an answer to the claim of the trustees for interest.  It cannot be said that they wilfully were guilty of neglect or default in their trust when they acted on the advice of responsible counsel who advised them on a matter of law.  

68                  It is true that that case involved a duty outside the terms of the trust instrument rather than within it, namely, to comply with the beneficiary’s request to make investments that neither the trust instrument nor any statute authorised.  Nevertheless, the principles expressed are instructive for the present case.

69                  Although the trustee did not formally plead reliance on Mr Darvall’s advice and the applicant said that this defence, raised in argument, should therefore be disregarded, the first question to be considered is whether when a trustee acts on appropriate advice in the exercise of its powers under the terms of the trust, especially the advice of counsel, it excuses what may otherwise be a breach of duty.  The trustee submitted that reliance on the advice of counsel at least provides a strong indication that it has acted reasonably: Speight v Gaunt at 740-741 (per Jessel MR); Dundee General Hospitals Board of Management v Walker [1952] 1 All ER 896 at 901 (Normand LJ), 906 (Morton LJ) and 908 (Cohen LJ).  Further, in apparent contradiction of Perpetual Trustee, the trustee argued that it is also entitled to rely upon advice on the exercise of a discretionary power vested in it.

70                  The applicant argued that the trustee owed him a concurrent duty to avoid economic loss: Hawkins v Clayton (1988) 164 CLR 539; Bryan v Maloney (1995) 182 CLR 609, thus giving rise to a second question as to what prerequisites exist for such a claim against a trustee in bankruptcy: Hill v Van Erp (1997) 188 CLR 159 and Perre v Apand (1999) 198 CLR 180 establish that an applicant who sues in negligence to recover pure economic loss must establish something more than the foreseeability of such loss.  However, the divergence in reasoning of the justices in Perre v Apand appears so great that it is not possible to identify any single factor, such as proximity, or any single approach, such as analogy with existing categories of liability or their incremental development, as the “something more” that an applicant must show.  The best that can be done is to identify the factors that have been held to be relevant:

(i)             the respondent knew the applicant, either specifically or as a member of a limited and identifiable class: Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529

(ii)           the claim was not for an indeterminate amount but was limited and specific

(iii)          the claim involved the loss of a specific and legal right

(iv)         absence of conflict between the claimed duty to the applicant and the respondent’s legitimate economic interests in the market place

(v)           absence of conflict between the claimed duty to the applicant and the respondent’s duty to the person to whom the primary duty is owed

(vi)         the respondent was in a position of control over the applicant’s exercise of some legal right

(vii)        the applicant was powerless to prevent or abate the loss suffered

Proceedings against Nawal Nader

71                  The applicant submitted that all these circumstances apply in his favour here.  As to the proceedings against Nawal Nader, the applicant contended that at relevant times the bankrupt and later his estate had a right of contribution from her as a joint tortfeasor and that the non-exercise of this right amounts to a breach of duty.  He contended that such proceedings would probably have been successful, resulting in the likely recoverability from Nawal Nader of a contribution equal to fifty per cent of the bankrupt’s liability.  According to the applicant, the proceedings would have involved merely the pleadings and judgment in the original personal injury case, together with evidence of the partnership: see Partnership Act sections 1, 4, 10 and 12, with the proof of the underlying events not necessary: Bitumen and Oil Refineries (Australia) Ltd v Commissioner for Government Transport (1955) 92 CLR 200 at 206 (Dixon CJ, McTiernan, Webb, Fullagar and Taylor JJ).  As a consequence, he would not have been required to give evidence and therefore put his health at risk as forecast by a consultant psychiatrist Dr James P. Maguire in his report of 13 July 1987. 

72                  The trustee submitted that it had no express obligation to bring proceedings against Nawal Nader under the Law Reform Act.  It said that relevant considerations included whether such proceedings were the only or most appropriate or convenient way of protecting the estate and whether it had the means to do so.  According to the trustee, the fact that the applicant commenced and settled his own case against Nawal Nader disposes of most of the applicant’s argument.  Had those proceedings been successfully conducted to judgment rather than settled, a judgment would have discharged the estate’s liability for the judgment debt.  In other words, having received full compensation for the injuries he sustained, the applicant would not have needed or been entitled to enforce Yeldham J’s judgment against the estate.  Moreover, if the judgment debt was a liability of the partnership, the estate was entitled to an indemnity from the partnership property additional to the independent right of contribution from the personal assets of Nawal Nader.

73                  Further, despite the absence of any known circumstance of the applicant’s accident or the partnership’s conduct of its Amoco Service Station to justify a finding that the equal partners were not equally liable for the losses suffered by the applicant, the extent of contribution was discretionary and there was at least some risk that the amount of contribution would be less than fifty per cent. 

74                  The trustee also argued that at relevant times the applicant preferred proceedings under the Partnership Act.  There were three letters to this effect of his former solicitors, P.F. Irvine & Co.  The first was to the trustee on 5 August 1986, stating that the proceedings under the Partnership Act would be quicker than proceedings under the Law Reform Act and requesting the trustee to commence them.  The second letter, dated 6 May 1987 also to the trustee, conveyed the applicant’s position that although he had already commenced proceedings against Ebsworths for professional negligence, he had instructed P.F. Irvine & Co to take all necessary steps to ensure that the trustee’s then intended proceedings against Nawal Nader under the Partnership Act were determined first.  In the third letter to Mr N. Lyall of Ebsworths on 12 May 1987, P.F. Irvine & Co. conveyed a list of reasons why the proceedings under the Partnership Act were preferable, including that the applicant’s psychological health was so poor that he may be incapable of giving the evidence that would presumably be required of him in proceedings under the Law Reform Act [23].

75                  Moreover, the file note of Mr McNally of a conference on 21 September 1987 [32] attended by the applicant, his solicitor, Mr Wilson of counsel and a representative of the trustee stated that the applicant had chosen to proceed against Nawal Nader for contribution in equity rather than as a joint tortfeasor under the Law Reform Act [18] because the applicant was not prepared to give evidence due to his state of health and in order to avoid the danger that a court would award less against her than had been ordered against the bankrupt because of questions of contribution.  Also as noted at [34], Mr Urquhart QC had advised the applicant’s solicitor on 22 December 1986 that proceedings under the Law Reform Act offered no practical advantage to the estate or to the applicant over proceedings under the Partnership Act.  The trustee submitted that given the applicant’s unwillingness to give evidence, it could not have succeeded or been confident of succeeding in proceedings under the Law Reform Act.

76                  The trustee’s termination of the proceedings against Nawal Nader was, according to the applicant, to be judged against its statutory duty of “taking appropriate steps to recover property for the benefit of the estate” (s 19(1)(f)).  This duty, described by Lord Justice Fry in Re Brogden (at 935) as a trustee’s “dominant duty”, required the recovery, securing and application of the trust fund and the handling of the assets in the estate with a view to achieving the maximum return to the creditors and providing the largest possible surplus for the bankrupt.  The applicant further submitted that the standard usually applied in determining whether or not there has been a breach of trust requires the exercise of a high standard of diligence, considered objectively: Mannigel.  Moreover, this standard is not discharged by reliance on erroneous advice nor, except where legislation provides to the contrary, is it met by a trustee who purports to have acted honestly and reasonably: National Trustees and Doyle v Blake.

77                  It was submitted that the trustee failed to attain this standard and that anyway the standard of conduct expected of this trustee, with enormous experience in insolvency practice and at least some independent knowledge of the law relating to claims for contribution or indemnity, ought to be even higher.  The applicant conceded that a trustee is entitled to rely on legal advice as to the proper performance of its duty to the bankrupt estate unless it is, or should reasonably be thought to be, wrong but he argued that as the advices from Mr Wilson and Mr McAlary were inconsistent with Mr Darvall’s, it was inappropriate for the trustee to rely solely on Mr Darvall’s advice.  No criticism was made of the information with which Mr Darvall was briefed, nor was any relevant dissenting or conflicting advice given to the trustee after the receipt of the advice, either by Mr McNally or by Mr Wilson who had been provided with a copy of and asked to comment on it.  The trustee said, therefore, that its reliance upon Mr Darvall’s advice was consistent with the contemporaneous advices of its immediate legal advisers. 

78                  A file note of Mr McNally of a telephone conference with Mr Wilson on 16 February 1988 recorded that Mr McAlary’s memorandum of 7 October 1986 was considered, Mr Wilson’s opinion being that although proceedings under the Law Reform Act and the Partnership Act were both possible, they were likely to fail if the applicant would not give evidence, especially on those matters that Mr McAlary thought essential [35-6].  Another file note of Mr McNally, undated though said to have been made on the same day, recorded the passing on to the trustee of Mr Wilson’s opinion on this matter and the trustee’s response that it believed the applicant would not give evidence. 

79                  The trustee said that all this material was carefully reviewed and considered in light of the applicant’s unwillingness to give evidence.  No doubt the trustee also considered the correctness of the applicant’s assertion that Nawal Nader would be unable to dispute that the judgment debt was a partnership liability.  Moreover, the trustee submitted that if it had been provided with a copy of Mr McAlary’s advice at or shortly after the time it was provided to the applicant’s solicitors, rather than some sixteen months later, it would definitely not have launched the proceedings against Nawal Nader.  So much was earlier recorded in two letters of the trustee to the applicant’s solicitors on 2 June and 5 August 1988.  Yet despite the advices of Mr Darvall and Mr McAlary, the comments of Waddell CJ in Eq, and the trustee’s disinclination to continue the proceedings against Nawal Nader after receiving the advice of Mr Darvall, the applicant pushed for the continuation of those proceedings while maintaining his unwillingness to give evidence, as shown by a file note of a conversation between Mr McNally, the applicant and his then solicitor on 9 February 1988. 

Proofs of debt

80                  The applicant’s challenge to the trustee’s failure to reject the two proofs of debt lodged by George and Jim Nader in relation to the unregistered undated mortgages for $100,000 and $50,000 respectively, was based on the evidence in the section 69 and 81 examinations that the mortgages did not secure cash loans as they stated but that they related to some property dealings in Lebanon.  The applicant said that the trustee should also have known that there was no agreement as to when the principal amount borrowed was to be repaid.  Inconsistencies in the various accounts of the transactions upon which the mortgages were supposed to have been based should also have been apparent.  In fact, as of 30 May 1986, on which day the applicant’s solicitors forwarded to the trustee translated searches of certain Lebanese property titles, the trustee should also have known that the transactions upon which the mortgages were alleged to have been based had not occurred.

81                  In those circumstances, the applicant urged that the trustee’s only reasonable course was to reject the proofs of debt, leaving it to George and Jim Nader to take whatever proceedings they wished to enforce their mortgages.  It would follow that it was unreasonable for the trustee to commence proceedings against them to have the mortgages declared void as against the trustee when the option of rejecting their proofs of debt was open.  The applicant relied upon the fact that Jim Nader withdrew his claim once the trustee challenged the validity of his mortgage to assert that it is probable that he would not have commenced proceedings to enforce the mortgage debt.  Although George Nader fully contested the trustee’s challenge to the mortgage, the applicant submitted that he would not necessarily have done so if forced to be the initiating party.  Accordingly, the trustee should be ordered to make good the amount of costs incurred in the prosecution of its proceedings against George and Jim Nader with an appropriate discount to allow for the possibility that George Nader would have brought his own proceedings.

82                  The mere lodging of proofs of debt does not determine the status of the actual debts which are not considered as proved until formally admitted: s 83 of the Bankruptcy Act.  Moreover, there is no specific time limit for the rejection of proofs of debt: ss 102(1) and 140 of the Bankruptcy Act.  Given this situation the trustee submitted that its commencement of proceedings against George and Jim Nader on 2 July 1997 was clear notice that it did not intend to accept the proofs of debt.  It must also be noted that notwithstanding the lodgment of a caveat by Jim Nader in October 1985 and his attendance for examination on 23 October 1986, he conceded the invalidity of his mortgage shortly after the service of the trustee’s application. 

83                  The trustee also submitted that it had no obligation to formally reject the proofs of debt and rejected the applicant’s contention that a formal rejection of these proofs of debt would necessarily have avoided the costs of bringing the proceedings.  It could still properly have applied to the Court to avoid the mortgage transactions and it is likely that it would have done so.  There is thus no basis on which to find that the costs of the hearing of the trustee’s proceedings against George Nader would have been avoided simply through the rejection of his proof of debt. 

Siyozu share

84                  As to the trustee’s failure to recover from the bankrupt the consideration he received for his share in N. & W. Petroleum Pty Limited, known as Siyozu at the time of incorporation, the applicant said that there was no reasonable basis for accepting the bankrupt’s claim that he held his interest in the company, and hence the proceeds of its sale, on trust for his brother Edward Nader.  The trustee should have recovered the $40,000 that the bankrupt was paid for his interest and its failure to do so left the estate and the applicant suffering loss which the trustee should be ordered to make good.

85                  The evidence established that on 2 July 1987 the trustee commenced proceedings in this Court to set aside the transaction by which the bankrupt purported to sell his interest in Siyozu.  Those proceedings were contested by the bankrupt, who asserted that Edward Nader was the provider of the purchase moneys for, and was therefore beneficially entitled to the proceeds of, the sale of the share.  A bank draft drawn by Edward Nader in favour of the bankrupt on 24 December 1984 in a sum equivalent to ₤GB25,000 was tendered in support of the assertion.  Edward Nader corroborated the bankrupt’s evidence and the trustee received written confirmation from two children of Edward Nader that the funds received from the sale of the share had been distributed to them in accordance with their father’s instructions.

86                  It thus became apparent that the trustee’s prospects of successfully recovering the amount paid to the bankrupt for his share depended on successfully challenging Edward Nader’s evidence that he provided the bank draft to the bankrupt.  However, despite the zealous assistance of the applicant in dealing with Lebanese and French lawyers, no evidence was forthcoming to challenge Edward Nader’s sworn evidence.  The trustee submitted that the failure of the proceedings seeking recovery of the proceeds of the share sale was therefore inevitable and its termination does not represent a breach of duty.

Share in T. & N. Nader Pty Ltd 

87                  The applicant’s fifth alleged breach of duty – the failure to realise the value of the bankrupt’s share in T. & N. Nader Pty Limited – was not pressed in his final submissions.  I can therefore deal with it briefly.  The share was sold to Nawal Nader as part of the $400,000 transaction with the trustee which occurred on 13 March 1990.  The applicant alleged thatfrom the bankruptcy on 18 October 1985 to the share sale, T. & N. Nader Pty Limited earned income and profits. 

88                  On 22 October 1992 the trustee wrote to the applicant that the company’s property and assets were not divisible amongst the bankrupt’s creditors without giving reasons, and there was in any event no evidence that the company realised a trading profit in any year before the bankruptcy other than in the nine months ending 30 June 1984; nor was there evidence that the bankrupt’s share in the company was saleable to anyone other than to Nawal Nader.  The evidence was that the trustee sold the bankrupt’s share to Nawal Nader at the best price obtainable.  The trustee submitted that its actions were reasonable and well within its powers and there was thus no breach of duty.

89                  The applicant submitted that it was foreseeable to Mr Darvall that discontinuance of the trustee’s proceedings against Nawal Nader, if they had good prospects of success, would cause economic loss to the applicant.  Arising from Hill v Van Erp and Perre v Apand [71], the applicant pointed to a number of factors additional to this foreseeability which indicated the existence of a duty of care:

(i)             the proceedings about which Mr Darvall advised were for the benefit of a limited class of people, the creditors of the bankrupt estate, of which the applicant was a member

(ii)           Mr Darvall knew that the applicant was a member of that class and that he was the one person who stood to gain or lose most from the continuance or discontinuance of the proceedings

(iii)          the loss suffered as a result of Mr Darvall’s failure to exercise care was not indeterminate

(iv)         the loss was of the specific right to have the assets of a bankrupt estate duly realised for the benefit of creditors

(v)           the observance of a duty to the applicant to advise carefully did not intrude upon either Mr Darvall’s economic interests or the duty he owed to the trustee

(vi)         Mr Darvall was in a position of control, in that he would influence the trustee

(vii)        the applicant was not in a position to prevent the discontinuance of the proceedings

90                  The applicant argued that the nature of this duty of care owed to him by Mr Darvall may be extracted by analogy from the judgment of Wilcox J in Montague Mining Pty Ltd v Peter L Gore & Ors [1998] FCA 1334 (23 October 1998), in which his Honour relevantly stated at 14-15:

Where a client engages a solicitor who professes special expertise in a particular field of law to do work within that field, the relevant standard of care is that of the ordinary skilled solicitor exercising and professing special expertise in that field.

It follows … that, if an ordinary skilled solicitor exercising and professing special expertise in an area of law would foresee a real risk of economic loss to a client in respect of a matter within the solicitor’s retainer or additional assumed responsibility, unless particular action was taken, the solicitor is under a duty to take that action, or advise the client to do so.

91                  These same principles are said to apply to a barrister’s duty of care.  Accordingly, the applicant contended that Mr Darvall’s expertise in the field of insolvency litigation raised the standard of care expected of him and diminished the degree of foreseeability required of the economic loss.

92                  In Saif Ali v Sydney Mitchell & Co [1980] AC 198, the House of Lords held that apart from negligence in the conduct of a trial, a barrister is in the same position as any other professional (per Salmon LJ at 231):

The normal rule applied by the law is that if anyone holding himself out as possessing reasonable competence in his avocation undertakes to advise or settle a document, he owes a duty to advise or settle the document with reasonable competence and care.

93                  In the more recent Court of Appeal case of Kelley v Corston [1998] 3 WLR 246, Judge LJ said at 255:

Whatever the basis for the immunity of the advocate and whatever its ambit, the starting point remains that the immunity constitutes an exception to the fundamental principle that those who have suffered loss and damage as a result of the negligence of their professional advisers should normally be entitled to their remedy.  Therefore the immunity should be confined as closely as possible to those circumstances where notwithstanding the possible merit of an individual claim the public interest requires that immunity should be recognised.  The claim for immunity for the conduct of an advocate can only arise if the case falls squarely within one or more of these three principles, participation in court proceedings, intimate connection with the conduct of the case, or a collateral attack on a final decision.

94                  However, in Arthur J.S. Hall & Co (a firm) v Simons [2000] 3 WLR 543, the trial immunity was finally removed when the House of Lords held that advocates in civil proceedings were no longer entitled to immunity from suits in negligence, in the process finding that none of the reasons previously said to justify the principle were valid any more.  Lord Hutton came to the conclusion that there were two main reasons for dispensing with the immunity (at 599):

The first reason relates to public perception.  The principle is now clearly established that where a person relies on a member of a profession to give him advice or otherwise to exercise his professional skills on his behalf, the professional man should carry out his professional task with reasonable care and if he fails to do so and in consequence the person who engages him or consults him suffers loss, he should be able to recover damages.  This principle accords with what members of society now expect and consider to be just and fair, and I think it is difficult to expect that reasonable members of society would accept it as fair that the law should grant immunity to lawyers when they conduct a civil case negligently, when such immunity is not granted to other professional men, such as surgeons, who have to make difficult decisions in stressful conditions.

………

The second reason which leads me to the conclusion that the immunity should no longer be retained in civil proceedings relates to the difficulty which arises in drawing a distinction between that part of the work of an advocate which is entitled to immunity and that part of his work which is not.

………

Because of the difficulty of drawing a clear line to fix the boundaries of the immunity and because in civil proceedings the error which is alleged to constitute negligence, even though committed in court, will often be attributable to a decision taken, as Lord Diplock put in Saif Ali v Sydney Mitchell & Co. [1980] AC 198, 220, in the relative tranquillity of barristers’ chambers and not in the hurly-burly of the trial, I consider that, when this is linked to the public perception to which I have referred, the balance falls in favour of removing the immunity in civil matters.

95                  This decision means that there is now a divergence between English and Australian law on the immunity question, at least for civil trials, which is likely to lead to the issue being relitigated in this country.  In Gianarelli v Wraith (1988) 165 CLR 543, the High Court, following Saif Ali, held that barristers and solicitor advocates are immune from suits alleging negligence in the conduct of a case in court or in work out of court which affects the conduct of a case in court.  Justice Kirby of the High Court of Australia recently gave consideration to this issue in Boland v Yates Property Corporation Pty Ltd (1999) 167 ALR 575, although the majority (Gleeson CJ, Gummow, Hayne and Callinan JJ) thought that the issue did not arise in the circumstances of the case.  At 618 his Honour stated:

[A]s a matterof the legal authority for which in this country Giannarelli stands, and as a matter of legal principle and policy, I would confine the scope of the legal immunity from suit to immunity for a legal practitioner advocate in respect of in-court conduct during proceedings before a court or like tribunal.

96                  But there seems no dispute in relation to the existence of liability for out of court advice by barristers as applies here.  Basically conceding the applicant’s arguments in this respect, HIH submitted that simply to establish foreseeability is not enough to establish a barrister’s duty of care at law.  Proximity is needed.  HIH submitted that a barrister advising a trustee is not so proximate to an indemnifying creditor as to ground a duty of care.

97                  Whilst this problem is never an easy one to solve, recent case law from the High Court of Australia: for example, Hill v Van Erp; Esanda v Peat Marwick (1997) 188 CLR 241; Northern Sandblasting v Harris (1997) 188 CLR 313 suggests that there is no unifying theory of proximity and that each set of circumstances be considered on its own merits on a case-by-case basis.  To establish whether sufficient proximity exists, it is necessary either to identify an existing category of relationships which have been held to impose duties of care or to create a new category: Hill v Van Erp at 189 (Toohey J).  In that case, the High Court held that a solicitor was in sufficient proximity to an intended beneficiary of a negligently drafted will which excluded his intended half interest as to owe the intended beneficiary a duty of care because the testator’s reliance on the solicitor’s work was clear and obvious.

98                  HIH sought to distinguish the present case on the facts.  Mr Darvall was briefed with information, and was therefore aware, that the trustee was in possession of a number of advices from counsel, some of which conflicted.  Moreover, the trustee was experienced in bankruptcy issues and was being advised by a competent and experienced solicitor expert in bankruptcy law, as well as a junior counsel.  HIH said that it would not therefore have been obvious to Mr Darvall that the trustee would rely on his advice to the exclusion of all other available opinions.  His advice would have been treated as no more than another factor to be taken into account by the ultimate decision-makers in relation to the conduct of the estate.  HIH also said that Mr Darvall may not have even aware that the applicant was entitled to a large portion of any distribution from the estate.  For all he knew the applicant may have been but one of many creditors.  The commonality of interest seen in Hill v Van Erp was therefore absent here. 

123               The negligence alleged was that Mr McNally failed to advise the trustee to maintain its proceedings against Nawal Nader, notwithstanding the effect of Mr Darvall’s advice, failed to determine that the authorities cited by Mr Darvall actually established that the trustee was entitled to a declaration of its right to contribution against Nawal Nader and more, and advised the trustee that its proceedings against Nawal Nader would not succeed without the applicant’s evidence.  In his second set of further submissions, the applicant also alleged that if the consent order for the taking of accounts did not survive the dismissal of the proceedings, Mr McNally failed to advise that proceedings for the taking of accounts should have been commenced before the expiration of the relevant limitation period.  Mr McNally argued that Mr Darvall’s opinion was correct but if wrong, that it was reasonable for him to rely on it.

124               On the relevance of Mr McNally’s reliance on the advice of Mr Darvall to excuse these breaches, a Full Court of this Court (Drummond, Sundberg and Finkelstein JJ)  said in Yates Property Corporation v Boland (1998) 85 FCR 84 at 108:

In the first place a solicitor will not be exonerated from exercising due skill and care merely because he has taken the advice of counsel.  If a solicitor does take the advice of counsel on a particular point, the solicitor is still under an obligation to turn his own mind to the subject.  He cannot blindly follow the advice of counsel: see Davy-Chiesman v Davy Chiesman [1984] 2 WLR 291 at 305-306; [1984] 1 All ER 321 at 333-334 and Orchard v South Eastern Electricity Board [1987] 1 QB 565 at 579 each being a case concerned with whether a “wasted costs order” should be made against a solicitor but is nevertheless instructive on the point under consideration.

Secondly, it may be accepted that a solicitor who does not have specialised experience in a particular field is entitled to rely heavily on counsel.  It is proper for a solicitor who conducts a general practice to rely on the Bar to obtain specialist advice.  It may well be that for many solicitors who have no particular experience in an area of law counsel is the source of specialist advice.  In such case the solicitor will only be guilty of negligence if counsel’s advice is obviously wrong – that is so wrong that the error should be obvious to a reasonably competent solicitor.  But a solicitor with expertise in an area of the law cannot rely on counsel to the same degree.  Of course a solicitor expert in a field will also seek the advice of counsel.  Sometimes he will do so to obtain a second opinion.  Sometimes the solicitor may be too busy to deal with a problem himself and for that reason will obtain the services of counsel.  But for whatever reason counsel’s advice is sought, when the specialist solicitor receives that advice he is well placed to consider it and form his own view about its correctness.  In our view there is no justification for the conclusion that he is absolved from that task merely because he has taken the advice of experienced counsel.

125               This decision was subsequently reversed on appeal to the High Court of Australia [95], though apparently on other grounds.  Based on this authority and given Mr McNally’s substantial experience in bankruptcy law and the administration of bankrupt estates, the applicant contended that he was not entitled simply to rely on Mr Darvall’s advice to excuse his own breaches of duty.  Furthermore, Mr McNally separately advised the trustee in relation to Mr Darvall’s opinion and took specific steps to ascertain its correctness, including conferring with Mr Wilson.  Essentially these allegations are one – that Mr McNally failed to detect an error of law in Mr Darvall’s advice.

126               On the correctness of the Darvall opinion, Mr McNally argued that at common law neither the bankrupt nor the trustee could maintain an action for contribution against Nawal Nader until more than the bankrupt’s just proportion of the principal debt had been paid out of the estate.  No right of contribution could be declared, nor quia timet relief claimed, until such time as payment by the party seeking contribution, that is payment out of the estate, was imminent: McLean at 341 (Starke J).  Moreover, any quia timet relief would need to be tailored to the particular circumstances of the case: Mason & Carter, Restitution Law in Australia at para 639.

127               When Mr Darvall furnished his advice on 18 December 1987, no payment had been made to the applicant out of the estate.  Nor was any such payment imminent.  In fact it was not until 1990, as a result of the settlement of the proceedings between the applicant and Nawal Nader, that funds from which to pay a dividend to creditors were paid into the estate.  Even then, no dividend was actually paid to the applicant until 20 March 1991.

128               Mr McNally contended that section 24(2)(a) of the Partnership Act takes the correctness or otherwise of Mr Darvall’s advice no further.  That provision speaks merely of an indemnity which “the firm” must give “each partner” in respect of “payment made” and “personal liabilities incurred” by a partner, and is silent as to the means by which such contribution is to be obtained or when it must become available.  For those matters regard must be had to the general law, the content of which Mr Darvall adequately and correctly identified.  Hence Mr Darvall’s view that the prosecution of any proceedings for contribution against Nawal Nader would not as at 18 December 1987 result in an order requiring her to pay any money into the estate was correct.  If wrong, Mr McNally’s failure to detect the error did not involve negligence on his part. 

129               As regards the standard of conduct to be expected of him, Mr McNally submitted that notwithstanding his experience in the area of insolvent estates, there was no evidence, because it was not put to him, that his expertise extended to the field of equitable principles of contribution.  In those circumstances, Mr McNally is only “guilty of negligence if counsel’s advice is so obviously wrong that the error should have been obvious to a reasonably competent solicitor”: Yates (Full Federal Court) at 108.  On no view of the matter was Mr Darvall’s advice “obviously wrong”.  In fact, the evidence shows that Mr McNally turned his own mind to it, as required of him by Yates (Full Federal Court), and thought it correct.  The consistency of Mr Darvall’s advice with those of Mr Wilson also suggests that Mr McNally’s reliance on the advice of Mr Darvall was proper and reasonable such that no occasion arose for that advice to be rejected.

Quantum

166               The applicant submitted that his primary loss is to be measured by the amount he would have recovered from the estate if the partnership proceeding against Nawal Nader or other proceedings – including presumably under the Law Reform Act – had been successfully completed, with judgments obtained and enforced.  Had this occurred, the applicant said that an amount sufficient to pay him the whole of the balance of the judgment debt would have been recovered.

167               In his particularised statement of damages the applicant put the debt not recovered from the estate at $457,323.23, which figure represents the proven debt ($714,156 [46]) less the distributions from the estate ($256,832.77 [47]), plus $200,000 for interest, making a total of $657,323.23.  The interest figure is said to represent the surplus that would have been in the estate by January 1989 had the trustee’s proceedings against Nawal Nader been successfully concluded, had the $40,000 the bankrupt received for the sale of his interest in Siyozu been recovered, and had George and Jim Nader’s proofs of debt been rejected rather than contested in validity proceedings with the incurring of legal costs.  The January 1989 date was selected by the applicant to allow a two year period for the completion of proceedings from when he said the trustee should have started them in July 1986 and a six month period from their completion to allow for the execution of the judgment against Nawal Nader.  The applicant’s right to claim this surplus as interest on his debt is based on section 148(c) of the Bankruptcy Act 1946 (Cth), which was repealed with effect from 1 July 1992 by the Bankruptcy Amendment Act 1991 but apparently not so as to affect the payment of a deferred claim for interest on an interest-bearing debt proved in the bankruptcy, in this case deemed to have been made in January 1989.

168               Once the trustee consented to the dismissal of the proceedings against Nawal Nader, his only course, according to the applicant, to recover the outstanding portion of the judgment debt was to proceed against Ebsworths and Nawal Nader personally.  The applicant contended that although these courses were taken to mitigate the loss he suffered as a result of the termination, he was under no obligation to pursue them.  Nevertheless, the applicant claims as damages in these proceedings the costs of taxing Gadens’ bill in regard to his proceedings against Ebsworths and Nawal Nader.  The applicant said that had he not proceeded against Ebsworths and Nawal Nader, it would have undoubtedly been argued against him that he had failed to pursue all available legal remedies, that he had thus failed to act reasonably to mitigate his loss, and that his loss was in fact caused by that failure.

169               To the amount of $657,323.23 therefore is added his costs of the proceedings against Ebsworths and Nawal Nader of $304,829.93 and the costs of taxing Gadens’ bill of $39,442.85.  The $160,000 recovered in those proceedings is then deducted, leaving a total damages claim of $841,596.01.

170               Whether the obligation to pursue Ebsworths and Nawal Nader existed or not, the applicant was bound to take all reasonable steps to mitigate loss and cannot recover damages for loss that could have been avoided by reasonable action on his part.  The corollary of this obligation is that a party can recover for loss incurred in the process of any reasonable attempt at mitigation, even though that loss is ultimately greater than it would have been had the mitigating steps not been taken: McGregor on Damages, 16th ed, London, Sweet & Maxwell, 1997 paragraphs 285-6, 334-5.  Accordingly, the costs of proceedings brought in mitigation against a third party are recoverable as damages, subject to considerations of remoteness: Hammond v Bussey (1888) 20 QBD 79.  Moreover, if an attempt to mitigate loss is only partially successful, an applicant is entitled to recover the shortfall from the original tortfeasor.

171               The applicant submitted that his proceedings against Nawal Nader and Ebsworths were prima facie reasonable.  He was represented throughout by competent lawyers on whose advice in the conduct and settlement of those proceedings he was entitled to rely.  Accordingly, the applicant submitted that he is entitled to recover the costs of the proceedings as damages in the present case.

172               Furthermore, the costs of a reasonable but unsuccessful attempt to mitigate the costs of those two proceedings are also recoverable as damages in the present case.  The applicant pointed to the fact that the respondents in the present proceedings accept that the $160,000 recovered in his proceedings against Ebsworths and Nawal Nader is to be set off against the applicant’s loss.  Once a party acknowledges that the fruits of litigation are to be brought into account to its benefit, it must also accept that the costs of that litigation must be brought into account to its detriment.  Only thereby is the true net gain – or in this case net loss – of proceedings in mitigation accurately accounted for.  

173               The situation as it was immediately prior to the dismissal of the partnership proceedings against Nawal Nadar was that the applicant and the trustee had entered into an arrangement for the conduct of litigation involving an indemnity as to costs. The applicant submitted that properly conducted, those proceedings would have been successfully concluded in a relatively short time with an eventual recovery of money from Nawal Nader.  With the dismissal of the proceedings none of those things had occurred, his only chance of recovery then being to await realisation of the assets of the estate and a payment to him before proceedings against Nawal Nader would be contemplated.  Recommencing proceedings would have required reconsideration of their merits and the provision of a further indemnity, leading to further liability on the applicant.  The applicant thus claims the loss of the rights and benefits flowing from the termination. 

174               The applicant submitted that there was a close and direct causal relationship between Mr Darvall’s advice and this loss.  His actions in relation to his claims against Nawal Nader and Ebsworths and his decision not to provide the trustee with an indemnity for further proceedings were said to be irrelevant to the cause of that loss, except possibly to the reasonableness of his actions in mitigation.

175               Although only the liability of HIH for damages has been established, some of the successful respondents’ submissions on damages have to be considered because they have either been adopted by HIH or are relevant in those proceedings.

No claim or evidence

176               As regards the dismissal of the partnership proceedings against Nawal Nader, the trustee submitted that a correct application of the applicant’s estimated duration of the proceedings and period of execution would have resulted in judgment by July 1989 and the recovery of money by January 1990, the cause of action for breach of duty not accruing until the relevant limitation period expired on 16 July 1987.  In any event, the trustee submitted that there was no evidence that the proceedings would have resulted in judgment by July 1989 and the recovery of money by January 1990.  The applicant’s unwillingness to give evidence in the proceedings and the absence of evidence on issues of contribution between the partners illustrate the likely lack of evidence on this issue.  Having regard to the nature and history of the negotiations between the applicant and Nawal Nader, the trustee thus submitted that there is no satisfactory basis for concluding that the estate would have recovered anything from Nawal Nader earlier than actually occurred subsequent to the March 1990 settlement of the applicant’s proceedings against her.

177                 Nor was there any evidence or pleading that the properties owned by the bankrupt and Nawal Nader were likely to have been realised earlier than March 1990.  The complexity of the valuation evidence and the course of events during 1989 which saw Nawal Nader negotiate to purchase the estate’s interest in the service station at a time when she was facing the prospect of a renewed claim from the applicant also do not suggest that the trustee should have realised the properties in the estate earlier than March 1990.

178               The best evidence of the value of Nawal Nader’s assets as at March 1990 is contained in the Notice of Meeting of creditors dated 26 March 1990, which shows a net value of $423,000 for her half interest in the properties in the estate.  However, the applicant’s assessment of Nawal Nader’s asset position is not based on valuations of the properties made in 1990, nor on the net values of the properties.  Nor are any deductions allowed from this figure for any selling or litigation costs that the trustee would have incurred in proceeding with the claims against Nawal Nader and in realising any judgment.  Moreover, the applicant has also apparently included a property that according to the trustee was sold on 28 August 1987.

179               Thus whatever judgment the trustee may have obtained against Nawal Nader, it would not have recovered more than $423,000 from her, and after costs, the amount flowing into the estate would more likely not have exceeded about $300,000 at the most.

180               A number of other irregularities in the applicant’s quantification of his claim were also pointed to by the trustee.  Despite acknowledging receipt of the $100,000 from MMI, the applicant failed to deduct that amount from the liability he said would have been found against Nawal Nader had the partnership proceeding against her been successful.  The applicant has also erroneously allowed for interest on the judgment debt from the personal injury proceedings as if the judgment in the trustee’s proceedings against Nawal Nader had been delivered on 1 July 1998 rather than 1988.  The assumption has also been made that in those proceedings judgment would have been for the entirety of the judgment debt plus interest, rather than in an amount which would reflect her proportion.

No loss to the estate or the applicant

181               On the basis of the joint judgment of Mason CJ, Dawson, Gaudron and McHugh JJ in Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 at 532-3:

In the result, we agree with the decision of von Doussa J. in S.W.F. Hoists & Industrial Equipment Pty. Ltd. v State Government Insurance Commission [(1990) 6 ANZ Insurance Cases 76,688].  There the insured sued the insurer for loss suffered as a result of a misrepresentation as to the extent of the indemnity or liability coverage provided by a proposed contract of insurance.  His Honour held that actionable actual loss (as opposed to a mere potential for loss) occurred only when the insured was called on by a third party to make payments against which it would have been entitled to be indemnified by the insurer under the contract as represented.  When the events entitling the third party to make the demand for payment occurred and when the insurer indicated, prior to the making of that demand, that it would not indemnify the insured against such demand, there was no more than a potential for loss.

………

The conclusion we have reached with respect to the time when the plaintiff first suffers loss in respect of contingent loss or liability accords with the comment of Gaudron J. in Hawkins v Clayton [(1988) 164 CLR 539 at 601]:

“[I]f the interest infringed is an interest in recouping moneys advanced it may be appropriate to fix the time of accrual of the cause of action when recoupment becomes impossible rather than at the time when the antecedent right to recoup should have come into existence, for the actual loss is sustained only when recoupment becomes impossible.”

the trustee contended that the estate would only have suffered loss if it actually paid or was required to pay more than its share of the judgment debt with the overpayment not being recoverable from Nawal Nader.  Various contingencies were said to affect whether or not the bankrupt estate would be required to pay more than its share of the judgment debt, the most important being the fate of the applicant’s claim against Nawal Nader.  On the assumptions said to underpin the applicant’s claim against the trustee – that Nawal Nader and the bankrupt were partners and that she was equally liable for the applicant’s injury and had the means to pay her share of that liability – it was certainly open for the applicant to obtain sufficient redress from her directly.  That possibility ended when Nawal Nader’s liability to the applicant was resolved by the settlement in March 1990, not by any action or inaction on the part of the trustee.  Moreover, notwithstanding the dismissal of the trustee’s proceedings against Nawal Nader prior to March 1990, the estate still retained its right of contribution against her, there being no issue of res judicata or issue estoppel in proceedings for declaratory relief: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 597. 

182               The trustee contended that there was still no loss to the estate after the payment by Nawal Nader of $400,000 as anticipated in the March 1990 deed of settlement between her, the bankrupt and the applicant because after the applicant received his distributions from the estate as a result of this payment, he had still only received less than half of the unpaid portion of the judgment debt. The payments from the estate to the bankrupt can therefore not properly be classified as overpayments such as to warrant an award of damages in accordance with Wardley.

No causal nexus

183               It is a necessary precondition of an order against HIH that the loss claimed be relevantly caused by the trustee’s termination of the partnership proceedings against Nawal Nader.  Moreover, as the judgment debt and the applicant’s action against Nawal Nader related to the same damage, the applicant was never entitled to recover from both because he would then be doubly compensated.  Thus the loss of one right of action or a limit on its enforceability did not cause any loss.  The prospect of loss only arose if and when both rights were incapable of being exercised so as to discharge the liability in full. 

184               In practical terms, the trustee acknowledged that the judgment debt was always incapable of being fully paid from the bankrupt’s assets, and that resort to Nawal Nader’s assets would always have been necessary.  However, in the March 1990 settlement of his proceedings against Nawal Nader, the applicant released her from any further liability other than as set out in the deed of settlement.  Subsequently the applicant refused the trustee’s offer to take up further contribution proceedings against Nawal Nader.  On that basis as well, any loss thereby suffered is not attributable to its conduct.  Thus there was no loss consequent upon Mr Darvall’s negligence.

185               For their parts, either HIH or Mr McNally or both pointed to a number of breaks in the chain of causation between the alleged damage on the one hand, and Mr Darvall’s advice and Mr McNally’s advice and actions on the other, each one fatal to the applicant’s case.  First.  Even if at the time Mr Darvall’s advice was furnished, a payment to the applicant from the estate was in fact imminent – and therefore Mr Darvall and Mr McNally should have advised the trustee to continue the proceedings against Nawal Nader to obtain a declaration of her liability towards the judgment debt an order for the setting aside of a fund – the position of the estate and the applicant would have remained unchanged.  That is, a claim for monetary judgment remained available to the estate as soon as a payment was made.  That no such claim has ever been made is not as a result of anything advised by Mr Darvall.

186               Second.  For completely unexplained reasons, the applicant chose to settle his claim against Nawal Nader for $10,000, and against Ebsworths for $150,000 which HIH suggested were both gross undervalues.  These decisions had nothing at all to do with anything done or not done by Mr Darvall or Mr McNally.  Certainly the claim against Ebsworths appears to have been very strong.  

187               Third.  Mr Darvall did not advise that the trustee’s proceedings against Nawal Nader be dismissed but that they were premature, and that if and when a payment were made to the applicant, the proceedings would be a suitable vehicle for a claim for contribution.  In fact the decision to bring the proceedings against Nawal Nader to an end was made by the trustee because of an understanding, rightly or wrongly created by Mr McAlary’s advice of 7 October 1986, that those proceedings could only succeed if the applicant gave evidence.  Mr Darvall did not comment on that issue as the matter was not raised with him.  HIH argued that the evidence of the Official Receiver, Mr Bluett, that reliance was placed on Mr Darvall’s opinion in the making of the decision to terminate the trustee’s proceedings, should be considered in light of the fact that it was reconstructed many years after the event.  According to HIH, the real reason for the dismissal of those proceedings should be seen as the trustee’s understanding that the applicant would be required to give evidence and his expressed unwillingness to do so. 

188               Two letters written by Mr J. Garrett on behalf of the Official Receiver to the applicant in 1992 were relied on in support of this submission.  The first, dated 18 November, relevantly stated:

It is my understanding for those proceedings to have any prospects of success it was necessary for you to give evidence and you were not prepared to do this.

189               The second, dated 2 December 1992, stated:

[T]he proceedings that were commenced on the advice of Mr Wilson of Counsel against [Nawal] Nader relying upon the obligation imposed by the Partnership Act could only succeed if you gave evidence in those proceedings and you were not prepared to do this.

190               Mr McNally added that he proceeded in accordance with the advices of Mr McAlary and Mr Wilson that as the applicant was not prepared to give evidence, the proceedings would most likely fail. 

191               Fourth.  Even after the dismissal of the trustee’s proceedings against Nawal Nader, there remained operative an order made by consent in those proceedings that an account be taken of the partnership.  An account would have had the effect of quantifying the contribution Nawal Nader was obliged to make under section 24(2) of the Partnership Act.  No evidence was led as to why accounts were not taken, nor that the applicant asked for that course to be taken.  It has always been open to the trustee to pursue the claim for an account.  That such a course was not pursued is in no way due to the advice of Mr Darvall.

192               HIH described the attribution to Mr Darvall of responsibility for the trustee’s failure to bring any further proceedings to recover contribution from Nawal Nader as “truly ridiculous”.  The evidence was that Mr McNally and the trustee clearly understood Mr Darvall’s advice to be saying no more than the trustee’s then current proceedings were premature.  The reasons why the trustee did not commence any further proceedings cannot in any way be linked to the advice.  In other words, the dismissal did not prevent the pursuit of the very cause of action that the applicant complains has caused him damage because it was not pursued.

193               HIH called for a commonsense approach to be adopted to questions of causation: March v E&M Stramare Pty Ltd (1991) 171 CLR 506.  Adopting such an approach, it simply cannot be said that any of the alleged damage complained about was caused by any act or omission on the part of Mr Darvall.

conclusions on damages

194               Assuming that the availability of other relief, the settlement of earlier proceedings, and the other breach and causation problems earlier discussed do not exclude the applicant from succeeding here in principle, the evidence does not disclose that either he or the estate suffered any economic loss at all as a result of the termination of the proceedings against Nawal Nader.  

195               The applicant had a duty to protect his own interests.  It was the applicant’s decision to settle his proceedings against Nawal Nader and Ebsworths.  He did not take proceedings under the Law Reform Act.  His conduct in refusing or expressing extreme reluctance to give evidence materially contributed to, and may have caused, the trustee’s decision to discontinue its proceedings against Nawal Nader.  In those respects the applicant has at least substantially contributed to his own situation.  In my view the proportion must be not less than 50%.

196               One way to approach the quantification of damages arising from the termination of the proceedings against Nawal Nader is to halve the amount the applicant actually received from the estate in satisfaction of the proven debt – to represent the maximum possible recovery in any proceedings for contribution against Nawal Nader – and then to deduct from that figure the amount he actually received from MMI, Nawal Nader and Ebsworths and to allow some component for additional costs that may have been incurred in his proceeding against Nawal Nader.  The applicant may well have incurred some additional costs in his proceedings against Nawal Nader and reductions to allow for vicissitudes and contributory negligence are required.  The result is effectively nil.

197               Another way to approach this issue is to assume that the applicant would have received half of the judgment debt on a contribution claim by the trustee against Nawal Nader plus interest, to deduct from that figure an amount representing his contribution to the trustee’s costs in those proceedings and the amount the applicant actually received from the estate, MMI, Nawal Nader and Ebsworths.  The figure so calculated should then be substantially reduced to acknowledge that the applicant is being compensated for the loss of the chance to bring legal proceedings: Malec v Hutton (1990) 169 CLR 638, involving inherent risks, such as failure, the high likelihood of compromise settlement and the possible inability to enforce any judgment.  As HIH submitted, it is appropriate for the reduction in this case to be in the vicinity of fifty per cent.  Further reductions should then be made for vicissitudes and to account for the applicant’s own negligence.  The end result is the same.

198               The result is that the applicant has proved no loss for which HIH is liable from the discontinuance of the proceedings against Nawal Nader.

199               Although the statement of claim did not seek the costs of the trustee’s proceedings against George and Jim Nader as damages, the applicant claimed in his particularised statement of damages that these costs should be included in the estate for the purpose of calculating its surplus, from which he could have been paid interest on his debt. 

200               However, the very costs that the applicant has included in his calculation of interest over the unpaid aspect of his proven debt were the subject of consent orders on 24 April 1991.  The applicant has not offered any basis for challenging the consent orders, and I can detect no loss to the estate or the applicant from those orders.

201               For the reasons given earlier [85-6], neither the applicant nor the estate suffered any loss as a result of failure to pursue the $40,000 proceeds of the bankrupt’s sale of his share in Siyozu.

202               On the applicant’s case, he had good claims against both Ebsworths and Nawal Nader and the compromise of the proceedings without recovering costs is not attributable to the trustee or anything advised by Mr Darvall.  There is no evidence that the applicant ever paid Ebsworths’ costs and it is doubtful that he ever had an enforceable liability for them because he set off against their bill the additional costs he incurred in his proceedings against Nawal Nader.  In any event, any liability in negligence for those costs has long since become statute barred.  Also, in the absence of a taxed bill of costs, there is no basis on which to quantify the costs.  In fact, in or around June 1990 the applicant informed the trustee that he was unable to have the costs taxed.

203               As the applicant’s proceedings against Nawal Nader were on foot well before Mr Darvall’s advice was furnished, they cannot sensibly be said to be any form of mitigation of his claim in this regard.  HIH submitted that it was prima facie unreasonable for the applicant to spend more than $300,000 in legal fees to recover no more than $165,000.  There is obvious force in that contention.  Moreover, there was no evidence that if the trustee’s proceedings against Nawal Nader had been continued, they would not have resulted in the applicant, as the indemnifying creditor, incurring similar expenses.

204               Mr McNally submitted that the most the trustee could have recovered from Nawal Nader was half the amount it paid out of the estate to the applicant in satisfaction of his proven debt.  Recovery of this amount, some $128,416.38, would still not have satisfied the amount outstanding on the judgment debt.  Thus in order to meet that shortfall, it would have been necessary for the applicant to proceed against Nawal Nader and Ebsworths.  It follows that his costs against them were inevitable and he is not entitled to recover them in these proceedings.

205               In my opinion, Gadens’ costs are simply too remote from any act or omission of Mr Darvall and too unreasonable for the applicant to expend to sound in damages. 

206               Interest is said only to be payable by a trustee in bankruptcy where there is a surplus in the estate after payment of the principal debts of the proving creditors: Re Hyman ex parte Law (1930) 3 ABC 61; Re Richards ex parte Lloyd (1935) 8 ABC 37 at 46.  Even if partnership proceedings had been taken successfully against Nawal Nader, there is no basis for concluding that any part of the recovery would have formed part of the estate, an order for direct payment to the applicant being the best order available in the circumstances.  If an order had been made for Nawal Nader to pay the applicant directly, the bankrupt would still have been liable to pay out of his estate half of the unpaid judgment debt, some $343,400, and there would still have been no surplus in the estate.

the result

207                None of the declarations sought against the trustee are appropriate.  The declaration sought against Mr McNally is refused.  There will be a declaration of Mr Darvall’s negligence and a finding that no damage or loss resulted.  There will be judgment for the respondents with costs.

Associate:

Dated:              20 February 2001