FEDERAL COURT OF AUSTRALIA

Wakim v McNally [2002] FCAFC 208

LEGAL PRACTITIONER – solicitors - negligence – solicitor expert in particular branch of law - reliance by solicitor on advice of counsel – whether solicitor has a duty to turn own mind to advice and raise possible deficiencies with counsel – advice

NEGLIGENCE – professional negligence – solicitors – duty of care – solicitor expert in particular branch of law – significance of advice provided by senior counsel – duty to raise apparent deficiency in advice – whether failure to do so causative of costs

NEGLIGENCE – contributory negligence – distinction between contributory negligence and failure to mitigate loss – nature of loss suffered on wrongful dismissal of proceeding – distinction between possibility of mitigation of loss and absence of loss

BANKRUPTCY – equitable remedies – whether equitable remedies available against former partner of the bankrupt – Official Trustee’s ability to institute equitable proceedings to secure payment directly to a creditor

Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s 5(1)

Partnership Act 1892(NSW) ss 10, 12, 24

Re Richardson; Ex parte Governors of St Thomas’s Hospital [1911] 2 KB 705 referred to

Wren v Mahony (1972) 126 CLR 2 referred to

Montague Mining Pty Ltd v Peter L Gore [1998] FCA 1334 referred to

Yates Property Corporation v Boland (1998) 85 FCR 84 referred to

Ascherson v Tredegar Dry Dock and Wharf Company Limited [1909] 2 Ch 401 referred to

Abigroup v Abignano (1992) 39 FCR 74 referred to

Bitumen and Oil Refineries (Australia) Limited v Commissioner for Government Transport (1954) 92 CLR 200 referred to

Munce v Vinidex Tubemakers Pty Ltd [1974] 2 NSWLR 235 referred to

GEORGE WAKIM v PETER J McNALLY and TERENCE J McNALLY t/as

“LOBBAN McNALLY & HARNEY”

N926 OF 2001

BRANSON, MANSFIELD & STONE JJ

3 JULY 2002

SYDNEY

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.                  The appeal be allowed.

2.                  The orders made by the primary judge on 20 November 2000 be set aside.

3.                  The appeal be relisted on a date to be fixed for consideration of the further relief to which the appellant may be entitled.

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

the court

INTRODUCTION

1                     This is an appeal from orders made by a judge of the Court by which it was declared that the respondents were not negligent in conducting proceedings on behalf of, and in providing advice to, the Official Trustee in Bankruptcy as trustee of the bankrupt estate of Tedros Nader and judgment was given for the respondents with costs.

background facts

2                     The learned primary judge heard three proceedings together having ordered that the evidence in each of the proceedings be taken as evidence in the others.  This appeal arises from one only of the proceedings before his Honour.  Nonetheless, his Honour’s observation that the factual circumstances and legal issues raised are unusual and lengthy remains applicable to this appeal.

3                     The following summary of the background facts is taken primarily from the reasons for judgment of the primary judge.

4                     On 26 March 1980 the appellant slipped and fell in the course of his employment as a driveway attendant at a service station owned by a partnership constituted by Tedros Nader (“Mr Nader”) and his wife Nawal Nader (“Mrs Nader”).  The partnership ceased trading on 30 September 1983 when its business was transferred to a company, T & N Nader Pty Ltd, of which Mr and Mrs Nader were the directors and sole shareholders.

5                     On 16 March 1984 the appellant commenced a proceeding in the Supreme Court of New South Wales (“the Supreme Court”) against Mr Nader alone.  The reason why Mrs Nader was not joined as a respondent party is not disclosed by the evidence.  The solicitors who acted for the appellant at the time of the Supreme Court hearing were the firm Ebsworth & Ebsworth.  On 16 July 1985 the appellant was awarded $860,000 damages by the Supreme Court which, after payments of workers’ compensation were taken into account, resulted in a judgment in his favour in the amount of $786,801.45 plus costs.

6                     On 10 October 1985 Mr Nader presented a debtor’s petition upon which a sequestration order was made against his estate.  The judgment debt owed to the appellant was said by the primary judge to constitute 96% of Mr Nader’s unsecured debts.  The Official Receiver became the Official Trustee in Bankruptcy of Mr Nader’s bankrupt estate.  He will hereafter be referred to simply as “the Official Trustee”.

7                     In October or November 1985, the appellant received $100,000 from the partnership’s workers’ compensation insurer.  It appears that the liability of the insurer was capped at that amount.

8                     On 28 February 1986, the appellant commenced another proceeding in the Supreme Court.  By this proceeding the appellant sought damages from Mrs Nader in respect of the same injury as founded the earlier proceeding against Mr Nader.  Section 5(1) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) (“the Law Reform Act”) provides, in effect, that a judgment recovered against one tort‑feasor liable in respect of damage is not a bar to an action against a joint tort‑feasor.  Mrs Nader defended the proceeding.

9                     On 13 April 1997 the Official Trustee convened a meeting of the creditors of the bankrupt estate of Mr Nader.  The Official Trustee reported that an asset in the estate was a chose in action in respect of the right of the bankrupt for indemnity or contribution from Mrs Nader pursuant to ss 10, 12 and 24(2) of the Partnership Act 1892 (NSW) (“the Partnership Act”).  The Official Trustee further reported that counsel’s opinion had been obtained and that it was the Official Trustee’s intention to commence proceedings subject to the provision of a cash advance in the sum of $15,000 and an indemnity in respect of costs being provided by the creditors.  During the meeting the appellant offered to provide the required cash advance and indemnity.  There was at the time uncertainty as to whether the appellant would be able, because of his psychiatric condition, to give evidence in his proceeding against Mrs Nader.

10                  The cash advance of $15,000 was in fact provided by the firm of Ebsworth & Ebsworth.  The appellant executed a deed of indemnity for the Official Trustee’s legal costs of proceeding against Mrs Nader under the Partnership Act.  On 24 June 1987 the Official Trustee commenced a proceeding against Mrs Nader under the Partnership Act in the Equity Division of the Supreme Court.  The respondent, Peter J McNally (“Mr McNally”), became the solicitor on the record for the Official Trustee in that proceeding as of 2 November 1987.

11                  On 19 November 1987, in the Supreme Court Waddell CJ in Equity declared by consent that the partnership was dissolved on 30 September 1983 and ordered that an account be taken of the partnership and the partners from 1 July 1979 to the date of dissolution.  The Chief Judge commented that the evidence then before him did not support the making of all of the orders and declarations sought by the Official Trustee.  His Honour ordered the plaintiff to pay the defendant’s costs of that day.

12                  On or about 10 December 1987, Mr McNally, on instructions from the Official Trustee, sent a brief to advise to the late Mr C Darvall QC.  The observations which formed part of the brief advised that the respondents understood that the appellant had instituted proceedings against the firm Ebsworth & Ebsworth (it seems that the proceeding against that firm were in fact instituted early the following year) and against Mrs Nader but that he did not wish to prosecute the proceedings against Mrs Nader.  Mr Darvall was provided with copies of opinions earlier provided Mr Urquhart QC and Mr Wilson of counsel respectively and with a copy of Re Richardson; Ex parte Governors of St Thomas’s Hospital [1911] 2 KB 705 (“Re Richardson”) which the respondents had received from the appellant.  In his opinion dated 22 December 1986 Mr Urquhart had advised:

“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.  In such a winding up the indemnity provided for under the said Section 24(II) would be relied upon for the purposes of quantifying the contributions, if any, to be made by the partners to any shortfall.  I do not consider that proceedings under Section 5(1)(c) of the said 1946 Act [ie the Law Reform (Miscellaneous Provisions) Act 1946 (NSW)] will result in any practical advantage to the estate of Mr Nader or to Mr Wakim.”

13                  Section 24 of the Partnership Act relevantly provides:

“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:

(1)               All the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses whether of capital or otherwise sustained by the firm.

(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; or

(b)               In or about anything necessarily done for the preservation of the business or property of the firm.”

14                  The questions on which Mr Darvall’s opinion was sought included:

(a)                whether the advice contained in the above paragraph from Mr Urquhart’s opinion was correct?

(b)               whether the Official Trustee had any rights to seek contribution from Mrs Nader in respect of Mr Wakim’s claim and if so, what procedure should be used to enforce the rights?

(c)                whether the decision of Re Richardson was relevant to the matters referred to in the brief?

15                  Mr Darvall provided his advice by a memorandum dated 18 December 1987.  In answer to question (a) above, Mr Darvall first drew attention to a paragraph from Mr Urquhart’s opinion which followed that upon which his advice had been sought.  That paragraph from Mr Urquhart’s opinion was:

“As there are several parcels of real estate of which Mr Nader and his wife were joint tenants, in my opinion, a winding up of the partnership is the most appropriate means of obtaining a satisfaction of what was a partnership liability.  If Mrs Nader, as the solvent partner, does not proceed to wind up the partnership the Official Trustee may move the Court for an order appointing a receiver to wind up the partnership.”

16                  Having set out the additional paragraph from Mr Urquhart’s advice, Mr Darvall then seems to have concentrated on an aspect of that additional paragraph at the expense of answering the question that had been asked of him.  Mr Darvall’s answer to question (a) relevantly was:

“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.  He is normally required to pass his accounts and pay any balance remaining in his hands into Court.  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 30 September 1983.  This does not involve the taking of accounts but mere reference to the books of account themselves.”

17                  As to question (b) above, Mr Darvall advised:

“As matters stand at present, the Official Trustee has no right to seek contribution or reimbursement from Mrs Nader as the right of contribution is in respect of joint liability which has been paid in part or wholeby a partner from his own separate resources or a joint tort‑feasor.  Until some payment is made to Wakim by the Official Trustee from the bankrupt estate of Nader, he has no claim against Mrs Nader for contribution.  See Wren v Mahoney [sic] (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) 2KB 705 were referred to.” (emphases in original)

18                  As to question (c) above concerning Re Richardson, Mr Darvall answered:

“This decision becomes relevant only if contribution can be sought from Mrs Nader as referred to above.”

19                  It is appropriate to make reference to the decision of the High Court in Wren v Mahony (1972) 126 CLR 212.  Wren v Mahony was an appeal from the Federal Court of Bankruptcy.  It concerned the extent of a petitioning creditor’s rights against a person who had entered into a deed to indemnify him against a liability for income tax.  It appears that Mr Darvall may have been counsel for the appellant in Wren v Mahony when that matter was before the Federal Court of Bankruptcy.  He did not appear as counsel in the High Court.  It is possible that his familiarity with the dispute in Wren v Mahony led to his paying less attention to the judgments of the members of the High Court than was desirable.  The majority of the High Court (Barwick CJ, Windeyer and Owen JJ) allowed the appeal against the making of a sequestration order for the reasons given by the Chief Justice.  The Chief Justice, after referring to the general power of the Court of Bankruptcy to go behind a judgment, at 225-226 observed:

“the position of a person with no more than a promise of indemnity is set out by Griffith CJ in Rankin v Palmer:

‘It is clear, however, that the plaintiff’s only right is to indemnity, and the Court is bound to see that it does not prejudice the defendant by giving the plaintiff anything more.  If the judgment stood in its present form, and the defendant paid the whole sum to the plaintiff, the plaintiff might not pay it to the creditors, in which event the defendant as principal might have to pay the money over again.  Such a result would be manifestly unfair.  An undertaking by the plaintiff would not obviate this difficulty.

The principle governing such cases was fully discussed in the Court of Appeal in the recent case of Re Richardson; Ex parte Governors of St Thomas’s Hospital.  In that case Fletcher Moulton LJ, after pointing out that at common law a person entitled to an indemnity could not avail himself of his right until he actually paid the money, said: “The rule in Chancery was somewhat different, and yet, to my mind, it emphasizes the fundamental principle that you must have paid before you have a right to indemnity, because the remedy which equity gave was a declaration of right.  You could file a bill against the principal debtor to make him pay the debt so that you would not be called upon to pay it, and then you obtained a declaration that you were entitled to an indemnity.  You could in certain cases have a fund set aside in order that you might be indemnified, to avoid the necessity of your having to pay and then to sue for the money you had paid, which perhaps would not repair your loss and credit even if it discharged the debt.  But I do not think that equity ever compelled a surety to pay money to the person to whom he was surety before the latter had actually paid.  He might be ordered to set a fund aside, but I do not think that he could be ordered to pay.”’

We are here not concerned with equitable rights which may become exercisable before payment is made by the person having the benefit of a promise of indemnity.”

20                  It is also appropriate to make reference to the decision of the Court of Appeal in Re Richardson.  In Re Richardson Cozens-Hardy MR had, at 709-710, observed:

“So that in the view of the Court of Equity it was not necessary for the person entitled to the indemnity to be ruined by having to pay the full amount in the first instance.  He had full power to take proceedings under which that fate might be averted, and he might substantially protect himself and secure his position by coming to the Court.”

At 711 the Master of the Rolls, speaking of a bankrupt’s right to indemnity that had vested in his trustee in bankruptcy, said:

“If and when[the trustee in bankruptcy] pays the amount of the debt he will have a right to treat the money, which he can then sue for from the person who is bound to indemnify, as part of the estate, but unless and until he pays I fail to see how it can be in accordance with justice and common fairness that he should be allowed to augment the estate of the bankrupt in a way which results in this, that the greater the liability the greater will be the advantage to the estate. … It seems to me that it cannot be right that the trustee should be allowed to say more than this: ‘If I pay this amount to St Thomas’s Hospital then I can come against the cestui que trust’s estate and claim upon that, or, if I do not pay, then I will take proceedings to indemnify myself against the liability which I am under, giving effect to that indemnity in the only way in which effect can reasonably and properly be given to it by applying the money so recovered in the reduction or complete satisfaction, as the case may be, of the amount due to the hospital.’”

Fletcher Moulton LJ at 712 stated that he was of the same opinion as the Master of the Rolls.  At 713-714 his Lordship, speaking of equitable remedies, said:

“You could file a bill against the principal debtor to make him pay the debt so you would not be called upon to pay it, and then you obtained a declaration that you were entitled to an indemnity.  You could in certain cases have a fund set aside in order that you might be indemnified, to avoid the necessity of your having to pay and then to sue for the money that you had paid. … the only use of this right to indemnity would be to pass the money on to the head creditor.”

Buckely LJ took a somewhat different viewing stating at 715-716:

“Indemnity is not necessarily given by repayment after payment.  Indemnity requires that the party to be indemnified shall never be called upon to pay ….”

21                  Under cover of a letter dated 22 December 1987 the respondents provided to the Official Trustee Mr Darvall’s opinion together with his memorandum of fees.  The respondents did not at that time, or thereafter, indicate to the Official Trustee that they held any concerns respecting the accuracy or completeness of Mr Darvall’s opinion.  There is no evidence to suggest that Mr McNally at any time raised with Mr Darvall the significance of relief against Mrs Nader which might have been available in equity at the suit of the Official Trustee.

22                  By a letter dated 18 February 1988 the Official Trustee advised Mr Wakim as follows:

“I refer to the proceedings being conducted in the Supreme Court of NSW Equity Division, in respect of Mrs Nawal Nader.

An advice has been obtained from Senior Counsel in the matter, copy of which was forwarded to your solicitor and the contents of which were outlined to you by my officer Mr J Garrett.

It is my intention to take Senior Counsel’s advice and withdraw from the proceedings.”

23                  On 18 February 1988, the Supreme Court proceeding brought by the Official Trustee against Mrs Nader under the Partnership Act was, by consent, dismissed with no order for costs, save for the order for costs made on 19 November 1987.  It is this event which the appellant relies upon as causing him damage.

24                  On or about 29 February 1988 a proceeding was instituted in the Supreme Court of NSW in which Mr Wakim was the plaintiff and the partners of the firm Ebsworth & Ebsworth were defendants.  The statement of claim alleged that in breach of retainer, or alternatively in breach of their duty of care to Mr Wakim, the defendants failed to advise Mr Wakim, and failed to take steps, to join Mrs Nader as a defendant in Mr Wakim’s personal injuries proceeding against Mr Nader.

25                  Mr Wakim’s proceeding against Mrs Nader and his proceeding against the firm of Ebsworth & Ebsworth were ordered by the Supreme Court to be heard together.  The hearing commenced on 26 February 1990.  It did not proceed to completion.  On or about 9 March 1990 a deed was executed by Mr Wakim on the one hand, and by the partners of the firm of Ebsworth & Ebsworth on the other, whereby Mr Wakim accepted payment of $150,000 in full settlement of all of his claims against the firm of Ebsworth & Ebsworth arising from the conduct of the personal injuries proceeding.

26                  On 13 March 1990 a deed was executed by Mr Wakim, Mr Nader, Mrs Nader and T & N Nader Pty Limited by which, in consideration of Mr and Mrs Nader consenting to certain terms of settlement, Mr Wakim released them from all claims arising from his injury and subsequent events.  The terms of settlement were that Mr and Mrs Nader would pay Mr Wakim $10,000 within forty two days of the date of the deed and that Mrs Nader would within seven days make a written offer to the Official Trustee to purchase, as trustee for Mr Nader, Mr Nader’s bankrupt estate’s interest in two properties and one share in T & N Nader Pty Limited for the total purchase price of $400,000.

27                  On 18 April 1990 a meeting of the creditors of Mr Nader’s bankrupt estate authorised the Official Trustee to accept the offer made by Mrs Nader pursuant to the terms of settlement.

28                  It appears that, if the costs of the taxation of the solicitors’ bill of costs are included, the legal costs involved in prosecuting Mr Wakim’s claim against Mrs Nader and the firm of Ebsworth & Ebsworth were slightly in excess of $300,000.

decision of the primary judge

29                  The reasons for decision of the learned primary judge are concerned with the three proceedings which his Honour heard together.  In each of the proceedings Mr Wakim was the applicant.  The respondents were respectively the Official Trustee in Bankruptcy, HIH Casualty & General Insurance Ltd (“HIH”) (which had been substituted for Mr Darvall following his death on 26 April 1999) and the respondents to this appeal.  In the proceeding in which the Official Trustee was respondent, his Honour declared that the Official Trustee did not breach its duty of care to the bankrupt estate of Mr Nader or to Mr Wakim.  In the proceeding in which HIH was respondent, his Honour declared that Mr Darvall “was negligent on or about 18 December 1987 in a written advice given to the solicitors for the Official Trustee in Bankruptcy as trustee of the bankrupt estate of Tedros Nader” but found that Mr Wakim had suffered no loss or damage as a result of the negligence.  In the proceeding giving rise to this appeal, his Honour declared that “Peter J McNally and Terrence [sic] J McNally trading as Lobban McNally & Harney were not negligent in conducting proceedings on behalf of, and in providing advice to, the Official Trustee in Bankruptcy as trustee of the bankrupt estate of Tedros Nader.”

30                  Mr Wakim’s appeal against his Honour’s decision in the proceeding in which the Official Trustee was trustee has been dismissed by consent with each party bearing his or its own costs.  Mr Wakim has not been granted the leave necessary for him to prosecute an appeal against his Honour’s decision in the proceeding in which HIH was respondent.  Therefore, subject to the possibility that Mr Wakim may at some time be granted both an extension of time within which to institute an appeal against his Honour’s judgment in the proceeding in which HIH was the respondent and leave to prosecute the appeal notwithstanding that HIH is now in liquidation, the present appeal is the only appeal arising from the hearing before his Honour which will proceed.

31                  The primary judge concluded that Mr McNally, as the solicitor for the Official Trustee, owed a duty of care to Mr Wakim, because Mr McNally knew that Mr Wakim was the sole indemnifying creditor and was aware of the terms of the deed of indemnity given by Mr Wakim to the Official Trustee.  His Honour found that the standard of care required to be exercised by Mr McNally was high because of Mr McNally’s extensive experience in bankruptcy law.

32                  His Honour took the view that the expertise of Mr McNally warranted his turning his own mind to the advice given by Mr Darvall and that he was not entitled to rely blindly on Mr Darvall’s advice.  His Honour’s reasons for concluding that Mr McNally had not been in breach of his duty of care are contained in the following paragraphs from his Honour’s reasons for judgment (at [164]- [165]):

“The evidence also clearly showed that Mr McNally did in fact turn his own mind to the merits of Mr Darvall’s advice.  He testified, as was perfectly appropriate in a matter of such difficulty, that he discussed the advice with Mr Wilson to assess for himself whether it would be appropriate for the trustee to act upon it.  Presumably he would not have done so if he thought the Darvall opinion unarguably correct.  Nevertheless, he deferred to Mr Darvall’s view, no doubt because of his professional eminence.  The legal assessment of this approach is in fine balance.  On the one hand, the conflicting advices in Mr McNally’s possession at the time he was considering Mr Darvall’s opinion and the high standard to be expected of him as decided in Montague Mining may lead to a conclusion that his efforts to independently assess Mr Darvall’s advice were not sufficient to satisfy his duty of care to the applicant.  On the other hand, Mr Darvall’s renowned expertise on these subject matters must have weighed heavily with Mr McNally and made the likelihood or appropriateness of dissent very difficult.  Moreover, as he would have recognised, the chance that if he dissented, the trustee would have preferred his view to Mr Darvall’s must be considered to be remote.  This applies equally to the issue of the termination of the trustee’s proceedings as it does to the issue of the taking of partnership accounts. 

It is these reasons that have impelled me, not without doubt, to find that there was no breach of duty by Mr McNally in ultimately endorsing, tacitly or otherwise, Mr Darvall’s advice to terminate the proceedings and not pursue the winding up of the partnership.”

33                  The primary judge also concluded that “the evidence does not disclose that either he [ie Mr Wakim] or the estate [ie the bankrupt estate of Mr Nader] suffered any economic loss at all as a result of the termination of the proceedings against Nawal Nader.”  His Honour is to be understood as referring to the proceeding brought by the Official Trustee in reliance on the Partnership Act.

34                  The bases upon which his Honour reached the above conclusion are not entirely clear.  However, they include at least the following.  First, that Mr Wakim negligently contributed to his own loss.  His Honour stated at [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%.”

35                  Secondly, his Honour concluded that a quantification of Mr Wakim’s damages arising from the termination of the proceedings against Mrs Nader under the Partnership Act would result in a nil figure.  His Honour observed at [196]-[197]:

“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 [Manufacturers’ Mutual Insurance Co Ltd, the partnership’s workers’ compensation insurer], 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.

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.”

contentions of the appellant

Breach of Duty

36                  The appellant contended that the facts, as apparently found by the primary judge, that:

(a)                Mr Darvall had a renowned expertise in the matters the subject of his advice;

(b)               that renowned expertise must have weighed heavily with Mr McNally making the likelihood or appropriateness of dissent very difficult; and

(c)                Mr McNally would have recognised the chance that, if he dissented, the Official Trustee would have preferred his view to the view of Mr Darvall was remote;

did not individually or together justify the conclusion that Mr McNally did not breach his duty of care to Mr Wakim.  Reliance was placed on the absence of any evidence tending to show either that Mr McNally advised the Official Trustee of any possible shortcomings or deficiencies in Mr Darvall’s advice or that Mr McNally sought to speak with Mr Darvall concerning possible shortcomings or deficiencies in his advice.  It was submitted that the subjective difficulty of Mr McNally contradicting or even questioning Mr Darvall’s advice was irrelevant to the issue of whether he discharged his duty of care.  It was further submitted that the relevance, if any, of the chance that the Official Trustee would have preferred Mr Darvall’s views to those of Mr McNally was with respect to the issue of causation; not the issue of breach of duty.  In any event, it was argued, if possible deficiencies in his advice had been raised with Mr Darvall, he would probably have given further consideration to the matter and amended his advice.

Causation

37                  The appellant contended that the primary judge’s conclusion, reached in respect of the proceeding in which HIH was respondent, that there was no causal relationship between, in effect, Mr Darvall’s advice and loss suffered by Mr Wakim was not supported by the evidence.  He pointed in particular to contemporaneous records and to the evidence of the Official Trustee, Mr Bluett, who made the decision to discontinue the proceeding under the Partnership Act, that his decision was based on Mr Darvall’s opinion.

Loss

38                  The appellant contended that the primary judge, by proceeding on the basis that Mr Wakim did not suffer any loss until he was finally deprived of all causes of action for recovery of the judgment debt or its equivalent, wrongly equated the possibility of successful mitigation of loss with the absence of loss.  It was argued that the correct position is that if litigation is being conducted from which a person would benefit and that litigation miscarries, the loss suffered is the benefit of that litigation.  As a consequence, it was submitted, the loss is suffered regardless of the possibility of commencing fresh proceedings to recover that benefit or its equivalent.  The relevance of the possible further proceedings is that they may affect the content of the duty to mitigate loss and, if some or all of the benefits of the lost litigation are in fact recovered in fresh litigation, the loss suffered is reduced accordingly.

Contributory Negligence

39                  The appellant contended that he had not negligently failed to take proceedings against Mrs Nader under the Law Reform Act.  He did not have standing to bring contribution proceedings for the benefit of the bankrupt estate of Mr Nader and he did institute the proceedings facilitated by s 5(1)(a) of the Law Reform Act.

40                  He further contended that the settlement of his proceedings against the firm Ebsworth & Ebsworth, which occurred sometime after the dismissal of the proceeding brought by the Official Trustee against Mrs Nader under the Partnership Act, could not as a matter of logic, as well as of law, have contributed to the loss which he experienced when those proceedings were dismissed.

41                  As to Mr Wakim’s reluctance to give evidence, it was contended first, that the evidence did not support a finding that this reluctance contributed to the decision of the Official Trustee to allow the dismissal of the proceeding brought against Mrs Nader under the Partnership Act.  Secondly, it was argued that there was no need for Mr Wakim to give evidence in the proceeding.  Thirdly, it was argued that it was reasonable of Mr Wakim to be reluctant to give evidence as he was, at the relevant time, suffering from a depressive illness and had been advised not to expose himself to the stress of giving evidence in court.

Quantum

42                  The appellant contended that the bankrupt estate of Mr Nader was entitled in equity to obtain contribution from Mrs Nader for 50% of the total liability of Mr Nader to Mr Wakim.  He further contended that if any amounts received by Mr Wakim should be set off against Mr Nader’s liability, the amount could not exceed $55,000 being 50% of the $100,000 payment received by Mr Wakim from the insurance company and 50% of the $10,000 payment received from Mrs Nader.  Any discount to reflect the prospects of successful recovery pursuant to the litigation and for vicissitudes generally ought not, it was argued, to have exceeded a 50% discount.  On this basis it was submitted that the appellant should have obtained a judgment at first instance for between $100,000 and $150,000.

consideration

Breach of Duty

43                  No notice of contention was filed by the respondents with respect to the finding of the primary judge that Mr McNally owed a duty of care to the appellant (see O 52 r 22(3) of the Federal Court Rules).  Nor was any notice of contention filed with respect to his Honour’s findings as to the nature of that duty.  The learned primary judge at [162] concluded that the principle espoused by Wilcox J in Montague Mining Pty Ltd v Peter L Gore [1998] FCA 1334 were relevant to the nature of the duty owed by Mr McNally to the appellant.  The principle espoused by Wilcox J is as follows:

“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.”

44                  Einfeld J concluded that due to Mr McNally’s extensive experience in bankruptcy law and insolvency litigation, a high standard of care was expected of him.  His Honour concluded that it did not matter that it was not put to Mr McNally in cross-examination that his expertise and experience extended to principles of equitable contribution.  His Honour at [163] observed:

“It is sufficient that Mr McNally acknowledged in his evidence that he had experience in managing bankrupt estates and understanding and supervising complex litigation in this area.  On the basis of that evidence, his ability to understand and consider the advice of Mr Darvall from an experienced standpoint cannot be at issue.”

45                  Despite the respondents’ failure to file a notice of contention, their submissions on the appeal challenged his Honour’s conclusion with respect to the nature of the duty of care owed by Mr McNally to the appellant.  As no objection was raised to their taking this course, we consider it appropriate to give consideration to the respondents’ submissions in this regard.

46                  It was argued that Mr McNally was not, in the relevant sense, a “specialist solicitor” of the kind referred to by the Full Court in Yates Property Corporation v Boland (1998) 85 FCR 84 at 108 (“Yates v Boland”).  Although the decision of the Full Court in Yates v Boland was reversed on appeal to the High Court, no criticism was made of this part of the reasons for judgment of the Court.  The Full Court, in the passage referred to, said:

“… it may be accepted that a solicitor who does not have specialist 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 be that for many solicitors who have no particular experience in an area of law counsel is the source of specialist advice.  In such a 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 will be asked by his client to obtain counsel’s advice.  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.”

47                  The submission advanced on behalf of the respondents was that as it was not suggested to Mr McNally that he had specialist expertise in relation to questions of contribution, or equitable remedies generally, it was reasonable for him to rely heavily on counsel with the consequence that he would only be guilty of negligence if Mr Darvall’s advice was “obviously wrong – that is so wrong that the error should be obvious to a reasonably competent solicitor” (Yates v Boland at 108).

48                  It might be thought that the above submission seeks to break up the practice of the law into sub‑specialities to an unrealistic degree.  However, there is no need for this issue to be considered further.  The nature of the duty owed by Mr McNally to the appellant is not to be identified, as it were, in a vacuum.  The evidence disclosed that the appellant had provided to the respondents a copy of the reported judgment of the Court of Appeal in Re Richardson.  Mr McNally was under no illusion as to why the appellant had provided the respondents with the judgment; he appreciated that the appellant regarded it as relevant to the proceeding in respect of which Mr McNally was acting for the Official Trustee.  When Mr McNally prepared the brief for Mr Darvall to provide advice to the Official Trustee, he referred explicitly to Re Richardson and provided a copy of it to Mr Davall.

49                  It appears that there was no evidence one way or the other before the primary judge as to whether Mr McNally read Re Richardson at or about the time that Mr Wakim provided it to the respondents or at all.  If he did not read it, there would seem to be little doubt that he was in breach of his duty of care to the appellant however his area of specialist expertise is defined.  It would not have been sufficient for him to have merely advised Mr Darvall of the decision.  By providing the report of the case to the respondents, the appellant was implicitly requesting that the decision be considered by them for the purposes of the proceeding in which Mr McNally was acting for the Official Trustee.  In the circumstances, Mr McNally was under a duty, whatever his level of expertise, to turn his own mind to the significance of the decision in Re Richardson.  Further, he was under a duty, whatever his level of expertise, to turn his own mind to the subjects upon which Mr Darvall was asked to advise (Yates v Boland at 108).  He had implicitly asked Mr Darvall to advise on the significance of Re Richardson.  He could not sensibly turn his own mind to that subject without first reading and considering Re Richardson.

50                  If Mr McNally did read and consider Re Richardson, he would have read the passages from the decision which are set out in [20] above.  He would thereby have been alerted, at least, to the fact that the members of the Court of Appeal in that case all considered that there were steps that a person entitled to be indemnified could take to protect his or her position before that person paid out the sum in respect of which he or she was indemnified.  Two of their Lordships referred explicitly to equitable remedies having a relevance in those circumstances.  Yet, Mr Darvall’s opinion made no reference to equitable remedies.  This, in our view, was of itself sufficient to put Mr McNally on notice that Mr Darvall’s opinion might not have constituted a sufficiently comprehensive response to the questions upon which he had been briefed to advise.  Notwithstanding Mr Darvall’s standing and seniority, the step of asking him to confirm that he had considered both legal and equitable remedies could easily have been taken.

51                  Further, in our view, having regard to the apparent difficulty in reconciling Mr Darvall’s response with the views expressed by the members of the Court of Appeal in Re Richardson, Mr McNally came under a duty to give consideration to the decision of the High Court of Australia upon which Mr Darvall placed reliance, namely Wren v Mahony.  Had he read that case (and there is no evidence one way or the other about whether he did) he would have seen that Re Richardson was referred to with apparent approval in a passage from an earlier High Court case cited by the Chief Justice (see [19]) above).  He would further have seen that the Chief Justice observed that Wren v Mahony was “not concerned with equitable rights which may become exercisable before payment is made by the person having the benefit of a promise of indemnity”.  Again, in our view, this would have been sufficient to alert him to a possible deficiency in Mr Darvall’s opinion which ought to have been explored with Mr Darvall.

52                  In considering whether or not Mr McNally breached his duty of care to the appellant, the primary judge placed weight on Mr Darvall’s eminence and on the fact that Mr McNally would have recognised that the Official Trustee would be likely to prefer Mr Darvall’s views to Mr McNally’s.  Since his Honour had found, appropriately in our view, that Mr McNally entertained some doubts concerning Mr Darvall’s opinion, he was not entitled to shrink from raising them with Mr Darvall merely because of Mr Darvall’s eminence.  In any event, as is mentioned above, this could readily have been done in a courteous and professional way.  Having regard to Mr Darvall’s eminence, there seems no reason to doubt that he would have provided comprehensive advice with respect to the equitable remedies available to the Official Trustee had his attention been expressly directed to that topic.   The likelihood that the Official Trustee might have preferred Mr Darvall’s advice to that of Mr McNally is not, in our view, relevant to the issue of whether Mr McNally breached his duty of care to the appellant.  Its relevance, if any, is on the issue of causation of damage.

53                  We conclude that his Honour was in error in concluding that Mr McNally did not breach his duty of care to the appellant.

Causation

54                  As is mentioned above, the primary judge concluded that Mr McNally did not breach his duty of care to the appellant.  It was therefore unnecessary for his Honour to consider whether there was any causal connection between any act or omission of Mr McNally and any loss suffered by the appellant.  However, his Honour found, in respect of the claim against Mr Darvall, that the appellant did not suffer any loss from the dismissal of the partnership proceeding; the loss he suffered, if any, his Honour found, was caused by things that happened after the dismissal of those proceedings, none of which was caused by Mr Darvall’s advice.

55                  It was accepted on this appeal that unless the appellant can show that the above findings are tainted by error, the appeal cannot succeed.

56                  The appellant also sought to challenge what he characterised as a finding of the primary judge contained in the following passage from [187] of his Honour’s judgment:

“… 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. … 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.”

57                  In our view, it is plain that his Honour was, in the above passage, simply repeating a submission made at the hearing.  This view is supported by the reference in the next paragraph to two letters, which as his Honour stated, “were relied upon in support of this submission”.  Moreover, the structure of the primary judge’s reasons for judgment shows that his Honour identified all relevant submissions before turning to his conclusions with respect to damages.

58                  At [166] of his reasons for judgment his Honour commenced to set out the submissions of the appellant (the applicant at trial) with respect to the quantum of his claim.  At [175] his Honour commenced to set out the respondents’ responses noting that:

“[a]lthough 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.

59                  This section of his Honour’s reasons does not conclude until [193].  The next paragraph is headed “CONCLUSIONS ON DAMAGES”.  The true position appears to be that his Honour did not find it necessary to make a finding as to whether Mr Darvall’s advice caused the proceeding against Mrs Nader to be brought to an end.  For his Honour’s purpose it was sufficient that no loss could, as his Honour found, be shown to flow from the termination of the proceeding.

60                  Before this Court the respondents argued, without objection, that Mr Darvall’s advice was not deficient but was in truth correct.  The basis upon which Einfeld J found Mr Darvall’s advice to be deficient was as follows.  His Honour concluded that the Official Trustee could have obtained relief from Mrs Nader prior to any payment being made to the appellant from the bankrupt estate of Mr Nader.  The relief which his Honour identified was a declaration of right or an order to set aside a fund from which a contribution could be taken after a payment had been made to the appellant out of the bankrupt estate.  His Honour concluded that Mr Darvall was correct in advising that the Official Trustee had no right as at December 1987 to enforce an order of contribution against Mrs Nader.  His Honour said:

“… his failure to advise as to the proper effect of Re Richardson; ex parte Governors of St Thomas Hospital is of particular concern, as he was specifically asked to do so.  Mr Darvall ought to have realised that a declaration of Nawal Nader’s obligation to indemnify the estate in respect of the judgment debt or an order that she set aside a fund for an eventual contribution would have greatly benefited the applicant in any subsequent proceedings he was required to bring against her.  Moreover, the trustee would have benefited from such a declaration and order in accurately distributing the assets of the estate.”

61                  It is not clear why his Honour made no reference to the possibility of the Official Trustee being able to obtain in equity an order that Mrs Nader pay money directly to the appellant.  Re Richardson recognises the possibility of a person entitled to the benefit of an indemnity avoiding the necessity of making a payment himself or herself by taking proceedings to avert that fate; that is proceedings for an order under which the debtor’s money would pass directly to the head creditor.

62                  Ascherson v Tredegar Dry Dock and Wharf Company Limited [1909] 2 Ch 401 is a relevant authority.  In that case Mr Ascherson had given a guarantee to secure the overdraft of the defendant’s current account.  Mr Ascherson died having appointed the plaintiffs his executors.  At the date on which the defendant’s banker received notice of Mr Ascherson’s death the defendant’s overdraft was £17,219.  It was accepted that that figure was the amount in respect of which the bank had a claim against the testator’s estate.  The plaintiffs wished to wind up the testator’s estate.  They requested the defendant to discharge the liability.  On the refusal of the company to do so, they initiated an action against the defendant for a declaration that, as the executors of Mr Ascherson and his estate, they were entitled to be discharged and exonerated from all liability under the guarantee by payment by the defendant to the bank of £17,219 or so much as was then owing by the defendant to the bank and for an order for payment accordingly.  Swinfen Eady J ordered the defendant to pay the amount to the bank so as to satisfy the plaintiff’s liability.

63                  In Abigroup v Abignano (1992) 39 FCR 74 at 83 the Full Court referred to Ascherson v Tredegar Dry Dock and Wharf Company Limited as authority for the proposition that a person entitled to an indemnity may obtain relief from the indemnifying party as soon as the person’s liability to the third person arises, and before he has made payment himself, by, where appropriate, obtaining an order to compel the person who has given the indemnity to pay the amount due directly to the third person.  The primary judge set out in his reasons for judgment at [104] the very passage from Abigroup v Abignano in which the Court referred to Ascherson v Tredegar Dry Dock and Wharf Company Limited.

64                  In our view, the Official Trustee had a proper interest in seeking to obtain an order that Mrs Nader make payment directly to the appellant of one half of the amount remaining unpaid under the judgment debt.  Payment by Mrs Nader to the appellant would have reduced the appellant’s claim against the bankrupt’s estate and assisted the accurate and orderly administration of the estate.  There would seem to be no reason why a claim for equitable relief of this kind could not have been made in the proceeding instituted by the Official Trustee against Mrs Nader under the Partnership Act.  We therefore agree with his Honour, although on a somewhat wider basis, that Mr Darvall’s advice was deficient.

65                  Obvious inconvenience would arise if this Court were not to reach a conclusion itself on the issue of whether Mr Darvall’s advice caused the termination of the proceeding brought by the Official Trustee against Mrs Nader.  Einfeld J is no longer a judge of the Court and considerable costs would be incurred were another judge required to rehear the matter for the purpose only of reaching a determination of that issue.  Neither party suggested that this Court was not in a position to make any necessary findings and we consider it appropriate to do so.

66                  It is clear that the decision to terminate the proceeding brought by the Official Trustee against Mrs Nader was made by Mr Daniel Bluett (“Mr Bluett”).  At all relevant times he held the position of Official Receiver for the Bankruptcy District of New South Wales and the Australian Capital Territory.  He became the Official Trustee in Bankruptcy of Mr Nader’s bankrupt estate in October 1985.  His affidavit evidence, filed on behalf of the present respondents, was that the proceeding against Mrs Nader were discontinued on his instructions.  By his affidavit he deposed to being informed that the proceeding came before a judge of the Equity Division of the Supreme Court in late 1987 and that he thereafter formed the view that there was an issue of whether the proceeding would be successful.  His affidavit continues.

“9.       As Official Receiver and later on as the Official Trustee in Bankruptcy of Nader’s Estate, it was necessary for me to give instructions for the Equity proceedings to be discontinued.  To assist me with my decision whether to continue with the Equity proceedings, and on Mr McNally’s advice, I instructed Mr McNally to obtain the opinion of Cholmondelly Darvall QC (“Mr Darvall”).

10.              I recall that I read the opinion of Mr Darvall dated 18 December 1987 in relation to the Equity proceedings (“Mr Darvall’s Opinion”) … .

11.              My decision to discontinue the proceedings was based on Mr Darvall’s Opinion.  At the time that I received Mr Darvall’s Opinion, I had been briefing Mr Darvall for over twenty years on matters of bankruptcy and other legal matters and regarded him as a highly competent counsel.  I recall reading and agreeing with Mr Darvall’s opinion that the equity proceedings should be discontinued as I considered it was unlikely that I would succeed in obtaining any payment of contribution from Mrs Nader through the proceedings.

12.              Prior to giving instructions to discontinue the Equity proceedings, I had considered the various opinions of Mr F S McAlary QC dated 7 October 1986, Mr P D Urquhart QC dated 30 July 1986 and Mr J R Wilson dated 30 July 1986 which were referred to in the fifth paragraph of the letter from the Official Receiver’s Office to Mr Wakim dated 8 March 1988 … .  I preferred, however, to rely on Mr Darvall’s Opinion.”

67                  At the time of the hearing before the primary judge, Mr Bluett was elderly and a little infirm.  The transcript reveals an exchange between his Honour and counsel for HIH and the present respondents who, as is mentioned above, had caused his affidavit to be filed in the proceeding, as to the need for Mr Bluett to be cross‑examined.  Ultimately counsel for HIH did not require Mr Bluett to be made available for cross‑examination relying, it would seem, on an indication from his Honour that he would nonetheless be taken to have put in issue the assertion by Mr Bluett that his decision to discontinue the proceeding against Mrs Nader was based on Mr Darvall’s advice.  However, the evidence recited above is the evidence placed before the primary judge by the respondents as to the reason why the Official Trustee’s proceeding against Mrs Nader was discontinued.  Even were it now open to the respondents to seek a finding that it is inconsistent with the evidence placed by them before the primary judge, there is considerable evidence tending to support the accuracy of Mr Bluett’s above affidavit evidence.  First, Mr McNally’s evidence  was that, after the proceeding against Mrs Nader had come before the judge in the Equity Division of the Supreme Court, he advised Mr Bluett to take the opinion of senior counsel.  The inference is clear that the purpose of obtaining such an opinion would be to obtain advice as to the future conduct of the proceeding.  It would seem unlikely that Mr Bluett’s later decision with respect to the conduct of the proceeding would not have been, at least, significantly affected by Mr Darvall’s advice.  Secondly, Mr McNally gave evidence that during February 1988 Mr Bluett said to him words to the effect:

“I’m still considering Chum Darvall’s opinion but I don’t think I’ll be going on with the equity proceeding.”

Again the inference is that Mr Bluett’s ultimate decision was based, at least to a significant degree, on Mr Darvall’s advice.

68                  The above inferences were not really challenged by the respondents on this appeal.  Indeed, their primary submission on the issue of causation was that Mr Bluett was unlikely to have ignored Mr Darvall’s advice whatever Mr McNally may have said to Mr Bluett.  Their written submissions include the following paragraphs:

“26.     It is unlikely, and it was not suggested to Mr Bluett that, having read and evidently accepted Darvall QC’s opinion … he would have been swayed by any contrary view expressed by Mr McNally.

27.              Bearing in mind Mr Bluett’s long association with, and high regard for, Darvall QC … the probability is that Mr Bluett would have preferred Darvall QC’s views, to those of Mr McNally.”

69                  It may therefore be accepted on this appeal that the decision to discontinue the proceeding instituted by the Official Trustee against Mrs Nader was made by Mr Bluett based on Mr Darvall’s advice.

70                  The respondents’ argument that Mr McNally’s conduct had no causal connection with the decision of Mr Bluett to discontinue his proceeding against Mrs Nader can, in our view, be simply dismissed.  Had Mr McNally raised with Mr Darvall the apparent failure of his opinion to give consideration to equitable remedies of the kind identified in Re Richardson, it is unlikely that Mr Bluett would have been faced with conflicting advice.  It is more likely that Mr Darvall would have reconsidered his advice and given consideration to relevant authorities concerning the entitlement of the Official Trustee to equitable relief against Mrs Nader, including an entitlement to an order that she make a payment to the appellant.

71                  The respondents contended that, in any event, the Official Trustee’s proceedings against Mr Nader could not have continued as the appellant was not prepared to give evidence in the proceeding.  This is not a matter referred to in Mr Darvall’s opinion and there is no evidence that it affected Mr Bluett’s decision.  However, in an advice dated 7 October 1986, a copy of which was received by Mr McNally on 15 February 1988, Mr McAlary QC, had advised  the appellant’s solicitor as follows:

“… if the official trustee as trustee of a bankrupt estate of the husband were to bring contribution proceedings against Nawal Nader, the official trustee would have to provide the following:

(a)               that Mr and Mrs Nader were in partnership;

(b)               that both Mr and Mrs Nader incurred a liability in negligence in respect of the injuries suffered by the plaintiff, George Wakim; and

(c)               that the said George Wakim recovered a verdict of $786,000 in respect of that liability.

In my opinion, in order to establish the foregoing, it would be necessary for the official trustee to call the present plaintiff George Wakim to approve [sic] the happenings [sic] of the accident and damages subsequently suffered by him.”

72                  The accuracy of the above advice may be doubted.  Section 5 of the Law Reform Act relevantly provides:

“(1)     Where damage is suffered by any person as a result of a tort …:

            …

(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, …

(2)               In any proceedings for contribution under this section the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage; … .”

73                  Nothing in the above section suggests that the person who has suffered damage would ordinarily be a party to, or even a witness in, the contribution proceedings between the respective tort-feasors.  Under subsection (2) of the section, the court is concerned with justice and equity between the tort-feasors; not with the just and equitable entitlement of the person who suffered the damage.  That entitlement will have been determined in the proceeding giving rise to the liability of the tort-feasor who seeks contribution.  So much was recognised by the High Court in Bitumen and Oil Refineries (Australia) Limited v Commissioner for Government Transport (1954) 92 CLR 200 at 212.  In that case the High Court said, in the context of a claim by a tort-feasor against a joint tort-feasor under s 5 of the Law Reform Act, that:

“A decision that the liability imposed by the previous judgment is a liability which par (c) of sub-s (1) contemplated does not necessarily mean that the tribunal which discharges the responsibility of fixing the amount of the contribution under sub-s (2) of s 5 cannot consider whether owing to the fault of the now plaintiff it stands at an excessive figure.  No doubt the Court under sub-s (2) must accept the assessment as conclusive as to the existence and the amount of the liability of the plaintiff claiming contribution.”

74                  Mr McAlary’s advice was provided by him to the appellant’s then solicitor.  The Official Trustee was not his client.  We are not satisfied that the evidence shows that had the Official Trustee’s proceeding against Mrs Nader not been discontinued on the basis of Mr Darvall’s advice, it would have been discontinued on the basis of Mr McAlary’s advice.  In our view, it is more likely than not that, had the proceedings not been discontinued on the basis of Mr Darvall’s advice, the Official Trustee would have sought from counsel an advice on evidence with respect to the ongoing prosecution of the proceeding and would have been advised that evidence from the appellant would not be necessary to prove the incident in which the appellant suffered his personal injury or the extent of the damages suffered by him.

Loss

75                  The respondents seek to uphold the finding of the primary judge that the appellant suffered no loss as a result of the dismissal of the Official Trustee’s proceeding against Mrs Nader.  As is mentioned above, the appellant, on the other hand, contends that the primary judge made two fundamental errors in his reasoning concerning damages.  First, that his Honour wrongly equated the possibility of successful mitigation of loss with there being no loss in the first place.  Secondly, that his Honour wrongly concluded that the relevant loss was the loss of the cause of action with the result that if the cause of action, or a substantially equivalent cause of action, remained available no loss had been suffered.  The appellant argued that the correct position is that if litigation is being conducted from which a person will benefit, the miscarriage of that litigation results in the person losing the benefit of that litigation.  That loss, it was said, is suffered regardless of the possibility of commencing fresh proceedings to recover that benefit or its equivalent.

76                  The appellant’s written submissions included the following paragraphs:

“3.10   To determine what Mr Wakim’s loss was, it is necessary to compare his situation as it was with his situation after the negligent advice was given and acted on:

(a)               Before termination of the partnership proceedings, Mr Wakim had entered into an arrangement with the Official Trustee for the commencement of the litigation.  The cash indemnity required by the Official Trustee had been paid on his behalf.  The proceedings had been commenced and, properly conducted, could have been brought to a successful conclusion within a relatively short period of time.  The eventual outcome of the proceeding, whether in the short or long term, would have been recovery of money from Mrs Nader.

(b)               After discontinuance, Mr Wakim had none of those things.  He had to await realisation of assets of the estate and payment to him before proceedings against Mrs Nader would even be contemplated.  Any further proceedings required reconsideration of the merits at the relevant time and the provision of further indemnity.  In addition, he was liable for the costs of the proceedings.

3.11          So, Mr Wakim’s loss was the loss of the rights and benefits that arose out of the particular arrangement that was in place at the particular time.  It was not the loss of his common-law claim against Mrs Nader; it was not the loss of his cause of action against Ebsworth & Ebsworth; it was not the loss of other rights and benefits that might be available to him at a different time, under different circumstances and at different cost to him.

3.12     Accordingly, there was a close and direct causal relationship between Mr Darvall’s advice and Mr Wakim’s loss.  His actions in relation to the common-law claims have nothing to do with the cause of that loss.  They are relevant, if at all, only in the context of mitigation of the loss that he undoubtedly suffered.”

77                  In our view the appellant’s submission that Mr Wakim did suffer damage as a result of the discontinuance of the Official Trustee’s proceeding against Mrs Nader should be accepted.

Contributory Negligence

78                  On the topic of contributory negligence, the primary judge at [195] concluded:

“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%.”

79                  We accept the appellant’s submission that his decision to settle the proceedings against Mrs Nader and the firm Ebsworth & Ebsworth could not have contributed to the loss that he suffered at the time that the Official Trustee discontinued his proceedings against Mrs Nader.  The appellant’s decision was taken later in time than the discontinuance of the Official Trustee’s proceeding against Mrs Nader.  The significance, if any, of the appellant’s decision to settle his proceedings is with respect to his duty to mitigate his loss.

80                  His Honour was in error in stating that the appellant did not take proceedings under the Law Reform Act.  The only proceedings which it was open to him to take under that Act was the proceeding that he instituted against Mrs Nader and later settled.  His Honour may have intended to refer to the appellant’s refusal in early 1993 to provide the Official Trustee with an indemnity in respect of proposed fresh proceedings under the Law Reform Act against Mrs Nader.  However, the appellant’s conduct in 1993 could not have contributed to the loss which he suffered in 1988 by reason of the discontinuance of the earlier proceeding.

81                  As is mentioned above, we conclude that his Honour was in error in concluding that the appellant’s unwillingness to give evidence contributed to Mr Bluett’s decision to discontinue his proceeding against Mrs Nader.  His Honour’s finding of contributory negligence against the appellant cannot stand.

Mitigation of Loss

82                  The burden of proof with respect to any disputed question of fact in relation to mitigation of damages rests with the respondents.  In Munce v Vinidex Tubemakers Pty Ltd [1974] 2 NSWLR 235 at 239 Glass JA, with whom Moffitt P and Hutley JA agreed said:

“There is authority of long standing which establishes an exception to the principle that the plaintiff bears the onus of proving all matters relating to damages.  The exception relates to any disputed question which is truly a matter of mitigation of damages.  In relation to matters properly so classified the defendant is subject to both burdens.  He must not only introduce evidence that the plaintiff has failed to minimise his loss, but also persuade the jury that the balance of testimony favours this conclusion.” (citation omitted)

83                  The respondents sought to place reliance on the unexplained, as they described it, failure of the Official Trustee to take the partnership accounts ordered to be taken in his proceeding against Mrs Nader.  There being no evidence as to why the accounts were not taken, or whether the appellant played any part in any decision not to take the accounts, the respondents have not established that the failure amounted to a failure by the appellant to mitigate his loss.

84                  Similarly, in our view, the respondents have not established that the failure of the appellant to agree in 1993 to provide an indemnity in the sum of $50,000 on account of costs for fresh proceedings under the Partnership Act to be instituted against Mrs Nader, or $1,000 to fund the obtaining of counsel’s advice as to the prospects of such action, was unreasonable and thus a failure to mitigate the appellant’s loss.  The evidence does show that an indemnity had previously been provided on the appellant’s behalf in respect of the proceedings subsequently discontinued by the Official Trustee and a plethora of legal opinions had already been obtained.  The evidence also shows that the appellant was still being advised by Mr Garrett that he might be required to give evidence in any fresh proceeding.  In this regard the evidence that in 1987 a consultant psychiatrist advised that the appellant was not psychologically capable of giving evidence in proceedings against Mrs Nader and that he was “a very real suicide risk” might be significant.  There appears to be no evidence as to Mr Wakim’s psychiatric condition in 1992 or, indeed, at any time after 1987.  Further, factors which might reasonably have influenced the appellant’s decision included his then financial position, the advice provided to him as to the extent of the likely recovery from Mrs Nader and the strength of the case against her.  These matters were not explored before the primary judge.

85                  Similarly, the reasonableness of the appellant’s decision to settle his proceedings against Mrs Nader and the firm of Ebsworth & Ebsworth was not explored before the primary judge.  The appellant was legally represented at the time that the settlements were entered into.  Although the consent verdicts appear small, the verdicts formed part of an overall settlement which included Mrs Nader purchasing the Official Trustee’s interest, as trustee of Mr Nader’s bankrupt estate, in certain properties for $400,000.  That is, the proceedings were settled on the basis of a recovery of approximately $550,000.  The evidence discloses that the firm of Ebsworth & Ebsworth had advanced some funds earlier on the appellant’s behalf.  It could not, in our view, be concluded that the settlement terms were in the circumstances prima facie unreasonable.

86                  The respondents, in our view, did not establish before the primary judge that the appellant failed to mitigate his loss.

quantum

87                  It is our understanding that the parties have agreed that determination of the issue of the quantum of the appellant’s loss should await the publication of the reasons for judgment of the Court.

conclusion

88                  The appeal should be allowed and the declaration and orders made by his Honour set aside.  The matter will be relisted for further consideration of the relief to which the appellant is entitled in the light of these reasons for judgment.

Associate:

Dated:              3 July 2002