Drake v Wight & Strickland Lawyers

1. [1]

   HER HONOUR: By notice of motion filed 23 April 2015, the defendant seeks orders that the amended statement of claim filed 1 April 2015 be dismissed pursuant to rule 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”), or alternatively, that the amended statement of claim be struck out pursuant to UCPR 14.28.

2. [2]

   The plaintiffs are Lawrence and Judith Drake (“the Drakes”). The Drakes appeared in court and their son Christopher Drake spoke on their behalf. The defendant is Wight & Strickland Lawyers (“Wight & Strickland”). It was represented by Mr Gristi of counsel. The Drakes relied upon the affidavit of Lawrence Allan Drake sworn 14 May 2015, the affidavit of Judith Evangeline Drake sworn 21 July 2015 and the affidavit of Christopher Paul Drake filed 29 July 2015. Wight & Strickland relied on the affidavit of Anthony Cavanagh sworn 23 April 2015 and Morgan Bedford Moroney sworn 28 July 2015.

3. [3]

   Wight & Strickland’s motion in these proceedings was heard with the motion of the defendants in 2014/370178 Drake v Wood Marshall Williams Solicitors. The first defendant in those proceedings is Neale Marshall and the second defendant is Charles Parisi. Both defendants are legal practitioners who, at the relevant time, practiced at the firm Wood Marshall Williams Solicitors (“Wood Marshall Williams”).

4. [4]

   On 10 June 2015, the motions came on before me for hearing. The Drakes sought an adjournment on the basis that they were not legally represented and wanted an opportunity to seek whether the trustee in bankruptcy would “revest the Drakes’ right of action to them”. An adjournment was granted. On 29 July 2015, the notices of motion were heard.

Background

1. [5]

   For the purposes of this application only, I have taken the Drakes’ case at its highest and I will take what they have pleaded as being correct.

2. [6]

   By amended statement of claim filed 1 April 2015 (“ASC”), the Drakes’ claim against Wight & Strickland arises from a retainer entered into between the parties in March 2008 for the provision of legal services. Those legal services involved Wight & Strickland advising the Drakes in respect of a claim being made against them by Ms Dorothy Badman (“Ms Badman”) and acting on their behalf in proceedings issued by Ms Badman in the Equity division of this Court (see Badman v Drake [2008] NSWSC 1366). The Drakes allege that Wight & Strickland advised them to defend the proceedings and advised them that they had good prospects of success.

3. [7]

   Prior to those proceedings being commenced, there was a transaction on 4 February 2008 in which a mortgage over a property at Rouse Hill was discharged and the property was transferred to the Drakes. Paragraphs [4] and [5] of the ASC refer to this underlying transaction, that gives rise to these current proceedings. It is as follows:

Badman v Drake

1. [8]

   In Badman, Ms Badman commenced proceedings against the Drakes. The hearing before Young CJ in Eq was the hearing of a preliminary question. At some point, Wight & Strickland, as well as Peter Zacharatos, a partner of Wight & Strickland, were joined to the proceedings by Ms Badman as the third and fourth defendants. However, Wight & Strickland continued to represent the Drakes. Wight & Strickland were represented by counsel but appeared to take little part in the hearing. Apparently, Wight & Strickland and Mr Zacharatos were joined by Ms Badman as defendants as she alleged that they assisted the Drakes in their “dishonest and fraudulent design, with knowledge of their breach of trust” by acting as their solicitors (see Badman at [97]).

2. [9]

   On 19 December 2008, Young CJ in Eq held that the transaction should be set aside due to equitable fraud and undue influence. His Honour determined that the appropriate order was that the Drakes pay equitable compensation to Ms Badman in the sum of $378,623.19 plus interest.

The pleading in the current amended statement of claim

1. [10]

   The Drakes allege in the ASC that:

Summary dismissal

1. [11]

   UCPR 13.4(1) provides that the Court may dismiss proceedings generally, or in relation to any claim for relief, in three circumstances. These are, if the proceedings are frivolous or vexatious, if no reasonable cause of action is disclosed or if the proceedings are an abuse of the process of the court.

2. [12]

   UCPR 14.28(1) provides that the Court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading firstly, discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings, or thirdly, is otherwise an abuse of the process of the court.

3. [13]

   UCPR 14.28(2) provides that the court may receive evidence on the hearing of an application for an order under subrule (1).

4. [14]

   In O’Brien v Bank of Western Australia Ltd [2013] NSWCA 71, the Court of Appeal applied the High Court decision of Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118. In Spencer, the High Court was concerned with s 31A(2) of the Federal Court Act 1976 (Cth), but the following principles are of general application (O’Brien at [3]):

5. [15]

   See also General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, in which Barwick CJ comments that a lack of a cause of action must be “clearly demonstrated” in terms that the case is untenable and cannot possibly succeed (at 128-129).

6. [16]

   Recent decisions of this Court and the Court of Appeal demonstrate that the impact of s 56 of the Civil Procedure Act 2005 (NSW) is such as to expand the circumstances where an order for dismissal under UCPR 13.4 may be made.

7. [17]

   In Simmons v Protective Commissioner of NSW [2012] NSWSC 455 at [28], Hammerschlag J expressed support for the proposition that the combination of the words in UCPR 13.4(1)(b) and s 56 of the Civil Procedure Act lead to a result that:

8. [18]

   Simmons was subsequently cited by Ward J in McDonald v Grech; Bank of WA v McDonald [2012] NSWSC 717 at [32]-[33].

9. [19]

   In Bott v Carter [2012] NSWCA 89, also a dismissal application involving a defence of advocate’s immunity, Basten JA observed that while s 56 of the Civil Procedure Act may not reduce the conditions for the engagement of the power to dismiss proceedings under UCPR 13.4, it limits the circumstances in which the court, satisfied that the power is available, might be inclined to refuse relief on discretionary grounds (at [14]).

10. [20]

    Wight & Strickland contends that it is entitled to the orders sought, on the basis that the Drakes’ claim is doomed to fail for three reasons. They are:

(a) Bankruptcy

1. [21]

   On 30 January 2009, the Drakes were declared bankrupt. On 31 January 2012, they were each discharged from bankruptcy. The Drakes have been discharged from bankruptcy for over three years.

2. [22]

   Section 58 of the Bankruptcy Act 1966 (Cth) provides:

3. [23]

   “Property” is defined in s 5 of the Bankruptcy Act as:

4. [24]

   Section 58 of the Bankruptcy Act provides that when a debtor becomes bankrupt, the property of the bankrupt vests forthwith in the trustee. That property includes any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt.

5. [25]

   A bare right to sue in respect of alleged property and economic losses is property of the bankrupt which will vest in the trustee pursuant to s 58: see Campbell J in Kovarfi v BMT & Associates Pty Ltd (No 2) [2014] NSWSC 100 at [27]. The exceptions to s 58, as set out in s 116(2)(g) of the Bankruptcy Act, are not applicable to these current proceedings.

6. [26]

   The issue as to whether a cause of action such as this divests from the trustee and revests in the (former) bankrupt was expressly considered by Campbell J in Kovarfi (No 2). Kovarfi (No 2) also involved an application to dismiss a statement of claim. In those proceedings, the plaintiffs became bankrupt in 2005 and were discharged from bankruptcy in 2008. They subsequently commenced proceedings in respect of losses allegedly suffered in 2004.

7. [27]

   As stated by Campbell J in Kovarfi (No 2), the issue above was “settled beyond argument” by the decision of the Court of Appeal in Daemar v Industrial Commission of NSW (No 2) (1990) 22 NSWLR 178. In Kovarfi (No 2) at [35] his Honour continued:

8. [28]

   Following the judgment in Daemar, Campbell J in Kovarfi (No 2) held that the cause of action did not divest upon discharge (at [40]):

9. [29]

   On that basis, Campbell J ordered that the statement of claim in those proceedings be summarily dismissed.

The position of the Trustee

1. [30]

   The Drakes sought permission from their trustee in bankruptcy to “revest the Drakes’ right of action” so that these current proceedings may continue.

2. [31]

   Christopher Drake and his father depose to a number of conversations and there are emails by Christopher Drake addressed to Mr Mark Marlow (“Mr Marlow”) of Jones & Partners, the trustee in bankruptcy (Aff, Christopher Drake 29/7/15). There is also evidence of correspondence between Mr Marlow and the solicitor for Wight & Strickland (Aff, Morgan Moroney 28/7/15). As any assignment given by the trustee has to be in writing, I shall refer to what the trustee has said in writing.

3. [32]

   On 27 July 2015 at 11.42 am, Mr Marlow emailed Christopher Drake and stated:

4. [33]

   On 27 July 2015 at 12.09 pm, Mr Marlow emailed Christopher Drake in the following terms:

5. [34]

   On 27 July 2015 at 1.24 pm, Mr Marlow emailed Christopher Drake as follows:

6. [35]

   On 27 July 2015, Ms Moroney, the solicitor acting for Wight & Strickland, also wrote to Mr Marlow stating:

7. [36]

   On 27 July 2015 at 11.32 am, Mr Marlow replied to Ms Moroney:

8. [37]

   From this correspondence, it is clear that the trustee has not assigned this cause of action or show in action to the Drakes. Any cause of action remains vested in the trustee.

9. [38]

   However, the Drakes submitted that the trustee has denied them the right to appeal or otherwise review the decision, despite their requests, and that in that manner, the trustee divested himself of the specific property of the Drakes that he had been vested with, being a claim against Wight & Strickland. Therefore, the Drakes say that the general proposition that the property vested in the trustee and remained with him does not apply in this case. They submitted that the case ought to be differentiated from the authorities referred to by Wight & Strickland.

10. [39]

    In support of this proposition, the Drakes referred to Ersh v The Greek Orthodox Parish and Community of Burwood and District Saint Nectarios Limited [2015] NSWSC 331. Ersh was an appeal from a decision of a Local Court Magistrate. In those proceedings, it was common ground that on 18 October 2005, Ms Ersh was declared bankrupt. She was discharged from bankruptcy on 18 October 2008. She had not disclosed to the trustee the debt said to be owed by her to the Greek Orthodox Parish and Community of Burwood and District Saint Nectarios Limited (“the Greek Orthodox Parish”). On 14 February 2014, the trustee subrogated and assigned the debt to Ms Ersh for the purposes of authorising her absolutely to continue on in taking any and all such recovery action or proceedings with respect to the amount against the Greek Orthodox Church as she deemed fit.

11. [40]

    The Drakes submitted that in these current proceedings, consent operates in the same way as a rejected vested interest would, in the sense that the interest is returned to them. I do not agree. In these current proceedings, unlike what occurred in Ersh, the trustee has not assigned the cause of action to them.

12. [41]

    The Drakes also drew this Court’s attention to Windsurf Holdings Pty Ltd v Leonard; Carlson v Leonard; Wyvill v Leonard [2009] NSWCA 6. That was an appeal from a decision I made in relation to applications to extend limitation periods pursuant to the Limitation of Actions Act 1974 (Qld). In the appeal, counsel for the plaintiffs submitted at [73]:

13. [42]

    This argument was rejected by the Court of Appeal (at [24] and [114]). Hence, s 63 of the Civil Procedure Act does not overcome the lack of assignment of the cause of action by the trustee.

14. [43]

    The Drakes also referred to s 56 of the Limitation Act 1969 (NSW) and ss 56 and 58 of the Civil Procedure Act as a means of overcoming s 58 of the Bankruptcy Act. Section 56 of the Limitation Act concerns an action based on mistake rather than a “mistake” made in the commencement of proceedings. Sections 56 and 58 of the Civil Procedure Act also do not assist the Drakes to overcome their bankruptcy problem.

15. [44]

    It is my view that the right to sue Wight & Strickland for damages in negligence vested in the trustee in bankruptcy. On discharge from bankruptcy, that right did not divest from the trustee and revest in the Drakes. There has been no assignment by the trustee of the cause of action. The Drakes’ current pleading is incompetent.

16. [45]

    This is not a matter where I would exercise my discretion to permit the Drakes to replead their claim, because the flaw is a fatal one. It cannot be overcome by a repleading of the ASC. As these current proceedings have not been competently commenced they are dismissed.

17. [46]

    I shall briefly address the two other grounds that Wight & Strickland rely upon as the bases for having the proceedings dismissed.

(b) Advocate’s immunity

1. [47]

   On this topic, the Drakes say that Wight & Strickland provided advice that caused the litigation to continue and that they must have filed documentation stating that there was a reasonable defence. The Drakes submitted that to provide negligent advice which caused the litigation, and then to hide behind advocate’s immunity, is a complete misuse of the purpose of the immunity.

2. [48]

   The Drakes also submitted that their case is not about how Wight & Strickland conducted their defence, but is that Wight & Strickland gave advice that their case should be defended when it should not have been. They say this advice falls outside the advocate’s immunity. The Drakes further submitted that Wight & Strickland encouraged, manipulated and coerced them (to the point of encouraging them to mortgage their property in order to pay for a fundamentally doomed defence) and that all of the cases referred to by Wight & Strickland are different to this case.

3. [49]

   In Donnellan v Woodland [2012] NSWCA 433 at [263], Basten JA stated that “principle requires that this Court address the availability of immunity first”.

4. [50]

   In Donnellan, Beazley JA appears to accept that there may be exceptions to this rule. At [7] her Honour stated:

5. [51]

   In Bott, Basten JA stated at [11]:

6. [52]

   Wight & Strickland submitted that consistent with the above Court of Appeal authorities, the application for dismissal or strike out on the basis of advocate’s immunity can properly be dealt with on the pleadings.

7. [53]

   The common law immunity afforded to advocates was established in Rondel v Worseley [1969] 1 AC 191; [1967] 3 All ER 993 and is said to extend to “work done out of the court which leads to a decision affecting the conduct of the case in court” (see Giannarelli v Wraith [1988] HCA 52; (1988) 165 CLR 543 at 560 per Mason CJ). The protection offered by the immunity is said to exist “only where the particular work is so intimately connected with the conduct of the case in Court that it can fairly be said to be a preliminary decision affecting the way that cause is to be conducted when it comes to hearing”: Rees v Sinclair [1974] 1 NZLR 180 at 187 per McCarthy P. Rees v Sinclair was referred to with approval by the High Court in Giannarelli at 560 and by the Court of Appeal per Beazley P (with whom Basten, Barrett, Hoeben JJA and Sackville AJA agreed) in Donnellan at [169].

8. [54]

   The High Court revisited the issue in D’Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1; [2005] HCA 12, holding that the tests outlined above do not differ from each other in a substantial way and that both reflect the current common law position. The joint judgment articulated that “where a legal practitioner… gives advice which leads to a decision… which affects the conduct of a case in court, the practitioner cannot be sued for negligence on that account” (at [91]).

9. [55]

   In Young v Hones [2014] NSWCA 337, Ward JA (with whom Bathurst CJ and Emmett JA agreed) helpfully set out some of the salient features of the advocate’s immunity and surveyed the relevant authorities at [188]-[190]:

10. [56]

    At [216]-[217], Ward JA stated:

11. [57]

    It has sometimes proved to be difficult to draw the line between work intimately connected with the conduct of a case in court and work which is remote from the conduct of a case in court.

12. [58]

    The essence of the Drakes’ complaints appears to be that as a result of Wight & Strickland’s allegedly negligent advice, the Drakes defended the action brought by Ms Badman, culminating in the hearing and determination by Young CJ in Eq.

13. [59]

    Wight & Strickland submitted that the advice sought to be impugned is advice which is said to have directly affected the conduct of the case in court, as it was this advice that caused them to run the case in court. The Drakes’ say they would not have defended the action at all, but for the advice given by Wight & Strickland to do so.

14. [60]

    Counsel for Wight & Strickland argued that the facts therefore strike at the very heart of one of the key policies behind advocate’s immunity, being the principle of finality and the avoidance of a relitigation of the controversy: see D’Orta-Ekenaide at [34] and [43], referred to by Beazley JA in Donnellan at [163]-[165].

15. [61]

    In my view, the advice allegedly given by Wight &Strickland to defend Ms Badman’s claim involved court proceedings already commenced against the Drakes. The advice given led to a decision affecting the conduct of the case in court. The alleged negligent advice falls within the scope of advocate’s immunity.

16. [62]

    So far as the Drakes’ claim for wasted costs is concerned, the application of advocate’s immunity is also attracted by the nature of the claim, being for wasted costs. In Attard v James Legal [2010] NSWCA 311 Giles JA at [27] stated that recovery of wasted costs, “would not be permitted at all.” In Nikolaidis v Satouris [2014] NSWCA 448, the Court of Appeal also acknowledged that a claim for wasted costs comes within the immunity. This part of the Drakes’ claim, together with Wight & Strickland’s work in running the defence, clearly falls within advocate’s immunity (at [48]).

17. [63]

    It is my view that the Drakes’ pleading cannot succeed due to advocate’s immunity. It is a complete defence to the Drakes’ claim, and once again, it cannot be overcome by repleading.

(c) The Limitation Act 1969 (NSW)

1. [64]

   Wight & Strickland submitted that the Drakes’ claims are largely time barred.

2. [65]

   The Drakes accepted that the cause of action did not arise until the case was lost. That is on 19 December 2008, when judgment was delivered in Badman. However, they submitted that in some cases, extensions to the limitation period should be granted, and that this is such a case given the gross negligence of Wight & Strickland and the difficult circumstances faced by them (the Drakes). The Drakes argued that defending the Badman proceedings brought about their bankruptcy and that even now (they are in their eighties) have been unable to pay for the services of a solicitor and have been forced to bring their case unrepresented.

3. [66]

   The Drakes submitted that much time has been wasted by them attempting to secure the services of a solicitor (they have visted 16 different firms) to help with their case, but to no avail, and that it would be unjust to now deny them the right to be heard.

4. [67]

   Section 14 of the Limitation Act relevantly provides that a cause of action founded on tort is subject to a limitation period of six years running from when the cause of action first accrues to the plaintiff. These proceedings were issued on 17 December 2014. Therefore, the action cannot succeed if the cause of action accrued prior to 17 December 2008.

5. [68]

   A cause of action accrues once damage is suffered. The authorities have consistently stated that the exercise, as regards the relevant damage in a case for economic loss, is to identify the harm to a plaintiff’s economic interest: see for example Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539; Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613.

6. [69]

   Counsel for Wight & Strickland submitted that the Court of Appeal decision in Christie v Purves [2007] NSWCA 182 demonstrates that a cause of action can accrue irrespective of whether the plaintiff is aware of having suffered a loss. In Christie, Ipp JA noted the following principles (at [35], [36] and [40]):

7. [70]

   The Drakes’ claim is in respect of the costs paid to Wight & Strickland in the defence of the action. It is alleged that that defence flowed from flawed legal advice provided by Wight & Strickland. Wight & Strickland submitted that it follows that the relevant losses occurred when the costs were paid, this being the time when such costs were “thrown away” or wasted. Therefore, the cause of action accrued when the costs were paid: see Christie.

8. [71]

   The legal costs sought to be claimed by the Drakes were largely incurred before 17 December 2008, but not all of the costs were incurred prior to 17 December 2008. (Aff, Cavanagh [14] and the solicitors’ ledger at p 31).

9. [72]

   Limitation questions should not be decided in interlocutory proceedings except in the “clearest of cases”. The limitation defence of the sort pleaded by Wight & Strickland in relation to wasted costs is inappropriate for summary determination. There is a portion of those costs which do not fall within the limitation period, and so it is not clear when the cause of action has crystallised: see Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 533 and 534.

10. [73]

    To ascertain whether or not the claims in relation to legal costs are statute barred will depend on a finding as to when the harm to the Drakes’ economic interest occurred, and then as to the date upon which the cause of action crystallised.

11. [74]

    I would decline to summarily dismiss the Drakes proceedings on the basis of the expiration of the limitation period.

Conclusion

1. [75]

   The overall result is that the Drakes’ proceeding should be dismissed. The ASC should be dismissed. The right of action did not divest from the trustee in bankruptcy and revest in the Drakes on their discharge from bankruptcy and the proceedings are incompetent. Further, the proceedings are subject to advocate’s immunity.

2. [76]

   The effect of bankruptcy and advocate’s immunity cannot be cured by repleading the ASC. In these circumstances, the ASC and the proceedings are dismissed.

3. [77]

   Costs are discretionary. Costs usually follow the event. The plaintiffs are to pay the defendant’s costs of the proceedings.