Loretta Craig & Ors v Anthony Johnson & Ors

1. [1]

   In November 2016, the plaintiffs (“the Craigs”) commenced proceedings in the Professional Negligence List against the defendants, partners in the firm of solicitors, Johnson Winter Slattery Solicitors (“JWS”).

2. [2]

   The claim is framed in breach of contract and negligence, breach of implied warranty and misleading and deceptive conduct. The Craigs claim that JWS failed to properly advise them in respect of an offer of settlement made to them in September 2013 in commercial proceedings in this Court. They say that the effect of the offer and the risks of failing to accept it were not properly explained. The Craigs went on to lose the case in November 2013 with a substantial costs order against them.

3. [3]

   The Craigs filed an Amended Notice of Motion in May 2018, seeking:

4. [4]

   Senior counsel for the Craigs, Mr Elliott SC, argued that the determination of “all other issues” will dispose of a substantial part of the proceedings. If the Craigs are successful, there will be negotiation to settlement or a shorter trial on damages, probably with the assistance of a litigation funder. If the Craigs are unsuccessful, the proceedings are over without the need for a long hearing to assess damages.

5. [5]

   JWS opposes the order. Counsel for JWS, Mr Lloyd, argued that the nature of the Craigs’ claim is one for lost opportunity and therefore as a matter of law, the question of quantum of damages substantially overlaps with the question of causation of damage. The Craigs will need to prove, as a necessary element of their case, that the opportunity lost was of some real value. This can only be done by the tender and exploration of evidence demonstrating the value of the chance lost. There is a risk of contrary findings where those issues, having been determined, may be required to be revisited, with analysis of what would be substantially the same material. There may well have been adverse credit findings that also affect this second stage and the assessment of evidence relating to it.

6. [6]

   For the reasons that follow, I have decided that the order sought by the Craigs should not be made.

Factual background

1. [7]

   The Craigs retained JWS between 2011 and 2013 to provide legal services in relation to an action in the Commercial List of this Court. The action was brought by the Craigs against Kia Silverbrook, (an inventor), his wife and some associated companies (“the Silverbrook Parties”).

2. [8]

   In his judgment dated 15 November 2013, Sackar J described the dispute as one concerning the profits principally associated with one of Mr Silverbrook’s inventions known as Memjet technology. The Craigs had asserted that they were entitled to a share in the profits ultimately generated from Mr Silverbrook’s inventions, including profits generated from the Memjet technology.

3. [9]

   The Craigs were funded for a time in that commercial litigation by a litigation funder. The funder had alleged that it was entitled to receive 80% of any proceeds arising out of or in connection with the Silverbrook commercial proceedings in accordance with a funding agreement. There was a dispute between the Craigs and the funder about this funding agreement and it was the subject of other proceedings in this court. Those proceedings were stayed until completion of the proceedings involving the Craigs and Silverbrooks. The rights of the Craigs in relation to the funder in those other proceedings have never been determined.

4. [10]

   On 6 September 2013 an offer of settlement was communicated to JWS by the solicitor acting for the Silverbrook Parties at a time when the Craigs’ legal representatives were about to close their case.

5. [11]

   The offer was expressed in the following terms:

6. [12]

   The letter of offer was forwarded to Ms Craig by the solicitor with conduct of the proceedings at JWS with an email that stated:

7. [13]

   A short time later that same evening, Ms Craig indicated by email her agreement with the proposed approach. There is a dispute as to whether a few days later Ms Craig requested the solicitor at JWS to discuss the matter further with her and what she was told, and whether there was another discussion with that same solicitor on 17 September 2013 and whether he gave her further advice about the offer at that time.

8. [14]

   On 15 November 2013, the judgment of Sackar J was published, dismissing the Craigs’ proceedings entirely with an order that they pay the Silverbrook Parties’ costs.

Issues raised for determination in the proceedings - the pleadings

1. [15]

   The current iteration of the claims made against JWS is the Further Amended Statement of Claim filed in December 2018. There is no issue that JWS were retained in the commercial proceedings and in that context had a duty to use reasonable care skill and diligence in the performance of its retainer.

2. [16]

   The basis of the Craigs’ claims in the commercial proceedings is set out in short form in the Further Amended Statement of Claim:

3. [17]

   The Craigs assert that the offer made on 6 September 2013 should be interpreted as an offer to provide 3% of the total shares in Memjet to them by way of settlement, and was an offer capable of being accepted subject to further negotiations as to detail, and was, at the very least, an indication of willingness by the Silverbrook parties to settle the case for that kind of result. JWS contest this interpretation and allege the offer was incapable of acceptance, as indicated in their email to Ms Craig.

4. [18]

   The factual bases of the claims against JWS contain a deal of complexity. The relief claimed is in effect damages for breach of retainer and negligence for the lost chance of a better outcome and damages for breach of contract pursuant to the Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law, s 236, as well as interest, costs, and interest on costs.

5. [19]

   The pleading of the breach of retainer and breach of duty of care causes of action is factually dense and provides multiple assertions, some interdependent, as to what a reasonably competent solicitor in the position of JWS should have done [2] and what would have occurred if JWS had not breached its duty of care. [3]

6. [20]

   In effect, the Craigs assert that if JWS had not breached its retainer and its duty of care, they would have accepted the offer of a 3% interest in the Memjet technology if that is what the offer was meant to convey. If the offer conveyed was only 3% of the 15% interest that the Silverbrook Parties owned, that would have been clarified and the Craigs would have instructed JWS to make a counter-offer for 3% of the total holdings, on particular terms (which would have involved the cooperation of other entities not party to the litigation) including that each party pay their own costs of the proceedings. Negotiations between the Craigs and the Silverbrook Parties would have ensued and, more likely than not, the proceedings would have been settled on terms more favourable to the Craigs than the result that in fact occurred.

7. [21]

   Additionally, or in the alternative the Craigs allege that JWS misrepresented to them that it was not necessary or desirable to consider or discuss the offer and that the Craigs relied upon those representations to their detriment.

8. [22]

   The Craigs allege that the loss and damage caused to them by the breach of retainer, and/or the negligence and/or the misreprentation(s) was that:

9. [23]

   JWS deny they breached their retainer or were negligent, and deny there was any misrepresentation. They also rely upon s 5O of the Civil Liability Act 2002 (NSW) and allege that the plaintiffs were contributorily negligent in failing to discuss the offer and not providing instructions to enter into a dialogue about settlement in response to the offer.

Separate Question - Principles

1. [24]

   Pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) the Court may order the separate determination of any question at any stage of the proceedings. Rule 28.2 provides:

2. [25]

   Rule 28.1 defines a “question” as follows:

3. [26]

   A summary of the principles to be applied to the issue of whether separate questions should be determined was given by Hallen ASJ in Southwell v Bennett [2010] NSWSC 1372 at [15], and recently restated by Wilson J in Lake Maintenance (NSW) Pty Limited v Todd Hadley Pty Limited & Ors [2019] NSWSC 297:

4. [27]

   I am mindful of the many decisions of this and other courts that have observed that an interlocutory order for the separate determination of issues is an exceptional measure, distinct from the ordinary course taken of determining the issues in their totality: Street v Luna Park Sydney Pty Ltd [2007] NSWSC 697 at [5].

5. [28]

   The parameters of argument raised by Mr Elliott and Mr Lloyd raise a concern of the kind noted by Kirby and Callinan JJ noted in Tepko Pty Ltd v The Water Board [2001] HCA 19; (2001) 206 CLR 1 at [168], that “…the benefits of a separate question order are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory particularly when the parties have, as here, had the necessity of making for preparation and the factual matters relevant to one issue are relevant to others, and they all overlap."

Affidavit evidence

1. [29]

   Affidavit evidence was tendered from Ms Craig, Mr Giles (the solicitor formerly acting for the Craigs in these proceedings) and a registered business valuer, Tim Herberden. Ms Craig deposed to her financial position and that she and her husband could not afford the expensive expert reports proposed. Mr Herberden estimated the cost of a report to value the equity in the Memjet associated companies was likely to be in excess of $150,000. Mr Herberden also stated that there needed to be a patent analysis “to ascertain the strength, protection and commercial risks associated with the patent portfolio underlying the Memjet technology”, and that would have to be undertaken by a patent attorney. He estimated that report would also be likely to cost in excess of $150,000. The basis for Mr Herberden’s opinions was various assumptions authored and provided by Ms Craig as to what would need to be investigated and valued.

2. [30]

   Mr Giles deposed to his belief that the witnesses necessary for a hearing on liability are limited to Ms Craig, her husband, a representative of the defendants in the commercial proceedings, (either Mr Silverbrook, Ms Lee or their solicitor) and one expert solicitor in the field of commercial litigation. He estimated that for JWS the necessary witnesses are the solicitor who had conduct of the commercial list proceedings for the Craigs, as well Mr Johnson a partner from JWS, and an independent expert solicitor.

3. [31]

   Mr Giles estimated - rather optimistically - that a hearing on the “liability issue” would take only 5 hearing days, but that a hearing on all issues would take 24 days.

4. [32]

   Mr Giles also estimated that his professional costs of briefing the experts with the necessary information for their reports would be in the hundreds of thousands of dollars.

5. [33]

   None of this evidence was tested by cross-examination.

6. [34]

   JWS relied upon an affidavit of Peter Tredinnick, a partner at Moray and Agnew, who is an experienced commercial litigation solicitor. He noted his instructions that the commercial proceedings and their potential resolution was complicated by an agreement between the Craigs and a litigation funder and that the funder was entitled to receive 80% of any proceeds arising out of or in connection with the commercial proceedings.

7. [35]

   On the question of likely hearing time if issues were divided, he offered the view based on his experience in matters of this nature that if there were separate issue hearings, it was likely that the duration of the matter, including allowing for any appeals on liability and therefore costs and the resources required by the court, would be increased significantly. He was unable to say with any precision by how long or by how much. They would not be reduced or minimised by dealing with the issues separately. There would be duplication of preparation by the lawyers for the parties, including multiple meetings with witnesses in order to prepare evidence for the separate hearings, potentially over a lengthy period, particularly if there is an appeal on liability before quantum is determined. It was likely to be necessary for subpoenas to be issued to recipients more than once, including foreign entities and people outside Australia and that there was a potential for there to be inconsistent findings on key issues as between the separate hearings, particularly if the judge hearing the liability issue does not conduct the quantum trial. He concluded it likely the overall hearing time the court would need to allocate to separate issues trials would be in excess of the time required for a trial on all issues together.

8. [36]

   Mr Tredinnick was not cross-examined.

Submissions

1. [37]

   Mr Elliott sought to persuade me that the necessary elements of the professional negligence case, and in particular “loss”, can be established by the fact that the Craigs lost their case and suffered a costs penalty. The Craigs do not need to prove what the value of the offer of settlement was in fact, or what the value of an alternative offer would have been. They only have to show that they lost the chance to settle the case and thus avoid the significant costs penalty. That case can be made out on the four witnesses proposed in Mr Giles’ affidavit. Once there is a verdict in their favour, the Craigs can secure litigation funding that will then finance the next stage of preparation, including the necessary and expensive business and patent valuations. If the Craigs’ case is unsuccessful on liability then the second stage will not be required and there will be a verdict for the defendants.

2. [38]

   Mr Lloyd submitted that the situation in lost chance cases is just not that simple. Analysis of the necessary elements to make out a case in negligence for lost opportunity demonstrates that there is a significant overlap of causation and assessment of damages issues and evidence. It is difficult to see how the Craigs could discharge their onus of proof on the question of breach of duty of care, in the absence of adducing some evidence as to the value of the offer and the quantum of their claim. The Court will need to be satisfied that JWS failed to assess what was in their client’s best interests. This must include some assessment of the quantum of the offer they say should have been accepted. It is impossible to divide causation and contingency issues from assessment of damages issues. There would be a reliance on some of the same evidence that would go to both issues. This would create problems of potential inconsistent findings and repetition of evidence.

3. [39]

   Reliance was placed on the comments of Giles JA in Heenan v Di Sisto (2008) Aust Torts Reports 81-941; [2008] NSWCA 25 at [28]-[33] where his Honour dealt with the interrelationship (under the heading “the respondents damages”) between causation - has the negligence or other wrong caused the loss of a chance - and the identification and valuing of that lost chance. Giles JA identified the crossover of issues that arose in that case in the context of other statements by other courts as to how those interrelated issues should be approached, at [32]:

4. [40]

   Reliance was also placed upon the statements of Basten JA in Mal Owen Consulting Pty Ltd v Ashcroft (2018) 97 NSWLR 1163; [2018] NSWCA 135 [17]-[19]. That was a case dealing with damages for lost commercial opportunity caused by a solicitor’s negligence, not, as is the case here - a claim for lost opportunity to settle the case on certain asserted bases. As stated by Basten JA, there is a necessary distinction between a claim in negligence - as distinct from breach of contract - and that is that proof of loss is an essential element of the cause of action:

5. [41]

   The potential overlap of evidence given the necessary elements to establish the cause of action in negligence is made more complicated by the requirements of ss 5B and 5E of the Civil Liability Act 2002 (NSW). There is a requirement that the party suing in negligence establish that negligence caused particular identified harm, that the risk of harm was not insignificant, and that the negligence was a necessary condition of the occurrence of the harm. This necessarily must commence with identification of what advice reasonable care required and this must involve adducing evidence of the value of the offer.

6. [42]

   The same considerations apply to the alternative case that JWS should have advised that a counter-offer be made. The value of this hypothetical counter-offer will need to be supported by evidence. There is also overlap entailed in JWS’s “no-loss” defence. There is strong argument that these matters are in fact causation issues as well as issues going to “assessment of loss”.

7. [43]

   In reply, Mr Elliott submitted that the harm was the loss of chance of settling the case and so avoiding the costs penalty. Assessment of the basis and value of that chance could easily be separated and undertaken after the determination of all other issues. The contract claim required no demonstration of particular loss; once breach of contract is shown, calculation of damages for breach of contract is very much a separate task.

Decision

1. [44]

   There are fundamental differences between the parties as to how they say the negligence and breach of retainer cases must be approached by the trial judge and what evidence is relevant to what components of those causes of action.

2. [45]

   To separate “assessment of the quantum of loss” for later determination pre-supposes a clear divisibility of the issue of “loss” from “all other issues in the proceedings”.

3. [46]

   There is no such bright line.

4. [47]

   The case pleaded in the Further Amended Statement of Claim is one that raises multiple interrelated issues of fact. The likelihood is that a great deal of the evidence to be led will have multiple roles in the determination of the many issues of fact.

5. [48]

   In deciding whether to make the order sought, I must bear in mind what facilitates the just, quick and cheap determination of the issues in dispute. Division of the issues in the way proposed does not in my view accomplish this aim. It is more likely to delay and obfuscate issues than to bring forward and clarify the real issues. It also has a significant risk of delaying proper and complete preparation of the Craigs real case, thus delaying JWS’s right to make an informed assessment of all aspects of the case made against it. This is a substantial impediment to the proper exploration of settlement prospects.

6. [49]

   Dividing away for later determination the issue of assessment of quantum of loss can give the appearance of permitting a delaying of the requirement to prepare evidence of loss, under the guise of it being material only going to the issue of “assessment of quantum of loss”. On one view this amounts to permission being given to the Craigs to postpone preparation of necessary “loss” components of their case in negligence for lost opportunity.

7. [50]

   The order proposed in this application may well frustrate the trial judge’s decision making as to what evidence needs to be led on what issues and when.

8. [51]

   It is in my view likely that a trial dealing with “all other issues” is likely to take a significant amount of hearing time and is very likely to be in excess of 15 days. I accept the common sense propositions contained in the affidavit material of Mr Tredinnick that I have set out in [35] of this judgment. I consider that there will be wasted and repeated costs and duplication of preparation time and court time if the case is divided in the way proposed.

9. [52]

   I also consider there to be a real risk of divergent findings on key factual matters.

10. [53]

    I am mindful of the position taken by Ms Craig in her affidavit that the proceedings will be “stultified” if she is required to obtain the expensive expert reports that are in her view necessary for the presentation of her case. The reality is litigation can be expensive. No evidence was led that as a matter of fact, if there is a decision in favour of the Craigs on “all other issues”, (even assuming such an approach could be taken, which for the reasons well-explained by Mr Lloyd, I doubt), a litigation funder will come to the rescue. Given there is unresolved litigation regarding the litigation funder the Craig’s used in the commercial proceedings, such an event may be thought to be unlikely.

11. [54]

    More significantly though, it is not just and convenient to divide the proceedings in the manner proposed. To do so has the tendency to cause delay, prejudice, extra costs and effectively postpones the obligations of the Craigs to present all relevant aspects of the case they make and removes any realistic prospect of exploring settlement of proceedings before trial.

12. [55]

    The application should be dismissed with costs.

    1. (1)

       The Amended Notice of Motion filed on 24 May 2018 is dismissed.

    2. (2)

       The plaintiffs are to pay the defendants’ costs of the Amended Notice of Motion.