Neale v Mahony

On 22 March 2017 the plaintiff, Mr Neale, acting for himself, commenced proceedings by filing a statement of claim against John Francis Mahony who at various times had acted for him as his solicitor. The matters pleaded in the statement of claim arise out of earlier proceedings that had been brought against Mr Neale by the Bank of Western Australia Ltd.

The Bank under a Facility Agreement dated 17 March 2008, varied on 21 April 2008, 30 September 2008 and 16 April 2010, lent $19,770,000.00 to Mr Neale and his company J W Neale Pty Ltd. As security for the loan, Mr Neale mortgaged to the Bank three properties being:

Mr Neale and his company defaulted under the Facility Agreement and on 23 June 2011 the Bank appointed receivers to two of the properties including the Yatala Road property. On 13 October 2011 the receivers sold that property for $635,000.

Mr Neale has always contended that the Yatala Road property was sold at an undervalue. He had a valuation dated some two months after the sale which assessed the value of the property at $3.58 million.

Mr Neale and his company defended the Bank’s proceedings and filed an amended commercial list cross-claim statement on 19 July 2012. At the time Mr Mahony acted for them. The cross-claim named not only the Bank but the receivers as cross-defendants. A large number of claims were made, mostly against the Bank in relation to the Facility Agreement, with Mr Neale and his company asserting that the Facility had not expired or that the Bank was estopped from denying that it had expired.

One section of the cross-claim was devoted to the sale of the Yatala Road property. In its entirety, that section pleaded as follows:

It may be observed that no claim was made by reason of the alleged sale at an undervalue.

The proceedings were heard by Hammerschlag J over the course of 14 days from 3 February 2014. For some months prior to the commencement of the hearing Mr Neale had been represented by Stewart Levitt and Co. That appears to be because Mr Mahony was made bankrupt on 11 September 2012. On the morning of the first day of the hearing Stewart Levitt and Co. sought leave to withdraw as Mr Neale’s solicitors. Mr Neale did not oppose that course and for that reason, Hammerschlag J said, he acceded to the application. Thereafter, Mr Neale conducted the defence of the proceedings and the cross-claim himself although it appears that he had some assistance from Mr Mahony and Mr A Street SC (as his Honour then was).

Judgment was given by Hammerschlag J on 24 March 2014: James Woodward Neale v Bank of Western Australia Ltd; Bank of Western Australia Ltd v James Woodward Neale [2014] NSWSC 315. Mr Neale and his company were wholly unsuccessful in the proceedings. Judgment was given for the Bank against them for $31,552,497.00.

They appealed to the Court of Appeal. By that stage Mr Neale had a new lawyer acting for them. The principal judgment was given by Leeming JA with whom Ward JA agreed: Neale v Commonwealth Bank of Australia Ltd trading as Bank of Western Australia [2015] NSWCA 272. Justice Macfarlan also agreed but added some reasons of his own.

Justice Leeming identified at [18] that there were two principal bases of appeal. The first was a challenge to the decision by Hammerschlag J to permit the solicitor on the record to cease to act on the first day of the hearing and to permit the trial to proceed thereafter without an adjournment. The second was said to be Hammerschlag J’s refusal to permit an amendment to plead that the Yatala Road property had been sold at an undervalue.

Mr Neale and his company were unsuccessful on the appeal and it was dismissed. It will be necessary to return in due course to some of the reasoning of the Court of Appeal in relation to the present application.

The present application is one by notice of motion filed 9 March 2018 by the defendant to strike out the statement of claim pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 14.28. However, it became apparent from the defendant’s submissions that he was seeking that the whole of the proceedings be dismissed, with a strike-out of the pleadings being sought as alternative relief. I enquired of Mr Neale if he understood that the defendant was trying to bring the proceedings to an end by his motion, and Mr Neale said that he did. In those circumstances, I gave leave to the defendant to amend his notice of motion to rely on r 13.4 UCPR.

In the statement of claim Mr Neale pleads that he retained the defendant in January 2012 to represent him in the proceedings brought by the Bank. The statement of claim pleads that it was an implied term that the defendant would exercise all due professional skill, care and attention in acting for Mr Neale in those proceedings. There were said to be further express terms and conditions in a costs agreement of 14 July 2012. They were not set out. The statement of claim pleaded that the defendant took over matters already on foot in the Supreme Court, being the proceedings brought by the Bank and another set of proceedings.

The statement of claim pleads the breaches in these terms:

The loss and damage is pleaded as follows:

As to the relief sought under r 14.28, the defendant submitted that no material facts are pleaded to say what the defendant’s negligence consisted of. Nor are material facts pleaded in aid of the alleged breach of contract. The defendant pointed to the pleading where Mr Neale alleges that the defendant was a statutory entity, the meaning of which, the defendant submitted, was not made clear.

The defendant submitted that the pleading is at such a level of generality that he does not know in advance the precise case he is obliged to meet.

The defendant pointed to the failure to particularise the loss and damage despite what appears in the particulars under paragraph 9 of the statement of claim. Further, he submitted that it is not clear how the alleged loss and damage arises as a consequence of any negligence or breach of contract on his part.

As to the relief sought under r 13.4, the defendant submitted that any alleged negligence in failing to plead matters relating to an undervalue sale has no merit and no prospects of success. First, the defendant submitted, the defendant was not Mr Neale’s solicitor at the time of the hearing before Hammerschlag J. Secondly, the Court of Appeal’s determination means that the complaint about a failure to plead an undervalue sale cannot constitute a reasonable cause of action. In any event, the defendant submitted, a failure to plead a claim comes within advocate’s immunity.

Mr Neale drew attention to the transcript of the proceedings before Hammerschlag J in support of his assertion that there had been a failure to plead the undervalue sale and that it was on that basis that he was deprived of pursuing that claim. He submitted that the judgment of the Court of Appeal was wrong in holding that it was his failure to call Mr Lupton, the valuer, which meant the sale at undervalue claim was not heard and determined by Hammerschlag J.

Mr Neale submitted that the real issue was not a matter between himself and Mr Mahony; the real issue was with the Commonwealth Bank and what he described as a $20 billion fraud on him and 850 people.

Mr Neale submitted that if the proceedings are dismissed he will be made bankrupt on a judgment obtained by Mr Mahony in the Local Court for some $25,000. If he is made bankrupt he will not be able to continue to prosecute his claim against the Bank.

The principal claim made by Mr Neale concerns the failure by Mr Mahony to plead the undervalue sale of the Yatala Road property.

In his judgment in the Court of Appeal Leeming JA said this:

In Reichel v Magrath (1889) 14 App Cas 665 Lord Halsbury SC said (at 668) that it would be:

In Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404 Hunt CJ at CL, having referred to that quotation and similar sentiments in English and Australian cases, said (at 414):

In State Bank of NSW Ltd v Stenhouse Ltd (1997) Aust Torts Reports 81-423 Giles CJ CommD also referred to Reichel as well as to Haines, and went on to say (at 64,089):

Those passages were approved by the Court of Appeal in Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198; [2001] NSWCA 142 at [31] and [32].

It is clear from reading the Court of Appeal’s judgment in Neale v Commonwealth Bank of Australia that the issue of whether or not Mr Neale’s loss flowed from a failure to plead the undervalue sale of Yatala Road was litigated as an essential point. The issue was determined against him. In those circumstances, the attempt to re-litigate it against Mr Mahony in the present proceedings amounts to an abuse of process.

There is a further reason why this claim should not be permitted to be litigated.

In Keefe v Marks (1989) 16 NSWLR 713 a barrister briefed to draft a statement of claim failed to claim interest on the judgment in the statement of claim. When sued, the barrister relied on advocate’s immunity to demonstrate that there was no reasonable cause of action brought against him. It was held by Gleeson CJ and Meagher JA that the failure to make the claim for interest in the statement of claim was conduct necessarily inseparable from the conduct of the case itself. In that way the primary judge was correct in striking out the statement of claim (see at 720 and 729).

The decision in D'Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1; [2005] HCA 12 made clear that no distinction can be drawn in that regard between a barrister or a solicitor.

Moreover, the High Court has recently explained that the rationale behind advocate’s immunity is the avoidance of re-litigation, in collateral proceedings for negligence or other civil causes of action, of issues determined in the principal proceedings: Attwells v Jackson Lalic Lawyers Pty Ltd (2016) 259 CLR 1; [2016] HCA 16 (see the majority at [32]-[37], Nettle J at [66] and Gordon J at [106]-[110]).

If, contrary to the Court of Appeal’s decision, the loss sustained by Mr Neale came from the failure of Mr Mahony to plead the undervalue case, Mr Mahony’s failure in that regard would be protected by the principle of advocate’s immunity.

The particulars in paragraph 8 which relate to the sale at undervalue are particulars (a), (b), (c) and (g). The defendant establishes that Mr Neale has no reasonable cause of action in relation to those matters because the claim is an abuse of process and/or because advocates’ immunity operates to prevent the claim being brought.

Particular (e) cannot be pleaded as a particular of negligence. What it disguises is a claim, as Mr Neale explained, that he lent Mr Mahony the sum of $5,000. However, that $5,000 was to enable the payment of the barrister Wayne Muddle’s fees.

Mr Mahony brought proceedings against Mr Neale in the Local Court for fees that were said to be owing to him. He obtained a judgment on 14 June 2016 for $29,963.46 plus costs. The claim by Mr Neale for repayment of a $5,000 loan which was paid on account of the barrister’s fees was a matter so inextricably linked with the claim made by Mr Mahony that it ought to have been raised as either a defence or a cross-claim or both. It would have been unreasonable not to raise that claim in the Local Court proceedings and then to attempt to re-litigate it in separate proceedings. An Anshun estoppel is raised to prevent this claim being made: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.

In relation to particular (f), Mr Neale conceded that he did not pay any money to Mr Mahony at a time when Mr Mahony wrongly advised him that monies could be paid to Mr Mahony in lieu of Mr Mahony’s trustees in bankruptcy. When I enquired of Mr Neale how he had suffered any loss or damage when he had not paid any such money to Mr Mahony, he claimed that he had had to research the point and get legal advice.

I do not consider that Mr Neale has any claim in relation to the matter contained in particular (f). No reasonable cause of action is disclosed.

In relation to particular (h), I enquired of Mr Neale why the costs agreement had ceased to apply. He said it had not ceased to apply but that he had agreed to pay Mr Mahony $25,000 because he was to receive $250,000 from a person called Rocky in relation to the property in Avon Road.

As it transpired, Mr Neale did not receive the money from Rocky. He said, rather, that Mr Mahony got the money himself but argued in the Local Court proceedings that the costs agreement he (Mr Mahony) had with Mr Neale had changed when Mr Neale agreed to pay him $25,000.

Mr Neale admitted that he did agree to pay Mr Mahony $25,000, but that he raised as a defence in the Local Court the fact that the $250,000 was not forthcoming from Rocky. He said that this was not accepted by the Local Court, and judgment was given against him. That being so, the matter is a clear case of issue estoppel, and Mr Neale cannot be allowed to re-litigate the issue in the present proceedings.

Particular (d) concerns a failure to lodge caveats when advised by Mr Notley of counsel that Mr Mahony should do so. As best I can understand this claim, Mr Notley in an email of 15 June 2012 asked Mr Mahony whether caveats had been lodged over the Avon Road properties and said that, if they had not, Mr Mahony should consider whether caveats should be lodged. Mr Neale, of course, was the registered proprietor of the Avon Road properties, but it seems that the purpose of lodging the caveats was to enable him to receive notice by a Lapsing Notice when the Bank was ready to sell that property.

Mr Neale appeared to accept that he would have needed to remove the caveat whether on receipt of a Lapsing Notice or after a hearing but, being on notice that the property was about to be sold, he would, unlike what happened with the Yatala Road property, be in a position to ensure that the Bank marketed and sold the Avon Road property at a fair price. Instead of that, it appears that the Bank was able to sell that property without any notice to him. Implied in all of this, although not expressly stated, and certainly not pleaded, was the suggestion that this property was also sold at under-value.

Although this claim seems a very tenuous claim, and it is certainly not pleaded properly in the statement of claim, I am conscious of the fact that the statement of claim was filed on 22 March 2017 and it seems likely that the Avon Road property was sold some time in 2011 or 2012. That being so, if I was to dismiss the present proceedings because this claim is not properly pleaded, Mr Neale may become statute barred from pursuing it. That is a significant consideration where he is acting for himself.

I consider in those circumstances that the fairest course is to permit that claim to go forward, to strike out the present pleading of that claim, but give leave to Mr Neale to file an amended statement of claim that properly pleads that matter. It may be necessary to scrutinise carefully any revised pleading before it is allowed to be filed, to ensure that the issue in fact involves a reasonable cause of action.

None of the other claims should be permitted to be brought for the reasons I have given. No reasonable causes of action are disclosed in relation to them. Those claims should be summarily dismissed.

Accordingly, I make the following orders: