McKellar’s Miscellany of Mishaps … Advocates immunity gets a workout in the High Court, while in the VicSupremes lawyers get immunity for not defending an application to wind-up a solvent client … Work done out of court and its affect on the case in court … Kate Lilly is courtside
THE Victorian Supreme Court has found that lawyers who left an application to wind-up his client’s company undefended are entitled to call upon the advocate’s immunity.
Alex McKellar’s client, Dual Homes, was solvent at the time of the winding-up order. A presumption of insolvency had arisen after the company effectively ignored two statutory demands for payment – on McKellar’s advice.
Dual Homes’ lawyers failed to advise on the date of the final hearing, brief anyone to appear and turn-up themselves.
McKellar was previously a partner at Pilley McKellar, which joined with Moores in 2011. He has since moved onto Macpherson Kelley’s property and construction group.
Dual Homes sued Pilley McKellar and Moores Legal for damages in negligence, breach of retainer and for misleading or deceptive conduct.
On March 10, Justice John Dixon awarded the plaintiffs over $580,000 in damages. The judge held McKellar was not entitled to rely on the advocate’s immunity to escape liability for his conduct before the winding-up application was made.
However, HH found the immunity did apply to the conduct immediately preceding McKellar not turning up to court.
The first plaintiff, Dual Homes was a builder and developer. It was also the trustee of the The Roiniotis Family Trust, with the Roiniotis family being shareholders and creditors of Dual Homes.
Between December 2010 and April 2011, Dual Homes received two statutory demands relating to a VCAT dispute with the Railway Place Owners’ Corporation over unpaid fees and alleged building defects.
The Owners’ Corporation had obtained a judgment for $13,388.
At the time, Alex McKellar was Dual Homes’ solicitor and the principal of Pilley McKellar. After the first demand (CSD1), he advised Dual Homes not to pay immediately. On
At the trial George Roiniotis’ gave evidence that McKellar said:
“Something along the lines of, ‘These guys never give up. They just dig their heels in deep as much as they can. They work together, the manager and these solicitors and they’ve done this to quite a few people. We’ve got a genuine dispute and we’ll set it aside’.”
On January 13, 2011, one day after payment was due, McKellar wrote inviting VCAT to reconsider the order. The Tribunal refused to do so. At the time, George Roiniotis was unaware that McKellar had written to VCAT and thought he was “dealing appropriately with the issue”.
Justice Dixon noted there was no good reason for Dual Homes to duck payment at the time:
“Dual Homes did not pay the judgment debt that was the subject of CSD1. It would have been able to do so, but McKellar did not advise it of the legal consequences of not paying the statutory demand within time. Dual Homes instructed McKellar to apply to set aside CSD1 based on his advice to it.”
Dual Homes also retained McKellar for the second demand (CSD2). At this point, Dixon found that McKellar gave advice to the effect, “that Dual Homes had an offsetting claim on which they could rely to set aside CSD2” and that George Roiniotis should “leave the matter with him and he would deal with it”.
Pilley McKellar merged with Moores Legal just a few days before the CDS2 deadline. McKellar told the court that he was “very distracted by the process of the changeover”. He did not apply to set aside the CSD2 or apply for an extension of time.
“The particular significance of McKellar’s failure to file such an application was that from May 5, 2011, the court was required, pursuant to s 459C(2) of the Corporations Act, to presume that the company was insolvent for the purposes of an application under s.459P for the company to be wound up. A prudent solicitor who held to instructions to deal with the matter by having the demand set aside would not have permitted an avoidable statutory presumption of insolvency to arise against his client in this way.”
On May 27, the owners’ corporation applied to wind-up Dual Homes. A few days later, McKellar sought advice from counsel, who highlighted some difficulties Dual Homes would face and offered to discuss the matter further. At trial, McKellar “gave no evidence of any discussion”. In fact, the court accepted that McKellar had advised Dual Homes that “your prospects of setting aside the demand are good”.
On June 22, McKellar made a last ditch attempt to settle Dual Homes’ debt and paid $13,388 using Moores Legal’s funds.
On July 4, LMS Lawyers for the owners’ corporation reminded McKellar that there was no agreement to accept that money in settlement of the winding-up application and that Dual Homes remained indebted to the tune of $24,883. LMS offered to withdraw the application if Dual Homes came up with $24, 883 plus $4,702 in costs.
An adjourned hearing date was slated for July 6. Despite this, McKellar did not convey the settlement offer to Dual Homes, or prepare a defence for the hearing.
At that stage, George Roiniotis “thought McKellar had dealt with the winding-up application, and no further action was required of Dual Homes, apart from reimbursing Moores Legal for settling the judgment debt”. In fact, Dual Homes was required to prove solvency in court.
On July 5, McKellar flew to Townsville on unrelated business. On July 6, Dual Homes was unrepresented in court, the winding-up application was granted, and a liquidator appointed.
Dual Homes submitted a 13-event schedule of McKellar’s wrongful conduct, titled McKellar’s Miscellany of Mishaps. The plaintiffs submitted that the conduct between the first statutory demand and the court date on July 6, 2011 caused the loss.
Moores Legal argued that Dual Homes’ loss was squarely a result of its inability to establish solvency in court. It conceded that McKellar’s no-show was a breach of duty. However, Moores said it was immune for suit in respect of this breach. It also submitted that McKellar’s earlier mishaps formed “part of that continuum of events” and fell within the broader scope of advocate’s immunity.
The plaintiffs contested this sweeping application of the doctrine. It was noted that McKellar’s earlier conduct (before the CDS2 deadline) could not affect the conduct of a case in court because no court proceedings were on foot or even contemplated at the time. As for the conduct immediately proceeding the court date, the plaintiffs submitted:
“… No conceivable act or omission out of court by either defendant affected any decision or could realistically affect any decision made in court because the defendants never attended, briefed, or prepared for the hearing on 6 July 2011 at all.”
Dixon found McKellar’s conduct prior to the winding-up application was not immune for suit. HH reasoned:
“Neither Dual Homes nor McKellar made a decision that affected Dual Homes’ conduct of the winding-up application before that application was commenced. McKellar’s negligence in advising Dual Homes about CSD2 induced it to act in a way that, by operation of statute, afforded to the creditor a presumption of insolvency on the expiry of CSD2. McKellar’s negligence prior to May 19, 2011 does not cast any doubt upon, or question in any way, the decision of the court to wind up Dual Homes, a decision that has never been questioned.”
Dixon said that “no reported Australian case has ever upheld the immunity for a legal practitioner who failed to attend court at all”. Nonetheless, he considered advocate’s immunity would extend to McKellar’s later conduct. He explained:
“The kernel of McKellar’s later conduct was that he failed to give prudent advice about the conduct of the defence of the application, he failed to prepare appropriate material on the return of the application, he failed to take instructions on an offer to compromise the application, and he failed to ensure that Dual Homes was represented before the court. Each of these aspects of his conduct was work done out of court and each affected the conduct of the case in court.”
Dixon discussed the decision of the NSWCA in Jackson Lalic Lawyers v Attwells. In that case, the court held advice given by a solicitor leading to the settlement of a guarantee proceeding by consent order fell within the immunity as it was “intimately connected with that proceeding”.
The High Court granted special leave, has heard an appeal and reserved its decision on the immunity question.
Dixon also observed that in Sims v Chong the full Federal Court applied the finality principle to identify “the line between work done out of court that is immune and work that is not”. Specifically, the court indicated that “the line is to be drawn at least where the proposed claim might cause an inquiry (and outcome) with a result which might differ from the judicially quelled controversy”. Here, Dixon expressed some concern:
“It cannot be argued, having regard to the principle of finality, that there is no occasion for the application of the immunity in the present case in respect of McKellar’s later conduct. An aspect of the plaintiffs’ claim is that McKellar’s negligence brought about a decision of the court to wind-up a solvent company that would otherwise have been different. The winding-up application is, essentially, reopened by contentions that the winding-up order would have been avoided altogether had McKellar not been negligent.”
But it seems all of this was mere dictum. Dixon conceded it was “not necessary to express a concluded view about whether McKellar’s later conduct is immune from suit” because damages could be awarded against both defendants on the basis of McKellar’s earlier conduct.
HH concluded:
“I have determined that each defendant owed the first plaintiff a duty of care. I have also determined that McKellar breached his duty of care to the first plaintiffs during the period from shortly after April 13, 2011 when CSD2 was served until May 19, 2011. During that period McKellar was a partner of Pilley McKellar until April 30, 2011 and an employee of Moores Legal from May 1, 2011.
The acts and omissions of McKellar on which my finding of breach of duty is based span the transition in his employment from the first defendant to the second defendant. On the basis of my earlier findings, the plaintiffs’ loss and damage was caused by McKellar’s conduct through the whole period, and I find that each of Pilley McKellar and Moores Legal are concurrent wrongdoers.”
Dual Homes lawyers pleaded extensive details of the pre-proceedings negligence, which was important because Dixon found that it was the pre-proceedings negligence that caused the outcome of the proceedings. The failure to deal competently with CSD2 caused the winding-up.
There were other relevant findings by the judge: