Gray and ANOR V The Solicitors Liability Committee M68/1997 [1997] HCATrans 430 (12 December 1997)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M68 of 1997

B e t w e e n -

GARRICK LEWIS GRAY and MICHAEL FREDERICK WINTER (Trading as GRAY & WINTER)

Applicants

and

THE SOLICITORS LIABILITY COMMITTEE

Respondent

Application for special leave to appeal

BRENNAN CJ

McHUGH J

GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 12 DECEMBER 1997, AT 10.00 AM

Copyright in the High Court of Australia

MR P.K. SEARLE: If your Honours please, I appear for the applicants in the matter. (instructed by Garrick Gray & Co)

MR J.D. MERRALLS, QC: May it please the Court, I appear with my learned friend, MR M. CLARKE, for the respondent. (instructed by Deacons Graham & James)

MR SEARLE: We all know that law office is a big business, that they have billion dollar or million dollar clients, they are run with computers and all the rest and so the argument may be made that to call them non-commercial is sanctimonious humbug. So conceded counsel for the State Bar of Arizona in Bates v State Bar of Arizona.

GUMMOW J: What has the State Bar of Arizona got to do with the Supreme Court of Victoria and its legal practitioners, Mr Searle?

MR SEARLE: What it has to do with it, your Honour, in my submission, is this. The distinction drawn in the joint judgment appears at page 180 of the application book and that is that the inference should be drawn:

that the things they did -

meaning Gray and Winter - - -

were done as the actions of businessmen, rather than as solicitors.

That is under the heading of a distinction, that is whether:

the relevant activities of Messrs Gray and Winter be characterised as "professional" or "entrepreneurial"?

In my submission, that is an incorrect and improper test which is not supported by any authority of this Court and, in fact, to the contrary solicitors are businessmen and to turn the non-commercial, as this and other courts have held in different context - - -

GUMMOW J: They are not merely businessmen, though, but they have special privileges, one of which, on behalf of their clients, is the doctrine of legal professional immunity.

MR SEARLE: Yes, your Honour, and those special privileges arise in so far as there has ever been a test which would be - - -

GUMMOW J: Privileges which are attendant with duties.

MR SEARLE: Precisely, your Honour. In so far as there has ever been a test, in my submission, which comes close to, in fact, drawing the distinction, it was, in fact, drawn by your Honour Justice Brennan in Leary at page 166 of the application book where your Honour drew a distinction between the promotion of a scheme on the one hand, that is a solicitor not having any antecedent professional duty on the one hand, and a case in which a solicitor does have an antecedent professional duty in the other. In my submission, the proper test to be applied in so far as there is a distinction, and there plainly is, is to determine whether there is an antecedent professional duty and that is whether the activities of the solicitor arise from a retainer.

In the instant case, Justice Olney held, plainly and on the basis of uncontroverted facts, that there was a retainer, there was an express retainer, not implied by implication but an express retainer to purchase a property on behalf of Hedigan. That antecedent professional duty is what his Honour held justified the basis that the activities of the solicitor which gave rise to the claim were in the course of a practice as a solicitor and that, with respect, is the proper test as was applied by your Honour Justice Brennan and Justice Olney.

The United States Supreme Court plainly and openly says solicitors are business, lawyers are business. They do carry on a business. The New South Wales Court of Appeal does the same and, in fact, in virtually all of the - for example, if one uses the trade practices cases which are the closest analogy which have actually been the subject of a number of determinations by this Court, the Federal Court and the New South Wales Court of Appeal, it has been consistently held, and properly so, that the course of carrying on a practice as a solicitor even, at times, without remuneration, involves trade and commerce. So one relies on Bond v Thiess, Waimond v Byrne, Purkiss v Hannigan, the authorities I refer to in my written outline.

On the other hand, one has this particular judgment appealed from in which only the joint judgment drew that distinction. Justice Lockhart did not and their Honours drew it purportedly on the basis primarily of your Honour Justice Brennan's judgment in Leary which, in my submission, with respect, was a misapplication of your Honour's judgment. Your Honour's judgment in Leary concerned the promotion of a blatant artificial tax avoidance scheme spread far and wide by solicitors and accountants and, your Honour, with respect, quite properly held that is not the sort of activities that a professional person is involved in. That is the promotion of a scheme. There is no antecedent professional duty to the client.

Garrick Gray had done precisely the same thing, in fact, a little earlier when he, having had a practice for many, many years, of advising on tax avoidance schemes, minimisation schemes, the same types of schemes - had earlier advised all of his clients this type of blatant, artificial scheme is not on and what he advised was a practice of trying to identify for a particular client a particular property which would give that client taxation advantages.

In this particular instance, Hedigan chose to give instructions directly to Gray to purchase the property for an agreed fee. That involved complex taxation considerations. It involved consideration of irrigation schemes, depreciation rates, the old section 75B of the Income Tax Assessment Act, whether you can write off the capital costs. There are numerous deductions in the Income Tax Assessment Act which advantage farmers in irrigation arrangements and water conservation.

In that way, one can, in fact, acquire a property as in this case with an original cost of $6 million. One can acquire it for $1.25 million, as was done, by and for and on behalf of Hedigan and with express instructions for it. Not only that, one can, in fact, write off substantial parts of the capital cost over three, five or ten years depending upon whether one is looking at 75B, 54 or some other provision of the Income Tax Assessment Act.

BRENNAN CJ: Mr Searle, what was the room for any claim for misrepresentation if one regards the retainer as being a strictly professional retainer? What was the purpose of making any representation?

MR SEARLE: There are two answers to that, your Honour. The first answer is that there were absolutely no representations or misrepresentations ever proved and the basis and reason for the settlement was that the barristers had a claim of over $4 million. They were advised by senior Sydney counsel to settle because Gray would not be believed and these learned barristers would be, one of whom was a judge of the Supreme Court of Victoria, and they were advised to settle for $500,000 to settle a claim for $4 million even though they thought there was nothing in the claim. That is the first part of the answer, your Honour.

The second part of the answer to your Honour's question is this. It has been held in this Court and in the New South Wales Supreme Court that it can be, and, in fact, is sometimes a part of a solicitor's practice and, indeed, his duty to advise on commercial matters. A solicitor has a duty to the client which, as this Court has held in Hawkins v Clayton - it has been often followed since naturally - that the duty of a solicitor to a client transcends the contractual professional duties which he takes by virtue of the express retainer. In addition to those duties he has further duties, in fact, indeed, duties to third persons, to third parties.

In the instant case, applying those lines of authorities, Maguire v Makaronis, for example, and the beneficiary cases such as Hawkins v Clayton, one finds that, in fact, Gray owed a common law duty in negligence referable to any representations made not only to the person with whom he had an expressed and direct retainer, being Hedigan, but also to the persons who were contemplated when Hedigan said at the very time he gave the instructions, "Guest and I are in, O'Callaghan and Chernov will be in as well". Hedigan was wanting to form a syndicate himself.

So Gray, in fact, had duties to the other persons who were contemplated, even though he had no express retainer with them and, in my submission, that all arises in connection with his practice as a solicitor given the antecedent professional duty he has by virtue of having been the longstanding solicitor for each of the barristers. He had been the solicitor for each of the barristers in four previous transactions.

The contracts of sale are signed by Garrick Gray, solicitor for Hedigan, Guest, et cetera, et cetera. The express instructions written in the own handwriting in the earlier cases, instances where properties were acquired by Gray for the same group of barristers, and various combinations of them, are "appointing Gray & Winter, solicitors to act on our behalf to purchase this property" and, of course, the only legal right Gray had to purchase a property for a client and, in fact, to sign the contract on behalf of a client, is by virtue of his practising certificate as a solicitor because the Legal Profession Practice Acts carries an exemption - sorry, I withdraw that. The Estate Agents Act carries in it an exemption for solicitors who have a practising certificate.

So, there are only two groups of people in the community who are, in fact, able to be involved in the dealing of buying and selling of property. Solicitors, of course, can only do it on behalf of clients but that is the reason for the exemption in the Estate Agents Act which arises, in fact, from the common law going back to 1401.

GUMMOW J: In the respondent's written submissions, this is what is said:

The real issue in this application is as follows:

Should the Court review the construction by the trial judge and the Full.....Federal Court of the insuring clause of a contract of solicitors' professional indemnity insurance and their decision about its application to certain activities undertaken by the applicants?

Is that not right?

MR SEARLE: Your Honour, if the question was as simple as that, I would not be here trying to import on your Honours that this is a matter of public importance. This is not just a private contract between two individuals. Throughout each State there is a statutory regime setting into place a system of mandatory professional indemnity insurance with an insurance contract in very similar terms to this and which is headed "Contract of Professional Indemnity Insurance".

The construction point and the application of that particular insurance policy and whether it does not apply to people who might be characterised as businessmen which might mean it does not apply to any US firm at all, or whether it only applies to people who have the antecedent professional duty in accordance with Justice Brennnan's dicta in Leary, these are matters of important public importance which apply to every single practising professional solicitor, because they all have a contract of the same nature and, indeed, the point can apply to every professional in other professions who have a contract headed "Professional Indemnity Insurance".

BRENNAN CJ: I can understand how you would wish to put it in such general terms but there are particular circumstances in this case and the particular circumstance is one which has to do with the inducing of the barristers to take over the contract which had been entered into by the shelf company. The question immediately arises, of course, whether there was some conflict of interest in duty, if your argument is right, in the solicitor seeking, on the one hand, the barristers to take over the contract upon the shelf company and their interest in having the shelf company relieved of its obligation.

MR SEARLE: Precisely, your Honour. If the facts were as your Honour has just outlined them, then, in my submission, contract of professional indemnity insurance would not apply to the arrangement if that was the fact found because there would be no antecedent professional duty and all that was being done was that a solicitor who had acquired a property in a private personal basis and who had all the beneficial interest in it was then trying to sell his property and no contract of professional indemnity insurance would apply to it.

But the facts found by Justice Olney and not contradicted and not determined to the contrary by the Full Federal Court were Hedigan gave express instructions to Gray to buy the property. Gray had no beneficial interest at all at any time in the property except for the agreed fee. Gray, two days after the property was acquired, passed on to Hedigan an opportunity to make a profit of some $300,000 or $400,000 on the property as was his duty as a solicitor, and Hedigan said, "We did not buy the property to sell it for a small profit like that." So there is a very important distinction which was simply skirted over by the Full Federal Court which involves, in my submission, the consideration by this Court of that issue and if one puts it in the same terms that your Honours - - -

BRENNAN CJ: That is a fact question, is it not? That is a fact question. You say it was skirted over by the Full Federal Court.

MR SEARLE: With respect, your Honour, it is an important legal issue because what has been done here is that the court below has used a general expression of promoters in some way without, in fact, identifying what it was that Gray was meant to be promoting. If you are promoting something, the assumption behind it is that you own something.

BRENNAN CJ: What you are seeking to do is to say this was really a straightforward transaction in which a client asked a solicitor to purchase a property for him. The solicitor purchased the property for him and litigation broke out between them. That is what you are saying, is it not?

MR SEARLE: Merely as simple as that, your Honour, yes.

BRENNAN CJ: And that is not the view of the transaction which was taken by the Full Federal Court. So for us to grant special leave in this case it would involve an analysis of the factual situation in order to determine whether it was falling into the category which I first put to you, or whether it fell into the category which I next put to you, or something close to that.

MR SEARLE: Your Honour, the applicant has unashamedly put forward this case as a two point application because the second point is important. That is that the Full Federal Court has purported to apply Warren v Coombes to overturn the established uncontradicted facts held by Justice Olney and, in particular, that the principal ones, that Gray gave taxation advice and he did legal work for his client and acquired the property for his client. The Full Federal Court, in purported application of Warren v Coombes, has said, "We can effectively reverse" - in Justice Lockhart's words, "We can reverse all of these findings."

The only basis upon which they can do that is to draw inferences from established facts and the Warren v Coombes judgment, with respect, has been misapplied grossly in this case. If one applied the facts of Justice Olney, one would find that Hedigan was the client of Gray at all relevant times and gave direct instruction to buy the property and Gray gave significant taxation advice and legal advice and drew a partnership deed for the partners, et cetera. There is a substantial body of evidence concerning that which Justice Olney used to justify his findings.

The Full Federal Court did not refer to any particular piece of the evidence to overcome those primary facts. They simply asserted that they could find, in effect, as a primary fact, that there was no legal or taxation advice given. So, in my submission, it involves two important points. The first point being what is the proper test to apply, whether one just has a broad professional or businessman distinction, one being mutually exclusive of the other. In my submission, that test is wrong in law. The second principal point is to consider the circumstances in which a court can overturn primary facts of a primary judge in purported application of Warren v Coombes. If your Honours please.

BRENNAN CJ: Thank you, Mr Searle. We need not trouble you, Mr Merralls.

The application for special leave turns in part on an analysis of the facts of the present transaction. As the decision of the Full Court on the facts as apparently found by their Honours is correct, special leave would, in substance, lead only to a reconsideration of the facts. That is not a sufficient ground for the grant of special leave. Accordingly, special leave is refused.

MR MERRALLS: I hope we do not have to push too hard to seek costs, your Honours.

BRENNAN CJ: You have nothing to say to that, Mr Searle?

MR SEARLE: No, your Honour. I have made that clear in my written submissions.

BRENNAN CJ: Special leave will be refused with costs.

AT 10.21 AM THE MATTER WAS CONCLUDED