COMINO v MANETTAS, COONEY v MANETTAS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY, SHELLER and CRIPPS JJ 3 and 4 November 1992, 5 March 1993 [1993] NSWCA 305 APPEAL from Commercial Division — Transaction financed by GIO upon guarantee and by directors. LIABILITY of guarantors upon guarantees given to GIO — One guarantor instructed solicitor to guarantee only one third of liability severally — Solicitor drafted documents making guarantor liable jointly and severally — Solicitor acting for GIO and for guarantor — Solicitor negligent in not clarifying instructions — Held: GIO may enforce guarantee against a guarantor for full (not limited) amount. — LIABILITY of solicitors to guarantor Manettas in negligence — Solicitor partner negligent in failing to clarify instructions — Firm liable for damages to Manettas — Number of partners increased during period of transaction — Whether original or enlarged firm liable — Judgment given against enlarged firm at trial — No objection at trial to form of judgment — Trial judge refused leave to amend judgment at trial level — Held: Not open to enlarged firm to claim on appeal that only original firm liable. RIGHT of solicitors to indemnity from Lawcover insurer — Insurer claims that liability to Manettas arose from "the dishonest or fraudulent act or omission of the Insured within exemption" — Solicitor dishonestly or fraudulently attested signatures of witnesses and certified in respect of guarantees — Negligent failure to clarify instructions not dishonest or fraudulent — Liability not "brought about by dishonest or fraudulent act or omission" within exemption. Mahoney JA The Government of Insurance Office of New South Wales (GIO) has sued Nicholas Peter Manettas, Nicholas John Wall and James John Caralis upon guarantees given by them of loans made by the GIO to Dylcu Pty Ltd (Dylcu) and Presabout Pty Ltd (Presabout). The GIO lent some $4,000,000 to Dylcu and some $3,000,000 to Presabout to enable those companies to purchase and develop properties at Newtown and Leichhardt. The GIO called upon the guarantors under their guarantees. The guarantors defended the proceedings and there have been third party proceedings and cross claims. The various proceedings were heard before Cole J in the Commercial Division of the Court. On 5 June 1992 his Honour gave judgment in respect of the main matters in issue. Subsequently on 8 July 1992, his Honour dealt with additional matters which had then been put to him. His Honour directed judgment to take effect on 16 July 1992. Appeals and cross appeals have been brought to this Court against the judgment which his Honour directed to be entered. Before Cole J there were disputes between the parties in relation to a large number of matters. In respect of some of those matters Notices of Appeal and Cross Appeal were filed. Some only of the matters referred to in the Notices of Appeal and Cross Appeal have been pursued and the issues for decision by this Court have accordingly been reduced. In order to understand the matters in issue before this Court, it is necessary to refer to the transactions from which the disputes arose and the events which occurred in relation to them. For present purposes it is not necessary for me to 2 UNREPORTED JUDGMENTS review all of the detail of such matters. His Honour, in his comprehensive judgment of 5 June 1992, has set forth the nature of the disputes and his findings in relation to them. What his Honour has said enables me to deal with the matters now in issue by stating the facts now relevant in more general terms. The three guarantors Messrs Manettas, Wall and Caralis had entered into an arrangement whereby they would join in the development of, as it eventuated, the Newtown and the Leichhardt properties. In general terms, their arrangement was that they would respectively provide personal services in relation to the developments, would provide finance to enable the developments to take place, and would share the profits from them equally. It was contemplated that the finance would or might be provided by borrowing and that this would or might involve the giving of personal guarantees by each of them. In the event, they contend and his Honour accepted that the arrangement was that, in guarantees given by them, they would each guarantee severally one third of the relevant liabilities. It was not their intention that they should each give a joint or several guarantee of the whole of the liabilities: the liability of each of them under the guarantees was to extend only to one third of the liability in respect of the developments. Finance was obtained from the GIO. Two loan agreements were executed, that in respect of the Dylcu development being dated 14 March 1988 and that in respect of the Presabout development on 11 July 1988. The loans were to be made respectively to Dylcu and Presabout and GIO required personal guarantees from the three guarantors. The problem giving rise to the present disputes arose in relation to those guarantees. Mr Manettas intended that his guarantees be limited, in the manner to which I have referred, to one third of the liability on respect of the developments. He claimed that he instructed his solicitors to that effect. But the GIO required a joint and several guarantee of the total liabilities from each of the guarantors. The particular solicitor acting for the guarantors, Mr Spero Pitsikas, subjectively believed that his instructions from Mr Manettas authorised him to prepare documents for signature by the guarantors which gave joint and several guarantees for the total of the liabilities. He prepared documents accordingly and the guarantors signed them. Upon the basis of those documents the GIO advanced the moneys for the developments. In due course, in 1991, the GIO sued the guarantors upon their guarantees. As far as is now relevant, Mr Manettas claimed that he was not liable to the GIO for more than one third of the relevant liabilities. The trial judge found in favour of the GIO on this issue. He gave judgment against each of the guarantors for the full amount of the liabilities and, as between the guarantors, made orders for an appropriate division of the burden between them. Against the possibility that he might be liable to the GIO for the total of the liabilities, Mr Manettas brought proceedings against his solicitors. He claimed that the solicitors were in breach of contract, liable in negligence, and in breach of their fiduciary duty to him because they had not ensured that the guarantees signed by him limited his liability to one third of the total. His Honour found in substance for Mr Manettas. His conclusion was that the instructions given to his solicitor Mr Pitsikas were such that the solicitor should have, in the guarantees, limited Mr Manettas' liability accordingly. His Honour assessed the loss which Mr Manettas had suffered by reason of this default and gave judgment for him accordingly. URJ COMINO v MANETTAS, COONEY v MANETTAS (Mahoney JA) 3 Acomplication has arisen in relation to the Judgment in favour of Mr Manettas against the solicitors. During the period of the two loan transactions, there was a change in (I put the matter in a neutral fashion) the composition of the firms of the solicitors involved. Prior to 1 July 1988, the firm of solicitors comprised the fourth defendant, Charles Theo Comino, Agathocles Agathocleous Constantine and Spero Pitsikas, trading as Comino Constantine. Thereafter it consisted of the fifth defendant comprising Charles Theo Comino, Agathocles Agathocleous Constantine, Spero Pitsikas, Van Cooney and Jeffrey Stuart Dunn, trading as Comino Constantine and Cooney. At the trial and until his Honour gave his judgment of 5 June 1992, nothing was urged to turn upon this change. After his Honour's main judgment was delivered, an issue was raised in relation to it. To that I shall refer subsequently. Against the possibility that they might be held liable to Mr Manettas on his claim, the solicitors brought proceedings against their insurers (I shall refer to the insurers as "Lawcover"). There were two main sources of possible liability and accordingly of claim upon Lawcover. First, Mr Manettas might succeed in his claim against the solicitors. And, second, the GIO might itself make a claim against the solicitors because of what had been done. The solicitors had, in the transactions, acted for the borrowing parties (Dylcu and Presabout and the guarantors) and the lender (the GIO). There was accordingly the possibility of a claim against the solicitors by the GIO. This Court is not, in respect of the present appeals, required to consider the claim which the solicitors may have for indemnity by Lawcover in respect of the GIO. The court may confine its attention to the claim against Lawcover only arising from the claim by Mr Manettas. The trial judge held that, whilst the solicitors were prima facie entitled to an indemnity from Lawcover in respect of Mr Manettas' claim, their right to indemnity was lost because, under an exclusion clause in the policy, their liability to Mr Manettas had been "brought about by the dishonest or fraudulent act or omissions" of Mr Pitsikas. His Honour accordingly gave judgment for Lawcover in respect of the solicitors' claim. At the initial stages of the proceedings in the Commercial Division, Messrs Wall and Caralis were represented by solicitors. In due course, the solicitors ceased to act. They were before the court in the proceedings before Cole J. They have been served with the Notices of Appeal and documents in respect of the appeals and other proceedings before this Court. During the course of the hearing before this Court, questions were raised as to their position. Mr Wall and Mr Caralis appeared before the court. Apart from brief statements, they have taken no part in the proceedings. However, it will or may be necessary to consider their position depending upon the outcome of the appeals and the orders made. 1. THE ISSUES FOR DETERMINATION: Before this Court the issues for determination have been limited. They may be formulated as follows: (a) Whether Mr Manettas is liable to the GIO upon the guarantees as his Honour found; (b) Whether Mr Manettas is entitled, in his judgment against the solicitors, to judgment only against the Comino Constantine firm or against the Comino Constantine and Cooney firm?; (c) Whether the solicitors are entitled to claim against Lawcover; (d) Whether in calculating Mr Manettas' loss recoverable against the solicitors, it is proper to take into account a loss suffered by him in respect of the sale of shares; and 4 UNREPORTED JUDGMENTS (e) What orders should be made consequent upon this Court's findings? 2. THE LIABILITY OF MR MANETTAS TO GIO ON HIS GUARANTEES: The only matter argued before this Court in this regard arises from the fact that Mr Pitsikas acted in the transaction as solicitor for all of the relevant parties. Mr Oslington QC for Mr Manettas has put this point shortly. He has submitted that it should be held that the GIO held the benefit of Mr Manettas' guarantees as a constructive trustee to use them for Mr Manettas' purposes because Mr Pitsikas was the agent of the GIO in the transactions and consequently the GIO knew that Mr Pitsikas should have ascertained that Mr Manettas authorised only a limited guarantee and was negligent in not giving effect to that authority. This is the essential thrust of the argument advanced for Mr Manettas in this regard. I do not think that these submissions should be accepted. Endeavours were made on behalf of the borrowing parties to obtain finance from more than one prospective lender. Mr Pitsikas was involved in these endeavours. Whether he was the person who secured the proposal for finance from the GIO need not be determined. When the finance proposals were discussed, he was acting as solicitor for the borrowing parties. During the course of those discussions, at a date which is not clear, he was invited to act for the GIO as their solicitor and to prepare the documents accordingly. It is not clear whether, at the time when that invitation was made, all of the relevant terms had been agreed or whether further negotiations were to be undertaken. Mr Pitsikas proposed to Mr Manettas that he might like to seek separate representation but Mr Manettas asked Mr Pitsikas to continue as solicitor. What was explained to him at the time as to the problems involved need not be pursued. But Mr Pitsikas, acting for each side of the transaction, prepared the documents and in the course of doing so, adopted the provisions for joint and several guarantees by Mr Manettas. Insofar as Mr Manettas' submissions in this regard are based upon the claim that Mr Pitsikas was not merely solicitor but, in a separate sense, agent for the GIO in relevant respects, I do not find that claim established. What the solicitor did appears to have been done as part of his function as a solicitor for both sides in the transactions. But Mr Oslington's submissions extended, I think, to the claim that, even if Mr Pitsikas acted merely as solicitor, the knowledge which he had of relevant facts in relation to Mr Manettas was deemed to be the knowledge of the GIO as his client and that, having that knowledge, the GIO could not in conscience retain the benefit of the guarantees. I do not think that it is necessary for present purposes to pursue the difficult questions involved in determining whether and to what extent the knowledge of a solicitor in such a situation is imputed to each of his clients. His Honour found and it is not in contest but that Mr Pitsikas did not know subjectively that Mr Manettas' instructions to him were that only the limited form of guarantee was to be given. His Honour's conclusion was that the difficulty arose because the instructions given by Mr Manettas were in this regard ambiguous. His Honour accepted that Mr Pitsikas subjectively believed that it was within his instructions to provide for joint and several guarantees as he did. His default in relation to Mr Manettas lay, as his Honour found, in not taking steps to clarify instructions which, as his Honour's judgment I think implied, were so obviously ambiguous that a solicitor acting properly would have taken steps to clarify them. On this basis, what Mr Pitsikas actually knew, if communicated to the GIO, would not in my opinion have made it inequitable for the GIO to enforce its guarantees according to their terms. URJ COMINO v MANETTAS, COONEY v MANETTAS (Mahoney JA) 5 Counsel have discussed the question whether the knowledge which a solicitor ought to have but does not have is deemed to be communicated or imputed to his client. It was submitted by Mr Coles QC for the GIO that the knowledge imputed in this way is limited to what is actually known. I would not wish to hold that in no circumstances can the client of a solicitor be deemed to have knowledge of facts which are not actually present subjectively to the mind of the solicitor at a relevant time. There may, I think, be distinctions to be drawn in this regard. But in the present case, as Cole J pointed out, Mr Pitsikas did not actually know or advert to the limitation upon his instructions which Mr Manettas had intended and his default lay in not clarifying his defective instructions. In such circumstances, I do not think there is to be imputed to the GIO the information which Mr Pitsikas would have acquired had he pressed Mr Manettas for further clarification of his instructions. I have dealt with the matter by reference essentially to the submissions made by Mr Oslington QC. However I do not think that, considered generally, Mr Pitsikas' position in the transaction was such that, in fact or in law, it became inequitable for the GIO to insist upon the terms of its guarantees. 3. THE RIGHT OF THE SOLICITORS TO CLAIM AGAINST LAWCOVER: This issue turns essentially upon the construction of the insurance policy granted to the solicitors. The basic insurance was provided for by CL2 of the Certificate of Insurance in the following terms: "2. INSURING CLAUSES On the terms and conditions herein contained the Insurers shall indemnify the Assured up to an amount not exceeding the Sum Insured and related Costs against all loss to the Assured (including claimants costs) whensoever occurring arising from any claim or claims first made against the Assured during the Period of Insurance in respect of any description of civil liability whatsoever incurred in connection with the Practice other than loss arising out of any circumstance or occurrence which has been notified under any other insurance attaching prior to the inception of this Certificate of Insurance." The Certificate of Insurance provides for "General Exclusions". These are provided by CLS as follows: 5. GENERAL EXCLUSIONS (a) Subject to 5(b) hereof this Insurance shall be subject to a Deductible of $100,000. (b) In the event that the aggregate of the Deductibles paid in respect of all Certificates of Insurance issued under the Master Policy pursuant to which this Certificate of Insurance is issued total $19,000,000 General Exclusion (a) hereof shall no longer apply and this Insurance shall be subject to an Excess of: (i) $3,000 each claim including claimants costs; or (ii) $1,500 each claim including claimants costs multiplied by the number of Solicitors required to be insured and/or former Solicitors who are liable at the time the liability is incurred to compensate the claimant (iii) notwithstanding the provisions of para(ii) above the amount payable by the Assured by way of Excess in relation to a payment arising from the Assured acting as Trustee, Executor, Attorney under Power, Tax Agent, Company Director, Secretary, Public Officer or Public Notary will be $1,500 each claim including claimants costs multiplied by the number of Solicitors required to be insured and/or former Solicitors in the firm at the time of the act or omission 6 UNREPORTED JUDGMENTS giving rise to the liability to compensate the claimant whichever amount is the greater, provided however that where any persons insured hereunder have joint or several liability as being partners at the time the liability was incurred, the maximum sum for which indemnity shall not be granted shall be the first $30,000 of each claim including claimants costs. Provided further however that if a claim arises out of: a borrowing or a lending transaction and the Assured has acted for both the borrower and the lender in that transaction; or the claimants action for damages for personal injury being statute barred; the amount of the Excess calculated in accordance with General Exclusions (b)(i) or (ii) hereof and the maximum sum shall be doubled. (c) Notwithstanding the provisions of General Exclusions (b)(i) or (ii) hereof the maximum amount payable by the Assured by way of Excess in relation to payments from the Solicitors Mutual Indemnity Fund or under the Certificate of Insurance shall be: (i) Where the Assured is a Sole Practitioner $15,000; (ii) Where the Assured is a Partnership an amount determined by multiplying the number of Partners in the Firm at the inception date of this Insurance was $7,500, provided however that the amount so determined shall not exceed $150,000. (d) In the event that the Assured has paid by way of Excess the relevant sum referred to in General Exclusions (c)(i) or (ii) hereof the Insurers shall notwithstanding General Exclusions (a) and (b) indemnify the Assured against any further Excess that would have been payable by the Assured but for General Exclusion (c) hereof. (e) This insurance shall not indemnify the Assured in respect of any liability: (i) for damages arising from death, bodily injury, physical loss or physical damage to property of any kind whatsoever (other than property in the care, custody and control of the Assured in connection with the Practice for which the Assured is responsible, not being property occupied or used by the Assured for the purposes of the Practice); (ii) arising from a contract other than a contract to provide services within the definition of 'the Practice'; (iii)to repay any monies charged as fees and disbursements or for costs incurred in relation to any dispute as to fees and disbursements; (iv) for the payment of any trading debt incurred by the Assured; (v) brought about by the dishonest or fraudulent act or omission of the Assured including any Partner or former Partner of the Assured, Save that this exclusion shall not apply to liability arising out of any claim brought about by the dishonest or fraudulent act or omission of any person employed in connection with the Practice (including any articled clerk and any solicitor who is a Consultant or Associate with the firm); (vi) directly or indirectly caused by or contributed to by, or arising from ionising radiations or contamination by radioactivity from any nuclear fuel or from any nuclear waste from the combustion of nuclear fuel, the radioactive toxic explosive or other hazardous properties of any explosive nuclear assembly or nuclear component thereof; directly occasioned by pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds, or from war, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, military or usurped power. URJ COMINO v MANETTAS, COONEY v MANETTAS (Mahoney JA) 7 (vii)incurred in connection with a practice conducted wholly outside the states of New South Wales, Tasmania, Western Australia or the Australian Capital Territory. (vili)incurred by the Assured in his capacity as an insurance agent." The relevant provision relied on in the present claim is CL5(e)(v). It is contended for Lawcover that the insurance granted by CL2 "against all loss... in respect of any description of civil liability whatsoever incurred in connection the Practice" does not include "... any liability... (v) brought about by the dishonest or fraudulent act or omission of the Assured..."; and that the claim or loss against which the solicitors seek indemnity is a "liability... brought about by the dishonest or fraudulent act or omission" of Mr Pitsikas. In order to understand the operation of the exclusion clause it is necessary to determine what is the "liability" in question and what is "the dishonest or fraudulent act or omission" relied on. The relevant liability is, of course, the claim by Mr Manettas and the obligation on which it is based. That obligation derives from essentially the failure of Mr Pitsikas to clarify his instructions. (I am in stating the matter thus summarising the thrust of the judge's finding as to Mr Pitsikas' default. It is not, I think, necessary to analyse more closely the basis on which the learned judge held that Mr Manettas was entitled to damages from the solicitors). The acts or omissions relied upon for the purpose of CL5(e)(v) were twofold or possibly threefold. During argument it was agreed that the defaults in question arose from what Mr Pitsikas did during the documentation of the transactions. The defaults arose only in relation to the loan agreement with Dylcu. They related to two things: attestation and certification. The loan agreement contemplated that the signatures by the relevant parties would be attested by a person in whose presence the signatures were placed on the document. In fact Mr Manettas and other parties did not sign the document in Mr Pitsikas' presence but notwithstanding this he attested their signatures upon the basis that they had. It was not in question but that they had signed the document and, as far as appears, he was genuinely satisfied that it was their signatures. But the attestation was: "Signed by the said... in the presence of..." and Mr Pitsikas, by attesting in that form, conveyed an impression which he knew to be false. The default in respect of certification arose because the loan agreement had in it a provision directed to ensuring that the borrower, the mortgagors and the guarantors in the transaction had been independently advised as to the terms of the agreement. The certificate was in the form: "T certify that I have explained the terms of this Loan Agreement to the Borrower, the Mortgagors (if any) and the Guarantors (if any) and each of them has advised me that he understands the terms of this Loan Agreement. I am not the solicitor for the Lender." Mr Pitsikas signed that certificate. It was false because, as he conceded, he had not "explained the terms of" the agreement to the guarantors and he was in fact "the solicitor for the lender". His view was that they already understood the terms of the loan agreement but the effect of his evidence was to concede that he had not "explained" those terms as the certificate indicated. The third matter related to a letter which Mr Pitsikas wrote to the GIO. By the letter he represented to the GIO that the transaction had been carried out in accordance with their requirements. That was not true because of the defaults in respect of attestation and certification to which I have referred. 8 UNREPORTED JUDGMENTS It is then necessary to determine whether the "liability", viz, that to Mr Manettas, was "brought about by" one or more of these defaults. It was submitted by Mr Jackson QC and Mr Collins QC for the solicitors that the defaults did not fall within the description "the dishonest or fraudulent act or omission of the Assured". It was submitted that what was done was not "fraudulent" and that, because "dishonest" involves an intention to deceive, the defaults were not "dishonest". Reference was made in argument to the recent decision to the contrary by the Court of Appeal of New Zealand in McMillan v Joseph (1987) 4 ANZ Insurance Cases 75051 at 75054, 75055, 75057. I am of the view that, both in respect of attestation and certification, Mr Pitsikas represented to the GIO things which he knew to be untrue and that that falls within "dishonest". The form of the attestation represented that the guarantors had signed the document in Mr Pitsikas' presence: that was untrue to his knowledge. The certificate represented that he had explained the terms of the loan agreement to them and that was untrue to his knowledge. Insofar as an intention to deceive is involved in "dishonest", it was his purpose and intention to deceive the GIO in this regard. Therefore it is not necessary to form a concluded view as to the meaning of these terms. In addition, I am of opinion that the relevant liability to Mr Manettas was not "brought about by" those defaults. The learned judge held, in my opinion correctly, that "brought about by" indicates that there must be a causal relationship between the defaults and the liability. But there are causes and causes, and the issue is, I think, whether the kind of causal relationship denoted by "brought about by" is the one which existed between these defaults of Mr Pitsikas and the liability to Mr Manettas. It is clear that "cause" is a term which may be used to describe relationships of different kinds. The several categories of cause were recognised long ago by Aristotle. The distinctions have since been multiplied: see generally Hart and Honore "Causation in the Law" (2nd ed) at 26 et seq. In Barnes v Hay (1988) 12 NSWLR 337 (slr), this Court considered the nature of the causal relationship existing between the giving, or failure to give legal advice and the occurrence of the event to which the advice was to be directed. More recently, the High Court in examining the nature of the causal relationship between careless driving and a subsequent collision, has considered causal issues generally: March v Stramare (E and MH) Pty Ltd (1991) 171 CLR 506. It is necessary in the present case to determine whether the relationship denoted by "brought about by" is one which includes all of these various relationships and if not which of them is that which was intended. Counsel have not been able to refer the court to any judicial consideration of "brought about by". Cole J, in his consideration of this aspect of the matter, concluded that the relationship between the attestation and certification defaults, or at least the latter, was causal because "without those dishonest acts there would have been no completed transaction. Had the certificate been true, in that the Dylcu loan agreement had been explained to the guarantors, the divergence between the GIO's requirement of a joint and several guarantee and Mr Manettas' willingness to give only a one third several guarantee would have become starkly apparent and the transaction would have terminated". In my respectful opinion, that relationship between the default and the liability, though in one sense causal, is not causal in the sense intended by the words "brought about by" in the exclusion clause. It is, I think, an over-simplification to say that "brought about by" intends a "causa causans" causal relationship and URJ COMINO v MANETTAS, COONEY v MANETTAS (Mahoney JA) 9 that the one which, as his Honour pointed out, existed between these defaults and the liability was, at best, the relationship of "causa sine qua non". But that distinction assists, I believe, in understanding the nature of the relationship intended by "brought about by". The phrase looks to what actually brought about the liability, in negligence, tort or otherwise, to Mr Manettas. The ingredients of that liability involved only the failure of Mr Pitsikas to clarify his instructions. Once that failure occurred and the transaction was carried to completion on the basis of his mistake as to his instructions, the liability to Mr Manettas arose. The defaults relied on by Lawcover, viz, the attestation default and the certification default, played no part in the arising of that liability. In that sense, the liability was not "brought about by" those defaults. The fact that, had the certification default not occurred, the transaction would or might not have taken place or taken place in its relevant form, does not, in my opinion, mean that the liability was "brought about by" those defaults. There are many things, collateral to the default which gave rise to the liability, which may well have prevented the transaction taking place or taking place in its instant form. Thus, if the solicitor had forged the stamp duty mark upon the document and taken the money for himself, there would have been a dishonest act which, if known to the parties, would have prevented the transaction taking place. It was, in a sense, a sine qua non that such not occur. But that collateral matter would not be something which "brought about" the liability which in fact arose to Mr Manettas because of Mr Pitsikas' negligence. Examples may be distinguished: there are distinctions which may obviously be drawn between such an example and the present case and it is not necessary to pursue them. But the example illustrates the difference between that which brings about a result and that which, if it had occurred, would have prevented the result being brought about. It is sufficient to recognise that there are defaults which, had they not occurred, might have resulted in the transaction not taking place, at all or in its instant form, which do not, in the relevant sense, fall within the causal relationship of "brought about by". Ihave dealt with this matter in some detail in deference to the careful judgment of Cole J and the submissions of Mr Gee QC for Lawcover. I am satisfied that the defaults here relied on do not bring into operation the exclusion clause. It follows from this that the solicitors are entitled to claim under the Lawcover policy in respect of their liability to Mr Manettas. 4. SHOULD THE DAMAGES RECOVERABLE BY MR MANETTAS FROM THE SOLICITORS INCLUDE ALL OF THE AMOUNTS CLAIMED? At the trial, it was submitted inter alia that, if the solicitors were liable to Mr Manettas, the damages should not include the damages arising from the Presabout transaction or those arising from (as I shall describe it) the share transaction. In respect of each of these matters I agree with the conclusions of Cole J. As I have indicated, the Presabout transaction was a separate transaction from the Dylcu transaction, at least in origin. However, it was subsequently arranged that the moneys available for the one should be available for the other development. The guarantees given related to liabilities from both transactions. It was clear that Mr Manettas' stipulation as to the extent of his guarantee applied to each transaction and I agree with Cole J that the losses arising from the Presabout transaction are recoverable. 10 UNREPORTED JUDGMENTS Before this Court, it was argued that the losses arising from the share transaction were not recoverable. The circumstances in which the losses accrued are set forth in the judgment of Cole J. (See 769 et seq of the appeal papers). Shares were provided by way of substituted guarantee, albeit at the suggestion of Mr Manettas. But the loss claimed, $800,000, represented the proceeds of sale of the shares on 2 October 1991 in order to meet the guarantee. I see no error in the judge's conclusion that this loss resulted from the fact that he entered into the guarantee in the form that he did. 5. SHOULD MR MANETTAS' JUDGMENT AGAINST THE SOLICITORS BE AGAINST THE FIRST FIRM OR THE SECOND FIRM? As I have indicated, until 30 June 1988 the solicitors acting for Mr Manettas were the fourth defendant (the three solicitors trading as Comino Constantine). On 1 July 1988, two other solicitors joined them (I put the matter in a neutral sense) and the second firm (Comino Constantine and Cooney) was the firm in which the three original solicitors and the two additional solicitors practised. In his main judgment of 5 June 1992, Cole J indicated his intention to give judgment for Mr Manettas against the five solicitors who comprised the second firm. The court is informed that at the trial the issues were contested on the basis that, if judgment was to be given, it was to be given against the second firm. However, after 5 June 1992, counsel appeared before his Honour on behalf of the second firm to suggest that the judgment should be given only against the three solicitors of the first firm. No motion was filed for the purpose and the application appears to have been made without the formalities ordinarily appropriate under the rules. No explanation was given, at least by way of evidence, as to why the proceeding had been conducted as it had been at the trial and no investigation was undertaken or suggested to show which of the groups of solicitors was in fact properly liable to Mr Manettas. I am appreciative of the procedural informality which is sometimes seen as appropriate in the Commercial Division and that is to be taken into account in considering the absence of a formal motion. But it is, in my opinion, understandable that, having regard to what was put and not put to his Honour, his Honour refused to depart from the view inherent in his judgment of 5 June 1992, namely, that Mr Manettas should have judgment against the five solicitors. Before this Court Mr Collins QC sought to have his Honour's ruling reversed. I do not think that this Court should depart from his Honour's ruling. The thrust of the submission was that the acts or omissions giving rise to the liability to Mr Manettas had all occurred prior to 1 July 1988 and that accordingly the two solicitors who commenced to act in the practice of Comino Constantine and Cooney thereafter could not be liable for what Mr Pitsikas had done. There is, of course, force in this submission. But there was at the trial no investigation of any matters relevant in this regard. If at the trial the issue had been raised, it may be that further matters would have been investigated and other evidence called. The court does not have the terms of the partnership arrangement of either firm. It does not appear, for example, whether the two solicitors who joined the practice did so on terms that they participated in the assets and bore the liabilities of the three original partners, and did so in such a way as would entitle Mr Manettas to judgment directly against them. Nor has any evidence been placed before this Court or suggested to explain why the point was not taken at the trial and what the relevant circumstances were. URJ COMINO v MANETTAS, COONEY v MANETTAS (Sheller JA) 11 I am conscious that in some circumstances the court may on appeal, as on a judgment non obstante veredicto, substitute for the judgment below the judgment which appears appropriate on the material before the court on appeal: see, for example, the observations of Handley JA in Electricity Commission of NSW v Yates (Court of Appeal, 26 November 1991, unreported). That may be done where it is clear that the judgment below cannot be supported or, had the matter been investigated, could not have been given. But that does not appear in the present case. I would not intervene to set aside the refusal by the trial judge to confine the judgment given only to the three solicitors. 6. ORDERS: For the reasons which I have given, the judgment in favour of Lawcover should be set aside and the solicitors should have judgment against Lawcover in respect of their rights under the insurance policy. Otherwise the appeals and cross appeal should be dismissed. It is in my opinion appropriate that the court direct that short minutes of order be brought in by the parties to give effect to the conclusions at which this Court has arrived. It is not, in my opinion, practicable for the court at this stage to attempt to settle the terms of the orders to be made. The parties have indicated that there are some matters which, on one view, may remain outstanding and which it will be appropriate to be dealt with by the trial judge. The court is required to determine all of the outstanding disputes between the parties if, within the proper principles, this can be achieved: see Supreme Court Act 1970, s63; Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 at 306-7. Within the limits of these principles, it is proper that the court invite the parties to indicate what (if any) further procedures should be taken within the terms of the present proceedings. The minutes of order should be brought in by Mr Manettas. It is appreciated that some of the orders which will be involved concern parties other than Mr Manettas. However, it is appropriate that he as a successful party have the primary control of the preparation of the short minutes of orders and the responsibility for bringing them forward. The minutes of order should be filed within one month from the date of this judgment. If alternative orders are to be proposed by other parties, alternative minutes of those orders should be filed and served not less than seven (7) days before that date. The parties may, if they desire, make submissions as to costs when the minutes of order are discussed. Sheller JA I have had the benefit of reading the judgment prepared by Mahoney JA. I agree with the course he suggests and the reasons he has given. I make only the following observation on the matter on which, like Mahoney JA, I disagree with Cole J. In my opinion General Exclusion 5 (e) (v) does not apply to release the insurer from its obligation to indemnify the assured solicitor. While the language is not free from ambiguity, para(e) (v) must, in the context of the Insuring Clauses, be read, subject to the proviso which is not applicable, as excluding the obligation to indemnify the Assured for losses to the Assured arising out of any claim made against the Assured in respect of civil liability incurred in connection with the Practice where the civil liability is brought about by the Assured's dishonest or fraudulent act or omission. In brief the question here is whether the dishonest or fraudulent act of the Assured brought about the Assured's civil liability to Mr Manettas. Clearly such liability was brought about by the negligence of the Assured. But, as I understand the argument, it is urged that but for the dishonest or fraudulent act of the Assured the transactions would 12 UNREPORTED JUDGMENTS not have proceeded between Mr Manettas and the Government Insurance Office and hence there would have been no civil liability. Even if this be so, to adapt the language of Hope and Priestley JJA in Barnes v Hay (1988) 12 NSWLR 337 and 339, the dishonest or fraudulent act was, in my opinion, not sufficiently connected with the Assured's civil liability to Mr Manettas to be regarded, within the meaning of the exclusion, as bringing it about. Cripps JA I agree with the reasons of Mahoney JA. I would like to add a fewremarks concerning the submission that Cole J erred in refusing to confine the judgment to three of the five solicitors named as defendants. In my opinion, not only had no grounds been made out why the Court should intervene and displace Cole J's discretion, I think his conclusion was correct. Mahoney JA has set out the history of the matter. The Dylcu transaction was completed some time in April 1988 - the Presabout transaction in July 1988. Until 30 June 1988, the firm of which Mr Pitsikas was a member consisted of Mr Comino, Mr Constantine and Mr Pitsikas. It was known as Comino Constantine. On 1 July 1988, Mr Cooney and Mr Dunn Joined the firm and it became known as Comino Constantine and Cooney. The hearing before Cole J took place on 27, 28, 29 and 30 April 1992. Cole J published his reasons for judgment on 5 June 1992. In the proceedings, Comino Constantine was the fourth defendant and Comino Constantine Cooney was the fifth defendant. In his judgment on 5 June 1992, Cole J ordered, inter alia, judgment against the fourth and fifth defendants. He stood the matter over until 15 June 1992 to enable the parties to bring in short minutes of order and directed, inter alia, that the parties "confer and agree upon interest calculations and the division of the total judgment against the solicitors between the fourth and fifth defendants". It is not entirely clear why this direction was given. However, what is clear is that it was not concerned with any question of separate liability of the fourth and fifth defendants. Throughout the proceedings and until 15 June 1992 the fourth and fifth defendants were represented by the same barristers and the same solicitors. On 15 June 1992, an application was made by Mr Biscoe QC, on behalf of the fifth defendant, directed generally to the question whether the two solicitors who joined the practice on 1 July 1988 should have been held liable and, if they were, whether they were entitled to indemnity against Law Cover with respect to acts of default of Mr Pitsikas prior to 1 July 1988. It is by no means clear what the application was that was being made on 15 June 1992. No formal application was made. I am prepared to approach the matter upon the basis that the application before Cole J was to reopen the case for his further consideration as to whether, and if so to what extent, the two solicitors who joined the firm after 1 July 1988 were liable. There was no formal application that Cole J should withdraw his judgment. It was not submitted that Cole J had made any mistake. It was not submitted that the legal representatives for the fourth and fifth defendants were relevantly mistaken with respect to any matter material to the proceedings. Cole J (and later this Court) were asked, by implication at least, to gloss over the problem that on 15 June 1988, Mr Campbell was appearing for Mr Comino, Mr Constantine and Mr Pitsikas and Mr Biscoe was appearing for Mr Comino, Mr Constantine, Mr Van, Mr Cooney, Mr Pitsikas and Mr Dunn. It is difficult to avoid the conclusion that there must have been a conflict of interest involved. Nonetheless, as I have said, I am prepared to assume the application was for the relief I have indicated above and the appeal seeks a reversal of Cole J's decision. The second and third defendants were not represented in the proceedings. It is not clear what their attitude was to the application assuming URJ COMINO v MANETTAS, COONEY v MANETTAS (Cripps JA) 13 they understood it. However, the first defendant, Mr Manettas, and the fifth defendant, Law Cover, were opposed to the case being reopened. The claim that the two solicitors who joined the practice from | July 1988 were not subject to the same liability or the earlier partners for the acts of Mr Pitsikas was not self evidently absurd. On the face of it, it could not be said there was no substance in the submission. But the matter was never investigated at the trial. The terms of the partnership agreement were not before the Court. No explanation was placed before Cole J or this Court to explain why the claim was not made at the trial and what the relevant circumstances were that should have persuaded Cole J to consider it for the first time on 15 June. The circumstance that the point may have some force means that it also would have been so obvious that it is difficult to conclude that it was overlooked. In Ketteman v Hansel Properties Ltd [1987] 1 AC 189, reference was made to the difference between allowing amendments to clarify issues in dispute and permitting defences to be raised for the first time. With respect to allowing matters to be raised by way of defence for the first time, Lord Griffiths at 220 said: "Many and diverse factors will bear upon the exercise of this discretion. I do not think it possible to enumerate them all or wise to attempt to do so. But justice cannot always be measured in terms of money and in my view a judge is entitled to weigh in the balance the strain the litigation imposes on litigants, particularly if they are personal litigants rather than business corporations, the anxieties occasioned by facing new issues, the raising of false hopes, and the legitimate expectation that the trial will determine the issues one way or the other. Furthermore to allow an amendment before a trial begins is quite different from allowing it at the end of the trial to give an apparently unsuccessful defendant an opportunity to renew the fight on an entirely different defence." Lord Griffiths also referred to and placed emphasis on the pressure on courts caused by the great increase in litigation and the consequent necessity for legal business to be conducted efficiently. He said: "We can no longer afford to show the same indulgence towards the negligent conduct of litigation as was perhaps possible in a more leisured age. There will be cases in which justice will be better served by allowing the consequences of the negligence of the lawyers to fall upon their own heads rather than by allowing an amendment at a very late stage of the proceedings." Lord Griffiths' observations were adopted by Gleeson CJ in SPCC v Australian Iron and Steel Pty Ltd (No 2) (1992) 75 LGRA 327 at 333 to 334. The Chief Justice adopted views to similar effect by King CJ in United Motors Retail Ltd v AGC Ltd (South Australian Full Court, unreported). In the present case, Cole J had regard to the principles enunciated in Ketteman and, in my opinion, he was correct. The effect of the strain of litigation on litigants and the pressure on the courts caused by the great increase in litigation are matters that daily confront the trial judge. These are matters relevant to the exercise of a judge's discretion when an application such as the one presently before the Court is raised. Not only am I not persuaded that this Court should intervene to reverse Cole J's ruling, I am of the opinion that the ruling was correct. I agree with the orders proposed by Mahoney JA. 1. Judgment in favour of Lawcover to be set aside and Solicitors to have judgment against Lawcover. 2. Otherwise appeals and cross appeal dismissed. 14 UNREPORTED JUDGMENTS 3. Mr Manettas to bring in short minutes of orders. Counsel for the Appellants (Comino, Constantine and Pitsikas): DF Jackson QC/ JC Campbell QC/PJ Finch 5 Solicitors for the Appellants (Comino, Constantine and Pitsikas): James A Moustacas and Co Counsel for the Appellants (Comino, Constantine and Cooney): BW Collins QC/PS Hastings 10 Solicitors for the Appellants (Comino, Constantine and Cooney): Harris and Co Counsel for the Ist Respondent: BC Oslington QC/MIR Ellicott Solicitors for the 1st Respondent: Norton Smith and Co Counsel for the 2nd Respondents: CG Gee QC/G Inatey Solicitors for the 2nd Respondents: Colin Biggers and Paisley 20 Counsel for the 3rd Respondent: BAJ Coles QC/GA Rich Solicitors for the 3rd Respondent: Cowley Hearne