New South Wales Supreme Court CITATION : BRADSTREET v RAHME & Anor [2001] NSWSC 141 CURRENT JURISDICTION: Common Law FILE NUMBER(S) : SC 11096/00 HEARING DATE(S) : 02/03/2001 JUDGMENT DATE : 13 March 2001 Michael Edward BRADSTREET - Plaintiff PARTIES : Maurice RAHME - 1st Defendant GIO Workers' Compensation (NSW) Limited - 2nd Defendant JUDGMENT OF : Barr J at 1 LOWER COURT Local Court JURISDICTION : LOWER COURT 569 of 1997 FILE NUMBER(S) : LOWER COURT Mr C Elliott, Magistrate JUDICIAL OFFICER : M Dicker - Plaintiff COUNSEL : M Rollinson - 1st Defendant R Seton - 2nd Defendant Connery & Partners - Plaintiff SOLICITORS : Teakle, Ormsby, George - 1st Defendant Hunt & Hunt - 2nd Defendant CATCHWORDS : Verdict - whether evidence to support - Verdict - whether failure to give reasons vitiates - Assessment of damages - whether evidence to support - Assessment of damages - whether failure to give reasons vitiates Justices Act 1902, s 109 LEGISLATION CITED : Legal Profession Act 1987, s 61 Local Courts (Civil Claims) Act 1970, s 69 Workers' Compensation Act 1987, s 151Z Mifsud v Campbell (1991) 21 NSWLR 725 CASES CITED : Public Service Board of NSW v Osmond (1986) 159 CLR 656 Soulemezis v Dudley (Holdings) Pty Limited (1987) 10 NSWLR 247 DECISION : See paragraph 28. THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION GRAHAM BARR J Tuesday, 13 March 2001 11096/00 - Michael Edward BRADSTREET v Maurice RAHME & GIO Workers' Compensation (NSW) Limited JUDGMENT 1 HIS HONOUR: This is an appeal under s 69 Local Courts (Civil Claims) Act in which Michael Edward Bradstreet seeks orders setting aside the findings, order, verdict and judgment of a magistrate sitting in the Local Court at Newcastle in proceedings in which GIO Workers' Compensation (NSW) Limited ("GIO") sued Maurice Rahme to recover monies and Mr Rahme joined Mr Bradstreet as third party. 2 In 1989 Mr Rahme was injured at work when a taxi which he was driving collided with another vehicle. As a result he became entitled to be paid and was paid workers' compensation benefits by GIO, his employer's insurer. Mr Rahme also became entitled to recover damages from the owner or driver of the other vehicle. He employed Mr Bradstreet, a solicitor, to act for him in his third party claim. In 1993 Mr Rahme recovered damages against the third party in the District Court and became thereby liable to repay to GIO the total sum of $8,625.58 which it had paid on his behalf: s 151Z(1)(b) Workers' Compensation Act 1987. Mr Bradstreet accounted to Mr Rahme for the verdict monies without deducting on his behalf any amount due to GIO. After he received the verdict monies Mr Rahme did not pay GIO either, and that explains why GIO brought the Local Court proceedings against him. 3 In due course the magistrate found a verdict for GIO against Mr Rahme, but that verdict and judgment are not challenged in this appeal, which is restricted to the results of the third party proceedings and costs orders made against Mr Bradstreet. 4 Mr Rahme framed his claim against Mr Bradstreet in the following way - The defendant claims against you contribution towards or indemnity for any judgment recorded against him by the plaintiff in the action for the following reasons: 1. At all material times the Defendant had retained the Third Party as his Solicitor to conduct the Common Law proceedings referred to in the State (sic) of Claim, and all matters incidental thereto. 2. Should it be found that the Defendant has failed to repay any sum to the Plaintiff under Section 151Z(1)(b), Workers' Compensation Act 1987, as alleged, such failure was caused or contributed to by the breach of duty of the Third Party to the Plaintiff under the Third Party's retainer as Solicitor. PARTICULARS Failure, on receipt of the Defendant's verdict, to make all deductions and payments to Third Parties therefrom that were required by law. 5 In his defence Mr Bradstreet admitted the retainer but denied any breach of his duty to Mr Rahme. 6 Mr Bradstreet did not attend the hearing and a solicitor unsuccessfully applied on his behalf for an adjournment. The solicitor withdrew, leaving Mr Bradstreet unrepresented. No complaint is made about the magistrate's refusal to adjourn the matter. 7 No oral evidence was adduced, but there was evidence before the magistrate by affidavit and a witness' statement. That evidence established that Mr Bradstreet wrote GIO a letter of enquiry on 27 July 1990 and received a reply dated 21 August 1990 and knew thereby that GIO had paid benefits on Mr Rahme's behalf and expected repayment out of any third party verdict monies recovered. The evidence also established that on 30 August 1993 GIO wrote Mr Bradstreet a letter asking him to get in touch urgently about the payment of the sum of $8,625,58. There was no evidence, however, whether when Mr Bradstreet received that letter he was still holding Mr Rahme's money. (In fact, according to the statement filed by Mr Bradstreet under Pt 51B r 5(7) he paid Mr Rahme his verdict monies on 8 July 1993.) 8 Although Mr Rahme said in his witness' statement that he first learned of GIO's claim on or about 13 May 1997, his legal representative conceded before the magistrate that he learned of it in about April 1996. He said that when he received the money he assumed that all costs and expenses had been deducted. That evidence implied that when he paid Mr Rahme the money Mr Bradstreet did not tell him that he was obliged to repay the equivalent of the workers' compensation benefits. 9 The magistrate found a verdict for GIO against Mr Rahme in the sum of $8,625.58 plus interest of $5,048.35 plus costs. His Worship found a verdict for Mr Rahme in the third party action for one-half of the principal sum claimed by GIO, which he calculated to be $4312.30, plus the whole of the interest awarded to GIO. Those amounts totalled $9,360.65. The magistrate also ordered Mr Bradstreet to pay - costs as between the plaintiff and the defendant and the defendant and the third party. 10 The form of that order explains why GIO responded to the appeal and resisted the setting aside of the magistrate's orders. 11 The first ground of appeal was that the magistrate erred in law in entering a verdict and judgment for Mr Rahme against Mr Bradstreet when no cause of action was disclosed in the third party notice and in addition by failing to give adequate reasons for his decision. 12 On appeal it was submitted on behalf of Mr Bradstreet that by virtue of s 151Z(1)(b) the liability to repay workers' compensation benefits out of the proceeds of the third party claim lay on Mr Rahme and not on him and that by s 61(1) Legal Profession Act he could not lawfully without Mr Rahme's directions have removed funds from trust for payment to GIO. 13 It was submitted that the only issue raised by Mr Rahme's particulars in the third party notice and Mr Bradstreet's denial of any breach of duty was whether a bare failure to deduct constituted a breach of duty. In view of the fact that the liability to repay was Mr Rahme's and that it was Mr Bradstreet's obligation to pay the money over only to Mr Rahme unless he otherwise directed, a failure to deduct could not constitute a breach. 14 S 151Z(1)(b) Workers' Compensation Act is in the following terms - (1) If the injury for which compensation is payable under this Act was caused under circumstances creating a liability in some person other than the worker's employer to pay damages in respect of the injury, the following provisions have effect: … (b) if the worker recovers firstly compensation and secondly those damages, the worker is liable to repay out of those damages the amount of compensation which a person has paid in respect of the worker's injury under this Act, and the worker is not entitled to any further compensation; 15 S 61(1) Legal Profession Act is as follows - Money received by solicitor on behalf of another 61 (1) A solicitor who, in the course of practising as a solicitor in this State, receives money on behalf of another person: (a) must pay the money, within the time prescribed by the regulations, into a general trust account in New South Wales at an approved financial institution and must hold the money in accordance with the regulations relating to trust money, or (b) if the person on whose behalf the money is received directs that it be paid or delivered to a third party free of the solicitor's control, must ensure that the money is paid or delivered: (i) before the end of the next working day or, if that is not practicable, as soon as practicable after the next working day, or (ii) no later than the day allowed by the solicitor's authority or instructions (if that day is later than the day allowed under subparagraph (i)), or (c) if the person on whose behalf the money is received directs that it be paid otherwise than into a general trust account or to a third party, must pay the money as directed and (if the money is to be held under the direct or indirect control of the solicitor) must hold the money in accordance with the regulations relating to controlled money. 16 I think that that submission takes altogether too narrow a view of the issue before the magistrate. Mr Rahme knew, by comparing the gross verdict of $58,837 with the $46,000 he received in his hand that Mr Bradstreet had deducted costs, expenses and the like from the gross verdict monies. The magistrate was entitled to accept Mr Rahme's evidence that Mr Bradstreet never told him that any amount was refundable to GIO and that Mr Rahme consequently believed that all appropriate amounts had been deducted. The result would be that Mr Rahme was seriously misled by Mr Bradstreet as to the amount of the verdict monies in fact available for him to use. I do not think that in order to succeed in the third party proceedings it was necessary for Mr Rahme to plead additionally that Mr Bradstreet failed to inform him of his obligation to GIO. I think that it was open to the magistrate to determine whether in all the circumstances prevailing at the time the failure by Mr Bradstreet to deduct amounts payable to GIO constituted a breach of his duty towards Mr Rahme as his solicitor. It does not seem to me to matter that Mr Bradstreet could not properly have paid GIO out of trust without Mr Rahme's direction. Mr Bradstreet could have obtained such a direction. There was no evidence whether he did or did not. Nothing in Mr Bradstreet's defence to the third party notice raised such an issue. 17 The second part of this first ground of appeal criticises what is said to be a failure by the magistrate to give adequate reasons for the finding that Mr Bradstreet was in breach of his duty. The transcript shows that the following discussion took place - MILANOVIC (the legal representative of Mr Rahme): Your Worship, an unfortunate aspect of this case must involve that motor vehicle accident settlement. The solicitor unfortunately is not here to be cross-examined about it, but the whole concern of the plaintiff was he was under the assumption, which is evidence from his paragraph here, that forty six thousand dollars is a clear amount of some lump sum money that was to be paid to him. There was some sort of award for him in the vicinity of about eighty thousand dollars, of which he was under the assumption forty thousand dollars were used to pay various disbursements, various expenses, and my client believes that out of that forty thousand dollars that he didn't receive, that was used to actually compensate and pay the insurer. Now, he, you know, is quite disturbed about the fact that, you know, this has been outstanding. He's pursued the solicitors there, requesting to find out the details where have those forty thousand dollars gone. And I mean it's unfortunate that he is to bear the cost of the interest that's to be paid or borne by him when he actually put all his trust and faith in the solicitor who's understand the procedure and all that and has resulted from the solicitor's negligence or carelessness or oversight, whatever it may be, that the client should be liable to pay all the interest, when in actual fact he knew that he was liable from April '96 as opposed to '93. At that particular time no correspondence was sent to the client, it was all sent to the solicitor, and that is imputed knowledge, but, in these circumstances, my client denies ever receiving that information or the solicitor every conveying that information to him, and it's quite evident that the solicitor actually knew about those payments, requested and subpoenaed those documents in 1990, so obviously my client relied on the expertise of the solicitor as opposed to himself, and he had no willing to disregard, you know, his obligations and his duties and his payment of debt to the insurance company. And, as a result of that, I plead that, you know, the interest be calculated from a later date as opposed to from the date when the debt arose, or when the solicitor was informed, simply for the fact that our client was not informed of the liability. That is my submission your Worship, unless you want me to clarify some other issues. BENCH: Aren't I entitled to draw the conclusion that he has imputed or constructive knowledge of the obligation from the time at least that his then solicitor wrote and asked for the detail? MILANOVIC: Unfortunately, well unfortunately, due to his language difficulties and all that, illegally there is imputed knowledge and all that by all the cases, but the circumstance that exists here is a gentleman, you know, English not being his first language, not very familiar with legal principles and precedents, and obviously relying on his solicitors for advice. He didn't, well he did not have that imputed knowledge, if he had that knowledge that obviously would have, or if he knew about that liability, that obviously would have affected the actual judgment there, he probably wouldn't have consented to the actual third party claim considering how small the amount would have been-- BENCH: But that really means that his lawyer becomes greater liable, you know liable to a greater degree, surely? MILANOVIC: That's correct your Worship. And the only comment I can make in relation to imputed knowledge is in the principle and all that there is imputed knowledge, but in this actual circumstance he did not have imputed knowledge and he had no knowledge of that liability or that debt. If he did have that knowledge, at that time he had a substantial amount of money in his bank account and he would have been able to pay the amount that was due and owed to the GIO and he wouldn't have incurred the cost of interest. He's already penalised by this substantial interest rate, which is almost equivalent to the actual payment for damages. So it really is not logical and, I mean, he's one man that probably would like to minimise his costs, and at this particular stage, considering all his expenses and that, so-- BENCH: Yeah, it seems unfair, but I think it's right. Do you propose to proceed on the third party action immediately? MILANOVIC: I do propose to proceed on the third party action now to recover, well those costs, basing it on the witness statement that was provided here and having the witness give some evidence . (my underlining) 18 The magistrate then began giving judgment on the GIO claim against Mr Rahme and the debate continued - MILANOVIC: I rely upon the statement, and in particular on paragraphs 1 to 6, whereby paragraph 1, the witness was injured in a motor vehicle accident whilst he was employed. As a result of injuries he sought advice from Michael Bradstreet, solicitor. He claimed on his behalf workers' compensation and brought also a third party claim. BENCH: Yes. MILANOVIC: After the accident 15 June he received the workers' compensation weekly payments, which, well are not in dispute here-- BENCH: Alright, look, the only issue is the extent of the indemnity? MILANOVIC: That's correct, the liability of the solicitor and-- BENCH: Yes. MILANOVIC: --the controversial aspect of it is the claim was finalised in 25 May 1993, he received an amount of approximately forty six thousand dollars payable to him. If your Worship cares, I could lead evidence of the actual total amount that he signed for, or, if you like, I can evidence from the bar table which was in the vicinity of about eighty thousand dollars. My client received a cheque for forty six thousand dollars from the solicitor, from Bradstreet, and he was under the assumption, understood that the costs, expenses were already deducted by him, costs and expenses under his assumption were more than just disbursements, but all necessary costs, as social security was paid out, various doctors were paid out, and naturally he was under the assumption liability under the Act which arose, under the 152, would have been paid out as well. And as a result he relied upon that money as if it was his money, he acted upon that money, and he invested it in, you know, by, whatever be it, and as he was rightly entitled to, and now he comes with this particular claim, and obviously he's in a, you know, quite financial difficulty and disturbed about this substantial liability that he has to GIO, and considers that, and he should not be liable for this amount considering, one, that the solicitor Bradstreet should be able to pay all that amount, knowing that he deducted a substantial portion of his total verdict moneys. Or, in the alternative, if your Worship's not with me, he's to bear the cost of the interest from the initial date knowing the solicitor actually requesting those details sometime in 1990 for purposes of settlement, and none of that being paid until this date, so ..(tape L2 ends).. ..(tape A1 begins).. the third party claimant. And also your Worship, if I might add, paragraph 9, which I failed to mention to you. This authorises relative fault negligence of the solicitor not properly advising, or omitting to inform of any amount to be repaid to GIO. BENCH: Yes, the only evidence before me is with respect, with respect to the proceedings between the defendant and the third party is that the third party, Mr Bradstreet, knew, or should have known, of the claim by the plaintiffs. The fact is that he did know, and did know in 1990 when he wrote to the plaintiff seeking details. I find he was negligent for failing to deduct the workers' compensation payment of which he was aware. By the same token, the defendant is, as a matter of statute, required to pay the amount. There will therefore be a verdict for the plaintiff against the defendant in the sum claimed, eight thousand six hundred and twenty five dollars and fifty eight cents, together with interest of five thousand and forty eight dollars thirty five and costs. With respect to the damages for that negligence, it seems to me appropriate that the third party pay half the amount claimed, but all of the interest. So as between the defendant and the third party there will be a verdict for the defendant in damages for the sum of four thousand three hundred and twelve dollars and thirty cents, together with interest of five thousand and forty eight dollars and thirty five, plus costs as between the plaintiff and the defendant, and the defendant and the third party. 19 It is the obligation of a judicial officer to give reasons for judgment. Ordinarily a record needs to be made of the facts upon which the officer's conclusion is based and of the process of reasoning by which the conclusion is reached. This is because it is necessary that justice be seen to be done. Mifsud v Campbell (1991) 21 NSWLR 725; Soulemezis v Dudley (Holdings) Pty Limited (1987) 10 NSWLR 247. However, although this is the normal incident of the need to ensure that justice is seen to be done, it is not a universal incident: Public Service Board of NSW v Osmond (1986) 159 CLR 656 at 666 per Gibbs CJ. 20 The magistrate's reasons were undoubtedly short and may be summarised, as they appear towards the end of the extract which I have quoted, to be that Mr Bradstreet knew or ought to have known of GIO's claim and was therefore negligent for failing to deduct. I do not think, however, that they were expressed insufficiently to expose the essential facts upon which the judgment was based or the process of reasoning by which it was reached. The facts of this case were simple and it is clear that the magistrate came to the view that Mr Bradstreet misled Mr Rahme in much the same way as I have summarised earlier in this judgment. In the circumstances I do not think that the first ground of appeal has been made good. 21 It is convenient to deal with the second and third grounds together. They assert that the magistrate erred in law in entering a verdict and judgment for one-half of the amount of the verdict entered against Mr Bradstreet when there was no just reason to do so and in entering a verdict and judgment for the whole of the interest ordered to be paid by Mr Rahme to GIO and in each case in failing to give adequate reasons for his decision. 22 It seems possible that Mr Bradstreet's breach of duty resulted in financial loss to Mr Rahme, but I do not think that the one necessarily implies the other. It appears from the parts of the transcript extract which I have underlined that Mr Rahme's solicitor had available evidence of his financial position, and perhaps dealings, at relevant times. I reject the submission made in this Court that the magistrate was entitled to assume without evidence that Mr Bradstreet would have known that if he did not inform Mr Rahme about his obligations Mr Rahme would spend the whole of the proceeds and render himself unable to account to GIO when it called upon him to do so. Notwithstanding anything said by Mr Rahme's solicitor there was no evidence about Mr Rahme's financial position when he received payment of the sum or $46,000 or between then and the date of the hearing. Accordingly, it is impossible to understand how the magistrate could have found that Mr Rahme suffered any or any particular loss as a result of Mr Bradstreet's breach of duty. 23 Moreover, it seems to me that the failure to explain how Mr Rahme's damages came to be assessed at half those of GIO's and how interest came to be assessed as equal to all that allowed to GIO confirms that those assessments were made without evidence. As such they were arbitrary and unjust and the proceedings miscarried. 24 The hearing miscarried for other reasons as well. Cases heard ex parte, as the third party action was, can often be dealt with without undue formality. The informality with which this action was heard, however, appears to have produced the result that available evidence was not adduced and critical questions never considered. 25 S 69(3) Local Courts (Civil Claims) Act provides that so far as they are applicable the provisions of Pt 5 Justices Act apply to appeals under the section. That provision imports s 109 Justices Act, which provides as follows - 109. Powers of Supreme Court in determining appeals The Supreme Court may, after hearing an appeal, determine the appeal by dismissing the appeal or by doing any one or more of the following: (a) confirming, quashing, setting aside or varying the conviction, order or sentence appealed against or any part of it, (b) increasing or reducing the sentence appealed against, (c) making such other orders as it thinks just, (d) remitting the matter to the Magistrate who made the conviction or order, or imposed the sentence, to hear and determine the matter of the appeal. 26 This Court cannot ascertain whether Mr Bradstreet's breach of duty resulted in any loss to Mr Rahme. It seems to me that the only way to do justice to the parties is to send the matter back to the Local Court to enable Mr Rahme and Mr Bradstreet to prepare and present their cases and for the Court to deal with the question of damages according to law. 27 In Mr Rahme's solicitor's submission and in the magistrate's conclusion the words "negligence" and "negligent" were used, though the third party notice was apt to raise a count either in negligence or in breach of contract. No further comment on this distinction is necessary for the disposal of this appeal, though it is possible that the distinction may become important on the question of damages and whether, if he fails to prove that he suffered loss as a result of Mr Bradstreet's breach, Mr Rahme will be entitled to a verdict. 28 I make the following orders - 1. Allow the appeal. 2. Set aside the verdict and judgment for Mr Rahme against Mr Bradstreet in the third party action. 3. Set aside the order for costs made in favour of Mr Rahme against Mr Bradstreet. 4. Remit the third party action to the magistrate to be dealt with according to law. 5. Order that Mr Rahme and GIO pay Mr Bradstreet's costs of this appeal. ********** Last Modified: 03/13/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.