New South Wales Court of Appeal CITATION : Capital Brake Service Pty Limited v Meagher & 8 Ors T/as Sparke Helmore [2003] NSWCA 225 HEARING DATE(S) : 13/08/03 JUDGMENT DATE : 14 August 2003 JUDGMENT OF : Meagher JA at 1; Beazley JA at 2; Ipp JA at 3 DECISION : Appeal dismissed with costs. CATCHWORDS : PROFESSIONAL NEGLIGENCE - Solicitor's duty to warn - Duty to warn of the risks of settling with one joint tortfeasor and persisting against the other joint tortfeasor - dangers of hindsight judgment. ND CASES CITED : Rogers v Whitaker (1992) 175 CLR 479 Capital Brake Service Pty Limited (Appellant) Nicholas Kevin Meagher (First Respondent) John Harold Davis (Second Respondent) Geoffrey Raymond Woolf (Third Respondent) Paul Vincent Gavazzi (Fourth Respondent) PARTIES : Anthony John Deegan (Fifth Respondent) Michael Denis Snell (Sixth Respondent) Paul John Anicich (Seventh Respondent) Richard Henry Anicich (Eighth Respondent) Gary Michael Flowers (Ninth Respondent) T/as Sparke Helmore FILE NUMBER(S) : CA 40764/02 COUNSEL : S T White (Appellant) S Donaldson SC/H Stitt (Respondents) SOLICITORS : Freidman Reeves (Appellant) Sparke Helmore (Respondents) LOWER COURT District Court JURISDICTION : LOWER COURT DC 9496/98 FILE NUMBER(S) : LOWER COURT Taylor DCJ JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40764/02 DC 9496/98 MEAGHER JA BEAZLEY JA IPP JA Thursday 14 August 2003 CAPITAL BRAKE SERVICE PTY LIMITED v NICHOLAS KEVIN MEAGHER & 8 ORS T/AS SPARKE HELMORE Judgment 1 MEAGHER JA: I agree with Ipp JA. 2 BEAZLEY JA: I agree with Ipp JA. 3 IPP JA: The appellant argues that its former solicitors, the respondents, negligently failed to give adequate warning to it concerning the risks of certain litigation. 4 The litigation in question arose out of a roof that was constructed over part of the appellant's business premises. The roof was designed by an engineer, Paul Clarke & Associates Pty Limited and built by Valentine Building Services. Mr Paul Clarke was the proprietor of the engineering company and his brother, Mr Peter Clarke, was the proprietor of Valentine Building Services. 5 In early 1990, following a severe storm, water penetrated the appellant's premises. The appellant discovered that the leaks were caused by the pitch of the newly constructed roof being insufficient to cope with the water flow. 6 The appellant retained the respondents as its solicitors to institute proceedings in the District Court on its behalf against the builder and the engineer. In November 1994, on the recommendation of the solicitors, the appellant settled the proceedings against the engineer on the basis that judgment would be awarded in favour of the appellant against the engineer in the sum of $55,000 inclusive of costs. There were other orders involving a company associated with the engineer that are not presently relevant. 7 At the time of the settlement, the damages suffered by the appellant amounted to about $110,000. Thus, the amount paid by the engineer in terms of the settlement amounted to 50% of the appellant's claim. 8 Prior to the settlement Mr Wylie, who was handling the matter on behalf of the respondents, had been given advice by an expert witness, an engineer named Mr Bubb. Mr Bubb told Mr Wylie that in his opinion the water had entered the roof at an eave by reason of the flatness of the roof. He said that if the pitch of the roof at the eave had been three degrees water would not have run under the roof sheet. Because the roof pitch at the eave was only one degree, however, water was able to run into the ceiling from the gutter. 9 Mr Bubb told Mr Wylie that on an inspection of the roof, he had found an excessive deflection of the rafters. This had resulted in the eave being not at the desired pitch. According to Mr Bubb, in the absence of engineering detail and plans as to the pitch of the roof, it was the responsibility of the builder to ensure that the roof was constructed to an adequate pitch. In fact, the engineer had not provided his brother, the builder, with plans or engineering detail. Accordingly, Mr Wylie formed the opinion that the appellant's case against the builder was relatively strong. 10 On the strength of Mr Bubb's advice Mr Wylie also formed the opinion that the case against the engineer was relatively weak. The reason for that was Mr Bubb's opinion that, in the absence of plans and engineering details, the responsibility for the pitch was that of the builder. Moreover, according to Mr Bubb, the builder's construction of the rafters was defective. 11 There were other complicating features. Firstly, there was no contract in writing between the builder and the appellant, nor was there a contract in writing between the engineer and the appellant. This made it difficult to identify the details of the precise obligations undertaken by each. In addition, the builder's ability to pay the appellant any judgment sum that might be awarded in the appellant's favour was questionable. 12 The appellant, quite rightly in my view, does not suggest that Mr Wylie was at fault in forming the opinion at that stage that the appellant's case against the builder was stronger than its case against the engineer. 13 Accordingly, when the engineer proposed a settlement on the basis that it would pay $55,000 inclusive of costs, Mr Wylie believed that the proposal was attractive. As it was put by the trial judge, Taylor DCJ: "There appeared to Mr Wylie to be a serious issue as to whether any claim could be brought against the engineer based upon a breach of contract and there were scope for real conflict as to the terms of the engineer's engagement. Mr Wylie also believed that there were serious issues as to whether the problems associated with the plaintiff's roof were a consequence of any breach by the engineer of any retainer, or any duty of care." 14 Prior to the settlement Mr Wylie had a number of conversations with Mr Fitzpatrick of the appellant in relation to the settlement. The following conversation was typical: "WYLIE: John you must appreciate that I cannot give you any guarantees you will be successful against the builder. If there was a written contract that would address a lot of the issues in these proceedings but you don't have a contract in writing. FITZPATRICK: I understand that, I've been through that in the case against Parker and Randall where I thought I was doing the right thing, because David Parker told me to sue them but it didn't cross my mind that I would lose the case. I was annoyed with Bev Cantle because she didn't adequately discuss with me before I gave my evidence what I should say and what I might be asked in cross-examination. WYLIE: The fact that there are no written contracts makes litigation more risky. FITZPATRICK: How can we force Peter Clarke to pay? WYLIE: Does he have any assets? FITZPATRICK: He has a house and I think he has a boat. WYLIE: We can enforce against those assets but if he doesn't pay up voluntarily there will be more costs and delay in taking enforcement proceedings. Mr Wylie also said, 'There is no guarantee, we are weighing up the risks based on what we know but there are no guarantees'". 15 The settlement then proceeded and judgment was entered against the engineer in terms thereof. 16 The proceedings against the builder were referred to a referee pursuant to the District Court Rules. The referee concluded that the entry of judgment against the engineer and the payment of that judgment discharged any liability that the builder had to the appellant. He arrived at this conclusion on the basis that the builder and the engineer were joint tortfeasors. In the course of his reasons the referee dealt with the merits of the matter and said that, but for his conclusion that the engineer and the builder were joint tortfeasors, he would have held the builder to be liable to the appellant as the builder "should have been aware that the pitch of a roof is critical to its ability to discharge rainwater" and the builder should have constructed the pitch differently. 17 Craigie DCJ adopted the builder's report and he too held that, but for the builder and the engineer being joint tortfeasors, the builder would have been held liable to the appellant for the latter's damages. 18 The appellant appealed against the decision of Craigie ADCJ. In this Court the leading judgment was given by Cole JA who held: "The question of whether the builder and the engineer were in fact tortfeasors is irrelevant to any matter which requires to be determined, and accordingly, the question of whether or not payments to one tortfeasor being an engineer, would discharge liability of another tortfeasor being the builder, is irrelevant". 19 His Honour however pointed out that that did not resolve the matter. The builder by notice of contention contended that there was no basis in the evidence for either the referee or the trial judge to conclude that it had breached its contract. Cole JA referred to evidence given by the builder, Mr Peter Clarke, before the referee. There, Peter Clarke said that he had received no plans or engineer's details from his brother Paul Clarke, the engineer and stated: "I didn't build the roof. I only put it into place. I didn't design the roof. We were governed by the car park roof, the purlins, the rafters, windows and that then determined the height of the low wall which was made out of metal frame which [was] constructed away from the site." 20 On the strength of that evidence Cole JA held that: "There was no basis upon which the referee could properly report, or the trial judge properly adopt a report, finding that the builder in fact was in breach of contract. All that he did was erect in accordance with a design prepared by the engineer". 21 In the course of his reasons, Cole JA said: "The responsibility for that roof line and roof design was entirely that of the engineer". Of course, the engineer was not a party to the proceedings before the Court of Appeal. 22 The other members of the Court agreed with Cole JA. Accordingly, the appellant's appeal was dismissed with costs. 23 The appellant then brought proceedings against the respondents in the District Court claiming damages. It is not necessary to detail all the grounds on which the appellant relied. It is sufficient to state that in this Court, as I have mentioned, the appellant contended that the respondent was negligent on the basis that Mr Wylie had failed to warn the appellant in sufficient detail about the risks attendant upon settling with the engineer and persisting with the action against the builder. 24 Mr White, who appeared on behalf of the appellant (and who said everything that could possibly have been said on behalf of the appellant) submitted that Mr Wylie should have warned the appellant about the danger of falling between two stools. That is to say, he submitted that Mr Wylie should have warned Mr Fitzpatrick that, in settling against the engineer, the appellant would lose the advantage of being able to blame one or other of the builder and the engineer and might lose the case against the builder and have to pay the builder's costs. 25 When asked what he submitted Mr Wylie should have said to Mr Fitzpatrick, Mr White suggested the following: "If you propose to settle with the engineer you must appreciate that you run the risk that you may fail against the builder which would have the consequence that your claim would be limited to 50% of your damages and you would be exposed to the builder's costs as well as your own costs which may result in you having received nothing in the litigation". 26 Mr White submitted that Rogers v Whitaker (1992) 175 CLR 479 applied. On this basis the respondents would have had a duty to warn the appellant of a material risk inherent in the litigation. A risk would be material if, in the circumstances of the particular case, a reasonable person in the appellant's position, if warned of the risk, would be likely to attach significance to it or if the respondents were or should reasonably have been aware that the appellant, if warned of the risk, would be likely to attach significance to it. 27 In fact, as I have mentioned, Mr Wylie warned the appellant that he could not give the appellant any guarantees that he would be successful against the builder. Moreover, he warned Mr Fitzpatrick that there were difficulties in proving the case against any of the defendants. 28 It must be appreciated that Mr Fitzpatrick was by no means an ingénue. He was an experienced builder who had been involved in litigation and he well knew that the unsuccessful party was likely to be ordered to pay the costs of the successful party. In my view, Mr Fitzpatrick must have been aware of all the matters which, Mr White submitted, Mr Wylie should have told him, Mr Fitzpatrick, about. 29 Mr White pointed to a number of other matters that he submitted had a bearing on the nature of the advice that Mr Wylie should have given Mr Fitzpatrick. Mr Wylie accepted that it would have been inappropriate for him not to have joined the builder and the engineer in circumstances where he did not know where the liability might fall at the end of he day. Mr Wylie agreed that he believed from the commencement of the proceedings until at least the hearing before the referee that the appellant would succeed in its claim against the builder. Mr Wylie accepted that at the time of the settlement he had not seen the evidence to be given by the builder. Mr Wylie had no knowledge of the extent of the potential co-operation between the two Clarke brothers, the builder and the engineer. Mr Wylie did not obtain the advice of counsel. 30 All these matters are matters of hindsight. There is a great danger, particularly in professional negligence matters, of applying an unrealistic hindsight judgment. Any fool can be wise after the event. That is not the test. The Court must be careful to judge the conduct of a defendant, where negligent failure to warn is asserted, by reference to what the defendant reasonably knew at the relevant time. Not after the loss has been suffered. 31 On the strength of Mr Bubb's advice there was good reason for Mr Wylie to believe that the appellant would succeed against the builder. On one view, the advice to settle against the engineer was conservative and careful. In hindsight, that view has been shown to lead to loss for Mr Wylie's client, the appellant. But that is in the inherent nature of litigation. 32 In my view, in all the circumstances, Mr Wylie's advice to Mr Fitzpatrick was adequate and he has not been shown to have been negligent in that regard. I would dismiss the appeal with costs. ********** Last Modified: 08/18/2003 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.