ProFiles Edition 3 | May 2016 ProFiles Edition 3 | May 2016

ProFiles Edition 3 | May 2016

12 May 2016 | Professional Indemnity & Financial Lines



Whilst the decision of the High Court of Australia in Attwells v Jackson Lalic is of primary relevance to insurers, reinsurers and insureds of the legal profession in Australia, it, of course, has implications for any litigant or potential litigant confronted by a legal professional as a party to proceedings.

We also consider two recent decisions of the Full Federal Court as to interpretation of contracts of insurance. Both decisions appear to confirm (not that there was doubt) that courts will adopt results favouring insureds, even where the contra proferentum principle is not employed. 


Richard Leahy
Partner

 

In this edition



Advocates’ Immunity - Attwells & Anor v Jackson Lalic Lawyers Pty Ltd [2016] HCATrans 048

The High Court has resisted the call for abolition of the advocates’ immunity from suit, and instead has attempted to clarify and limit the scope of its operation by emphasising the public policy behind it. Is the position clearer? We report on the decision.

In Giannarelli v Wraith,[1] the High Court held that, at common law, barristers and solicitors are immune from liability for negligence in the conduct of not only work done in court, but also work done out of court which leads to a decision affecting the conduct of the case in court (the advocate’s immunity).

In D’Orta-Ekenaike v Victoria Legal Aid[2] (the last High Court decision dealing with the advocate’s immunity), the High Court declined to reconsider its decision in Giannarelli, and confirmed the expression of the scope of the advocate’s immunity for:

“…work done in court or ‘work done out of court which leads to a decision affecting the conduct of the case in court’ or…’work intimately connected with’ work in a court. (We do not consider the two statements of the test differ in any significant way).”

The High Court emphasised the desirability of certainty and finality in the quelling of disputes by the exercise of judicial power as the rationale behind the advocate’s immunity.

Since D’Orta:

1. The New Zealand Supreme Court has abolished the advocate’s immunity in Chamberlains v Lai,[3] leaving Australia as one of the few common law countries where lawyers are protected.

2. There have been a number of cases decided on the basis of the advocate’s immunity at the state level (particularly in New South Wales), the vast majority of which favour lawyers. These decisions seem to suggest some degree of uncertainty (and unease) as to the scope and operation of the advocate’s immunity.

3. The High Court has twice declined special leave in cases involving the application of the advocate’s immunity.[4]

4. All judges constituting the High Court in D’Orta have retired.

Some of the uncertainty post-D’Orta has been that the advocate’s immunity has extended to circumstances which do not offend the rationale of finality. One such particular area of uncertainty has been the application of the advocate’s immunity to conduct which results in the settlement of proceedings.

The New South Wales Court of Appeal decision in Jackson Lalic Lawyers Pty Limited v Attwells [2014] NSWCA 335 dealt with that issue. Last year, the High Court granted special leave to hear an appeal of that decision, and delivered its judgment on 4 May 2016.

Background

Gregory Attwells and another person guaranteed payment of the liabilities of a company to a bank. The company defaulted on its obligations to the bank and the bank commenced proceedings against the guarantors in the Supreme Court of New South Wales ("the guarantee proceedings"). The guarantors and the company retained Jackson Lalic Lawyers (the respondent) to act for them.

The company's debt to the bank was approximately $3.4 million. The guarantors' liability under the guarantee was limited to $1.5 million. The guarantee proceedings were settled on the opening day of the trial on terms to the effect that judgment would be entered against the guarantors and the company for the full amount of the company’s indebtedness to the bank ($3.4 million), and the bank would not enforce the order for payment of that amount if the guarantors paid the sum of $1.75 million within 5 months. Those terms were reflected in a consent order for judgment in the amount of $3.4 million, and the Court's noting of the non-enforcement agreement between the parties.

The guarantors failed to meet their payment obligation. Attwells (and the assignee of his rights against the respondent) (the appellants) then issued proceedings in the Supreme Court of New South Wales against the respondent (the negligence proceedings), alleging that the respondent was negligent in advising them to consent to judgment being entered against them in the terms of the consent orders, and in failing to advise them as to the effect of the consent orders.

The respondent asserted that it was immune from suit by virtue of the advocate's immunity, and that question was ordered to be determined separately from the other issues in the negligence proceedings. After the primary judge declined to answer the separate question, the New South Wales Court of Appeal granted leave to appeal, and held that the respondent’s advice was within the scope of the advocate’s immunity because “it was intimately  connected with the conduct of the guarantee proceedings”, and the negligence proceedings would necessarily involve a re-agitation (and reconsideration) of the issues determined in the guarantee proceedings in order to determine whether the respondent had been negligent (thereby offending the principle of finality).

Issues for the High Court

The appeal raised the following issues:

1. Whether the advocate’s immunity extends to negligent advice which leads to the settlement of a case by agreement between the parties; and

2. Whether the High Court should reconsider its decisions in Giannarelli and D’Orta, and abolish the advocate’s immunity.

The High Court unanimously declined to reconsider Giannarelli and D’Orta, but held (by a 5:2 majority) that the respondent was not immune from suit because its advice to settle the proceedings was not intimately connected with the conduct of the case in court, in that it did not contribute to a judicial determination of issues in the case.

Reconsidering Giannarelli and D’Orta

The High Court was unanimous in declining to reconsider Giannarelli and D’Orta. Noting the “grave danger of a want of continuity in the interpretation of the law”[5], the majority[6] (in a joint judgment) said that “to overturn Giannarelli and D'Orta would generate a legitimate sense of injustice in those who have not pursued claims or have compromised or lost cases by reference to the state of the law as settled by these authorities”, and that “an alteration of the law of this kind is best left to the legislature.”[7]

Fundamentally, however, the High Court supported the expression of the rationale for the immunity in D’Orta, which “reflects the strong value attached to the certainty and finality of the resolution of disputes by the judicial organ of the State”.[8] The majority noted[9] that, in Giannarelli and D’Orta, “the adverse consequences for the administration of justice which would flow from the re-litigation in collateral proceedings for negligence of issues determined in the principal proceedings”[10] were determinative factors justifying the advocate’s immunity. Citing those views with approval, the High Court held that “the advocate's immunity is, therefore, justified as an aspect of the protection of the public interest in the finality and certainty of judicial decisions”.[11]

Application of the immunity to settlements

Importantly, in deciding that the advocate’s immunity does not extend to negligent advice which leads to the settlement of a case, the High Court fused the rationale for the advocate’s immunity with the test for (and the scope of) its application. The majority held that:

“The authoritative test for the application of the immunity stated in D'Orta and Giannarelli is not satisfied where the work of the advocate leads to an agreement between parties to litigation to settle their dispute.  No doubt an advice to cease litigating which leads to a settlement is connected in a general sense to the litigation which is compromised by the agreement.  But the intimate connection required to attract the immunity is a functional connection between the advocate's work and the judge's decision… As will be seen from a closer consideration of the reasoning in D'Orta, the public policy, protective of finality, which justifies the immunity at the same time limits its scope so that its protection can only be invoked where the advocate's work has contributed to the judicial determination of the litigation. 

In short, in order to attract the immunity, advice given out of court must affect the conduct of the case in court and the resolution of the case by that court.  The immunity does not extend to preclude the possibility of a successful claim against a lawyer in respect of negligent advice which contributes to the making of a voluntary agreement between the parties merely because litigation is on foot at the time the agreement is made.  That conclusion is not altered by the circumstance that, in the present case, the parties' agreement was embodied in consent orders.”
[12]

Expressed this way, the High Court has effectively imported the public policy behind the advocate’s immunity into the test for its application. The majority stated that “the immunity does not extend to acts or advice of the advocate which do not move litigation towards a determination by a court”[13], and observed that to extend the advocate’s immunity to advice leading to settlement would be to “decouple the immunity from the protection of the exercise of judicial power against collateral attack”.[14] In conclusion on this point, the majority held that:

“Once it is appreciated that the basis of the immunity is the protection of the finality and certainty of judicial determinations, it can be more clearly understood that the "intimate connection" between the advocate's work and "the conduct of the case in court" must be such that the work affects the way the case is to be conducted so as to affect its outcome by judicial decision.  The notion of an "intimate connection" between the work the subject of the claim by the disappointed client and the conduct of the case does not encompass any plausible historical connection between the advocate's work and the client's loss; rather, it is concerned only with work by the advocate that bears upon the judge's determination of the case.”[15]

The majority described the connection between advice in relation to settlement (including negligent advice not to settle) and the ensuing outcome of litigation as a “merely historical” one which “fail[s] to observe the functional nature of the intimate connection required by the policy which sustains the immunity.”[16]

In dissent, Nettle J and Gordon J considered that the advocate’s immunity applied because “there was a final quelling of the controversy between the parties by the Order”[17] and the appeal should be dismissed.

Conclusion

The effect of the High Court’s decision is to limit the scope of the advocate’s immunity by emphasising its rationale (the protection of the finality and certainty of judicial determinations) to identify the “intimate connection” required between a lawyer’s work and the conduct of a case in court to attract its operation.

In short, unless a lawyer’s work affects the judicial determination of a case on its merits, the advocate’s immunity will not apply. In cases where there is such a judicial determination, the battleground will continue to be whether there is the requisite “intimate connection”.

As noted by the majority, “the operation of the immunity may incidentally result in lawyers enjoying a degree of privilege in terms of their accountability for the performance of their professional obligations.”[18] That is one of the major complaints against the advocate’s immunity, as other professionals do not enjoy a similar privilege.

The clear message from the High Court seems to be that if the advocate’s immunity is to be removed altogether, it will have to be done by the legislature.

[1] (1988) 165 CLR 543

[2] (2005) 223 CLR 1

[3] [2006] NZSC 70

[4] Young v Hones [2015] HCASL 73 and Nikolidis v Satouris [2015] HCASL 117

[5] The Tramways Case [No 1] (1914) 18 CLR 54 at 58; [1914] HCA 15

[6] French CJ, Kiefel J, Bell J, Gageler J and Keane J.

[7] At [28].

[8] At [30].

[9] At [32] and [34]

[10] (1988) 165 CLR 543 at 555

[11] At [35]

[12] At [5]-[6]

[13] At [38]

[14] At [41]

[15] At [46]

[16] At [49]

[17] At [104]

[18] At [52]

 


Decisions of clinical reviewers and health service investigators may be subject to judicial review

Recently, the Supreme Court of Queensland held that reports of clinical reviewers and health service investigators appointed under the Hospital and Health Boards Act 2011 (Qld) can be decisions which are amenable to judicial review under the Judicial Review Act 1991 (Qld).  As a consequence, any person the subject of such a report must be afforded natural justice when producing the report.

In Vega Vega v Hoyle & Ors [2015] QSC 111, Dr Antonio Vega Vega (a specialist urologist) was involved in four clinical incidents at the Rockhampton Base Hospital, one of which involved the removal of a wrong kidney from a patient.  As a result, Dr Vega Vega was suspended from practice and a clinical review and a health service investigation were commenced pursuant to the Hospital and Health Boards Act (HBB Act).

The purpose of a clinical review is to provide expert clinical advice in relation to clinical incidents which then informs the health service investigators whose role it is to investigate and report on matters relating to the management, administration or delivery of public sector health services in the hospital. Following an investigation, the Investigation Report was delivered to the Director-General of Queensland Health (the chief executive) which included the Clinical Review report and recommended that Dr Vega Vega’s privileges remain suspended.  Under the HHB Act, after considering the report, the chief executive was authorised to make a binding direction to the hospital in relation to Dr Vega Vega.

Dr Vega Vega made an application in the Supreme Court of Queensland to set aside the Investigation Report on the basis, amongst other things, that it was produced in breach of the rules of natural justice as, despite requests, he was not provided with the notes of interviews with 58 witnesses interviewed as part of the investigation and clinical review.  Dr Vega Vega argued that because of that he was prevented from knowing the basis of the case against him and was unable to properly respond during the investigation. 

Dr Vega Vega’s application was successful.  The court held that the determinations, findings and recommendations contained in the Investigation Report were decisions to which the Judicial Review Act (“Judicial Review Act”) applies and were therefore reviewable.  In making this decision, the court examined the circumstances surrounding the initiation of the review, the qualifications of the clinical reviewers and investigators, the powers they were given, the extent of the inquiry, the nature of the recommendations contained in the report and the consequences which followed.  The court was also influenced by the fact that a direction that the chief executive may make to the hospital was “predicated” on a consideration of the Investigation Report (which contained the Clinical Review Report) and, therefore, the reports were a condition precedent to the making of the direction and not mere steps along the way.  The court was also of the view that the findings and recommendations in the reports affected Dr Vega Vega’s rights because they affected his ability to practice medicine or, at the very least, his reputation.

The court further held that failure to provide interview notes to Dr Vega Vega and the delivery of the Investigation Report in the face of his requests for disclosure amounted to a breach of the rules of natural justice.  In reaching this conclusion, the court was influenced by the significance of the interview notes and the seriousness of the consequences that the Investigation Report had for Dr Vega Vega.  The court thought that it was critical for Dr Vega Vega to know the nature of the allegations against him and the identity of the persons making the allegations.  In this regard, the court disagreed with the respondents’ argument that the content of the interviews was sufficiently summarised in the draft Investigation Report provided to Dr Vega Vega.  The court was of the view that the actual “source documents” should have been provided. 

Comment

The decision clarifies the scope of judicial review and that investigators pursuant to the HBB Act must follow the rules of natural justice in preparing their reports.

It remains to be seen what relevance this decision has in relation to other legislative schemes for investigation of professionals such as engineers (Professional Engineers Act 2002 (Qld)), architects (Architects Act 2002 (Qld)), and surveyors (Surveyors Act 2003 (Qld)). While the procedures in those schemes are not identical to the HHB Act they are similar in some respects. They involve a statutory regulatory review of a person’s conduct which can include the preparation and delivery of a report making recommendations to a decision maker for a final decision.

Whether judicial review is available before the point of a final decision will turn on whether a report provided to the decision maker is in itself a decision to which the Judicial Review Act will apply. If so, it could provide relevant professionals input into what is put before a professional board when considering the professional’s conduct, with a view to avoiding an unfair decision being made. 



“Professional services” in an exclusion clause? The Full Federal Court of Australia provides an interpretation

On 26 February 2016, the Full Federal Court of Australia delivered its judgment in Chubb Insurance Company of Australia Limited v Robinson [2016] FCAFC 17. 

Background

Reed Building Group Pty Limited (RBG) held a D&O policy with Chubb Insurance Company of Australia Limited (Chubb) which provided cover to RBG and its subsidiaries against any loss occasioned by an act or omission on the part of their directors and certain other officers.  The policy contained an exclusion clause for any act or omission committed “in the rendering of, or actual or alleged failure to render any professional services to a third party”.  The term “professional services” was not defined in the policy.

In 2010, Reed Constructions Australia Pty Limited (Reed Constructions), a company within the RBG group of companies, entered into a contract with 470 St Kilda Road Pty Limited (St Kilda) to design and construct certain buildings in Melbourne.  Under the contract, Reed Constructions was required to verify its progress claims by one of its officers or employees swearing a statutory declaration in support of those claims.  In December 2011, Reed Constructions issued a progress claim which was supported by a statutory declaration made by its Chief Operations Officer (COO).  Later, when Reed Constructions was placed into liquidation, St Kilda took a view that the company was not entitled to the payments sought in the progress claim because subcontractors and materials suppliers had not been paid in full.  St Kilda commenced proceedings against the COO seeking damages and alleging that when he made his statutory declaration he did not make all reasonable enquiries to verify the truth of the matters or did not have reasonable grounds for asserting that all charges, costs and expenses claimed were properly due and payable to Reed Constructions. 

The COO claimed indemnity from Chubb in respect of any liability which he may be found to have to St Kilda.  Chubb denied indemnity to the COO alleging that any liability would be excluded from cover because his conduct would fall within the professional services exclusion clause in the policy.  This issue became the subject of contested litigation.

Decision of the trial judge

The trial judge held that the exclusion clause did not apply as the provision of a statutory declaration was not an act in the rendering of professional services within the meaning of the exclusion clause (although it was an act carried out in the rendering of services).  In this regard, her Honour disagreed with Chubb’s argument that the provision of the statutory declaration was part of project management services which were a profession.  The trial judge held that, whilst, in some circumstances, project management may be seen as a profession, it could not be generally accepted that project management fell within an established professional discipline.  In any event, the trial judge thought that even if project management did comprise professional services, an act of providing a statutory declaration was not of this kind.  It was an act in the provision of information as a prerequisite to a payment under the contract, which is an administrative activity rather than a professional one.

Decision of the Full Federal Court

On appeal, the Full Federal Court agreed with the trial judge that the exclusion clause did not apply and dismissed the appeal.  In reaching this conclusion, the Court looked at each of the components of the expression “in the rendering of professional services to a third party” in the exclusion clause.  Most significantly, the Court considered the interpretation of the term “professional services”.  At the outset, the court observed that the term “professional” in the insuring clause of a professional indemnity policy does not necessarily bear an identical meaning in an exclusion clause of a public liability, product liability or D&O policy.  In the court’s view, the expression “professional services” in the exclusion clause meant services of a professional nature furnished by RBG or its subsidiaries involving the application of skill and judgment being services which fall within the scope of a vocational discipline which is generally regarded as a profession.  Agreeing with the trial judge, the Court found that project management was not generally regarded as a profession in 2010 and 2011. 

Further (and in contrast to the trial judge) the Court held that the making of the statutory declaration did not constitute the rendering of any service to St Kilda.  Rather, this was an act done in the proper discharge of the contractual obligations owed by Reed Construction to St Kilda in respect of claims for payment made under the contract.  This act amounted to nothing more than the routine compilation of factual material in order to secure a contractual payment.  The Court agreed with the trial judge that the obvious purpose of the exclusion was to exclude activities that are truly professional in nature, such as architectural design, engineering, surveying and quantity surveying and was not intended to apply to routine activities of Reed Constructions or of its executives. 

Comment

The Court expressly recognised that courts may interpret “professional” differently between insuring and exclusion clauses.  Why that is the case was not explained.  If insurers needed reminding, this judgment again demonstrates that courts will favour an interpretation benefiting an insured, whether or not resort is available to the contra proferentem principle.



The correct approach to interpretation of contracts of insurance – a fundamental reminder

We review the judgment of the Full Federal Court of Australia in Todd v Alterra at Lloyds Ltd [2016] FCAFC 15. 

Background

Mr Todd was an authorised representative of The Salisbury Group Pty Ltd (Sailsbury), which held an Australian Financial Services Licence.  A financial services errors and omissions insurance policy was underwritten by Alterra at Lloyd’s (and others) and provided indemnity to certain named insureds.

Clients of Mr Todd sued Sailsbury, Mr Todd and another person, alleging that Mr Todd gave negligent investment advice which they relied upon to their detriment.  On the first day of the hearing, settlement was reached, but the issue of Mr Todd’s claim against Underwriters remained to be decided.

Underwriters argued that the policy did not respond to cover liability for the losses suffered by Mr Todd’s clients.  The issue between Underwriters and Mr Todd concerned the interpretation of the insuring clause, whether Mr Todd was an “Insured”, and the application of endorsements and exclusions.

Decision at first instance

The court set about interpreting the policy where the insuring clause limited cover to losses arising from “a Claim alleging an act, error or omission of the Insured in the performance of Professional Services”.  The term “Professional Services” was defined in an endorsement to mean “Financial planning encompassing advice on approved investment products”.

Relevantly, the phrase “approved investment products” was not defined.  The trial judge found in favour of Underwriters, concluding that “approved investment products” was understood to mean those products listed on the Approved Product List.  Notably, only one of the products recommended by Mr Todd was on the Approved Product List.

The trial judge held that the policy did not respond to cover liability for the losses suffered by clients of Mr Todd.

Decision of the Full Federal Court

The substantive issue for consideration by the Full Federal Court was the proper method of interpretation and construction of the insurance policy.  Underwriters argued that any doubt as to the proper construction of an insuring clause of a policy of indemnity insurance should be decided in their favour.

Underwriters relied upon various High Court of Australia authorities for the proposition that insurance contracts are contracts of indemnity to which certain rules of interpretation apply.  One of those rules is that if there is any doubt as to the proper construction of a provision in a contract of guarantee or indemnity, that doubt should be resolved in favour of the indemnifier.

The Full Federal Court did not agree with this approach.  The Court recognised that, although indemnity is present in many contracts of insurance, a distinction can be drawn between insurance contracts and contracts of guarantee and indemnity, as the latter concern making good a creditor by way of financial accommodation. Conversely, the object of contracts of insurance is to allocate risk.

The Court also noted that contracts of insurance have certain contractual requirements including insurable interest and utmost good faith.

In light of the above observations, the Court concluded that the High Court authorities relied upon had no application to contracts of insurance.  In a joint judgment, Chief Justice Allsop and Justice Gleeson concluded (at paragraph 40):

From the nature, character and purpose of insurance there is no reason, and no precedent, for according an insurer the tenderness accorded to guarantors and indemnifiers…”

The consequence of the Court’s approach was that Mr Todd was entitled to be indemnified for the consequences of the settlement.

Comment

The proposition advanced by Underwriters seems startling at first, but had the support of the judgment of Rothman J in Miskovic v Styke Corporation Pty Ltd (No.2) [2010] NSWC 1495.  The Full Federal Court expressly stated, however, that the proposition in Miskovic is wrong.